<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
KINDERCARE LEARNING CENTERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8351 63-0941966
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
------------------------
2400 PRESIDENTS DRIVE
MONTGOMERY, ALABAMA 36116
(334) 277-5090
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------------------
REBECCA S. BRYAN, ESQ.
KINDERCARE LEARNING CENTERS, INC.
2400 PRESIDENTS DRIVE
MONTGOMERY, ALABAMA 36116
(334) 277-5090
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C> <C>
ANDREW R. BROWNSTEIN, ESQ. DAVID J. SORKIN, ESQ. CONOR D. REILLY, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SIMPSON THACHER & BARTLETT GIBSON, DUNN & CRUTCHER
51 WEST 52ND STREET 425 LEXINGTON AVENUE 200 PARK AVENUE
NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10166
(212) 403-1000 (212) 455-2000 (212) 351-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES
EFFECTIVE AND UPON CONSUMMATION OF THE TRANSACTIONS DESCRIBED IN THE ENCLOSED
PROXY STATEMENT.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM
OF SECURITIES TO AMOUNT TO OFFERING PRICE AGGREGATE
BE REGISTERED(1) BE REGISTERED PER SHARE(1) OFFERING PRICE(2)
<S> <C> <C> <C>
Common Stock, $.01 par value per share...... 1,381,579 shares $19.00 $26,250,001
<CAPTION>
TITLE OF EACH CLASS
OF SECURITIES TO AMOUNT OF
BE REGISTERED(1) REGISTRATION FEE(3)
<S> <C>
Common Stock, $.01 par value per share...... $5,250
</TABLE>
(1) This Registration Statement relates to Common Stock of the registrant to be
retained by holders of the registrant's Common Stock in the proposed merger
of KCLC Acquisition Corp. with and into the registrant, with the registrant
continuing as the surviving corporation in the merger.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933, based upon the
proposed offering price to existing security holders.
(3) Pursuant to Rule 457(b), the required fee of $5,250 is reduced by the fee of
$82,731 previously paid at the time of filing of preliminary proxy materials
in connection with this transaction on October 21, 1996, resulting in a net
payment of $0.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNITL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
KINDERCARE LEARNING CENTERS, INC.
[LOGO]
2400 PRESIDENTS DRIVE
MONTGOMERY, ALABAMA 36116
(334) 277-5090
January 7, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of the Stockholders
of KinderCare Learning Centers, Inc. ("KinderCare"), which will be held at The
Metropolitan Club, 233 South Wacker Drive, Sears Tower, Chicago, Illinois, on
February 6, 1997, at 9:00 a.m. local time.
At the Annual Meeting, the Stockholders of KinderCare will be asked to
consider and vote on, among other things, a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of October 3, 1996 and as amended as of
December 27, 1996 (the "Merger Agreement"), between KinderCare and KCLC
Acquisition Corp. ("KCLC"), a Delaware corporation, and as of the date hereof a
wholly owned subsidiary of KLC Associates, L.P., a partnership organized at the
direction of Kohlberg Kravis Roberts & Co., L.P. On the terms and subject to the
conditions of the Merger Agreement, if the stockholders of KinderCare approve
and adopt the Merger Agreement, KCLC will be merged with and into KinderCare
(the "Merger") with approximately 93% of the presently issued and outstanding
shares of KinderCare Common Stock being converted into $19.00 per share in cash
and approximately 7% of the shares being retained by stockholders. Detailed
information concerning the Merger is set forth in the Proxy Statement, which you
are urged to read carefully. A copy of the Merger Agreement is attached as Annex
I to the accompanying Proxy Statement.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of KinderCare Common Stock held by
stockholders of record on January 8, 1997 (the "Record Date"). Certain
stockholders of KinderCare which are investment funds and accounts managed by
Oaktree Capital Management, LLC and TCW Special Credits, an affiliate of The TCW
Group, Inc. (collectively, the "Oaktree Stockholders"), beneficially owned, as
of December 1, 1996, shares of Common Stock representing approximately 51.5% of
the outstanding shares of KinderCare Common Stock entitled to vote at the Annual
Meeting. Pursuant to a Voting Agreement among KCLC and the Oaktree Stockholders,
dated as of October 3, 1996 and as amended as of December 27, 1996 (the "Voting
Agreement"), the Oaktree Stockholders have agreed, among other things, to vote
their shares in favor of the approval and the adoption of the Merger Agreement.
Assuming that the Oaktree Stockholders own a majority of the issued and
outstanding shares of KinderCare Common Stock on the Record Date for the Annual
Meeting, the requisite vote of the holders of shares of KinderCare Common Stock
to approve and adopt the Merger Agreement would be assured.
Holders of KinderCare Common Stock will be entitled to dissenters' rights
under Delaware law in connection with the Merger as described in the
accompanying Proxy Statement.
<PAGE>
In addition to the foregoing matters, at the Annual Meeting, the
Stockholders of KinderCare will be asked to consider and vote on proposals (i)
to elect seven directors to serve either until the 1997 Annual Meeting of
Stockholders or until their respective successors are duly elected or appointed
(as the case may be) and qualified; provided that if the Merger Agreement is
approved and adopted by the KinderCare stockholders, the directors of KinderCare
immediately after the effective time of the Merger would be Dr. Sandra Scarr,
the then current directors of KCLC and, assuming certain conditions set forth in
the Voting Agreement are met, Mr. Stephen A. Kaplan and (ii) to ratify the
selection of KPMG Peat Marwick LLP as independent auditors of KinderCare.
YOUR BOARD OF DIRECTORS, AFTER CAREFUL CONSIDERATION, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR TO AND IN
THE BEST INTERESTS OF KINDERCARE AND ITS STOCKHOLDERS, AND RECOMMENDS THAT YOU
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. IN REACHING ITS DETERMINATION, YOUR BOARD OF DIRECTORS
CONSIDERED, AMONG OTHER THINGS, THE OPINION OF CREDIT SUISSE FIRST BOSTON
CORPORATION, KINDERCARE'S EXCLUSIVE FINANCIAL ADVISOR ("CSFB", FORMERLY KNOWN AS
CS FIRST BOSTON CORPORATION), AS TO THE FAIRNESS OF THE CONSIDERATION TO BE
RECEIVED BY THE HOLDERS OF KINDERCARE COMMON STOCK IN THE MERGER FROM A
FINANCIAL POINT OF VIEW. CSFB'S OPINION IS INCLUDED AS ANNEX III TO THE
ACCOMPANYING PROXY STATEMENT. YOU ARE URGED TO READ THE OPINION IN ITS ENTIRETY
FOR FURTHER INFORMATION WITH RESPECT TO THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITS OF THE REVIEWS UNDERTAKEN BY CSFB.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING,
WHETHER OR NOT YOU PLAN TO ATTEND PERSONALLY. THEREFORE, YOU SHOULD COMPLETE AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE
ANNUAL MEETING.
Yours very truly,
[LOGO]
SANDRA W. SCARR
Chairman of the Board and
Chief Executive Officer
ii
<PAGE>
KINDERCARE LEARNING CENTERS, INC.
[LOGO]
2400 PRESIDENTS DRIVE
MONTGOMERY, ALABAMA 36116
(334) 277-5090
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 6, 1997
------------------------
To the Stockholders of
KINDERCARE LEARNING CENTERS, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of the stockholders
(including any adjournments or postponements thereof, the "Annual Meeting") of
KinderCare Learning Centers, Inc., a Delaware corporation ("KinderCare"), will
be held at The Metropolitan Club, 233 South Wacker Drive, Sears Tower, Chicago,
Illinois, on February 6, 1997, at 9:00 a.m., local time, for the following
purposes, all of which are more fully described in the accompanying Proxy
Statement:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of October 3, 1996 and as amended as
of December 27, 1996 (the "Merger Agreement"), between KinderCare and KCLC
Acquisition Corp., a Delaware corporation ("KCLC"), which as of the date
hereof is a wholly owned subsidiary of KLC Associates, L.P., a partnership
formed at the direction of Kohlberg Kravis Roberts & Co., L.P. (the
"Partnership"). The Merger Agreement provides, among other things, for the
merger of KCLC with and into KinderCare (the "Merger") pursuant to which
each share of KinderCare's common stock, $.01 par value per share
("KinderCare Common Stock"), issued and outstanding immediately prior to the
effective time of the Merger (other than shares of KinderCare Common Stock
held by KinderCare, any subsidiary of KinderCare, KCLC or any subsidiary of
KCLC, which will be cancelled and retired, and fractional shares and shares
of KinderCare Common Stock subject to dissenters' rights) will be converted,
at the election of the holder, into either (a) the right to receive $19.00
in cash or (b) the right to retain one share of KinderCare Common Stock.
Because the number of shares of KinderCare Common Stock to be retained by
existing KinderCare stockholders must equal 1,381,579 and because an
affiliate of Oaktree Capital Management, LLC (the "Electing Oaktree
Affiliate") has committed to elect to retain at least 1,381,579 shares of
KinderCare Common Stock, the right to retain shares of KinderCare Common
Stock is subject to proration, as set forth in the Merger Agreement and
described in the accompanying Proxy Statement. Assuming that the Electing
Oaktree Affiliate makes the election described in the preceding sentence,
each holder of shares of KinderCare Common Stock who does not elect to
retain KinderCare Common Stock would, upon completion of the Merger, be
entitled to receive $19.00 in cash. A conformed copy of the Merger Agreement
(including the principal exhibits thereto) is attached as Annex I to the
accompanying Proxy Statement.
2. To elect seven directors to serve either until the 1997 Annual
Meeting of Stockholders or until their respective successors are duly
elected or appointed (as the case may be) and qualified; provided that if
the Merger Agreement is approved and adopted by the KinderCare stockholders,
the directors of KinderCare immediately after the effective time of the
Merger would be Dr. Sandra
<PAGE>
Scarr, the then current directors of KCLC and, assuming certain conditions
set forth in the Voting Agreement (as defined below) are met, Mr. Stephen A.
Kaplan.
3. To ratify the selection of KPMG Peat Marwick LLP as independent
auditors of KinderCare.
4. To transact such other business as may properly come before the
Annual Meeting.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of KinderCare Common Stock held by
stockholders of record on January 8, 1997 (the "Record Date"). Certain
stockholders of KinderCare which are investment funds and accounts managed by
Oaktree Capital Management, LLC and TCW Special Credits, an affiliate of The TCW
Group, Inc. (collectively, the "Oaktree Stockholders"), beneficially owned, as
of December 1, 1996, shares of KinderCare Common Stock representing
approximately 51.5% of the outstanding shares of KinderCare Common Stock
entitled to vote at the Annual Meeting. Pursuant to a Voting Agreement among
KCLC and the Oaktree Stockholders, dated as of October 3, 1996 and as amended as
of December 27, 1996 (the "Voting Agreement"), the Oaktree Stockholders have
agreed, among other things, to vote their shares in favor of the approval and
the adoption of the Merger Agreement. Assuming that the Oaktree Stockholders own
a majority of the issued and outstanding shares of KinderCare Common Stock on
the Record Date for the Annual Meeting, the requisite vote of the holders of
shares of KinderCare Common Stock to approve and adopt the Merger Agreement
would be assured.
Only holders of record of shares of KinderCare Common Stock at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Annual Meeting. A complete list of stockholders entitled to vote at the Annual
Meeting will be available for examination, for proper purposes, during ordinary
business hours at KinderCare's corporate offices, 2400 Presidents Drive,
Montgomery, Alabama, 36116 during the 10 days prior to the Annual Meeting.
In connection with the proposed Merger, appraisal rights will be available
to those stockholders of KinderCare who meet and comply with the requirements of
Section 262 of the Delaware General Corporation Law (the "DGCL"), a copy of
which is included as Annex IV to the accompanying Proxy Statement. Reference is
made to the section entitled "THE MERGER--Dissenters' Rights" in the
accompanying Proxy Statement for a discussion of the procedures to be followed
in asserting appraisal rights under Section 262 of the DGCL in connection with
the proposed Merger.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF KINDERCARE
COMMON STOCK YOU OWN. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE ANNUAL
MEETING, YOU ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT
DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY
TIME PRIOR TO ITS EXERCISE. IF YOU ARE PRESENT AT THE ANNUAL MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF, YOU MAY REVOKE YOUR PROXY AND VOTE
PERSONALLY ON THE MATTERS PROPERLY BROUGHT BEFORE THE ANNUAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
[LOGO]
REBECCA S. BRYAN
Secretary
January 7, 1997
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
STOCKHOLDERS ELECTING TO RETAIN KINDERCARE COMMON STOCK SHOULD RETURN THE
ENCLOSED FORM OF NON-CASH ELECTION TOGETHER WITH DULY ENDORSED KINDERCARE STOCK
CERTIFICATES AS INSTRUCTED IN THE PROXY STATEMENT.
IF YOU HAVE ANY QUESTIONS OR REQUIRE ADDITIONAL MATERIAL, PLEASE CONTACT
MACKENZIE PARTNERS, INC. AT (800) 322-2885 (TOLL FREE) OR (212) 929-5500
(COLLECT).
ii
<PAGE>
KINDERCARE LEARNING CENTERS, INC.
[LOGO]
----------------
PROXY STATEMENT/PROSPECTUS
---------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 6, 1997
This Proxy Statement (the "Proxy Statement") is being furnished to
stockholders of KinderCare Learning Centers, Inc., a Delaware corporation
("KinderCare" or the "Company"), in connection with the solicitation of proxies
by the Board of Directors of the Company (the "Board of Directors" or the
"Board") for use at the Annual Meeting of Stockholders, which will be held at
The Metropolitan Club, 233 South Wacker Drive, Sears Tower, Chicago, Illinois,
on February 6, 1997, at 9:00 a.m., local time, and at any adjournments or
postponements thereof (the "Annual Meeting"). This Proxy Statement relates to,
among other things, the proposed merger (the "Merger") of KCLC Acquisition
Corp., a Delaware corporation ("KCLC") and as of the date hereof a wholly owned
subsidiary of KLC Associates, L.P. (the "Partnership"), a partnership organized
at the direction of Kohlberg Kravis Roberts & Co., L.P. ("KKR"), with and into
the Company pursuant to the Agreement and Plan of Merger, dated as of October 3,
1996 (the "Original Merger Agreement") and as amended as of December 27, 1996
(the "Merger Agreement Amendment" and together with the Original Merger
Agreement (the "Merger Agreement")) between KCLC and the Company, and the
transactions contemplated thereby.
Pursuant to the Merger, each share of KinderCare's common stock, par value
$.01 per share ("KinderCare Common Stock"), issued and outstanding immediately
prior to the effective time of the Merger (the "Effective Time") (other than
shares of KinderCare Common Stock held by KinderCare, any subsidiary of
KinderCare, KCLC or any subsidiary of KCLC, which will be cancelled and retired,
and fractional shares and shares of KinderCare Common Stock subject to
dissenters' rights), will be converted, at the election of the holder thereof
and subject to the terms described herein, into either (a) the right to receive
$19.00 in cash or (b) the right to retain one fully paid and nonassessable share
of KinderCare Common Stock. Because the number of shares of KinderCare Common
Stock to be retained by existing KinderCare stockholders must equal 1,381,579
and because an affiliate of Oaktree Capital Management, LLC (the "Electing
Oaktree Affiliate") has committed to elect to retain at least 1,381,579 shares
of KinderCare Common Stock, the right to retain shares of KinderCare Common
Stock is subject to proration, as set forth in the Merger Agreement and
described herein. Assuming that the Electing Oaktree Affiliate makes the
election described in the preceding sentence, each holder of shares of
KinderCare Common Stock who does not elect to retain KinderCare Common Stock
would, upon completion of the Merger, be entitled to receive $19.00 in cash. See
"THE MERGER--Merger Consideration." A copy of the Original Merger Agreement
(including the principal exhibits thereto) and the Merger Agreement Amendment
are attached as Annex I to this Proxy Statement. The summaries of the portions
of the Merger Agreement set forth in this Proxy Statement do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the text of the Merger Agreement.
In addition, the Merger Agreement provides that each warrant to purchase
shares of KinderCare Common Stock (each a "Warrant" and collectively the
"Warrants") issued and outstanding immediately prior to the Effective Time shall
be cancelled, extinguished and converted into the right to receive an amount in
cash determined by the formula set forth in the agreement pursuant to which the
Warrants were issued (the "Warrant Agreement") (which amount is estimated to be
$6.58 per Warrant), payable to the
<PAGE>
holder thereof, without interest, upon surrender of the certificate formerly
representing such Warrant in accordance with the Merger Agreement, less any
required withholding taxes.
This Proxy Statement also constitutes a prospectus of the Company with
respect to the 1,381,579 shares of KinderCare Common Stock to be retained by
stockholders in the Merger.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of KinderCare Common Stock held by
stockholders of record on January 8, 1997 (the "Record Date"). Oaktree Capital
Management, LLC ("Oaktree") and certain stockholders of KinderCare which are
investment funds and accounts managed by Oaktree and TCW Special Credits, an
affiliate of The TCW Group, Inc. (collectively, the "Funds" and, together with
Oaktree, the "Oaktree Stockholders"), beneficially owned, as of December 1,
1996, shares of KinderCare Common Stock representing approximately 51.5% of the
outstanding shares of KinderCare Common Stock entitled to vote at the Annual
Meeting. Pursuant to a Voting Agreement among KCLC and the Oaktree Stockholders,
dated as of October 3, 1996 and as amended as of December 27, 1996 (the "Voting
Agreement"), the Oaktree Stockholders have agreed, among other things, to vote
their shares in favor of the approval and the adoption of the Merger Agreement.
Assuming that the Oaktree Stockholders own a majority of the issued and
outstanding shares of KinderCare Common Stock on the Record Date for the Annual
Meeting, the requisite vote of the holders of shares of KinderCare Common Stock
to approve and adopt the Merger Agreement would be assured.
The Board of Directors, after careful consideration, unanimously approved
the Merger Agreement, and determined that the Merger is fair to and in the best
interests of KinderCare and its stockholders, and recommends that you vote FOR
approval and adoption of the Merger Agreement and the transactions contemplated
thereby. In reaching its determination, your Board of Directors considered,
among other things, the opinion of Credit Suisse First Boston Corporation,
KinderCare's exclusive financial advisor ("CSFB", formerly known as CS First
Boston Corporation), as to the fairness of the consideration to be received by
the holders of KinderCare Common Stock in the Merger from a financial point of
view. CSFB's opinion is included as Annex III to this Proxy Statement. You are
urged to read the opinion in its entirety for further information with respect
to the assumptions made, matters considered and limits of the reviews undertaken
by CSFB.
In addition to the foregoing matters, at the Annual Meeting, the
stockholders of KinderCare will be asked to consider and vote on proposals (i)
to elect seven directors to serve either until the 1997 Annual Meeting of
Stockholders or until their respective successors are duly elected or appointed
(as the case may be) and qualified; provided that if the Merger Agreement is
approved and adopted by the KinderCare stockholders, the directors of KinderCare
immediately after the Effective Time would be Dr. Sandra Scarr, the then current
directors of KCLC and, assuming certain conditions set forth in the Voting
Agreement are met, Mr. Stephen A. Kaplan and (ii) to ratify the selection of
KPMG Peat Marwick LLP as independent auditors of KinderCare.
KinderCare Common Stock and Warrants are listed for trading on the Nasdaq
National Market System ("Nasdaq") under the symbols "KCLC" and "KCLCW",
respectively. On January 3, 1997, the last reported sale prices of the
KinderCare Common Stock and Warrants were $18 3/4 per share and $6 1/4 per
Warrant. On October 3, 1996, the last trading day before public announcement of
the execution of the Merger Agreement, the last sale prices of the KinderCare
Common Stock and Warrants as reported on Nasdaq were $16 1/4 per share and
$4 3/4 per Warrant. If the Merger is approved, the Company anticipates that it
will seek to have the KinderCare Common Stock and Warrants delisted from Nasdaq.
See "RISK FACTORS--Delisting; Loss of Liquidity."
This Proxy Statement, the accompanying form of proxy (the "Proxy") and the
other enclosed documents are first being mailed to stockholders of the Company
on or about January 8, 1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 23 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF KINDERCARE COMMON STOCK IN CONNECTION
WITH THEIR CONSIDERATION OF THE MERGER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is January 7, 1997.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 1
FORWARD LOOKING STATEMENTS................................................................................. 2
SUMMARY.................................................................................................... 3
THE ANNUAL MEETING................................................................................. 3
THE MERGER......................................................................................... 5
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA OF KINDERCARE LEARNING CENTERS, INC. AND
SUBSIDIARIES....................................................................................... 13
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA OF
KINDERCARE LEARNING CENTERS, INC. (UNAUDITED).................................................... 16
PRICE OF KINDERCARE COMMON STOCK AND WARRANTS...................................................... 22
RISK FACTORS............................................................................................... 23
THE COMPANY................................................................................................ 27
THE ANNUAL MEETING......................................................................................... 28
Matters to be Considered........................................................................... 28
Required Votes..................................................................................... 28
Voting and Revocation of Proxies................................................................... 29
Record Date; Stock Entitled to Vote; Quorum........................................................ 29
Dissenters' Rights................................................................................. 30
Solicitation of Proxies............................................................................ 30
PROPOSAL ONE--THE MERGER................................................................................... 30
Background of the Merger........................................................................... 30
Recommendation of the Board of Directors; Reasons for the Merger................................... 34
Opinion of Financial Advisor....................................................................... 36
Merger Consideration............................................................................... 40
Non-cash Election.................................................................................. 42
Non-cash Election Procedure........................................................................ 43
Effective Time of the Merger....................................................................... 43
Conversion/Retention of Shares; Procedures for Exchange of Certificates............................ 43
Fractional Shares.................................................................................. 45
Conduct of Business Pending the Merger............................................................. 45
Conditions to the Consummation of the Merger....................................................... 45
Federal Income Tax Consequences.................................................................... 46
Accounting Treatment............................................................................... 49
Effect on Stock and Employee Benefit Matters....................................................... 49
Treatment of Warrants.............................................................................. 50
Interests of Certain Persons in the Merger......................................................... 50
Nasdaq Delisting................................................................................... 52
Resale of KinderCare Common Stock following the Merger............................................. 52
Merger Financings.................................................................................. 52
Conversion of KCLC Stock........................................................................... 53
Pro Forma Consolidated Financial Statements........................................................ 53
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DESCRIPTION OF KINDERCARE CAPITAL STOCK.................................................................... 59
General............................................................................................ 59
Voting Rights...................................................................................... 59
Dividend Rights.................................................................................... 59
Liquidation Rights................................................................................. 59
KinderCare Common Stock following the Merger....................................................... 59
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................................................. 60
The Merger......................................................................................... 60
Representations and Warranties..................................................................... 60
Certain Pre-closing Covenants...................................................................... 61
Third Party Transactions........................................................................... 62
Board of Directors and Officers of the Company following the Merger................................ 62
Stock and Employee Benefit Plans................................................................... 63
Access to Information.............................................................................. 63
Cooperation and Reasonable Best Efforts............................................................ 63
Indemnification and Insurance...................................................................... 63
Conditions to the Consummation of the Merger....................................................... 64
Termination........................................................................................ 65
Amendment and Waiver............................................................................... 66
Expenses and Certain Required Payments............................................................. 66
CERTAIN RELATED AGREEMENTS................................................................................. 66
Voting Agreement................................................................................... 66
Stockholders' Agreement............................................................................ 69
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 70
REGULATORY APPROVALS....................................................................................... 73
KCLC AND THE PARTNERSHIP................................................................................... 73
DISSENTING STOCKHOLDERS' RIGHTS............................................................................ 74
INDEPENDENT PUBLIC ACCOUNTANTS AND LEGAL OPINIONS.......................................................... 75
Financial Statements............................................................................... 75
Legal Opinions..................................................................................... 76
PROPOSAL TWO--ELECTION OF DIRECTORS........................................................................ 76
Certain Information Concerning Nominees and Executive Officers..................................... 76
Meetings of the Board of Directors and Committees.................................................. 79
Compensation of Directors.......................................................................... 79
PROPOSAL THREE--RATIFICATION OF SELECTION OF AUDITORS...................................................... 80
OTHER INFORMATION AND STOCKHOLDER PROPOSALS................................................................ 80
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
ANNEX I-A Agreement and Plan of Merger dated as of October 3, 1996
ANNEX I-B Merger Agreement Amendment dated as of December 27, 1996
ANNEX II-A Voting Agreement dated as of October 3, 1996
ANNEX II-B Voting Agreement Amendment dated as of December 27, 1996
ANNEX III Opinion of CSFB dated December 27, 1997
ANNEX IV Excerpts from the DGCL Relating to Dissenters' Rights
</TABLE>
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT, IN CONNECTION
WITH THE MERGER, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY KINDERCARE OR KCLC. THIS PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SECURITIES TO WHICH IT RELATES IN ANY JURISDICTION IN WHICH, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT NOR ANY OFFER OR SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
AVAILABLE INFORMATION
KinderCare is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
at the web site (http://www.sec.gov) maintained by the Commission; or at its
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
This Proxy Statement also constitutes a prospectus of the Company filed as
part of a Registration Statement on Form S-4 under the Securities Act of 1933,
as amended (the "Securities Act"). This Proxy Statement omits certain
information contained in the Registration Statement and the exhibits thereto.
Reference is made to the Registration Statement and related exhibits for further
information with respect to the Company and the retention of KinderCare Common
Stock. Any statement herein concerning the provision of any document is not
necessarily complete, and in each instance reference is made to the copy of the
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference documents which are not
presented herein or delivered herewith. Copies of any such documents relating to
the Company, other than exhibits to such documents (unless such exhibits
specifically are incorporated by reference in such documents), are available
without charge, upon written or oral request, from KinderCare Learning Centers,
Inc., 2400 Presidents Drive, Montgomery, Alabama 36116, Attention: Secretary,
telephone: (334) 277-5090. In order to ensure timely delivery of the documents
requested, any such request should be made by January 31, 1997.
The following documents previously filed by the Company with the Commission
are incorporated in this Proxy Statement by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1996, as amended by the Company's Form 10 K/A dated September 30,
1996.
(2) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 20, 1996.
(3) The Company's Current Reports on Form 8-K dated October 3, 1996,
November 14, 1996 and December 27, 1996.
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All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the date of
the Annual Meeting shall be deemed to be incorporated by reference herein and to
be part hereof from the date of the filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein, or in any other subsequently filed document that also is or is deemed to
be incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute part of this Proxy Statement.
FORWARD LOOKING STATEMENTS
This Proxy Statement includes "forward-looking statements" within the
meaning of various provisions of the Securities Act and the Exchange Act. All
statements, other than statements of historical facts, included in this Proxy
Statement that address activities, events or developments that the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of the Company's and its subsidiaries' business and
operations, plans, references to future success and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances. However,
whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties,
including the significant considerations discussed in this Proxy Statement;
general economic, market or business conditions; the opportunities (or lack
thereof) that may be presented to and pursued by the Company and its
subsidiaries; competitive actions by other childcare companies; changes in laws
or regulations; and other factors, many of which are beyond the control of the
Company and its subsidiaries. Consequently, all of the forward-looking
statements made in this Proxy Statement are qualified by these cautionary
statements and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on the Company and
its subsidiaries or their business or operations.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to the more detailed information
contained in this Proxy Statement and the Annexes hereto. Stockholders of the
Company are urged to read this Proxy Statement and the Annexes hereto in their
entirety.
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF KINDERCARE COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE
MERGER, INCLUDING CERTAIN RISKS RELATED TO CONTINUING TO HOLD KINDERCARE COMMON
STOCK, SEE "RISK FACTORS."
THE ANNUAL MEETING
TIME AND PLACE; RECORD DATE
The Annual Meeting of the stockholders of KinderCare will be held on
February 6, 1997 at The Metropolitan Club, 233 South Wacker Drive, Sears Tower,
Chicago, Illinois. Stockholders of record at the close of business on January 8,
1997 (the "Record Date") will be entitled to notice of, and to vote at, the
Annual Meeting. The date of the mailing of this Proxy Statement to stockholders
of the Company will be on or about January 8, 1997. At the close of business on
December 1, 1996, there were outstanding and entitled to vote 19,412,695 shares
of KinderCare Common Stock.
MATTERS TO BE CONSIDERED
The purpose of the Annual Meeting is for the KinderCare stockholders to
consider and vote upon the following proposals:
(i) to approve and adopt the Merger Agreement, including the Merger,
pursuant to which KCLC will merge with and into the Company, the
stockholders of KinderCare will receive the consideration described below in
this Summary under "THE MERGER--Effect of the Merger" and the stockholders
of KCLC, which as of the date hereof is only the Partnership, will receive
7,828,947 shares of KinderCare Common Stock (the "Merger Proposal");
(ii) to elect seven directors to serve either until the 1997 Annual
Meeting of Stockholders or until their respective successors are duly
elected or appointed (as the case may be) and qualified; provided that if
the Merger Proposal is approved and adopted by the KinderCare stockholders,
the directors of KinderCare immediately after the Effective Time would be
Dr. Sandra Scarr, the then current directors of KCLC and, assuming certain
conditions set forth in the Voting Agreement are met, Mr. Stephen A. Kaplan;
and
(iii) to ratify the selection of KPMG Peat Marwick LLP as independent
auditors of the Company (the "Ratification of Auditors Proposal").
REQUIRED VOTES
The approval of the Merger Proposal will require the affirmative vote of the
holders of a majority of the shares of KinderCare Common Stock entitled to vote
at the Annual Meeting, provided a quorum is present. The Oaktree Stockholders,
which as of December 1, 1996 owned, of record, an aggregate of 9,988,938 shares
of KinderCare Common Stock, constituting approximately 51.5% of KinderCare
Common Stock outstanding as of such date (such shares the "Subject Shares"), and
Warrants to purchase 858,683 shares of KinderCare Common Stock (the "Subject
Warrants" and together with the Subject Shares the "Subject Securities"), have
agreed, subject to certain conditions set forth in the Voting Agreement, to vote
the Subject Shares, all shares issued upon exercise of the Subject Warrants and
all other shares of KinderCare Common Stock that the Oaktree Stockholders
acquire beneficial ownership of
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after October 3, 1996 and during the term of the Voting Agreement, if any, in
favor of the Merger Proposal. See "THE ANNUAL MEETING--Required Votes" and "THE
MERGER--Interests of Certain Persons in the Merger."
The election of directors and approval of the Ratification of Auditors
Proposal will require the affirmative vote of a majority of the shares of
KinderCare Common Stock represented at the Annual Meeting and entitled to vote,
provided a quorum is present.
VOTING OF PROXIES
Shares of KinderCare Common Stock represented by all properly executed
Proxies received in time for the Annual Meeting will be voted in the manner
specified in the Proxy. Proxies that do not contain any instruction to vote for
or against or to abstain from voting on a particular matter will be voted in
favor of such matter. See "THE ANNUAL MEETING--Required Votes."
It is not expected that any matter other than those referred to herein will
be brought before the stockholders at the Annual Meeting. If, however, other
matters are properly presented, the persons named as proxies will vote in
accordance with their best judgment with respect to such matters, unless
authority to do so is withheld in the Proxy.
ADJOURNMENTS; REVOCABILITY OF PROXIES
If the Annual Meeting is adjourned, for whatever reason, the approval of the
Merger Proposal shall be considered and voted upon by stockholders at the
subsequent, reconvened meeting, if any.
You may revoke your Proxy at any time prior to its exercise (i) by attending
the Annual Meeting and voting in person (although attendance at the Annual
Meeting will not in and of itself constitute revocation of a Proxy), (ii) by
giving notice of revocation of your Proxy at the Annual Meeting, or (iii) by
delivering (a) a written notice of revocation of your Proxy or (b) a duly
executed Proxy relating to the matters to be considered at the Annual Meeting,
bearing a date later than the Proxy previously executed, to the Secretary of
KinderCare, 2400 Presidents Drive, Montgomery, Alabama 36116. Unless revoked in
one of the manners set forth above, Proxies in the form enclosed will be voted
at the Annual Meeting in accordance with your instructions.
SOLICITATION OF PROXIES
The cost of soliciting Proxies will be borne by the Company. The Company may
solicit Proxies and the Company's directors, officers and employees may also
solicit Proxies by telephone, telegram or personal interview. Such directors,
officers and employees will not be additionally compensated for any such
solicitation but may be reimbursed for reasonable out-of-pocket expenses in
connection therewith. Arrangements will be made to furnish copies of Proxy
materials to fiduciaries, custodians and brokerage houses for forwarding to
beneficial owners of KinderCare Common Stock. Such persons will be paid
reasonable out-of-pocket expenses.
Mackenzie Partners, Inc. ("Mackenzie") will assist in the solicitation of
Proxies by the Company for an estimated fee of $5,000, plus reasonable
out-of-pocket expenses. If you have any questions or require additional
material, please call Mackenzie at (800)-322-2885 (toll free) or (212) 929-5500
(collect).
HOLDERS OF KINDERCARE COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. SEE "THE MERGER--NON-CASH ELECTION" FOR INSTRUCTIONS FOR
STOCKHOLDERS ELECTING TO RETAIN SHARES.
4
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
As of December 1, 1996, directors and executive officers of the Company and
their affiliates were beneficial owners of an aggregate of 11,028,714 shares of
KinderCare Common Stock (approximately 54% of the outstanding shares). The
directors and executive officers of the Company have indicated that they intend
to vote their shares of KinderCare Common Stock in favor of the Merger Proposal
and the other proposals.
THE MERGER
EFFECT OF THE MERGER
At the Effective Time, KCLC will be merged with and into KinderCare and
KinderCare will continue as the surviving corporation in the Merger. Subject to
certain provisions as described herein with respect to shares owned by
KinderCare, any subsidiary of KinderCare, KCLC or any subsidiary of KCLC, and
with respect to fractional shares and Dissenting Shares (as defined under
"Dissenting Stockholders' Rights" below), (i) each issued and outstanding share
of KinderCare Common Stock (other than Electing Shares, as defined below) will
be converted into the right to receive in cash from KinderCare following the
Merger an amount equal to $19.00 (the "Cash Price") and (ii) each issued and
outstanding share of KinderCare Common Stock with respect to which an election
to retain KinderCare Common Stock has been made and not withdrawn in accordance
with the Merger Agreement (an "Electing Share") will be converted into the right
to retain one fully paid and nonassessable share of KinderCare Common Stock (a
"Non-Cash Election Share"). Each stockholder of KinderCare may receive the Cash
Price with respect to some of the stockholder's shares of KinderCare Common
Stock and Non-Cash Election Shares with respect to other shares of KinderCare
Common Stock; provided, that the aggregate number of shares of KinderCare Common
Stock to be retained at the Effective Time shall be equal to 1,381,579 (the
"Non-Cash Election Number").
The Merger contemplates that approximately 93% of the presently issued and
outstanding shares of KinderCare Common Stock will be converted into cash, as
described above, and that approximately 7% of the shares will be retained by
stockholders. Because the number of shares of KinderCare Common Stock to be
retained by existing KinderCare stockholders must equal 1,381,579 and because
the Electing Oaktree Affiliate has committed to elect to retain at least
1,381,579 shares of KinderCare Common Stock, the right to retain shares of
KinderCare Common Stock is subject to proration, as set forth in the Merger
Agreement and described herein. Assuming that the Electing Oaktree Affiliate
makes the election described in the preceding sentence, each holder of shares of
KinderCare Common Stock who does not elect to retain KinderCare Common Stock
would, upon completion of the Merger, be entitled to receive $19.00 in cash.
SEE "THE MERGER--MERGER CONSIDERATION" FOR EXAMPLES ILLUSTRATING THE
POTENTIAL EFFECTS OF PRORATION.
Because the total number of outstanding shares of KinderCare Common Stock
will decrease from approximately 19,412,695 to 9,210,526, the approximately 7%
of the outstanding KinderCare Common Stock (1,381,579 shares) to be retained by
existing stockholders in the Merger will represent approximately 15% of the
shares outstanding immediately after the Merger and the 7,828,947 shares to be
owned by the Partnership will represent approximately 85% of the shares
outstanding immediately after the Merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors, with all members in attendance, unanimously (i)
determined that the Merger is fair to and in the best interests of the Company
and its stockholders and (ii) recommended that the Company's stockholders
approve and adopt the Merger Agreement and the transactions contemplated
thereby. The determination of the Board of Directors with respect to the Merger
is based on a number of
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factors. See "THE MERGER--Background of the Merger" and "--Recommendation of the
Board of Directors; Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
CSFB has acted as exclusive financial advisor to KinderCare in connection
with the Merger and has assisted the Board of Directors in its examination of
the fairness of the consideration to be received by the holders of KinderCare
Common Stock in the Merger from a financial point of view. KinderCare selected
CSFB as its financial advisor because of CSFB's experience and expertise in
transactions similar to the Merger and because of its familiarity with
KinderCare's business.
On December 27, 1996, CSFB delivered its written opinion to the Board of
Directors to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the consideration to be received by
the holders of KinderCare Common Stock in the Merger is fair to such holders
from a financial point of view. A copy of CSFB's written opinion dated December
27, 1996, which sets forth the assumptions made, procedures followed, matters
considered, limitations on and scope of the review by CSFB is attached as Annex
III to this Proxy Statement. KinderCare stockholders are encouraged to read such
opinion in its entirety. See "THE MERGER--Opinion of Financial Advisor."
NON-CASH ELECTION
Record holders of shares of KinderCare Common Stock will be entitled to make
an unconditional election (a "Non-Cash Election"), on or prior to the Election
Date (as defined below), to retain Non-Cash Election Shares. If the number of
Electing Shares exceeds the Non-Cash Election Number, however, then (i) the
number of Electing Shares covered by a holder's Non-Cash Election to be
converted into the right to retain Non-Cash Election Shares will be determined
by multiplying the total number of Electing Shares covered by such Non-Cash
Election by a proration factor determined by dividing the Non-Cash Election
Number by the total number of Electing Shares and (ii) such number of Electing
Shares will be so converted. All Electing Shares, other than those shares
converted into the right to retain Non-Cash Election Shares as described in the
immediately preceding sentence, will be converted into cash (on a consistent
basis among stockholders who made the election to retain Non-Cash Election
Shares, PRO RATA to the number of shares as to which they made such election) as
if such shares were not Electing Shares. Because the Electing Oaktree Affiliate
has committed to elect to retain at least 1,381,579 shares of KinderCare Common
Stock, if any other stockholder makes a Non-Cash Election, then each of the
Electing Oaktree Affiliate and any other stockholder who elects to retain shares
of KinderCare Common Stock should expect to experience such proration.
If a stockholder elects to make a Non-Cash Election and receives cash as a
result of the proration procedures described above, such stockholder may receive
dividend treatment (rather than capital gain treatment) for any cash received in
the Merger as a result of such proration procedures. See "RISK FACTORS--Non-Cash
Election and Proration into Cash--Possible Dividend Treatment." See also "THE
MERGER--Federal Income Tax Consequences."
Because the Electing Oaktree Affiliate has committed to elect to retain at
least 1,381,579 shares of KinderCare Common Stock, all stockholders who do not
elect to retain shares of KinderCare Common Stock should expect to have their
shares converted into cash. If, however, for any reason the number of Electing
Shares is less than the Non-Cash Election Number, then (i) all Electing Shares
will be converted into the right to retain Non-Cash Election Shares in
accordance with the Merger Agreement, (ii) additional shares of KinderCare
Common Stock, other than Electing Shares and Dissenting Shares, will be
converted into Non-Cash Election Shares, which number of additional shares shall
be determined by multiplying the total number of shares, other than Electing
Shares and Dissenting Shares, by a proration factor determined by dividing (x)
the difference between the Non-Cash Election Number and the number of Electing
Shares by (y) the total number of shares of KinderCare Common Stock, other than
Electing
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Shares and Dissenting Shares, and (iii) such additional shares of KinderCare
Common Stock shall be converted into Non-Cash Election Shares in accordance with
the Merger Agreement (on a consistent basis among stockholders who held shares
of KinderCare Common Stock as to which they did not make the Non-Cash Election,
PRO RATA to the number of shares as to which they did not make such election).
See "THE MERGER--Non-Cash Election."
NON-CASH ELECTION PROCEDURE
Stockholders of KinderCare Common Stock electing to retain Non-Cash Election
Shares must properly complete and sign the Non-Cash Election Form (the "Form of
Election") accompanying this Proxy Statement, and such Form of Election,
together with all certificates representing shares of KinderCare Common Stock
duly endorsed in blank or otherwise in form acceptable for transfer on the books
of the Company (or by appropriate guarantee of delivery, as set forth in such
Form of Election), must be received by ChaseMellon Shareholder Services, L.L.C.
(the "Exchange Agent") at one of the addresses listed on the Form of Election by
5:00 p.m., Eastern time, on the business day next preceding the date of the
Annual Meeting (the "Election Date") and must not be withdrawn. See "THE
MERGER--Non-Cash Election Procedure."
FRACTIONAL SHARES
Fractional shares of KinderCare Common Stock will not be issued in the
Merger. Holders of KinderCare Common Stock otherwise entitled to a fractional
share of KinderCare Common Stock following the Merger will be paid cash in lieu
of such fractional share determined and paid as described in "THE
MERGER--Fractional Shares."
CONDITIONS TO THE MERGER
The obligations of KinderCare and KCLC to consummate the Merger are subject
to various conditions, including, without limitation, obtaining requisite
stockholder approval, the termination or expiration of the relevant waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the absence of any injunction or other legal
restraint or prohibition preventing the consummation of the Merger.
KCLC's obligations to effect the Merger are further subject, among other
things, to the Company (i) amending the terms of its 10 3/8% Senior Notes due
2001 (the "Notes") in a manner agreed to by KCLC and the Company, (ii)
purchasing at least an aggregate principal amount of Notes equal to the minimum
condition of the Company's tender offer for such Notes (the "Debt Tender Offer")
and (iii) receiving financing proceeds, on terms and conditions contemplated by
the Merger Agreement or upon terms and conditions which are substantially
equivalent to such terms and conditions or such other terms and conditions which
are reasonably satisfactory to KCLC. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Conditions to the Consummation of the Merger" and "REGULATORY
APPROVALS." The conditions set forth in clauses (i) and (ii) above have been
satisfied.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the applicable waiting period has expired or been terminated. On November 6,
1996, the Company and KCLC filed Notification and Report Forms under the HSR Act
with the FTC and the Antitrust Division. On November 18, 1996, the Federal Trade
Commission and the Antitrust Division granted early termination of the waiting
period under the HSR Act with respect to the Merger effective immediately. See
"REGULATORY APPROVALS."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For a complete summary of the material U.S. federal income tax consequences
of the Merger, see "THE MERGER--Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON THE
PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS RECOMMENDED THAT HOLDERS OF
KINDERCARE COMMON STOCK CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND
ANY STATE, LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
TREATMENT OF COMPANY STOCK OPTIONS
It is anticipated that, at the Effective Time, (x) each Company Stock Option
(as defined under "THE MERGER--Effect on Stock and Employee Benefit Matters")
granted under the Stock Plans (as defined under "THE MERGER--Effect on Stock and
Employee Benefit Matters") outstanding immediately prior to the Effective Time,
whether or not then exercisable, will be cancelled and (y) each Company Stock
Option having an exercise price of less than $19.00 (which constitutes all
outstanding Company Stock Options) will be exchanged for a payment from the
Company after the Merger (subject to any applicable withholding taxes) equal to
the product of (1) the total number of shares of KinderCare Common Stock subject
to such Company Stock Option and (2) the excess of $19.00 over the exercise
price per share of KinderCare Common Stock subject to such Company Stock Option,
payable in cash immediately following the Effective Time.
It is anticipated that the Stock Plans will terminate as of the Effective
Time, and following the Effective Time no holder of a Company Stock Option nor
any participant in any Stock Plan will have any right thereunder to acquire
equity securities of the Company following the Merger.
Until December 31, 1997, KCLC has agreed in the Merger Agreement, subject to
certain exceptions, to continue to maintain certain benefit plans of the Company
or substitute plans that are no less favorable in the aggregate to the employees
of the Company than the Company's existing benefit plans.
TREATMENT OF WARRANTS
The Merger Agreement provides that each Warrant issued and outstanding
immediately prior to the Effective Time shall be cancelled, extinguished and
converted into the right to receive an amount in cash determined by the formula
set forth in the Warrant Agreement (which amount is estimated to be $6.58 per
Warrant), payable to the holder thereof, without interest, upon surrender of the
certificate formerly representing such Warrant in accordance with the applicable
provisions of the Merger Agreement, less any required withholding taxes. See
"THE MERGER--Treatment of Warrants."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company may have interests,
described herein, that present them with potential conflicts of interest in
connection with the Merger. The Board of Directors is aware of the conflicts
described below and considered them in addition to the other matters described
under "THE MERGER--Recommendation of the Board of Directors; Reasons for the
Merger."
Pursuant to the Voting Agreement, the Oaktree Stockholders have granted KCLC
a 30-day option (the "Option") to purchase the Subject Shares at $19.00 per
share in cash (the "Share Exercise Price") and the Subject Warrants at $6.50 per
warrant in cash (the "Warrant Exercise Price"), if the Merger Agreement shall
have been terminated by reason of the occurrence of certain events described
more fully in "CERTAIN RELATED AGREEMENTS--Voting Agreement." In addition, if,
within one year of KCLC's acquisition of the Subject Securities pursuant to its
exercise of the Option and subject to certain exceptions
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(as described more fully in "CERTAIN RELATED AGREEMENTS--Voting Agreement"),
KCLC or any of its affiliates receives any cash or non-cash consideration in
respect of the Subject Securities in connection with a Third Party Business
Combination (as defined herein), KCLC shall promptly pay over to the Oaktree
Stockholders certain additional amounts, as an addition to the Share Exercise
Price and the Warrant Exercise Price. See "CERTAIN RELATED AGREEMENTS--Voting
Agreement." In addition, if certain conditions set forth in the Voting Agreement
are met, the Company will enter into a stockholders' agreement, the form of
which is attached as Exhibit A to the Voting Agreement attached as Annex II
hereto (the "Stockholders' Agreement"), with the Partnership (and/or certain
affiliates of the Partnership) and certain of the Oaktree Stockholders listed as
parties thereto (such stockholders being referred to herein as the "Oaktree
Investors"). See "CERTAIN RELATED AGREEMENTS--Stockholders' Agreement." As a
result of these arrangements, Messrs. Bruce A. Karsh and Stephen A. Kaplan, both
directors of the Company and Principals of Oaktree, may have interests that
present them with potential conflicts of interest in connection with the Merger.
See "THE MERGER--Recommendation of the Board of Directors; Reasons for the
Merger."
Pursant to an agreement between KCLC and Dr. Sandra W. Scarr (the "Scarr
Agreement"), as of the Effective Time, Dr. Scarr will retire from her position
as Chairman of the Board and Chief Executive Officer of the Company. Dr. Scarr
will continue to serve as a director of the Company following her retirement. In
connection with the Scarr Agreement (i) she will receive 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 will purchase her residence in the
Montgomery, Alabama area for up to $360,000 and 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 compete 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, Mr. Philip L. Maslowe, the Senior Vice President and Chief
Financial Officer of the Company, has an employment agreement (the "Maslowe
Employment Agreement") with the Company which contains severance payment
provisions that may apply upon consummation of the Merger.
Moreover, certain members of the Company's management will share a $1
million bonus upon completion of the Merger. See "THE MERGER--Interests of
Certain Persons in the Merger."
Shares of KinderCare Common Stock held by officers and directors of
KinderCare will be converted into the right to receive the same consideration as
shares of KinderCare Common Stock held by other stockholders. Company Stock
Options held by the officers and directors of KinderCare will be treated in the
same manner as Company Stock Options held by other stockholders.
Pursuant to the Merger Agreement, the Company has agreed for six years after
the Effective Time to indemnify all present directors and officers of the
Company and its subsidiaries and will, subject to certain limitations, maintain
for six years its current directors' and officers' insurance and indemnification
policy. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Indemnification and
Insurance."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time: (i) by mutual consent of KCLC and KinderCare; (ii) by either KCLC or
KinderCare (a) if any court of competent jurisdiction or other governmental
entity shall have issued a final order or taken any other final action
restraining, enjoining or otherwise prohibiting the consummation of the Merger
or any of the transactions contemplated by the Merger Agreement or the Voting
Agreement, or otherwise altering the terms of any of the foregoing in any
significant respect, and such order or other action shall have become final and
nonappealable or (b) if the Merger shall not have been consummated on or before
March 31, 1997, provided that so long as an Extending Action (as defined below)
is no longer in effect on March 31, 1997,
9
<PAGE>
such date shall be automatically extended by one day for each day that an
Extending Action was in effect on or prior to March 31, 1997 (provided further
that the right to terminate the Merger Agreement would not be available to the
party whose action or failure to act caused or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constituted a breach of the Merger Agreement) or (iii) by KCLC if the required
approval of the stockholders of the Company shall not have been obtained at a
duly held meeting of stockholders or at any adjournment thereof. An "Extending
Action" means any order or any other action restraining or otherwise prohibiting
the consummation of the Merger or any of the transactions contemplated by the
Merger Agreement or the Voting Agreement, or otherwise altering the terms of any
of the foregoing in any significant respect, by a court of competent
jurisdiction or other governmental entity, which order or other action has not
become final and nonappealable. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Termination" and "--Expenses and Certain Required Payments."
CERTAIN RELATED AGREEMENTS
VOTING AGREEMENT. Pursuant to the Voting Agreement, the Oaktree
Stockholders have agreed, among other things, to vote the Subject Shares, all
shares issued upon exercise of the Subject Warrants and all other shares of
KinderCare Common Stock that the Oaktree Stockholders acquire beneficial
ownership of after October 3, 1996 and during the term of the Voting Agreement,
if any, in favor of the Merger Agreement. In addition, the Oaktree Stockholders
are prohibited from soliciting or responding to certain inquiries or proposals
made by any person or entity (other than the Partnership, KCLC or any affiliate
of KCLC) with respect to the Company that constitutes or could reasonably be
expected to lead to a transaction proposal with another party and from taking
certain other actions. The Oaktree Stockholders are also not permitted to
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the disposition of, any or all of
the Subject Securities or any interest therein. In addition, the Voting
Agreement also (i) provides that (a) the Electing Oaktree Affiliate will make a
Non-Cash Election for at least 1,381,579 shares of KinderCare Common Stock and
(b) the Oaktree Investors will enter into the Stockholders' Agreement, subject
to the terms and conditions of the Voting Agreement, and (ii) grants KCLC the
Option. The covenants and agreements in the Voting Agreement terminate on the
first to occur of (x) the Effective Time, (y) the termination of the Merger
Agreement upon the occurrence of certain events in accordance with its terms and
(z) the expiration of the 30-day period in which KCLC can exercise the Option;
provided that provisions regarding exercise of the Option will survive to the
extent that the Option has been validly exercised. In addition, if, within one
year of any acquisition by KCLC of the Subject Securities pursuant to its
exercise of the Option and subject to certain ownership requirements on behalf
of KKR (as described more fully in "CERTAIN RELATED AGREEMENTS--Voting
Agreement"), KCLC or any of its affiliates receives any cash or non-cash
consideration in respect of the Subject Securities in connection with a Third
Party Business Combination (as defined in "CERTAIN RELATED AGREEMENTS--Voting
Agreement"), KCLC shall promptly pay over to the Oaktree Stockholders certain
additional amounts, as an addition to the Share Exercise Price and the Warrant
Exercise Price. For a more detailed summary of the foregoing provisions and
certain other provisions of the Voting Agreement, see "CERTAIN RELATED
AGREEMENTS--Voting Agreement."
STOCKHOLDERS' AGREEMENT. Upon consummation of the Merger and provided that
the Electing Oaktree Affiliate has made an election to retain at least 1,381,579
shares of KinderCare Common Stock and shall own, immediately after giving effect
to the Merger, in excess of 460,526 shares of KinderCare Common Stock, the
Company will enter into the Stockholders' Agreement with the Oaktree Investors
and the Partnership (and/or certain affiliates of the Partnership). Subject to
the terms of the Stockholders' Agreement, the Oaktree Investors will be entitled
to designate one director to the Board of Directors of KinderCare, who,
initially, will be Mr. Stephen A. Kaplan. In addition, the Stockholders'
Agreement provides that (i) the Oaktree Investors will have the right to
participate PRO RATA in certain sales of KinderCare Common Stock by the
Partnership (or its affiliates) and (ii) the Partnership (or its affiliates)
will have the right to require the Oaktree Investors to participate PRO RATA in
certain sales by the
10
<PAGE>
Partnership (or its affiliates). No transferee of shares of KinderCare Common
Stock from any Oaktree Investor will acquire any rights under the Stockholders'
Agreement. The Stockholders' Agreement will terminate no later than its tenth
anniversary, and may terminate earlier if (a) the number of shares of KinderCare
Common Stock held in the aggregate by the Oaktree Investors falls below certain
ownership levels through sales or other dilution events (as more fully described
herein) or (b) the Partnership and its affiliates, in the aggregate, own less
than 15% of the outstanding shares of KinderCare Common Stock, on a fully
diluted basis. See "CERTAIN RELATED AGREEMENTS--Stockholders' Agreement."
KCLC AND THE PARTNERSHIP
KCLC, a Delaware corporation and as of the date hereof a wholly owned
subsidiary of the Partnership, was organized in connection with the Merger and
has not carried on any activities to date other than those incident to its
formation and the transactions contemplated by the Merger Agreement. The
Partnership is a Delaware limited partnership, the general partner of which is
KKR Associates (KLC) L.P., a Delaware limited partnership. The general partner
of KKR Associates (KLC) L.P. is KKR-KLC L.L.C., a Delaware limited liability
company. The principal assets of the Partnership are its shares of KCLC common
stock. The principal offices of KCLC and the Partnership are located at 9 West
57th Street, New York, New York, 10019; telephone number (212) 750-8300. See
"KCLC AND THE PARTNERSHIP."
CONVERSION OF KCLC STOCK
As a result of the Merger, in connection with an equity contribution of
$148.75 million, the Partnership will receive 7,828,947 shares of KinderCare
Common Stock, which represents approximately 85% of the shares of KinderCare
Common Stock expected to be outstanding after the Merger.
DISSENTING STOCKHOLDERS' RIGHTS
Under Section 262 of the DGCL, a stockholder of the Company may dissent from
the Merger and obtain payment for the fair value of his or her shares of
KinderCare Common Stock. In order to dissent, (i) the dissenting stockholder
must deliver to the Company, prior to the vote being taken on the Merger at the
Annual Meeting, written notice of his or her intent to demand payment for his or
her shares of KinderCare Common Stock if the Merger is effected and (ii) the
dissenting stockholder must not vote in favor of the Merger. See "DISSENTING
STOCKHOLDERS' RIGHTS" and Annex IV.
11
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
Set forth on the following pages are certain selected historical and pro
forma consolidated financial and other data relating to KinderCare and the
Merger. The selected historical data should be read in conjunction with
KinderCare's historical financial statements, including the notes thereto,
incorporated by reference herein. The selected pro forma consolidated financial
data should be read in conjunction with the Pro Forma Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this Proxy
Statement.
12
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected historical consolidated financial
and other data for the Company. The historical consolidated financial statements
for the Company's five most recent fiscal years have been audited. The
historical consolidated financial data for the three fiscal years ended May 31,
1996 have been derived from, and should be read in conjunction with, the audited
consolidated financial statements of the Company and the related notes thereto
incorporated by reference herein. The historical unaudited consolidated
financial data for the sixteen weeks ended September 20, 1996 and September 22,
1995 have been derived from, and should be read in conjunction with the
unaudited consolidated financial statements of the Company and the related notes
incorporated by reference herein. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE." In the opinion of management, all
adjustments considered necessary for a fair presentation have been included in
the unaudited consolidated financial statements of the Company. Interim results
for the sixteen weeks ended September 20, 1996 are not necessarily indicative of
results that can be expected for the entire 1997 fiscal year. The statement of
operations for the year ended May 28, 1993 is presented for comparison to the
fiscal years ended May 31, 1996, June 2, 1995 and June 3, 1994 to reflect the
Company's change in fiscal year. On November 10, 1992, the Company filed a
pre-arranged petition under Chapter 11 of the United States Bankruptcy Code. On
March 31, 1993 the Company emerged from bankruptcy pursuant to its plan of
reorganization (the "Plan of Reorganization"). Due to the implementation of
Fresh Start Reporting on April 2, 1993, the statement of operations for the year
ended May 28, 1993 includes both pre-and post-bankruptcy amounts, and is
therefore not comparable to the other periods presented. The balance sheet data
for the Company as of September 20, 1996, September 22, 1995, May 31, 1996, June
2, 1995, June 3, 1994, May 28, 1993 and April 2, 1993, and the statement of
operations data for the sixteen weeks ended September 20, 1996 and September 22,
1995 and the years ended May 31, 1996, June 2, 1995 and June 3, 1994 and eight
weeks ended May 28, 1993, after giving effect to the Company's Plan of
Reorganization, are not comparable to the historical financial condition or
results of operations of the Company prior to the Plan of Reorganization.
13
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND CHILD CARE CENTERS DATA)
<TABLE>
<CAPTION>
POST-CONFIRMATION
------------------------------------------------------------------------------------- PRE-CONFIRMATION
---------------
SIXTEEN WEEKS ENDED FISCAL YEAR ENDED
---------------------------- ---------------------------------------- EIGHT
SEPTEMBER 20, SEPTEMBER 22, JUNE 3, 1994 WEEKS ENDED, YEAR ENDED
1996 1995 MAY 31, 1996 JUNE 2, 1995 (53 WEEKS) MAY 28, 1993 MAY 28, 1993(A)
------------- ------------- ------------ ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenues(b)..... $ 171,427 $ 161,313 $ 541,264 $ 506,505 $ 488,726 $ 72,612 $ 447,243
Operating expenses........ 161,676 150,172 489,555 455,719 441,560 68,609 423,841
------------- ------------- ------------ ------------ ------------ ------------- ---------------
Operating income (loss)... 9,751 11,141 51,709 50,786 47,166 4,003 23,402
Net investment income
(loss).................. 71 111 250 2,635 3,176 140 8,686
Interest expense(d)....... 4,940 5,408 16,727 17,318 17,675 3,253 24,709
Reorganization items...... -- -- -- -- -- -- 103,483(e)
------------- ------------- ------------ ------------ ------------ ------------- ---------------
Income (loss) before taxes
and extraordinary
item.................... 4,882 5,844 35,232 36,103 32,667 890 (96,104)
Income tax expense
(benefit)............... 1,904 2,279 13,549 14,037 12,837 273 (216)
------------- ------------- ------------ ------------ ------------ ------------- ---------------
Income (loss) before
extraordinary item...... 2,978 3,565 21,683 22,066 19,830 617 (95,888)
Extraordinary item-- gain
(loss) on debt
discharge, net of
taxes................... (1,229) -- -- -- (2,397) -- 157,573
------------- ------------- ------------ ------------ ------------ ------------- ---------------
Net income (loss)......... $ 1,749 $ 3,565 $ 21,683 $ 22,066 $ 17,433 $ 617 $ 61,685
------------- ------------- ------------ ------------ ------------ ------------- ---------------
------------- ------------- ------------ ------------ ------------ ------------- ---------------
Income (loss) per common
share:
Primary
Before extraordinary
items............... $ 0.15 $ 0.17 $ 1.10 $ 1.07 $ 0.97 $ 0.03 N/A(a)
Extraordinary items... (0.06) -- -- -- (0.12) -- N/A(a)
------------- ------------- ------------ ------------ ------------ -------------
Net income (loss)..... $ 0.09 $ 0.17 $ 1.10 $ 1.07 $ 0.85 $ 0.03
------------- ------------- ------------ ------------ ------------ -------------
------------- ------------- ------------ ------------ ------------ -------------
Weighted average
common shares and
share equivalents... 20,039 20,517 19,752 20,683 20,533 20,888
------------- ------------- ------------ ------------ ------------ -------------
------------- ------------- ------------ ------------ ------------ -------------
Fully diluted net
income................ $ 0.09 $ 0.17 $ 1.05
------------- ------------
------------- ------------
Weighted average common
shares and share
equivalents........... 20,067 20,677 20,683
------------- ------------
------------- ------------
Other Financial Data:
EBITDA(f)............... $ 20,450 $ 21,441 $ 85,931 $ 81,492 $ 73,093 $ 8,373 $ 114,175
Adjusted EBITDA(f)...... 21,608 20,311 87,165 77,969 72,314 8,233 51,399
Adjusted EBITDA
margin................ 12.6% 12.6% 16.1% 15.4% 14.8% 11.3% 11.5%
Depreciation and
amortization.......... 11,857 10,189 33.972 28,071 25,148 4,230 27,997
Capital expenditures.... 16,059 24,964 67,304 74,376 35,710 5,839 38,112
Ratio of earnings to
fixed charges(g)...... 1.6x 1.7x 2.4x 2.4x 2.3x 1.2x
Deficiency of earnings
to fixed charges(g)... 96,104
CHILD CARE CENTERS:
Number of centers (at end
of period).............. 1,151 1,141 1,148 1,137 1,132 1,166 1,166
Center capacity (at end of
period)(h).............. 142,000 138,000 141,000 137,000 136,000 138,000 138,000
Average percentage
occupancy(i)............ 76% 76% 76% 76% 77% 75% 74%
Average three- year-old
weekly tuition rate
(actual dollars)(j)..... $ 100 $ 96 $ 100 $ 96 $ 90 $ 83 $ 83
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets.............. $ 526,486 $ 512,008 $ 525,476 $ 501,274 $ 456,920 $ 457,388 $ 457,388
Total debt(j)............. 164,275 154,012 146,617 160,394 178,692 218,037 218,037
Shareholders' equity
(deficiency)............ 253,462 245,806 265,458 244,238 206,905 179,487 179,487
<CAPTION>
FISCAL YEAR ENDED
THIRTEEN ------------------------------
WEEKS ENDED JANUARY 3,
APRIL 2, JANUARY 1, 1992
1993 1993 (53 WEEKS)
------------ -------------- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Operating revenues(b)..... $ 114,705 $ 437,203 $ 411,040
Operating expenses........ 104,675 413,800(c) 412,299(c)
------------ -------------- --------------
Operating income (loss)... 10,030 23,403 (1,259)
Net investment income
(loss).................. 3,309 5,908 (1,216)
Interest expense(d)....... 692 38,400 46,578
Reorganization items...... 101,604(e) 1,879 --
------------ -------------- --------------
Income (loss) before taxes
and extraordinary
item.................... (88,957) (10,968) (49,053)
Income tax expense
(benefit)............... 404 (246) 1,655
------------ -------------- --------------
Income (loss) before
extraordinary item...... (89,361) (10,722) (50,708)
Extraordinary item-- gain
(loss) on debt
discharge, net of
taxes................... 157,573 -- --
------------ -------------- --------------
Net income (loss)......... $ 68,212 $ (10,722) $ (50,708)
------------ -------------- --------------
------------ -------------- --------------
Income (loss) per common
share:
Primary
Before extraordinary
items............... $ (1.71) $ (0.21) $ (0.99)
Extraordinary items... 3.01 -- --
------------ -------------- --------------
Net income (loss)..... $ 1.30 $ (0.21) $ (0.99)
------------ -------------- --------------
------------ -------------- --------------
Weighted average
common shares and
share equivalents... 52,299 51,274 51,274
------------ -------------- --------------
------------ -------------- --------------
Fully diluted net
income................
Weighted average common
shares and share
equivalents...........
Other Financial Data:
EBITDA(f)............... $ 76,173 $ 54,281 $ 24,594
Adjusted EBITDA(f)...... 16,895 50,252 25,810
Adjusted EBITDA
margin................ 14.7% 11.5% 6.3%
Depreciation and
amortization.......... 6,865 26,849 27,069
Capital expenditures.... 5,927 34,498 27,492
Ratio of earnings to
fixed charges(g)......
Deficiency of earnings
to fixed charges(g)... 88,957 10,968 49,053
CHILD CARE CENTERS:
Number of centers (at end
of period).............. 1,166 1,196 1,240
Center capacity (at end of
period)(h).............. 139,000 140,000 146,000
Average percentage
occupancy(i)............ 75% 72% 70%
Average three- year-old
weekly tuition rate
(actual dollars)(j)..... $ 83 $ 83 $ 80
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets.............. $ 457,000 $ 516,282 $ 486,942
Total debt(j)............. 218,175 400,136 402,146
Shareholders' equity
(deficiency)............ 178,870 (44,886) (34,164)
</TABLE>
14
<PAGE>
- ------------------------
(a) To facilitate a discussion of the Company's operating performance for the
fiscal year ended June 3, 1994 (a 53-week fiscal year), the corresponding
prior year period ended May 28, 1993 (a 52-week fiscal year) is presented.
For purposes of this discussion, this period is referred to as "the year
ended May 28, 1993." Due to the implementation of Fresh Start Reporting, the
consolidated financial statements of the Company after April 2, 1993 are not
comparable in all material respects to any financial statements prior to
that time, and the operating results for the year ended May 28, 1993 include
both pre- and post-bankruptcy amounts. Additionally, on the effective date
of the Plan of Reorganization, all previously outstanding common stock of
the Company was canceled and 20,000,000 shares of new common stock were
issued. Accordingly, the presentation of historical earnings per share
information for periods including the effective date of the Plan of
Reorganization are not meaningful. Income (loss) per share data on a
pro-forma basis, assuming the 20,000,000 shares of new common stock had been
outstanding since the beginning of the year ended May 28, 1993, would be as
follows:
<TABLE>
<S> <C>
Loss before extraordinary item.......................................................................................... $ (4.79)
Extraordinary item...................................................................................................... 7.87
---------
Net income.............................................................................................................. $ 3.08
---------
---------
</TABLE>
(b) An additional week of revenues is included in fiscal years 1994 and 1991 due
to the Company's 52/53 week fiscal year policy.
(c) In fiscal year 1991, the Company recorded charges related to the write-off
of goodwill of its wholly-owned subsidiary, Sylvan Learning Corporation. In
fiscal years 1991 and 1992, portions of the 1990 closed center reserves were
recaptured. The net effect of these items was to increase operating expenses
by $7.3 million in fiscal year 1991 and to reduce operating expenses by $4.0
million in fiscal year 1992. In addition, debt restructuring costs of $5.3
million and $7.0 million are included in operating expenses for fiscal years
1992 and 1991, respectively. Debt restructuring costs represent legal and
other professional fees incurred in connection with the Company's efforts to
reorganize its debt prior to filing for Chapter 11 on November 10, 1993.
(d) During the Chapter 11 petition from November 10, 1992 through March 31,
1993, the Company did not pay or accrue interest on approximately $356.5
million debt obligations classified as "Liabilities subject to settlement
under reorganization proceedings" on the Company's consolidated balance
sheet at January 1, 1993.
(e) Reorganization items for the year ended May 28, 1993 and the 13 weeks ended
April 2, 1993 include $97.7 million of net adjustments to state assets and
liabilities at fair value in connection with the adoption of Fresh Start
Reporting (as defined).
(f) "EBITDA" represents earnings before interest expense, income taxes,
depreciation and amortization. "Adjusted EBITDA" represents EBITDA adjusted
for certain items reflected in the following table. Neither EBITDA nor
Adjusted EBITDA is intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. Adjusted
EBITDA is presented because the Company believes that Adjusted EBITDA
represents a more consistent financial indicator of the Company's ability to
service its debt.
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
----------------------------------------
<S> <C> <C>
SEPTEMBER 20, SEPTEMBER 22,
1996 1995
------------------- -------------------
EBITDA............................................................................. $ 20,450 $ 21,441
Adjustments--Increase (decrease):
Investment income................................................................ (71) (111)
Gain on litigation settlements................................................... -- (11,334)
Restructuring charge............................................................. -- 3,996
Loss on asset impairment......................................................... -- 6,319
Extraordinary item............................................................... 1,229 --
------- -------
Adjusted EBITDA.................................................................... $ 21,608 $ 20,311
------- -------
------- -------
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
<S> <C> <C> <C>
JUNE 3, 1994
MAY 31, 1996 JUNE 2, 1995 (53 WEEKS)
------------- ------------- -------------
EBITDA............................................................................. $ 85,931 $ 81,492 $ 73,093
Adjustments--Increase (decrease):
Investment income................................................................ (250) (2,635) (3,176)
Gain on litigation settlements................................................... (11,334) (888) --
Restructuring charge............................................................. 6,499 -- --
Loss on asset impairment......................................................... 6,319 -- --
Extraordinary item............................................................... -- -- 2,397
------------- ------------- -------------
Adjusted EBITDA.................................................................... $ 87,165 $ 77,969 $ 72,314
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(g) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and extraordinary items, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of deferred financing costs, and one-third of
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
(h) Prior to January 4, 1992, the Company utilized licensed capacity in
measuring its center capacity. As of January 4, 1992, the Company changed
its method of measuring center capacity to building capacity. As of April 2,
1992, aggregate building capacity was approximately 101.0% of licensed
capacity.
(i) Occupancy, a measure of revenue producing center capacity utilization, is
defined as actual net revenues for the respective period divided by the sum
of the building capacity of each of the Company's centers multiplied by such
center's basic tuition rate for full-time, three-year-old students for the
respective period. The three-year-old tuition rate represents the weekly
tuition rate paid by a parent for a three-year-old child to attend a
KinderCare center five days during one week. The three-year-old tuition rate
represents an approximately average of all tuition rates at each center.
Center occupancy mix, however, can significantly affect these averages.
(j) Total debt includes long-term debt, current portion of long-term debt and,
at January 1, 1993, debt obligations of $356.5 million included in the
classification, "Liabilities subject to settlement under reorganization
proceedings" on the Company's consolidated balance sheet.
15
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA (UNAUDITED)
The following unaudited Pro Forma Consolidated Financial Statements have
been derived by the application of pro forma adjustments to the Company's
historical consolidated financial statements incorporated by reference herein.
The pro forma consolidated statement of operations for the periods presented
gives effect to the Merger and related transactions as if such transactions were
consummated as of June 1, 1996 for the sixteen weeks ended September 20, 1996
and as of June 3, 1995 for the fiscal year ended May 31, 1996. The pro forma
balance sheet gives effect to the Merger and related transactions as if such
transactions had occurred as of September 20, 1996. The adjustments are
described in the accompanying notes. The Pro Forma Consolidated Financial
Statements should not be considered indicative of actual results that would have
been achieved had the Merger and related transactions been consummated on the
date or for the periods indicated and do not purport to indicate balance sheet
data or results of operations as of any future date or for any future period.
The Pro Forma Consolidated Financial Statements should be read in conjunction
with the Company's historical consolidated financial statements and the notes
thereto incorporated by reference herein. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities has not been impacted by the transaction.
16
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 20, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 11,557 $ -- (a) $ 11,557
Receivables............................................................ 15,319 15,319
Prepaid expenses and supplies.......................................... 11,344 11,344
Deferred income taxes.................................................. 4,664 4,664
---------- ----------
Total current assets............................................... 42,884 42,884
Property and equipment, net............................................ 471,927 471,927
Deferred financing costs............................................... -- 20,000(b) 20,000
Other.................................................................. 11,675 (2,728)(c) 8,947
---------- ----------- ----------
TOTAL ASSETS....................................................... $ 526,486 $ 17,272 $ 543,758
---------- ----------- ----------
---------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................... $ 22,622 $ -- $ 22,622
Accrued liabilities.................................................... 44,479 44,479
Current portion of long term debt...................................... 1,137 1,137
---------- ----------
Total current liabilities.......................................... 68,238 68,238
NONCURRENT LIABILITIES:
Long-term debt......................................................... 163,138 257,271(d) 420,409
Other noncurrent liabilities........................................... 22,488 22,488
Self insurance liabilities............................................. 19,160 19,160
---------- ----------- ----------
Total liabilities.................................................. 273,024 257,271 530,295
Shareholders' equity..................................................... 253,462 (239,999)(e) 13,463
---------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $ 526,486 $ 17,272 $ 543,758
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See notes to pro forma consolidated balance sheet.
17
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical consolidated financial statements
for the period noted. The Merger has been accounted for as a recapitalization
which will have no impact on the historical basis of assets and liabilities. The
pro forma financial data assumes that there are no dissenting shareholders to
the Merger.
(a) The net effect of $0 reflects the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
USES OF FUNDS:
Purchase equity.................................................................. $ 337,489
Options/warrants redeemed........................................................ 26,513
Repay historical debt............................................................ 117,789
Debt tender premium.............................................................. 7,019
Estimated transaction fees and expenses.......................................... 35,000
-----------
Total uses................................................................... $ 523,810
-----------
-----------
SOURCES OF FUNDS:
New debt......................................................................... $ 375,060
New equity....................................................................... 148,750
-----------
Total sources.................................................................... $ 523,810
-----------
-----------
Net.......................................................................... $ 0
-----------
-----------
</TABLE>
(b) This adjustment represents the anticipated portion of transaction fees which
will be recorded as deferred financing fees and will be amortized over the
life of the debt to be issued.
(c) This adjustment reflects the write-off of deferred financing fees associated
with the 10 3/8% Senior Notes being repurchased and the termination of the
Company's existing bank credit facility.
(d) The pro forma adjustment to long-term debt reflects the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
Repurchase of 10 3/8% Senior Notes outstanding................................... $ (69,789)
Existing Bank Credit Facility.................................................... (48,000)
Senior Subordinated Notes........................................................ 200,000
Term Loan Facility............................................................... 175,060
-----------
Total adjustment............................................................. $ 257,271
-----------
-----------
</TABLE>
18
<PAGE>
(e) The pro forma adjustment reflects the aggregate net change as a result of
the Merger and the related transactions:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
Convert to cash 17.8 million shares of Common Stock.............................. $ (337,489)
Issue 7.8 million shares of Common Stock......................................... 148,750
Purchase Warrants................................................................ (21,447)
Cancellation of Company stock options............................................ (5,066)
Write-off of deferred financing fees referred to in note (c)..................... (2,728)
Premium on repurchase of 10 3/8% Senior Notes.................................... (7,019)
Estimated transaction fees and expenses (1)...................................... (15,000)
-----------
Total........................................................................ $ (239,999)
-----------
-----------
</TABLE>
- ------------------------
(1) Represents the portion of the total $35.0 million of estimated transaction
fees and expenses which will be recorded as an expense. Such estimated
transaction fees and expenses are anticipated to consist of: (i)
professional, advisory and investment banking fees and expenses, (ii)
management bonuses and (iii) miscellaneous fees and expenses such as
printing and filing fees.
19
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED SEPTEMBER 20, 1996 FISCAL YEAR ENDED MAY 31, 1996
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO PRO FORMA PRO
HISTORICAL ADJUSTMENTS(A) FORMA HISTORICAL ADJUSTMENTS(A) FORMA
---------- -------------- ---------- ---------- -------------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues................. $ 171,427 $ 171,427 $ 541,264 $ 541,264
Operating expenses................. 161,676 161,676 489,555 489,555
---------- ---------- ---------- ----------
Operating income................... 9,751 9,751 51,709 51,709
Net investment income.............. 71 71 250 250
Interest expense................... 4,940 $ 8,032(b) 12,972 16,727 $ 26,077(b) 42,804
---------- -------------- ---------- ---------- -------------- ----------
Income (loss)
before income taxes and
extraordinary item............... 4,882 (8,032) (3,150) 35,232 (26,077) 9,155
Income tax expense (benefit)....... 1,904 (3,132)(c) (1,228) 13,549 (10,170)(c) 3,379
---------- -------------- ---------- ---------- -------------- ----------
Income (loss) before extraordinary
item............................. 2,978 (4,900) (1,922) 21,683 (15,907) 5,776
Extraordinary item--loss on early
extinguishment of debt, net of
income tax benefit............... (1,229) (1,229)
---------- -------------- ---------- ---------- -------------- ----------
Net income (loss).................. $ 1,749 $ (4,900) $ (3,151) $ 21,683 $ (15,907) $ 5,776
---------- -------------- ---------- ---------- -------------- ----------
---------- -------------- ---------- ---------- -------------- ----------
Primary income (loss)
per common share:................
Income (loss) before
extraordinary item............. $ 0.15 $ (0.21) $ 1.10 $ 0.63
Extraordinary item............... (0.06) (0.13) -- --
---------- ---------- ---------- ----------
Net income (loss)................ $ 0.09 $ (0.34) $ 1.10 $ 0.63
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average
common shares and
share equivalents................ 20,039 9,211 19,752 9,211
---------- ---------- ---------- ----------
Fully-diluted net income (loss) per
common share..................... $ 0.09 $ (0.34) $ 1.05 $ 0.63
---------- ---------- ---------- ----------
Weighted average
common shares and
share equivalents................ 20,067 9,211 20,683 9,211
---------- ---------- ---------- ----------
Ratio of earnings to fixed charges
(d).............................. -- 1.2x
---------- ----------
Deficiency of earnings to fixed
charges (d)...................... $ 3,150 --
---------- ----------
---------- ----------
</TABLE>
- ------------------------
The pro forma financial data have been derived by the application of pro forma
adjustments to the Company's historical financial statements for the period
noted. The Merger has been accounted for as a recapitalization which will have
no impact on the historical basis of assets and liabilities. The pro forma
financial data assumes that there are no dissenting shareholders to the Merger.
(a) As described in note (e) to the Pro Forma Consolidated Balance Sheet, the
pro forma adjustments exclude (i) $5.066 million of compensation expense
related to the Company stock options to be canceled in conjunction with the
Merger, (ii) write-off of $2.728 million of deferred financing fees
associated with the 10 3/8% Senior Notes being repurchased and the
termination of the Existing Bank Credit Facility, (iii) $7.019 million of
premium on repurchase of 10 3/8% Senior Notes, and (iv) $15.0 million of
estimated transaction fees and expenses to be incurred in connection with
the Merger. Such
20
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(UNAUDITED)
amounts represent non-recurring expenses which the Company anticipates will
be reflected in the Statement of Operations for the period including the
Merger.
(b) The pro forma adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
FISCAL YEAR
SIXTEEN WEEKS ENDED ENDED
SEPTEMBER 20, 1996 MAY 31, 1996
------------------- ----------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Interest on historical debt repaid in Merger.......... $ (3,758) $ (12,241)
Interest expense on the Term Loan Facility (assumed
8.75% rate)......................................... 4,713 15,318
Interest expense on the Senior Subordinated Notes
(assumed 10.50% rate)............................... 6,462 21,000
Amortization of deferred financing costs (10 years)... 615 2,000
------- --------
Total adjustment...................................... $ 8,032 $ 26,077
------- --------
------- --------
</TABLE>
For the sixteen weeks ended September 20, 1996 and the fiscal year ended May
31, 1996, a 0.125% increase or decrease in the assumed interest rate on the
Term Loan Facility would change the pro forma interest expense by $0.07
million and $0.22 million, respectively. The pro forma net (loss) income
would change by $0.04 million and $0.13 million, respectively. For the
sixteen weeks ended September 20, 1996, the pro forma primary net loss per
share would not change. For the fiscal year ended May 31, 1996, the pro
forma primary net income per share would change by $0.02.
For the sixteen weeks ended September 20, 1996 and the fiscal year ended May
31, 1996, a 0.125% increase or decrease in the assumed interest rate on the
Senior Subordinated Notes would change the pro forma interest expense by
$0.08 million and $0.25 million, respectively. The pro form interest net
loss would change by $0.05 million and $0.15 million, respectively. For the
sixteen weeks ended September 20, 1996, the pro forma primary net loss per
share would not change. For the fiscal year ended May 31, 1996, the pro
forma primary net income per share would change by $0.02.
For the sixteen weeks ended September 20, 1996 and the fiscal year ended May
31, 1996, each $1.0 million increase or decrease in the Term Loan Facility
would change pro forma interest expense by $0.03 million and $0.09 million,
respectively. The pro forma net (loss) income would change by $0.02 million
and $0.05 million, respectively, and the pro forma primary net (loss) income
per share would not change.
(c) The adjustment reflects the tax effects of the pro forma adjustments at a
39% effective income tax rate.
(d) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and extraordinary items, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of deferred financing costs, and one-third of
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
21
<PAGE>
PRICE OF KINDERCARE COMMON STOCK AND WARRANTS
The KinderCare Common Stock and Warrants trade on the Nasdaq in the United
States. The following table shows, for the fiscal periods indicated, the high
and low bid quotations per share for KinderCare Common Stock and Warrants as
quoted by Nasdaq. These market quotations reflect inter-dealer prices, without
retail mark-ups, markdowns, or commissions, and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
------------------ ---------
HIGH LOW HIGH
------ -------- ---------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED JUNE 2, 1995
First Quarter................................................................ $ 16 1/4 $ 13 $ 7
Second Quarter............................................................... 15 1/4 10 7/8 6
Third Quarter................................................................ 13 11 5
Fourth Quarter............................................................... 14 5/8 12 3/8 5
FISCAL YEAR ENDED MAY 31, 1996
First Quarter................................................................ $ 14 5/8 $ 12 1/4 $ 4
Second Quarter............................................................... 14 1/4 11 3/4 3
Third Quarter................................................................ 13 3/8 11 3/4 1
Fourth Quarter............................................................... 15 1/4 12 1/4 3
FISCAL YEAR ENDING MAY 31, 1997
First Quarter................................................................ $ 15 7/8 $ 13 7/8 $ 4
Second Quarter............................................................... 20 15 3/16 8
Third Quarter (through January 3, 1997)...................................... 20 18 37/64 7
<CAPTION>
LOW
------
<S> <C> <C> <C>
FISCAL YEAR ENDED JUNE 2, 1995
First Quarter................................................................ 1/4 $ 4 1/2
Second Quarter............................................................... 3/4 4 1/4
Third Quarter................................................................ 1/2 3 5/8
Fourth Quarter............................................................... 3 1/2
FISCAL YEAR ENDED MAY 31, 1996
First Quarter................................................................ $ 2 3/4
Second Quarter............................................................... 5/8 1 3/8
Third Quarter................................................................ 7/8 1 1/4
Fourth Quarter............................................................... 5/8 1 1/4
FISCAL YEAR ENDING MAY 31, 1997
First Quarter................................................................ 1/8 $ 2 7/16
Second Quarter............................................................... 3 1/8
Third Quarter (through January 3, 1997)...................................... 3/4 6 1/4
</TABLE>
On October 3, 1996, the last trading day before public announcement of the
execution of the Merger Agreement, the last sale price of KinderCare Common
Stock and Warrants on Nasdaq were $16 1/4 and $4 3/8, per share and Warrant,
respectively. On January 3, 1997 the last reported sale prices of the Common
Stock and Warrants on Nasdaq were $18 3/4 and $6 1/4, per share and Warrant,
respectively. As of December 1, 1996 there were approximately 1,762 and 1,718
holders of record of the Common Stock and Warrants, respectively.
During the past three fiscal years, the Company has not declared or paid any
cash dividends or distributions on its capital stock. The Company currently
intends to retain earnings of the Company for operations and does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. KinderCare
stockholders should obtain current market quotations for KinderCare Common
Stock.
22
<PAGE>
RISK FACTORS
Holders of KinderCare Common Stock should carefully consider the following
factors in connection with their consideration of the Merger.
FACTORS RELATED TO THE RETENTION OF COMMON STOCK
CONTROL BY KKR AFFILIATES
Upon completion of the Merger, approximately 85% of the outstanding shares
of KinderCare Common Stock, will be held by the Partnership, of which KKR
Associates (KLC) L.P. is the general partner. The sole general partner of KKR
Associates (KLC) L.P. is KKR-KLC L.L.C., a limited liability company organized
under Delaware law. The members of KKR-KLC L.L.C. are also the members of the
limited liability company which is a general partner of KKR. Accordingly, the
members of KKR-KLC L.L.C. will control the Company and have the power to elect
all of its directors (other than the director which may be appointed by
Oaktree), appoint new management and approve any action requiring the approval
of the holders of KinderCare Common Stock, including adopting amendments to the
Company's certificate of incorporation and approving mergers or sales of all or
substantially all of the Company's assets. The directors elected by the
Partnership will have the authority to effect decisions affecting the capital
structure of the Company, including the issuance of additional capital stock,
the implementation of stock repurchase programs and the declaration of
dividends. There can be no assurance that the capital policies of the Company in
effect prior to the Merger will continue after the Merger.
In addition, the existence of a controlling stockholder of KinderCare may
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from seeking to acquire, a majority of the
outstanding KinderCare Common Stock. A third party would be required to
negotiate any such transaction with the Partnership and the interests of the
Partnership may be different from the interests of other KinderCare
stockholders.
DELISTING; LOSS OF LIQUIDITY
Following the consummation of the Merger, the Company anticipates that it
will seek to have KinderCare Common Stock, which currently is traded on Nasdaq,
delisted. Any delisting of KinderCare Common Stock, together with the
substantial decrease in the number of shares of KinderCare Common Stock to be
held by holders thereof other than the Partnership, is expected to result in a
substantial decrease in the liquidity of KinderCare Common Stock, even if the
Company continues to be a reporting company under the Exchange Act and continues
to file the periodic reports (including annual and quarterly reports) required
to be filed thereunder.
Upon any such delisting, shares of KinderCare Common Stock would trade only
in the over-the-counter market. Although prices in respect of trades would be
published by the National Association of Securities Dealers, Inc. periodically
in the "pink sheets," quotes for such shares would not be readily available. As
a result, it is anticipated that the shares will trade much less frequently
relative to the trading volume of KinderCare Common Stock prior to the Merger.
SUBSTANTIAL LEVERAGE; LIQUIDITY
In connection with consummating the transactions contemplated by the Merger
Agreement, the Company will enter into the Merger Financings (as defined in "THE
MERGER--Merger Financings") to (i) fund payment of the cash consideration in the
Merger, (ii) repay or repurchase certain indebtedness of the Company and (iii)
pay the fees and expenses incurred in connection with the Merger and the Merger
Financings. Although the definitive terms of the Merger Financings have not been
finalized as of the date of this Proxy Statement, the Company expects that such
terms will include significant operating and financial restrictions, such as
limits on the Company's ability to incur indebtedness, create liens, sell
assets, engage in mergers or consolidations, make investments and pay dividends.
As of September 20, 1996, after giving pro forma effect to the Merger and
the Merger Financings and the application of the net proceeds therefrom, the
Company would have had (i) $421.5 million of consolidated indebtedness and (ii)
as a result of the Merger, since the distribution to stockholders as well
23
<PAGE>
as all of the Merger expenses will be charged to stockholders' equity, $13.5
million of consolidated stockholders' equity. In addition, the Company may incur
additional indebtedness in connection with its post-Merger strategy of pursuing
strategic acquisitions and expanding through internal growth. Any such high
leverage may have important consequences for the Company: (a) the Company's
ability to obtain additional financing for such acquisitions, working capital,
capital expenditures or other purposes may be impaired or any such financing may
not be on terms favorable to the Company; (b) any interest expense may reduce
the funds that would otherwise be available to the Company for its operations
and future business opportunities; (c) a substantial decrease in net operating
cash flows or an increase in expenses of the Company could make it difficult for
the Company to meet its debt service requirements or force it to modify its
operations; and (d) high leverage may place the Company at a competitive
disadvantage and may make it vulnerable to a downturn in its business or the
economy generally. See "THE MERGER-- Merger Financings."
In addition, the substantial leverage will have a negative effect on the
Company's net income. Pro forma net income (loss) for the sixteen weeks ended
September 20, 1996 and the 1996 fiscal year ended May 31, 1996 would have been
$(3.2) million and $5.8 million, as compared to $1.7 million and $21.7 million
for the same periods on a historical basis, and pro forma interest expense for
the sixteen weeks ended September 20, 1996 and fiscal 1996 would have been $13.0
million and $42.8 million, respectively, as compared to $4.9 million and $16.7
million for the same periods on a historical basis.
After the Merger is consummated, the Company's principal sources of
liquidity are expected to be cash flow from operations and borrowings under the
revolving credit portion of a senior secured credit facility. It is anticipated
that the Company's principal uses of liquidity will be to provide working
capital, meet debt service requirements and finance the Company's strategic
plans. The revolving credit facility will be available for the Company's working
capital needs and a portion thereof will be available for the issuance of
letters of credit. The term loan portion of the senior secured credit facility
will be drawn in full upon consummation of the Merger. See "THE MERGER--Merger
Financings."
POTENTIAL DILUTION OF KINDERCARE STOCKHOLDERS
Following the Merger, the Company intends to grant members of management
options to purchase KinderCare Common Stock, the exercise of which would dilute
the holdings of KinderCare stockholders and also dilute the holdings of the
Partnership. No decision has been made with respect to the granting of any such
stock options.
NON-CASH ELECTION AND PRORATION INTO CASH--POSSIBLE DIVIDEND TREATMENT
As described herein (subject to the Non-Cash Election Number), a stockholder
may make a Non-Cash Election and thereby elect to retain shares of KinderCare
Common Stock in the Merger. However, if the number of Electing Shares exceeds
the Non-Cash Election Number, such electing stockholder may receive some cash
for a portion of his KinderCare Common Stock as a result of the proration
procedures described herein under "THE MERGER--Non-Cash Election." In such
event, a stockholder may receive dividend treatment (rather than the generally
more favorable capital gain treatment) for any cash received in the Merger as a
result of such proration procedures. See "THE MERGER--Federal Income Tax
Consequences" for a more detailed discussion of the tax consequences of
receiving cash. No such dividend treatment should be applicable in the event
stockholders who do not elect to retain shares receive cash for their shares in
the Merger or receive shares of KinderCare Common Stock as a result of
proration.
COMPETITION
The preschool education and child care industry is highly fragmented and
competitive. The Company's competition consists principally of local nursery
schools and day care centers, some of which are non-profit, including
church-affiliated centers, providers of services that operate out of their homes
and other proprietary companies which each operate a number of centers. Local
nursery schools and day care centers generally charge less for their services
than the Company charges. Many church-affiliated and other non-profit child care
centers have no or lower rental costs than the Company and may receive
24
<PAGE>
donations or other funding to cover operating expenses. Consequently, tuition
rates at these facilities are commonly less than the Company's rates.
Additionally, fees for home-based care are normally lower than fees for
center-based care because providers of home care are not always required to
satisfy the same health, safety or operational regulations as the Company's
centers. The Company's competition also consists of other large, national,
for-profit child care companies with extensive resources and that may have more
aggressive tuition discounting and other pricing policies than the Company. As a
result of the above factors, the Company could suffer a relatively greater
negative impact than certain of its competitors from downturns in general
economic conditions.
POSSIBLE ADVERSE EFFECT OF GOVERNMENTAL REGULATION AND LICENSING REQUIREMENTS
Child care centers are subject to numerous state and local regulations and
licensing requirements. Although these regulations vary greatly from
jurisdiction to jurisdiction, government agencies generally review the fitness
and adequacy of buildings and equipment, the ratio of staff personnel to
enrolled children, staff training, record keeping, the dietary program, the
daily curriculum and compliance with health and safety standards. Were a
particular center of the Company to fail repeatedly to comply with applicable
regulations, such a center could be subject to state sanctions, which might
include fines, corrective orders, placement on probation or, in more serious
cases, suspension or revocation of the center's license to operate. Although the
Company believes that it is in substantial compliance with laws and regulations
currently in effect, failure to comply with such laws or regulations or the
imposition of additional restrictions on the Company's activities could
materially adversely affect the operations of the Company.
State and local licensing regulations often provide that the licenses held
by the Company may not be transferred. As a result, any transferee of a child
care business must apply to the appropriate administrative body for a new
license. The Company believes that the change in ownership of the equity capital
of the Company to be effected pursuant to the Merger will not be a transfer of
the Company's business under applicable state and local regulations. If any
administrative body were to take a contrary position, the Company may, in
certain circumstances, be required to apply for relicensing in that
jurisdiction. If such relicensing were to be required, there can be no assurance
that the Company would not have to incur material expenditures to relicense its
centers in such jurisdiction.
GROWTH STRATEGY; MANAGEMENT OF GROWTH
The Company plans to expand by accelerating the development of new child
care centers in attractive markets and selectively acquiring child care
businesses. The Company seeks to identify attractive sites for its centers in
large metropolitan and smaller growth markets that meet the Company's operating
and financial goals and where the Company believes the market for child care
services will support higher tuition rates than the Company's existing rates. In
addition, the Company seeks to selectively acquire existing child care centers
where demographics, operating standards and customer services complement the
KinderCare business strategy.
During fiscal 1997, the Company expects to open approximately 20 new centers
consisting of 17 to 19 KinderCare community centers and one KinderCare at Work
center. Over the next three years, the Company expects to increase the number of
centers by 50 to 75 per year, which the Company expects to be primarily
community centers. The average total cost per community center ranges from
approximately $1.2 million to $1.8 million depending on the size and location of
the center; however, the actual costs of a particular center may vary from such
range.
The Company's ability to increase revenues and operating cash flow
significantly over time depends, in part, on its success in acquiring and/or
building new centers on satisfactory terms and successfully integrating them
into the Company's operations. There can be no assurance that acceptable
acquisition opportunities or appropriate sites for the Company's building
program will be available. Such availability could be adversely impacted by the
expansion activities of the Company's competitors. In addition, the Company's
ability to take advantage of any available acquisition opportunity will be
dependent, in part, on
25
<PAGE>
the availability of adequate financial resources. Furthermore, construction
costs, the receipt of necessary regulatory (in particular zoning) approvals or
other factors may slow the Company's building program.
As the Company's business develops and expands, the Company may need to
implement enhanced operational and financial systems (some of which are already
in place or in the process of being implemented) and may require additional
employees and management, operational and financial resources. There can be no
assurance that the Company will be able to implement and maintain successfully
such operational and financial systems or obtain, integrate and utilize
successfully the required employees and management, operational and financial
resources to manage a rapidly developing and expanding business. Failure to
implement such systems successfully and to use such resources effectively could
have a material adverse effect on the Company. Furthermore, although the
Company's growth strategy contemplates the possibility of future acquisitions,
there can be no assurance that such business opportunities will be available,
or, if available, will be consummated.
IMPACT OF POSSIBLE LOSS OF GOVERNMENT FUNDING
During the sixteen weeks ended September 20, 1996, approximately 13% of the
Company's net (operating) revenues were generated from federal and state child
care assistance programs. Funding for such programs is subject to changes in
federal and state environments and governmental appropriations processes, which
are unpredictable and outside the Company's control. Accordingly, there is no
assurance that funding for such federal and state programs will continue at
current levels and a significant reduction in such funding may have an adverse
impact on the Company. Although under new legislation, signed by President
Clinton in August 1996, additional funding for child care will be available for
low income families as part of welfare reform, no assurance can be given that
the Company will benefit from any such additional funding. In addition, under
the Code (as defined herein) certain tax incentives are available to parents
utilizing child care programs. Such provisions of the Code are subject to
change.
ADVERSE PUBLICITY; ABILITY TO OBTAIN INSURANCE
As a result of adverse publicity concerning reported incidents of alleged
child physical and sexual abuse at child care centers and the length of time
before the expiration of applicable statutes of limitations for the bringing of
child abuse and personal injury claims (typically a number of years after the
child reaches the age of majority), many operators of child care centers have
had difficulty obtaining general liability insurance, child abuse liability
insurance or similar liability insurance or have been able to obtain such
insurance only at substantially higher rates. There can be no assurance that
such insurance premiums will not increase in the future as a consequence of
conditions in the insurance business generally or that continuing publicity with
respect to alleged instances of child abuse will not result in the Company's
being unable to obtain insurance. In addition, any adverse publicity concerning
reported incidents of alleged child physical and sexual abuse at child care
centers, including those of the Company, has the potential to affect occupancy
levels at the Company's centers.
SEASONALITY
The Company's revenues and the initial success of new centers are subject to
seasonal variation. Enrollment generally decreases 5% to 10% during the holiday
periods and summer months. New centers that open at times other than August and
December usually experience a lower rate of enrollment during early months of
operation, as new enrollments are generally highest in September and January.
IMPACT OF RECESSION
Demand for the Company's services may be subject to fluctuations in general
economic conditions, and the Company's revenues depend, in part, on the number
of working mothers and working single parents who require child care services.
Recessionary pressure on the economy, and a consequent reduction in the general
labor force, may adversely impact the Company, in part, because of the tendency
of out-of-work parents to stop using child care services.
26
<PAGE>
THE COMPANY
KinderCare, founded in 1969, is the largest provider of for-profit preschool
educational and child care services in the United States based upon number of
centers operated, children served, operating revenues and net income. The
Company provides center-based preschool educational and child care services five
days a week throughout the year to children between the ages of six weeks and
twelve years. At September 20, 1996, the Company operated 1,151 child care
centers, of which 73 are owned, located in 38 states and the United Kingdom and
had enrollment of approximately 126,000 full-time and part-time children. The
Company's total center capacity at September 20, 1996 was approximately 142,000
full-time children. For the fiscal years ended May 31, 1996 and June 2, 1995,
average occupancy rates were 75.9% and 76.3%, respectively, and the average
full-time three-year-old weekly tuition rates (which the Company believes
approximates the Company's average full-time weekly tuition rates) were $100 and
$96, respectively. For the twelve months ended September 20, 1996, the Company
generated operating revenues of $551.4 million and Adjusted EBITDA of $88.5
million.
The child care industry has grown at a compound annual rate of 13.4% from
$5.7 billion in revenues in 1982 to an estimated $29.3 billion in 1995, and is
expected to grow 7.1% annually for the rest of the decade, according to
Marketdata Enterprises, Inc. This growth has been, and is expected to continue
to be, driven by several demographic and social trends, including: (i) an
increase in births, (ii) the continued trend of mothers entering the work force,
and (iii) a significant increase in the popularity of center-based care. The
Company believes that it is well positioned to capitalize on the increased use
of child care.
KinderCare seeks to differentiate its educational and other child care
services through its "Whole Child Development" concept with professionally
planned, age-specific educational programs. This concept includes programs that
provide children with activities that support physical, intellectual, emotional,
and social development. New programs are developed and existing programs are
frequently enhanced by the Company's education department, under the leadership
of two professionals with Ph.D.'s in early childhood education/curriculum
supervision. The programs use developmentally appropriate materials, activities
and resources which cater to the differing needs of various age groups and are
used by center teachers as the foundation for each week's program. The programs
include age-appropriate experiences in areas such as reading, math, science and
language, and provide unique opportunities for motor skill development through
indoor and outdoor activities. Computer Clubs, a program for children of
pre-school and school age, provides educational opportunities linked to the
curriculum for children to acquire computer literacy at an early age. These
programs are further enhanced by Playscapes, which are designed to create an
outdoor learning environment, and the Company's Let's Move, Let's
Play-Registered Trademark- movement video for children. The Company's Whole
Child Development programs are provided in Company centers designed and tailored
specifically to accommodate the needs and safety requirements of children.
Centers are staffed with a director, an assistant director and an appropriate
number of staff and teachers as required by state licensing requirements and
Company standards.
The Company operates three types of child care centers--KinderCare community
centers, KinderCare at Work-Registered Trademark- centers and Kid's Choice-TM-
centers. KinderCare community and KinderCare at Work centers typically provide
educational and child care services to children between the ages of six weeks
and 12 years. Kid's Choice centers are for school age children provided in
separate facilities designed specifically for this age group and which are apart
from the Company's community centers. The Company's centers are open throughout
the year, generally Monday through Friday from 6:30 a.m. to 6:00 p.m. although
hours may vary by location. Children are usually enrolled on a weekly basis for
either full-day or half-day sessions and are accepted, where capacity permits,
on an hourly basis. The Company's tuition rates vary for children of different
ages, with the tuition for three-year-old children approximating the average
tuition rate charged for all children. Centers are staffed with a director, an
assistant director and an appropriate number of staff and teachers as required
by state licensing requirements and Company
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standards. As of September 20, 1996, land and buildings with respect to the 736
centers owned by the Company had a net book value of $393.3 million.
The principal executive offices of the Company are located at 2400
Presidents Drive, Montgomery, Alabama 36116, and its telephone number is (334)
277-5090.
THE ANNUAL MEETING
MATTERS TO BE CONSIDERED
The primary purpose of the Annual Meeting is to consider and vote upon a
proposal to approve and adopt the Merger Agreement entered into between KCLC, as
of the date hereof a wholly owned subsidiary of the Partnership, and KinderCare,
and the transactions contemplated thereby including the Merger. If the Merger is
approved by the stockholders of KinderCare, KCLC will merge with and into
KinderCare and approximately 18,031,116 shares of KinderCare Common Stock
currently held by KinderCare stockholders (representing approximately 93% of
shares of KinderCare Common Stock presently issued and outstanding) will be
converted into cash. The remaining 1,381,579 shares of the presently issued and
outstanding shares of KinderCare Common Stock will be retained by existing
stockholders of KinderCare. These shares which are to be retained represent
approximately 7% of shares of KinderCare Common Stock issued and outstanding
prior to the Merger and will represent approximately 15% of the shares of
KinderCare Common Stock expected to be issued and outstanding immediately after
the Merger. If the Merger is approved, the common stock of KCLC, all of which is
owned on the date hereof by the Partnership, will be converted into 7,828,947
shares of KinderCare Common Stock, which will represent approximately 85% of
KinderCare Common Stock expected to be issued and outstanding after the Merger
(see "THE MERGER--Conversion of KCLC Stock"). In addition to the Merger
Proposal, at the Annual Meeting, the stockholders will be asked (i) to elect
seven directors to serve either until the 1997 Annual Meeting of Stockholders or
until their respective successors are duly elected or appointed (as the case may
be) and qualified; provided that if the Merger Proposal is approved and adopted
by the KinderCare stockholders, the directors of KinderCare immediately after
the Effective Time would be Dr. Sandra Scarr, the then current directors of KCLC
and, assuming certain conditions set forth in the Voting Agreement are met, Mr.
Stephen A. Kaplan, (ii) to ratify the selection of KPMG Peat Marwick LLP as
independent auditors of the Company and (iii) to transact any other business
properly brought at the Annual Meeting.
The Board of Directors of the Company is not presently aware of any such
other business. Immediately after the Effective Time, there will be
approximately 9,210,526 shares of KinderCare Common Stock issued and
outstanding. The Merger Agreement (including the principal exhibits thereto) is
attached to this Proxy Statement as Annex I. See "THE MERGER" and "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT." The Board of Directors of KinderCare has,
by unanimous vote, approved the Merger Agreement and recommends a vote FOR
approval of the Merger Agreement and the Merger.
REQUIRED VOTES
The approval of the Merger Proposal will require the affirmative vote of the
stockholders of a majority of KinderCare Common Stock entitled to vote thereon.
Pursuant to the Voting Agreement, the Oaktree Stockholders have agreed to vote
all of the Subject Shares, all shares issued upon exercise of the Subject
Warrants and all other shares of KinderCare Common Stock that the Oaktree
Investors acquire beneficial ownership of after October 3, 1996 and during the
term of the Voting Agreement, if any, in favor of the Merger Proposal. The
Oaktree Stockholders owned beneficially and/or of record shares of Common Stock
on December 1, 1996 representing approximately 51.5% of the outstanding shares
of KinderCare Common Stock entitled to vote at the Annual Meeting. Assuming that
the Oaktree Stockholders own a majority of the issued and outstanding shares of
KinderCare Common Stock on the Record Date for the Annual Meeting the requisite
vote of the holders of shares of KinderCare Common Stock to approve and
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adopt the Merger Proposal would be assured. A copy of the Voting Agreement
appears as Annex II to this Proxy Statement. See "CERTAIN RELATED
AGREEMENTS--Voting Agreement."
As of December 1, 1996, directors and executive officers of the Company were
beneficial owners of an aggregate of 11,028,714 shares (approximately 54%) of
the outstanding shares of KinderCare Common Stock. The directors and executive
officers of the Company have indicated that they intend to vote their shares of
KinderCare Common Stock in favor of the Merger Agreement and the other
proposals.
VOTING AND REVOCATION OF PROXIES
Shares of KinderCare Common Stock that 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 KinderCare Common Stock
represented by such Proxy will be voted FOR the Merger Proposal, FOR the
election of all nominees for director of the Company and FOR the Ratification of
the Auditors Proposal. The Board of Directors is not currently aware of any
business to be acted upon at the Annual Meeting other than as described herein.
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. The persons
appointed as proxies may not exercise their discretionary voting authority to
vote any such Proxy in favor of any adjournments or postponements of the Annual
Meeting if instruction is given to vote against the approval of the Merger and
the other proposals.
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 KinderCare (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: 2400 Presidents Drive, Montgomery, Alabama 36166 Attention: Secretary,
and must be received before the taking of the votes at the Annual Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of KinderCare Common Stock at the close of business on January
8, 1997 will be entitled to receive notice of and to vote at the Annual Meeting.
At the close of business on December 1, 1996, the Company had outstanding and
entitled to vote 19,412,695 shares of KinderCare Common Stock. Shares of
KinderCare Common Stock represented by Proxies which are marked "abstain" or
which are not marked as to any particular matter or matters will be counted as
shares present for purposes of determining the presence of a quorum on all
matters. Proxies relating to "street name" shares that are voted by brokers will
be counted as shares present for purposes of determining the presence of a
quorum on all matters, but will not be treated as shares having voted at the
Annual Meeting as to any proposal as to which authority to vote is withheld by
the broker.
The presence, in person or by proxy, at the Annual Meeting of the holders of
at least a majority of the votes entitled to be cast at the Annual Meeting is
necessary to constitute a quorum for the transaction of business. Abstentions
will be counted as present for the purposes of determining whether a quorum is
present but will not be counted as votes cast in favor of the Merger Proposal.
Because the vote on the Merger Proposal requires the approval of a majority of
the votes entitled to be cast by the stockholders of the outstanding shares of
KinderCare Common Stock, abstentions will have the same effect as a negative
vote on this proposal.
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DISSENTERS' RIGHTS
Each stockholder of KinderCare Common Stock has a right to dissent from the
Merger, and, if the Merger is consummated, to receive "fair value" for his or
her shares in cash by complying with the provisions of Delaware law, including
Section 262 of the DGCL. The dissenting stockholder must deliver to the Company,
prior to the vote being taken on the Merger at the Annual Meeting, written
notice of his or her intent to demand payment for his or her shares if the
Merger is effected and must not vote in favor of the Merger. The full text of
Section 262 of the DGCL is attached as Annex IV hereto. See "DISSENTING
STOCKHOLDERS' RIGHTS" for a further discussion of such rights and the legal
consequences of voting shares of KinderCare Common Stock in favor of the Merger
Proposal.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of Proxies and the cost
of printing and mailing this Proxy Statement. In addition to solicitation by
mail, the directors, officers and employees of the Company may solicit Proxies
from stockholders of the Company by telephone, telegram or by personal
interview. Such directors, officers and employees will not be additionally
compensated for any such solicitation but may be reimbursed for reasonable
out-of-pocket expenses in connection therewith. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of shares held of
record by such persons and the Company will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses in connection
therewith. Mackenzie will assist in the solicitation of Proxies by the Company
for an estimated fee of $5,000, plus reasonable out-of-pocket expenses.
If you have any questions or require additional material, please call
Mackenzie at (800) 322-2885 (toll-free) or (212) 929-5500 (collect).
ONLY HOLDERS OF KINDERCARE COMMON STOCK WHO WISH TO MAKE A NON-CASH ELECTION
ARE REQUIRED TO SEND STOCK CERTIFICATES WITH THEIR FORM OF ELECTION (AS DEFINED
BELOW). HOLDERS OF KINDERCARE COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES
WITH THEIR PROXY CARDS. SEE "THE MERGER-- NON-CASH ELECTION" AND "--NON-CASH
ELECTION PROCEDURE."
--PROPOSAL ONE--
THE MERGER
BACKGROUND OF THE MERGER
At a meeting of the Board of Directors on May 23, 1996, the Board authorized
the management of the Company, with the assistance of the Company's largest
stockholder, Oaktree, to explore, and report back to the Board with respect to,
alternative strategies to maximize stockholder value, including a
recapitalization of the Company to fund an extraordinary dividend or to
repurchase a significant number of the Company's shares, or entering into
another extraordinary transaction such as the Merger.
Following the May 23 meeting, Philip Maslowe, Executive Vice President and
Chief Financial Officer of the Company, an Oaktree representative and other
Company advisors held a series of meetings with several investment and
commercial banks, including among others Salomon Brothers Inc (which was
subsequently retained by an affiliate of KKR as its investment bank) and CSFB,
at which time the investment banks were requested to provide proposals to the
Company, based on publicly available information, with respect to alternative
strategies for maximizing stockholder value.
Prior to its meeting with the Company and Oaktree, Salomon Brothers Inc
suggested that KKR might be interested in exploring a business combination
between the Company and an affiliate of KKR.
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On June 17, 1996, an initial meeting among Mr. Clifton S. Robbins of KKR,
representatives of Salomon Brothers Inc and the Company, represented by Stephen
Kaplan (a director of the Company and Principal of Oaktree), and an additional
representative of Oaktree took place. During the course of that meeting, Mr.
Robbins indicated that if KKR was provided with an opportunity to perform due
diligence on the Company, it would evaluate its ability to structure a proposal
that the Board of Directors might find attractive. Mr. Robbins stated that an
affiliate of KKR would only proceed in a Board-approved transaction.
On July 3, 1996, KKR signed a confidentiality and a two-year standstill
agreement (the "Confidentiality Agreement") with Oaktree and the Company.
Pursuant to the standstill provisions of the Confidentiality Agreement, KKR
agreed, among other things, that it would not acquire, directly or indirectly,
any securities or property of the Company or any of its subsidiaries unless the
Board of Directors approved such acquisition.
On July 18, 1996, Dr. Sandra Scarr, Chairman and Chief Executive Officer of
the Company, Philip Maslowe, Bruce Karsh (a director of the Company and
President and a Principal of Oaktree), Stephen Kaplan, an additional
representative of Oaktree and representatives of KKR and Salomon Brothers Inc
met in New York to discuss the Company's business.
In early August, Mr. Robbins advised Oaktree that he believed that KKR would
be able to structure a proposal to purchase all of the shares of KinderCare
Common Stock for all cash at a premium to market. He stated that KKR needed at
least one month of intensive due diligence with the Company's management to
develop such a proposal and that KKR would expend the necessary time and
resources to develop such a proposal, including retaining any necessary outside
advisors at its own expense, if the Board of Directors indicated that it would
be receptive to such a proposal. Mr. Robbins indicated that KKR would not
participate in an auction process given the time and resources that he believed
were necessary to develop such a proposal.
On August 14, 1996, the Board of Directors held a telephonic meeting at
which Oaktree and management apprised the Board of Directors of the status of
discussions with the various investment and commercial banks which had been
contacted by the Company and Oaktree, of the discussions that had taken place
with KKR and of the terms of the Confidentiality Agreement. Following this
presentation, the Board of Directors concluded that KKR should be permitted to
continue its due diligence review of the Company in anticipation that KKR would
make a proposal to the Company once its due diligence was completed.
Representatives of Oaktree and management were in regular contact with
representatives of KKR during the due diligence period.
Shortly after Labor Day, representatives of KKR informed Oaktree that they
continued to be interested in pursuing a transaction with the Company but that
additional due diligence was required. KKR's representatives indicated that they
expected to be in a position to make a proposal later in September.
On September 24, 1996, representatives of KKR and Salomon Brothers Inc met
with Oaktree and CSFB. During the course of the meeting, representatives of KKR
proposed a merger transaction with the Company which provided for all cash
consideration of $19.00 per share. KKR's representatives indicated that their
proposal was contingent upon Oaktree recommending the proposal to the Board of
Directors and Oaktree agreeing to enter into appropriate lock-ups with respect
to all of Oaktree's shares of KinderCare Common Stock and Warrants.
On September 24, 1996, after further negotiations between Mr. Robbins, on
behalf of KKR, and Oaktree, Oaktree agreed, subject to the negotiation of
mutually acceptable documentation, to recommend to the Board for its approval a
merger transaction valued at $20.25 per share and which offered all stockholders
the opportunity to retain a portion of their shares. In order to afford the
stockholders the
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ability to retain a portion of their shares, Mr. Robbins indicated that the
transaction would need to be structured as a recapitalization. In that regard
Oaktree indicated that it would agree, subject to negotiating stockholder rights
commensurate with its ownership position, to elect to retain a sufficient amount
of shares to assure that all other stockholders could receive all cash if they
chose to do so. Oaktree also agreed that it would enter into a voting agreement
with an affiliate of KKR to support the transaction, provided that the
transaction was approved by the Board of Directors. Mr. Robbins indicated that
Oaktree's support and its willingness to enter into a voting agreement were
fundamental conditions of KKR's willingness to proceed with a transaction.
On Wednesday, September 25, 1996, the Board of Directors held a meeting.
During that meeting Oaktree apprised the Board of KKR's proposal and the
negotiations which took place at the September 24, 1996 meeting. Oaktree
informed the Board that Oaktree endorsed entering into the proposed merger
transaction with an affiliate of KKR and that under the proposal all the
Company's stockholders would receive equal treatment. Oaktree told the Board
that it was willing to commit to retain a sufficient number of shares of
KinderCare Common Stock to ensure that all other stockholders could receive cash
if they chose to do so, but that if other stockholders also determined to retain
shares of KinderCare Common Stock, Oaktree would share PRO RATA with such
stockholders the retained shares of KinderCare Common Stock. Oaktree explained
to the Board that KKR's proposal was conditioned upon Oaktree entering into a
lock-up agreement regarding its shares of KinderCare Stock and Warrants and that
Oaktree was willing to enter into such an agreement if the overall terms of the
merger proposal were acceptable to it.
At the September 25 Board meeting, representatives of CSFB attended and were
interviewed by the Board as to their willingness and ability to represent the
Company in connection with any KKR proposal and any other business combination
proposals. The Board of Directors ratified the retention of CSFB as its
exclusive financial advisor in connection with the KKR proposal. CSFB advised
the Board that because of its familiarity with the Company, having worked on the
potential recapitalization, it would take about one week to complete its
analysis and report to the Board. The Board instructed CSFB to begin work
immediately and provide the Board with a status report on September 30. The
Board of Directors authorized further negotiations with representatives of KKR
to be conducted by management and the Company's advisors. In particular, the
Board instructed the advisors to test whether a "lock-up" arrangement with
Oaktree was a clear precondition to any agreement and whether $20.25 was KKR's
highest price.
Following the September 25, 1996 Board of Directors' meeting, negotiations
proceeded on the definitive agreements for the transaction. The subject of
lock-up arrangements with Oaktree was extensively discussed with the Company's
advisors who suggested that the Board would prefer arrangements between Oaktree
and an affiliate of KKR that would not preclude competitive proposals from other
third parties being made. KKR rejected any limitations on Oaktree's commitment
to vote its shares in favor of the transaction and insisted as a precondition to
its willingness to proceed that its affiliate obtain an irrevocable proxy and,
under certain circumstances, an option with respect to all the shares of
KinderCare Common Stock and Warrants owned by Oaktree.
On Monday, September 30, 1996, the Board of Directors held a telephonic
meeting during which its legal and financial advisors reviewed the status of the
negotiations and the elements of KKR's proposal including KKR's insistence
regarding the Oaktree lock-up (of which representatives of KKR had authorized
the Company's advisers to inform the Board). The Board of Directors authorized
continued negotiations and instructed CSFB to meet with representatives of KKR
to, among other things, attempt to obtain a higher price per share.
On Tuesday, October 1, 1996, representatives of CSFB and KKR met and
discussed the structure and terms of the proposed merger transaction, including
the price per share which KKR had offered. During the course of the meeting, KKR
indicated that it was not willing to increase the price per share, and it
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reiterated its insistence on a lock-up of the Oaktree shares and its
unwillingness to participate in any auction situation.
On Wednesday, October 2, 1996, the Board of Directors held a meeting to
review KKR's proposal. During that meeting management of the Company reviewed
with the Board the overall operations of the Company and KKR's proposal.
Representatives of Oaktree stated that, as the Company's largest stockholder
holding 52.2% of the outstanding shares, Oaktree believes that the KKR proposal,
which treats all stockholders equally, is attractive and in the best interests
of the Company and its stockholders as it was in Oaktree's view the best
alternative available to the Company. The Company's legal advisors reported to
the Board that the parties had negotiated nearly final drafts of the agreements
related to the KKR proposal and reviewed the terms of such agreements. During
the meeting CSFB made an oral presentation and delivered its written fairness
opinion. The Board of Directors then approved KKR's proposal and the draft of
each of the Original Merger Agreement, the Voting Agreement, which incorporates
an irrevocable proxy and option with respect to all the shares of KinderCare
Common Stock and Warrants owned by Oaktree, and the Stockholders' Agreement,
which provides, if Oaktree owns more than five percent of the shares of
KinderCare Common Stock immediately following the Merger, for certain tag-along
and drag-along rights and the right to nominate a director for the Board of
Directors, and authorized the appropriate officers of the Company to finalize
and execute the Original Merger Agreement. See "CERTAIN RELATED
AGREEMENTS--Voting Agreement" and "--Stockholders' Agreement."
On October 3, 1996, the Company and an affiliate of KKR entered into the
Merger Agreement and Oaktree, the funds which own the shares of KinderCare
Common Stock and Warrants and an affiliate of KKR entered into the Voting
Agreement.
On December 17, 1996, Mr. Robbins and representatives of Oaktree discussed
concerns which KKR had with the Company's recent business performance and the
potential implications thereof for the Company's anticipated operating
performance. KKR was also concerned that these matters could have affected the
financing of the Merger as originally contemplated (although these concerns were
resolved as a result of the amendment to the Original Merger Agreement). The
parties continued to discuss these matters, and on December 19, 1996, Mr.
Robbins suggested that the cash portion of the merger consideration be reduced
to $18.25. In these discussions, while Oaktree acknowledged the performance
issues identified by KKR, it disagreed as to the significance and implications
of these issues.
On December 23, 1996, Mr. Robbins and a representative of Oaktree discussed
a possible revision of the proposed cash portion of the merger consideration to
$19.00 per share. The Board of Directors of the Company met shortly thereafter
on December 23, 1996 to receive an update on the status of the negotiations. The
Board was fully apprised of the discussions between Oaktree and KKR, discussed
with management and considered the performance issues which had been raised and
considered the alternatives available to the Company in addition to amending the
Original Merger Agreement and the costs and uncertainties associated with the
Company's various alternatives. Although the Board of Directors took no action,
in light of the foregoing discussion, the Board concluded that it would be
prudent to consider the possibility of revising the consideration and to assure
itself that the financing commitments previously obtained by the Company would
continue to remain in effect in the event of any modification to the terms of
the transaction. Thereafter, KKR's affiliate more specifically proposed revised
consideration to KinderCare's stockholders of $19.00 per share, payable in cash
or, at the election of each stockholder, in KinderCare's Common Stock, provided
that the number of shares of KinderCare's Common Stock to be retained by
existing stockholders of the Company would be 1,381,579, which would represent
approximately 15% of the shares of KinderCare's Common Stock estimated to be
outstanding after the Merger. In addition, the Partnership would receive
7,828,947 shares of KinderCare's Common Stock which would represent
approximately 85% of the outstanding shares after the Merger. The new proposal
would maintain the same percentage ownership levels as the originally agreed
transaction by changing the number of shares to be retained by existing
stockholders of the Company and the number of shares to be
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received by the Partnership. See "THE MERGER--Conversion of KCLC Stock." The
Company was also able on December 27, 1996 to reconfirm its financing
commitments and to further confirm that the due diligence conditions to these
commitments had been satisfied. The Board of Directors of the Company met on
December 27, 1996 to consider the proposed amendments to the Original Merger
Agreement. At that meeting, CSFB delivered a second fairness opinion, which is
set forth herein as Annex III, and which concludes that the consideration to be
received by the stockholders of the Company in the Merger, as amended, is fair
to such stockholders from a financial point of view. After a lengthy and
thorough discussion of the proposed amendments, the Board of Directors, with all
members in attendance, unanimously approved the Merger Agreement, as amended,
and the Merger. On December 27, 1996, the Company and KCLC issued a joint press
release announcing the terms of the Merger Agreement, as amended.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors has unanimously approved the Merger Agreement and the
Merger and has determined that the terms of the Merger Agreement are fair to,
and that the Merger is in the best interests of, the Company and the
stockholders of the Company and recommends that holders of KinderCare Common
Stock vote FOR approval and adoption of the Merger Agreement. In the course of
reaching its decision to approve the Merger Agreement and the Merger, the Board
of Directors consulted with the Company's legal and financial advisors and
considered a number of factors, including, among others, the following:
(i) the opinion of CSFB delivered at the December 27, 1996 Board of
Directors meeting to the effect that, as of the date of such opinion and
based upon and subject to certain matters stated therein, the consideration
to be received by the holders of KinderCare Common Stock in the Merger is
fair to such holders, from a financial point of view, and the presentation
of CSFB at the December 27, 1996 Board meeting in connection with the
delivery of its opinion. See "THE MERGER--Opinion of Financial Advisor";
(ii) the reports and opinions of the Company's management regarding the
overall operations of the Company and KKR's proposal;
(iii) the alternative courses of action available to the Company, and
CSFB's presentation with respect to the financial analysis thereof (see "THE
MERGER--Opinion of Financial Advisor"), after which the Board concluded that
the Merger was the preferable alternative; and with respect to the decision
to amend the Merger Agreement the Board considered the issues raised by KKR,
the alternatives available to the Company in addition to amending the
Original Merger Agreement and the costs and uncertainties associated with
the Company's various alternatives;
(iv) the fact that the Company's largest stockholder, Oaktree, which
holds more than 50% of the outstanding shares of KinderCare Common Stock,
indicated to the Board that it believed that KKR's proposal and the
consideration to be received were attractive and in the best interest of the
Company and its stockholders;
(v) the fact that all stockholders, including Oaktree, will receive an
equal amount of consideration under the terms of KKR's proposal;
(vi) the terms of KKR's proposal provide that the Merger is to be
treated as a recapitalization for accounting purposes; and
(vii) the terms of each of the Merger Agreement, the Voting Agreement and
the Stockholders' Agreement.
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The Board of Directors also considered the fact that KKR's proposal was
conditioned upon Oaktree entering into the Voting Agreement. The Board concluded
that, given Oaktree's ownership position, the Voting Agreement would make it
very unlikely that a third party other than a KKR-affiliated entity would make a
business combination proposal for the Company. The Board also considered the
facts that the Company had not received nor sought business combination
proposals from other parties and that KKR had specifically stated that (i) the
lock-up of Oaktree was a condition of its entering into the Merger Agreement,
(ii) KKR would not permit its proposal to be disclosed to other parties for the
purpose of determining whether such parties might consider entering into a
business combination transaction with the Company and (iii) KKR would not
participate in an auction. In that regard the Board took into account (i) advice
from CSFB including its discussion of an evaluation of strategic alternatives
available to KinderCare including a private market disposition, a leveraged
recapitalization and a strategic acquisition; in connection with this
discussion, CSFB advised the Board of Directors that an analysis and pursuit of
one or more of these alternatives might take as long as several months to
complete and that there could be no assurance that an alternative transaction,
including a leveraged recapitalization, could be developed or consummated on
terms more attractive than those contained in the Merger Agreement, (ii) the
fairness opinion of CSFB and (iii) the fact that Oaktree, which beneficially
owns more than 50% of the Company's stock, was willing to enter into the Voting
Agreement and recommend the Merger Agreement to the Board after having concluded
that it is attractive and in the best interests of the Company and its
stockholders. The Board of Directors also considered (i) that under the terms of
the option in the Voting Agreement, Oaktree, under very limited circumstances,
would receive additional consideration for the shares of KinderCare Common Stock
and Warrants purchased by a KKR affiliate in the event such securities were
actually purchased by such KKR affiliate pursuant to the Option and were then
resold and (ii) that the Stockholders' Agreement, which provides for tag-along
and drag-along rights with respect to certain sales of KinderCare Common Stock
by affiliates of KKR and the right for Oaktree to nominate one representative to
the Board of Directors, would only be entered into if Oaktree owned more than
five percent of the KinderCare Common Stock immediately following the Merger.
See "CERTAIN RELATED AGREEMENTS--Voting Agreement" and "--Stockholders'
Agreement." The Board concluded that these factors were not material to its
determination with respect to the proposed merger transaction because (i) under
the terms of the Voting Agreement, if affiliates of KKR exercised the option
they would be required to make an offer on the same terms to all other
stockholders of the Company, subject to no conditions other than injunction, and
(ii) given Oaktree's ownership percentage, it was unlikely that anyone else
would own five percent of the Company immediately following the Merger and no
one currently has any of those benefits. The Board also took into account that
by entering into the Voting Agreement Oaktree would be subjecting itself to
certain constraints, such as agreeing not to sell its shares or exercise
dissenters' rights and agreeing to the drag-along provisions of the
Stockholders' Agreement (whereby the Electing Oaktree Affiliate may be required
by an affiliate of KKR to sell a percentage of its post-Merger KinderCare Common
Stock, PRO RATA, in the event that such affiliate agrees to sell its KinderCare
Common Stock in certain transfers described more fully therein), that would not
be applicable to other stockholders.
The foregoing discussion of the information and factors considered by the
Board of Directors is not intended to be exhaustive but is believed to include
all material factors considered by the Board of Directors. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Board of Directors did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weight to the specific factors considered
in reaching its determination. In addition, individual members of the Board of
Directors may have given different weights to different factors. In the course
of its deliberations, the Board of Directors did not establish a range of values
for the Company; however, based on the factors outlined above and on the advice
of its financial advisors, CSFB, the Board of Directors determined that the
terms of the Merger Agreement are fair to, and that the Merger is in the best
interests of, the Company and its stockholders.
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OPINION OF FINANCIAL ADVISOR
CSFB has acted as financial adviser to KinderCare in connection with the
Merger and has assisted the Board in its examination of the fairness of the
consideration to be received by the holders of KinderCare Common Stock in the
Merger from a financial point of view.
On December 27, 1996, CSFB delivered its opinion to the Board to the effect
that, as of the date of such opinion and based upon and subject to certain
matters stated therein, the consideration to be received by the holders of
KinderCare Common Stock in the Merger is fair to such holders from a financial
point of view. The full text of CSFB's written opinion dated December 27, 1996,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Annex III to this Proxy Statement and is
incorporated herein by reference. Holders of KinderCare Common Stock are urged
to read this opinion carefully and in its entirety. CSFB's opinion is directed
to the Board and the fairness of the consideration to be received by the holders
of KinderCare Common Stock in the Merger from a financial point of view, and
does not address any other aspect of the Merger and does not constitute a
recommendation to any stockholder as to either how such stockholder should vote
at the Annual Meeting or exercise such stockholder's right of election. The
summary of the opinion of CSFB set forth in this Proxy Statement is qualified in
its entirety by reference to the full text of such opinion.
In connection with its opinion, CSFB reviewed the Original Merger Agreement,
a draft of the Merger Agreement Amendment and certain publicly available
business and financial information relating to KinderCare. CSFB also reviewed
certain other information, including financial forecasts dated December 5, 1996,
provided to CSFB by KinderCare and met with KinderCare's management to discuss
the business and prospects of KinderCare. CSFB also considered certain financial
and stock market data of KinderCare and CSFB compared that data with similar
data for other publicly held companies in businesses similar to those of
KinderCare and considered, to the extent publicly available, the financial terms
of certain other business combinations and other transactions which have
recently been effected. CSFB also considered such other information, financial
studies, analyses and investigations and financial, economic, regulatory and
market criteria which CSFB deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the foregoing information provided to or
otherwise reviewed by CSFB and relied on its being complete and accurate in all
respects. With respect to the financial forecasts reviewed and discussed, CSFB
assumed that they had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of KinderCare's management as to the
future financial performance of KinderCare. In addition, CSFB did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of KinderCare, nor was CSFB furnished with any such evaluations or
appraisals. CSFB's opinion was necessarily based upon financial, economic,
market and other conditions as they existed and could be evaluated on the date
of its opinion. CSFB expressed no opinion as to the value at which the
KinderCare Common Stock would trade subsequent to the Merger. CSFB was not
requested to, and did not, solicit third party indications of interest in
acquiring all or part of KinderCare.
In preparing its opinion for the Board, CSFB performed a variety of
financial and comparative analyses and considered a variety of factors including
those described below. The summary of CSFB's analyses set forth below does not
purport to be a complete description of the analyses underlying CSFB's opinion.
The preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances, and, therefore, such an opinion is not readily susceptible to
summary description.
In arriving at its opinion, CSFB did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor. Accordingly,
CSFB believes that its analyses must be considered as a whole and that selecting
portions of its analyses or portions of the factors considered by it, without
considering all analyses
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and factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, CSFB made numerous
assumptions with respect to KinderCare, industry performance, general business,
regulatory, economic, market and financial conditions and other matters, many of
which are beyond the control of KinderCare. No company, transaction or business
used in such analyses as a comparison is identical to KinderCare, nor is an
evaluation of the results of such analyses entirely mathematical; rather, it
involves complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
being analyzed. The estimates contained in such analyses and the ranges of
valuations resulting from any particular analysis are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, because such estimates are
inherently subject to substantial uncertainty, none of KinderCare, CSFB or any
other person assumes responsibility for their accuracy.
The following is a summary of the material analyses performed by CSFB and
presented to the Board:
DISCOUNTED CASH FLOW ANALYSIS. CSFB performed a discounted cash flow
analysis of the forecasted cash flows of KinderCare. This analysis was based in
part upon certain operating and financial assumptions, forecasts and other
information provided by management of KinderCare. Using the financial
information set forth by management, CSFB calculated forecasted free cash flows
based on forecasted earnings before interest and after taxes adjusted for (i)
certain forecasted non-cash items (i.e., depreciation and amortization), (ii)
forecasted capital expenditures and (iii) forecasted changes in working
investment. CSFB also calculated the terminal value by applying a range of
terminal multiples from 4.5x to 7.5x to the forecasted year 2006 earnings before
interest, tax, depreciation and amortization ("EBITDA"). CSFB discounted such
free cash flow and terminal value estimates back to June 1, 1996 using discount
rates of 12.0% and 13.0%. These discount rates were selected based on a variety
of factors including analysis of the estimated cost of capital and capital
structures for companies operating in businesses similar to that in which
KinderCare operates. The range of terminal year multiples was selected based on
the trading multiples for such companies. CSFB then summed the present value of
the free cash flows and the present values of the terminal value to derive an
enterprise value. Three cases were analyzed. In the first case (the "Management
Case"), CSFB assumed that: (i) KinderCare's core centers would have an occupancy
rate of approximately 76% in 1997 and 80.1% thereafter; (ii) KinderCare would be
able to open 50 new centers per year by 1999 and that 50% of these new centers
would be lease-financed from 2000 to 2006; (iii) KinderCare would charge higher
tuition at the new centers; (iv) salaries, wages and benefits would constitute
53.7% of operating revenue in 1997 and declining to 52.7% by 2001; and (v) other
expenses (excluding rent and depreciation) would constitute 25.2% of operating
revenue in 1997 and declining to 23.4% by 2001. In the second case (the
"Alternative Case"), CSFB assumed that: (i) KinderCare's core centers would have
an occupancy rate of approximately 76% in 1997 and improving to 78% by 2001;
(ii) KinderCare would be able to open 35 new centers by 1999 and that 40% of
these new centers would be lease-financed from 2000 to 2006; (iii) KinderCare
would charge higher tuition at the new centers; (iv) salaries, wages and
benefits would constitute 53.9% of operating revenue in 1997 and declining to
53.2% by 2001; and (v) other expenses (excluding rent and depreciation) would
constitute 25.6% of operating revenue in 1997 and declining to 23.9% in 2001. In
the third case (the "Downside Case"), CSFB modified the Alternative Case by
assuming that core center occupancy and discount rates would stabilize at 77%
and 8%, respectively, by 2001. In the Management Case, CSFB derived an
enterprise value for KinderCare of approximately $513.9 million to $779.6
million. After subtracting net debt and making certain adjustments totalling
$184.0 million, this reference range was then divided by 19.984 million fully
diluted shares of KinderCare Common Stock outstanding to yield an equity value
range for KinderCare of $16.50 to $29.80 per share. In the Alternative Case,
CSFB derived an enterprise value for KinderCare of approximately $458.2 million
to $682.5 million. After subtracting net debt and making certain adjustments
totalling $184.0 million, this reference range was then divided by 19.984
million fully diluted shares of KinderCare
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Common Stock outstanding to yield an equity value range for KinderCare of $13.72
to $24.94 per share. In the Downside Case, CSFB derived an enterprise value for
KinderCare of approximately $437.7 million to $653.4 million. After subtracting
net debt and making certain adjustments totalling $184.0 million, this reference
range was then divided by 19.984 million fully diluted shares of KinderCare
Common Stock outstanding to yield an equity value range for KinderCare Common
Stock of $12.69 to $23.49 per share.
COMPARABLE COMPANY ANALYSIS. KinderCare has no large public competitors in
the child care sector and there exist three other publicly traded child care
companies that have significant research coverage: Nobel Education Dynamics,
Inc., Children's Discovery Centers of America, Inc. and Childtime Learning
Centers, Inc. (collectively the "Child Care Companies"). As a result, CSFB
broadened the scope of its comparable company analysis to include companies that
manage multi-unit operations in the educational and hospitality sector, although
these companies are less comparable to KinderCare. In that regard, CSFB selected
Jenny Craig, Inc., a provider of comprehensive weight loss programs through a
chain of more than 780 company-owned and franchised centers in the U.S. and
abroad, La Quinta Inns, Inc., owner and operator of a chain of limited service
motor inns, and The Marcus Corporation, operator of limited-menu restaurants,
motion picture theaters and hotel/resorts and motels primarily in the Midwest
(collectively the "Other Companies" and together with the "Child Care
Companies," the "Comparable Companies"). Based on publicly available
information, CSFB compared forecasted 1996 sales, forecasted 1996 earnings
before interest and taxes ("EBIT") margin, historical sales growth rate,
forecasted sales growth rate, forecasted five year net income growth rate,
equity value and adjusted market value (equity value plus total debt less cash
and cash equivalents) of the Comparable Companies with that of KinderCare. CSFB
also calculated a range of market multiples for the Comparable Companies by
dividing the adjusted market capitalization (total common shares outstanding
plus "in the money" exercisable options multiplied by the closing market price
per share on December 24, 1996 plus latest reported total debt, capitalized
leases, preferred stock and minority interest, minus cash and cash equivalents
and option proceeds) of each of the Comparable Companies by such company's
sales, EBITDA and EBIT. In addition, CSFB derived the multiple of equity value
relative to net income. Such multiples were calculated for the 1997 fiscal year.
This analysis indicated that the estimated multiples of sales, EBITDA, EBIT and
net income for the Comparable Companies ranged from 0.5x to 4.0x, 4.4x to 8.0x,
6.4x to 10.4x and 10.4x to 15.3x, respectively. CSFB subsequently derived the
appropriate multiple range for KinderCare by comparing KinderCare's business and
performance to those of the Comparable Companies. CSFB determined that the
relevant ranges of multiples for KinderCare for fiscal year 1997 derived from
the Comparable Companies were: (i) sales: 0.8x to 1.0x; (ii) EBITDA: 5.5x to
6.5x; (iii) EBIT: 8.0x to 9.5x; and (iv) unlevered net income: 13.0x to 15.0x.
CSFB then derived the imputed valuation ranges for KinderCare by applying
forecasted results under the Alternative Case for KinderCare for fiscal year
1997 to the multiples derived from its analysis of the Comparable Companies.
This analysis resulted in an enterprise value reference range for KinderCare of
$455 million to $565 million. After subtracting net debt and making certain
adjustments totalling $184.0 million, this reference range was then divided by
19.984 million fully diluted shares of KinderCare Common Stock outstanding to
yield an equity value range for KinderCare of $13.56 to $19.07 per share.
COMPARABLE TRANSACTION ANALYSIS. Using publicly available information, CSFB
analyzed the transaction purchase price and multiples paid in selected merger or
acquisition transactions in the child care and instructional services industries
that occurred between 1986 and 1993 including: Vestar/LP Acquisition Corp./La
Petite Academy, Inc.; Fukutake/Berlitz International Inc.; Investor Group
(Fukutake)/Wilson Learning Corp.; Golder, Thoma & Cressey/CareerCom Corporation;
Lodestar Group/KinderCare; Philip Colleges/Katherine Gibbs (technical schools
division); National Education Corporation/Spectrum Interactive Inc.; Keller
Graduate School of Management/DeVry, Inc.; CarrerCom Corporation/Jostens Ed.
Systems; National Educational Corp./Del tak, Inc. (a subsidiary of Gulf &
Western Industries, Inc.) (collectively the "Comparable Transactions"). CSFB
selected these transactions based on the comparability of businesses conducted
by the acquired company to that of KinderCare. CSFB calculated the enterprise
value as a multiple of sales, EBITDA and EBIT. In addition, CSFB calculated the
equity value as a multiple of net income and book value. Such multiples were
calculated for the four quarters
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immediately preceding the announcement of the transactions. This analysis
indicated that the relevant ranges of multiples derived from the Comparable
Transactions were: (i) sales: 0.6x to 2.2x; (ii) EBITDA: 5.9x to 17.1x; (iii)
EBIT: 6.8x to 31.0x; (iv) net income: 19.1x to 59.2x; and (v) book value: 1.3x
to 16.0x. CSFB subsequently derived the appropriate multiple range for
KinderCare by comparing KinderCare's business and performance to those of the
businesses included in the Comparable Transactions and determined that the
relevant range of multiples for KinderCare were: (i) sales 0.8x to 1.0x; (ii)
EBITDA: 6.0x to 7.0x; (iii) EBIT: 10.5x to 11.5x and (iv) net income: 19.0x to
22.0x. CSFB then calculated an imputed valuation range of KinderCare by applying
historical results for the four quarters immediately preceding the announcement
of the transaction to the multiples derived from its analysis of the Comparable
Transactions. CSFB derived an enterprise value reference range for KinderCare of
$535 million to $625 million. After subtracting net debt and making certain
adjustments totalling $184.0 million, this reference range was then divided by
19.984 million fully diluted shares of KinderCare Common Stock outstanding to
yield an equity value range for KinderCare of $17.56 to $22.07 per share.
LEVERAGED BUYOUT ANALYSIS. CSFB prepared a financial analysis of a
hypothetical leveraged transaction in which stockholders of KinderCare would
receive cash and which would be financed through a combination of bank loans,
subordinated debt financing and equity financing. This analysis was based on the
operating data contained in the Management Case and Alternative Case and assumed
certain capitalization structures so as to provide the stockholders of
KinderCare total cash consideration in the range of $17.00 to $19.00 per share.
The purpose of this analysis was to demonstrate the effects that the different
levels of consideration would have on financial data and ratios considered
relevant in such a leveraged transaction (i.e., interest coverage, debt paydowns
and returns on debt and equity).
OTHER FACTORS AND ANALYSES: In the course of preparing its opinion, CSFB
performed certain other analyses and reviewed certain other matters, including,
among other things: (i) the trading history for KinderCare Common Stock; (ii)
financing considerations relating to the Merger; and (iii) the pro forma
capitalization of KinderCare after the Merger.
CSFB is an internationally recognized investment banking firm and, as part
of its investment banking business, CSFB is regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuation for estate, corporate and other
purposes. KinderCare selected CSFB as its financial advisor because of CSFB's
experience and expertise in transactions similar to the Merger and because of
its familiarity with KinderCare's business.
For its services in connection with the Merger, CSFB will receive a
transaction fee of $2,750,000, of which $250,000 became payable upon signing of
the engagement letter and $1,000,000 of which became payable upon the rendering
of CSFB's opinion and the balance will become payable upon consummation of the
Merger. KinderCare also has agreed to reimburse CSFB for its out-of-pocket
expenses including the fees and expenses of legal counsel and other advisors
retained by CSFB, and to indemnify CSFB and certain related persons or entities
against certain liabilities including liabilities under the federal securities
law relating to or arising out of its engagement. In the ordinary course of its
business, CSFB and its affiliates may actively trade the debt and equity
securities of KinderCare for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities. CSFB and its affiliates have performed and are currently performing
certain investment banking, commercial banking and other services for KKR and/or
its affiliates and have received or will receive customary fees for such
services. In addition, affiliates of CSFB are limited partners in a fund
sponsored by KKR although the fund in which the CSFB affiliates invest will not
have any interest in KinderCare after the Merger. Moreover, an affiliate of CSFB
is an investor in a fund managed by the general partner of Oaktree. This fund
has no interest in KinderCare and will have no interest in KinderCare after the
Merger.
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MERGER CONSIDERATION
KINDERCARE COMMON STOCK.
Subject to certain provisions as described herein with respect to shares of
KinderCare Common Stock owned by the Company, any subsidiary of the Company,
KCLC or any subsidiary of KCLC, and with respect to fractional shares and
Dissenting Shares, (i) each issued and outstanding share of KinderCare Common
Stock (other than Electing Shares as defined below) will be converted into the
right to receive in cash from the Company following the Merger an amount equal
to $19.00 (the "Cash Price") and (ii) each issued and outstanding share of
KinderCare Common Stock with respect to which an election to retain KinderCare
Common Stock has been made and not withdrawn in accordance with the Merger
Agreement (an "Electing Share") will be converted into the right to retain one
fully paid and nonassessable share of KinderCare Common Stock (a "Non-Cash
Election Share"); provided, that the aggregate number of shares of KinderCare
Common Stock to be converted into the right to retain KinderCare Common Stock at
the Effective Time shall be equal to 1,381,579 (the "Non-Cash Election Number").
With respect to certain risks related to retaining to hold KinderCare Common
Stock, see "RISK FACTORS" above.
The Merger contemplates that approximately 93% of the presently issued and
outstanding shares of KinderCare Common Stock will be converted into cash and
that approximately 7% of such shares will be retained by existing stockholders.
Because the number of shares of KinderCare Common Stock to be retained by
existing KinderCare stockholders must equal 1,381,579 and because the Electing
Oaktree Affiliate has committed to elect to retain at least 1,381,579 shares of
KinderCare Common Stock, the right to retain shares of KinderCare Common Stock
is subject to proration, as set forth in the Merger Agreement and described
herein. Assuming that the Electing Oaktree Affiliate makes the election
described in the preceding sentence, each holder of shares of KinderCare Common
Stock who does not elect to retain KinderCare Common Stock would, upon
completion of the Merger, be entitled to receive $19.00 in cash per share.
The following examples illustrate the potential effects of proration. All
fractional shares are subject to payment of cash instead of issuing fractional
shares.
A. HOLDER A OWNS 100 SHARES AND DOES NOT ELECT TO RETAIN ANY SHARES.
1. If other stockholders elect to retain 1,381,579 or more shares in
the aggregate, then Holder A will receive $1,900 in cash (100 shares at
$19.00 per share). This is because other stockholders have satisfied the 15%
requirement.
2. Because the Electing Oaktree Affiliate has committed to elect to
retain at least 1,381,579 shares of KinderCare Common Stock, all
stockholders who do not elect to retain shares of KinderCare Common Stock
should expect to have their shares converted into cash. If, however, for any
reason stockholders elect to retain fewer than 1,381,579 shares in the
aggregate, then Holder A will not be able to receive all cash for its 100
shares and will be required to retain some shares. This is because the 15%
requirement has not been met and thus each stockholder must retain a small
number of shares in order to increase the number of retained shares to
1,381,579 and thus meet the 15% requirement. However, even in the case of
maximum proration (i.e. no stockholder elects to retain shares and no
stockholder exercises dissenters' rights), Holder A will still be assured of
receiving at least $1,767 in cash (93 shares at $19.00 per share) and will
retain 7 shares of KinderCare Common Stock.
B. HOLDER B OWNS 100 SHARES AND ELECTS TO RETAIN ALL ITS SHARES.
1. If the stockholders (including Holder B) elect to retain more than
1,381,579 shares, then Holder B will not be able to retain all its shares
and will be required to receive some cash. This is because the 15% threshold
has been exceeded and thus the number of shares which have been elected to
be retained must be reduced in order to meet exactly the 15% requirement.
For example, if
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stockholders elected to retain 1,500,000 shares in the aggregate, then each
holder, including Holder B, would be able to retain only 92% of his shares
in order to reduce the number of retained shares to 1,381,579 and thus meet
the 15% requirement. Therefore, Holder B would be able to retain only 92
shares (or 92% of his 100 shares) and would receive $152.00 in cash (8
shares at $19.00 per share). In the case of maximum proration (i.e. all
stockholders elect to retain their shares), Holder B would be able to retain
only 7 shares (or 7%) and would receive $1,767.00 in cash (or 93%).
2. Because the Electing Oaktree Affiliate has committed to elect to
retain at least 1,381,579 shares of KinderCare Common Stock, all
stockholders who do not elect to retain shares of KinderCare Common Stock
should expect to have their shares converted into cash. If, however, for any
reason the stockholders (including Holder B) elect to retain 1,381,579 or
fewer shares in the aggregate, then Holder B will be able to retain all 100
of its shares. This is because in this situation KinderCare will accept all
shares elected to be retained in order to reach the 15% threshold. As
described in example A.2. above, if fewer than 1,381,579 shares are elected
to be retained, non-electing stockholders will then be prorated into shares
in order to reach the 15% threshold.
C. HOLDER C OWNS 100 SHARES AND ELECTS TO RETAIN SOME BUT NOT ALL ITS
SHARES (THIS EXAMPLE HAS ASSUMED AN ELECTION TO RETAIN 50 SHARES AND CONVERT 50
SHARES TO CASH).
1. In the unlikely event that stockholders (including Holder C) elect
to retain exactly 1,381,579 shares in the aggregate, then Holder C will be
able to retain its 50 shares and will receive $950.00 in cash (50 shares at
$19.00 per share). This is because the 15% requirement has been met exactly.
2. If the stockholders (including Holder C) elect to retain more than
1,381,579 shares in the aggregate, then Holder C will not be able to retain
all of its 50 shares. Again, this is because the 15% threshold has been
exceeded and thus the number of shares which have been elected to be
retained must be reduced in order to meet exactly the 15% requirement. For
example, if stockholders elected to retain 1,500,000 shares in the
aggregate, then each holder, including Holder C, would be able to retain
only 92% of its shares in order to reduce the number of retained shares to
1,381,579 and thus meet the 15% requirement. Therefore, Holder C would be
able to retain only 46 shares (or 92% of its 50 shares) and would receive
$1,026.00 in cash (54 shares at $19.00 per share). If the stockholders
elected to retain more than 1,500,000 shares in the aggregate, Holder C
would receive fewer shares than in the example above, but would receive a
commensurately greater amount of cash.
3. Because the Electing Oaktree Affiliate has committed to elect to
retain at least 1,381,579 shares of KinderCare Common Stock, all
stockholders who do not elect to retain shares of KinderCare Common Stock
should expect to have their shares converted into cash. If, however, for any
reason the stockholders (including Holder C) elect to retain fewer than
1,381,579 shares in the aggregate, then Holder C would be required to retain
more than 50 shares. Again, this is because the 15% threshold has not been
reached and thus each stockholder must retain a small number of shares (in
the case of Holder C, a small number of additional shares) in order to
increase the aggregate number of retained shares to 1,381,579 and thus meet
the 15% requirement. For example, if stockholders elected to retain 500,000
shares in the aggregate, then all stockholders must collectively retain an
additional 881,579 shares in order to reach the 15% threshold. In this
example, Holder C would be required to retain an additional 2 shares (for a
total of 52 shares) and would receive $912.00 in cash (48 shares at $19.00
per share). The additional 2 shares is calculated by multiplying the 50
shares Holder C wants to convert to cash by a fraction the numerator of
which is 881,579 and the denominator of which is the total number of
outstanding shares less the 500,000 electing shares. If the stockholders
elected to retain fewer than 500,000 shares in the aggregate, Holder C would
receive more shares than in the example above, but would receive
commensurately less cash.
Fractional shares of KinderCare Common Stock will not be issued in the
Merger. Holders of KinderCare Common Stock otherwise entitled to a fractional
share of KinderCare Common Stock
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following the Merger will be paid cash in lieu of such fractional share
determined and paid as described under "--Fractional Shares" below.
Any shares of KinderCare Common Stock owned by the Company, any subsidiary
of the Company, KCLC or any subsidiary of KCLC, will automatically be cancelled
at the Effective Time and will cease to exist.
WARRANTS.
The Merger Agreement provides that each issued and outstanding Warrant will
be converted into the right to receive in cash from the Company following the
Merger an amount in cash determined by using the version of the Black-Scholes
model for valuing options set forth in the Warrant Agreement (which amount is
estimated to be $6.58 per Warrant).
KCLC COMMON STOCK.
In the Merger, each share of stock of KCLC issued and outstanding
immediately prior to the Effective Time will be converted into (i) a number of
shares of KinderCare Common Stock equal to the quotient of (A) 7,828,947 divided
by (B) the number of shares of common stock of KCLC outstanding immediately
prior to the Effective Time. As a result of the Merger, the Partnership will
hold 7,828,947 shares, or approximately 85% of the shares, of KinderCare Common
Stock expected to be outstanding after the Merger.
NON-CASH ELECTION
Record holders of shares of KinderCare Common Stock will be entitled to make
an unconditional election (a "Non-Cash Election") on or prior to the Election
Date (as defined below) to retain Non-Cash Election Shares. If the number of
Electing Shares exceeds the Non-Cash Election Number, however, then (i) the
number of Electing Shares covered by a holder's Non-Cash Election to be
converted into the right to retain Non-Cash Election Shares will be determined
by multiplying the total number of Electing Shares covered by such Non-Cash
Election by a proration factor (the "Non-Cash Proration Factor") determined by
dividing the Non-Cash Election Number by the total number of Electing Shares and
(ii) such number of Electing Shares will be so converted. All Electing Shares,
other than those shares converted into the right to retain Non-Cash Election
Shares as described in the immediately preceding sentence, will be converted
into cash (on a consistent basis among stockholders who made the election to
retain Non-Cash Election Shares, pro rata to the number of shares as to which
they made such election) as if such shares were not Electing Shares. Because the
Electing Oaktree Affiliate has committed to elect to retain at least 1,381,579
shares of KinderCare Common Stock, if any other stockholder makes a Non-Cash
Election, then each of the Electing Oaktree Affiliates and any other stockholder
who elects to retain shares of KinderCare Common Stock should expect to
experience such proration.
If a stockholder elects to make a Non-Cash Election and receives cash as a
result of the proration procedures described above, such stockholder may receive
dividend treatment (rather than capital gain treatment) for any cash received in
the Merger as a result of such proration procedures. See "RISK FACTORS--Non-Cash
Election and Proration into Cash--Possible Dividend Treatment." See also "THE
MERGER--Federal Income Tax Consequences."
Because the Electing Oaktree Affiliate has committed to elect to retain at
least 1,381,579 shares of KinderCare Common Stock, all stockholders who do not
elect to retain shares of KinderCare Common Stock should expect to have their
shares converted into cash. If, however, for any reason the number of Electing
Shares is less than the Non-Cash Election Number, then (i) all Electing Shares
will be converted into the right to retain Non-Cash Election Shares in
accordance with the Merger Agreement, (ii) additional shares of KinderCare
Common Stock, other than Electing Shares and Dissenting Shares, will be
converted into the right to retain Non-Cash Election Shares, which number of
additional shares
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shall be determined by multiplying the total number of shares, other than
Electing Shares and Dissenting Shares, by a proration factor (the "Cash
Proration Factor") determined by dividing (x) the difference between the
Non-Cash Election Number and the number of Electing Shares by (y) the total
number of shares of KinderCare Common Stock, other than Electing Shares and
Dissenting Shares, and (iii) such additional shares of KinderCare Common Stock
shall be converted into the right to retain Non-Cash Election Shares in
accordance with the Merger Agreement (on a consistent basis among stockholders
who held shares of KinderCare Common Stock as to which they did not make the
Non-Cash Election, PRO RATA to the number of shares as to which they did not
make such election).
With respect to certain risks related to retaining KinderCare Common Stock,
see "RISK FACTORS" above.
NON-CASH ELECTION PROCEDURE
The form for making a Non-Cash Election (the "Form of Election") is being
mailed to holders of record of KinderCare Common Stock together with this Proxy
Statement. FOR A FORM OF ELECTION TO BE EFFECTIVE, HOLDERS OF KINDERCARE COMMON
STOCK MUST PROPERLY COMPLETE SUCH FORM OF ELECTION, AND SUCH FORM OF ELECTION,
TOGETHER WITH ALL CERTIFICATES FOR SHARES OF KINDERCARE COMMON STOCK HELD BY
SUCH HOLDER, DULY ENDORSED IN BLANK OR OTHERWISE IN FORM ACCEPTABLE FOR TRANSFER
ON THE BOOKS OF THE COMPANY (OR BY APPROPRIATE GUARANTEE OF DELIVERY AS SET
FORTH IN SUCH FORM OF ELECTION), MUST BE RECEIVED BY CHASEMELLON SHAREHOLDER
SERVICES, L.L.C. (THE "EXCHANGE AGENT") AT ONE OF THE ADDRESSES LISTED ON THE
FORM OF ELECTION AND NOT WITHDRAWN, BY 5:00 P.M., EASTERN TIME, ON THE BUSINESS
DAY NEXT PRECEDING THE DATE OF THE ANNUAL MEETING (THE "ELECTION DATE").
The determinations of the Exchange Agent as to whether or not Non-Cash
Elections have been properly made or revoked, and when such election or
revocations were received, will be binding.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or such later date
as is specified in such Certificate of Merger (the "Effective Time"). The filing
of the Certificate of Merger will occur as soon as practicable on or after the
closing of the Merger unless another date is agreed to in writing by the Company
and KCLC. Subject to certain limitations, the Merger Agreement may be terminated
by KCLC if, among other reasons, the Merger has not been consummated on or
before March 31, 1997. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Conditions to the Consummation of the Merger" and "--Termination."
CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
KINDERCARE COMMON STOCK.
The conversion of shares of KinderCare Common Stock (other than Dissenting
Shares) into the right to receive cash or the right to retain shares of
KinderCare Common Stock following the Merger will occur at the Effective Time.
As soon as practicable as of or after the Effective Time, the Exchange Agent
will send a letter of transmittal to each holder of KinderCare Common Stock
(other than holders of KinderCare Common Stock making a Non-Cash Election who
have properly submitted Forms of Election and share certificates to the Exchange
Agent). The letter of transmittal will contain instructions with respect to the
surrender of certificates representing shares of KinderCare Common Stock in
exchange for cash and, under certain circumstances, certificates representing
shares of KinderCare Common Stock to be retained in the Merger,
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or the amount of cash in lieu of any fractional interest in a share of
KinderCare Common Stock for which the shares represented by the certificates so
surrendered are exchangeable pursuant to the Merger Agreement.
EXCEPT FOR KINDERCARE COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF
ELECTION AS DESCRIBED ABOVE UNDER "--NON-CASH ELECTION PROCEDURE," STOCKHOLDERS
OF THE COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL
THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates at such time which prior thereto
represented shares of KinderCare Common Stock shall, upon surrender to the
Exchange Agent of such certificate or certificates and acceptance thereof by the
Exchange Agent, be entitled to the amount of cash, if any, into which the number
of shares of KinderCare Common Stock previously represented by such certificate
or certificates surrendered shall have been converted pursuant to the Merger
Agreement and a certificate or certificates representing the number of full
shares of KinderCare Common Stock, if any, to be retained by the holder thereof
pursuant to the Merger Agreement. The Exchange Agent will accept such
certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. After the Effective Time, there will be no
further transfer on the records of the Company or its transfer agent of
certificates representing shares of KinderCare Common Stock which have been
converted, in whole or in part, pursuant to the Merger Agreement into the right
to receive cash, and if such certificates are presented to the Company for
transfer, they will be cancelled against delivery of cash and, if appropriate,
certificates for retained KinderCare Common Stock. Until surrendered as
contemplated by the Merger Agreement, each certificate for shares of KinderCare
Common Stock will be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the consideration contemplated by
the Merger Agreement. No interest will be paid or will accrue on any cash
payable as consideration in the Merger or in lieu of any fractional shares of
retained KinderCare Common Stock.
No dividends or other distributions with respect to retained KinderCare
Common Stock with a record date after the Effective Time will be paid to the
holder of any unsurrendered certificate for shares of KinderCare Common Stock
with respect to the shares of retained KinderCare Common Stock represented
thereby and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to the Merger Agreement until the surrender of such
certificate in accordance with the Merger Agreement. Subject to the effect of
applicable laws, following surrender of any such certificate, there shall be
paid to the holder of the certificate representing whole shares of retained
KinderCare Common Stock issued in connection therewith, without interest, (i) at
the time of such surrender or as promptly after the sale of the Excess Shares
(as defined below) as practicable, the amount of any cash payable in lieu of a
fractional share of retained KinderCare Common Stock to which such holder is
entitled pursuant to the Merger Agreement and the proportionate amount of
dividends or other distributions, if any, with a record date after the Effective
Time theretofore paid with respect to such whole shares of retained KinderCare
Common Stock, and (ii) at the appropriate payment date, the proportionate amount
of dividends or other distributions, if any, with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to such
surrender payable with respect to such whole shares of retained KinderCare
Common Stock.
WARRANTS.
The conversion of Warrants into the right to receive cash will occur at the
Effective Time. As soon as practicable as of or after the Effective Time, the
Exchange Agent will send a letter of transmittal to each holder of Warrants. The
letter of transmittal will contain instructions with respect to the surrender of
certificates representing Warrants in exchange for cash. The instructions set
forth in such letter of
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transmittal will be substantially the same as those described above for holders
of KinderCare Common Stock who have not made Non-Cash Elections.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of retained
KinderCare Common Stock will be issued in connection with the Merger, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of the Company after the Merger. Each holder of shares
of KinderCare Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of retained KinderCare
Common Stock (after taking into account all shares of KinderCare Common Stock
delivered by such holder) will receive, in lieu thereof, a cash payment (without
interest) representing such holder's proportionate interest in the net proceeds
from the sale by the Exchange Agent (following the deduction of applicable
transaction costs), on behalf of all such holders, of the shares (the "Excess
Shares") of retained KinderCare Common Stock representing such fractions. Such
sale shall be made as soon as practicable after the Effective Time.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed that prior to the
Effective Time its business and that of its subsidiaries will be conducted only
in the ordinary course of business and in compliance with applicable law. See
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT-- Certain Pre-Closing Covenants."
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of the Company and KCLC to consummate the Merger are subject
to various conditions, including, without limitation, obtaining requisite
stockholder approval, the termination or expiration of the relevant waiting
period under the HSR Act and the absence of any injunction or other legal
restraint or prohibition preventing the consummation of the Merger. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--Conditions to the Consummation of the
Merger" and "REGULATORY APPROVALS."
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FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Wachtell, Lipton, Rosen & Katz, the following are, under
currently applicable law, the material United States federal income tax
considerations generally applicable to the Merger. The tax treatment described
herein may vary depending upon each stockholder's particular circumstances and
tax position. Certain stockholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations,
persons who are not citizens or residents of the United States ("U.S."),
stockholders who do not hold their shares as capital assets and stockholders who
have acquired their existing stock upon the exercise of options or otherwise as
compensation) may be subject to special rules not discussed below. No ruling
from the Internal Revenue Service ("IRS") will be applied for with respect to
the federal income tax consequences discussed herein and, accordingly, there can
be no assurance that the IRS will agree with the conclusions stated herein. In
addition, this discussion does not consider the effect of any applicable
foreign, state, local or other tax laws. Each stockholder should consult his or
her own tax advisor as to the particular tax consequences to him or her of the
Merger, including the applicability and effect of any foreign, state, local or
other tax laws, any recent changes in applicable tax laws and any proposed
legislation.
CHARACTERIZATION OF THE MERGER FOR U.S. FEDERAL INCOME TAX PURPOSES. For
U.S. federal income tax purposes, KCLC will be disregarded as a transitory
entity, and the Merger of KCLC with and into the Company will be treated as a
sale of a portion of a tendering stockholder's KinderCare Common Stock ("Stock")
to the Partnership and as a redemption of a portion of the stockholder's Stock
by the Company. It is unclear how the allocation of proceeds between the sale
and redemption should be determined. The Company intends to take the position
that the percentage of a stockholder's Stock disposed of by the stockholder
pursuant to the Merger which will be treated as sold to the Partnership will be
a percentage of such Stock equal to (i) the amount contributed to KCLC by the
Partnership in exchange for KCLC stock divided by (ii) the aggregate amount of
cash paid to stockholders pursuant to the Merger. The remainder of the
stockholder's Stock disposed of in the Merger will be treated as redeemed by the
Company. The IRS could, however, adopt a different approach in determining the
portion, if any, of a stockholder's Stock which is treated as redeemed by the
Company. See "--Stockholders Receiving Cash" below for a discussion of the
consequences of cash being deemed paid in redemption of Stock.
STOCKHOLDERS RECEIVING CASH. As described more fully below, the U.S.
federal income tax consequences of the Merger with respect to a particular
stockholder will depend upon, among other things, (i) whether the stockholder
received any cash proceeds pursuant to the Merger, (ii) the extent to which a
stockholder is deemed to have sold its Stock to the Partnership or is deemed to
have had its Stock redeemed by the Company and (iii) whether the redemption of a
holder's Stock by the Company will qualify as a sale or exchange under Section
302 of the Internal Revenue Code of 1986, as amended (the "Code"). First, to the
extent that a stockholder is considered to have sold Stock to the Partnership,
such stockholder will recognize either capital gain or loss (assuming the Stock
is held by such stockholder as a capital asset) equal to the difference between
the amount realized on its deemed sale of Stock to the Partnership (i.e., the
cash proceeds properly allocated to such sale) and the stockholder's adjusted
tax basis in such Stock. Such gain or loss generally will be long-term capital
gain or loss if the Stock is held as a capital asset by the stockholder for more
than one year. Second, a stockholder also will recognize either capital gain or
loss equal to the difference between the cash proceeds allocable to the
redemption of such stockholder's Stock by the Company and the stockholder's
adjusted tax basis in such Stock, to the extent such redemption is treated as a
sale or exchange under Section 302 of the Code with respect to such stockholder.
Such gain or loss generally will be long-term capital gain or loss if the Stock
is held as a capital asset by the stockholder for more than one year. Under
Section 302 of the Code, a redemption of Stock pursuant to the Merger will, as a
general rule, be treated as a sale or exchange if such redemption (a) is
"substantially disproportionate" with respect to the stockholder, (b) results in
a "complete redemption" of the stockholder's interest in the Company or (c) is
"not essentially equivalent to a dividend" with respect to the stockholder.
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In determining whether any of these Section 302 tests is satisfied,
stockholders must take into account not only the Stock that they actually own,
but also any Stock they are deemed to own under the constructive ownership rules
set forth in Section 318 of the Code. Pursuant to these constructive ownership
rules, a stockholder is deemed to constructively own any Stock that is owned by
certain related individuals or entities and any Stock that the stockholder has
the right to acquire by exercise of an option or by conversion or exchange of a
security.
The redemption of a stockholder's Stock will be "substantially
disproportionate" with respect to such stockholder if the percentage of Stock
actually and constructively owned by such stockholder immediately following the
Merger is less than 80% of the percentage of Stock actually and constructively
owned by such stockholder immediately prior to the Merger. Stockholders should
consult their own tax advisors with respect to the application of the
"substantially disproportionate" test to their particular facts and
circumstances.
The redemption of a stockholder's Stock will result in a "complete
redemption" of a stockholder's interest in the Company if either (a) all the
Stock actually and constructively owned by the stockholder is redeemed pursuant
to the Merger or (b) all the Stock actually owned by the stockholder is redeemed
pursuant to the Merger and the stockholder is eligible to waive, and does
effectively waive in accordance with Section 302(c) of the Code, attribution of
all Stock which otherwise would be considered to be constructively owned by such
stockholder.
Even if the redemption of a stockholder's Stock fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test
described above, the redemption of a stockholder's Stock may nevertheless
satisfy the "not essentially equivalent to a dividend" test if the stockholder's
redemption of Stock pursuant to the Merger results in a "meaningful reduction"
in such stockholder's proportionate Stock interest in the Company. Whether the
receipt of cash by a stockholder will be considered "not essentially equivalent
to a dividend" will depend upon such stockholder's facts and circumstances. In
certain circumstances, even a small reduction in a stockholder's proportionate
equity interest may satisfy this test. For example, the IRS has indicated in a
published ruling that a 3.3% reduction in the proportionate equity interest of a
small (substantially less than 1%) stockholder in a publicly held corporation
who exercises no control over corporate affairs constitutes such a "meaningful
reduction." Stockholders should consult with their own tax advisors as to the
application of this test in their particular situation.
A tendering stockholder may not be able to satisfy one of the above three
tests because of contemporaneous acquisitions of Stock by such stockholder or a
related party whose Stock would be attributed to such stockholder under Section
318 of the Code. Stockholders should consult their own tax advisors regarding
the tax consequences of such acquisitions in their particular circumstances.
If a stockholder cannot satisfy any of the three tests described above and
to the extent the Company has sufficient current and/or accumulated earnings and
profits, such stockholder will be treated as having received a dividend which
will be includible in gross income (and treated as ordinary income) in an amount
equal to the cash received (without regard to gain or loss, if any).
In the case of a corporate stockholder, if the cash paid is treated as a
dividend, such dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the Stock or if the Stock is treated
as "debt financed portfolio Stock" within the meaning of Section 246A(c) of the
Code. Additionally, if a dividends-received deduction is available, the dividend
may be treated as an "extraordinary dividend" under Section 1059(a) of the Code,
in which case a corporate stockholder's adjusted tax basis in the Stock retained
by such stockholder would be reduced, but not below zero, by the amount of the
nontaxed portion of such dividend. Any amount of the nontaxed portion of the
dividend in excess of the corporate stockholder's adjusted tax basis generally
will be subject to tax upon a sale or other taxable disposition of the Stock.
Corporate stockholders are
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urged to consult their own tax advisors as to the effect of Section 1059 of the
Code on the adjusted tax basis of their Stock.
STOCKHOLDERS RETAINING STOCK AND RECEIVING NO CASH. The Merger will have no
U.S. federal income tax consequences for stockholders who retain their Stock and
receive no cash. Accordingly, a stockholder will not recognize any gain or loss
on any Stock retained by such stockholder.
STOCKHOLDERS RETAINING A PORTION OF THEIR STOCK AND RECEIVING CASH. To the
extent that a stockholder elects to retain a portion of its Stock and exchange a
portion of its Stock for cash, or to the extent a stockholder is prorated into
receiving cash in exchange for some portion of its Stock, the tax treatment of
the stockholder's receipt of such cash will be the same as set forth above under
"--Stockholders Receiving Cash."
As described above under "--Stockholders Retaining Stock and Receiving No
Cash," the Merger will have no tax consequences to a stockholder (and, thus, a
stockholder will not recognize any gain or loss as a result of the Merger), to
the extent such stockholder retains, or is prorated into Stock. However, as
described more fully above under "--Stockholders Receiving Cash," a
stockholder's retention of Stock may, under certain circumstances, cause the
cash received by such stockholder pursuant to the Merger to be treated as a
dividend for U.S. federal income tax purposes.
FOREIGN STOCKHOLDERS--WITHHOLDING. The following is a general discussion of
certain U.S. federal income tax consequences of the Merger to foreign
stockholders. For this purpose, a foreign stockholder is any person who is, for
U.S. federal income tax purposes, a foreign corporation, a non-resident alien
individual, a foreign partnership or a foreign estate or trust.
In the case of any foreign stockholder, the Exchange Agent will withhold 30%
of the amount paid to redeem the Stock of such stockholder in order to satisfy
certain U.S. withholding requirements, unless such foreign stockholder proves in
a manner satisfactory to the Company and the Exchange Agent that either (i) the
redemption of its Stock pursuant to the Merger will qualify as a sale or
exchange under Section 302 of the Code, rather than as a dividend for U.S.
federal income tax purposes, in which case no withholding will be required, (ii)
the foreign stockholder is eligible for a reduced tax treaty rate with respect
to dividend income, in which case the Exchange Agent will withhold at the
reduced treaty rate or (iii) no U.S. withholding is otherwise required.
In addition, the Company can give no assurances that it is not a "United
States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code. Consequently, the Exchange Agent will withhold 10% of the
amount paid to purchase or redeem a foreign stockholder's Stock if the foreign
stockholder cannot prove, in a manner satisfactory to the Company and the
Exchange Agent, that it did not own 5% or more of the Stock of the Company at
any time during the previous five years and such purchase or redemption
qualifies as a sale or exchange for U.S. federal income tax purposes.
Foreign stockholders should consult their own tax advisors regarding the
application of these withholding rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Company must report
annually to the IRS and to each stockholder the amount of dividends paid to such
stockholder and the backup withholding, if any, tax withheld with respect to
such dividends. Copies of these information returns also may be made available
to the tax authorities in the country in which a foreign stockholder resides
under the provisions of an applicable income tax treaty.
Backup withholding (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that fail to furnish certain information
under the United States information reporting requirements) generally will not
apply to dividends paid to a foreign stockholder at an address outside the
United States (unless the payor has knowledge that the payee is a U.S. person).
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Payment of the proceeds of a sale of Stock by or through a United States
office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
it is a foreign stockholder and the payor does not have actual knowledge that
such owner is a U.S. person, or otherwise establishes an exemption. In general,
backup withholding and information reporting will not apply to a payment of the
proceeds of a sale of Stock by or through a foreign office of a broker. If,
however, such broker is, for United States federal income tax purposes, a U.S.
person, a controlled foreign corporation, or a foreign person that derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such broker
has documentary evidence in its records that the beneficial owner is a foreign
holder and certain other conditions are met, or (2) the beneficial owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Stock could be
changed by future regulations.
THOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT ADDRESS EVERY
FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A PARTICULAR STOCKHOLDER.
EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO
DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF ITS
PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF STOCK PURSUANT TO THE MERGER.
ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization. Accordingly, the
historical basis of the Company's assets and liabilities will not be impacted by
the transaction.
EFFECT ON STOCK AND EMPLOYEE BENEFIT MATTERS
It is anticipated that, at the Effective Time, (x) each employee or director
stock option to purchase shares of KinderCare Common Stock ("Company Stock
Options") granted under any stock option or stock purchase plan, program or
arrangement of the Company, including the 1993 Director Stock Option Plan or the
1993 Stock Option and Incentive Plan (collectively, the "Stock Plans")
outstanding immediately prior to the Effective Time will be cancelled, whether
or not then exercisable, and (y) each Company Stock Option having an exercise
price of less than $19.00 (which constitutes all outstanding Company Stock
Options) will be exchanged for a payment from the Company after the Merger
(subject to any applicable withholding taxes) equal to the product of (1) the
total number of shares of KinderCare Common Stock subject to such Company Stock
Option and (2) the excess of $19.00 over the exercise price per share of
KinderCare Common Stock subject to such Company Stock Option, payable in cash
immediately following the Effective Time, representing approximately $5.1
million in the aggregate.
It is anticipated that the Stock Plans will terminate as of the Effective
Time, and following the Effective Time no holder of a Company Stock Option nor
any participant in any Stock Plan will have any right thereunder to acquire
equity securities of the Company following the Merger.
Until December 31, 1997, KCLC has agreed in the Merger Agreement, subject to
certain exceptions, to continue to maintain certain benefit plans of the Company
or substitute plans that are no less favorable in the aggregate to the employees
of the Company than the Company's existing benefit plans.
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TREATMENT OF WARRANTS
Each Warrant issued and outstanding immediately prior to the Effective Time
shall be cancelled, extinguished and converted into the right to receive an
amount in cash determined by using the version of the Black-Scholes model for
valuing options set forth in the Warrant Agreement, payable to the holder
thereof, without interest, upon surrender of the certificate formerly
representing such Warrant in accordance with the Merger Agreement, less any
required withholding taxes. Assuming that, as provided by the Warrant Agreement,
the KinderCare Common Stock has a volatility of 0.375 and the risk-free rate of
return is 5.75%, the cash consideration per Warrant is estimated to be $6.58.
After the Effective Time, there shall be no further transfer on the records
of the Company or its transfer agent of Warrants, and if a Warrant is presented
to the Company for transfer, it will be cancelled against delivery of the amount
of cash provided for in the Merger Agreement. As a result, after the Effective
Time, the Company will seek to have the Warrants delisted and deregistered.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and executive officers of the Company may have interests,
described herein, that present them with potential conflicts of interest in
connection with the Merger. The Board of Directors is aware of the conflicts
described below and considered them in addition to the other matters described
under "THE MERGER--Recommendation of the Board of Directors; Reasons for the
Merger."
Pursuant to the Voting Agreement, if the Merger Agreement is terminated
either (i) by the Company or KCLC because of a final order prohibiting
consummation of the Merger or any of the transactions contemplated by the Merger
Agreement or the Voting Agreement or (ii) by the Company because the Merger has
not been consummated by March 31, 1997 and on March 31, 1997 or thereafter there
is in effect any of (A) an order prohibiting consummation of the Merger or any
of the transactions contemplated by the Merger Agreement or the Voting
Agreement, which has not become final, (B) a final order prohibiting
consummation of the Merger or any of the transactions contemplated by the Merger
Agreement or the Voting Agreement or (C) any statute, rule or regulation
prohibiting in whole or in any significant respect the consummation of the
Merger or any of the transactions contemplated by the Merger Agreement or the
Voting Agreement, then KCLC may exercise the Option to purchase the Subject
Shares at $19.00 per share in cash (the "Share Exercise Price") and the Subject
Warrants at $6.50 per warrant in cash (the "Warrant Exercise Price"). In
addition, if, within one year of KCLC's acquisition of the Subject Securities
pursuant to the Option, KCLC or any of its affiliates receives any consideration
in respect of the Subject Securities in connection with a Third Party Business
Combination (as defined below), KCLC shall promptly pay over to the Oaktree
Stockholders (x) the excess, if any, of such consideration over the amount paid
for the Subject Securities by KCLC pursuant to the Voting Agreement, less (y)
the amount of taxes payable or to be payable by KCLC (as estimated by KCLC in
good faith) and the amount of out-of-pocket expenses paid by KCLC in connection
with such Third Party Business Combination. The term "Third Party Business
Combination" means: (A) the Company or any subsidiary of the Company is acquired
by any person, other than KCLC or any affiliate thereof (a "Third Party"); (B)
the Company enters into an agreement with a Third Party which contemplates the
acquisition of 20% or more of the total assets of the Company; (C) the Company
or KCLC enters into a merger or other agreement with a Third Party which
contemplates the acquisition of more than 20% of the Company's capital stock; or
(D) a Third Party acquires more than 20% of the assets of the Company.
Notwithstanding the foregoing, the Oaktree Stockholders will not be entitled
to receive any payment if at any time prior to the consummation of such Third
Party Business Combination, either (i) affiliates of KKR shall, beneficially own
at least 80% of the KinderCare Common Stock or (ii) prior to such time as
affiliates of KKR beneficially own at least 80% of the KinderCare Common Stock,
the Company has issued shares of voting stock so that affiliates of KKR no
longer have a majority of the voting stock of the Company. See "CERTAIN RELATED
AGREEMENTS--Voting Agreement."
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Upon consummation of the Merger and provided that the Electing Oaktree
Affiliate has made an election to retain at least 1,381,579 shares of KinderCare
Common Stock and shall own, immediately after giving effect to the Merger, in
excess of 460,526 shares of KinderCare Common Stock, the Company will enter into
the Stockholders' Agreement with the Oaktree Investors and the Partnership
(and/or certain affiliates of the Partnership). Subject to the terms of the
Stockholders' Agreement, the Oaktree Investors will be entitled to designate one
director to the Board of Directors of KinderCare, who, initially, will be Mr.
Stephen A. Kaplan. In addition, the Stockholders' Agreement provides that (i)
the Oaktree Investors shall have the right to participate PRO RATA in certain
sales of KinderCare Common Stock by the Partnership (or its affiliates) and (ii)
the Partnership (or its affiliates) shall have the right to require the Oaktree
Investors to participate PRO RATA in certain sales by the Partnership (or its
affiliates). No transferee of shares of KinderCare Common Stock from any Oaktree
Investor will acquire any rights under the Stockholders' Agreement.
As a result of these arrangements, Messrs. Bruce A. Karsh and Stephen A.
Kaplan, both directors of the Company and Principals of Oaktree, may have
interests that present them with potential conflicts of interest in connection
with the Merger.
Pursuant to an agreement between KCLC and Dr. Sandra W. Scarr (the "Scarr
Agreement") as of the Effective Time, Dr. Scarr will retire from her position as
Chairman of the Board and Chief Executive Officer of the Company. Dr. Scarr will
continue to serve as a director of the Company following her retirement. In
connection with the Scarr Agreement (i) she will 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 will purchase her residence in the
Montgomery, Alabama area for an amount up to $360,000 and 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 compete 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, Mr. Philip L. Maslowe, the Senior Vice President and Chief
Financial Officer of the Company, has an employment agreement (the "Maslowe
Employment Agreement") with the Company which contains severance payment
provisions that would likely apply upon consummation of the Merger. Under the
Maslowe Employment Agreement, severance payments would be due upon termination
of Mr. Maslowe by the Company "without cause" or by Mr. Maslowe for "good
reason."
"Cause" is defined as (i) the final conviction of a felony or a crime
involving moral turpitude, (ii) willful misconduct, or (iii) material failure to
comply with the written instructions of the Board, provided that if such willful
misconduct or material failure is reasonably susceptible to prompt cure, Mr.
Maslowe shall have 30 days from notice by the Company to cure such conduct.
"Good reason" includes (i) the material breach by the Company of its
obligations under the agreement, including certain events (the "Events"), such
as a material alteration in the nature of Mr. Maslowe's responsibilities or
duties, the assignment of any duties inconsistent with his job title, a
reduction in salary, a failure to continue in effect any incentive compensation
plan in which he participates or a relocation of the Company headquarters more
than 50 miles from the present location, and (ii) the occurrence of those same
Events within two years after a change in control of the Company. The Merger
would be considered a change in control of the Company under the Maslowe
Employment Agreement, and, accordingly, due to the broad definition of Events,
it is likely that Mr. Maslowe could claim termination for "good reason" upon a
change in his duties at KinderCare after the Merger.
In addition, Mr. Maslowe's employment will be considered to have been
terminated "without cause" or for "good reason" if (i) he is terminated prior to
a change in control of the Company without cause at the request of a prospective
acquiror of the Company or (ii) if he terminates employment with "good
51
<PAGE>
reason" due to a potential change in control. Under the Maslowe Employment
Agreement, a potential change in control occurred at the time the Company
executed the Merger Agreement.
Upon occurrence of any severance event described in the two immediately
preceding paragraphs, the Company is required (i) to pay Mr. Maslowe his full
base salary and reimbursable expenses through the date of termination, plus two
times his annual base salary and bonus determined as of the date of termination
and (ii) to provide him with continued benefits, including fringe benefits
throughout the remaining term of the agreement, unless substantially similar
benefits are provided to Mr. Maslowe by another employer. In addition, all
outstanding options held by Mr. Maslowe immediately vest as of the date a
severance provision is triggered, and such options will expire if not exercised
within one year of vesting.
In addition, (i) Dr. Scarr will remain on the Board of Directors after the
Effective Time and (ii) certain members of the Company's management will share a
$1 million bonus payable upon completion of the Merger. The bonus will be
allocated by Dr. Scarr and Mr. Maslowe and the allocation will be approved by
the Board.
Shares of KinderCare Common Stock held by all officers and directors of
KinderCare will be converted into the right to receive the same consideration as
shares of KinderCare Common Stock held by other stockholders. Company Stock
Options held by the officers and directors of KinderCare will be treated in the
same manner as Company Stock Options held by other stockholders.
Pursuant to the Merger Agreement, the Company has agreed for six years after
the Effective Time to indemnify all present directors and officers of the
Company and its subsidiaries and will, subject to certain limitations, maintain
for six years its current directors' and officers' insurance and indemnification
policy. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Indemnification and
Insurance."
NASDAQ DELISTING
Following the consummation of the Merger, the Company anticipates that it
will seek to have the KinderCare Common Stock and Warrants, which are currently
traded on Nasdaq, delisted. See "RISK FACTORS--Delisting; Loss of Liquidity."
RESALE OF KINDERCARE COMMON STOCK FOLLOWING THE MERGER
The KinderCare Common Stock to be retained in connection with the Merger
will be freely transferable, except that shares retained by any stockholder who
may be deemed to be an "affiliate" (as defined under the Securities Act and
generally including, without limitation, directors, certain executive officers
and beneficial owners of 10% or more of a class of capital stock) of the Company
for purposes of Rule 145 under the Securities Act will not be transferable
except in compliance with the Securities Act. This Proxy Statement does not
cover sales of KinderCare Common Stock retained by any person who may be deemed
to be an affiliate of the Company.
MERGER FINANCINGS
The Company expects to incur approximately $375.1 million of long-term debt
and the Partnership expects to make an equity contribution of approximately
$148.8 million, which amounts will be used to (i) fund payment of the cash
consideration in the Merger, (ii) repay or repurchase certain indebtedness of
the Company and (iii) pay the fees and expenses incurred in connection with the
Merger. It is currently contemplated that the transactions contemplated by the
Merger Agreement will be funded by approximately $175.1 million of bank
borrowings by the Company (the "Term Loan Facility") pursuant to senior secured
credit facilities with a group of banks led by The Chase Manhattan Bank and
approximately $200.0 million in senior subordinated notes (the "Senior
Subordinated Notes") (collectively, the "Merger Financings"). KinderCare also
expects to enter into a $300.0 million senior secured revolving credit facility
52
<PAGE>
with a group of banks led by The Chase Manhattan Bank to provide for the
Company's working capital requirements following the Merger. On October 2, 1996,
KinderCare received an executed commitment, which was modified on December 27,
1996, from The Chase Manhattan Bank to provide up to $490.0 million of senior
secured credit facilities, which will be syndicated by Chase Securities Inc.
("CSI"). The commitment is subject to customary conditions, including the
negotiation, execution and delivery of definitive documentation with respect to
the commitment.
CONVERSION OF KCLC STOCK
In the Merger, each share of stock of KCLC issued and outstanding
immediately prior to the Effective Time will be converted into (i) a number of
shares of KinderCare Common Stock equal to the quotient of (A) 7,828,947 divided
by (B) the number of shares of common stock of KCLC outstanding immediately
prior to the Effective Time. As a result of the Merger, the Partnership will
hold 7,828,947 shares, or approximately 85% of the shares, of KinderCare Common
Stock expected to be outstanding after the Merger.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Pro Forma Consolidated Financial Statements have been derived
by the application of pro forma adjustments to the Company's historical
consolidated financial statements incorporated by reference herein. The pro
forma consolidated statement of operations for the periods presented gives
effect to the Merger and related transactions as if such transactions were
consummated as of June 1, 1996 for the sixteen weeks ended September 20, 1996
and as of June 3, 1995. The pro forma balance sheet gives effect to the Merger
and related transactions as if such transactions had occurred as of September
20, 1996. The adjustments are described in the accompanying notes. The Pro Forma
Consolidated Financial Statements should not be considered indicative of actual
results that would have been achieved had the Merger and related transactions
been consummated on the date or for the period indicated and do not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period. The Pro Forma Consolidated Financial Statements should be
read in conjunction with the Company's historical consolidated financial
statements and the notes thereto incorporated by reference herein.
The pro forma adjustments were applied to the respective historical
consolidated financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities has not been impacted by the transaction.
53
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 20, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 11,557 $ -- (a) $ 11,557
Receivables............................................................ 15,319 15,319
Prepaid expenses and supplies.......................................... 11,344 11,344
Deferred income taxes.................................................. 4,664 4,664
---------- ----------
Total current assets............................................... 42,884 42,884
Property and equipment, net............................................ 471,927 471,927
Deferred financing costs............................................... -- 20,000(b) 20,000
Other.................................................................. 11,675 (2,728)(c) 8,947
---------- ----------- ----------
TOTAL ASSETS....................................................... $ 526,486 $ 17,272 $ 543,758
---------- ----------- ----------
---------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................................... $ 22,622 $ -- $ 22,622
Accrued liabilities.................................................... 44,479 44,479
Current portion of long term debt...................................... 1,137 1,137
---------- ----------
Total current liabilities.......................................... 68,238 68,238
NONCURRENT LIABILITIES:
Long-term debt......................................................... 163,138 257,271(d) 420,409
Other noncurrent liabilities........................................... 22,488 22,488
Self insurance liabilities............................................. 19,160 19,160
---------- ----------- ----------
Total liabilities.................................................. 273,024 257,271 530,295
Shareholders' equity..................................................... 253,462 (239,999)(e) 13,463
---------- ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $ 526,486 $ 17,272 $ 543,758
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet.
54
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical consolidated financial statements
for the period noted. The Merger has been accounted for as a recapitalization
which will have no impact on the historical basis of assets and liabilities. The
pro forma financial data assumes that there are no dissenting shareholders to
the Merger.
(a) The net effect of $0 reflects the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
USES OF FUNDS:
Purchase equity.................................................................. $ 337,489
Options/warrants redeemed........................................................ 26,513
Repay historical debt............................................................ 117,789
Debt tender premium.............................................................. 7,019
Estimated transaction fees and expenses.......................................... 35,000
-----------
Total uses................................................................... $ 523,810
-----------
-----------
SOURCES OF FUNDS:
New debt......................................................................... $ 375,060
New equity....................................................................... 148,750
-----------
Total sources.................................................................... $ 523,810
-----------
-----------
Net.......................................................................... $ 0
-----------
-----------
</TABLE>
(b) This adjustment represents the anticipated portion of transaction fees which
will be recorded as deferred financing fees and will be amortized over the
life of the debt to be issued.
(c) This adjustment reflects the write-off of deferred financing fees associated
with the 10 3/8% Senior Notes being repurchased and the termination of the
Company's existing bank credit facility.
(d) The pro forma adjustment to long-term debt reflects the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
Repurchase of 10 3/8% Senior Notes outstanding................................... $ (69,789)
Existing Bank Credit Facility.................................................... (48,000)
Senior Subordinated Notes........................................................ 200,000
Term Loan Facility............................................................... 175,060
-----------
Total adjustment............................................................. $ 257,271
-----------
-----------
</TABLE>
55
<PAGE>
(e) The pro forma adjustment reflects the aggregate net change as a result of
the Merger and the related transactions:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
Convert to cash 17.8 million shares of Common Stock.............................. $ (337,489)
Issue 7.8 million shares of Common Stock......................................... 148,750
Purchase Warrants................................................................ (21,447)
Cancellation of Company stock options............................................ (5,066)
Write-off of deferred financing fees referred to in note (c)..................... (2,728)
Premium on repurchase of 10 3/8% Senior Notes.................................... (7,019)
Estimated transaction fees and expenses (1)...................................... (15,000)
-----------
Total........................................................................ $ (239,999)
-----------
-----------
</TABLE>
- ------------------------
(1) Represents the portion of the total $35.0 million of estimated transaction
fees and expenses which will be recorded as an expense. Such estimated
transaction fees and expenses are anticipated to consist of: (i)
professional, advisory and investment banking fees and expenses, (ii)
management bonuses and (iii) miscellaneous fees and expenses such as
printing and filing fees.
56
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED SEPTEMBER 20, 1996 FISCAL YEAR ENDED MAY 31, 1996
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO PRO FORMA PRO
HISTORICAL ADJUSTMENTS(A) FORMA HISTORICAL ADJUSTMENTS(A) FORMA
---------- -------------- ---------- ---------- -------------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues................. $ 171,427 $ 171,427 $ 541,264 $ 541,264
Operating expenses................. 161,676 161,676 489,555 489,555
---------- ---------- ---------- ----------
Operating income................... 9,751 9,751 51,709 51,709
Net investment income.............. 71 71 250 250
Interest expense................... 4,940 $ 8,032(b) 12,972 16,727 $ 26,077(b) 42,804
---------- -------------- ---------- ---------- -------------- ----------
Income (loss) before
income taxes and
extraordinary item............... 4,882 (8,032) (3,150) 35,232 (26,077) 9,155
Income tax expense (benefit)....... 1,904 (3,132)(c) (1,228) 13,549 (10,170)(c) 3,379
---------- -------------- ---------- ---------- -------------- ----------
Income (loss) before extraordinary
item............................. 2,978 (4,900) (1,922) 21,683 (15,907) 5,776
Extraordinary item--
loss on early extinguishment of
debt, net of income tax
benefit.......................... (1,229) (1,229)
---------- -------------- ---------- ---------- -------------- ----------
Net income (loss).................. $ 1,749 $ (4,900) $ (3,151) $ 21,683 $ (15,907) $ 5,776
---------- -------------- ---------- ---------- -------------- ----------
---------- -------------- ---------- ---------- -------------- ----------
Primary income (loss)
per common share:
Income (loss) before
extraordinary item............. $ 0.15 $ (0.21) $ 1.10 $ 0.63
Extraordinary item............... (0.06) (0.13) -- --
---------- ---------- ---------- ----------
Net income (loss)................ $ 0.09 $ (0.34) $ 1.10 $ 0.63
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average
common shares and
share equivalents................ 20,039 9,211 19,752 9,211
---------- ---------- ---------- ----------
Fully-diluted net income (loss) per
common share..................... $ 0.09 $ (0.34) $ 1.05 $ 0.63
---------- ---------- ---------- ----------
Weighted average
common shares and
share equivalents................ 20,067 9,211 20,683 9,211
---------- ---------- ---------- ----------
Ratio of earnings to fixed charges
(d).............................. -- 1.2x
---------- ----------
Deficiency of earnings to fixed
charges (d)...................... $ 3,150 --
---------- ----------
---------- ----------
</TABLE>
- ------------------------
The pro forma financial data have been derived by the application of pro forma
adjustments to the Company's historical financial statements for the period
noted. The Merger has been accounted for as a recapitalization which will have
no impact on the historical basis of assets and liabilities. The pro forma
financial data assumes that there are no dissenting shareholders to the Merger.
(a) As described in note (e) to the Pro Forma Consolidated Balance Sheet, the
pro forma adjustments exclude (i) $5.066 million of compensation expense
related to the Company stock options to be canceled in conjunction with the
Merger, (ii) write-off of $2.728 million of deferred financing fees
associated with the 10 3/8% Senior Notes being repurchased and the
termination of the Existing Bank Credit Facility, (iii) $7.019 million of
premium on repurchase of 10 3/8% Senior Notes, and (iv) $15.0
57
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
(UNAUDITED)
million of estimated transaction fees and expenses to be incurred in
connection with the Merger. Such amounts represent non-recurring expenses
which the Company anticipates will be reflected in the Statement of
Operations for the period including the Merger.
(b) The pro forma adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
FISCAL YEAR
SIXTEEN WEEKS ENDED ENDED
SEPTEMBER 20, 1996 MAY 31, 1996
------------------- ----------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Interest on historical debt repaid in Merger.......... $ (3,758) $ (12,241)
Interest expense on the Term Loan Facility (assumed
8.75% rate)......................................... 4,713 15,318
Interest expense on the Senior Subordinated Notes
(assumed 10.50% rate)............................... 6,462 21,000
Amortization of deferred financing costs (10 years)... 615 2,000
------- --------
Total adjustment...................................... $ 8,032 $ 26,077
------- --------
------- --------
</TABLE>
A 0.125% increase or decrease in the assumed interest rate on the Term Loan
Facility would change the pro forma interest expense by $0.07 million. The
pro forma net loss would change by $0.04 million and the pro forma primary
net loss per share would not change.
A 0.125% increase or decrease in the assumed interest rate on the Senior
Subordinated Notes would change the pro forma interest expense by $0.08
million. The pro form interest net loss would change by $0.05 million and
the pro forma primary net loss per share would not change.
For the sixteen weeks ended September 20, 1996 and the fiscal year ended May
31, 1996, each $1.0 million increase or decrease in the Term Loan Facility
would change pro forma interest expense by $0.03 million and $0.09 million,
respectively. The pro forma net (loss) income would change by $0.02 million
and $0.05 million, respectively, and the pro forma primary net (loss) income
per share would not change.
(c) The adjustment reflects the tax effects of the pro forma adjustments at a
39% effective income tax rate.
(d) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes and extraordinary items, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of deferred financing costs, and one-third of
rental expense on operating leases representing that portion of rental
expense deemed by the Company to be attributable to interest.
58
<PAGE>
DESCRIPTION OF KINDERCARE CAPITAL STOCK
GENERAL
KinderCare is authorized by its Restated Certificate of Incorporation to
issue an aggregate of 40 million shares of KinderCare Common Stock and 10
million shares of preferred stock, par value $.01 per share (the "KinderCare
Preferred Stock"). There are no shares of KinderCare Preferred Stock issued or
outstanding. The following is a summary of certain of the rights and privileges
pertaining to KinderCare Common Stock. For a full description of KinderCare
Common Stock, reference is made to the Company's Restated Certificate of
Incorporation as currently in effect, a copy of which is on file with the
Commission, and to the Company's Restated Certificate of Incorporation as the
same shall be in effect after the Merger, a copy of which is attached to the
Original Merger Agreement as Exhibit A.
VOTING RIGHTS
The holders of KinderCare Common Stock are entitled to one vote per share on
all matters submitted for action by the stockholders. Stockholders holding a
majority of the outstanding shares of KinderCare Common Stock can, if they elect
to do so, approve the Merger. There is no provision for cumulative voting with
respect to the election of directors. Accordingly, the holders of more than 50%
of the shares of KinderCare Common Stock can, if they choose to do so, elect all
of the directors. In such event, the holders of the remaining shares will not be
able to elect any directors.
DIVIDEND RIGHTS
All shares of KinderCare Common Stock are entitled to share in such
dividends as the Board of Directors may from time to time declare from sources
legally available therefor. During the past three fiscal years, the Company has
not declared or paid any cash dividends or distributions on its capital stock.
The Company currently intends to retain earnings of the Company for operations
and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future.
LIQUIDATION RIGHTS
Upon liquidation or dissolution of the Company, whether voluntary or
involuntary, all shares of KinderCare Common Stock are entitled to share equally
in the assets available for distribution to stockholders after payment of all
prior obligations of the Company.
KINDERCARE COMMON STOCK FOLLOWING THE MERGER
If the Merger is approved by the requisite vote of the stockholders of
KinderCare Common Stock at the Annual Meeting, at the Effective Time the
Restated Certificate of Incorporation of the Company will read in its entirety
in the form set forth as Exhibit A to the Original Merger Agreement which is
attached hereto as Annex I-A, until thereafter amended as provided therein and
under the DGCL. Following the Merger under the Restated Certificate of
Incorporation the Company will be authorized to issue 20 million shares of
KinderCare Common Stock and 10 million shares of KinderCare Preferred Stock as
compared to 40 million shares of KinderCare Common Stock and 10 million shares
of KinderCare Preferred Stock prior to the Merger. In addition, after the Merger
the Restated Certificate of Incorporation of the Company will no longer contain
certain restrictions on the issuance of KinderCare Preferred Stock.
In addition, the Bylaws of KCLC as in effect at the Effective Time will be
the Bylaws of the Company following the Merger until thereafter changed or
amended as provided therein or by applicable law.
59
<PAGE>
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement which appears as Annex I to this Proxy Statement and is incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Merger Agreement.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger and
the adoption of the Merger Agreement by the vote of a majority of the shares of
KinderCare Common Stock entitled to vote thereon and the satisfaction or waiver
of the other conditions to the Merger, KCLC will be merged with and into the
Company, and the Company will continue as the surviving corporation in the
Merger.
If the conditions to the Merger are satisfied or waived, the parties will
file with the Secretary of State of the State of Delaware a duly executed
Certificate of Merger, and the Merger will become effective upon the filing and
acceptance thereof or at such date thereafter as is provided in the Certificate
of Merger.
Each share of KinderCare Common Stock outstanding at the Effective Time
(other than KinderCare Common Stock held by KinderCare, any subsidiary of
KinderCare, KCLC or any subsidiary of KCLC, which will be cancelled and retired,
and any fractional shares and Dissenting Shares) will be converted into either
(i) the Cash Price or (ii) a Non-Cash Election Share, as more fully described
under "THE MERGER--Merger Consideration" and "--Non-Cash Election." With regard
to the treatment of fractional share interests, see "--Fractional Shares."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company relating, with respect to the Company and its subsidiaries, to,
among other things, (a) organization, standing and similar corporate matters;
(b) the Company's capital structure; (c) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement; (d) documents filed by
the Company with the Commission, the accuracy of information contained therein
and the absence of undisclosed liabilities; (e) the accuracy of information
supplied by the Company in connection with this Proxy Statement and the
documents executed in connection with the Debt Tender Offer; (f) the absence of
certain changes or events since the date of the most recent audited financial
statements filed with the Commission, including material adverse changes with
respect to the Company; (g) the absence of pending or threatened material
litigation, certain labor matters and compliance with applicable laws; (h)
benefit plans and other matters relating to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and employment matters; (i) filing
of tax returns and payment of taxes; (j) good title to owned real property, free
of liens, valid leasehold and subleasehold interests in leased real property,
possession of required permits, and other real-estate related matters; (k)
environmental matters; (l) the absence of defaults under material contracts; (m)
brokers' fees and expenses; (n) receipt of an opinion of the Company's financial
advisor; (o) recommendation of the Board of Directors with respect to the Merger
Agreement and the Merger and related transactions; and (p) ownership of Company
trade names.
The Merger Agreement also contains customary representations and warranties
of KCLC relating to, among other things, (a) organization, standing and similar
corporate matters; (b) the authorization, execution, delivery, performance and
enforceability of the Merger Agreement and related matters; (c) brokers' fees
and expenses; (d) the accuracy of information supplied by KCLC in connection
with this Proxy Statement and the documents executed in connection with the Debt
Tender Offer and (e) financing commitments to be obtained from third parties in
connection with the Merger.
60
<PAGE>
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, the Company has agreed that, until the
Effective Time, the businesses of the Company and its subsidiaries will be
conducted only in, and the Company and its subsidiaries will not take any action
except in, the ordinary course of business and in compliance with applicable
laws; and the Company and its subsidiaries shall each use its reasonable best
efforts to preserve substantially intact the business organization of the
Company and its subsidiaries, to keep available the services of its present
officers, employees and consultants and to preserve the present relationships of
the Company and its subsidiaries with customers, suppliers and other persons
with which the Company or any of its subsidiaries has significant business
relations. Without limiting the generality of the foregoing, until the Effective
Time, the Company will not, and will not permit any of its subsidiaries to,
without the prior consent of KCLC (which shall not be unreasonably withheld):
(a) Amend or otherwise change the certificate of incorporation or
by-laws or equivalent organizational documents of the Company or any
significant subsidiary of the Company;
(b) With certain limited exceptions, issue, deliver, sell, lease, sell
and leaseback, pledge, dispose of or encumber, or authorize or commit to the
issuance, delivery, sale, lease, sale/leaseback, pledge, disposition or
encumbrance of, (A) any shares of capital stock of any class, or any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of capital stock, or any other ownership interest
(including but not limited to stock appreciation rights or phantom stock),
of the Company or any of its subsidiaries (except for the issuance and
delivery of (i) shares of KinderCare Common Stock issuable in accordance
with the terms of Company Stock Options outstanding as of October 1, 1996
and (ii) shares of KinderCare Common Stock issuable in accordance with the
terms of Warrants outstanding as of October 1, 1996) or (B) any assets of
the Company or any of its subsidiaries, other than assets sold, leased,
pledged, disposed of or encumbered in the ordinary course of business;
(c) Declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of the capital stock of the
Company or any of its significant subsidiaries;
(e) (i) other than with respect to borrowings, repayments and
repurchases necessary to effect the Debt Tender Offer and borrowings,
repayments and repurchases in the ordinary course of business under the
Company's current credit agreement (which in the case of borrowings in the
ordinary course of business under such credit agreement shall not in
aggregate amount exceed $80 million at any one time outstanding, plus any
amounts necessary to effect the Debt Tender Offer), repurchase, repay or
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans, advances
or capital contributions to, or investments in, any other person; (ii) enter
into any contract or agreement other than in the ordinary course of
business; (iii) authorize any single expenditure for any capital or
acquisition (including without limitation any acquisition of any
corporation, partnership or other business enterprise or division thereof)
which are not specifically provided for in the Company's capital budget,
implemented taking into account normal seasonal patterns (provided that the
Company may exceed such budget with respect to any center by up to 10%) for
the Company and its subsidiaries taken as a whole; or (iv) enter into or
amend any contract, agreement, commitment or arrangement with respect to any
of the above matters;
(f) Except for certain limited exceptions and to the extent required
under existing employee and director benefit plans, agreements or
arrangements as in effect on October 3, 1996, (i) increase the compensation
or fringe benefits of any of its directors, officers or employees, except
for increases in salary or wages of employees of the Company or its
subsidiaries, who are not directors or officers of
61
<PAGE>
the Company, in the ordinary course of business and consistent with the
Company's budget, (ii) grant any severance or termination pay not currently
required to be paid under existing severance plans to, or enter into any
employment, consulting or severance agreement or arrangement with, any
present or former director, officer or other employee of the Company or any
of its subsidiaries, except for the granting of severance or termination
pay, in the ordinary course of business, to employees who are terminated by
the Company after October 3, 1996 or (iii) establish, adopt, enter into or
amend or terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
(g) Except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it;
(h) Make any material tax election or settle or compromise any material
federal, state, local or foreign tax liability;
(i) Settle or compromise any pending or threatened suit, action or claim
for in excess of $100,000 per suit, action or claim or which relates to the
transactions contemplated by the Merger Agreement;
(j) Adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its significant subsidiaries (other
than the Merger); or
(k) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the above actions.
THIRD PARTY TRANSACTIONS
The Merger Agreement provides that the Company shall not take any action
with respect to any transaction or proposed transaction with a third party which
could reasonably be expected to impede, interfere with, prevent or materially
delay the Debt Tender Offer or the Merger. The Company agrees not to release any
third party from, or waive any provisions of, any confidentiality or standstill
agreement to which the Company is a party. The Company will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing.
BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER
The Merger Agreement provides that the directors of KCLC at the Effective
Time, along with Dr. Sandra Scarr and, if the Electing Oaktree Affiliate shall
have elected to retain at least 1,381,579 shares of KinderCare Common Stock and
shall own, immediately after giving effect to the Merger, in excess of 460,526
shares of KinderCare Common Stock, Mr. Stephen A. Kaplan, will be the directors
of the Company following the Merger. The present directors of KCLC are Messrs.
Clifton S. Robbins and Nils P. Brous. It is expected that Messrs. Henry R.
Kravis, George R. Roberts and David J. Johnson will also become directors of
KCLC prior to the Effective Time. See "KCLC AND THE PARTNERSHIP." After the
Effective Time, the Board of Directors will be subject to change from time to
time.
The Merger Agreement also provides that the officers of KinderCare at the
Effective Time will be officers of the Company following the Merger until such
time as may be determined by the Board of Directors following the Merger.
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STOCK AND EMPLOYEE BENEFIT PLANS
The treatment in the Merger of outstanding Company Stock Options and of the
Company's employee benefit plans will be as described in "THE MERGER--Effect on
Stock and Employee Benefit Matters."
ACCESS TO INFORMATION
Subject to applicable provisions regarding confidentiality, the Company has
agreed in the Merger Agreement to, and to cause its subsidiaries, officers,
directors, employees, auditors, counsel, financial advisors and other agents to,
afford KCLC and its representatives and the potential financing sources for the
transactions contemplated by the Merger Agreement complete access at all
reasonable times to its officers, employees, agents, properties, offices,
centers and other facilities and to all books, contracts and records, and shall
furnish KCLC and such financing sources with all financial, operating and other
data and information as KCLC through its representatives or such financing
sources may from time to time request.
COOPERATION AND REASONABLE BEST EFFORTS
Pursuant to the Merger Agreement and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with each
other and to use their respective reasonable best efforts to take certain
specified and other actions, including cooperation in the arrangement of
financing, so that the transactions contemplated by the Merger Agreement and the
Voting Agreement may be consummated. Under the Merger Agreement, the Company and
KCLC will take all actions necessary to delist the KinderCare Common Stock from
Nasdaq, effective after the Effective Time.
INDEMNIFICATION AND INSURANCE
Following the Merger, the Certificate of Incorporation and By-laws of the
Company will contain provisions identical with respect to elimination of
personal liability and indemnification to those set forth in the Amended and
Restated Certificate of Incorporation of the Company (attached as Exhibit A to
Annex I-A to this Proxy Statement) and the By-laws of the Company, respectively,
which provisions will not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who at the Effective Time were
directors, officers, agents or employees of the Company.
In addition, the Merger Agreement provides that the Company shall maintain
in effect for six years from the Effective Time policies of directors' and
officers' liability insurance containing terms and conditions which are not less
advantageous than those policies maintained by the Company at the date hereof,
with respect to matters occurring prior to the Effective Time, to the extent
available, and having the maximum available coverage under the current policies
of directors' and officers' liability insurance; provided that (i) the Company
following the Merger shall not be required to spend in excess of a $450,000
annual premium therefor; provided further that if the Company following the
Merger would be required to spend in excess of a $450,000 premium per annum to
obtain insurance having the maximum available coverage under the current
policies, the Company will be required to spend $450,000 to maintain or procure
insurance coverage pursuant to the Merger Agreement, subject to availability of
such (or similar) coverage, and (ii) such policies may in the sole discretion of
the Company be one or more "tail" policies for all or any portion of the full
six year period. Officers and directors of the Company that are defendants in
all litigation commenced by stockholders of the Company with respect to (x) the
performance of their duties as such officers and/or directors under federal or
state law (including litigation under federal and state securities laws) and (y)
KCLC's offer or proposal to acquire the Company shall be entitled to be
represented, at the reasonable expense of the Company, in such litigation by one
counsel (and Delaware counsel if appropriate and one local counsel in each
jurisdiction in which a case is pending and one counsel for directors of the
Company which are affiliated with Oaktree (the "Oaktree Directors"), if KCLC and
the Company shall have reasonably concluded (based on the advice of counsel)
that there may be defenses
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available to such Oaktree Directors which are different from or additional to
those available to the other directors of the Company) each of which such
counsel shall be selected by a plurality of such director defendants; provided
that neither KCLC nor the Company shall be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld) and that a condition to any indemnification payments shall be that
such officer/director defendant not have settled any such litigation without the
consent of KCLC; and provided further that neither KCLC nor the Company shall
have any obligation hereunder to any officer/director defendant when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that indemnification
of such officer/director defendant in the manner contemplated hereby is
prohibited by applicable law.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of the Company and KCLC to effect the Merger are
subject to various conditions which include, in addition to certain other
customary closing conditions, the following:
(a) the Merger Agreement shall have been approved by the requisite vote
of holders of outstanding shares of KinderCare Common Stock;
(b) the waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired;
(c) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be
in effect; provided that the Company and KCLC are required to use their best
efforts to have any such injunction, order, restraint or prohibition
vacated; and
(d) the Registration Statement of which this Proxy Statement is a part
shall have become effective under the Securities Act and shall not be the
subject of any stop order or proceeding seeking a stop order, and any
material "blue sky" and other state securities laws applicable to the
registration and qualification of KinderCare Common Stock following the
Merger shall have been complied with.
As of the date of this Proxy Statement, the condition set forth in
clause (b) has been satisfied.
KCLC's obligations to effect the Merger are further subject, in addition
to certain other customary conditions, to the following additional
conditions:
(a) KCLC shall have received evidence, in form and substance reasonably
satisfactory to it, that such licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental entities and other
third parties as are necessary in connection with the transactions
contemplated by the Merger Agreement have been obtained, except such
licenses, permits, consents, approvals, authorizations, qualifications and
orders which would not, individually or in the aggregate, have a material
adverse affect with respect to the Company;
(b) there shall not be pending or threatened by any governmental entity
any suit, action or proceeding (or by any other person any suit, action or
proceeding which has a reasonable likelihood of success), (i) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by the Merger Agreement or the Voting
Agreement or seeking to obtain from KCLC or any of their affiliates any
damages that are material to such party, (ii) seeking to prohibit or limit
the ownership or operation by the Company or any of its subsidiaries of any
material portion of the business or assets of the Company or any of its
subsidiaries or (iii) seeking to impose limitations on the ability of KCLC
(or any designee of KCLC pursuant to the Voting Agreement) or any
stockholder of KCLC or the Company to acquire or hold, or exercise full
rights of ownership of, any shares of KinderCare Common Stock, including,
without limitation, the right to vote the KinderCare Common Stock on all
matters properly presented to the stockholders of the Company;
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(c) KCLC shall have received certain agreements from each person
identified by the Company to be an "affiliate" of the Company for purposes
of Rule 145 under the Securities Act;
(d) The Company shall have received the proceeds of financing on the
terms and conditions contemplated by the Merger Agreement or upon terms and
conditions which are, in the reasonable judgement of KCLC, substantially
equivalent thereto, and to the extent that any terms and conditions were not
so contemplated, on terms and conditions reasonably satisfactory to KCLC;
(e) KCLC shall be reasonably satisfied that the Merger shall be recorded
as a recapitalization for financial reporting purposes; and
(f) KCLC shall have received evidence that the terms of the Notes shall
have been amended to the reasonable satisfaction of KCLC including, without
limitation, the elimination of the negative covenants contained therein and
the elimination of any restrictions applicable to the transactions
contemplated by the Merger Agreement, and the Company shall have purchased
an aggregate principal amount of Notes equal to the minimum condition of the
Debt Tender Offer.
As of the date of this Proxy Statement, the condition set forth in clause
(f) above has been satisfied.
The obligations of the Company to effect the Merger are further subject to
customary closing conditions. See "REGULATORY APPROVALS."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger by the stockholders of the
Company:
(a) by mutual written consent of KCLC and the Company;
(b) by either KCLC or the Company if:
(i) any court of competent jurisdiction, arbitrator or other
governmental entity located or having jurisdiction within the United
States or any country or economic region in which either the Company or
KCLC, directly or indirectly, has material assets or operations, shall
have issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the consummation
of the Merger, the Debt Tender Offer or any of the transactions
contemplated by the Merger Agreement or the Voting Agreement, or
otherwise altering the terms of any of the foregoing in any significant
respect, and such order, decree, ruling or other action is or shall have
become final and nonappealable;
(ii) the Merger shall not have been consummated on or before March
31, 1997, provided that so long as an Extending Action (as defined below)
is no longer in effect at 11:59 p.m. (New York City time) on March 31,
1997, such date shall be automatically extended by one day past March 31,
1997 for each day that an Extending Action was in effect on or prior to
March 31, 1997; provided further that the right to terminate this
Agreement for this cause shall not be available to the party whose action
or failure to act has been the cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement; and
(c) by KCLC if the required approval of the stockholders of the Company
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof.
As used herein, an "Extending Action" means any order, decree or ruling or
other action restraining, enjoining or otherwise prohibiting the consummation of
the Merger, the Debt Tender Offer or any of the transactions contemplated by the
Merger Agreement or the Voting Agreement, or otherwise altering the
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terms of any of the foregoing in any significant respect, by a court of
competent jurisdiction, arbitrator or other governmental entity located or
having jurisdiction within the United States or any country or economic region
in which either the Company or KCLC, directly or indirectly, has material assets
or operations, which order, decree, ruling or other action has not become final
and nonappealable.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties by action taken by or on
behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of KinderCare, no amendment may be made which would reduce the
amount or change the type of consideration into which each share of KinderCare
Common Stock shall be converted upon consummation of the Merger. The Merger
Agreement may not be amended except by an instrument in writing signed by the
parties thereto. At any time prior to the Effective Time any party may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties of the Merger, (b) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement or in any
document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained therein. Any such extension or waiver shall
be valid if set forth in an instrument in writing signed by the party or parties
to be bound thereby.
EXPENSES AND CERTAIN REQUIRED PAYMENTS
In addition to any other amounts which may be payable or become payable
pursuant to the Merger Agreement, KinderCare shall (provided that KCLC is not
then in material breach of its obligations under the Merger Agreement),
promptly, but in no event later than two business days following written notice
thereof, together with related bills or receipts, reimburse KKR, in an aggregate
amount of up to $2.5 million, for all out-of-pocket expenses and fees
(including, without limitation, fees payable to all banks, investment banking
firms and other financial institutions, and their respective agents and counsel,
and all fees of counsel, accountants, financial printers, experts and
consultants to KCLC and its affiliates), whether incurred prior to, on or after
October 3, 1996, in connection with the Merger and the consummation of all
transactions contemplated by the Merger Agreement, the Voting Agreement and the
financing thereof. Except as otherwise specifically provided above, each party
shall bear its own expenses in connection with the Merger Agreement and the
transactions contemplated thereby.
CERTAIN RELATED AGREEMENTS
The following is a brief summary of certain provisions of the Voting
Agreement, a copy of which appears as Annex II to this Proxy Statement and is
incorporated herein by reference, and the Stockholders' Agreement, a copy of
which is attached to the Voting Agreement as Exhibit A to Annex II-A and is
incorporated herein by reference. Such summaries are qualified in their entirety
by reference to the Voting Agreement and the Stockholders' Agreement.
VOTING AGREEMENT
VOTING. The Oaktree Stockholders have severally agreed that, during the
time the Voting Agreement is in effect, at any meeting of the stockholders of
the Company to vote upon the Merger and the Merger Agreement or at any
adjournment thereof or in any other circumstances upon which a vote or other
approval with respect to the Merger and the Merger Agreement is sought, the
Funds will (and Oaktree will cause the Funds to) vote the Subject Shares, all
shares issued upon exercise of the Subject Warrants and any other shares of
KinderCare Common Stock that Oaktree or any Fund acquires beneficial ownership
of after October 3, 1996 and during the term of the Voting Agreement, if any, in
favor of the Merger, the adoption by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other transactions contemplated by
the Merger Agreement. The agreements of the Oaktree Stockholders and KCLC set
forth in the immediately preceding sentence equally apply if such approvals were
to be sought by the solicitation of written consents. If requested by KCLC and
consented to by the Company, Oaktree will initiate a written consent
solicitation to approve the Merger and the Merger Agreement.
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In addition, at any meeting of stockholders of the Company or at any
adjournment thereof or in any other circumstances upon which Oaktree's or any
Fund's vote, consent or other approval is sought, the Funds will (and Oaktree
will cause the Funds to) vote the Subject Shares against (i) any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of KinderCare
under the Merger Agreement and (ii) except with the prior written consent of
KCLC, any action or agreement that would impede, interfere with, delay, postpone
or attempt to discourage the Merger or any of the transactions contemplated
thereby, including, but not limited to: (A) the adoption by KinderCare of a
proposal regarding (1) the acquisition of KinderCare by merger, tender offer or
otherwise by any person other than KCLC or any affiliate thereof (a "Third
Party"); (2) the acquisition by a Third Party of 15% or more of the assets of
KinderCare and its subsidiaries, taken as a whole; (3) the acquisition by a
Third Party of more than 20% of the outstanding shares of KinderCare Common
Stock; or (4) the repurchase by KinderCare or any of its subsidiaries of 15% or
more of the outstanding shares of KinderCare Common Stock; (B) any amendment of
KinderCare's certificate of incorporation or by-laws or other proposal or
transaction involving KinderCare or any of its subsidiaries, which amendment or
other proposal or transaction would in any manner impede, frustrate, prevent or
nullify the Merger, the Merger Agreement, the Debt Tender Offer or any of the
other transactions contemplated by the Merger Agreement or change in any manner
the voting rights of any class of KinderCare's capital stock; (C) any change in
the management or Board of Directors; (D) any material change in the present
capitalization or dividend policy of KinderCare; or (E) any other material
change in KinderCare's corporate structure or business.
In support of the obligations described in the two immediately preceding
paragraphs, the Oaktree Stockholders have granted to KCLC an irrevocable proxy
to vote the Subject Shares as indicated in the immediately preceding paragraphs.
The Oaktree Stockholders have agreed to take such further action or execute such
other instruments as may be necessary to effectuate the intent of the proxy and
revoked any proxy previously granted by the Oaktree Stockholders with respect to
the Subject Shares.
NO SOLICITATION. Under the Voting Agreement, neither Oaktree, any Fund nor
any of their respective affiliates will (whether directly or indirectly through
any officer, director, member or other intermediary), nor will Oaktree, any Fund
or any of their respective affiliates authorize or permit any of its officers,
directors, members or other intermediaries to, solicit, initiate, encourage or
take any action to facilitate any submission of inquiries, proposals or offers
from any person relating to any acquisition all or a material amount of assets
of, or any equity interest in, the Company or any merger, consolidation, tender
offer (including a self tender offer), exchange offer, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company, other than the transactions contemplated by the Merger Agreement, or
any other transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay the Debt Tender
Offer or the Merger or which would or could reasonably be expected to materially
dilute the benefits to KCLC of the transactions contemplated by the Merger
Agreement (collectively, "Transaction Proposals") or agree to or endorse any
Transaction Proposal, other than the transactions contemplated by the Merger
Agreement, or enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any other person any information
with respect to the Company's business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with any effort or attempt by any
other person to do or seek any of the foregoing.
TRANSFER RESTRICTIONS. The Voting Agreement provides that the Oaktree
Stockholders will not (i) sell, transfer, pledge, encumber, assign or otherwise
dispose of (including by gift) (collectively, "Transfer"), or enter into any
contract, option or other arrangement or understanding (including any profit
sharing arrangement) with respect to the Transfer of, any of the Subject
Securities to any person other than pursuant to the terms thereof or the Merger
Agreement, (ii) enter into any voting arrangement or understanding, whether by
proxy, voting agreement or otherwise, or (iii) take any action that would make
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any of its representations or warranties contained therein untrue or incorrect
or have the effect of preventing or disabling Oaktree or any Fund from
performing its obligations thereunder.
ADDITIONAL COVENANTS. Pursuant to the Voting Agreement, Oaktree and the
Funds further agree (a) to waive certain of their rights, including (i)
appraisal rights and (ii) registration rights under certain registration rights
agreement, (b) to make the Non-Cash Election with respect to at least 1,381,579
of the Subject Shares and (c) to accept the terms and conditions of the Merger
Agreement.
THE OPTION. If the Merger Agreement shall have been terminated either (i)
by the Company or KCLC because of the existence of a final order (or similar
final action or ruling) prohibiting consummation of the Merger or any of the
transactions contemplated by the Merger Agreement or the Voting Agreement or
(ii) by the Company because the Merger shall not have been consummated by March
31, 1997 (subject to extension pursuant to an Extending Action, and, further,
that the Company is not responsible for such failure to consummate the Merger)
and on March 31, 1997 or thereafter there shall have been in effect any of (A)
an order (or similar action or ruling) prohibiting consummation of the Merger or
any of the transactions contemplated by the Merger Agreement or the Voting
Agreement, which has not become final, (B) a final order (or similar final
action or ruling) prohibiting consummation of the Merger or any of the
transactions contemplated by the Merger Agreement or the Voting Agreement or (C)
any statute, rule or regulation prohibiting in whole or in any significant
respect the consummation of the Merger or any of the transactions contemplated
by the Merger Agreement or the Voting Agreement, then KCLC may exercise the
Option within 30 days of the first of the foregoing to occur. In the event that
KCLC were to purchase the Subject Securities pursuant to the Option, it has
agreed, as promptly as practicable thereafter, to make a tender offer for the
remaining shares of KinderCare Common Stock to the stockholders of the Company
pursuant to which the stockholders of the KinderCare (other than the Company,
any direct or indirect subsidiary of the Company or KCLC) would receive an
amount of cash consideration per share of KinderCare Common Stock equal to
$19.00, and will take such actions as may be necessary or appropriate in order
to effectuate such tender offer at the earliest practicable time.
If, within one year of KCLC's acquisition of the Subject Securities pursuant
to its exercise of the Option, KCLC or any of its affiliates receives any cash
or non-cash consideration in respect of the Subject Securities in connection
with a Third Party Business Combination, KCLC shall promptly pay over to the
Oaktree Stockholders, as an addition to the Share Exercise Price and the Warrant
Exercise Price, (x) the excess, if any, of such consideration over the aggregate
amount paid for the Subject Securities by KCLC pursuant to the Voting Agreement,
less (y) the sum of (I) the amount of taxes payable or to be payable by KCLC (as
estimated by KCLC in good faith) in connection with such Third Party Business
Combination and (II) the amount of out-of-pocket expenses paid by KCLC in
connection with such Third Party Business Combination. However, if, within such
one year period after KCLC's exercise of the Option, at any time prior to a
Third Party Business Combination, the Partnership and/or its affiliates (i)
beneficially own at least 80% of the outstanding shares of KinderCare Common
Stock or (ii) have not yet acquired beneficial ownership of at least 80% of the
outstanding shares of KinderCare Common Stock and the Company has issued shares
of voting stock so that the Partnership and/or its affiliates no longer have a
majority of the voting stock of the Company, then KCLC will have no obligation
to pay any amount to the Oaktree Stockholders and KCLC will retain any such cash
or non-cash consideration so received in respect of a Third Party Business
Combination.
TERMINATION. Subject to certain exceptions and subject to KCLC's
obligations pursuant to the Option, the Voting Agreement shall terminate, and no
party shall have any rights or obligations thereunder and the Voting Agreement
shall become null and void and have no further effect, upon the first to occur
of (a) the Effective Time, (b) the 31st calendar day following the termination
of the Merger Agreement either (i) by the Company or KCLC because of the
existence of a final order (or similar final action or ruling) prohibiting
consummation of the Merger or any of the transactions contemplated by the Merger
Agreement or the Voting Agreement or (ii) by the Company because the Merger
shall not have been
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consummated by March 31, 1997 or (c) upon termination of the Merger Agreement by
any other reason. Notwithstanding the foregoing, in the event the Option shall
have been exercised but the closing in connection with the exercise of the
Option shall not have occurred, the provisions of the Voting Agreement regarding
the Option shall survive until such closing.
STOCKHOLDERS' AGREEMENT
Upon consummation of the Merger, assuming that the Electing Oaktree
Affiliate has made a Non-Cash Election with respect to at least 1,381,579 shares
of KinderCare Common Stock and shall own, immediately after giving effect to the
Merger, in excess of 460,526 shares of KinderCare Common Stock, the Company will
enter into the Stockholders' Agreement with the Oaktree Investors and the
Partnership (and/or affiliates of the Partnership). The Stockholders' Agreement,
and the rights and obligations thereunder, do not apply to or benefit any other
Electing Stockholders other than the Oaktree Investors. Subject to the terms of
the Stockholders' Agreement, the Oaktree Investors will be entitled to designate
one director to the Board of Directors of KinderCare, who, initially, will be
Mr. Stephen A. Kaplan. No transferee of shares of KinderCare Common Stock from
any Oaktree Investor will acquire any rights under the Stockholders' Agreement.
In addition, the Stockholders' Agreement provides that (i) the Oaktree Investors
shall have the right to participate PRO RATA in certain sales of KinderCare
Common Stock by the Partnership (or its affiliates) and (ii) the Partnership (or
its affiliates) shall have the right to require the Oaktree Investors to
participate PRO RATA in certain sales by the Partnership (or its Affiliates).
If entered into, the Stockholders' Agreement will terminate upon the
earliest of: (i) (A) if the number of shares of KinderCare Common Stock owned by
the Oaktree Investors immediately after giving affect to the consummation of the
Merger (the "Initial Oaktree Shares") is less than 921,053, such time as the
Oaktree Investors own less than 90% of the number of Initial Oaktree Shares; (B)
if the number of Initial Oaktree Shares is 921,053 or more, then at such time as
the Oaktree Investors transfer a number of shares of KinderCare Common Stock
such that (1) immediately before giving effect to such transfer, the Oaktree
Investors owned at least 10% of the shares of Common Stock on a fully diluted
basis and (2) immediately after giving effect to such transfer, the Oaktree
Investors owns less than 10% of the shares of KinderCare Common Stock on a fully
diluted basis or (C) if the number of Initial Oaktree Shares is 921,053 or more
and the number of Oaktree Shares falls below 10% of the number of shares of
KinderCare Common Stock on a fully diluted basis other than as a result of a
transfer by the Oaktree Investors, such time after such falling below as the
Oaktree Investors transfer any shares of Common Stock and thereafter the Oaktree
Investors own less than 90% of the number of Initial Oaktree Shares; (ii) the
date on which the Partnership and its affiliates in the aggregate own less than
15% of the shares of KinderCare Common Stock on a fully diluted basis; or (iii)
the tenth anniversary of the date of the Stockholders' Agreement.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1996, certain information
concerning ownership of shares of KinderCare 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 executive
officer of the Company named in "Item 11--Executive Compensation" of the
Company's Form 10-K/A dated September 30, 1996, which is incorporated by
reference herein; and (iv) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
BENEFICIAL PERCENTAGE
OWNERSHIP OF OF CLASS
NAME OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING(A)
- ------------------------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Sandra W. Scarr, Ph.D.......................................................... 49,323(b) *
Thomas E. Bronson.............................................................. 13,610(c) *
M. Taylor Dawson, Jr........................................................... 7,218(d) *
Jeffrey S. Halis............................................................... 11,400(e) *
Malcolm T. Hopkins............................................................. 7,900(f) *
Bruce A. Karsh................................................................. 10,852,636(g (h) 53.5%
Stephen A. Kaplan.............................................................. 10,847,621(g) 53.5%
Philip L. Maslowe.............................................................. 54,000(i) *
William E. Bailey.............................................................. 4,852(j) *
Rebecca S. Bryan............................................................... 8,332(k) *
Jerry Hill..................................................................... 4,943(l) *
ICM Asset Management, Inc.
601 W. Main Ave.,
Suite 917
Spokane, WA 99201............................................................ 1,230,100(m) 6.3%
Tweedy, Browne Company, L.P. ("TBC")
52 Vanderbilt Avenue
New York, NY 10017........................................................... 967,130(m) 5.0%
Cowen & Company
Financial Square
New York, NY 10005........................................................... 1,163,400(m) 6.0%
The TCW Group, Inc. (and certain affiliated entities as general partner of
limited partnerships, trustee of trusts or investment manager for certain
third party accounts ("TCW"))
865 South Figueroa Street
Los Angeles, California 90017................................................ 10,847,621(g (m) 53.5%
KKR-KLC L.L.C. c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, New York 10019..................................................... 10,847,621(o) 53.5%
All directors and executive officers as group (17 persons)..................... 11,028,714(n) 54.0%
</TABLE>
- ------------------------
* Less than 1%.
(a) The amounts and percentage of KinderCare 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
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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 19,412,695 shares of KinderCare Common Stock outstanding as of December
1, 1996, and except as otherwise noted, assumes no exercise of any options
or Warrants to purchase shares of KinderCare Common Stock.
(b) Consists of options to purchase 46,400 shares of KinderCare Common Stock
which are immediately exercisable and 2,923 shares of KinderCare Common
Stock.
(c) Consists of Warrants to purchase 3,630 shares of KinderCare Common Stock
which are immediately exercisable, options to purchase 6,400 shares of
KinderCare Common Stock which are immediately exercisable, and 3,580 shares
of KinderCare Common Stock
(d) Includes 82 shares of KinderCare Common Stock, which as the trustee, Mr.
Dawson has sole voting and investment power; Warrants to purchase 478 shares
of KinderCare Common Stock which are immediately exercisable, of which
Warrants to purchase 115 shares are held by the trust; options to purchase
4,400 shares of KinderCare Common Stock which are immediately exercisable
and 2,258 shares of KinderCare Common Stock.
(e) Consists of options to purchase 6,400 shares of KinderCare Common Stock
which are immediately exercisable and 5,000 shares of KinderCare Common
Stock which are owned jointly with Mr. Halis' spouse.
(f) Includes options to purchase 6,400 shares of KinderCare Common Stock which
are immediately exercisable and 1,500 shares of KinderCare Common Stock.
(g) Consists of shares of KinderCare Common Stock held by The TCW Group, Inc.
and its affiliates which have voting and dispositive powers over 9,877,465
of such shares as an investment manager on behalf of the separate accounts,
trusts and limited partnerships including, TCW Special Credits Fund V-The
Principal Fund; TCW Special Credits, as the general partner of four limited
partnerships; TCW Special Credits, as investment manager of three third
party accounts; Trust Company of the West, as trustee of certain trusts; and
Oaktree which has voting and dispositive powers over 111,473 of such shares
as an investment manager on behalf of an additional separate account. In
addition, Oaktree is an investment subadvisor to TAMCO with respect to the
Principal Fund. Includes Warrants to purchase 858,683 shares of KinderCare
Common Stock which are immediately exercisable. To the extent Mr. Karsh and
Mr. Kaplan, on behalf of Oaktree or TCW Special Credits, as applicable,
participate in the process to vote or dispose of any such shares, Mr. Karsh
and 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. Karsh and Mr. Kaplan disclaim beneficial ownership of all shares
beneficially held by Oaktree, TCW Special Credits and Trust Company of the
West.
(h) Includes 5,015 shares of KinderCare Common Stock owned individually by Mr.
Karsh.
(i) Includes options to purchase 50,000 shares of KinderCare Common Stock which
are immediately exercisable and 4,000 shares of KinderCare Common Stock.
(j) Includes Warrants to purchase 30 shares of KinderCare Common Stock which are
immediately exercisable; options to purchase 4,800 shares of KinderCare
Common Stock which are immediately exercisable and 22 shares of KinderCare
Common Stock.
(k) Includes Warrants to purchase 194 shares of KinderCare Common Stock which
are immediately exercisable; options to purchase 8,000 shares of KinderCare
Common Stock which are immediately exercisable and 138 shares of KinderCare
Common Stock.
(l) Includes options to purchase 4,800 shares of KinderCare Common Stock which
are immediately exercisable and 143 shares of KinderCare Common Stock.
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<PAGE>
(m) Based upon filings with the Commission provided to the Company by the listed
stockholders.
(n) Includes Warrants to purchase 863,015 shares of KinderCare Common Stock
which are immediately exercisable; options to purchase 150,600 shares of
KinderCare Common Stock which are immediately exercisable, and 10,013,599
shares of KinderCare Common Stock.
(o) Shares of KinderCare Common Stock shown as beneficially owned by KKR-KLC
L.L.C. are deemed beneficially held by KCLC by virtue of the Voting
Agreement. KKR-KLC L.L.C. is the sole general partner of KKR Associates
(KLC) L.P. KKR Associates (KLC) L.P., a limited partnership, is the sole
general partner of the Partnership and possesses sole voting power with
respect to such shares regarding the matters covered by the Voting
Agreement. 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. The managing members of KKR-KLC L.L.C. are Messrs. Kravis and
Roberts. Each of the foregoing individuals may be deemed to share beneficial
ownership of the shares shown as beneficially owned by KKR-KLC L.L.C. All
such individuals disclaim beneficial ownership of any such shares. An
affiliate of KKR-KLC L.L.C. may beneficially own at the Effective Time less
than 1% of the outstanding KinderCare Common Stock.
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<PAGE>
REGULATORY APPROVALS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act. Certain aspects of the Merger will require
notification to, and filings with, certain securities and other authorities in
certain states, including jurisdictions where the Company currently operates.
ANTITRUST
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and the
applicable waiting period has expired or been terminated. On November 6, 1996,
the Company and KCLC filed Notification and Report Forms under the HSR Act with
the FTC and the Antitrust Division. On November 22, 1996, the FTC and the
Antitrust Division granted early termination of the waiting period under the HSR
Act with respect to the Merger effective immediately. At any time before or
after consummation of the Merger, notwithstanding that early termination of the
waiting period under the HSR Act has been granted, the Antitrust Division or the
FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking divestiture of substantial assets of the Company. At
any time before or after the Effective Time, and notwithstanding that early
termination of the waiting period under the HSR Act has been granted, any state
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of substantial assets of
the Company. Private parties may also seek to take legal action under the
antitrust laws under certain circumstances.
Based on information available to them, the Company and KCLC believe that
the Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, the Company and KCLC would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger.
OTHER
The obligations of KCLC under the Merger Agreement are also subject to the
receipt of all necessary licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other third parties as
are necessary in connection with the transactions contemplated by the Merger.
KCLC AND THE PARTNERSHIP
KCLC, a Delaware corporation and as of the date hereof a wholly owned
subsidiary of the Partnership, was organized in connection with the Merger and
has not carried on any activities to date other than those incident to its
formation and the transactions contemplated by the Merger Agreement. The
Partnership, whose principal assets consist of the shares of common stock of
KCLC it owns, is a Delaware limited partnership, the general partner of which is
KKR Associates (KLC) L.P., a Delaware limited partnership. The general partner
of KKR Associates (KLC) L.P. is KKR-KLC L.L.C., a Delaware limited liability
company. The members of KKR-KLC L.L.C. are Messrs. Kravis, Roberts, MacDonnell,
Raether, Michelson, Greene, Tokarz, Golkin, Robbins, Stuart and Gilhuly. The
managing members of KKR-KLC L.L.C. are Messrs. Kravis and Roberts. Mr. Nils P.
Brous and Mr. Robbins are the directors of KCLC. Prior to the Effective Time,
Mr. David Johnson and Messrs. Kravis and Roberts are also expected to become
directors of KCLC. Mr. Brous is also a limited partner of KKR Associates (KLC)
L.P. Mr. Johnson is the former President, Chief Executive Officer and Chairman
of the Board of Red Lion Hotels, Inc. The officers of KCLC are: Mr. Robbins
(President), Mr. Brous (Vice President and Chief Financial Officer) and Mr.
Herald Y. Chen (Vice President and Secretary).
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<PAGE>
KKR, an affiliate of KKR-KLC L.L.C., is expected to receive a fee from the
Company upon consummation of the Merger and, from time to time in the future,
KKR may receive customary fees for services rendered to KinderCare.
DISSENTING STOCKHOLDERS' RIGHTS
In accordance with Section 262 of the DGCL (the "Delaware Dissent
Provisions"), a stockholder of the Company may dissent from the Merger and
obtain payment for the fair value of his or her shares of KinderCare Common
Stock. Such fair value is exclusive of any appreciation or depreciation in
anticipation of the Merger, unless such exclusion would be inequitable. The
appraised value of shares of KinderCare Common Stock of a dissenting stockholder
may differ from the consideration that a stockholder of the Company is entitled
to receive in the Merger. The following is a summary of the Delaware Dissent
Provisions, the full text of which is set forth as Annex IV to this Proxy
Statement.
Under the Delaware Dissent Provisions, a stockholder of the Company may
dissent from the Merger by following the following procedures: (i) the
dissenting stockholder must deliver to the Company, prior to the vote being
taken on the Merger at the Annual Meeting, written notice of his or her intent
to demand payment for his or her shares of KinderCare Common Stock if the Merger
is effected (the "Notice Requirement"); and (ii) the dissenting stockholder must
not vote in favor of the Merger (or submit a Proxy which results in a vote in
favor of the Merger). A stockholder who does not satisfy these requirements
waives his or her right to demand payment. For example, a stockholder who merely
votes against the Merger without satisfying the Notice Requirement described in
(i) above is not entitled to demand payment for his or her shares of KinderCare
Common Stock under the Delaware Dissent Provisions. However, a stockholder's
mere failure to vote on the Merger will not constitute a waiver of his or her
right to demand payment as long as he or she fulfills the Notice Requirement
described in (i) above.
In addition, if the Merger is approved by a vote of the stockholders of the
Company, the Company must deliver written notice of such approval to each such
dissenting stockholder (the "Written Dissenters' Notice"), which must be sent
not later than 10 days after the Merger is effected, and the dissenting
stockholder must make a demand for payment of the fair value of his or her
shares of KinderCare Common Stock in accordance with the terms of the Written
Dissenters' Notice, which demand must be received by the Company by a date to be
specified by the Company in the Written Dissenters' Notice, which date shall be
not fewer than 30 nor more than 60 days after the date on which the Written
Dissenters' Notice is mailed.
Within twenty (20) days after making a formal payment demand, each
stockholder demanding payment shall submit the certificate or certificates
representing his or her shares of KinderCare Common Stock to the Company for
notation thereon by the Company that such demand has been made. The failure to
submit his or her shares of KinderCare Common Stock for such notation shall, at
the option of the Company, terminate the stockholder's rights under the Delaware
Dissent Provisions unless a court of competent jurisdiction, for good and
sufficient cause, shall otherwise direct.
A record stockholder may dissent as to fewer than all of the shares of
KinderCare Common Stock registered in his or her name only if he or she dissents
with respect to all shares of KinderCare Common Stock beneficially owned by any
one person and notifies the Company of the name and address of each person on
whose behalf he or she asserts dissenters' rights. The rights of a partial
dissenter are determined as if the shares of KinderCare Common Stock to which he
or she dissents and his or her other shares of KinderCare Common Stock were
registered in the name of a different stockholder. Once a formal demand for
payment is made, such demand cannot be withdrawn by the stockholder except with
the consent of the Company.
Upon the Effective Time, or upon receipt by the Company of a demand for
payment, the Company must offer to pay each dissenting stockholder who has
properly complied with the Delaware Dissent Provisions the amount estimated by
the Company to be the fair value of the shares of KinderCare
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<PAGE>
Common Stock held by each such dissenting stockholder, plus accrued interest.
Such offer must be accompanied by, among other information, the Company's
balance sheet as of the end of a fiscal year ending not more than 16 months
before the date of the offer, an income statement for that year, the latest
available interim financial statements, if any, a statement of the Company's
estimate of the fair value of the shares, and an explanation of how the interest
was calculated. If, within thirty (30) days after the making of such offer of
payment, any dissenting stockholder accepts the same, then such dissenting
stockholder must surrender to the Company the certificate or certificates
representing his or her shares of KinderCare Common Stock and such dissenting
stockholder will cease to have any interest in the shares. If, however, a
dissenting stockholder does not accept the Company's offer of payment, then such
dissenting stockholder must, within thirty (30) days after the Company offered
payment for his or her shares of KinderCare Common Stock, notify the Company in
writing of his or her own estimate of the fair value of his or her shares of
KinderCare Common Stock and amount of interest due, and demand payment of such
estimate, or reject the Company's offer and demand the fair value of his or her
shares of KinderCare Common Stock and interest due. If this demand by a
dissenting stockholder remains unsettled for sixty (60) days, then the Company
must commence a proceeding in the Circuit Court of Newcastle County, Delaware to
determine the fair value of the shares of KinderCare Common Stock and accrued
interest. If the Company does not commence this proceeding within the 60-day
period, then the Company must pay each dissenting stockholder whose demand
remains unsettled the amount demanded. The Company must make all dissenting
stockholders whose demands remain unsettled parties to this proceeding. In such
proceeding, the court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The Company must pay each dissenting stockholder the amount found to be
due after final determination of the proceedings. Upon payment of such judgment,
the dissenting stockholder will cease to have any interest in the shares of
KinderCare Common Stock.
The costs and expenses of any such dissent proceeding will be determined by
the court and will be assessed against the Company, but costs and expenses may
be apportioned and assessed against all or some of the dissenting stockholders,
in such amounts as the court deems equitable, to the extent the court finds such
dissenting stockholders acted arbitrarily, vexatiously, or not in good faith in
demanding payment after receiving an offer of payment from the Company. The
court may also assess the reasonable fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable (a) against the
Company and in favor of any or all dissenting stockholders if the court finds
that the Company did not substantially comply with the requirements of the
Delaware Dissent Provisions, or (b) against either of the Company or a
dissenting stockholder, in favor of any other party, if the court finds that the
party against whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights provided by the
Delaware Dissent Provisions. If the court finds that the services of counsel for
any dissenting stockholder were of substantial benefit to the other dissenting
stockholders similarly situated, and that the fees for the services should not
be assessed against the Company, the court may award such counsel reasonable
fees to be paid out of the amounts awarded to dissenting stockholders who were
benefitted.
The foregoing is only a summary of the Delaware Dissent Provisions, and is
qualified in its entirety by reference to the provisions thereof, the full text
of which is set forth as Annex IV to this Proxy Statement. Each stockholder of
the Company is urged to carefully read the full text of the Delaware Dissent
Provisions.
INDEPENDENT PUBLIC ACCOUNTANTS AND LEGAL OPINIONS
FINANCIAL STATEMENTS
The consolidated financial statements of the Company as of May 31, 1996,
June 2, 1995 and June 3, 1994 and for each of the three years in the period
ended May 31, 1996 incorporated by reference herein have been audited by KPMG
Peat Marwick LLP, independent public accountants, as indicated in their report
with respect thereto and incorporated by reference herein.
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<PAGE>
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting, where they will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
LEGAL OPINIONS
The legality of KinderCare Common Stock being retained in the Merger is
being passed on by Alston & Bird, Atlanta, Georgia.
Wachtell, Lipton, Rosen & Katz, special counsel for the Company, has
delivered an opinion concerning certain Federal income tax consequences of the
Merger. See "THE MERGER--Federal Income Tax Consequences."
--PROPOSAL TWO--
ELECTION OF DIRECTORS
The Company's Board of Directors has nominated Sandra W. Scarr, Ph.D.,
Thomas E. Bronson, M. Taylor Dawson, Jr., Jeffrey S. Halis, Malcolm T. Hopkins,
Bruce A. Karsh, and Stephen A. Kaplan for election as directors to hold office
until the 1997 Annual Meeting of Stockholders of the Company or until their
successors shall have been elected or appointed (as the case may be) and
qualified. However, if the Merger Proposal is approved and adopted by the
KinderCare stockholders and the Merger is consummated, the directors of
KinderCare immediately after the Effective Time would be Dr. Sandra Scarr, the
then current directors of KCLC and, assuming certain conditions set forth in the
Voting Agreement are met, Mr. Stephen A. Kaplan. Thereafter, the Board of
Directors will be subject to change from time to time.
It is believed that all seven of the nominees will be available and able to
serve as directors until the earlier of the 1997 Annual Meeting of Stockholders
of the Company or the Effective Time. It is anticipated that directors and
officers of the Company who are stockholders of the Company will grant authority
to vote for the election of all the nominees.
During the fiscal year ended May 31, 1996 (the "1996 fiscal year"), the
Board of Directors consisted of nine directors. Geraldine Laybourne, Mark
Dickstein, and Ken Miller resigned from the Board of Directors on January 5,
1996, February 9, 1996 and February 12, 1996, respectively. The Board of
Directors elected Stephen A. Kaplan to fill one of the vacancies on January 31,
1996, and subsequently reduced the size of the Board of Directors to seven
directors. Directors hold office until the Annual Meeting of Stockholders of the
Company in the year in which their term expires, or until their successors have
been duly elected or appointed (as the case may be) and qualified.
The Board of Directors recommends a vote FOR the seven nominees for election
as directors. The affirmative vote of the holders of a majority of the shares
represented and entitled to vote in the election at the Annual Meeting at which
a quorum is present is required for the election of the nominees.
CERTAIN INFORMATION CONCERNING NOMINEES AND EXECUTIVE OFFICERS
BOARD OF 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 Exchange Act or any
company registered as an investment company under the Investment Company Act of
1940, as amended. 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."
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<PAGE>
MEMBERS OF BOARD OF DIRECTORS NOMINATED TO CONTINUE IN OFFICE
<TABLE>
<CAPTION>
POSITION WITH COMPANY, PRINCIPAL
OCCUPATION DURING AT LEAST THE LAST
NAME AND YEAR FIRST ELECTED DIRECTOR AGE FIVE YEARS, AND OTHER DIRECTORSHIPS
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Sandra W. Scarr, Ph.D. (1990) 60 Dr. Scarr was elected Chief Executive Officer on June 16, 1995.
She was elected a Director in June 1990 and Chairman of the Board
of Directors in July 1994. She was a Commonwealth Professor,
Department of Psychology of the University of Virginia, from
September 1983 until joining the Company. Dr. Scarr is a past
President of the Society for Research in Child Development, a past
President of the Behavior Genetics Association, a Director of the
American Psychological Society and a Fellow of the American
Association for the Advancement of Science. During 1996-1997 she
is serving as President of the American Psychological Society. She
is also an elected member of the American Academy of Arts and
Sciences and the author of numerous books and journal articles on
child development.
Thomas E. Bronson (1992) 60 Mr. Bronson was elected a Director in March 1992. Mr. Bronson is
currently Chairman of the Board of Directors of Independent
Aggregates in Inglis, Florida and Chairman of the Board of
Directors of Meridian Aggregates in Denver, Colorado. He has held
these positions since 1990 and 1991, respectively. From 1986
through 1989, Mr. Bronson served as President, Chief Executive
Officer, and Chairman of the Board of Directors of Ideal Basic
Industries, Inc., a cement manufacturing company.
M. Taylor Dawson, Jr. (1989) 67 Mr. Dawson was elected a Director in March 1989. Mr. Dawson has
been the President of Andrew and Dawson, Inc., a regional general
contractor engaged in commercial and industrial construction, for
more than five years. He is a Director of First Alabama Bank of
Montgomery. He is also a past Chairman of the Board of the Alabama
Shakespeare Festival, and a past Chairman of the Advisory Board of
Auburn University at Montgomery.
Jeffrey S. Halis (1993) 41 Mr. Halis became a Director on March 31, 1993. He is a General
Partner of Tyndall Partners, L.P. and Madison Avenue Partners,
L.P., which he founded in 1991 and which invest in securities.
From 1986 to 1990, Mr. Halis was employed by Gollust, Tierney &
Oliver, leaving as an Executive Vice President where his primary
responsibility was the management of Sabre Associates, L.P., an
investment partnership, and its affiliates.
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH COMPANY, PRINCIPAL
OCCUPATION DURING AT LEAST THE LAST
NAME AND YEAR FIRST ELECTED DIRECTOR AGE FIVE YEARS, AND OTHER DIRECTORSHIPS
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Malcolm T. Hopkins (1990) 68 During the 1996 fiscal year, Mr. Hopkins was elected Lead
Director. As Lead Director, Mr. Hopkins presides at Board meetings
in the absence of the Chairman. Mr. Hopkins first became a
Director in June 1990. He has been a private investor since
retiring in October 1984 as Vice Chairman and Chief Financial
Officer and a member of the Board of Directors of the former St.
Regis Corporation. Mr. Hopkins is a Director of The Columbia Gas
System, Inc., a natural gas production, transmission and
distribution company, MAPCO, Inc., an energy and energy-related
products company, Metropolitan Series Fund, Inc. and State Street
Research Portfolios, Inc., investment funds of The Metropolitan
Life Insurance Company, U.S. Home Corporation, a residential home
construction company, EMCOR Group, Inc., a mechanical/electrical
contractor, and Phar-Mor, Inc., a retail drug store chain.
Stephen A. Kaplan (1996) 38 Mr. Kaplan became a Director in January of 1996. He has been a
Principal of 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 member of the Board of
Directors of Chief Auto Parts, Inc., Vision Hardware Group, Inc.,
Stratagene Holding Corporation, and Decorative Home Accents, Inc.
Bruce A. Karsh (1993) 41 Mr. Karsh became a Director on March 31, 1993. He is the President
and a Principal of Oaktree which he co-founded in April 1995.
Previously, Mr. Karsh was a Managing Director of Trust Company of
the West and TCW Asset Management Company, both wholly owned
subsidiaries of the TCW Group, Inc., which he joined in 1987. He
has also been a general partner of TCW Special Credits since
September 1988. Oaktree provides investment management 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. Karsh presently serves on the Board of
Directors of Littelfuse, Inc., a manufacturer of fuses for
electronic products and automobiles, and of Furniture Brands
International, the parent company of the Broyhill, Lane and
Thomasville furniture companies.
</TABLE>
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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 Amended and Restated Bylaws of the Company. The Company has standing
Executive, Audit, Compensation, and Stock Option (a sub-committee of the
Compensation Committee) Committees. The Board of Directors met 12 times during
the 1996 fiscal year (including six regular meetings and six special meetings).
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 Sandra W.
Scarr, Ph.D. and Bruce A. Karsh. 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 three meetings during the 1996 fiscal year.
AUDIT COMMITTEE. The members of the Audit Committee are Malcolm T. Hopkins,
Thomas E. Bronson, M. Taylor Dawson, Jr., and Jeffrey S. Halis. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the independence of the auditors,
approves the scope of the annual audit activities of the independent auditors,
approves the rendering of any material non-audit services, approves the audit
fees payable to the independent auditors, reviews audit results and reviews the
expense accounts of the Company officers. The Audit Committee held two meetings
during the 1996 fiscal year.
COMPENSATION COMMITTEE. The members of the Compensation Committee are
Thomas E. Bronson, Bruce A. Karsh, Sandra W. Scarr, Ph.D., Stephen A. Kaplan,
and Malcolm T. Hopkins. 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 held three meetings during the 1996 fiscal year.
STOCK OPTION COMMITTEE (A SUB-COMMITTEE OF THE COMPENSATION COMMITTEE). The
members of the Stock Option Committee are Bruce A. Karsh and Stephen A. Kaplan.
The Stock Option Committee administers the Company's 1993 Stock Option Plan and
the Company's Director Stock Option Plan. The Stock Option Committee held no
meetings and conducted all business via unanimous written consent in lieu of a
meeting during the 1996 fiscal year.
COMPENSATION OF DIRECTORS
During the 1996 fiscal year 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 to serve as Lead Director. Directors who are employees of the Company
were not paid any additional compensation for their services as directors. For
the 1996 fiscal year, the following amounts were paid to the following
non-employee directors of the Company: Dr. Scarr (prior to becoming Chief
Executive Officer in June of 1995): $19,000; Mr. Bronson: $48,000; Mr. Dawson:
$42,000; Mr. Halis: $35,500; Mr. Hopkins: $60,000; Mr. Karsh: $42,500 (these
fees were paid to TCW Special Credits and/or TCW Asset Management Company); and
Mr. Kaplan: $20,500 (these fees paid to TCW Asset Management Company). All
directors were reimbursed for travel and other expenses incurred in connection
with the performance of these duties.
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--PROPOSAL THREE--
RATIFICATION OF SELECTION OF AUDITORS
The Company's Board of Directors has selected KPMG Peat Marwick LLP to
conduct the annual audit of the financial statements of the Company for the
fiscal year ending May 30, 1997. KPMG Peat Marwick LLP has no financial
interest, direct or indirect, in the Company, and they do not have any
connection with the Company except in their professional capacity as independent
auditors and professional advisors. The ratification by the stockholders of the
selection of KPMG Peat Marwick LLP as independent auditors is not required by
law or by the Bylaws of the Company. The Board of Directors, consistent with the
practice of many publicly held corporations, is nevertheless, submitting this
selection to the stockholders. If this selection is not ratified at the Annual
Meeting, the Board of Directors intends to reconsider its selection of
independent auditors for the fiscal year ending May 30, 1997.
Representatives of KPMG Peat Marwick LLP will be present at the Annual
Meeting with an opportunity to make statements, if they so desire, and to
respond to appropriate questions with respect to that firm's audit of the
Company's financial statements for the fiscal year ended May 31, 1996. The Board
of Directors recommends a vote FOR ratification of the selection of KPMG Peat
Marwick LLP as independent auditors for the fiscal year ending May 30, 1997.
Ratification of KPMG Peat Marwick LLP requires the affirmative vote of a
majority of the shares of Common Stock represented and entitled to vote at the
Annual Meeting at which a quorum is present.
OTHER INFORMATION AND STOCKHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly be, or
which are likely to be, brought before the Annual Meeting. However, if any other
matters are properly brought before such Annual Meeting, the persons named in
the enclosed Proxy or their substitutes will vote the Proxies in accordance with
their judgment with respect to such matters, unless authority to do so is
withheld in the Proxy.
If the Merger is not consummated, stockholder proposals intended to be
presented at the fiscal 1997 Annual Meeting of Stockholders must have been
received by the Company not later than September 9, 1997 for inclusion in the
proxy materials for such meeting.
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ANNEX I-A
CONFORMED COPY
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
KCLC ACQUISITION CORP.
AND
KINDERCARE LEARNING CENTERS, INC.
DATED AS OF OCTOBER 3, 1996
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE 1.
THE MERGER................................................................................................. 1
SECTION 1.1 The Merger................................................................... 1
SECTION 1.2 Closing...................................................................... 1
SECTION 1.3 Effective Time............................................................... 2
SECTION 1.4 Effects of the Merger........................................................ 2
SECTION 1.5 Certificate of Incorporation; By-Laws........................................ 2
SECTION 1.6 Directors and Officers....................................................... 2
ARTICLE 2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS............................................................................. 2
SECTION 2.1 Effect on Capital Stock...................................................... 2
SECTION 2.2 Dissenting Shares and Section 262 Shares..................................... 3
SECTION 2.3 Company Common Stock Elections............................................... 3
SECTION 2.4 Proration.................................................................... 4
SECTION 2.5 Treatment of Options and Other Employee Equity Rights........................ 5
SECTION 2.6 Treatment of Warrants........................................................ 5
SECTION 2.7 Surrender of Shares and Warrants; Transfer Books............................. 6
SECTION 2.8 The Debt Offer............................................................... 8
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................................. 9
SECTION 3.1 Organization and Qualification; Subsidiaries................................. 9
SECTION 3.2 Certificate of Incorporation and By-Laws..................................... 10
SECTION 3.3 Capitalization............................................................... 10
SECTION 3.4 Authority Relative to This Agreement......................................... 11
SECTION 3.5 No Conflict; Required Filings and Consents................................... 11
SECTION 3.6 Compliance................................................................... 12
SECTION 3.7 SEC Filings; Financial Statements............................................ 12
SECTION 3.8 Absence of Certain Changes or Events......................................... 13
SECTION 3.9 Absence of Litigation........................................................ 13
SECTION 3.10 Properties................................................................... 13
SECTION 3.11 Employee Benefit Plans....................................................... 14
SECTION 3.12 Tax Matters.................................................................. 15
SECTION 3.13 Environmental Laws........................................................... 16
SECTION 3.14 Offer Documents; Proxy Statement............................................. 17
SECTION 3.15 Brokers...................................................................... 18
SECTION 3.16 Opinion of Financial Advisor................................................. 18
SECTION 3.17 Labor Matters................................................................ 18
SECTION 3.18 Board Recommendation......................................................... 18
SECTION 3.19 Tradenames................................................................... 18
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ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF NEWCO............................................... 19
SECTION 4.1 Corporate Organization....................................... 19
SECTION 4.2 Authority Relative to This Agreement......................... 19
SECTION 4.3 No Conflict; Required Filings and Consents................... 19
SECTION 4.4 Offer Documents; Proxy Statement............................. 20
SECTION 4.5 Brokers...................................................... 20
SECTION 4.6 Financing.................................................... 20
ARTICLE 5.
CONDUCT OF BUSINESS PENDING THE MERGER................................................ 20
SECTION 5.1 Conduct of Business of the Company Pending the Merger........ 20
ARTICLE 6.
ADDITIONAL AGREEMENTS................................................................. 22
SECTION 6.1 Stockholders Meeting......................................... 22
SECTION 6.2 Proxy Statement.............................................. 22
SECTION 6.3 Access to Information; Confidentiality....................... 23
SECTION 6.4 Third Parties................................................ 23
SECTION 6.5 Employee Benefits Matters.................................... 23
SECTION 6.6 Directors' and Officers' Indemnification and Insurance....... 23
SECTION 6.7 Notification of Certain Matters.............................. 24
SECTION 6.8 Further Action; Best Efforts................................. 24
SECTION 6.9 Public Announcements......................................... 26
SECTION 6.10 Disposition of Litigation.................................... 26
SECTION 6.11 Affiliates................................................... 26
SECTION 6.12 Resignation of Directors..................................... 26
SECTION 6.13 Stop Transfer Order.......................................... 26
ARTICLE 7.
CONDITIONS OF MERGER.................................................................. 26
SECTION 7.1 Conditions to Obligation of Each Party to Effect the
Merger....................................................... 26
SECTION 7.2 Conditions to Obligation of Newco............................ 27
SECTION 7.3 Conditions to Obligation of the Company...................... 28
ARTICLE 8.
TERMINATION, AMENDMENT AND WAIVER..................................................... 28
SECTION 8.1 Termination.................................................. 28
SECTION 8.2 Effect of Termination........................................ 29
SECTION 8.3 Fees and Expenses............................................ 29
SECTION 8.4 Amendment.................................................... 29
SECTION 8.5 Waiver....................................................... 29
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ARTICLE 9.
GENERAL PROVISIONS.................................................................... 29
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements... 29
SECTION 9.2 Notices...................................................... 29
SECTION 9.3 Certain Definitions.......................................... 30
SECTION 9.4 Severability................................................. 31
SECTION 9.5 Entire Agreement; Assignment................................. 31
SECTION 9.6 Parties in Interest.......................................... 32
SECTION 9.7 Governing Law................................................ 32
SECTION 9.8 Headings..................................................... 32
SECTION 9.9 Counterparts................................................. 32
Annex A--Affiliate Letter
Exhibit A--Certificate of Incorporation of the Company after the Merger
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 3, 1996 (the "AGREEMENT"),
between KCLC Acquisition Corp., a Delaware corporation ("NEWCO"), and KinderCare
Learning Centers, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the respective Boards of Directors of the Company and Newco have
determined that the merger of Newco with and into the Company (the "MERGER"),
upon the terms and subject to the conditions set forth in this Agreement, would
be fair to and in the best interests of their respective stockholders, and such
Boards of Directors have approved such Merger, pursuant to which each share of
common stock, par value $.01 per share (the "COMPANY COMMON STOCK"), issued and
outstanding immediately prior to the Effective Time (as defined in Section 1.3)
will be converted into either (A) the right to retain at the election of the
holder thereof and subject to the terms hereof, common stock, par value $.01 per
share, of the Company or (B) the right to receive cash, other than (a) shares of
Company Common Stock owned, directly or indirectly, by the Company or any
subsidiary (as defined in Section 9.3) of the Company or by Newco or any
subsidiary of Newco and (b) Dissenting Shares (as defined in Section 2.2);
WHEREAS, the Merger and this Agreement require the vote of a majority of the
shares of the Company Common Stock for the approval thereof (the "COMPANY
STOCKHOLDER APPROVAL");
WHEREAS, Newco is a newly formed corporation organized at the direction of
Kohlberg Kravis Roberts & Co. L.P.;
WHEREAS, as a condition to Newco's willingness to enter into this Agreement
and consummate the transactions contemplated hereby, Newco has required that the
Stockholder and the Funds (each as defined in the Voting Agreement (as defined
herein)) agree, among other things, to vote shares of Company Common Stock
beneficially owned by them in accordance with the Voting Agreement (including
without limitation shares of Company Common Stock issued upon conversion of
warrants of the Company beneficially owned by the Stockholder) and comply with
the other provisions of such Voting Agreement; and in order to induce Newco to
enter into this Agreement, the Stockholder and the Funds have executed and
delivered the Voting Agreement, dated as of the date hereof, between Newco, on
the one hand, and the Stockholder and the Funds, on the other hand (the "VOTING
AGREEMENT");
WHEREAS, Newco and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE 1.
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware ("DGCL"), at the Effective Time (as defined in Section 1.3), Newco
shall be merged with and into the Company. As a result of the Merger, the
separate corporate existence of Newco shall cease and the Company shall survive
the Merger.
SECTION 1.2 CLOSING. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8.1 and subject to the satisfaction or waiver of the conditions set
forth in Article 7, the closing of the Merger (the "CLOSING") will take place at
10:00 a.m. on the second business day after satisfaction or waiver of the
conditions set forth in Article 7 (the "CLOSING DATE"), at the offices of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017,
unless another date, time or place is agreed to in writing by the parties
hereto.
<PAGE>
SECTION 1.3 EFFECTIVE TIME. As soon as practicable after the satisfaction
or waiver of the conditions set forth in Article 7, the parties hereto shall
cause the Merger to be consummated by filing this Agreement or a certificate of
merger (the "CERTIFICATE OF MERGER") with the Secretary of State of the State of
Delaware, in such form as required by and executed in accordance with the
relevant provisions of the DGCL (the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware (or
such later time as is specified in the Certificate of Merger) being the
"EFFECTIVE TIME").
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the applicable provisions of the DGCL. Without limiting the generality
of the foregoing and subject thereto, at the Effective Time all the property,
rights, privileges, immunities, powers and franchises of the Company and Newco
shall vest in the Company following the Merger, and all debts, liabilities and
duties of the Company and Newco shall become the debts, liabilities and duties
of the Company following the Merger.
SECTION 1.5 CERTIFICATE OF INCORPORATION; BY-LAWS. (a) At the Effective
Time and without any further action on the part of the Company and Newco, the
certificate of incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be amended so as to read in its entirety in the form
set forth as Exhibit A hereto, and, as so amended, until thereafter further
amended as provided therein and under the DGCL, it shall be the certificate of
incorporation of the Company following the Merger.
(b) At the Effective Time and without any further action on the part of the
Company and Newco, the by-laws of Newco shall be the by-laws of the Company
following the Merger and thereafter may be amended or repealed in accordance
with their terms or the certificate of incorporation of the Company following
the Merger and as provided under the DGCL.
SECTION 1.6 DIRECTORS AND OFFICERS. Subject to Section 6.12, the directors
of Newco immediately prior to the Effective Time shall be the initial directors
of the Company following the Merger, each to hold office in accordance with the
certificate of incorporation and by-laws of the Company following the Merger,
and the officers of the Company immediately prior to the Effective Time shall be
the initial officers of the Company following the Merger, in each case until
their respective successors are duly elected or appointed (as the case may be)
and qualified.
ARTICLE 2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
SECTION 2.1 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Company, Newco or any
holder of any shares of Company Common Stock or any shares of capital stock of
Newco:
(a) COMMON STOCK OF NEWCO. Each share of common stock of Newco issued
and outstanding immediately prior to the Effective Time shall be converted
into a number of shares of the common stock, par value $.01 per share, of
the Company following the Merger equal to the quotient of (i) 7,345,679
divided by (ii) the number of shares of common stock of Newco outstanding
immediately prior to the Effective Time.
(b) CANCELLATION OF TREASURY STOCK AND NEWCO-OWNED COMPANY COMMON
STOCK. Each share of Company Common Stock that is owned by the Company or
by any subsidiary of the Company, and each share of Company Common Stock
that is owned by Newco or any subsidiary of Newco shall automatically be
cancelled and retired and shall cease to exist, and no cash, Company Common
Stock or other consideration shall be delivered or deliverable in exchange
therefor.
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<PAGE>
(c) CONVERSION (OR RETENTION) OF COMPANY COMMON STOCK. Except as
otherwise provided herein and subject to Section 2.4, each issued and
outstanding share of Company Common Stock (other than any such shares to be
cancelled pursuant to Section 2.1(b) and any Dissenting Shares (as defined
in Section 2.2)) shall be converted into the following (the "MERGER
CONSIDERATION"):
(i) for each such share of Company Common Stock with respect to which
an election to retain Company Common Stock has been effectively made and
not revoked or lost, pursuant to Sections 2.3(c), (d) and (e) ("ELECTING
SHARES"), the right to retain one fully paid and nonassessable share of
Company Common Stock (a "NON-CASH ELECTION SHARE"); and
(ii) for each such share of Company Common Stock (other than Electing
Shares), the right to receive in cash from the Company following the
Merger an amount equal to $20.25 (the "CASH ELECTION PRICE").
(d) CANCELLATION AND RETIREMENT OF COMPANY COMMON STOCK. As of the
Effective Time, all shares of Company Common Stock (other than shares
referred to in Section 2.1(b) and 2.1(c)(i)) issued and outstanding
immediately prior to the Effective Time shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such shares of Company Common
Stock shall, to the extent such certificate represents such shares, cease to
have any rights with respect thereto, except the right to receive cash,
including cash in lieu of fractional shares of Company Common Stock to be
issued or paid in consideration therefor upon surrender of such certificate
in accordance with Section 2.7.
SECTION 2.2 DISSENTING SHARES AND SECTION 262 SHARES. (a) Notwithstanding
anything in this Agreement to the contrary, shares of Company Common Stock that
are issued and outstanding immediately prior to the Effective Time and which are
held by stockholders who have not voted in favor of or consented to the Merger
and shall have delivered a written demand for appraisal of such shares in the
time and manner provided in Section 262 of the DGCL and shall not have failed to
perfect or shall not have effectively withdrawn or lost their rights to
appraisal and payment under the DGCL (the "DISSENTING SHARES") shall not be
converted into the right to receive the Merger Consideration, but shall be
entitled to receive the consideration as shall be determined pursuant to Section
262 of the DGCL; PROVIDED, HOWEVER, that if any such holder shall have failed to
perfect or shall have effectively withdrawn or lost his, her or its right to
appraisal and payment under the DGCL, such holder's shares of Company Common
Stock shall thereupon be deemed to have been converted, at the Effective Time,
into the right to receive the Merger Consideration set forth in Section 2.1 of
this Agreement, without any interest thereon.
(b) The Company shall give Newco (i) prompt notice of any demands for
appraisal pursuant to Section 262 received by the Company, withdrawals of such
demands and any other instruments served pursuant to the DGCL and received by
the Company and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of Newco, make any payment with respect to
any such demands for appraisal or offer to settle or settle any such demands.
SECTION 2.3 COMPANY COMMON STOCK ELECTIONS. (a) Each person who, on or
prior to the Election Date referred to in (c) below, is a record holder of
shares of Company Common Stock will be entitled, with respect to all or any
portion of his shares, to make an unconditional election (a "NON-CASH ELECTION")
on or prior to such Election Date to retain Non-Cash Election Shares, on the
basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined in Section
3.14), Newco shall appoint a bank or trust company to act as exchange agent (the
"EXCHANGE AGENT") for the payment of the Merger Consideration.
3
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(c) Newco shall prepare and mail a form of election, which form shall be
subject to the reasonable approval of the Company (the "FORM OF ELECTION"), with
the Proxy Statement to the record holders of Company Common Stock as of the
record date for the Stockholders Meeting (as defined in Section 6.1), which Form
of Election shall be used by each record holder of shares of Company Common
Stock who wishes to elect to retain Non-Cash Election Shares for any or all
shares of Company Common Stock held, subject to the provisions of Section 2.4
hereof, by such holder. The Company will use its best efforts to make the Form
of Election and the Proxy Statement available to all persons who become holders
of Company Common Stock during the period between such record date and the
Election Date referred to below. Any such holder's election to retain Non-Cash
Election Shares shall have been properly made only if the Exchange Agent shall
have received at its designated office, by 5:00 p.m., New York City time on the
business day (the "ELECTION DATE") next preceding the date of the Stockholders
Meeting, a Form of Election properly completed and signed and accompanied by
certificates for the shares of Company Common Stock to which such Form of
Election relates, duly endorsed in blank or otherwise in form acceptable for
transfer on the books of the Company (or by an appropriate guarantee of delivery
of such certificates as set forth in such Form of Election from a firm which is
a member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States, provided such
certificates are in fact delivered to the Exchange Agent within five NASDAQ
trading days after the date of execution of such guarantee of delivery).
(d) Any Form of Election may be revoked by the stockholder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent prior
to 5:00 p.m, New York City time, on the Election Date. In addition, all Forms of
Election shall automatically be revoked if the Exchange Agent is notified in
writing by Newco and the Company that the Merger has been abandoned. If a Form
of Election is revoked, the certificate or certificates (or guarantees of
delivery, as appropriate) for the shares of Company Common Stock to which such
Form of Election relates shall be promptly returned to the stockholder
submitting the same to the Exchange Agent.
(e) The determination of the Exchange Agent shall be binding whether or not
elections to retain Non-Cash Election Shares have been properly made or revoked
pursuant to this Section 2.3 with respect to shares of Company Common Stock and
when elections and revocations were received by it. If the Exchange Agent
determines that any election to retain Non-Cash Election Shares was not properly
made with respect to shares of Company Common Stock, such shares shall be
treated by the Exchange Agent as shares which were not Electing Shares at the
Effective Time, and such shares shall be exchanged in the Merger for cash
pursuant to Section 2.1(c)(ii). The Exchange Agent shall also make all
computations as to the allocation and the proration contemplated by Section 2.4,
and any such computation shall be conclusive and binding on the holders of
shares of Company Common Stock. The Exchange Agent may, with the mutual
agreement of Newco and the Company, make such rules as are consistent with this
Section 2.3 for the implementation of the elections provided for herein as shall
be necessary or desirable fully to effect such elections.
SECTION 2.4 PRORATION.
(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock to be converted into the
right to retain Company Common Stock at the Effective Time (the "NON-CASH
ELECTION NUMBER") shall be equal to 1,296,296 (excluding for this purpose any
shares of Company Common Stock to be cancelled pursuant to Section 2.1(b)).
(b) If the number of Electing Shares exceeds the Non-Cash Election Number,
then each Electing Share shall be converted into the right to retain Non-Cash
Election Shares or receive cash in accordance with the terms of Section 2.1(c)
in the following manner:
4
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(i) A proration factor (the "NON-CASH PRORATION FACTOR") shall be
determined by dividing the Non-Cash Election Number by the total number of
Electing Shares.
(ii) The number of Electing Shares covered by each Non-Cash Election to
be converted into the right to retain Non-Cash Election Shares shall be
determined by multiplying the Non-Cash Proration Factor by the total number
of Electing Shares covered by such Non-Cash Election.
(iii) All Electing Shares, other than those shares converted into the
right to receive Non-Cash Election Shares in accordance with Section
2.4(b)(ii), shall be converted into cash (on a consistent basis among
stockholders who made the election referred to in Section 2.1(c)(i), pro
rata to the number of shares as to which they made such election) as if such
shares were not Electing Shares in accordance with the terms of Section
2.1(c)(ii).
(c) If the number of Electing Shares is less than the Non-Cash Election
Number, then:
(i) all Electing Shares shall be converted into the right to retain
Company Common Stock in accordance with the terms of Section 2.1(c)(i);
(ii) additional shares of Company Common Stock other than Electing
Shares and Dissenting Shares shall be converted into the right to retain
Non-Cash Election Shares in accordance with the terms of 2.1(c) in the
following manner:
(1) a proration factor (the "CASH PRORATION FACTOR") shall be
determined by dividing (x) the difference between the Non-Cash Election
Number and the number of Electing Shares, by (y) the total number of
shares of Company Common Stock other than Electing Shares and Dissenting
Shares; and
(2) the number of shares of Company Common Stock in addition to
Electing Shares to be converted into the right to retain Non-Cash
Election Shares shall be determined by multiplying the Cash Proration
Factor by the total number of shares other than Electing Shares and
Dissenting Shares; and
(iii) subject to Section 2.2, shares of Company Common Stock subject to
clause (ii) of this paragraph (c) shall be converted into the right to
retain Non-Cash Election Shares in accordance with Section 2.1(c)(i) (on a
consistent basis among shareholders who held shares of Company Common Stock
as to which they did not make the election referred to in Section 2.1(c)(i),
pro rata to the number of shares as to which they did not make such
election).
SECTION 2.5 TREATMENT OF OPTIONS AND OTHER EMPLOYEE EQUITY RIGHTS. (a)
Immediately prior to the Effective Time, each outstanding stock option held by
any current or former employee or director (an "OPTION") granted under the 1993
Stock Option and Incentive Plan, the 1993 Director Stock Option Plan or
otherwise (the "STOCK PLANS"), whether or not then exercisable, shall be
cancelled by the Company, and except as otherwise agreed by the Company, Newco
and the holder, the holder thereof shall be entitled to receive at the Effective
Time or as soon as practicable thereafter from the Company following the Merger
in consideration for such cancellation an amount in cash equal to the product of
(a) the number of shares of Company Common Stock previously subject to such
Option and (b) the excess, if any, of the cash Merger Consideration per share
over the exercise price per share previously subject to such Option, reduced by
the amount of any withholding or other taxes required by law to be withheld.
(b) Effective as of the Effective Time, the Company shall use its reasonable
best efforts to take all such action as is necessary prior to the Effective Time
to terminate all Stock Plans so that on and after the Effective Time no current
or former employee or director shall have any Option to purchase shares of
Company Common Stock or any other equity interest in the Company under any Stock
Plan. The
5
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Company shall use its reasonable best efforts to obtain any consents necessary
to release the Company from any liability in respect of any Option.
SECTION 2.6 TREATMENT OF WARRANTS. At the Effective Time, pursuant to the
Warrant Agreement (as defined in Section 3.3) and without any action on the part
of Newco, the Company or the holders of any of the Warrants (as defined in
Section 3.3), each Warrant issued and outstanding immediately prior to the
Effective Time shall be cancelled, extinguished and converted into the right to
receive the amount of cash determined in accordance with Section 12(d) of the
Warrant Agreement (the "WARRANT CONSIDERATION") payable to the holder thereof,
without interest, upon surrender of the certificate formerly representing such
Warrant in the manner provided in Section 2.7, less any required withholding
taxes.
SECTION 2.7 SURRENDER OF SHARES AND WARRANTS; TRANSFER BOOKS. (a) EXCHANGE
AGENT. As soon as reasonably practicable as of or after the Effective Time, the
Company shall deposit with the Exchange Agent, (i) for the benefit of the
holders of shares of Company Common Stock, the cash portion of Merger
Consideration and (ii) for the benefit of the holders of the Warrants, the
Warrant Consideration, each for exchange in accordance with this Article 2. Such
funds shall be invested by the Exchange Agent as directed by the Company,
PROVIDED that such investments shall be (i) securities issued or directly and
fully guaranteed or insured by the United Stated government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (ii) certificates of deposit, eurodollar time deposits and
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits with any commercial bank, depository institution or trust company
incorporated or doing business under the laws of the United States of America,
any state thereof or the District of Columbia, provided that such commercial
bank, depository institution or trust company has, at the time of investment,
(A) capital and surplus exceeding $250 million and (B) outstanding short-term
debt securities which are rated at least A-1 by Standard & Poor's Rating Group
Division of The McGraw-Hill Companies, Inc. or at least P-1 by Moody's Investors
Service, Inc. or carry an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease to publish ratings of
investments, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clauses (i) and (ii) above
entered into with any financial institution meeting the qualifications specified
in clause (ii) above, (iv) commercial paper having a rating in the highest
rating categories from Standard & Poor's Rating Group Division of The
McGraw-Hill Companies, Inc. or Moody's Investors Service, Inc. or carrying an
equivalent rating by a nationally recognized rating agency if both of the two
named rating agencies cease to publish ratings of investments and in each case
maturing within six months after the date of acquisition and (v) money market
mutual or similar funds having assets in excess of $1 billion. Any net profit
resulting from, or interest or income produced by, such investments will be
payable to the Company.
(b) EXCHANGE PROCEDURES FOR SHARES OF COMPANY COMMON STOCK. As soon as
practicable after the Effective Time, each holder of an outstanding certificate
or certificates which prior thereto represented shares of Company Common Stock
shall, upon surrender to the Exchange Agent of such certificate or certificates
and acceptance thereof by the Exchange Agent, be entitled to a certificate or
certificates representing the number of full shares of Company Common Stock, if
any, to be retained by the holder thereof pursuant to this Agreement and the
amount of cash, if any, into which the number of shares of Company Common Stock
previously represented by such certificate or certificates surrendered shall
have been converted pursuant to this Agreement. The Exchange Agent shall accept
such certificates upon compliance with such reasonable terms and conditions as
the Exchange Agent may impose to effect an orderly exchange thereof in
accordance with normal exchange practices. After the Effective Time, there shall
be no further transfer on the records of the Company or its transfer agent of
certificates representing shares of Company Common Stock which have been
converted, in whole or in part, pursuant to this Agreement into the right to
receive cash, and if such certificates are presented to the Company for
transfer, they shall be cancelled against delivery of cash and, if appropriate,
certificates for retained Company Common Stock. If any certificate for such
retained Company Common Stock is to be issued in, or if cash is to be remitted
to, a name other than that in which the certificate for Company Common Stock
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surrendered for exchange is registered, it shall be a condition of such exchange
that the certificate so surrendered shall be properly endorsed, with signature
guaranteed, or otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Company or its transfer agent any
transfer or other taxes required by reason of the issuance of certificates for
such retained Company Common Stock in a name other than that of the registered
holder of the certificate surrendered, or establish to the satisfaction of the
Company or its transfer agent that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.7(b), each certificate for
shares of Company Common Stock shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration as contemplated by Section 2.1. No interest will be paid or will
accrue on any cash payable as Merger Consideration or in lieu of any fractional
shares of retained Company Common Stock.
(c) EXCHANGE PROCEDURES FOR WARRANTS. As soon as practicable after the
Effective Time, the Company shall cause to be mailed to each record holder, as
of the Effective Time, of an outstanding certificate or certificates, which
immediately prior to the Effective Time represented Warrants (the
"CERTIFICATES"), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the Certificates for payment
of the Warrant Consideration therefor. The Exchange Agent shall accept the
Certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. After the Effective Time, there shall be no
further transfer on the records of the Company or its transfer agent of
Certificates representing Warrants, and if such Certificates are presented to
the Company for transfer, they shall be cancelled against delivery of Warrant
Consideration therefor. Until surrendered as contemplated by this Section
2.7(c), each Certificate for Warrants shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Warrant Consideration as contemplated by Section 2.6. No interest will be paid
or will accrue on any cash payable as Warrant Consideration.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions with respect to retained Company Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
certificate for shares of Company Common Stock with respect to the shares of
retained Company Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.7(f)
until the surrender of such certificate in accordance with this Article 2.
Subject to the effect of applicable laws, following surrender of any such
certificate, there shall be paid to the holder of the certificate representing
whole shares of retained Company Common Stock issued in connection therewith,
without interest, (i) at the time of such surrender or as promptly after the
sale of the Excess Shares (as defined in Section 2.7(f)) as practicable, the
amount of any cash payable in lieu of a fractional share of retained Company
Common Stock to which such holder is entitled pursuant to Section 2.7(f) and the
proportionate amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
retained Company Common Stock, and (ii) at the appropriate payment date, the
proportionate amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such whole shares of
retained Company Common Stock.
(e) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK EXCHANGED FOR CASH.
All cash paid upon the surrender for exchange of certificates representing
shares of Company Common Stock in accordance with the terms of this Article 2
(including any cash paid pursuant to Section 2.7(f)) shall be deemed to have
been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Company Common Stock exchanged for cash theretofore represented by
such certificates.
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(f) NO FRACTIONAL SHARES. (i) No certificates or scrip representing
fractional shares of retained Company Common Stock shall be issued in connection
with the Merger, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of the Company after the
Merger; and
(ii) Notwithstanding any other provision of this Agreement, each record
holder of shares of Company Common Stock exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a share of retained
Company Common Stock (after taking into account all shares of Company Common
Stock delivered by such holder) shall receive, in lieu thereof, a cash payment
(without interest) representing such holder's proportionate interest in the net
proceeds from the sale by the Exchange Agent (following the deduction of
applicable transaction costs), on behalf of all such holders, of the shares (the
"EXCESS SHARES") of retained Company Common Stock representing such fractions.
Such sale shall be made as soon as practicable after the Effective Time.
(g) TERMINATION OF EXCHANGE FUND. Any portion of the Merger Consideration or
Warrant Consideration deposited with the Exchange Agent pursuant to this Section
2.7 (the "EXCHANGE FUND") which remains undistributed to the holders of the
certificates representing shares of Company Common Stock or Warrants for six
months after the Effective Time shall be delivered to the Company, upon demand,
and any holders of shares of Company Common Stock or Warrants prior to the
Merger who have not theretofore complied with this Article 2 shall thereafter
look only to the Company and only as general creditors thereof for payment of
their claim for cash, if any, retained Company Common Stock, if any, any cash in
lieu of fractional shares of retained Company Common Stock, any dividends or
distributions with respect to retained Company Common Stock or Warrant
Consideration, as applicable, to which such holders may be entitled.
(h) NO LIABILITY. None of Newco, the Company nor the Exchange Agent shall be
liable to any person in respect of any shares of retained Company Common Stock
(or dividends or distributions with respect thereto) or cash from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any certificates representing shares of
Company Common Stock or Warrants shall not have been surrendered prior to one
year after the Effective Time (or immediately prior to such earlier date on
which any cash, if any, any cash in lieu of fractional shares of retained
Company Common Stock, any dividends or distributions with respect to retained
Company Common Stock in respect of such certificate would otherwise escheat to
or become the property of any Governmental Entity (as defined in Section
3.5(b)), any such cash, dividends or distributions in respect of such
certificate shall, to the extent permitted by applicable law, become the
property of the Company, free and clear of all claims or interest of any person
previously entitled thereto.
SECTION 2.8 THE DEBT OFFER. (a) Provided that this Agreement shall not
have been terminated in accordance with Section 8.1, the Company shall, as soon
as reasonably practicable following execution of this Agreement (but in no event
later than fifteen calendar days after the public announcement of the execution
of this Agreement), commence an offer to purchase all of the outstanding
aggregate principal amount of the Company's 10 3/8% Senior Notes due 2001
(hereinafter referred to as the "NOTES") on the terms set forth in Section 2.8
of the disclosure schedule between Newco and the Company dated the date hereof
(the "DISCLOSURE SCHEDULE") and such other customary terms and conditions as are
reasonably acceptable to Newco (the "DEBT OFFER"). The Company shall waive any
of the conditions to the Debt Offer and make any other changes in the terms and
conditions of the Debt Offer as reasonably requested by Newco, and the Company
shall not, without Newco's prior consent, waive any material condition to the
Debt Offer, make any changes to the terms and conditions of the Debt Offer set
forth on Section 2.8 of the Disclosure Schedule or make any other material
changes in the terms and conditions of the Debt Offer. Notwithstanding the
immediately preceding sentence, Newco shall not request that the Company make
any change to the terms and conditions of the Debt Offer which decreases the
price per Note payable in the Debt Offer, changes the form of consideration
payable in the Debt Offer (other than by adding
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consideration) or imposes conditions to the Debt Offer in addition to those set
forth in Section 2.8 of the Disclosure Schedule which are materially adverse to
holders of the Notes (it being agreed that a request by Newco that the Company
waive any condition in whole or in part at any time and from time to time in its
sole discretion shall not be deemed to be materially adverse to any holder of
Notes), unless such change was previously approved by the Company in writing.
The Company covenants and agrees that, subject to the terms and conditions of
this Agreement, including but not limited to the conditions to the Debt Offer,
it will accept for payment and pay for Notes as soon as the condition set forth
in Section 7.2(h) of this Agreement is satisfied and it is permitted to do so
under applicable law, PROVIDED that the Company shall coordinate the timing of
any such purchase with Newco in order to obtain the greatest participation in
the Debt Offer.
(b) Promptly following the date of this Agreement, Newco and the Company
shall prepare an offer to purchase the Notes (or portions thereof) and forms of
the related letter of transmittal (the "LETTER OF TRANSMITTAL") (collectively,
the "OFFER TO PURCHASE") and summary advertisement, as well as all other
information and exhibits (collectively, the "OFFER DOCUMENTS"). Newco and the
Company will cooperate with each other in the preparation of the Offer
Documents. All mailings to the holders of Notes in connection with the Debt
Offer shall be subject to the prior review, comment and reasonable approval of
Newco. The Company will use its best efforts to cause the Offer Documents to be
mailed to the holders of the Notes as promptly as practicable following
execution of this Agreement (but in no event later than fifteen calendar days
after the public announcement of the execution of this Agreement). The Company
agrees promptly to correct any information in the Offer Documents that shall be
or have become false or misleading in any material respect.
(c) In connection with the Debt Offer, if requested by Newco, the Company
shall promptly furnish Newco with security position listings, any non-objecting
beneficial owner lists and any available listings or computer files containing
the names and addresses of the beneficial owners and/or record holders of Notes,
each as of a recent date, and shall promptly furnish Newco with such additional
information (including but not limited to updated lists of Noteholders, mailing
labels, security position listings and non-objecting beneficial owner lists) and
such other assistance as Newco or its agents may reasonably require in
communicating the Debt Offer to the record and beneficial holders of Notes.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Newco that, except as set
forth on the Disclosure Schedule, but, with respect to any specific
representation and warranty, only to the extent that it would be reasonably
apparent that a reference on the Disclosure Schedule relates to such
representation and warranty:
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Company and each of its Significant Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority and any necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority and governmental approval could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect (as
defined below). Each of the Company and each of its Significant Subsidiaries is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing which could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect. When
used in connection with the Company or any of its subsidiaries, the term
"MATERIAL ADVERSE EFFECT" means any change or effect that, either individually
or in the aggregate with all other changes or effects, is materially adverse to
the business, financial condition or results of operations of the Company and
its subsidiaries taken as a whole.
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SECTION 3.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Company has
heretofore furnished to Newco a complete and correct copy of the certificate of
incorporation and the by-laws of the Company as currently in effect. Such
certificate of incorporation and by-laws are in full force and effect and no
other organizational documents are applicable to or binding upon the Company.
The Company is not in violation of any of the provisions of its certificate of
incorporation or by-laws.
SECTION 3.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 40,000,000 shares of Company Common Stock and 10,000,000 shares of
Preferred Stock, $.01 par value per share (the "PREFERRED STOCK"). As of October
1, 1996, (i) 19,146,211 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
were issued free of preemptive (or similar) rights, (ii) 0 shares of Company
Common Stock were held in the treasury of the Company, (iii) an aggregate of
2,620,282 shares of Company Common Stock were reserved for issuance and issuable
upon or otherwise deliverable in connection with the exercise of outstanding
Options and (iv) an aggregate of 3,695,317 shares of Company Common Stock were
reserved for issuance and issuable upon or otherwise deliverable in connection
with the exercise of outstanding warrants (the "WARRANTS") issued pursuant to
the Warrant Agreement, dated March 31, 1993, between the Company and The First
National Bank of Boston (the "WARRANT AGREEMENT"). As of the date hereof, no
shares of Preferred Stock are issued and outstanding. Since October 1, 1996, the
Company has not issued or reserved for issuance (a) any shares of capital stock
or other voting securities of the Company or any of its subsidiaries, except as
a result of the exercise of Options or Warrants outstanding at October 1, 1996
or (b) any Options or Warrants, except as described in this Section 3.3. Other
than Options or Warrants outstanding as of the date hereof, the Company has
issued or reserved for issuance (a) no options or other rights to acquire from
the Company or any of its subsidiaries, and no obligation of the Company or any
of its subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company or any of its subsidiaries and (b) no equity equivalents, interests in
the ownership or earnings of the Company or any of its subsidiaries or other
similar rights (collectively, with the Options and the Warrants, "COMPANY
SECURITIES"). All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive (or similar)
rights. There are no outstanding obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any Company Securities
or to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other entity. Except
for the Equity Registration Rights Agreement dated March 31, 1993, among the
Company, Dickstein & Co., L.P., Dickstein International Limited, TCW Special
Credit Funds, Cargill Financial Services Corporation, Lodestar Management
Incorporated and Lodestar Associates, L.P (together with Lodestar Management
Incorporated, "LODESTAR") and the Warrant Registration Rights Agreement dated
March 31, 1993, between the Company and Lodestar, there are no other options,
calls, warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or any
of its subsidiaries to which the Company or any of its subsidiaries is a party.
The Company has delivered to Newco prior to the date hereof a true and complete
list of the subsidiaries and associated entities of the Company which evidences,
among other things, the amount of capital stock or other equity interests owned
by the Company, directly or indirectly, in such subsidiaries or associated
entities. Each of the outstanding shares of capital stock of each of the
Company's Significant Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and all such shares are owned by the Company or another
wholly owned subsidiary of the Company and are owned free and clear of all
security interests, liens, claims, pledges, agreements, limitations in voting
rights, charges or other encumbrances of any nature whatsoever, except as set
forth on Section 3.3 of the Disclosure Schedule. No entity in which the Company
owns, directly or indirectly, less than a 50% equity interest is, individually
or when taken together with all such other entities, material to the business of
the Company and its subsidiaries taken as a whole. As of the date hereof, the
only outstanding indebtedness for borrowed money of the Company and its
subsidiaries is (i) $70 million in aggregate principal amount of
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Notes issued pursuant to the Indenture between the Company and AmSouth Bank,
N.A., as Trustee, dated as of June 2, 1994 (the "INDENTURE"), (ii) $48,500,000
in aggregate principal amount issued under, the Credit Agreement, dated June 2,
1994 (the "CREDIT AGREEMENT"), by and among the Company, the lenders listed
therein, The Toronto-Dominion Bank, as facing bank, and Toronto Dominion
(Texas), Inc., as agent, (iii) $7,437,000 aggregate principal amount issued
under a loan agreement, dated June 2, 1994 (the "LOAN AGREEMENT") between the
Company and SouthTrust Bank of Alabama, N.A., (iv) $33,025,000 aggregate
principal amount outstanding under industrial revenue bonds which are secured by
a like amount of letters of credit issued under to the Credit Agreement, (v)
$5,350,000 in aggregate principal amount of industrial revenue bonds secured by
real property and (vi) $64,000 aggregate principal amount issued under a bank
overdraft line, dated August 29, 1995, between the Company and NationsBank of
Georgia N.A. The loans and other extensions of credit under the Credit Agreement
and the Loan Agreement are each prepayable in full in accordance with their
respective terms.
SECTION 3.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated (other than, with respect to the Merger, the approval of this
Agreement by the holders of a majority of the outstanding shares if and to the
extent required by the DGCL, and the filing of appropriate merger documents as
required by the DGCL). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery hereof by Newco, constitutes a legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms. The
Board of Directors of the Company has approved this Agreement and the
transactions contemplated hereby (including but not limited to the Debt Offer
and the Merger) so as to render inapplicable hereto and thereto the limitation
on business combinations contained in Section 203 of the DGCL (or any similar
provision). The Board of Directors of the Company has approved the Voting
Agreement and the transactions contemplated thereby so as to render inapplicable
thereto the limitation on business combinations contained in Section 203 of the
DGCL (or any similar provision). As a result of the foregoing actions, the only
vote required to authorize the Merger is the affirmative vote of a majority of
the outstanding shares of Company Common Stock.
SECTION 3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution,
delivery and performance of this Agreement by the Company do not and will not:
(i) conflict with or violate the certificate of incorporation or by-laws of the
Company or the equivalent organizational documents of any of its Significant
Subsidiaries; (ii) assuming that all consents, approvals and authorizations
contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been
obtained and all filings described in such clauses have been made, conflict with
or violate any law, rule, regulation, order, judgment or decree applicable to
the Company or any of its subsidiaries or by which its or any of their
respective properties are bound or affected; or (iii) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both could become a default) or result in the loss of a material benefit
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company or any of its subsidiaries pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are bound or affected,
except (A) in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect and (B) in the case of clause (iii), other than as set forth on
Section 3.5(a) of the Disclosure Schedule and except that the consummation of
the Merger may result in conflicts, violations, breaches or defaults under the
Indenture, the Credit Agreement and the Loan Agreement.
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(b) The execution, delivery and performance of this Agreement by the Company
and the consummation of the Merger by the Company do not and will not require
any consent, approval, authorization or permit of, action by, filing with or
notification to, any Federal, state or local government or any court,
administrative agency or commission or other governmental authority, official or
agency, domestic or foreign (a "GOVERNMENTAL ENTITY"), except for (i) the
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and the rules and regulations promulgated thereunder, the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and the rules and
regulations promulgated thereunder, the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR ACT"), state securities, takeover and Blue Sky
laws, (ii) the filing and recordation of appropriate merger or other documents
as required by the DGCL and (iii) such consents, approvals, authorizations,
permits, actions, filings or notifications the failure of which to make or
obtain could not reasonably be expected to (x) prevent or materially delay
consummation of the Debt Offer or the Merger or (y) have a Material Adverse
Effect.
SECTION 3.6 COMPLIANCE. Neither the Company nor any of its subsidiaries is
in conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its subsidiaries
or by which its or any of their respective properties are bound or affected or
(ii) any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are bound or affected,
except for any such conflicts, defaults or violations which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 3.7 SEC FILINGS; FINANCIAL STATEMENTS. (a) The Company and, to the
extent applicable, each of its then or current subsidiaries, has filed all
forms, reports, statements and documents required to be filed with the SEC since
March 31, 1993 (collectively, the "SEC REPORTS"), each of which has complied in
all material respects with the applicable requirements of the Securities Act,
and the rules and regulations promulgated thereunder, or the Exchange Act and
the rules and regulations promulgated thereunder, each as in effect on the date
so filed. The Company has heretofore delivered or promptly will deliver to
Newco, in the form filed with the SEC (including any amendments thereto), (i)
its (and, to the extent applicable, its subsidiaries') Annual Reports on Form
10-K for each of the three fiscal years ended June 3, 1994, June 2, 1995 and May
31, 1996 (as amended by the Form 10-K/A filed with the SEC on September 30,
1996), (ii) all definitive proxy statements relating to the Company's (and such
subsidiaries') meetings of stockholders (whether annual or special) held since
March 31, 1993 and (iii) all other SEC Reports. No SEC Report contained, when
filed, any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except to the extent revised or superseded
by a subsequent filing with the SEC (a copy of which has been provided to Newco
prior to the date hereof), none of the SEC Reports filed prior to the date
hereof contains any untrue statement of a material fact or omits to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the audited and unaudited consolidated financial statements of
the Company (including any related notes thereto) included in its Annual Reports
on Form 10-K for each of the three fiscal years ended June 3, 1994, June 2, 1995
and May 31, 1996, which have previously been furnished to Newco, complies as to
form in all material respects with all applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, has
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and fairly presents the consolidated financial
position of the Company and its subsidiaries at the respective date thereof and
the consolidated results of its operations and changes in cash flows for the
periods indicated.
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(c) Except as and to the extent set forth on the consolidated balance sheet
of the Company and its subsidiaries at May 31, 1996, including the notes
thereto, neither the Company nor any of its subsidiaries has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected on a balance sheet or in the notes
thereto prepared in accordance with generally accepted accounting principles
consistently applied, except for liabilities or obligations incurred in the
ordinary course of business since May 31, 1996.
SECTION 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since May 31, 1996,
except as contemplated by this Agreement, disclosed in the SEC Reports filed and
publicly available prior to the date of this Agreement or disclosed in Section
3.8 of the Disclosure Schedule, the Company and its subsidiaries have conducted
their businesses only in the ordinary course and, since such date, there has not
been (i) any condition, event or occurrence which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect, (ii)
any action which, if it had been taken after the date hereof, would have
required the consent of Newco under Section 5.1 hereof or (iii) any condition,
event or occurrence which could reasonably be expected to prevent, hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement.
SECTION 3.9 ABSENCE OF LITIGATION. Except as disclosed with reasonable
specificity in the SEC Reports filed and publicly available prior to the date of
this Agreement, there are no suits, claims, actions, proceedings or
investigations pending or, to the best knowledge of the Company, threatened
against the Company or any of its subsidiaries, or any properties or rights of
the Company or any of its subsidiaries, before any Governmental Entity, that (i)
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or (ii) seek to delay or prevent the consummation of the
transactions contemplated hereby. As of the date hereof, neither the Company nor
any of its subsidiaries nor any of their respective properties is or are subject
to any order, writ, judgment, injunction, decree, determination or award having,
or which, insofar as can be reasonably foreseen, in the future could reasonably
be expected to have a Material Adverse Effect or could prevent or materially
delay the consummation of the transactions contemplated hereby. As of the date
hereof, no officer or director of the Company is a defendant in any litigation
commenced by stockholders of the Company with respect to the performance of his
or her duties as an officer and/or director of the Company under any federal or
state law (including litigation under federal and state securities laws). Except
as set forth in Section 3.9 of the Disclosure Schedule, to the knowledge of the
Company, there exist no indemnification agreements with any of the directors and
officers of the Company.
SECTION 3.10 PROPERTIES. (a) The Company or one of its subsidiaries has
(i) good and marketable fee title to the real property owned in fee by the
Company or any of its subsidiaries (collectively, the "OWNED PROPERTIES") and
(ii) good and valid leasehold title or other occupancy right to the real
property leased, subleased or licensed by the Company or any of its subsidiaries
(collectively, the "LEASED PROPERTIES") (Owned Properties and Leased Properties
being sometimes referred to herein collectively as the "COMPANY PROPERTIES"), in
each case free and clear of all options to purchase or lease (in the case of the
Owned Properties), leases, conditions of limitation, mortgages, liens, security
interests, easements, encumbrances, covenants, rights-of-way and other similar
restrictions, except for such options, leases, conditions of limitation,
mortgages, liens, security interests, easements, encumbrances, covenants,
rights-of-way and other similar restrictions set forth in Section 3.10 of the
Disclosure Schedule or which, individually or in the aggregate with all other
options, leases, conditions of limitation, mortgages, liens, security interests,
easements, encumbrances, covenants, rights-of-way and other similar
restrictions, could not reasonably be expected to have a Material Adverse Effect
or prevent or materially delay the transactions contemplated hereby.
(b) Each agreement under which real property is leased, subleased or
licensed to the Company as of the date hereof (collectively, the "COMPANY
LEASES") is in full force and effect in accordance with its respective terms and
the Company or one of its subsidiaries is the holder of the lessee's or tenant's
interest thereunder and there exists no default under any of the Company Leases
by the Company or any of its
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subsidiaries and no circumstance exists which, with the giving of notice, the
passage of time or both could result in such a default, except for such defaults
or other circumstances set forth in Section 3.10 of the Disclosure Schedule or
which, individually or in the aggregate with all other defaults or other
circumstances, could not reasonably be expected to have a Material Adverse
Effect or prevent or materially delay the transactions contemplated hereby;
except as set forth in Section 3.10 of the Disclosure Schedule, the transfer of
the shares of Company Common Stock or the consummation of any other part of the
transactions contemplated by this Agreement does not violate the terms of any of
the Company Leases. Except as set forth in Section 3.10 of the Disclosure
Schedule and except for any violations, individually or in the aggregate with
all other violations, could not reasonably be expected to have a Material
Adverse Effect or prevent or materially delay the transactions contemplated
hereby, neither the Company nor any of its subsidiaries (or any of the
affiliates of any of the foregoing) has an ownership, financial or other
interest in the landlord under any of the Company Leases, which exceeds a 50%
ownership, financial or other interest in such landlord.
(c) Except as set forth in Section 3.10 of the Disclosure Schedule, each of
the reciprocal easement or operating agreements to which the Company or any of
its subsidiaries is a party as of the date hereof and which encumbers any of the
Company Properties (collectively, the "REAS") is in full force and effect and
there exists no default on the part of the Company or any subsidiary of the
Company under any REA and no circumstance exists which, with the giving of
notice, the passage of time or both could result in such a default, except for
such defaults or other circumstances set forth in Section 3.10 of the Disclosure
Schedule or which, individually or in the aggregate with all other defaults or
circumstances, could not reasonably be expected to have a Material Adverse
Effect or prevent or materially delay the transactions contemplated hereby;
except as set forth in Section 3.10 of the Disclosure Schedule and except for
any violation or failure to obtain consent, individually or in the aggregate
with all other violations or failures, could not reasonably be expected to have
a Material Adverse Effect or prevent or materially delay the transactions
contemplated hereby, the transfer of the shares of Company Common Stock or the
consummation of any other part of transactions contemplated by this Agreement
does not violate the terms of any REAs nor is the consent of any party to any of
the REAs required to be obtained in connection with the transactions
contemplated under this Agreement.
(d) The current operation and use of the Company Properties does not violate
any statutes, laws, regulations, rules, ordinances, permits, requirements,
orders or decrees now in effect except for such violations which could not,
individually or in the aggregate with all other violations, reasonably be
expected to have a Material Adverse Effect or prevent or materially delay the
transactions contemplated hereby.
SECTION 3.11 EMPLOYEE BENEFIT PLANS. (a) Section 3.11(a) of the Disclosure
Schedule contains a true and complete list of each "employee benefit plan"
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") (including without limitation multiemployer
plans within the meaning of ERISA Section 3(37)), stock purchase, stock option,
severance, employment, change-in-control, fringe benefit, collective bargaining,
bonus, incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject to
ERISA (including any funding mechanism therefor now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), under which any employee or former employee of the Company or any of
its subsidiaries has, or could reasonably be expected to have, any present or
future right to benefits or under which the Company or any subsidiary of the
Company has, or could reasonably be expected to have, any present or future
liability. All such plans, agreements, programs, policies and arrangements shall
be collectively referred to as the "COMPANY PLANS". Section 3.11 of the
Disclosure Schedule also contains a true and complete description of all
severance plans of the Company or any of its subsidiaries. No Company Plan is a
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA or is an
"employee pension plan" within the meaning of Section 3(2) of ERISA subject to
Title IV of ERISA.
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(b) With respect to each Company Plan, the Company has delivered or made
available to Newco a current, accurate and complete copy (or, to the extent no
such copy exists, an accurate description) thereof and, to the extent
applicable, (i) any related trust agreement, annuity contract or other funding
instrument; (ii) the most recent determination letter; (iii) any summary plan
description and other written communications (or description of any oral
communication) by the Company or any of its subsidiaries which modify in any
significant respect the benefits provided under the terms of any Company Plan in
a manner not reflected in any of the documents described in this subsection (b);
and (iv) for the three most recent years (A) the Form 5500 and attached
schedules; (B) audited financial statements; and (C) actuarial valuation
reports.
(c) With respect to all the Company Plans, except as set forth in the SEC
Reports and except as could not individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect: (i) all Company Plans are in
substantial compliance with all applicable law, including the Internal Revenue
Code of 1986, as amended (the "CODE") and ERISA, including in compliance with
all filing and reporting requirements; (ii) the aggregate accumulated benefit
obligations of each pension plan that is subject to Title IV of ERISA (as of the
date of the most recent actuarial valuation prepared for such Plan) do not
exceed the fair market value of the assets of such pension plan (as of the date
of such valuation), and no material adverse change has occurred with respect to
the financial condition of such plan since such last valuation; (iii) each
pension plan that is intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter from the Internal Revenue Service,
and the Company is not aware of any circumstances likely to result in revocation
of any such favorable determination letter; (iv) there is no pending or, to the
knowledge of the officers of the Company, threatened litigation or
administrative agency proceeding relating to any Company Plan (other than
benefit claims in the ordinary course); (v) the Company has no obligations under
any unfunded deferred compensation plans other than with respect to the
Nonqualified Deferred Compensation Plan effective August 1, 1996, and the
Company's liability with respect to such plan does not exceed the assets held by
the applicable rabbi trust or otherwise set aside in satisfaction of benefits
payable to participants thereunder by more than $200,000; and (vi) neither the
Company, its subsidiaries nor any entity that is treated as a single employer
with the Company or its subsidiaries under Section 414(b), (c), (m) or (o) of
the Code (an "ERISA AFFILIATE") has incurred or reasonably expects to incur any
lien or liability to the Pension Benefit Guaranty Corporation, any Pension Plan
or otherwise under Title IV of ERISA (other than the payment of contributions or
premiums, none of which are overdue) or under Section 412 of the Code.
(d) Except as specifically contemplated by this Agreement or as disclosed in
Section 3.11(d) of the Disclosure Schedule, the consummation of the Merger and
other transactions contemplated by this Agreement will not (x) entitle any
Company employee or director to severance pay, or (y) accelerate the time of
payment or vesting or trigger any payment of compensation or benefits under,
increase the amount payable or trigger any other material obligation pursuant
to, any of the Company Plans.
SECTION 3.12 TAX MATTERS. For purposes of this Section 3.12, any reference
to the Company or its subsidiaries shall include any corporation that merged or
was liquidated with and into the Company or any of its subsidiaries. Except as
disclosed in Section 3.12 of the Disclosure Schedule:
(a) All Tax Returns required to be filed by or with respect to the
Company and its subsidiaries have been timely filed. The Company and its
subsidiaries have (i) timely paid all Taxes that are due, or that have been
asserted in writing by any taxing authority to be due, from or with respect
to it for the periods ending prior to the date hereof or (ii) provided
adequate reserves in its financial statements for any Taxes that have not
been paid, whether or not shown as being due on any Tax Returns.
(b) No material claim for unpaid Taxes has become a lien against the
property of the Company or any of its subsidiaries or is being asserted
against the Company or any of its subsidiaries.
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(c) The statute of limitations with respect to the Tax Returns of the
Company and its subsidiaries and of each affiliated group (within the
meaning of the Code) of which the Company and any of its subsidiaries are or
have been a member for all periods through the respective years specified in
Section 3.12 of the Disclosure Schedule has expired. There are no
outstanding agreements, waivers or arrangements extending the statutory
period of limitation applicable to any claim for, or the period for the
collection or assessment of, Taxes due from or with respect to the Company
or any subsidiary of the Company for any taxable period, and no power of
attorney granted by or with respect to the Company or any subsidiary of the
Company relating to Taxes is currently in force.
(d) No audit or other proceeding by any Governmental Entity has formally
commenced and no specific notification has been given to the Company or any
subsidiary of the Company that such an audit or other proceeding is pending
or threatened with respect to any Taxes due from or with respect to the
Company or any subsidiary of the Company or any Tax Return filed by or with
respect to the Company or any subsidiary of the Company. No assessment of
Tax has been proposed in writing against the Company or any subsidiary of
the Company or any of their assets or properties.
(e) As of the Effective Time, neither the Company nor any of the
subsidiaries shall be a party to, be bound by or have any obligation under,
any Tax sharing agreement or similar contract or arrangement.
(f) There is no contract or agreement, plan or arrangement by the
Company or any subsidiary of the Company covering any person that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible by the Company or its subsidiaries by reason of
section 280G of the Code, as now in effect.
(g) As used herein, "TAXES" shall mean all taxes of any kind, including,
without limitation, those on or measured by or referred to as income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value
added, property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
Governmental Entity. As used herein, "TAX RETURN" shall mean any return,
declaration, report, claim for refund or information return or statement
relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
SECTION 3.13 ENVIRONMENTAL LAWS. To the extent that any inaccuracy,
individually or in the aggregate with any other inaccuracy, could not reasonably
be expected to have a Material Adverse Effect, (a) each of the Company and each
of its subsidiaries complies and has complied with all Environmental Laws
applicable to the properties, assets or businesses of the Company and its
subsidiaries, and possesses and complies with and has possessed and complied
with all Environmental Permits required under such laws except where any
noncompliance or failure to possess any Environmental Permit has not had or
could not reasonably be expected to result in individually or in the aggregate
material liability under Environmental Laws; (b) no modification, revocation,
reissuance, alteration, transfer, or amendment of any of the Environmental
Permits, or any review by, or approval of, any third party of any of the
Environmental Permits is required in connection with the execution or delivery
of this Agreement or the consummation of the transactions contemplated hereby or
the continuation of the business of Company and its subsidiaries following such
consummation; (c) none of the Company and its subsidiaries has received any
Environmental Claim, and none of the Company and its subsidiaries is aware after
reasonable inquiry of any threatened Environmental Claim; (d) none of the
Company and its subsidiaries has assumed, contractually or by operation of law,
any liabilities or obligations under any Environmental Laws; (e) there are no
past or present events, conditions, circumstances, practices, plans or legal
requirements that could reasonably be expected to result in material liability
to the Company or any of its subsidiaries under Environmental Laws, prevent, or
reasonably be expected to materially increase the burden on the Company or any
subsidiary of, complying with Environmental Laws or of obtaining, renewing, or
complying with all
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Environmental Permits required under such laws; (f) there are and have been no
Hazardous Materials or other conditions at or from any property owned, operated
or otherwise used by the Company or any subsidiary now or in the past that could
reasonably be expected to give rise to material liability of the Company or any
subsidiary under any Environmental Law. For purposes of this Agreement, the
following terms shall have the following meanings:
"ENVIRONMENTAL CLAIM" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability arising out of, relating to, based
on or resulting from (i) the presence, discharge, emission, release or
threatened release of any Hazardous Materials at any location, whether or
not owned, leased or operated by the Company or any of its subsidiaries or
(ii) circumstances forming the basis of any violation or alleged violation
of any Environmental Law or Environmental Permit or (iii) otherwise relating
to obligations or liabilities under any Environmental Laws.
"ENVIRONMENTAL PERMITS" means all permits, licenses, registrations and
other governmental authorizations required for the Company and the
operations of the Company's and its subsidiaries' facilities and otherwise
to conduct its business under Environmental Laws.
"ENVIRONMENTAL LAWS" means all applicable federal, state and local
statutes, rules, regulations, ordinances, orders, decrees and common law, as
they exist at the date hereof, relating in any manner to contamination,
pollution or protection of human health or the environment, including
without limitation the Comprehensive Environmental Response, Compensation
and Liability Act, the Solid Waste Disposal Act, the Resource Conservation
and Recovery Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Occupational Safety and Health Act, the
Emergency Planning and Community-Right-to-Know Act, the Safe Drinking Water
Act, all as amended, and similar state laws.
"HAZARDOUS MATERIALS" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum products, asbestos and asbestos-containing materials,
pollutants, contaminants and all other materials, substances and forces,
including but not limited to electromagnetic fields, regulated pursuant to,
or that could form the basis of liability under, any Environmental Law.
SECTION 3.14 OFFER DOCUMENTS; PROXY STATEMENT. None of the information
supplied by the Company for inclusion in (i) the Offer Documents, shall, at the
time the Offer Documents or any amendments or supplements thereto are first
published, sent or given to noteholders, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, (ii) the
registration statement on Form S-4 to be filed with the SEC by the Company in
connection with the issuance of the Common Stock of the Company following the
Merger (such Form S-4, as amended or supplemented, is herein referred to as the
"FORM S-4") will, at the time the Form S-4 is filed with the SEC, and at any
time it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) the proxy statement to be sent to
the stockholders of the Company in connection with the Stockholders Meeting (as
defined in Section 6.1) (such proxy statement, as amended or supplemented, is
herein referred to as the "PROXY STATEMENT") will, at the date it is first
mailed to the Company's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. The Form S-4 will, as of its effective date, and the prospectus
contained therein will, as of its date, comply as to form in all material
respects with the requirements of the Securities Act and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act and
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the rules and regulations promulgated thereunder, except that no representation
is made by the Company with respect to statements made or incorporated by
reference therein based on information supplied in writing by Newco specifically
for inclusion in the Proxy Statement. For purposes of this Agreement, the
parties agree that statements made and information in the Offer Documents, the
Form S-4 and the Proxy Statement relating to the Federal income tax consequences
of the transactions herein contemplated to holders of Company Common Stock shall
be deemed to be supplied by the Company and not by Newco.
SECTION 3.15 BROKERS. No broker, finder or investment banker (other than
CS First Boston) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company. The Company has
heretofore furnished to Newco a complete and correct copy of all agreements
between the Company and the Financial Adviser pursuant to which such firm would
be entitled to any payment relating to the transactions contemplated hereby.
SECTION 3.16 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of CS First Boston (the "FINANCIAL ADVISER") dated the date of this
Agreement, to the effect that the consideration to be received in the Merger by
the Company's stockholders is fair to the holders of the Company Common Stock
from a financial point of view. The aggregate fees payable under such agreements
will not exceed $2.75 million.
SECTION 3.17 LABOR MATTERS. As of the date hereof, the Company is not a
party to any agreement pursuant to which a labor organization is certified under
applicable labor law as a bargaining agent for any of the Company's or any of
its subsidiaries' employees, nor is any such agreement presently being
negotiated.
SECTION 3.18 BOARD RECOMMENDATION. The Board of Directors of the Company,
at a meeting duly called and held, has by unanimous vote of those directors
present (who constituted 100% of the directors then in office) (i) determined
that this Agreement and the transactions contemplated hereby, including the
Merger, and the Voting Agreement and the transactions contemplated thereby,
taken together, are fair to and in the best interests of the stockholders of the
Company, and (ii) resolved to recommend that the holders of the shares of
Company Common Stock approve this Agreement and the transactions contemplated
herein, including the Merger.
SECTION 3.19 TRADENAMES. The Company or its subsidiaries owns (in each
case, except as set forth in Section 3.19 of the Disclosure Schedule, free and
clear of any liens, encumbrances or security interests) all rights to all
domestic or foreign trademarks, trade names, brandmarks, brand names,
copyrights, applications pending for trademarks or trade name registrations, and
brandmarks or brand name registrations or copyright registrations and other
proprietary rights for child care, preschool and after-school educational
services and goods and services related to the rendition of such services
("INTELLECTUAL PROPERTY") used by the Company and each of its subsidiaries,
including, without limitation, the exclusive right to use the names and marks
KINDERCARE, KINDERCARE (DESIGN) and marks presenting KINDERCARE as a formative
portion thereof (i.e. KINDERCARE WOODEN TOYS, KINDERCARE WEAR, KINDERCARE
PROMISE) and KLUBMATES and any confusingly similar variations thereof used by
the Company or its subsidiaries for child care, preschool and after-school
educational services and goods and services related to the rendition of such
services, in each case in each state in which the centers to which such
Intellectual Property relates are located, except to the extent that any failure
to own such rights could not, individually or in the aggregate with all other
failures, reasonably be expected to have a Material Adverse Effect. The Company
is the owner of the mark KID'S CHOICE for educational services exclusively
throughout the United States, with the exception of the geographic area of use
of the mark KID'S CHOICE in the States of Pennsylvania and New York by the
entities identified in the Company's presently pending concurrent use service
mark application for KID'S CHOICE and KID'S CHOICE (DESIGN), which such
application is set forth in Section 3.19 of the Disclosure Schedule, except to
the extent that the failure to be such owner could not reasonably be
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expected to have a Material Adverse Effect. Except as set forth in Section 3.19
of the Disclosure Schedule, to the best knowledge of the Company, the use of the
Intellectual Property by the Company and its subsidiaries does not infringe on
the rights of any person, except for such infringement which individually or in
the aggregate with other infringements, could not reasonably be expect to have a
Material Adverse Effect.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
OF NEWCO
Newco hereby represents and warrants to the Company that:
SECTION 4.1 CORPORATE ORGANIZATION. Newco is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and authority and
any necessary Governmental Entity to own, operate or lease its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and governmental approvals could not, individually or in the aggregate,
reasonably be expected to prevent the consummation of the Debt Offer or the
Merger.
SECTION 4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Newco has all necessary
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Newco and the
consummation by Newco of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Newco other than
filing and recordation of appropriate merger documents as required by the DGCL.
This Agreement has been duly executed and delivered by Newco and, assuming due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of Newco enforceable against it in accordance with its
terms.
SECTION 4.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution,
delivery and performance of this Agreement by Newco does not and will not: (i)
conflict with or violate the certificate of incorporation or by-laws of Newco;
(ii) assuming that all consents, approvals and authorizations contemplated by
clauses (i), (ii) and (iii) of subsection (b) below have been obtained and all
filings described in such clauses have been made, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Newco or by which
it or its properties are bound or affected; or (iii) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both could become a default) or result in the loss of a material benefit
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the property or assets of Newco pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Newco is a party or by which Newco or any of
its properties are bound or affected, except, in the case of clauses (ii) and
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences which could not, individually or in the aggregate, reasonably be
expected to prevent the consummation of the Debt Offer or the Merger.
(b) The execution, delivery and performance of this Agreement by Newco does
not and will not require any consent, approval, authorization or permit of,
action by, filing with or notification to, any Governmental Entity, except (i)
for applicable requirements, if any, of the Exchange Act and the rules and
regulations promulgated thereunder, the HSR Act, state securities, takeover and
Blue Sky laws, (ii) the filing and recordation of appropriate merger or other
documents as required by the DGCL, and (iii) such consents, approvals,
authorizations, permits, actions, filings or notifications the failure of which
to make or obtain would not, individually or in the aggregate, reasonably be
expected to prevent the consummation of the Debt Offer or the Merger.
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SECTION 4.4 OFFER DOCUMENTS; PROXY STATEMENT. None of the information
supplied in writing by Newco specifically for inclusion in (i) the Offer
Documents, shall, at the time the Offer Documents or any amendments or
supplements thereto are first published, sent or given to noteholders, as the
case may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, (ii) the Form S-4 will, at the time the Form S-4 is filed
with the SEC, and at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (iii) the Proxy
Statement will, at the date it is first mailed to the Company's stockholders or
at the time of the Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. Notwithstanding the
foregoing, Newco makes no representation or warranty with respect to any
information supplied by the Company or any of its representatives which is
contained in or incorporated by reference in any of the foregoing documents.
SECTION 4.5 BROKERS. No broker, finder or investment banker (other than
Salomon Brothers Inc) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of Newco. Unless the Merger is
consummated, the Company shall not be responsible for the payment of any such
fees to Salomon Brothers Inc.
SECTION 4.6 FINANCING. Attached as Annex A-1 to A-3 of the Disclosure
Schedule are true and complete copies of the letters addressed to the Company,
dated the date hereof, issued in connection with the financing of the
transactions contemplated by this Agreement. The terms and conditions of the
letters attached as Annex A-1 to A-3 of the Disclosure Schedule are satisfactory
to Newco.
ARTICLE 5.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER. The
Company covenants and agrees that, during the period from the date hereof to the
Effective Time, unless Newco gives its prior written consent (which shall not be
unreasonably withheld), the businesses of the Company and its subsidiaries shall
be conducted only in, and the Company and its subsidiaries shall not take any
action except in, the ordinary course of business and in compliance with
applicable laws; and the Company and its subsidiaries shall each use its
reasonable best efforts to preserve substantially intact the business
organization of the Company and its subsidiaries, to keep available the services
of the present officers, employees and consultants of the Company and its
subsidiaries and to preserve the present relationships of the Company and its
subsidiaries with customers, suppliers and other persons with which the Company
or any of its subsidiaries has significant business relations. Except as
expressly contemplated by this Agreement, by way of amplification and not
limitation, neither the Company nor any of its subsidiaries shall, between the
date of this Agreement and the Effective Time, directly or indirectly do, or
propose or commit to do, any of the following without the prior written consent
of Newco (which shall not be unreasonably withheld):
(a) Amend or otherwise change the certificate of incorporation or
by-laws or equivalent organizational documents of the Company or any
Significant Subsidiary;
(b) Other than as set forth on Section 5.1(b) of the Disclosure
Schedule, issue, deliver, sell, lease, sell and leaseback, pledge, dispose
of or encumber, or authorize or commit to the issuance, delivery, sale,
lease, sale/leaseback, pledge, disposition or encumbrance of, (A) any shares
of capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any
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shares of capital stock, or any other ownership interest (including but not
limited to stock appreciation rights or phantom stock), of the Company or
any of its subsidiaries (except for the issuance and delivery of (i) shares
of Company Common Stock issuable in accordance with the terms of Options
outstanding as of October 1, 1996 and (ii) shares of Company Common Stock
issuable in accordance with the terms of Warrants outstanding as of October
1, 1996) or (B) any assets of the Company or any of its subsidiaries, other
than assets sold, leased, pledged, disposed of or encumbered in the ordinary
course of business;
(c) Declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(d) Reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of the capital stock of the
Company or any of its Significant Subsidiaries;
(e) (i) other than with respect to borrowings, repayments and
repurchases necessary to effect the Debt Offer and borrowings, repayments
and repurchases in the ordinary course of business under the Credit
Agreement (which in the case of borrowings in the ordinary course of
business under the Credit Agreement shall not in aggregate amount exceed $80
million at any one time outstanding, plus any amounts necessary to effect
the Debt Offer), repurchase, repay or incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations of any
person, or make any loans, advances or capital contributions to, or
investments in, any other person; (ii) enter into any contract or agreement
other than in the ordinary course of business; (iii) authorize any single
expenditure for any capital or acquisition (including without limitation any
acquisition of any corporation, partnership or other business enterprise or
division thereof) which are not specifically provided for in the Company's
capital budget (a true and correct copy of which has been delivered to Newco
and is set forth as Section 5.1(e) of the Disclosure Schedule), implemented
taking into account normal seasonal patterns (PROVIDED that the Company may
exceed such budget to with respect to any center by up to 10%) for the
Company and its subsidiaries taken as a whole; or (v) enter into or amend
any contract, agreement, commitment or arrangement with respect to any of
the matters set forth in this Section 5.1(e);
(f) Except as set forth on Section 5.1(f) of the Disclosure Schedule and
to the extent required under existing employee and director benefit plans,
agreements or arrangements as in effect on the date of this Agreement, (i)
increase the compensation or fringe benefits of any of its directors,
officers or employees, except for increases in salary or wages of employees
of the Company or its subsidiaries, who are not directors or officers of the
Company, in the ordinary course of business and consistent with the
Company's budget, (ii) grant any severance or termination pay not currently
required to be paid under existing severance plans to, or enter into any
employment, consulting or severance agreement or arrangement with, any
present or former director, officer or other employee of the Company or any
of its subsidiaries, except for the granting of severance or termination
pay, in the ordinary course of business, to employees who are terminated by
the Company after the date hereof or (iii) establish, adopt, enter into or
amend or terminate any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
(g) Except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it;
(h) Make any material tax election or settle or compromise any material
federal, state, local or foreign tax liability;
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(i) Settle or compromise any pending or threatened suit, action or claim
for in excess of $100,000 per suit, action or claim or which relates to the
transactions contemplated hereby;
(j) Adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Significant Subsidiaries (other
than the Merger); or
(k) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 5.1(a) through 5.1(j).
ARTICLE 6.
ADDITIONAL AGREEMENTS
SECTION 6.1 STOCKHOLDERS MEETING. The Company, acting through its Board of
Directors, will, as promptly as practicable following the date of this Agreement
and in consultation with Newco, (i) duly call, give notice of, convene and hold
a meeting of its stockholders for the purpose of considering and approving this
Agreement and the transactions contemplated hereby (the "STOCKHOLDERS MEETING")
and (ii) (A) include in the Proxy Statement the unanimous recommendation of the
Board of Directors that the stockholders of the Company vote in favor of the
approval of this Agreement and the transactions contemplated hereby and the
written opinion of the Financial Adviser that the consideration to be received
by the stockholders of the Company pursuant to the Merger is fair to such
stockholders and (B) use its best efforts to obtain the necessary approval of
this Agreement and the transactions contemplated hereby by its stockholders.
SECTION 6.2 PROXY STATEMENT. Promptly following the date of this
Agreement, the Company shall prepare the Proxy Statement, and the Company shall
prepare and file with the SEC the Form S-4, in which the Proxy Statement will be
included. The Company shall use its best efforts as promptly as practicable to
have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. The Company will use its best efforts to cause
the Proxy Statement to be mailed to the Company's stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
The Company shall also take any action required to be taken under any applicable
state securities laws in connection with the registration and qualification in
connection with the Merger of common stock of the Company following the Merger.
The information provided by the Company for use in the Form S-4, and to be
supplied by Newco in writing specifically for use in the Form S-4, shall, at the
time the Form S-4 becomes effective and on the date of the Stockholders Meeting
referred to above, be true and correct in all material respects and shall not
omit to state any material fact required to be stated therein or necessary in
order to make such information not misleading, and the Company and Newco each
agree to correct any information provided by it for use in the Form S-4 which
shall have become false or misleading. Newco and the Company will cooperate with
each other in the preparation of the Proxy Statement; without limiting the
generality of the foregoing, the Company will immediately notify Newco of the
receipt of any comments from the SEC and any request by the SEC for any
amendment to the Proxy Statement or for additional information. All filings with
the SEC, including the Proxy Statement and any amendment thereto, and all
mailings to the Company's stockholders in connection with the Merger, including
the Proxy Statement, shall be subject to the prior review, comment and approval
of Newco (which approval by Newco shall not be unreasonably withheld). Newco
will furnish to the Company the information relating to it required by the
Exchange Act and the rules and regulations promulgated thereunder to be set
forth in the Proxy Statement. The Company agrees to use its best efforts, after
consultation with the other parties hereto, to respond promptly to any comments
made by the SEC with respect to the Proxy Statement and any preliminary version
thereof filed by it and cause such Proxy Statement to be mailed to the Company's
stockholders at the earliest practicable time.
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SECTION 6.3 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) From the date
hereof to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors, counsel, financial
advisors and other agents to, afford Newco and its representatives and the
potential financing sources for the transactions contemplated by this Agreement
complete access at all reasonable times to its officers, employees, agents,
properties, offices, centers and other facilities and to all books, contracts
and records, and shall furnish Newco and such financing sources with all
financial, operating and other data and information as Newco, through its
representatives or such financing sources may from time to time request. Except
as required by law, each of the Company and Newco will hold any nonpublic
information in confidence to the extent required by, and in accordance with, the
provisions of the letter dated July 3, 1996 among Kohlberg Kravis Roberts & Co.
("KKR & CO."), Oaktree Capital Management, LLC and the Company (the
"CONFIDENTIALITY AGREEMENT").
(b) No investigation pursuant to this Section 6.3 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 6.4 THIRD PARTIES. The Company shall not take any action with
respect to any transaction or proposed transaction with a third party which
could reasonably be expected to impede, interfere with, prevent or materially
delay the Debt Offer or the Merger. The Company agrees not to release any third
party from, or waive any provisions of, any confidentiality or standstill
agreement to which the Company is a party. The Company will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing.
SECTION 6.5 EMPLOYEE BENEFITS MATTERS. Except as contemplated herein, the
Company, for the period ending on December 31, 1997, shall provide employee
benefits under plans, programs and arrangements which, in the aggregate, will
provide benefits to the employees of the Company which are no less favorable, in
the aggregate, than those provided pursuant to the plans, programs and
arrangements of the Company (other than those related to Company Securities) in
effect and disclosed to Newco on the date hereof; PROVIDED, HOWEVER, that
nothing herein shall prevent the amendment or termination of any such plan,
program or arrangement, require that the Company provide or permit investment in
the securities of the Company or interfere with the Company's right or
obligation to make such changes as are necessary to conform with applicable law.
SECTION 6.6 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. (a)
The Certificate of Incorporation and By-laws of the Company following the Merger
shall contain provisions identical with respect to elimination of personal
liability and indemnification to those set forth in Articles 8 and 9 of the
Certificate of Incorporation of the Company set forth in Exhibit A hereto and
Article VII, Section 5 of the By-laws of the Company, respectively, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, agents or employees of the Company.
(b) The Company shall maintain in effect for six years from the Effective
Time policies of directors' and officers' liability insurance containing terms
and conditions which are not less advantageous than those policies maintained by
the Company at the date hereof, with respect to matters occurring prior to the
Effective Time, to the extent available, and having the maximum available
coverage under the current policies of directors' and officers' liability
insurance; provided that (i) the Company following the Merger shall not be
required to spend in excess of a $450,000 annual premium therefor; provided
further that if the Company following the Merger would be required to spend in
excess of a $450,000 premium per annum to obtain insurance having the maximum
available coverage under the current policies, the Company will be required to
spend $450,000 to maintain or procure insurance coverage pursuant hereto,
subject to availability of such (or similar) coverage and (ii) such policies may
in the sole discretion of the Company be one or more "tail" policies for all or
any portion of the full six year period.
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(c) In furtherance of and not in limitation of the preceding paragraph,
Newco agrees that the officers and directors of the Company that are defendants
in all litigation commenced by stockholders of the Company with respect to (x)
the performance of their duties as such officers and/or directors under federal
or state law (including litigation under federal and state securities laws) and
(y) Newco's offer or proposal to acquire the Company including, without
limitation, any and all such litigation commenced on or after the date of this
Agreement (the "Subject Litigation") shall be entitled to be represented, at the
reasonable expense of the Company, in the Subject Litigation by one counsel (and
Delaware counsel if appropriate and one local counsel in each jurisdiction in
which a case is pending and one counsel for directors of the Company which are
affiliated with Oaktree Capital Management, LLC (the "Oaktree Directors"), if
Newco and the Company shall have reasonably concluded (based on the advice of
counsel) that there may be defenses available to such Oaktree Directors which
are different from or additional to those available to the other directors of
the Company) each of which such counsel shall be selected by a plurality of such
director defendants; provided that neither Newco nor the Company shall be liable
for any settlement effected without its prior written consent (which consent
shall not be unreasonably withheld) and that a condition to the indemnification
payments provided in Section 6.6(a) shall be that such officer/director
defendant not have settled any Subject Litigation without the consent of Newco;
and provided further that the neither Newco nor the Company shall have any
obligation hereunder to any officer/director defendant when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and non-appealable, that indemnification of such
officer/director defendant in the manner contemplated hereby is prohibited by
applicable law.
(d) Upon the Effective Time, the Company shall remain liable for all of its
obligations under the existing indemnification agreements with each of the
directors and officers of the Company.
SECTION 6.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Newco, and Newco shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate and (ii) any failure of the Company or
Newco, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER,
that the delivery of any notice pursuant to this Section 6.7 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 6.8 FURTHER ACTION; BEST EFFORTS. (a) Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use its reasonable
best efforts to take, or cause to be taken, all action, and to do or cause to be
done, and to assist and cooperate with the parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement
and the Voting Agreement, including but not limited to (i) cooperation in the
preparation and filing of the Offer Documents, the Form S-4, the Proxy
Statement, any required filings under the HSR Act and any amendments to any
thereof, (ii) determining whether any filings are required to be made or
consents, approvals, waivers, licenses, permits or authorizations are required
to be obtained (or, which if not obtained, would result in an event of default,
termination or acceleration of any agreement or any put right under any
agreement) under any applicable law or regulation or from any Governmental
Entities or third parties, including parties to loan agreements or other debt
instruments, in connection with the transactions contemplated by this Agreement,
including the Debt Offer and the Merger, and the Voting Agreement, including the
transactions contemplated by Sections 4 and 5 thereof, and (iii) promptly making
any such filings, furnishing information required in connection therewith and
timely seeking to obtain any such consents, approvals, permits or
authorizations.
(b) Each of the parties agrees to cooperate with each other in taking, or
causing to be taken, all actions necessary to delist the shares of Company
Common Stock from NASDAQ/NMS, provided that such delisting shall not be
effective until after the Effective Time. The parties also acknowledge that it
is Newco's intent that the shares of Company Common Stock following the Merger
will not be quoted on NASDAQ/NMS or listed on any national securities exchange.
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(c) The Company agrees to provide, and will cause its subsidiaries and its
and their respective officers, employees and advisers to provide, all necessary
cooperation in connection with (i) the arrangement of any financing to be
consummated contemporaneous with or at or after the Closing in respect of the
transactions contemplated by this Agreement, including without limitation,
participation in meetings, due diligence sessions, road shows, the preparation
of offering memoranda, private placement memoranda, prospectuses and similar
documents, the execution and delivery of any commitment letters, underwriting or
placement agreements, pledge and security documents, other definitive financing
documents, or other requested certificates or documents, including a certificate
of the chief financial officer of the Company with respect to solvency matters,
comfort letters of accountants and legal opinions as may be requested by Newco
and (ii) the amendment to the Indenture contemplated by Section 2.8 of the
Disclosure Schedule. The parties acknowledge that the payment of any fees by the
Company in connection with any commitment letters shall be subject to the
occurrence of the Closing. In addition, in conjunction with the obtaining of any
such financing, the Company agrees, at the request of Newco, to call for
prepayment or redemption, or to prepay, redeem and/or renegotiate, as the case
may be, any then existing indebtedness of the Company; provided that no such
prepayment or redemption shall themselves actually be made until
contemporaneously with or after the Effective Time.
(d) The Company shall cooperate with any reasonable requests of Newco or the
SEC related to the recording of the Merger as a recapitalization for financial
reporting purposes, including, without limitation, to assist Newco and its
affiliates with any presentation to the SEC with regard to such recording and to
include appropriate disclosure with regard to such recording in all filings with
the SEC and all mailings to stockholders made in connection with the Newco. In
furtherance of the foregoing, the Company shall provide to Newco for the prior
review of Newco's advisors any description of the transactions contemplated by
this Agreement which is meant to be disseminated.
(e) (i) Newco hereby agrees to use its reasonable best efforts, subject to
normal conditions, to arrange the financing described in Annexes A-1 and A-2 of
the Disclosure Schedule in respect of the transactions contemplated by this
Agreement (as described in Section 7.2(f) hereof), including using its
reasonable best efforts (A) to assist the Company in the negotiation of
definitive agreements with respect thereto and (B) to satisfy all conditions
applicable to Newco in such definitive agreements. Newco will keep the Company
informed of the status of its efforts to arrange such financing, including
making reports with respect to significant developments. In the event Newco is
unable to arrange any portion of such financing in the manner or from the
sources originally contemplated, Newco will use its reasonable best efforts,
subject to normal conditions, to arrange any such portion from alternative
sources.
(ii) Subject to the Company having received the proceeds of the financing
described in Section 7.2(f) on terms satisfactory to Newco, Newco at Closing
will be capitalized with an equity contribution of $148.75 million. Newco will
be under no obligation pursuant to the preceding sentence unless and until the
Company receives the proceeds of the financing described in Section 7.2(f) on
terms satisfactory to Newco. In addition, Newco will be under no obligation
under any circumstances to be capitalized with equity of more than $148.75
million.
(f) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such necessary action.
SECTION 6.9 PUBLIC ANNOUNCEMENTS. Neither Newco nor the Company will issue
any press release or public statement with respect to the transactions
contemplated by this Agreement and the Voting Agreement, including the Debt
Offer and the Merger, without the other party's prior consent, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with NASDAQ. In addition to the foregoing, Newco and the
Company will consult with each other before issuing, and provide each other the
opportunity to review and comment upon, any such press release or other public
statements with respect to such transactions. The parties agree that the initial
press release or
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releases to be issued with respect to the transactions contemplated by this
Agreement shall be mutually agreed upon prior to the issuance thereof.
SECTION 6.10 DISPOSITION OF LITIGATION. The Company will not voluntarily
cooperate with any third party which has sought or may hereafter seek to
restrain or prohibit or otherwise oppose the Debt Offer or the Merger and will
cooperate with Newco to resist any such effort to restrain or prohibit or
otherwise oppose the Debt Offer or the Merger.
SECTION 6.11 AFFILIATES. Prior to the Closing Date, the Company shall
deliver to Newco a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its reasonable best efforts to cause each such person to
deliver to Newco on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit A hereto.
SECTION 6.12 RESIGNATION OF DIRECTORS. Prior to the Effective Time, the
Company shall deliver to Newco evidence satisfactory to Newco of the resignation
of all directors of the Company (other than Dr. Sandra Scarr and, subject to the
satisfaction of the conditions set forth in Section 6 of the Voting Agreement,
Mr. Stephen A. Kaplan), effective at the Effective Time.
SECTION 6.13 STOP TRANSFER ORDER. The Company shall notify the Company's
transfer agent that there is a stop transfer order with respect to all of the
Subject Shares (as defined in the Voting Agreement) and that the Voting
Agreement places limits on the voting of the Subject Shares.
ARTICLE 7.
CONDITIONS OF MERGER
SECTION 7.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) COMPANY STOCKHOLDER APPROVAL. The Company Stockholder Approval
shall have been obtained.
(b) HSR ACT. The waiting period (and any extension thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(c) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect; PROVIDED, HOWEVER, that
the parties hereto shall use their best efforts to have any such injunction,
order, restraint or prohibition vacated.
(d) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order, and any material "blue sky" and other state securities
laws applicable to the registration and qualification of the Common Stock of
the Company following the Merger shall have been complied with.
SECTION 7.2 CONDITIONS TO OBLIGATION OF NEWCO. The obligations of Newco to
effect the Merger are further subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in this Agreement that are qualified as to
materiality shall be true and correct and any such representations and
warranties that are not so qualified shall not be true and correct in any
material respect, in each case as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date. Newco shall
have received a certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company to the
effect set forth in this paragraph.
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(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed the obligations required to be performed by it under this
Agreement at or prior to the Closing Date (except for such failures to
perform as have not had or could not reasonably be expected, either
individually or in the aggregate, to have a Material Adverse Effect with
respect to the Company or materially adversely affect the ability of the
Company to consummate the transactions herein contemplated or perform its
obligations hereunder).
(c) CONSENTS, ETC. Newco shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of
Governmental Entities and other third parties as are necessary in connection
with the transactions contemplated hereby have been obtained, except where
the failure to obtain such licenses, permits, consents, approvals,
authorizations, qualifications and orders could not, individually or in the
aggregate with all other failures, reasonably be expected to have a Material
Adverse Effect.
(d) NO MATERIAL LITIGATION. There shall not be pending by any
Governmental Entity any suit, action or proceeding (or by any other person
any suit, action or proceeding which has a reasonable likelihood, in the
opinion of counsel to Newco, of success) (i) challenging or seeking to
restrain or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement or the Voting Agreement or
seeking to obtain from Newco or any of its affiliates any damages that are
material to any such party, (ii) seeking to prohibit or limit the ownership
or operation by the Company or any of its subsidiaries of any material
portion of the business or assets of the Company or any of its subsidiaries
or (iii) seeking to impose limitations on the ability of Newco (or any
designee of Newco pursuant to the Voting Agreement) or any stockholder of
Newco or the Company to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock, including, without
limitation, the right to vote the Company Common Stock on all matters
properly presented to the stockholders of the Company.
(e) AFFILIATE LETTERS. Newco shall have received the agreements
referred to in Section 6.11.
(f) FINANCING. The Company shall have received the proceeds of
financing on the terms and conditions set forth in Annexes A-1 through A-3
of the Disclosure Schedule or upon terms and conditions which are, in the
reasonable judgement of Newco, substantially equivalent thereto, and to the
extent that any terms and conditions are not set forth in Annexes A-1
through A-3 of the Disclosure Schedule, on terms and conditions reasonably
satisfactory to Newco.
(g) RECAPITALIZATION ACCOUNTING. Newco shall be reasonably satisfied
that the Merger shall be recorded as a recapitalization for financial
reporting purposes.
(h) NOTES. Newco shall have received evidence that the terms of the
Notes shall have been amended to the reasonable satisfaction of Newco
including, without limitation, the elimination of the negative covenants
contained therein and the elimination of any restrictions applicable to the
transactions contemplated by this Agreement. The Company shall have
purchased at least that principal amount of Notes as equals the minimum
condition of the Debt Offer.
SECTION 7.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligations of
the Company to effect the Merger are further subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Newco set forth in this Agreement that are qualified as to materiality
shall be true and correct and any such representations and warranties that
are not so qualified shall not be true and correct in any material respect,
in each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date. The Company shall have received a
certificate signed on behalf of Newco by an authorized officer of Newco to
the effect set forth in this paragraph.
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(b) PERFORMANCE OF OBLIGATIONS OF NEWCO. Newco shall have performed
the obligations required to be performed by it under this Agreement at or
prior to the Closing Date (except for such failures to perform as have not
had or could not reasonably be expected, either individually or in the
aggregate, to materially adversely affect the ability of Newco to consummate
the transactions herein contemplated or perform its obligations hereunder).
ARTICLE 8.
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of the Company:
(a) By mutual written consent of Newco and the Company;
(b) By Newco or the Company if any court of competent jurisdiction,
arbitrator or other Governmental Entity located or having jurisdiction
within the United States or any country or economic region in which either
the Company or Newco, directly or indirectly, has material assets or
operations, shall have issued a final order, decree or ruling or taken any
other final action restraining, enjoining or otherwise prohibiting the
consummation of the Merger, the Debt Offer or any of the transactions
contemplated by the Merger Agreement or the Voting Agreement, or otherwise
altering the terms of any of the foregoing in any significant respect, and
such order, decree, ruling or other action is or shall have become final and
nonappealable;
(c) By Newco or the Company if the Merger shall not have been
consummated on or before March 31, 1997, PROVIDED THAT so long as an
Extending Action (as defined below) is no longer in effect at 11:59 p.m.
(New York City time) on March 31, 1997, such date shall be automatically
extended by one day past March 31, 1997 for each day that an Extending
Action was in effect on or prior to March 31, 1997; PROVIDED FURTHER that
the right to terminate this Agreement under this Section 8.1(c) shall not be
available to the party whose action or failure to act has been the cause of
or resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement; or
(d) By Newco if any required approval of the stockholders of the Company
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof.
As used in this Section 8.1, an "Extending Action" shall mean any order,
decree or ruling or other action restraining, enjoining or otherwise
prohibiting the consummation of the Merger, the Debt Offer or any of the
transactions contemplated by the Merger Agreement or the Voting Agreement,
or otherwise altering the terms of any of the foregoing in any significant
respect, by a court of competent jurisdiction, arbitrator or other
Governmental Entity located or having jurisdiction within the United States
or any country or economic region in which either the Company or Newco,
directly or indirectly, has material assets or operations, which order,
decree, ruling or other action has not become final and nonappealable.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto except as set
forth in Section 8.3 and Section 9.1; PROVIDED, HOWEVER, that nothing herein
shall relieve any party from liability for any breach hereof.
SECTION 8.3 FEES AND EXPENSES. (a) In addition to any other amounts which
may be payable or become payable pursuant to any other paragraph of this Section
8.3, the Company shall (provided that Newco is not then in material breach of
its obligations under this Agreement), promptly, but in no event
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later than two business days following written notice thereof, together with
related bills or receipts, reimburse KKR & Co., in an aggregate amount of up to
$2.5 million, for all out-of-pocket expenses and fees (including, without
limitation, fees payable to all banks, investment banking firms and other
financial institutions, and their respective agents and counsel, and all fees of
counsel, accountants, financial printers, experts and consultants to Newco and
its affiliates), whether incurred prior to, on or after the date hereof, in
connection with the Merger and the consummation of all transactions contemplated
by this Agreement, the Voting Agreement and the financing thereof.
(b) Except as otherwise specifically provided herein, each party shall bear
its own expenses in connection with this Agreement and the transactions
contemplated hereby.
SECTION 8.4 AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval of the
Merger by the stockholders of the Company, no amendment may be made which would
reduce the amount or change the type of consideration into which each share of
Company Common Stock shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 8.5 WAIVER. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE 9.
GENERAL PROVISIONS
SECTION 9.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Article 1, Section 6.6 and Articles 8 and 9 shall survive the Effective
Time and those set forth in Section 6.3, Section 6.8(a), Section 8.3 and
Articles 8 and 9 shall survive termination of this Agreement.
SECTION 9.2 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or by registered or certified mail (postage prepaid, return receipt requested)
to the respective parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
if to Newco:
c/o Kohlberg Kravis Roberts & Co,
9 West 57th Street
New York, New York 10019
Attention: Clifton S. Robbins
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: David J. Sorkin, Esq.
if to the Company:
29
<PAGE>
Dr. Sandra Scarr,
Chairman and Chief Executive Officer
2400 Presidents Drive
Montgomery, Alabama 36166
and
Rebecca Bryan,
Vice President/General Counsel
2400 Presidents Drive
Montgomery, Alabama 36166
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Andrew R. Brownstein, Esq.
and
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, NY 10166
Attention: Conor D. Reilly, Esq.
and
Oaktree Capital Management LLC
550 South Hope Street
Los Angeles, CA 90071
Attention: Stephen A. Kaplan
Attention:
SECTION 9.3 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "AFFILIATE" of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "BENEFICIAL OWNER" with respect to any shares of Company Common
Stock means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates (as such
term is defined in Rule 12b-2 of the Exchange Act) beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares of Company Common
Stock;
(c) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
30
<PAGE>
(d) "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean the generally
accepted accounting principles set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity
as may be approved by a significant segment of the accounting profession in
the United States, in each case applied on a basis consistent with the
manner in which the audited financial statements for the fiscal year of the
Company ended May 31, 1996 were prepared;
(e) "PERSON" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act);
(f) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, or any other person
means any corporation, partnership, joint venture or other legal entity of
which the Company, or such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holder of
which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity;
and
(g) "SIGNIFICANT SUBSIDIARY" has the meaning set forth in Regulation S-X
promulgated by the SEC.
SECTION 9.4 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
SECTION 9.5 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Newco may assign all or any of its rights and obligations hereunder to any
direct or indirect wholly owned subsidiary or subsidiaries of Newco, PROVIDED
that no such assignment shall relieve the assigning party of its obligations
hereunder if such assignee does not perform such obligations.
SECTION 9.6 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, with respect to the
provisions of Section 6.6 and 8.3, shall inure to the benefit of the persons or
entities benefitting from the provisions thereof who are intended to be
third-party beneficiaries thereof. Except as provided in the preceding sentence,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
SECTION 9.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.8 HEADINGS. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
31
<PAGE>
SECTION 9.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Newco and the Company have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
KINDERCARE LEARNING CENTERS, INC.
By: /s/ SANDRA W. SCARR
------------------------------------------
Title: Chairman and Chief Executive
Officer
KCLC ACQUISITION CORP.
By: /s/ CLIFTON S. ROBBINS
------------------------------------------
Title: President
32
<PAGE>
ANNEX A
FORM OF AFFILIATE LETTER
Gentlemen:
The undersigned, a holder of shares of common stock, par value $.01 per
share ("COMPANY STOCK"), of KinderCare Learning Centers, Inc., a Delaware
corporation (the "COMPANY"), is entitled to retain in connection with the merger
(the "MERGER") of the Company with KCLC Acquisition Corp., a Delaware
corporation, securities (the "SECURITIES") of the Company. The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of the Company
within the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act
of 1933 (the "ACT"), although nothing contained herein should be construed as an
admission of such fact.
If in fact the undersigned were an affiliate under the Act, the
undersigned's ability to sell, assign or transfer the Securities retained by the
undersigned pursuant to the Merger may be restricted unless such transaction is
registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and the undersigned
has obtained advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the applicability to the sale
of such securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with the Company that the
undersigned will not sell, assign or transfer any of the Securities retained by
the undersigned pursuant to the Merger except (i) pursuant to an effective
registration statement under the Act, (ii) in conformity with the volume and
other limitations of Rule 145 or (iii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to the Company or as described in a
"no-action" or interpretive letter from the Staff of the Securities and Exchange
Commission (the "SEC"), is not required to be registered under the Act.
In the event of a sale or other disposition by the undersigned of Securities
pursuant to Rule 145, the undersigned will supply the Company with evidence of
compliance with such Rule, in the form of a letter in the form of Annex I
hereto. The undersigned understands that the Company may instruct its transfer
agent to withhold the transfer of any Securities disposed of by the undersigned,
but that upon receipt of such evidence of compliance the transfer agent shall
effectuate the transfer of the Securities sold as indicated in the letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities retained by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed by
delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to the Company from independent counsel
reasonably satisfactory to the Company to the effect that such legends are no
longer required for purposes of the Act.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Securities and
(ii) the receipt by Newco of this letter is an inducement and a condition to
Newco's obligations to consummate the Merger.
Very truly yours,
Dated:
<PAGE>
ANNEX I
TO ANNEX A
[Name] [Date]
On the undersigned sold the securities ("SECURITIES") of
KinderCare Learning Centers, Inc. (the "COMPANY") described below in the space
provided for that purpose (the "SECURITIES"). The Securities were retained by
the undersigned in connection with the merger of KCLC Acquisition Corp. with and
into the Company.
Based upon the most recent report or statement filed by the Company with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the Securities were sold in "brokers'
transactions" within the meaning of Section 4(4) of the Act or in transactions
directly with a "market maker" as that term is defined in Section 3(a)(38) of
the Securities Exchange Act of 1934, as amended. The undersigned further
represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such sale.
Very truly yours,
[Space to be provided for description of securities]
A-1
<PAGE>
ANNEX I-B
CONFORMED COPY
MERGER AGREEMENT AMENDMENT
AMENDMENT, dated as of December 27, 1996 (this "Amendment"), to the
Agreement and Plan of Merger between KCLC Acquisition Corp. ("Newco") and
KinderCare Learning Centers, Inc. (the "Company"), dated as of October 3, 1996
(the "Merger Agreement").
WITNESSETH:
WHEREAS, pursuant to the Merger Agreement, Newco and the Company have
approved the terms and conditions of the business combination between Newco and
the Company to be effected by the merger (the "Merger") of Newco with and into
the Company; and
WHEREAS, Newco and the Company have agreed that certain provisions of the
Merger Agreement be amended in the manner provided for in this Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used but not defined herein shall have
the meanings given to them in the Merger Agreement.
2. AMENDMENTS TO MERGER AGREEMENT.
(a) Definitions. As used in the Merger Agreement,
(i) the term "Agreement" shall mean the merger agreement among the
parties hereto, dated as of October 3, 1996, and the amendments thereto
entered into on the date hereof,
(ii) the term "Merger" shall mean the merger of Newco with and into
the Company pursuant to the terms and conditions of the Agreement (as
amended as of the date hereof) and
(iii) the term "Voting Agreement" shall mean the voting agreement
between Newco, on the one hand, and the Stockholder and the Funds, on the
other hand, as such agreement has been amended as of the date hereof.
(b) Amendment to Article 2.
(i) Section 2.1(a) of the Merger Agreement is hereby amended by
deleting the amount 7,345,679 which appears in the fifth line thereof and
substituting in lieu thereof the amount 7,828,947.
(ii) Section 2.1(c)(ii) of the Merger Agreement is hereby amended by
deleting the amount $20.25 which appears in the fourth line thereof and
substituting in lieu thereof the amount $19.00.
(iii) Section 2.4(a) of the Merger Agreement is hereby amended by
deleting the amount 1,296,296 which appears in the fifth line thereof and
substituting in lieu thereof the amount 1,381,579.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Newco that:
(a) The Company has all necessary corporate power and authority to
execute and deliver this Amendment, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution, delivery
and performance of this Amendment by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company are necessary to authorize this
Amendment or to consummate the transactions so contemplated (other than,
with respect to the Merger, the approval of the Agreement (as amended
hereby) by the holders of a majority of the outstanding shares of Company
Common Stock if and to the extent
<PAGE>
required by the DGCL, and the filing of appropriate merger documents as
required by the DGCL). This Amendment has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery hereof by Newco, constitutes a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms.
The Board of Directors of the Company has approved this Amendment and the
transactions contemplated hereby (including but not limited to the Merger)
so as to render inapplicable hereto and thereto the limitation on business
combinations contained in Section 203 of the DGCL (or any similar
provision). The Board of Directors of the Company has approved the Voting
Agreement (as amended) and the transactions contemplated thereby so as to
render inapplicable thereto the limitation on business combinations
contained in Section 203 of the DGCL (or any similar provision). As a result
of the foregoing actions, the only vote required to authorize the Merger is
the affirmative vote of a majority of the outstanding shares of Company
Common Stock.
(b) The Company has received the opinion of the Financial Adviser, dated
the date of this Amendment, to the effect that the consideration to be
received in the Merger by the Company's stockholders is fair to the holders
of the Company Common Stock from a financial point of view. The aggregate
fees payable to the Financial Advisor will not exceed $2.75 million.
(c) The Board of Directors of the Company, at a meeting duly called and
held, has by unanimous vote of those directors present (who constituted 100%
of the directors then in office) (i) determined that the Agreement (as
amended by this Amendment) and the transactions contemplated thereby,
including the Merger, and the Voting Agreement and the transactions
contemplated thereby, taken together, are fair to and in the best interests
of the stockholders of the Company, and (ii) resolved to recommend that the
holders of the shares of Company Common Stock approve the Agreement (as
amended by this Amendment) and the transactions contemplated therein,
including the Merger.
4. REPRESENTATIONS AND WARRANTIES OF NEWCO. Newco hereby represents and
warrants to the Company that:
(a) Newco has all necessary corporate power and authority to enter into
this Amendment, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Amendment by Newco and the consummation by Newco of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Newco other than filing and recordation of appropriate
merger documents as required by the DGCL. This Amendment has been duly
executed and delivered by Newco and, assuming due authorization, execution
and delivery by the Company, constitutes a legal, valid and binding
obligation of Newco enforceable against it in accordance with its terms.
(b) Attached as Annexes A-1, A-2 and A-3 hereto are true and complete
copies of the letters addressed to the Company, dated the date hereof, which
amend, modify and/or supplement the letters attached as Annexes A-1, A-2 and
A-3 to the Disclosure Schedules issued in connection with the financing of
the transactions contemplated by the Merger Agreement. The terms and
conditions of the letters attached as Annexes A-1 to A-3 of the Disclosure
Schedule, as supplemented by Annexes A-1 to A-3 hereto, are satisfactory to
Newco.
5. MISCELLANEOUS.
(a) Except as expressly amended, modified and supplemented hereby, the
provisions of the Merger Agreement are and shall remain in full force and
effect.
(b) This Amendment shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
2
<PAGE>
(c) This Amendment may be executed in one or more counterparts, and by
the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, Newco and the Company have caused this Amendment to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
KINDERCARE LEARNING CENTERS, INC.
By: /s/ PHILIP L. MASLOWE
-----------------------------------------
Philip L. Maslowe
Title: Executive Vice President and
Chief Financial Officer
KCLC ACQUISITION CORP.
By: /s/ NILS P. BROUS
-----------------------------------------
Nils P. Brous
Title: Vice President
3
<PAGE>
ANNEX II-A
CONFORMED COPY
VOTING AGREEMENT
This AGREEMENT dated as of October 3, 1996, between KCLC Acquisition Corp.,
a Delaware corporation ("Newco"), on the one hand, and TCW Special Credits Fund
II, TCW Special Credits Fund IIb, TCW Special Credits Fund III, TCW Special
Credits Fund IIIb (collectively, the "Special Credits Limited Partnerships"),
TCW Special Credits Fund V--The Principal Fund, a California limited partnership
("Fund V"), two trusts for which Trust Company of the West is trustee (the TCW
Special Credits Trust and the TCW Special Credits Trust IIIb (collectively the
"TCW Trusts")), three special accounts managed by TCW Special Credits, a
California general partnership (the Common Fund Account, the Weyerhaeuser
Company Master Retirement Trust Account and the Delaware State Employees
Retirement Trust Account (collectively, the "Special Credit Accounts")), one
special account managed by Oaktree Capital Management, LLC ("Oaktree") (the OCM
Inland Steel Industries Separate Account (the "Oaktree Account; and together
with the Special Credits Limited Partnerships, Fund V, the TCW Trusts and the
Special Credit Accounts, the "Funds")), and Oaktree, a California limited
liability company (the "Stockholder"), as investment manager of the Funds, on
the other hand.
WHEREAS Newco and KinderCare Learning Centers, Inc., a Delaware corporation
(the "Company"), propose to enter into an Agreement and Plan of Merger dated as
of the date hereof (the "Merger Agreement"; capitalized terms used but not
defined herein shall have the meanings set forth in the Merger Agreement;
provided that the terms Merger and Merger Agreement shall not include any
amendments or modifications thereto unless such amendments and modifications
have been approved in writing by the Stockholder) providing for a merger (the
"Merger") of Newco with and into the Company, upon the terms and subject to the
conditions set forth in the Merger Agreement; and
WHEREAS the Stockholder beneficially owns 9,988,936 shares of Company Common
Stock, which are held of record by the Funds as set forth on Schedule A (such
shares of Company Common Stock, together with any other shares of Company Common
Stock that the Stockholder or any Fund acquires beneficial ownership of after
the date hereof and during the term of this Agreement, whether upon the exercise
of options, warrants or rights, the conversion or exchange of convertible or
exchangeable securities, or by means of purchase, dividend, distribution or
otherwise, being collectively referred to herein as the "Subject Shares"); and
WHEREAS the Stockholder beneficially owns Warrants to purchase 858,683
shares of Company Common Stock, which are held of record by the Funds as set
forth on Schedule A (such warrants, together with any other warrants that the
Stockholder or any Fund acquires beneficial ownership of after the date hereof
and during the term of this Agreement, being collectively referred to herein as
the "Subject Warrants", and together with the Subject Shares, the "Subject
Securities"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Newco has requested that the Stockholder and the Funds enter into
this Agreement.
NOW, THEREFORE, to induce Newco to enter into, and in consideration of its
entering into, the Merger Agreement, and in consideration of the premises and
the representations, warranties and agreements contained herein, the parties
agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER AND THE FUNDS.
(a) REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to Newco as of the date hereof as follows:
(i) ORGANIZATION. The Stockholder is a limited liability company
duly organized, validly existing and in good standing under the laws of
the State of California.
(ii) AUTHORITY; NO CONFLICTS. The Stockholder has all requisite
power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered
by the Stockholder and constitutes a valid and binding obligation of the
Stockholder enforceable in
<PAGE>
accordance with its terms. Except for the filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (i) no filing with, and no permit, authorization, consent or
approval of, any Governmental Entity or any other person is necessary for
the execution of this Agreement by the Stockholder and the consummation
by the Stockholder of the transactions contemplated hereby and (ii) none
of the execution and delivery of this Agreement by the Stockholder, the
consummation of the transactions contemplated hereby and compliance with
the terms hereof by the Stockholder will conflict with, or result in any
violation of, or default (with or without notice or lapse of time or
both) under any provision of, the certificate of incorporation, by-laws
or analogous documents of the Stockholder, any trust agreement, loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license, judgment,
order, notice, decree, statute, law, ordinance, rule or regulation
applicable to the Stockholder or to the Stockholder's property or assets.
(iii) THE SUBJECT SECURITIES. The Stockholder is the beneficial
owner of the Subject Securities. All of the Subject Warrants are fully
vested and freely exercisable by the Stockholder to acquire any and all
shares of Company Common Stock underlying the Subject Warrants at its
option. The Stockholder does not beneficially own any shares of capital
stock of the Company or securities convertible or exchangeable for shares
of capital stock of the Company, other than the Subject Securities. The
Stockholder has the sole right and power to vote and dispose of the
Subject Securities, and none of such Subject Securities is subject to any
voting trust or other agreement, arrangement or restriction with respect
to the voting or transfer of any of the Subject Securities, except as
contemplated by this Agreement.
(b) REPRESENTATIONS AND WARRANTIES OF THE FUNDS. Each Fund hereby,
severally and not jointly, represents and warrants to Newco as of the date
hereof in respect of itself as follows:
(i) ORGANIZATION. Such Fund is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization.
(ii) AUTHORITY; NO CONFLICTS. Such Fund has all requisite power and
authority to enter into this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by such Fund
and constitutes a valid and binding obligation of such Fund enforceable
in accordance with its terms. No filing with, and no permit,
authorization, consent or approval of, any Governmental Authority or any
other person is necessary for the execution of this Agreement by such
Fund and the consummation by such Fund of the transactions contemplated
hereby and (ii) none of the execution and delivery of this Agreement by
such Funds, the consummation of the transactions contemplated hereby and
compliance with the terms hereof by such Fund will conflict with, or
result in any violation of, or default (with or without notice or lapse
of time or both) under any provision of, the certificate of
incorporation, by-laws or analogous documents of such Fund, any trust
agreement, loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise,
license, judgment, order, notice, decree, statute, law, ordinance, rule
or regulation applicable to such Fund or to such Fund's property or
assets.
(iii) THE SUBJECT SECURITIES. Such Fund is the record holder of the
number of Subject Shares and Subject Warrants set forth opposite its name
on Schedule A hereto. Such Fund has good and marketable title to the
Subject Securities set forth opposite its name on Schedule A hereto and
at all times during the term hereof and on the Closing Date and on the
Option Closing Date will have good and valid title to its Subject Shares,
free and clear of all liens, claims, security interests or other charges
or encumbrances, and, upon delivery thereof to Newco against delivery of
the consideration therefor pursuant to this Agreement, good and valid
title thereto, free and clear of all liens, claims, security interests or
other charges or encumbrances (other than
2
<PAGE>
any arising as a result of actions taken or omitted by Newco), will pass
to Newco. Such Fund does not own of record any shares of capital stock of
the Company or securities convertible or exchangeable for shares of
capital stock of the Company, other than the Subject Securities. The
Stockholder has the sole right and power to vote and dispose of the
Subject Securities owned of record by such Fund, except as contemplated
by this Agreement.
(iv) ERISA. Neither the execution and delivery of this Agreement
and the Merger Agreement nor the consummation of any of the transactions
contemplated hereby or thereby (the "Transactions") is or will result in
any nonexempt prohibited transaction under either Section 406 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code") or any liability under Section 404 or 502(l) of ERISA that would,
in any such event (A) require any of the Transactions to be rescinded or
to be materially and adversely modified, or (B) result in material
liability to the Company, Newco or any Newco stockholder, assuming for
these purposes that neither Newco nor any stockholder of Newco is a
"party in interest" (within the meaning of Section 3(14) of ERISA) or a
"disqualified person" (within the meaning of Section 4975(e) of the Code)
with respect to any of the Funds.
2. REPRESENTATIONS AND WARRANTIES OF NEWCO. Newco hereby represents and
warrants to the Stockholder and the Funds that Newco is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by Newco
and constitutes a valid and binding obligation of Newco enforceable in
accordance with its terms. Except for the filings required under the HSR Act,
(i) no filing with, and no permit, authorization, consent or approval of, any
Governmental Entity or any other person is necessary for the execution of this
Agreement by Newco and the consummation by Newco of the transactions
contemplated hereby and (ii) none of the execution and delivery of this
Agreement by Newco, the consummation of the transactions contemplated hereby nor
the compliance with the terms hereof by Newco will conflict with, or result in
any violation of, or default (with or without notice or lapse of time or both)
under any provision of, the certificate of incorporation, by-laws or analogous
documents of Newco, any trust agreement, loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, notice, decree, statute, law, ordinance,
rule or regulation applicable to Newco or to Newco's property or assets. If the
Option is exercised, the Subject Securities will be acquired for investment for
Newco's own account, not as a nominee or agent and not with a view to the
distribution of any part thereof. Newco has no present intention of selling,
granting any participation in or otherwise distributing the same nor does Newco
have any contract, undertaking, agreement or arrangement with any person with
respect to any of the Subject Securities. Newco further understands that the
Subject Securities may not be sold, transferred or otherwise disposed of without
registration under the Securities Act or pursuant to an exemption therefrom.
3. COVENANTS OF THE STOCKHOLDER AND THE FUNDS. Until the termination of
this Agreement in accordance with Section 10, the Stockholder and each Fund
agree as follows:
(a) VOTING OF SUBJECT SHARES. At any meeting of stockholders of the
Company called to vote upon the Merger and the Merger Agreement or at any
adjournment thereof or in any other circumstances upon which a vote or other
approval with respect to the Merger and the Merger Agreement is sought, the
Funds shall (and the Stockholder shall cause the Funds to) vote the Subject
Shares in favor of the Merger, the adoption by the Company of the Merger
Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement. The agreements set forth
in the immediately preceding sentence shall equally apply if such approvals
were to be sought by the solicitation of written consents. If requested by
Newco and consented to by the Company, the Stockholder shall initiate a
written consent solicitation to approve the Merger and the Merger Agreement.
3
<PAGE>
At any meeting of stockholders of the Company or at any adjournment
thereof or in any other circumstances upon which the Stockholder's or any
Fund's vote, consent or other approval is sought, the Funds shall (and the
Stockholder shall cause the Funds to) vote the Subject Shares against (i)
any action or agreement that would result in a breach in any material
respect of any covenant, representation or warranty or any other obligation
or agreement of the Company under the Merger Agreement and (ii), except with
the prior written consent of Newco, any action or agreement that would
impede, interfere with, delay, postpone or attempt to discourage the Merger
or the Debt Offer, including, but not limited to: (A) the adoption by the
Company of a proposal regarding (1) the acquisition of the Company by
merger, tender offer or otherwise by any person other than Newco or any
affiliate thereof (a "Third Party"); (2) the acquisition by a Third Party of
15% or more of the assets of the Company and its subsidiaries, taken as a
whole; (3) the acquisition by a Third Party of more than 20% of the
outstanding shares of Company Common Stock; or (4) the repurchase by the
Company or any of its subsidiaries of 15% or more of the outstanding shares
of Company Common Stock; (B) any amendment of the Company's certificate of
incorporation or by-laws or other proposal or transaction involving the
Company or any of its subsidiaries, which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify the
Merger, the Merger Agreement, the Debt Offer or any of the other
transactions contemplated by the Merger Agreement or change in any manner
the voting rights of any class of the Company's capital stock; (C) any
change in the management or board of directors of the Company; (D) any
material change in the present capitalization or dividend policy of the
Company; or (E) any other material change in the Company's corporate
structure or business. The Stockholder and the Funds further agree not to
commit or agree to take any action inconsistent with the foregoing.
(b) PROXIES. The Stockholder and each Fund hereby grant to Newco a
proxy to vote the Subject Shares as indicated in Section 3(a) above. The
Stockholder and each Fund agree that this proxy shall be irrevocable and
coupled with an interest and will take such further action or execute such
other instruments as may be necessary to effectuate the intent of this proxy
and hereby revoke any proxy previously granted by the Stockholder or any
Fund with respect to the Subject Shares.
(c) TRANSFER RESTRICTIONS. The Stockholder and each Fund agree not to
(i) sell, transfer, pledge, encumber, assign or otherwise dispose of
(including by gift) (collectively, "Transfer"), or enter into any contract,
option or other arrangement or understanding (including any profit sharing
arrangement) with respect to the Transfer of, any of the Subject Securities
to any person other than pursuant to the terms hereof or the Merger
Agreement, (ii) enter into any voting arrangement or understanding, whether
by proxy, voting agreement or otherwise, or (iii) take any action that would
make any of its representations or warranties contained herein untrue or
incorrect or have the effect of preventing or disabling the Stockholder or
any Fund from performing its obligations under this Agreement.
(d) APPRAISAL RIGHTS. The Stockholder and each Fund hereby irrevocably
waive any rights of appraisal with respect to the Merger or rights to
dissent from the Merger that the Stockholder or such Fund may have.
(e) REGISTRATION RIGHTS AGREEMENTS. Unless this Agreement is
terminated in accordance with its terms, the Stockholder and each Fund
hereby agree not to exercise any right any of them may have under the Equity
Registration Rights Agreement and the Warrant Registration Rights Agreement
referred to in Section 3.3 of the Merger Agreement. Subject to the
occurrence of the Effective Time, the Stockholder and each Fund hereby
irrevocably waive any and all rights which any of them may have, and release
the Company from all of its obligations, under the Equity Registration
Rights Agreement and the Warrant Registration Rights Agreement referred to
in Section 3.3 of the Merger Agreement.
(f) NO SOLICITATION. Neither the Stockholder, any Fund nor any of
their respective affiliates shall (whether directly or indirectly through
any officer, director, member, advisor, agent, representatives or other
intermediary), nor shall the Stockholder, any Fund or any of their
respective affiliates
4
<PAGE>
authorize or permit any of its officers, directors, members, advisors,
agents, representatives or other intermediaries to, (i) solicit, initiate,
encourage or take any action to facilitate any submission of inquiries,
proposals or offers from any person relating to any acquisition or purchase
of all or a material amount of assets of, or any equity interest in, the
Company (or any subsidiary or division thereof) or any merger,
consolidation, tender offer (including a self tender offer), exchange offer,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company (or any subsidiary or division thereof),
other than the transactions contemplated by this Agreement or the Merger
Agreement, or any other transaction the consummation of which would or could
reasonably be expected to impede, interfere with, prevent or materially
delay the Debt Offer or the Merger or which would or could reasonably be
expected to materially dilute the benefits to Newco of the transactions
contemplated by the Merger Agreement (collectively, "Transaction Proposals")
or agree to or endorse any Transaction Proposal, other than the transactions
contemplated by the Merger Agreement, or (ii) enter into or participate in
any discussions or negotiations regarding any of the foregoing, or furnish
to any other person any information with respect to the Company's business,
properties or assets or any of the foregoing, or otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort
or attempt by any other person to do or seek any of the foregoing.
Notwithstanding anything in this Agreement to the contrary, from and after
the date hereof, the Stockholder and the Funds shall promptly advise Newco
orally and in writing of the receipt by any of them (or any of the other
entities or persons referred to above) of any Transaction Proposal, or any
inquiry which is likely to lead to any Transaction Proposal, the material
terms and conditions of such Transaction Proposal or inquiry, and the
identity of the person making any such Transaction Proposal or inquiry. The
Stockholder and the Funds will keep Newco fully informed of the status and
details of any such Transaction Proposal or inquiry.
(g) ELECTION TO RETAIN COMPANY COMMON STOCK. Fund V agrees that it
shall make elections to retain Company Common Stock in the Merger pursuant
to Article 2 of the Merger Agreement with respect to an aggregate of at
least 1,296,296 shares of Company Common Stock. The aggregate actual number
of shares of Company Common Stock which Fund V retains pursuant to Article 2
of the Merger Agreement is herein referred to as the "Retained Shares".
(h) MERGER AGREEMENT. The Stockholder and the Funds agree that they
accept the terms and conditions of the Merger Agreement as it applies to the
holders of shares of Company Common Stock and the holders of Warrants.
(i) ERISA. From and after the date hereof, each Fund agrees that it
will not take any action or refrain from taking any action that would cause
its representation and warranty in Section 1(b)(iv) to cease being true and
correct in any material respect.
(j) AFFILIATE LETTER. The Stockholder and each Fund, which immediately
after the Effective Time will own Retained Shares, shall deliver to Newco on
or prior to the Closing Date a written agreement substantially in the form
attached as Exhibit A to the Merger Agreement.
4. OPTION. (a) The Stockholder and each Fund hereby grant to Newco (or its
designee, provided such designee is an affiliate of KKR & Co.) an irrevocable
option to purchase the Subject Securities, on the terms and subject to the
conditions set forth herein (the "Option").
(b) The Option may be exercised by Newco, as a whole and not in part, at any
time during the period commencing upon the occurrence of either of the following
events and ending on the date which is the 30th calendar day following the first
to occur of such events:
(i) the Merger Agreement shall have been terminated by either the
Company or Newco pursuant to Section 8.1(b) thereof; or
(ii) the Merger Agreement shall have been terminated by the Company
pursuant to Section 8.1(c) and on March 31, 1997 or thereafter there shall
have been in effect any of (A) an Extending Action, (B) a condition which
would permit the Merger Agreement to be terminated under Section
5
<PAGE>
8.1(b) thereof or (C) any statute, rule or regulation enjoining or
prohibiting in whole or in any significant respect the consummation of the
Merger, the Debt Offer or any of the transactions contemplated by the Merger
Agreement or this Agreement.
(c) If Newco wishes to exercise the Option, Newco shall send a written
notice to the Stockholder of its intention to exercise the Option, specifying
the place, and, if then known, the time and the date (the "Option Closing Date")
of the closing (the "Option Closing") of the purchase. The Option Closing Date
shall occur on the fifth business day (or such longer period as may be required
by applicable law or regulation) after the later of (i) the date on which such
notice is delivered and (ii) the satisfaction of the conditions set forth in
Section 4(f).
(d) At the Option Closing, the Stockholder and the Funds shall deliver to
Newco (or its designee) all of the Subject Securities by delivery of a
certificate or certificates evidencing such Securities duly endorsed to Newco or
accompanied by powers duly executed in favor of Newco, with all necessary stock
transfer stamps affixed.
(e) At the Option Closing, Newco shall pay to the Stockholder pursuant to
the exercise of the Option, by wire transfer, cash in immediately available
funds to the account of the Stockholder specified in writing no more than two
days prior to the Option Closing, (i) with respect to the Subject Shares, an
amount equal to the product of $20.25 and the number of Subject Shares and (ii)
with respect to the Subject Warrants, an amount equal to the product of $7.75
and the number of Subject Warrants (collectively, the "Subject Securities
Purchase Price").
(f) The Option Closing shall be subject to the satisfaction of each of the
following conditions:
(i) no court, arbitrator or governmental body, agency or official shall
have issued any order, decree or ruling and there shall not be any statute,
rule or regulation, restraining, enjoining or prohibiting the consummation
of the purchase and sale of the Subject Securities pursuant to the exercise
of the Option;
(ii) any waiting period applicable to the consummation of the purchase
and sale of the Subject Securities pursuant to the exercise of the Option
under the HSR Act shall have expired or been terminated; and
(iii) all actions by or in respect of, and any filing with, any
governmental body, agency, official, or authority required to permit the
consummation of the purchase and sale of the Subject Securities pursuant to
the exercise of the Option shall have been obtained or made and shall be in
full force and effect.
5. FURTHER AGREEMENTS OF NEWCO. (a) Newco hereby agrees that, in the event
that it purchases the Subject Securities pursuant to the Option, as promptly as
practicable thereafter, Newco will make a tender offer for the remaining shares
of Company Common Stock to the stockholders of the Company (the consummation of
which shall be subject only to the condition that no court, arbitrator or
governmental body, agency or official shall have issued any order, decree or
ruling and there shall not be any statute, rule or regulation, restraining,
enjoining or prohibiting the consummation of such tender offer) pursuant to
which the stockholders of the Company (other than the Company, any direct or
indirect subsidiary of the Company or Newco) will receive an amount of cash
consideration per share of Company Common Stock equal to $20.25, and will take
such actions as may be necessary or appropriate in order to effectuate such
tender offer at the earliest practicable time.
(b) Subject to the last sentence of this Section 5(b), if, after purchasing
the Subject Securities pursuant to the Option and complying with its obligations
under Section 5(a) hereof, Newco or any of its affiliates receives any cash or
non-cash consideration in respect of the Subject Securities in connection with a
Third Party Business Combination (as defined below) during the period commencing
on the date of the Option Closing and ending on the first anniversary thereof,
Newco shall promptly pay over to the Stockholder, as an addition to the Subject
Securities Purchase Price, (x) the excess, if any, of such
6
<PAGE>
consideration over the aggregate Subject Securities Purchase Price paid for the
Subject Securities by Newco hereunder less (y) the sum of (I) the amount of
taxes payable or to be payable by Newco (as estimated by Newco in good faith) in
connection with such Third Party Business Combination and (II) the amount of
out-of-pocket expenses paid by Newco in connection with such Third Party
Business Combination; PROVIDED that, (i) if the consideration received by Newco
or such affiliates shall be securities listed on a national securities exchange
or traded on NASDAQ, the per share value of such consideration shall be equal to
the closing price per share listed on such national securities exchange or
NASDAQ on the date such transaction is consummated and (ii) if the consideration
received by Newco or such affiliates shall be in a form other than securities,
the per share value shall be determined in good faith as of the date such
transaction is consummated by Newco and the Stockholder, or, if Newco and the
Stockholder cannot reach agreement, by a nationally recognized investment
banking firm reasonably acceptable to the parties. The term "Third Party
Business Combination" of the Company means the occurrence of any of the
following events: (A) the Company or any subsidiary of the Company is acquired
by merger or otherwise by any person or group, other than Newco or any affiliate
thereof (a "Third Party"); (B) the Company or any subsidiary of the Company
enters into an agreement with a Third Party which contemplates the acquisition
of 20% or more of the total assets of the Company and its subsidiaries, taken as
a whole; (C) the Company or Newco enters into a merger or other agreement with a
Third Party which contemplates the acquisition of more than 20% of the
outstanding shares of the Company's capital stock; or (D) a Third Party acquires
more than 20% of the total assets of the Company and its subsidiaries, taken as
a whole. Notwithstanding the foregoing, in no event shall the Stockholder be
entitled to receive any payment pursuant to this Section 5(b) if at any time
prior to the consummation of such Third Party Business Combination, either (i)
affiliates of KKR & Co. shall, directly or indirectly, beneficially own 80% or
more of the Company Common Stock or (ii) prior to such time affiliates of KKR &
Co. beneficially own at least 80% of the Company Common Stock, the Company has
issued shares of voting stock such that affiliates of KKR & Co. no longer have a
majority of the issued and outstanding shares of voting stock of the Company.
6. POST-MERGER AGREEMENTS. Immediately after the Effective Time, Newco,
the Stockholder, Fund V and those affiliates of KKR & Co. which own shares of
Company Common Stock shall enter into a stockholders' agreement in substantially
the form attached hereto as Exhibit A; provided that neither Newco nor any
affiliate of KKR & Co shall be under any obligation to execute such
stockholders' agreement if Fund V shall not have made elections to retain
Company Common Stock in the Merger pursuant to Article 2 of the Merger Agreement
with respect to an aggregate of at least 1,296,296 shares of Company Common
Stock and shall not own, immediately after giving effect to the Merger, a number
of Retained Shares in excess of 432,099.
7. FURTHER ASSURANCES. The Stockholder and the Funds will, from time to
time, execute and deliver, or cause to be executed and delivered, such
additional or further consents, documents and other instruments as Newco may
reasonably request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
8. STOP TRANSFER ORDER. The Stockholder and each Fund hereby authorize the
Company's counsel to notify the Company's transfer agent that there is a stop
transfer order with respect to all of the Subject Shares (and that this
Agreement places limits on the voting of the Subject Shares).
9. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties without the prior
written consent of the other parties, except that Newco may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
direct or indirect wholly owned subsidiary of Newco. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and permitted
assigns.
10. TERMINATION. Except as set forth in Sections 4 and 6 and except for
Newco's obligations pursuant to Section 5, this Agreement shall terminate, and
no party shall have any rights or obligations hereunder and this Agreement shall
become null and void and have no further effect upon the first to
7
<PAGE>
occur of (a) the Effective Time, (b) the 31st calendar day following the
termination of the Merger Agreement pursuant to Section 8.1(b) thereof or by the
Company pursuant to Section 8.1(c) thereof or (c) upon termination of the Merger
Agreement pursuant to Section 8.1(a) or 8.1(d) thereof or by Newco pursuant to
Section 8.1(c) thereof. Notwithstanding the foregoing, in the event the Option
shall have been exercised in accordance with Section 4, but the Option Closing
shall not have occurred, the provisions of Sections 1 and 3 shall survive until
the Option Closing. Nothing in this Section 10 shall relieve any party of
liability for breach of this Agreement.
11. GENERAL PROVISIONS.
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or sent by
overnight courier (providing proof of delivery) to Newco in accordance with
Section 9.2 of the Merger Agreement and to the Stockholder and the Funds at
Oaktree Capital Management LLC, 550 South Hope Street, 22nd Floor, Los
Angeles, California 90071, c/o Mr. Stephen A. Kaplan, with a copy to Gibson,
Dunn & Crutcher LLP, 200 Park Avenue, New York, N.Y. 10166, Attn.: Conor D.
Reilly, Esq. (or at such other address for a party as shall be specified by
like notice).
(c) INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes"
or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation".
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been
signed by each of the parties and delivered to the other party, it being
understood that each party need not sign the same counterpart.
(e) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
12. ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in a Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (i) consents to submit such party to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated hereby, (ii) agrees that such party will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that such party will not
bring any action relating to this Agreement or the transactions contemplated
hereby in any court other than a Federal court sitting in the state of Delaware
or a Delaware state court and (iv) waives any right to trial by jury with
respect to any claim or proceeding related to or arising out of this Agreement
or any of the transactions contemplated hereby.
13. LIMITED LIABILITY. Notwithstanding any other provision hereof, the
obligations of each Fund under this Agreement shall not be an obligation of any
officer, director, limited or general partner (or future partner) of such Fund.
Any liability or obligation of a Fund arising out of this Agreement shall be
limited to and satisfied only out of the assets of such Fund.
8
<PAGE>
IN WITNESS WHEREOF, each of Newco, the Stockholder and each Fund has caused
this Agreement to be signed by its signatory thereunto duly authorized, as of
the date first written above.
KCLC ACQUISITION CORP.
By: /s/ CLIFTON S. ROBBINS
---------------------------------------
Name: Clifton S. Robbins
Title: President
TCW SPECIAL CREDITS FUND II
TCW SPECIAL CREDITS FUND IIB
TCW SPECIAL CREDITS FUND III
TCW SPECIAL CREDITS FUND IIIB
By: TCW SPECIAL CREDITS,
General Partner
By: TCW ASSET MANAGEMENT CO.,
Managing General Partner
By: /s/ KENNETH LIANG
-----------------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By: /s/ BRUCE KARSH
-----------------------------------
Name: Bruce Karsh
Title: Authorized Signatory
TCW SPECIAL CREDITS FUND V--THE PRINCIPAL
FUND
By: TCW ASSET MANAGEMENT CO.,
General Partner
By: OAKTREE CAPITAL MANAGEMENT, LLC
Manager
By: /s/ KENNETH LIANG
-----------------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By: /s/ STEPHEN KAPLAN
-----------------------------------
Name: Stephen Kaplan
Title: Authorized Signatory
9
<PAGE>
<TABLE>
<S> <C>
TCW SPECIAL CREDITS TRUST
TCW SPECIAL CREDITS TRUST IIIB
BY: TRUST COMPANY OF THE WEST,
Trustee
By: /s/ KENNETH LIANG
-----------------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By: /s/ BRUCE KARSH
-----------------------------------
Name: Bruce Karsh
Title: Authorized Signatory
COMMON FUND ACCOUNT
WEYERHAEUSER COMPANY MASTER
RETIREMENT TRUST ACCOUNT
DELAWARE STATE EMPLOYEES RETIREMENT
TRUST ACCOUNT
By: TCW SPECIAL CREDITS,
Investment Manager
By: TCW ASSET MANAGEMENT CO.,
Managing General Partner
By: /s/ KENNETH LIANG
-----------------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By: /s/ BRUCE KARSH
-----------------------------------
Name: Bruce Karsh
Title: Authorized Signatory
OCM INLAND STEEL INDUSTRIES
SEPARATE ACCOUNT
By: OAKTREE CAPITAL MANAGEMENT, LLC,
Investment Manager
By: /s/ KENNETH LIANG
-----------------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By: /s/ STEPHEN KAPLAN
-----------------------------------
Name: Stephen Kaplan
Title: Authorized Signatory
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
OAKTREE CAPITAL MANAGEMENT, LLC,
By: /s/ KENNETH LIANG
--------------------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By: /s/ STEPHEN KAPLAN
-----------------------------------
Name: Stephen Kaplan
Title: Authorized Signatory
</TABLE>
11
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
SUBJECT SUBJECT
FUND SHARES WARRANTS
- --------------------------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
TCW Special Credits Fund II............................................................ 759,767 --
TCW Special Credits Fund IIb........................................................... 695,883 --
TCW Special Credits Fund III........................................................... 2,462,032 --
TCW Special Credits Fund IIIb.......................................................... 1,008,198 --
TCW Special Credits Fund V--The Principal Fund......................................... 2,710,238 858,683
TCW Special Credits Trust.............................................................. 747,159 --
TCW Special Credits Trust IIIb......................................................... 402,105 --
Common Fund Account.................................................................... 338,524 --
Weyerhaeuser Company Master Retirement Trust........................................... 742,905 --
Delaware State Employees Retirement Trust Account...................................... 10,654 --
OCM Inland Steel Industries Separate Account........................................... 111,473 --
---------- ---------
Totals............................................................................. 9,988,938 858,683
---------- ---------
---------- ---------
</TABLE>
<PAGE>
EXHIBIT A
FORM OF STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement"), is entered into as of
, 199 by and among KinderCare Learning Centers, Inc., a Delaware
corporation (the "Company"), TCW Special Credits Fund V The Principal Fund, a
California limited partnership ("Fund V"), Oaktree Capital Management, LLC, a
California limited liability company ("Oaktree"), and , a
(collectively, the "KKR Investor").
RECITALS
WHEREAS, KCLC Acquisition Corp. and the Company have entered into that
certain Agreement and Plan of Merger dated as of October 3, 1996 (the "Merger
Agreement"), pursuant to which the KKR Investor has acquired approximately 85%
of the outstanding shares of common stock, par value $.01 per share, of the
Company; and
WHEREAS, pursuant to the terms of the Merger Agreement, Fund V has retained
beneficial ownership of shares of Common Stock.
WHEREAS, that certain Voting Agreement entered into by an affiliate of the
KKR Investor, Oaktree, Fund V and certain other affiliates of Oaktree requires
that the parties hereto enter into a stockholders agreement in the form of this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the parties hereto agree as
follows:
Section 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
AFFILIATE: When used with respect to a specified Person, another Person
that, either directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified.
BOARD: The Board of Directors of the Company.
COMMON STOCK: The Common Stock, par value $.01 per share, of the
Company.
EXEMPT TRANSACTION: Has the meaning set forth in Section 2(c) hereof.
INITIAL OAKTREE SHARES: The shares of Common Stock owned by Fund V
immediately after giving affect to the consummation of the merger
contemplated by the Merger Agreement.
KKR AFFILIATE: With respect to the KKR Investor shall mean a Person
that directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with the KKR Investor; PROVIDED,
HOWEVER, that KKR Affiliate shall not in any event include the limited
partners of the KKR Investor or the limited partners of the general partner
of the KKR Investor.
KKR HOLDER: The KKR Investor and any Person to whom a KKR Holder
transfers shares of Common Stock which Person is required by this Agreement
to be bound by the provisions of this Agreement.
A-1
<PAGE>
KKR SHARES: As of any date of determination, the shares of Common Stock
then held by the KKR Holders.
OAKTREE INVESTORS: As of any date of determination, Fund V and any
other investors for which Oaktree is the sole investment manager which then
own shares of Common Stock.
OAKTREE SHARES: As of any date of determination, the shares of Common
Stock then held by the Oaktree Investors.
PERSON: An individual, partnership, limited liability company, joint
venture, corporation, trust or unincorporated organization, a government or
any department, agency or political subdivision thereof or other entity.
PRIVATE SALE: Any sale of securities other than a sale made in a public
distribution pursuant to an effective registration statement under the
Securities Act.
SECURITIES ACT: The Securities Act of 1933, as amended from time to
time and the rules and regulations promulgated thereunder.
Section 2. (a) "TAG-ALONG" RIGHT WITH RESPECT TO PRIVATE SALES BY KKR
HOLDERS. (i) PRIVATE SALES OF SHARES BY KKR HOLDERS. Subject to the last
sentence of Section 3(a), with respect to any proposed Private Sale of any KKR
Shares by a KKR Holder or KKR Holders (collectively, for purposes of this
Section 2, the "KKR Holder") during the term of this Agreement to a Person (a
"Proposed Purchaser"), other than pursuant to an Exempt Transaction (as defined
in Section 2(c)), the Oaktree Investors shall have the right and option, but not
the obligation, to participate in such sale, on the same terms and subject to
the same conditions as the sale by the KKR Holder, for the number of Oaktree
Shares owned by the Oaktree Investors equalling the number derived by
multiplying the total number of KKR Shares which the KKR Holder proposes to sell
(the "Proposed Number of Shares") by a fraction, the numerator of which is the
total number of Oaktree Shares and the denominator of which is the sum of (A)
the total number of Oaktree Shares, (B) the total number of KKR Shares, and (C)
the total number of shares of Common Stock (determined on a fully diluted basis)
owned by Persons entitled to the benefits of any other "tag-along" rights
arising as a result of such sale.
(ii) NOTICES. The KKR Holder shall notify, or cause to be notified,
Oaktree in writing of each proposed Private Sale subject to Section 2(a)(i)
above. Such notice shall set forth: (A) the Proposed Number of Shares, (B) the
name and address of the Proposed Purchaser, (C) the proposed amount of
consideration, the material terms and conditions of such sale (and if the
proposed consideration is not cash, the notice shall describe the terms of the
proposed consideration) and the proposed closing date of such sale, (D) the
total number of KKR Shares and the total number of shares of Common Stock
(determined on a fully diluted basis) owned by Persons entitled to the benefits
of any other "tag-along" rights arising as a result of such sale and (D) that
the Proposed Purchaser has been informed of the "tag-along" right provided for
in this Section 2(a) and has agreed to purchase Oaktree Shares held by the
Oaktree Investors in accordance with the terms hereof. The "tag-along" right may
be exercised by the Oaktree Investors by delivery of a written notice from
Oaktree to the KKR Holder (the "Tag-Along Notice") within 15 days following
receipt of the notice specified in the preceding sentence. The Tag-Along Notice
shall state the amount of Oaktree Shares that the Oaktree Investors propose to
include in such sale to the Proposed Purchaser. If Oaktree delivers a Tag-Along
Notice to the KKR Holder, the Oaktree Investors participating in the proposed
Private Sale shall (A) prior to closing of any such sale, execute and deliver
(or cause to be executed and delivered) any purchase agreement or other
documentation required by the Proposed Purchaser to consummate the sale
(including without limitation all legal opinions, cross-receipts and
certificates), which purchase agreement and other documentation shall be on
terms no less favorable in respect of any material term to such Oaktree
Investors than those executed by the KKR Holders and (B) at the closing of any
such sale, deliver to the Proposed Purchaser the certificate or
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certificates representing the Oaktree Shares to be sold pursuant to such sale by
such Oaktree Investors, duly endorsed for transfer with signatures guaranteed,
against receipt of the purchase price thereof.
(iii) NUMBER OF SHARES TO BE SOLD. If a Tag-Along Notice is received
pursuant to Section 2(a)(ii), the Oaktree Investors shall be permitted to sell
to the Proposed Purchaser up to the number of Oaktree Shares determined as set
forth in Section 2(a)(i) above (the "Proposed Oaktree Shares"), and the KKR
Holder shall be permitted to sell to the Proposed Purchaser up to a number of
shares of Common Stock (the "Proposed KKR Shares") equal to the Proposed Number
of Shares, less the aggregate number of Proposed Oaktree Shares and all other
shares of Common Stock being sold to such Proposed Purchaser in such transaction
pursuant to tag-along rights arising as a result of such sale; provided that the
KKR Holder shall have the right to sell a number of additional shares of Common
Stock up to the excess of the Proposed Number of Shares over the number of
Proposed KKR Shares, if the Proposed Purchaser wants to purchase such additional
shares. If no Tag-Along Notice is received by the KKR Holder pursuant to Section
2(a)(ii), the KKR Holder shall have the right for a 120-day period to sell to
the Proposed Purchaser up to the Proposed Number of Shares on terms and
conditions no more favorable in any material respect to the KKR Holder than
those stated in the Tag-Along Notice.
(b) "TAG-ALONG" RIGHT WITH RESPECT TO PUBLIC SALES BY KKR
HOLDERS. (i) PUBLIC SALES OF SHARES BY KKR HOLDERS. Subject to the last sentence
of Section 3(a), with respect to any proposed sale of any KKR Shares by a KKR
Holder during the term of this Agreement made in a public distribution pursuant
to an effective registration statement under the Securities Act, other than
sales described in clause (iv) of the definition of Exempt Transaction, the
Oaktree Investors shall have the right and option, but not the obligation, to
participate in such public distribution on the same terms and subject to the
same conditions as the sale by the KKR Holder for a number of Oaktree Shares
owned by the Oaktree Investors as determined pursuant to Section 2(b)(iii)
below.
(ii) The KKR Holder shall notify, or cause to be notified, Oaktree in
writing (a "Notice") of each proposed public distribution pursuant to an
effective registration statement under the Securities Act (a "Proposed
Registration"). Such notice may be given before the filing of such registration
statement and need not specify any price or other terms or conditions of such
sale. If within 10 days of the delivery of such Notice to Oaktree, the KKR
Holder receives from Oaktree a written request (a "Request") to register shares
of Common Stock held by the Oaktree Investors (which Request will be
irrevocable), shares of Common Stock will be so registered as and to the extent
provided in this Section 2(b) if KKR Shares are so registered. If Oaktree
delivers a Request to the KKR Holder, the Oaktree Investors will participate in
such public distribution, if any, at the same price and on the same terms and
conditions as the KKR Holder, which price and other terms and conditions will be
determined on behalf of the KKR Holder and the Oaktree Investors by the KKR
Holder in its sole discretion. Nothing in this Agreement shall create any
obligation on the part of the KKR Holder to cause a registration statement to
become effective under the Securities Act or to sell any shares of Common Stock
pursuant to an effective registration statement under the Securities Act.
(iii) The maximum number of shares of Common Stock which will be registered
pursuant to a Request will equal the number derived by multiplying the total
number of KKR Shares which the KKR Holder proposes to sell in such public
distribution by a fraction, the numerator of which is the total number of
Oaktree Shares and the denominator of which is the sum of (A) the total number
of Oaktree Shares, (B) the total number of KKR Shares, and (C) the total number
of shares of Common Stock (determined on a fully diluted basis) owned by Persons
entitled to the benefits of any other "tag-along" rights arising as a result of
such distribution; provided that in the event that the aggregate number of
shares of Common Stock to be sold in any such public distribution is increased
or decreased, then the number of shares of Common Stock which the Oaktree
Investors shall sell in such public distribution shall be increased or decreased
by the product of (i) the number of shares of Common Stock by which the total
number of shares of Common Stock in such public distribution is increased or
decreased and (ii) a fraction
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the numerator of which equals the number of Oaktree Shares originally so
registered and the denominator of which is the total number of shares of Common
Stock originally so registered.
(iv) Upon delivery of a Request, the participating Oaktree Investors will,
if requested by the KKR Holder, execute and deliver to the KKR Holder a custody
agreement and power of attorney in form and substance reasonably satisfactory to
the KKR Holder with respect to the shares of Common Stock to be registered
pursuant to this Section 2(b) (a "Custody Agreement and Power of Attorney"). The
custodian and attorney-in-fact under the Custody Agreement and Power of Attorney
will be the KKR Holder or its designee. The Custody Agreement and Power of
Attorney will provide, among other things, that such Oaktree Investors will
deliver to and deposit in custody with the custodian and attorney-in-fact named
therein a certificate or certificates representing such shares of Common Stock
(duly endorsed in blank by the registered owner or owners thereof or accompanied
by duly executed stock powers in blank) and irrevocably appoint said custodian
and attorney-in-fact as such Oaktree Investors' agent and attorney-in-fact with
full power and authority to act under the Custody Agreement and Power of
Attorney on such Oaktree Investors' behalf with respect to the matters specified
therein (including without limitation executing an underwriting agreement and
cross-receipts).
(v) Oaktree, for itself and on behalf of each participating Oaktree
Investor, agrees that it will execute and deliver or cause to be executed and
delivered such other agreements and other documents (such as legal opinions,
cross-receipts and certificates) as the KKR Holder itself is delivering or as
the KKR Holder may otherwise reasonably request to implement the provision of
this Section 2(b).
(c) EXEMPT TRANSACTION DEFINED. As used herein, the term "Exempt
Transaction" shall mean (i) sales by the KKR Investor to any KKR Affiliates,
(ii) sales by any KKR Affiliate to another KKR Affiliate or to the KKR Investor,
(iii) transfers by the KKR Investor and their respective KKR Affiliates to its
partners or members (and any subsequent sales by such partners or members) in
the form of dividends or distributions (whether upon liquidation or otherwise),
(iv) sales by the KKR Investor which, taken together with all prior sales by the
KKR Investor, equals a number of shares of Common Stock which is less than 10%
of the shares of Common Stock then outstanding on a fully diluted basis or (v)
with respect to Section 3 only, sales by any KKR Holders made in a public
distribution pursuant to an effective registration statement under the
Securities Act; PROVIDED that in the case of clauses (i) and (ii) above the
buyer agrees in writing to be bound by the provisions of this Agreement,
including this paragraph (c); PROVIDED, FURTHER that in the case of clause (iii)
above, if the transferee is an Affiliate of Kohlberg Kravis Roberts & Co., such
transferee agrees in writing to be bound by the provisions of this Agreement,
including this paragraph (c).
Section 3. "DRAG-ALONG" RIGHT WITH RESPECT TO OAKTREE SHARES. (a) SALES BY
KKR HOLDERS. In the event that the KKR Holder determines, during the term of
this Agreement, to transfer either (i) at least 50% of the outstanding shares of
Common Stock on a fully diluted basis at the time of such transfer or (ii) at
least 35% of the outstanding shares of Common Stock on a fully diluted basis at
the time of such transfer (provided that such percentage set forth in this
clause (ii) equals 100% of the KKR Shares at the time of such transfer) to a
Proposed Purchaser, other than in an Exempt Transaction (a "Drag-Along Sale"),
then upon the request of the KKR Holders, the Oaktree Investors will transfer to
such Proposed Purchaser all of the Oaktree Shares at the same price and upon the
same terms and conditions in respect of any material term as such transfer by
the KKR Holders. In the event that the KKR Holders own at least 15% of the
outstanding shares of the Common Stock on a fully diluted basis and have signed
an agreement, with respect to all KKR Shares, to vote in favor of or tender in
connection with (a "Transaction Agreement") a business combination transaction
entered into by the Company, then, upon the request of the KKR Holders, the
Oaktree Investors will execute a Transaction Agreement with the same terms and
conditions in all material respects as the Transaction Agreement signed by the
KKR Holder. In the event that both Sections 2 and 3 hereto apply to a single
transaction, the "drag-along" rights set forth in this Section 3 will have
priority over the "tag-along" rights set forth in Section 2 above, and the
"tag-along"
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rights set forth in Section 2 will become exercisable by the Oaktree Investors
following a determination by the KKR Holder not to exercise its rights under
this Section 3.
(b) NOTICE. Prior to making any Drag-Along Sale, the KKR Holders shall, if
they determine in their sole discretion that the Oaktree Investors should
participate in such transfer, provide Oaktree with written notice (the
"Drag-Along Notice") not less than 5 business days prior to the proposed date of
the Drag-Along Sale (the "Drag-Along Sale Date"). The Drag-Along Notice shall
set forth: (i) the name and address of the Proposed Purchaser; (ii) the
proposed amount and form of consideration to be paid per share of Common Stock
and the material terms and conditions of the transfer; (iii) the Drag-Along Sale
Date and the date upon which the Oaktree Investors shall deliver to the KKR
Holders the certificates representing the Oaktree Shares, duly endorsed, and the
power of attorney referred to below; and (iv) that the Proposed Purchaser has
been informed of the Drag-Along Sale rights and has agreed to acquire all of the
Oaktree Shares. The Oaktree Investors shall (i) prior to closing of any such
transfer, execute any purchase agreement or other documentation required by the
Proposed Purchaser to consummate the transfer, which purchase agreement and
other documentation shall be on terms no less favorable in respect of any
material term to the Oaktree Investors than those executed by the KKR Holders,
and (ii) at the closing of any such transfer, deliver to the Proposed Purchaser
the certificate or certificates representing the Oaktree Shares, duly endorsed
for transfer with signatures guaranteed, against receipt of the purchase price
thereof. Prior to entering into a Transaction Agreement, the KKR Holders shall,
if they determine in their sole discretion that the Oaktree Investors should
execute a Transaction Agreement, provide Oaktree with written notice (the
"Transaction Agreement Notice") not less than 5 business days prior to the
proposed date of the execution of the Transaction Agreement (the "Transaction
Agreement Date"). The Transaction Agreement Notice shall set forth: (i) the
name and address of the counter-parties to the Transaction Agreement; (ii) the
proposed form of Transaction Agreement; and (iii) the material terms and
conditions of the business combination with the Company to which the Transaction
Agreement relates. The Oaktree Investors shall, at the signing and closing of
such Transaction Agreement, execute and deliver all other documentation required
by such Transaction Agreement, which documents shall be on terms no less
favorable in respect of any material term to the Oaktree Investors than those
executed by the KKR Holder.
(c) EFFECT OF DRAG-ALONG SALE. If the Oaktree Investors receive their
proportionate share of the purchase price from a Drag-Along Sale, but have
failed to deliver certificates representing their shares of Common Stock as
described in this Section 3, they shall for all purposes be deemed no longer to
be stockholders of the Company, shall have no voting rights, shall not be
entitled to any dividends or other distributions with respect to the Common
Stock held by them, and shall have no other rights or privileges granted to
stockholders under law or this Agreement.
Section 4. ELECTION OF DIRECTOR; OTHER RIGHTS. (a) Subject to Fund V's
compliance with Section 3(g) of the Voting Agreement, if immediately after
giving effect to the merger contemplated by the Merger Agreement, Fund V owns in
excess of 432,099 shares of the Common Stock, then one representative of the
Oaktree Investors, who shall be either Mr. Stephen A. Kaplan or Mr. Bruce A.
Karsh, or in the event that both Mr. Kaplan and Mr. Karsh are not affiliated
with Oaktree or are permanently disabled, another individual selected by Oaktree
who is reasonably acceptable to the Company and the KKR Holder, shall (i) be
nominated by the Company for election to the Board and (ii) have the KKR Shares
voted in favor of his election to the Board, until such time as this Agreement
terminates in accordance with its terms. At such time as this Agreement
terminates in accordance with its terms, the Oaktree Investors will, upon notice
to Oaktree from the KKR Investor, cause their nominee to resign from the Board.
(b) VCOC AGREEMENTS. The Oaktree Investors shall have the right, during
the term of this Agreement, upon reasonable prior written notice to the Company,
to (i) discuss the business, operations, properties, financial and other
conditions and plans and prospects of the Company with any executive officer or
director of the Company or any subsidiary of the Company and (ii) during normal
business hours, to visit and inspect any of the properties of the Company and
its subsidiaries.
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Section 5. TRANSFER. (a) The Oaktree Investors agree not to offer or to
transfer, sell, assign, pledge, hypothecate or otherwise dispose of ("Transfer")
any of their shares of Common Stock unless such offer or Transfer complies with
the Securities Act and the rules and regulations thereunder and the state
securities laws of any applicable state.
(b) Any transferee of an Oaktree Investor will not acquire any rights under
this Agreement. Any Person which owns shares of Common Stock and which, prior to
the date of determination, was an Oaktree Investor, but, on the date of
determination, Oaktree is not the sole investment manager of, shall not be
entitled to any rights under this Agreement.
Section 6. MISCELLANEOUS. (a) TERMINATION OF AGREEMENT. The provisions of
this Agreement shall terminate upon the earliest of:
(i) the earliest of (A) if the number of Initial Oaktree Shares is less
than 864,198, such time as the Oaktree Investors own less than 90% of the
number of Initial Oaktree Shares; (B) if the number of Initial Oaktree
Shares is 864,198 or more, then at such time as the Oaktree Investors
transfer a number of shares of Common Stock such that (1) immediately before
giving effect to such transfer, the Oaktree Investors owned at least 10% of
the shares of Common Stock on a fully diluted basis and (2) immediately
after giving effect to such transfer, the Oaktree Investors owns less than
10% of the shares of Common Stock on a fully diluted basis or (C) if the
number of Initial Oaktree Shares is 864,198 or more and the number of
Oaktree Shares falls below 10% of the number of shares of Common Stock on a
fully diluted basis other than as a result of a transfer by the Oaktree
Investors, such time after such falling below as the Oaktree Investors
transfer any shares of Common Stock and thereafter the Oaktree Investors own
less than 90% of the number of Initial Oaktree Shares;
(ii) the date on which the KKR Holders in the aggregate own less than
15% of the shares of Common Stock on a fully diluted basis; or
(iii) the tenth anniversary of the date of this Agreement.
Notwithstanding the immediately preceding sentence, this Section 6 and the
last sentence of Section 4(a) shall survive the termination of this Agreement.
For the purpose of Section 6(a)(i), the term "transfer" shall include, with
respect to an Oaktree Investor, Oaktree no longer being the sole investment
manager of such Oaktree Investor.
(b) REPRESENTATION AND WARRANTY. The Oaktree Investors own, of record or
beneficially, no shares of Common Stock or securities convertible or
exchangeable for shares of Common Stock, other than the Oaktree Shares subject
to this Agreement.
(c) ASSIGNMENT, BINDING EFFECT. This Agreement shall not be assignable by
the parties hereto, except to any Person who in connection with a transfer of
KKR Shares is required by this Agreement, in connection with such transfer, to
agree to be bound by the provisions of this Agreement. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective legal representatives, heirs, legatees, successors
and permitted assigns.
(d) COSTS AND EXPENSES. All costs and expenses incurred in connection with
this Agreement and the consummation of any of the transactions contemplated
hereby shall be paid by the party incurring such expenses.
(e) AMENDMENTS. The provision of this Agreement, including the provisions
of this sentence, may be amended, modified or supplemented only by a written
instrument executed by holders of (i) at least a majority of the KKR Shares,
(ii) Oaktree and (iii) the Company.
(f) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
principles of conflict of laws. Each of the parties
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hereto agrees to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Agreement.
(g) INTERPRETATION. The headings of the sections contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.
(h) NOTICES. All notices and other communications required or permitted to
be given under this Agreement shall be in writing and shall be deemed to have
been given if delivered personally or by telecopy or seven days after having
been sent by certified mail, return receipt requested, postage prepaid, to the
parties to this Agreement at the following address or to such other address as
either party to this Agreement shall specify by notice to the other:
(1) If to the KKR Investors or a KKR Holder, to it in care of:
Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Attention: Clifton S. Robbins
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David J. Sorkin
(2) If to Oaktree or to an Oaktree Investor, to it in care of:
Oaktree Capital Management, LLC
550 South Hope Street, 22nd Floor
Los Angeles, California 90071
Attention: Stephen A. Kaplan
with a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, N.Y. 10166-0193
Attention: Conor D. Reilly, Esq.
(3) If to the Company, to it in care of:
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, AL 36111
Attention: Rebecca Bryan
Vice President/General Counsel
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David J. Sorkin
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<PAGE>
(i) WAIVER AND CONSENT. No action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder. Each party hereto, in addition
to being entitled to exercise all rights provided herein, in the charter or
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. Each party hereto agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(j) INSPECTION. Copies of this Agreement will be available for inspection
or copying by any party at the offices of the Company through the Secretary of
the Company.
(k) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement.
(l) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(m) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the rights of the Oaktree Investors herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matters.
(n) LIMITED LIABILITY OF PARTNERS. Notwithstanding anything that may be
expressed or implied in this Agreement, each KKR Holder and each Oaktree
Investor, by its acceptance of the benefits of this Agreement, covenants, agrees
and acknowledges that notwithstanding that the KKR Holder and the Oaktree
Investors are partnerships no recourse under this Agreement or any documents or
instruments delivered in connection with this Agreement shall be had against any
officer, agent or employee of any KKR Holder or any Oaktree Investor, against
any partner of any KKR Holder or Oaktree Investor or any director, officer,
employee, partner, affiliate or assignee of any of the foregoing, whether by the
enforcement of any assessment or by any legal or equitable proceeding, or by
virtue of any statute, regulation or other applicable law, it being expressly
agreed and acknowledged that no personal liability whatsoever shall attach to,
be imposed on or otherwise be incurred by an officer, agent or employee of any
KKR Holder or any Oaktree Investor or any partner of any KKR Holder or any
Oaktree Holder or any director, officer, employee, partner, affiliate or
assignee of any of the foregoing, as such for any obligations of any KKR Holder
or Oaktree Investor under this Agreement or any documents or instruments
delivered in connection with this Agreement or for any claim based on, in
respect of or by reason of such obligations or their creation.
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IN WITNESS WHEREOF, the parties have executed this Stockholders' Agreement
as of the date first above written.
KINDERCARE LEARNING CENTERS, INC.
a Delaware corporation
By:
-----------------------------------------
Name:
Title:
TCW SPECIAL CREDITS FUND V--THE PRINCIPAL FUND
By: TCW ASSET MANAGEMENT CO.,
General Partner
By: OAKTREE CAPITAL
MANAGEMENT, LLC
Manager
By:
-----------------------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By:
-----------------------------------------
Name: Stephen Kaplan
Title: Authorized Signatory
OAKTREE CAPITAL MANAGEMENT, LLC,
By:
-----------------------------------------
Name: Kenneth Liang
Title:
By:
-----------------------------------------
Name: Stephen Kaplan
Title:
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<PAGE>
ANNEX II-B
CONFORMED COPY
VOTING AGREEMENT AMENDMENT
AMENDMENT, dated as of December 27, 1996 (this "Amendment"), to the Voting
Agreement between KCLC Acquisition Corp. ("Newco"), on the one hand, and TCW
Special Credits Fund II, TCW Special Credits Fund IIb, TCW Special Credits Fund
III, TCW Special Credits Fund IIIb (collectively, the "Special Credits Limited
Partnerships"), TCW Special Credits Fund V--The Principal Fund, a California
limited partnership ("Fund V"), two trusts for which Trust Company of the West
is trustee (the TCW Special Credits Trust and the TCW Special Credits Trust IIIb
(collectively the "TCW Trusts")), three special accounts managed by TCW Special
Credits, a California general partnership (the Common Fund Account, the
Weyerhaeuser Company Master Retirement Trust Account and the Delaware State
Employees Retirement Trust Account (collectively, the "Special Credit
Accounts")), one special account managed by Oaktree Capital Management, LLC
("Oaktree") (the OCM Inland Steel Industries Separate Account (the "Oaktree
Account; and together with the Special Credits Limited Partnerships, Fund V, the
TCW Trusts and the Special Credit Accounts, the "Funds")), and Oaktree, a
California limited liability company (the "Stockholder"), as investment manager
of the Funds, on the other hand, dated as of October 3, 1996 (the "Voting
Agreement").
WITNESSETH:
WHEREAS, pursuant to the Voting Agreement, the Stockholder and the Funds
have agreed, among other things, to vote the Subject Shares in favor of the
Merger, the adoption by the Company of the Merger Agreement and the approval of
the terms thereof and each of the other transactions contemplated by the Merger
Agreement;
WHEREAS, Newco and the Company have agreed that certain provisions of the
Merger Agreement be amended in the manner provided for in the Merger Agreement
Amendment, dated as of the date hereof (the "Merger Agreement Amendment"); and
WHEREAS, Newco and the Stockholder and the Funds have agreed that certain
provisions of the Voting Agreement be amended in the manner provided for in this
Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used but not otherwise defined herein
shall have the meanings given to them in the Voting Agreement.
2. AMENDMENTS TO VOTING AGREEMENT.
(a) Definitions. As used in the Voting Agreement,
(i) the term "Agreement" shall mean the voting agreement between
Newco, on the one hand, and the Stockholder and the Funds, on the other
hand, as such agreement has been amended by this Amendment.
(ii) the term "Merger Agreement" shall mean the merger agreement
between Newco and the Company dated as of October 3, 1996, as amended by
the Merger Agreement Amendment, and
(iii) the term "Merger" shall mean the merger of Newco with and into
the Company pursuant to the terms and conditions of the Merger Agreement
(as amended by the Merger Agreement Amendment).
(b) Amendment to Section 3. Section 3(g) of the Voting Agreement is
hereby amended by deleting the amount 1,296,296 which appears in the fourth
line thereof and substituting in lieu thereof the amount 1,381,579.
<PAGE>
(c) Amendment to Section 4. Section 4(e) of the Voting Agreement is
hereby amended by (i) deleting the amount $20.25 which appears in the sixth
line thereof and substituting in lieu thereof the amount $19.00 and (ii)
deleting the amount $7.75 which appears in the eighth line thereof and
substituting in lieu thereof the amount $6.50.
(d) Amendment to Section 5. Section 5(a) of the Voting Agreement is
hereby amended by deleting the amount $20.25 which appears in the fourteenth
line thereof and substituting in lieu thereof the amount $19.00.
(e) Amendment to Section 6. Section 6 of the Voting Agreement is hereby
amended by (i) deleting the amount 1,296,296 which appears in the tenth line
thereof and substituting in lieu thereof the amount 1,381,579 and (ii)
deleting the amount 432,099 which appears in the twelfth line thereof and
substituting in lieu thereof the amount 460,526.
3. AMENDMENTS TO FORM OF STOCKHOLDERS' AGREEMENT.
(a) Amendment to Section 4. Section 4 of the form of Stockholders'
Agreement is hereby amended by deleting the amount 432,099 which appears in
the fourth line thereof and substituting in lieu thereof the amount 460,526.
(b) Amendment to Section 6. Section 6(a) of the form of Stockholders'
Agreement is hereby amended by deleting the amount 864,198 which appears
three times therein and substituting in lieu thereof the amount 921,053.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to Newco that the Stockholder has all requisite
power and authority to enter into this Amendment, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. This Amendment
has been duly authorized, executed and delivered by the Stockholder and
constitutes a valid and binding obligation of the Stockholder enforceable in
accordance with its terms.
5. REPRESENTATIONS AND WARRANTIES OF THE FUNDS. Each Fund hereby,
severally and not jointly, represents and warrants to Newco that such Fund has
all requisite power and authority to enter into this Amendment, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Amendment has been duly authorized, executed and delivered by such Fund and
constitutes a valid and binding obligation of such Fund enforceable in
accordance with its terms.
6. REPRESENTATIONS AND WARRANTIES OF NEWCO. Newco hereby represents and
warrants to the Stockholder and the Funds that this Amendment has been duly
authorized, executed and delivered by Newco and constitutes a valid and binding
obligation of Newco enforceable in accordance with its terms.
7. MISCELLANEOUS.
(a) Except as expressly amended, modified and supplemented hereby, the
provisions of the Voting Agreement are and shall remain in full force and
effect.
(b) This Amendment shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
(c) This Amendment may be executed in one or more counterparts, and by
the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, each of Newco, the Stockholder and each Fund has caused
this Agreement to be signed by its signatory thereunto duly authorized, as of
the date first written above.
KCLC ACQUISITION CORP.
By: /s/ NILS P. BROUS
-----------------------------------------
Name: Nils P. Brous
Title: Vice President
TCW SPECIAL CREDITS FUND II
TCW SPECIAL CREDITS FUND IIb
TCW SPECIAL CREDITS FUND III
TCW SPECIAL CREDITS FUND IIIb
By: TCW SPECIAL CREDITS,
General Partner
By: TCW Asset Management Co.,
Managing General Partner
By: /s/ KENNETH LIANG
-----------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By: /s/ BRUCE KARSH
-----------------------------
Name: Bruce Karsh
Title: Authorized Signatory
TCW SPECIAL CREDITS FUND V--THE PRINCIPAL FUND
By: TCW ASSET MANAGEMENT CO.,
General Partner
By: OAKTREE CAPITAL MANAGEMENT, LLC
Manager
By: /s/ KENNETH LIANG
-----------------------------------
Name: Kenneth Liang
Title: Managing Director and General
Counsel
By: /s/ STEPHEN KAPLAN
-----------------------------------
Name: Stephen Kaplan
Title: Principal
3
<PAGE>
TCW SPECIAL CREDITS TRUST
TCW SPECIAL CREDITS TRUST IIIb
BY: TRUST COMPANY OF THE WEST, Trustee
By: /s/ KENNETH LIANG
-----------------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By: /s/ BRUCE KARSH
-----------------------------------
Name: Bruce Karsh
Title: Authorized Signatory
COMMON FUND ACCOUNT
WEYERHAEUSER COMPANY MASTER
RETIREMENT TRUST ACCOUNT
DELAWARE STATE EMPLOYEES
RETIREMENT TRUST ACCOUNT
By: TCW SPECIAL CREDITS,
Investment Manager
By: TCW Asset Management Co.,
Managing General Partner
By: /s/ KENNETH LIANG
-----------------------------
Name: Kenneth Liang
Title: Authorized Signatory
By: /s/ BRUCE KARSH
-----------------------------
Name: Bruce Karsh
Title: Authorized Signatory
OCM INLAND STEEL INDUSTRIES SEPARATE ACCOUNT
By: OAKTREE CAPITAL MANAGEMENT, LLC,
Investment Manager
By: /s/ KENNETH LIANG
-----------------------------------
Name: Kenneth Liang
Title: Managing Director and General
Counsel
By: /s/ STEPHEN KAPLAN
-----------------------------------
Name: Stephen Kaplan
Title: Principal
4
<PAGE>
OAKTREE CAPITAL MANAGEMENT, LLC,
By: /s/ KENNETH LIANG
-----------------------------------
Name: Kenneth Liang
Title: Managing Director and General
Counsel
By: /s/ STEPHEN KAPLAN
-----------------------------------
Name: Stephen Kaplan
Title: Principal
5
<PAGE>
ANNEX III
<TABLE>
<S> <C> <C>
CREDIT FIRST CREDIT SUISSE FIRST BOSTON CORPORATION
SUISSE BOSTON Eleven Madison Avenue Telephone 212
325 2000
New York, NY 10010-3629
</TABLE>
December 27, 1996
Board of Directors
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36116
Members of the Board:
You have asked us to advise you with respect to the fairness to the stockholders
of KinderCare Learning Centers, Inc. (the "Company") from a financial point of
view of the consideration to be received by such stockholders pursuant to the
terms of the Agreement and Plan of Merger dated as of October 3, 1996 between
the Company and KCLC Acquisition Corp. ("Newco") (a newly formed corporation
organized at the direction of Kohlberg Kravis Roberts & Co. ("KKR")), and as
amended by a first amendment dated as of December 27, 1996 (as amended, the
"Amended Merger Agreement"). The Amended Merger Agreement provides for the
merger (the "Merger") of Newco with and into the Company pursuant to which the
separate corporate existence of Newco will cease and the Company shall survive
the Merger. Pursuant to the Amended Merger Agreement (among other things) each
holder of a share of issued and outstanding common stock (the "Company Common
Stock") (par value $.01 per share) of the Company (other than treasury shares
and dissenting shares) shall be entitled, at the election of the holders of
Company Common Stock but subject to certain proration limitations as set forth
in the Amended Merger Agreement, to receive either (A) the right to retain one
fully paid and nonassessable share of Company Common Stock or (B) the right to
receive $19.00 per share in cash. We also understand that as a condition to the
Merger (as more fully described in the Amended Merger Agreement) the Company has
commenced and completed an offer to purchase the outstanding 10 3/8% Senior
Notes due 2000 of the Company at a price determined in accordance with the
Amended Merger Agreement together with accrued and unpaid interest to the date
of purchase in cash.
In arriving at our opinion, we have reviewed a current draft of the Amended
Merger Agreement and certain publicly available business and financial
information relating to the Company. We also have reviewed certain other
information, including financial forecasts dated December 5, 1996, provided to
us by the Company and have met with the Company's management to discuss the
business and prospects of the Company.
We have also considered certain financial and stock market data of the Company
and we have compared that data with similar data for other publicly held
companies in businesses similar to those of the Company and we have considered,
to the extent publicly available, the financial terms of certain other business
combinations and other transactions which have recently been effected. We also
considered such other information, financial studies, analyses and
investigations and financial, economic, regulatory and market criteria which we
deemed relevant.
<PAGE>
<TABLE>
<S> <C> <C>
CREDIT FIRST CREDIT SUISSE FIRST BOSTON CORPORATION
SUISSE BOSTON
</TABLE>
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not made an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon financial, economic, market and other conditions as they exist and
can be evaluated on the date hereof. We were not requested to, and we did not,
solicit third party indications of interest in acquiring all or any part of the
Company.
We have acted as financial advisor to the Company in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Merger. We also are entitled to receive
a fee for rendering our opinion in connection with the transactions contemplated
by the Amended Merger Agreement. We and our affiliates have performed and are
currently performing certain investment banking, commercial banking and other
services for KKR and/or its affiliates and have received or will receive
customary fees for such services.
In the ordinary course of our business, we and our affiliates may actively trade
the debt and equity securities of the Company for our own accounts and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is for the information of the Board of
Directors in connection with its evaluation of the Merger, does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger or exercise such stockholder's right of election in connection
therewith. Furthermore, this letter is not to be quoted or referred to, in whole
or in part, in any registration statement, prospectus or proxy statement or in
any other document used in connection with the offering or sale of securities
nor shall this letter be used for any other purposes without our prior written
consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be received by the stockholders of the Company in
the Merger is fair to such stockholders from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
<PAGE>
ANNEX IV
DELAWARE CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL. C. SECTION 262
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
<PAGE>
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send
2
<PAGE>
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation
may fix, in advance, a record date that shall not be more than 10 days prior
to the date the notice is given; provided that, if the notice is given on or
after the effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account
3
<PAGE>
all relevant factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to borrow money during
the pendency of the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder whose
name appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
for, among other things:
a. permissive indemnification for expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by designated persons, including directors and officers of a
corporation, in the event such persons are parties to litigation other than
stockholder derivative actions if certain conditions are met;
b. permissive indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including directors
and officers of a corporation, in the event such persons are parties to
stockholder derivative actions if certain conditions are met;
c. mandatory indemnification for expenses (including attorneys' fees)
actually and reasonably incurred by designated persons, including directors
and officers of a corporation, in the event such persons are successful on
the merits or otherwise in defense of litigation covered by a. and b. above;
and
d. that the indemnification provided for by Section 145 is not deemed
exclusive of any other rights which may be provided under any by-law,
agreement, stockholder or disinterested director vote, or otherwise.
In addition to the indemnification provisions of the DGCL as described
above, the Registrant's restated certificate of incorporation (the "Restated
Certificate of Incorporation") authorizes indemnification of the Registrant's
officers and directors, subject to a case-by-case determination that they acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the Company, and in the case of any criminal
proceeding, they had no reasonable cause to believe their conduct was unlawful.
In the event that a Change in Control (as defined in the Restated Certificate of
Incorporation) shall have occurred, the proposed indemnitee director or officer
may require that the determination of whether he met the standard of conduct be
made by special legal counsel selected by him. In addition, whereas the DGCL
would require court-ordered indemnification, if any, in cases in which a person
has been adjudged to be liable to the Registrant, the Restated Certificate of
Incorporation also permits indemnification in such cases if and to the extent
that the Reviewing Party determines that such indemnity is fair and reasonable
under the circumstances.
The Restated Certificate of Incorporation requires the advancement of
expenses to an officer or director (without a determination as to his conduct)
in advance of the final disposition of a Proceeding if such person furnishes a
written affirmation of his good faith belief that he has met the applicable
standard of conduct and furnishes a written undertaking to repay any advances if
it is ultimately determined that he is not entitled to indemnification. In
connection with Proceedings by or in the right of the Registrant, the Restated
Certificate of Incorporation provides that indemnification shall include not
only reasonable expenses, but also penalties, fines and amounts paid in
settlement. Unless ordered by a court, such indemnification shall not include
judgments. Under the Restated Certificate of Incorporation, no officer or
director is entitled to indemnification or advancement of expenses with respect
to a Proceeding brought by him against the Registrant other than a Proceeding
seeking or defending such officer's or director's right to indemnification or
advancement of expenses. Finally, the Restated Certificate of Incorporation
provides that the Company may, subject to authorization on a case by case basis,
indemnify and advance expenses to employees or agents to the same extent as a
director or to a lesser extent (or greater, as permitted by law) as determined
by the Board of Directors.
II-1
<PAGE>
The Restated Certificate of Incorporation purports to confer upon officers
and directors contractual rights to indemnification and advancement of expenses
as provided therein. In addition, as permitted by the DGCL, the Registrant has
entered into Indemnity Agreements with its directors and selected officers that
provide contract rights substantially identical to the rights to indemnification
and advancement of expenses set forth in the Certificate of Incorporation, as
described above.
The Restated Certificate of Incorporation limits the personal liability of
directors to the Registrant or its stockholders for monetary damages for breach
of the duty as a director, other than liability as a director (i) for breach of
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL (certain illegal
distributions), or (iv) for any transaction for which the director derived an
improper personal benefit.
The Registrant maintains officers' and directors' insurance covering certain
liabilities that may be incurred by officers and directors in the performance of
their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See the Exhibit Index included immediately preceding the exhibits to this
Registration Statement.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereto, which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable
II-2
<PAGE>
registration form with respect to reofferings by persons who may be deemed to be
underwriters, in addition to the information called for by the other Items of
the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding undertaking or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, on January 7, 1997.
KINDERCARE LEARNING CENTERS, INC.
BY: /S/ SANDRA W. SCARR, PH.D.
-----------------------------------------
Sandra W. Scarr, Ph.D.
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons on behalf of the Registrant
in the capacity indicated on January 7, 1997.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chief Executive Officer,
/s/ SANDRA W. SCARR, PH.D. and Chairman of the Board
- ------------------------------ of Directors (Principal January 7, 1997
Sandra W. Scarr, Ph.D. Executive Officer)
Executive Vice President/
/s/ PHILIP L. MASLOWE Chief Financial Officer
- ------------------------------ (Principal Financial and January 7, 1997
Philip L. Maslowe Accounting Officer)
/s/ THOMAS E. BRONSON Director
- ------------------------------ January 7, 1997
Thomas E. Bronson
/s/ M. TAYLOR DAWSON, JR. Director
- ------------------------------ January 7, 1997
M. Taylor Dawson, Jr.
/s/ JEFFREY S. HALIS Director
- ------------------------------ January 7, 1997
Jeffrey S. Halis
/s/ MALCOLM T. HOPKINS Director
- ------------------------------ January 7, 1997
Malcolm T. Hopkins
/s/ BRUCE A. KARSH Director
- ------------------------------ January 7,1997
Bruce A. Karsh
/s/ STEPHEN KAPLAN Director
- ------------------------------ January 7, 1997
Stephen Kaplan
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Sandra W. Scarr and Philip J. Maslowe, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as such person might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chief Executive Officer,
/s/ SANDRA W. SCARR, PH.D. and Chairman of the Board
- ------------------------------ of Directors (Principal January 7, 1997
Sandra W. Scarr, Ph.D. Executive Officer)
Executive Vice
/s/ PHILIP L. MASLOWE President/Chief Financial
- ------------------------------ Officer (Principal January 7, 1997
Philip L. Maslowe Financial and Accounting
Officer)
/s/ THOMAS E. BRONSON Director
- ------------------------------ January 7, 1997
Thomas E. Bronson
/s/ M. TAYLOR DAWSON, JR. Director
- ------------------------------ January 7, 1997
M. Taylor Dawson, Jr.
/s/ JEFFREY S. HALIS Director
- ------------------------------ January 7, 1997
Jeffrey S. Halis
/s/ MALCOLM T. HOPKINS Director
- ------------------------------ January 7, 1997
Malcolm T. Hopkins
/s/ BRUCE A. KARSH Director
- ------------------------------ January 7, 1997
Bruce A. Karsh
/s/ STEPHEN KAPLAN Director
- ------------------------------ January 7, 1997
Stephen Kaplan
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 (a) Agreement and Plan of Merger dated as of October 3, 1996, between KinderCare Learning Centers, Inc.
("KinderCare") and KCLC Acquisition Corp. ("KCLC"), including the principal exhibits thereto
(included as Annex I-A to the Proxy Statement). Schedules to the Agreement and Plan of Merger are not
filed, but will be provided supplementally to the Commission upon request.
(b) Merger Agreement Amendment dated as of December 27, 1996 between KinderCare and KCLC (included as
Annex I-B to the Proxy Statement). Annexes to the Merger Agreement Admendment are not filed, but will
be provided supplementally to the Commission upon request.
2.2 (a) Voting Agreement, dated as of October 3, 1996, among KCLC and the stockholders parties thereto
(included as Annex II-A to the Proxy Statement).
(b) Voting Agreement Amendment dated as of December 27, 1997 among KCLC and the stockholders parties
thereto (included as Annex II-B to the Proxy Statement).
2.3 Form of Stockholders' Agreement between KinderCare Learning Centers, Inc. and the stockholders parties
thereto (included as Exhibit A to Annex II-A to the Proxy Statement).
3.1 Form of Amended and Restated Certificate of Incorporation of KinderCare Learning Centers, Inc. to be
filed in connection with the Merger (included as Exhibit A to Annex I-A to the Proxy Statement).
5.1 Opinion of Alston & Bird.
8.1 Opinion of Wachtell, Lipton, Rosen & Katz as to certain tax matters.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Alston & Bird (contained in Exhibit 5.1).
23.3 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 8.1).
24.1 Powers of Attorney (see Page II-5 of this Registration Statement).
99.1 Form of Proxy Card for Annual Meeting of Stockholders.
99.2 Form of Non-Cash Election Form to be used in connection with the Merger.
99.3 Form of Letter of Transmittal to be used in connection with the Merger.
99.4 Form of Exchange Agent Agreement between KinderCare and ChaseMellon Shareholder Services, L.L.C.
99.5 Consent of Clifton S. Robbins.
99.6 Consent of Nils P. Brous.
99.7 Consent of Henry R. Kravis.
99.8 Consent of George R. Roberts.
99.9 Consent of David J. Johnson.
</TABLE>
<PAGE>
[Letterhead]
EXHIBIT 5.1
Kindercare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, AL 36102-2151
RE: Registration Statement on Form S-4 Covering a Maximum of 1,381,579
Shares of Common Stock
Ladies and Gentlemen:
This opinion is being rendered in connection with the proposed merger (the
"Merger") of KCLC Acquisition Corp. with and into KinderCare Learning Centers,
Inc. (the "Company"), in which existing shareholders of the Company will retain
up to 1,381,579 shares of the Company's common stock $.01 par value per share
(the "Shares"), on the terms and subject to the conditions set forth in the
Company's registration statement on Form S-4 (the "Registration Statement"), as
filed by the Company with the Securities and Exchange Commission on or about
January 6, 1997.
In connection with this opinion, we examined and relied upon such records,
documents and other instruments as we have deemed relevant and necessary as the
basis for this opinion and have assumed the genuiness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to original documents of all documents submitted to us as certified or
photostatic copies. In connection with this opinion, we have also assumed, with
your permission, that (i) all outstanding Shares issued pursuant to the exercise
of options and warrants have been, and all Shares to be issued after the date
hereof and prior to the effective time of the Merger pursuant to the exercise of
outstanding options and warrants, will be, issued in accordance with the terms
and provisions of the option or warrant agreement governing such issuance and
that such agreement is in the form approved by the Board of Directors or an
appropriately authorized committee thereof, and (ii) upon the exercise of all
such options and warrants, the Company received or, if exercised after the date
hereof, will receive, the consideration provided for in the applicable option or
warrant agreement.
<PAGE>
Based upon the foregoing, it is our opinion that the Shares to be retained
in the manner and on the terms described in the Registration Statement and the
Merger Agreement, have been or, if issued after the date hereof pursuant to
outstanding options or warrants, will be, duly authorized, validly issued,
fully paid and non-assessable under the Delaware General Corporation Law as in
effect on this date.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and the reference to our firm in the section of the
Registration Statement entitled "Legal Matters".
Very truly yours,
ALSTON & BIRD
By: /s/ Joel J. Hughey
-----------------------------
a Partner
-2-
<PAGE>
EX-8.1
Opinion
January 6, 1997
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36166
Ladies/Gentlemen:
We have acted as special counsel to KinderCare Learning Centers,
Inc., a Delaware corporation ("KinderCare"), in connection with the proposed
merger (the "Merger") of KCLC Acquisition Corp., a Delaware corporation ("KCLC")
with and into KinderCare, upon the terms and conditions set forth in the
Agreement and Plan of Merger by and between KinderCare and KCLC dated as of
October 3, 1996, as subsequently amended (the "Agreement"). At your request, in
connection with the closing of the Merger, we are rendering our opinion
concerning certain federal income tax consequences of the Merger.
For purposes of the opinion set forth below, we have relied upon the
accuracy of the Registration Statement on Form S-4 (the "Registration
Statement") and the Proxy Statement-Prospectus (together, the "Proxy Statement")
filed with the Securities Exchange Commission, as amended through the date
hereof, in connection with the Merger. Any capitalized term used and not defined
herein has the meaning given to it in the Proxy Statement or the appendices
thereto (including the Agreement).
We have also assumed that the transactions contemplated by the
Agreement will be consummated in accordance therewith and as described in the
Proxy Statement and that the Merger will qualify as a statutory merger under the
applicable laws of the State of Delaware.
Based upon and subject to the foregoing, the discussion contained in
the Proxy Statement under the caption "Federal Income Tax Consequences", except
as otherwise indicated, represents our opinion as to the material federal income
tax consequences of the Merger under currently applicable law.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement, and to the
reference to this opinion under the
<PAGE>
KinderCare Learning Centers, Inc.
January 6, 1997
Page 2
caption "THE MERGER -- Federal Income Tax Consequences" and elsewhere in the
Proxy Statement. In giving such consent, we do not hereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ WACHTELL, LIPTON, ROSEN & KATZ
<PAGE>
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
KinderCare Learning Centers, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Independent Public Accountants and
Legal Opinions" in the proxy statement/ prospectus.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
January 6, 1997
<PAGE>
EX-99.1
Proxy
KINDERCARE LEARNING CENTERS, INC.
Montgomery, Alabama
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR THE ANNUAL MEETING
OF STOCKHOLDERS ON THE 6TH DAY OF FEBRUARY, 1997
The undersigned hereby appoints Sandra W. Scarr and Rebecca S. Bryan and each
of them, each with the power to appoint his or her substitute, attorneys
successors and assigns with the powers the undersigned would possess if
personally present to vote all of the Common Stock of KinderCare Learning
Centers, Inc. (hereinafter "KinderCare") held of record by the undersigned on
January 8, 1997, at the Annual Meeting of the Stockholders to be held on the
6th day of February, 1997 at 9:00 a.m. local time, at The Metropolitan Club,
233 South Wacker Drive, Sears Tower, Chicago, Illinois, and at any
adjournments or postponements thereof, upon the matters set forth herein and,
in their discretion, upon all other matters which may come before the
meeting. Without otherwise limiting the general authorization hereby given,
said attorneys are instructed to vote as follows on the matters
set forth below:
Management and the Board of Directors recommend a vote FOR Proposals 1, 2 and 3.
(1) To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of October 3, 1996 and as amended as of
December 27, 1996 (the "Merger Agreement"), between KinderCare and KCLC
Acquisition Corp. ("KCLC"). The Merger Agreement provides, among other
things, for the merger of KCLC with and into KinderCare (the "Merger")
pursuant to which each share of KinderCare common stock, $.01 par value
per share ("KinderCare Common Stock") (other than (i) shares of KinderCare
Common Stock held by KinderCare, any subsidiary of KinderCare, KCLC or any
subsidiary of KCLC, which wil be cancelled and retired, and (ii)
fractional shares and shares of KinderCare Common Stock subject to
dissenters' rights), will be converted into either (a) the right to
receive $19.00 in cash or (b) the right to retain one share of KinderCare
Common Stock (the "Merger Proposal"). Because approximately 1,381,579
shares of KinderCare Common Stock in the aggregate must be retained by
existing KinderCare stockholders either through election or proration, the
right to receive either $19.00 in cash for each share or to retain that
share of KinderCare Common stock is subject to proration, as set forth in
the Merger Agreement.
FOR: ___ AGAINST: ___ ABSTAIN: ___
(2) To elect the following directors to serve either until the 1997 Annual
Meeting of Stockholders or until their respective successors are duly
elected or appointed (as the case may be) and qualified; provided that if
the Merger Proposal is approved and adopted by the KinderCare
stockholders, the directors of KinderCare immediately after the effective
time of the Merger would be Dr. Sandra Scarr, the then current directors
of KCLC and, assuming certain conditions in the Voting Agreement dated as
of
<PAGE>
2
October 3, 1996 and as amended as of December 27, 1996, between KCLC and
the KinderCare stockholders listed as parties thereto, Mr. Stephen A.
Kaplan:
Sandra W. Scarr, Ph.D.
FOR: ___ AGAINST: ___ ABSTAIN: ___
Thomas E. Bronson
FOR: ___ AGAINST: ___ ABSTAIN: ___
M. Taylor Dawson, Jr.
FOR: ___ AGAINST: ___ ABSTAIN: ___
Jeffrey S. Halis
FOR: ___ AGAINST: ___ ABSTAIN: ___
Malcolm T. Hopkins
FOR: ___ AGAINST: ___ ABSTAIN: ___
Bruce A. Karsh
FOR: ___ AGAINST: ___ ABSTAIN: ___
Stephen A. Kaplan
FOR: ___ AGAINST: ___ ABSTAIN: ___
(3) To ratify the selection of KPMG Peat Marwick LLP as independent auditors
of KinderCare.
FOR: ___ AGAINST: ___ ABSTAIN: ___
(4) To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
<PAGE>
3
The Proxy will be voted as specified, or if no choice is specified, FOR
proposals 1, 2 and 3, and as said proxies deem advisable on such other matters
as may properly come before the meeting.
Please mark, sign, date and return this proxy in the enclosed envelope as soon
as possible, even though you plan to attend this meeting.
To help our preparation for the meeting, please check here if you plan to
attend. ___
SPACE FOR MAILING LABEL
SIGN HERE EXACTLY AS NAME(S) APPEAR(S) ABOVE
_________________________ Date: ________________
_________________________ Date: ________________
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, 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.
If your address has changed, please note new address:
__________________________ Zip Code: ____________
<PAGE>
NON-CASH ELECTION FORM
This Form is to accompany the certificates for shares of common stock, par
value $.01 per share ("KinderCare Common Stock"), of KinderCare Learning
Centers, Inc. ("KinderCare" or the "Company") if such certificates are submitted
pursuant to an election (a "Non-Cash Election") to retain shares of KinderCare
Common Stock ("Non-Cash Election Shares") in connection with the proposed merger
(the "Merger") of KCLC Acquisition Corp. with and into KinderCare.
HOLDERS OF KINDERCARE COMMON STOCK WHO DO NOT WISH TO MAKE A NON-CASH
ELECTION (ANY SUCH HOLDER, A "NON-ELECTING HOLDER") NEED NOT SUBMIT THIS FORM.
EACH SHARE OF KINDERCARE COMMON STOCK OWNED BY ANY SUCH NON-ELECTING HOLDER WILL
AUTOMATICALLY, SUBJECT TO PRORATION AS DESCRIBED IN THE PROXY STATEMENT (AS
DEFINED BELOW), BE CONVERTED INTO THE RIGHT TO RECEIVE AN AMOUNT EQUAL TO $19.00
IN CASH FROM KINDERCARE FOLLOWING THE MERGER.
<TABLE>
<CAPTION>
TO: CHASEMELLON SHAREHOLDER SERVICES L.L.C., EXCHANGE AGENT
<S> <C> <C>
BY MAIL: BY FACSIMILE: BY HAND OR OVERNIGHT COURIER:
ChaseMellon Shareholder (201) 329-8936 ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C.
Midtown Station, P.O. Box 798 Confirm by telephone to: 120 Broadway, 13th Floor
New York, NY 10018 New York, NY 10271
ATTN: Reorganization Dept. (201) 296-4209 or (201) ATTN: Reorganization Dept.
296-4381
Information Agent: Mackenzie Partners, Inc.
(800) 322-2885
</TABLE>
Delivery of this Form to an address, or transmission of instructions via a
telecopy facsimile number, other than as set forth above, does not constitute a
valid delivery.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
BOX I
<TABLE>
<CAPTION>
SHARES SUBMITTED
NAME AND ADDRESS OF REGISTERED HOLDER* (ATTACH ADDITIONAL LIST IF NECESSARY)
TOTAL NUMBER
OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER CERTIFICATE(S) SUBMITTED**
<S> <C> <C> <C>
Total Common
Shares
</TABLE>
* Only certificates registered in a single form may be deposited with
this Form of Election. If certificates are registered in different
forms (e.g., John R. Doe and J.R. Doe), it will be necessary to fill
in, sign and submit as many separate Forms of Election as there are
different registrations of certificates.
** Unless otherwise indicated, it will be assumed that all shares
submitted are to be treated as having made a Non-Cash Election.
<TABLE>
<S> <C> <C> <C>
/ / Check here if you cannot locate certificates. Upon receipt of this Form, the
Agent will contact you directly with replacement instructions.
</TABLE>
<PAGE>
Ladies and Gentlemen:
In connection with the merger (the "Merger") of KCLC Acquisition Corp. with
and into KinderCare Learning Centers, Inc. ("KinderCare" or the "Company"), the
undersigned hereby submits the certificate(s) for shares of common stock, par
value $.01 per share, of KinderCare ("KinderCare Common Stock") listed below and
elects, subject as set forth below, to have all or a portion of the shares of
KinderCare Common Stock represented by such certificates as set forth below
converted into the right to retain shares of KinderCare Common Stock following
the Merger ("Non-Cash Election Shares").
It is understood that the following election is subject to (i) the terms,
conditions and limitations set forth in the Proxy Statement, dated January 7,
1997 relating to the Merger (the "Proxy Statement"), receipt of which is
acknowledged by the undersigned, (ii) the terms of the Agreement and Plan of
Merger, dated as of October 3, 1996 and as amended as of December 27, 1996, as
the same may be amended from time to time (the "Merger Agreement"), a conformed
copy of which appears as Annex I to the Proxy Statement, and (iii) the
accompanying Instructions.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
such certificates of KinderCare Common Stock to the Company and to receive on
behalf of the undersigned, in exchange for the shares of KinderCare Common Stock
represented thereby, any certificate for Non-Cash Election Shares or any check
for cash issuable in the Merger pursuant to the Merger Agreement. If
certificates of KinderCare Common Stock are not delivered herewith, there is
furnished below a guarantee of delivery of such certificates representing shares
of KinderCare Common Stock from a member of a national securities exchange, a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office in the United States.
Unless otherwise indicated under Special Payment Instructions below, please
issue any certificate for Non-Cash Election Shares and/or any check issuable in
exchange for the shares of KinderCare Common Stock represented by the
certificates submitted hereby in the name of the registered holder(s) of such
KinderCare Common Stock. Similarly, unless otherwise indicated under Special
Delivery Instructions, please mail any certificate for shares of KinderCare
Common Stock and/or any check for cash issuable in exchange for the shares of
KinderCare Common Stock represented by the certificates submitted hereby to the
registered holder(s) of the KinderCare Common Stock at the address or addresses
shown above.
2
<PAGE>
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
<TABLE>
<S> <C>
BOX II BOX III
</TABLE>
SPECIAL PAYMENT INSTRUCTIONS
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS D(6) AND D(7))
(SEE INSTRUCTION D(8))
To be completed ONLY if the
certificates for Non-Cash
Election Shares are to be
regis- tered in the name of, or
the checks are to be made
payable to, someone other than the
regis- tered holder(s) of shares
of KinderCare Com- mon
Stock.
To be completed ONLY if
the certificates for Non-Cash
Election Shares are to be
regis tered in the name of, or
the checks are to be made
payable to, the registered holder(s) of
shares of KinderCare Common
Stock, but are to be sent to
someone other than the registered
holders(s) or to an address
other than the
Name............ address of the
registered holder(s) set forth
(Please Print)
above.
..............................................................................
Name..........................
(Please Print)
(Please Print)
Address.......................................................................
..............................
........ (Please
Print)
(Including Zip Code)
Address.......................
..............................................................................
..............................
(Tax Identification or Social Security Number)
(Including Zip Code)
BOX IV
SIGN HERE AND HAVE SIGNATURES GUARANTEED
(SEE INSTRUCTIONS D(1) AND D(7) CONCERNING SIGNATURE GUARANTEE)
..............................................................................
Name(s): .....................
..............................................................................
(Please Print)
..............................................................................
Name(s): .....................
Signature(s) of Owner(s)
(Please Print)
Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or
(Please Print)
Name(s): .....................
by person(s) authorized to become registered holder(s) by certificates and
documents trans
........................................................
mitted herewith. If signature is by a trustee, executor, administrator,
guardian, officer of a
........................................................
corporation, attorney-in-fact or any other
per(Area Code and Telephone Number(s))
son acting in a fiduciary capacity, set forth full title in such capacity and
see Instruction D(3).
........................................................
Signature(s)
........................................................
Guaranteed:...................................................................
(Tax Identification or
(See Instruction D(7))
Social Security Number(s))
Dated:.... , 1997.
BOX V
3
<PAGE>
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)*
The undersigned is:
.....................................
(Firm--Please Print)
- a member of a national securities
....................................
exchange,
(Authorized Signature)
- a member of the National Association
....................................
of Securities Dealers, Inc., or
.....................................
.....................................
- a commercial bank or trust company in
(Address)
the United States;
....................................
and guarantees to deliver to the Exchange
(Area Code and Telephone Number)
Agent the certificates for shares of KinderCare
....................................
(Contact Name)
Common Stock to which this Form relates, duly endorsed in blank or otherwise
in form acceptable for transfer on the books of KinderCare, no later than 5:00
P.M. New York City time on the third NASDAQ trading day after the date of
execution of this guarantee of delivery.
(DO NOT WRITE IN SPACES BELOW)
<TABLE>
<CAPTION>
SHARES
CONVERTED
INTO SHARES AMOUNT
SHARES SHARES NON-CASH BLOCK CONVERTED CHECK OF
SURRENDERED ACCEPTED ELECTION SHARES CERTIFICATE NO. NO. INTO CASH NO. CHECK
<S> <C> <C> <C> <C> <C> <C> <C>
DELIVERY PREPARED BY ..................... CHECKED BY .............. DATE .................
</TABLE>
4
<PAGE>
INSTRUCTIONS
A. SPECIAL CONDITIONS.
1. TIME IN WHICH TO ELECT. To be effective, an election pursuant to the
terms and conditions set forth herein (an "Election") on this Form or a
facsimile hereof, accompanied by the above-described certificates representing
shares of KinderCare Common Stock or a proper guarantee of delivery thereof,
must be received by the Exchange Agent, at the address set forth above, no later
than 5:00 P.M., New York City time, on February 5, 1997 (the "Election Date").
Holders of KinderCare Common Stock whose stock certificates are not immediately
available may also make an effective Election by completing this form or
facsimile hereof, having the Guarantee of Delivery box (BOX V) properly
completed and duly executed (subject to the condition that the certificates for
which delivery is thereby guaranteed are in fact delivered to the Exchange
Agent, duly endorsed in blank or otherwise in form acceptable for transfer on
the books of KinderCare, no later than 5:00 P.M., New York City time, on the
third NASDAQ trading day after the date of execution of such guarantee of
delivery). Each share of KinderCare Common Stock with respect to which the
Exchange Agent shall have not received an effective Election prior to the
Election Date, or with respect to which the proration procedures set forth in
the Proxy Statement pertain, outstanding at the Effective Time of the Merger
will be converted into the right to receive an amount equal to $19.00 in cash
from the Company following the Merger. See Instruction C.
2. REVOCATION OF ELECTION. Any Election may be revoked by the person who
submitted this Form to the Exchange Agent and the certificate(s) for shares
withdrawn by written notice duly executed and received by the Exchange Agent
prior to the Election Date. Such notice must specify the person in whose name
the shares of KinderCare Common Stock to be withdrawn had been deposited, the
number of shares to be withdrawn, the name of the registered holder thereof, and
the serial numbers shown on the certificate(s) representing the shares to be
withdrawn. If an Election is revoked, and the certificate(s) for shares
withdrawn, the KinderCare Common Stock certificate(s) submitted therewith will
be promptly returned by the Exchange Agent to the person who submitted such
certificate(s).
3. TERMINATION OF RIGHT TO ELECT. If for any reason the Merger is not
consummated or is abandoned, all Forms will be void and of no effect.
Certificate(s) for KinderCare Common Stock previously received by the Exchange
Agent will be returned promptly by the Exchange Agent to the person who
submitted such stock certificate(s).
B. ELECTION AND PRORATION PROCEDURES.
A description of the election and proration procedures is set forth in the
Proxy Statement under "THE MERGER--Non-cash Election" and "THE MERGER--Non-cash
Election Procedure." A full statement of the election and proration procedures
is contained in the Merger Agreement and all Elections are subject to compliance
with such procedures. IN CONNECTION WITH MAKING ANY ELECTION, A HOLDER OF
KINDERCARE COMMON STOCK SHOULD READ CAREFULLY, AMONG OTHER MATTERS, THE
AFORESAID DESCRIPTION AND STATEMENT AND THE INFORMATION CONTAINED IN THE PROXY
STATEMENT UNDER "THE MERGER--FEDERAL INCOME TAX CONSEQUENCES." SEE ALSO "RISK
FACTORS--NON-CASH ELECTION AND PRORATION INTO CASH-- POSSIBLE DIVIDEND
TREATMENT" IN THE PROXY STATEMENT FOR A DISCUSSION OF THE POSSIBILITY THAT THE
RECEIPT OF CASH AS A RESULT OF PRORATION BY A HOLDER WHO HAS MADE A NON-CASH
ELECTION MAY BE TREATED AS A DIVIDEND AS OPPOSED TO A CAPITAL GAIN.
AS A RESULT OF THE PRORATION PROCEDURES, HOLDERS OF KINDERCARE COMMON STOCK
MAY RECEIVE NON-CASH ELECTION SHARES OR CASH IN AMOUNTS WHICH VARY FROM THE
AMOUNTS SUCH HOLDERS ELECT TO RECEIVE. SUCH HOLDERS WILL NOT BE ABLE TO CHANGE
THE NUMBER OF NON-CASH ELECTION SHARES OR THE AMOUNT OF CASH ALLOCATED TO THEM
PURSUANT TO SUCH PROCEDURES.
5
<PAGE>
C. RECEIPT OF NON-CASH ELECTION SHARES OR CHECKS.
As soon as practicable after the Effective Time of the Merger and after the
Election Date, the Exchange Agent will mail certificate(s) for Non-Cash Election
Shares and/or cash payments by check to the holders of KinderCare Common Stock
with respect to each share of KinderCare Common Stock which is included in any
effective Election. Holders of KinderCare Common Stock who declined to make an
Election, or failed to make an effective Election, with respect to any or all of
their shares will receive, for each such share, the right to receive an amount
equal to $19.00 in cash as soon as practicable after the certificate(s)
representing such share or shares have been submitted.
No fractional shares will be issued in connection with the Merger. In lieu
thereof, the Exchange Agent, as agent for the holders of KinderCare Common Stock
who become entitled to a fraction of a Non-Cash Election Share, shall promptly
sell the aggregate of the fractional share interests of such holders and remit
the net proceeds thereof (after commissions, costs and expenses incurred in
connection with such sale) to such holders according to their respective
interests therein.
D. GENERAL.
1. EXECUTION AND DELIVERY. This Form or a facsimile hereof must be properly
filled in, dated and signed in BOX IV, and must be delivered (together with
stock certificates representing the shares of KinderCare Common Stock as to
which the Election is made or with a duly signed guarantee of delivery of such
certificates) to the Exchange Agent at any of the addresses set forth above.
THE METHOD OF DELIVERY OF ALL DOCUMENTS IS AT THE OPTION AND RISK OF THE
STOCKHOLDER, BUT IF SENT BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS SUGGESTED.
2. INADEQUATE SPACE. If there is insufficient space on this Form to list
all your stock certificates being submitted to the Exchange Agent, please attach
a separate list.
3. SIGNATURES. The signature (or signatures, in the case of certificates
owned by two or more joint holders) on this Form should correspond exactly with
the name(s) as written on the face of the certificate(s) submitted unless the
shares of KinderCare Common Stock described on this Form have been assigned by
the registered holder(s), in which event this Form should be signed in exactly
the same form as the name of the last transferee indicated on the transfers
attached to or endorsed on the certificates.
If this Form is signed by a person or persons other than the registered
owners of the certificates listed, the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered owner(s) appear on the certificates.
If this Form or any stock certificate(s) or stock power(s) are signed by a
trustee, executor, administrator, guardian, officer of a corporation,
attorney-in-fact or any other person acting in a representative or fiduciary
capacity, the person signing must give such person's full title in such capacity
and appropriate evidence of authority to act in such capacity must be forwarded
with this Form.
4. PARTIAL EXCHANGES. If fewer than all the shares represented by any
certificate delivered to the Exchange Agent are to be submitted for exchange,
fill in the number of shares which are to be submitted in the box entitled
"Shares Submitted". In such case, a new certificate for the remainder of the
shares represented by the old certificate will be sent to the registered owners
as soon as practicable following the Election Date. All shares represented by
certificates submitted hereunder will be deemed to have been submitted unless
otherwise indicated.
5. LOST OR DESTROYED CERTIFICATES. If your stock certificate(s) has been
either lost or destroyed, please check the box on the front of this Form below
your name and address and the appropriate forms for replacement will be sent to
you. You will then be instructed as to the steps you must take in order to
6
<PAGE>
receive a stock certificate(s) representing Non-Cash Election Shares and/or any
checks in accordance with the Merger Agreement.
6. NEW CERTIFICATES AND CHECKS IN SAME NAME. If any stock certificate(s)
representing Non-Cash Election Shares or any check(s) in respect of Non-Cash
Election Shares are to be registered in, or payable to the order of, exactly the
same name(s) that appears on the certificate(s) representing shares of
KinderCare Common Stock submitted with this Form, no endorsement of
certificate(s) or separate stock power(s) are required.
7. NEW CERTIFICATES AND CHECKS IN DIFFERENT NAME. If any stock
certificate(s) representing Non-Cash Election Shares or any check(s) in respect
of Non-Cash Election Shares are to be registered in, or payable to the order of,
other than exactly the name that appears on the certificate(s) representing
shares of KinderCare Common Stock submitted for exchange herewith, such exchange
shall not be made by the Exchange Agent unless the certificates submitted are
endorsed, BOX II is completed, and the signature is guaranteed in BOX IV by a
member of a national securities exchange, a member of the National Association
of Securities Dealers, Inc. or a commercial bank (not a savings bank or a
savings & loan association) or trust company in the United States which is a
member in good standing of the Agent's Medallion Program.
8. SPECIAL DELIVERY INSTRUCTIONS. If the checks are to be payable to the
order of, or the certificates for Non-Cash Election Shares are to be registered
in, the name of the registered holder(s) of shares of KinderCare Common Stock,
but are to be sent to someone other than the registered holder(s) or to an
address other than the address of the registered holder, it will be necessary to
indicate such person or address in BOX III.
9. MISCELLANEOUS. A single check and/or a single stock certificate
representing Non-Cash Election Shares will be issued.
All questions with respect to this Form and the Elections (including,
without limitation, questions relating to the timeliness or effectiveness of
revocation or any Election and computations as to proration) will be determined
by KinderCare and KLC Associates, L.P., which determination shall be conclusive
and binding.
10. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the
"backup withholding" provisions of Federal income tax law, the Exchange Agent
may be required to withhold 31% of the amount of any payments made to holders of
KinderCare Common Stock pursuant to the Merger. To prevent backup withholding,
each holder should complete and sign the Substitute Form W-9 included in this
Form and either: (a) provide the correct taxpayer identification number ("TIN")
and certify, under penalties of perjury, that the TIN provided is correct (or
that such holder is awaiting a TIN), and that (i) the holder has not been
notified by the Internal Revenue Service ("IRS") that the holder is subject to
backup withholding as a result of failure to report all interest or dividends,
or (ii) the IRS has notified the holder that the holder is no longer subject to
back withholding; or (b) provide an adequate basis for exemption. If the box in
Part 2 of the substitute Form W-9 is checked, the Exchange Agent shall retain
31% of cash payments made to a holder during the sixty (60) day period following
the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent
with his or her TIN within sixty (60) days of the date of the Substitute Form
W-9, the Exchange Agent shall remit such amounts retained during the sixty (60)
day period to the holder and no further amounts shall be retained or withheld
from payments made to the holder thereafter. If, however, the holder has not
provided the Exchange Agent with his or her TIN within such sixty (60) day
period, the Exchange Agent shall remit such previously retained amounts to the
IRS as backup withholding and shall withhold 31% of all payments to-the holder
thereafter until the holder furnishes a TIN to the Exchange Agent. In general,
if a holder is an individual, the TIN is the Social Security number of such
individual. If the certificates for KinderCare Common Stock are registered in
more than one name or are not in the name of the actual owner, consult the
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance on which number to report. If the Exchange
Agent is not provided with the correct TIN or an adequate basis for exemption,
the holder may be subject
7
<PAGE>
to a $50 penalty imposed by the IRS and backup withholding at a rate of 31%.
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such holder must submit a statement
(generally, IRS Form W-8), signed under penalties of perjury, attesting to that
individual's exempt status. A form for such statements can be obtained from the
Exchange Agent.
For further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a TIN if you do not
have one and how to complete the Substitute Form W-9 if Stock is held in more
than one name), consult the Guideline of the IRS for Certification of Taxpayer
Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
KinderCare Common Stock to be deemed invalidly tendered, but may require the
Exchange Agent to withhold 31% of the amount of any payments made pursuant to
the Merger. Backup withholding is not an additional Federal income tax. Rather,
the Federal income tax liability of a person subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
Additional copies of this Form may be obtained from Mackenzie Partners, Inc.
(whose telephone number is (800) 322-2885).
8
<PAGE>
<TABLE>
<CAPTION>
PAYER: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<S> <C> <C>
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR Social Security Number
FORM W-9 TIN IN THE BOX AT THE RIGHT OR -------------------
AND CERTIFY BY SIGNING AND Employer Identification
DATING BELOW. Number
Department of the Treasury PART 2--Please check the box at the right if you have
Internal Revenue Service applied for, and are awaiting receipt of, your TIN. / /
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN)
Certification--under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I
am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been notified by
the IRS that I am subject to backup withholding as a result of a failure to report
all interests or dividends, or the IRS has notified me that I am no longer subject
to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified
by the IRS that you are subject to backup withholding because of underreporting interest
or dividends on your tax return. However, if after being notified by the IRS that you
were subject to backup withholding you received another notification from the IRS that
you are no longer subject to backup withholding, do not cross out item (2). (Also see
Certification under Specific Instructions in the enclosed Guidelines.)
SIGNATURE ---------------------------- DATE --------------, 1997
</TABLE>
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9, YOU MUST SIGN
AND DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate IRS
Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me pursuant to this Merger shall be retained until I provide
a Tax Identification Number to the payer and that, if I do not provide my
Taxpayer Identification Number within sixty (60) days, such retained amounts
shall be remitted to the IRS as backup withholding and 31 percent of all
reportable payments made to me thereafter will be withheld and remitted to the
IRS until I provide a Taxpayer Identification Number.
SIGNATURE
-------------------------- DATE
--------------------------
9
<PAGE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE ELECTION, PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
Questions and requests for assistance or additional copies of the Proxy
Statement/Prospectus or this Form of Election may be directed to the Information
Agent at the address set forth below:
THE INFORMATION AGENT IS:
[LOGO]
156 Fifth Avenue
New York, NY 10010
(212) 929-5500 (Call Collect)
or
Call Toll-Free (800) 322-2885
10
<PAGE>
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATE(S) FOR SHARES OF COMMON STOCK OF
KINDERCARE LEARNING CENTERS, INC.
SURRENDERED IN CONNECTION WITH THE MERGER OF
KCLC ACQUISITION CORP.
WITH AND INTO
KINDERCARE LEARNING CENTERS, INC.
This Letter of Transmittal is to accompany certificates for shares of
common stock, par value $.01 per share ("KinderCare Common Stock"), of
KinderCare Learning Centers, Inc. ("KinderCare" or the "Company") if such
certificates have NOT been submitted pursuant to an effective election (a "Non-
Cash Election") to retain shares of KinderCare Common Stock ("Non-Cash Election
Shares") in connection with the proposed merger (the "Merger") of KCLC
Acquisition Corp. with and into KinderCare. Holders of KinderCare Common Stock
who have previously made an effective Non-Cash Election (any such holder, an
"Electing Holder") need not submit this Form with respect to the shares covered
by such Non-Cash Election. Each share of KinderCare Common Stock subject to
such Non-Cash Election will automatically, subject to proration as described in
the Proxy Statement (as defined below), be converted into the right to retain
Non-Cash Election Shares.
By delivering certificates for shares of KinderCare Common Stock, the
registered holder of such certificates releases the Company, KCLC and their
respective affiliates, directors, officers, employees, partners, agents,
advisors and representatives, and their respective successors and assigns, from
any and all claims arising from or in connection with the purchase or ownership
of such KinderCare Common Stock or the exchange of such KinderCare Common Stock
pursuant to the Merger Agreement (as defined herein).
To: ChaseMellon Shareholder Services L.L.C., Exchange Agent
1-(800)-777-3674
<TABLE>
<CAPTION>
BY MAIL: BY FACSIMILE: BY HAND OR OVERNIGHT COURIER:
<S> <C> <C>
ChaseMellon Shareholder Services, L.L.C. (201) 329-8936 ChaseMellon Shareholder Services, L.L.C.
Midtown Station 120 Broadway, 13th Floor
P.O. Box 798 New York, NY 10271
New York, NY 10018 ATTN: Reorganization Dept.
ATTN: Reorganization Dept.
CONFIRM BY TELEPHONE TO:
(201) 296-4209 or (201) 296-4381
</TABLE>
Delivery of this Letter of Transmittal to an address other than as set forth
above does not constitute a valid delivery.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
BOX I
- -------------------------------------------------------------------------------
SHARES SUBMITTED
NAME AND ADDRESS OF REGISTERED HOLDER* (ATTACH ADDITIONAL LIST IF NECESSARY)
- --------------------------------------------------------------------------------
TOTAL NUMBER OF
CERTIFICATE SHARES REPRESENTED BY
NUMBER CERTIFICATE(S)
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
- --------------------------------------------------------------------------------
Total Shares
- --------------------------------------------------------------------------------
* Only certificates registered in a single form may be deposited with this
Letter of Transmittal. If certificates are registered in different forms
(e.g., John R. Doe and J.R. Doe), it will be necessary to fill in, sign and
submit as many separate Letters of Transmittal as there are different
registrations of certificates.
- --------------------------------------------------------------------------------
<PAGE>
/ / Check here if you cannot locate your certificates. Upon receipt of this
Letter of Transmittal, the Agent will contact you directly with replacement
instructions.
<PAGE>
Ladies and Gentlemen:
In connection with the Merger, the undersigned hereby submits the
certificate(s) for shares of common stock, par value $.01 per share, of
KinderCare ("KinderCare Common Stock") listed in BOX I. Delivery of the enclosed
certificates shall be effected, and risk of loss of and title to such
certificates shall pass, only upon delivery thereof to you.
It is understood that this Letter of Transmittal is subject to (i) the
terms, conditions and limitations set forth in the Proxy Statement, dated
January ___, 1997, relating to the Merger (including all annexes thereto, and
as it may be amended or supplemented from time to time, the "Proxy Statement"),
receipt of which is acknowledged by the undersigned, (ii) the terms of the
Agreement and Plan of Merger, dated as of October 3, 1996 and as amended as of
December 27, 1996, as the same may be amended or supplemented from time to time
(the "Merger Agreement"), a conformed copy of which appears as Annex I to the
Proxy Statement, and (iii) the accompanying Instructions.
By delivering certificates for shares of KinderCare Common Stock, the
registered holder of such certificates releases the Company, KCLC and their
respective affiliates, directors, officers, employees, partners, agents,
advisors and representatives, and their respective successors and assigns, from
any and all claims arising from or in connection with the purchase or ownership
of such KinderCare Common Stock or the exchange of such KinderCare Common Stock
pursuant to the Merger Agreement.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
such certificates of KinderCare Common Stock to the Company and to receive on
behalf of the undersigned, in exchange for the shares of KinderCare Common Stock
represented thereby, any check for cash or, in the event of proration,
certificate for Non-Cash Election Shares issuable in the Merger.
Unless otherwise indicated under Special Payment Instructions below, please
issue any check and/or any certificate for Non-Cash Election Shares issuable in
exchange for the shares of KinderCare Common Stock represented by the
certificates submitted hereby in the name of the registered holder(s) of such
KinderCare Common Stock. Similarly, unless otherwise indicated under Special
Delivery Instructions, please mail any check and/or any certificate for Non-Cash
Election Shares issuable in exchange for the shares of KinderCare Common Stock
represented by the certificates submitted hereby to the registered holder(s) of
KinderCare Common Stock at the address or addresses shown above.
BOX II
________________________________________________________________________________
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS C(5) AND C(6))
To be completed ONLY if the checks are to be made payable to someone other
than the registered holder(s) of shares of KinderCare Common Stock.
Name
- --------------------------------------------------------------------------------
(PLEASE PRINT)
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
________________________________________________________________________________
BOX III
________________________________________________________________________________
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION C(7))
To be completed ONLY if the checks are to be made payable to the
registered holder(s) of shares of KinderCare Common Stock, but are to be sent
to someone other than the registered holder(s) or to an address other than
the address of the registered holder(s) set forth above.
Name
----------------------------------------------------------------------------
(PLEASE PRINT)
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address
-------------------------------------------------------------------------
(INCLUDING ZIP CODE)
________________________________________________________________________________
BOX IV
________________________________________________________________________________
SIGN HERE AND HAVE SIGNATURES GUARANTEED
(SEE INSTRUCTIONS C(1) AND C(6) CONCERNING SIGNATURE GUARANTEE)
Name(s):
- ---------------------------------- ---------------------------------
(PLEASE PRINT)
Name(s):
- ---------------------------------- ---------------------------------
(PLEASE PRINT)
Name(s):
- ---------------------------------- ---------------------------------
(SIGNATURE(S) OF OWNER(S) (PLEASE PRINT)
Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or by person(s) authorized to become registered holder(s) by
certificates and documents transmitted herewith. If signature is by a
trustee, executor, administrator, guardian, officer of a corporation,
attorney-in-fact or any other person acting in a fiduciary capacity, set
forth full title in such capacity and see Instruction C(3).
-----------------------------------------
-----------------------------------------
(AREA CODE AND TELEPHONE NUMBER(S))
-----------------------------------------
-----------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER(S))
SIGNATURE(S)
GUARANTEED: DATED 1997.
------------------------- -------------------------------
(SEE INSTRUCTION C(6))
________________________________________________________________________________
(DO NOT WRITE IN SPACES BELOW)
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________________________
SHARES
CONVERTED
SHARES SHARES INTO NON-CASH
SURRENDERED CONVERTED AMOUNT OF ELECTION CERTIFICATE BLOCK
d INTO CASH CHECK NO. CHECK SHARES NO. NO.
<S> <C> <C> <C> <C> <C> <C>
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
DELIVERY PREPARED BY CHECKED BY
--------------------------------------- ------------------------------------------------
</TABLE>
<PAGE>
INSTRUCTIONS
A. SPECIAL CONDITIONS; PRORATION PROCEDURES
Subject to the proration procedures described in the Proxy Statement,
holders of KinderCare Common Stock who (i) declined to make a Non-Cash Election,
(ii) failed to make an effective Non-Cash Election or (iii) made an effective
Non-Cash Election but who will not receive Non-Cash Election Shares due to
proration, in each case with respect to any or all of their shares, will receive
in exchange for each share of KinderCare Common Stock, the right to receive
$19.00 in cash. See Instruction B.
A description of the proration procedures is set forth in the Proxy
Statement under "THE MERGER---Non-Cash Election" and "THE MERGER--Non-Cash
Election Procedure." A full statement of the proration procedures is contained
in the Merger Agreement and any receipt of cash is subject to compliance with
such procedures.
AS A RESULT OF THE PRORATION PROCEDURES, HOLDERS OF KINDERCARE COMMON STOCK
MAY RECEIVE NON-CASH ELECTION SHARES OR CASH IN AMOUNTS WHICH VARY FROM THE
AMOUNTS SUCH HOLDERS ELECT TO RECEIVE. SUCH HOLDERS WILL NOT BE ABLE TO CHANGE
THE NUMBER OF NON-CASH ELECTION SHARES OR THE AMOUNT OF CASH ALLOCATED TO THEM
PURSUANT TO SUCH PROCEDURES.
B. RECEIPT OF CHECKS AND/OR CERTIFICATES IN EXCHANGE FOR KINDERCARE COMMON
STOCK.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to the registered holder listed in BOX I (or his or her designee listed in
BOX II OR III), a check from KinderCare for an amount equal to $19.00 in cash
with respect to each share of KinderCare Common Stock which is submitted with
any Letter of Transmittal, subject to the proration procedures described in the
Proxy Statement.
As a result of proration, a holder of KinderCare Common Stock may receive
Non-Cash Election Shares instead of cash. No fractional Non-Cash Election
Shares will be issued in connection with the Merger. In lieu thereof, the
Exchange Agent, as agent for the holders of KinderCare Common Stock who become
entitled to a fraction of a Non-Cash Election Share, shall promptly sell the
aggregate of the fractional share interests of such holders and remit the net
proceeds thereof (after commissions, costs and expenses incurred in connection
with such sale) to such holders according to their respective interests therein.
C. GENERAL.
1. EXECUTION AND DELIVERY. This Letter of Transmittal must be properly
filled in, dated and signed in BOX IV, and must be delivered (together with
stock certificates representing the shares of KinderCare Common Stock being
submitted) to the Exchange Agent at either of the addresses set forth above.
THE METHOD OF DELIVERY OF ALL DOCUMENTS IS AT THE OPTION AND RISK OF THE
STOCKHOLDER, BUT IF SENT BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS SUGGESTED.
2. INADEQUATE SPACE. If there is insufficient space on this Form to list
all your stock certificates being submitted to Exchange Agent, please attach a
separate list.
3. SIGNATURES. The signature (or signatures, in the case of certificates
owned by two or more joint holders) on this Letter of Transmittal should
correspond exactly with the name(s) as written on the face of the certificate(s)
submitted, unless shares of KinderCare Common Stock described on this Letter of
Transmittal have been assigned by the registered holder(s), in which event this
Letter of Transmittal should be signed in exactly the same form as the name of
the last transferee indicated on the transfers attached to or endorsed on the
certificates.
If this Letter of Transmittal is signed by a person or persons other than
the registered owners of the certificates listed, the certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered owner(s) appear on the certificates.
If this Letter of Transmittal or any stock certificate(s) or stock power(s)
are signed by a trustee, executor, administrator, guardian, officer of a
corporation, attorney-in-fact or any other person acting in a representative or
fiduciary capacity, the person signing must give such person's full title in
such capacity and appropriate evidence of authority to act in such capacity must
be forwarded with this Letter of Transmittal.
4. LOST OR DESTROYED CERTIFICATES. If your stock certificate(s) has been
either lost or destroyed, please check the box on the front of this Letter of
Transmittal below your name and address and the appropriate forms for
replacement will be sent to you. You will then be instructed as to the steps
you must take in order to receive any checks and/or a stock certificate(s)
representing Non-Cash Election Shares in accordance with the Merger Agreement.
5. CHECKS AND/OR NEW STOCK CERTIFICATES IN SAME NAME. If any checks or
stock certificate(s) representing Non-Cash Election Shares are to be registered
in, or made payable to the order of, exactly the same name(s) that appears on
the certificate(s) representing shares of KinderCare Common Stock submitted with
this Letter of Transmittal, no endorsement of certificate(s) or separate stock
power(s) is required.
<PAGE>
6. CHECKS AND/OR NEW CERTIFICATES IN DIFFERENT NAME. If any checks or
stock certificate(s) representing Non-Cash Election Shares are to be registered
in, or made payable to the order of, other than exactly the name that appears on
the certificate(s) representing shares of KinderCare Common Stock submitted for
exchange herewith, such exchange shall not be made by the Exchange Agent unless
the certificates submitted are endorsed, BOX II is completed, and the signature
is guaranteed in BOX IV by a member of a national securities exchange, a member
of the National Association of Securities Dealers, Inc. or a commercial bank
(not a savings bank or a savings & loan association) or trust company in the
United States which is a member in good standing of the Agent's Medallion
Program.
7. SPECIAL DELIVERY INSTRUCTIONS. If the checks are to be made payable to
the order of, or the certificates for Non-Cash Election Shares are to be
registered in, the name of the registered holder(s) of shares of KinderCare
Common Stock, but are to be sent to someone other than the registered holder(s)
or to an address other than the address of the registered holder, it will be
necessary to indicate such person or address in BOX III.
8. MISCELLANEOUS. A single check and/or a single stock certificate
representing Non-Cash Election Shares will be issued in exchange for shares of
KinderCare Common Stock submitted herewith.
All questions with respect to this Letter of Transmittal will be determined
by KinderCare and KLC Associates, L.P., which determination shall be conclusive
and binding.
9. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under
the "backup withholding" provisions of Federal income tax law, the Exchange
Agent may be required to withhold 31% of the amount of any payments made to
holders of KinderCare Common Stock pursuant to the Merger. The prevent backup
withholding, each holder should complete and sign the Substitute Form W-9
included in this Letter of Transmittal and either: (a) provide the correct
taxpayer identification number ("TIN") and certify, under penalties of perjury,
that the TIN provided is correct (or that such holder is awaiting a TIN), and
that (i) the holder has not been notified by the Internal Revenue Service (the
"IRS") that the holder is subject to backup withholding as a result of failure
to report all interest or dividends, or (ii) the IRS has notified the holder
that the holder is no longer subject to backup withholding; or (b) provide an
adequate basis for exemption. If the box in Part 2 of the substitute Form W-9
is checked, the Exchange Agent shall retain 31% of payments made to a holder
during the sixty (60) day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with his or her TIN within sixty (60)
days of the date of the Substitute Form W-9, the Exchange Agent shall remit such
amounts retained during the sixty (60) day period to the holder and no further
amounts shall be retained or withheld from payments made to the holder
thereafter. If, however, the holder has not provided the Exchange Agent with
his or her TIN within such sixty (60) day period, the Exchange Agent shall remit
such previously retained amounts to the IRS as backup withholding and shall
withhold 31% of all payments to the holder thereafter until the holder furnishes
a TIN to the Exchange Agent. In general, if a holder is an individual, the TIN
is the Social Security number of such individual. If the certificates for
KinderCare Common Stock are registered in more than one name or are not in the
name of the actual owner, consult the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report. If the Exchange Agent is not provided with the correct TIN or
an adequate basis for exemption, the holder may be subject to a $50 penalty
imposed by the IRS and backup withholding at a rate of 31%. Certain holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these backup withholding and reporting requirements. In order to
satisfy the Exchange Agent that a foreign individual qualifies as an exempt
recipient, such holder must submit a statement (generally, IRS Form W-8), signed
under penalties of perjury, attesting to that individual's exempt status. A
form for such statements can be obtained from the Exchange Agent.
For further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a TIN if you do not
have one and how to complete the Substitute Form W-9 if Stock is held in more
than one name), consult the Guideline of the IRS for Certification of Taxpayer
Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
KinderCare Common Stock to be deemed invalidly tendered, but may require the
Exchange Agent to withhold 31% of the amount of any payments made pursuant to
the Merger. Backup withholding is not an additional Federal income tax.
Rather, the Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an payment of taxes, a refund may be obtained.
Additional copies of this Letter may be obtained from ChaseMellon
Shareholder Services, L.L.C. (whose telephone number is (800) 777-3674).
<PAGE>
- --------------------------------------------------------------------------------
Payer: ChaseMellon Shareholder Services
- --------------------------------------------------------------------------------
SUBSTITUTE Part 1--PLEASE PROVIDE Social Security Number
YOUR TIN IN THE BOX AT OR ______________________________
FORM W-9 THE RIGHT AND CERTIFY Employer Identification Number
BY SIGNING AND DATING
BELOW.
------------------------------------------------------------
Department of the Part 2--Please check the box at the right if you have
Treasury Internal applied for, and are awaiting receipt of, your TIN. / /
Revenue Service
PAYER'S REQUEST
FOR TAXPAYER
IDENTIFICATION
NUMBER (TIN)
- --------------------------------------------------------------------------------
Certification--under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the IRS that I am subject to backup withholding as a result of
a failure to report all interests or dividends, or the IRS has notified me
that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see Certification under Specific
Instructions in the enclosed Guidelines.)
SIGNATURE _________________________________ DATE __________________, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9, YOU MUST SIGN
AND DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
- --------------------------------------------------------------------------------
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate IRS Center or
Social Security Administration Office (or I intend to mail or deliver an
application in the near future). I understand that if I do not provide a
Taxpayer Identification Number to the payer, 31 percent of all payments made to
me pursuant to this Merger shall be retained until I provide a Tax
Identification Number to the payer and that, if I do not provide my Taxpayer
Identification Number within sixty (60) days, such retained amounts shall be
remitted to the IRS as backup withholding and 31 percent of all reportable
payments made to me thereafter will be withheld and remitted to the IRS until I
provide a Taxpayer Identification Number.
SIGNATURE _______________________________ DATE ________________________________
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
ELECTION, PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
<PAGE>
EX-99.4
Exchange Agent Agreement
EXCHANGE AGENT AGREEMENT
February __, 1997
ChaseMellon Shareholder Services
85 Challenger Road, 1st Floor
Ridgefield, New Jersey 07660
Attention: Reorganization Department
KCLC Acquisition Corp., a Delaware corporation ("KCLC") and a subsidiary
of KLC Associates, L.P. (the "Partnership"), and KinderCare Learning Centers,
Inc., a Delaware corporation (the "Company" or "KinderCare"), have entered into
an Agreement and Plan of Merger, dated as of October 3, 1996 and as amended as
of December 27, 1996 (as the same may be further amended, the "Merger
Agreement"), pursuant to which KCLC will be merged with and into the Company
(the "Merger"), with the Company to be the surviving corporation. At the
Effective Time, subject to certain provisions as described in the Merger
Agreement with respect to shares owned by the Company, any subsidiary of the
Company, KCLC or any subsidiary of KCLC, and with respect to fractional shares
and Dissenting Shares, (i) each share of Common Stock, par value $.01 per share,
of the Company (the "Company Common Stock") issued and outstanding (other than
Electing Shares, as defined below) will be converted into the right to receive
in cash from KinderCare following the Merger an amount equal to $19.00 (the
"Cash Election Price") and (ii) each issued and outstanding share of Company
Common Stock with respect to which an election has been made and not withdrawn
in accordance with the Merger Agreement (an "Electing Share") will be converted
into the right to retain one fully paid and nonassessable share of Company
Common Stock (a "Non-Cash Election Share"). At the Effective Time, each issued
and outstanding warrant to purchase shares of Company Common Stock (a "Company
Warrant") will be converted into the right to receive in cash from KinderCare
following the Merger an amount equal to $6.58 (the "Warrant Consideration").
Capitalized terms not otherwise defined herein shall have the meanings given to
such terms in the Merger Agreement.
The Merger Agreement and the Proxy Statement/Prospectus dated January __,
1997 (the "Proxy Statement") (which constitutes a part of a Registration
Statement on Form S-4 of the Company with respect to 1,381,579 shares of the
Company Common Stock) and the related proxy cards and Non-Cash Election Form
have previously been delivered to you.
You have agreed to act as exchange agent (the "Exchange Agent") in
connection with the Merger in accordance with the terms of the Merger Agreement,
the Proxy Statement and this Exchange Agent Agreement (this "Agreement").
Without limiting the generality of the preceding sentence, your specific
responsibilities as Exchange Agent shall be as follows:
<PAGE>
2
1. Proration of Non-Cash Election Shares. The Company hereby
notifies you that the Non-Cash Election Number referred to in Section 2.4
of the Merger Agreement is 1,381,579. If the number of Electing Shares
exceeds the Non-Cash Election Number, the (i) the number of Electing
Shares covered by each Non-Cash Election to be converted into the right to
retain Non-Cash Election Shares will be determined by multiplying the
total number of Electing Shares covered by such Non-Cash Election by a
proration factor (the "Non-Cash Proration Factor") determined by dividing
the Non-Cash Election Number by the total number of Electing Shares and
(ii) such number of Electing Shares will be so converted. All Electing
Shares, other than those shares converted into the right to retain
Non-Cash Election Shares as described in the immediately preceding
sentence, will be converted into cash (on a consistent basis among
stockholders who made the election to retain Non-Cash Election Shares, pro
rata to the number of shares as to which they made such election) as if
such shares were not Electing Shares.
If the number of Electing Shares is less than the Non-Cash Election
Number, then (i) all Electing Shares will be converted into the right to
retain Non-Cash Election Shares in accordance with the Merger Agreement,
(ii) additional shares of Company Common Stock, other than Electing Shares
and Dissenting Shares, will be converted into the right to retain Non-Cash
Election Shares, which number of additional shares shall be determined by
multiplying the total number of shares, other than Electing Shares and
Dissenting Shares, by a proration factor (the "Cash Proration Factor")
determined by dividing (x) the difference between the Non-Cash Election
Number and the number of Electing Shares by (y) the total number of shares
of Company Common Stock, other than Electing Shares and Dissenting Shares,
and (iii) such additional shares of Company Common Stock shall be
converted into the right to retain Non-Cash Election Shares in accordance
with the Merger Agreement (on a consistent basis among stockholders who
held shares of Company Common Stock as to which they did not make the
Non-Cash Election, pro rata to the number of shares as to which they did
not make such election).
2. Merger Consideration. As soon as reasonably practicable as of or
after the Effective Time:
(a) The Company shall deliver to the transfer agent and registrar
for the Company Common Stock (the "Company Transfer Agent"), duly executed
certificates for Company Common Stock to be countersigned and re-issued as
Non-Cash Election Shares.
(b) Upon or as soon as practicable after the Effective Time, the
Company (either directly, or indirectly through
<PAGE>
3
its financing sources) shall deposit or cause to be deposited in an Escrow
Account, pursuant to an Escrow Agreement, dated as of _________ __, 1997
(the "Escrow Agreement"), between The Chase Manhattan Bank (the "Escrow
Agent"), ChaseMellon Shareholder Services, L.L.C. and the Company,
immediately available funds (the "Escrow Fund") in an aggregate amount
equal to the sum of (i) the product of (A) the Cash Election Price and (B)
each issued and outstanding share of Company Common Stock (other than
Electing Shares and Dissenting Shares) converted into the right to receive
the Cash Election Price pursuant to Section 2.1(c) of the Merger Agreement
and (ii) the product of (A) the Warrant Consideration and (B) each issued
and outstanding Company Warrant converted into the right to receive the
Warrant Consideration pursuant to Section 2.6 of the Merger Agreement.
Pursuant to the Escrow Agreement, the Escrow Fund shall be held in a
segregated account the principal of which is held in trust for the benefit
of (i) the holders of each issued and outstanding share of Company Common
Stock (other than Electing Shares and Dissenting Shares) converted into
the right to receive the Cash Election Price pursuant to Section 2.1(c) of
the Merger Agreement and (ii) the holders of each issued and outstanding
Company Warrant converted into the right to receive the Warrant
Consideration pursuant to Section 2.6 of the Merger Agreement. Any
interest and other income with respect to the Escrow Fund shall be paid to
the Company as and when requested by the Company. Amounts other than such
interest and other income shall be withdrawn from the Escrow Fund by the
Exchange Agent to make cash payments pursuant to the Merger Agreement in
respect of shares of Company Common Stock or Company Warrants, as the case
may be, in accordance with Section 6 below or any required tax
withholdings. The Exchange Agent shall not use the Escrow Fund for any
other purpose unless specifically so directed by the Company in writing.
Pursuant to the Escrow Agreement, the Escrow Fund shall terminate, and all
funds therein will be remitted to the Company, upon either (i) the earlier
of (a) delivery by the Exchange Agent of the entire principal amount of
the Escrow Fund pursuant to this Agreement and (b) __________ __, 1997 or
(ii) such date following ________ __, 1997 but no later than ________ __,
1997, as shall be communicated in writing by the Company to the Escrow
Agent (such date, the "Escrow Termination Date").
(c) In the event the Escrow Agreement is terminated, from the Escrow
Termination Date until ________ __, 1997, the Exchange Agent shall make
cash payments pursuant to the Merger Agreement (the "Post-Escrow
Payments") to holders of Company Common Stock in respect of shares of
Company Common Stock or to holders of Company Warrants in respect of
Company Warrants, as the case may be, in accordance with Section 6 below
or any required tax withholdings. Until ________ __, 1997, the Company
shall make weekly remittances
<PAGE>
4
to the Exchange Agent in an amount sufficient, as communicated to the
Company by the Exchange Agent, to satisfy the Post-Escrow Payments.
3. Non-Cash Election Form. Attached hereto as Exhibit A-1 is a
Non-Cash Election Form (the "Form of Election") to be used by holders of
shares of Company Common Stock who elect to retain Non-Cash Election
Shares.
4. Transmittal Letters. Attached hereto as Exhibit B-1 is a Letter
of Transmittal (the "Stock Transmittal Letter") to be used by holders of
shares of Company Common Stock (other than holders who properly submit
Forms of Election with respect to such shares) to surrender such shares
(and the certificates evidencing such shares) in exchange for the Cash
Election Price. Attached hereto as Exhibit B-2 is a Letter of Transmittal
(the "Warrant Transmittal Letter" and together with the Stock Transmittal
Letter, the "Transmittal Letters") to be used by holders of Company
Warrants to surrender such Company Warrants in exchange for the Warrant
Consideration. Promptly following the closing of the Merger, Company shall
notify you in writing that the Effective Time has occurred. As soon as
reasonably practicable thereafter, you shall address and mail and
otherwise make available the Stock Transmittal Letter to each holder of
shares of Company Common Stock as of the Effective Time (other than
holders who properly submit Forms of Election with respect to such shares)
and the Warrant Transmittal Letter to each holder of Company Warrants as
of the Effective Time.
5. Examination of Documents. (a) Upon receipt thereof, you agree to
examine Forms of Election, Transmittal Letters, certificates representing
shares of Company Common Stock ("Stock Certificates"), certificates
representing Company Warrants ("Warrant Certificates", and together with
the Stock Certificates, "Certificates") and other documents delivered to
you by or for holders of Company Common Stock or Company Warrants, as the
case may be, in connection with such Forms of Election and/or Transmittal
Letters to ascertain whether (i) such Forms of Election and/or the
Transmittal Letters are duly executed and properly completed in accordance
with the instructions set forth therein (including, in the case of Forms
of Election, whether such Forms have been received by you by 5:00 p.m.,
New York city time, on ___________, 1997 (the "Election Deadline")), (ii)
the Certificates are in proper form for surrender and (iii) any other
required documents submitted to you are in proper form. In addition, you
are to examine surrendered Certificates to ascertain whether any stop
transfer orders are in effect with respect thereto.
(b) If a Form of Election or Transmittal Letter or other document
has been improperly executed or completed, or
<PAGE>
5
is otherwise not in proper form or is subject to any other irregularity
(including any irregularity relating to a stop transfer order), you are to
take such action as you deem appropriate to notify the tendering
stockholder or warrantholder, as the case may be, of such irregularity and
to request that such irregularity be corrected; provided, that with
respect to any irregularity in or relating to a Form of Election of which
you become aware following the Election Deadline, you shall notify the
stockholder who submitted such Form of Election of such irregularity,
shall advise such stockholder in such notice to execute and complete a
Transmittal Letter in order to receive the Cash Election Price in the
Merger and shall provide such stockholder with a Transmittal Letter. If
any such irregularity is not corrected within a reasonable period of time
after you notify the tendering stockholder or warrantholder, as the case
may be, of such irregularity, you are to notify the Company and await
further written instructions from Company. The Company reserves the right
to waive any defect or irregularity in the form of delivery of
Certificates and accompanying Forms of Election and/or Transmittal
Letters.
6. Payment of the Merger Consideration.
(a) As soon as practicable following the Effective Time, you shall,
with respect to each Electing Share converted through election or
proration into the right to receive Non-Cash Election Shares pursuant to
Section 2.1(c) of the Merger Agreement, (i) arrange for the issuance by
the Company Transfer Agent and the delivery of stock certificates in the
name of the person or persons entitled thereto representing the number of
whole shares of Company Common Stock issuable in respect of such shares
pursuant to the Merger Agreement (it being understood that no certificates
or scrip representing fractional shares of Company Common Stock shall be
issued upon the surrender for exchange of Certificates representing shares
of Company Common Stock), (ii) arrange for the sale of the shares of
Company Common Stock representing all such fractional interests and (iii)
subject to the effect of any applicable laws, distribute the net proceeds
from such sale (following the deduction of applicable transaction costs)
to the holders of shares of Company Common Stock entitled thereto pursuant
to the Merger Agreement.
(b) As soon as practicable following the Effective Time, you shall,
with respect to shares of Company Common Stock (other than Dissenting
Shares and Electing Shares converted into the right to receive Non-Cash
Election Shares pursuant to Section 2.1(c) of the Merger Agreement), upon
receipt of the Stock Certificate(s) covering such shares, together with a
duly executed and completed Stock Transmittal Letter and any other
required documents with
<PAGE>
6
respect to such shares, make the cash payment in respect of such shares
required pursuant to the Merger Agreement on a basis consistent with the
requirements of the Merger Agreement. Each such cash payment shall be made
with funds withdrawn from the Escrow Fund.
(c) As soon as practicable following the Effective Time, you shall,
with respect to Company Warrants, upon receipt of the Warrant
Certificate(s) covering such Company Warrants, together with a duly
executed and completed Warrant Transmittal Letter and any other required
documents with respect to such Company Warrants, make the cash payment in
respect of each such Company Warrant required pursuant to the Merger
Agreement on a basis consistent with the requirements of the Merger
Agreement. Each such cash payment shall be made with funds withdrawn from
the Escrow Fund. (d) You will execute and deliver to the Company Transfer
Agent, at least twice weekly, a written notice and appropriate computer
materials indicating the certificates for Company Common Stock necessary
for payment of the Merger Consideration and setting forth the number of
shares to be represented by each such certificate and the name in which
each certificate should be issued.
(e) No interest shall be paid to holders of shares of Company Common
Stock or holders of Company Warrants, as the case may be, on or with
respect to any amount payable upon surrender of Certificates in respect
thereof. Insofar as required by any governmental agency or authority, you
shall provide all information and file all forms or returns with regard to
the payments made pursuant to this Agreement, including, without
limitation, information and forms and returns relating to income taxes.
7. Records of Company Common Stock Received. Unless otherwise
required pursuant to this Agreement, all Forms of Election and Stock
Transmittal Letters (and related documentation) shall be recorded by you
as to date and time of receipt and shall be preserved and retained by you.
8. Records of Company Warrants Received. Unless otherwise required
pursuant to this Agreement, all Warrant Transmittal Letters (and related
documentation) shall be recorded by you as to date and time of receipt and
shall be preserved and retained by you.
9. Cancellation of Shares; Notation. Upon delivering the Merger
Consideration in exchange for any shares of Company Common Stock, you
shall cancel or arrange for the cancellation of all such shares and
related Stock Certificates, and such Stock Certificates shall be retained
by you pending further instructions from the Company. You shall make the
appropriate notation on such Certificate(s)
<PAGE>
7
and other appropriate records in the event a holder voluntarily indicates
Stock Certificate numbers in the space provided in the third footnote to
Box I on the Form of Election and/or Stock Transmittal Letter.
10. Cancellation of Company Warrants; Notation. Upon delivering the
Warrant Consideration in exchange for any Company Warrants, you shall
cancel or arrange for the cancellation of all such Company Warrants and
related Warrant Certificates, and such Warrant Certificates shall be
retained by you pending further instructions from the Company. You shall
make the appropriate notation on such Warrant Certificate(s) and other
appropriate records in the event a holder voluntarily indicates Warrant
Certificate numbers in the space provided in the third footnote to Box I
on the Warrant Transmittal Letter.
11. Lost Certificates. After the Effective Date of the Merger, if
any holder of Company Common Stock or Company Warrants, as the case may
be, shall report to you that his failure to surrender Certificates
registered in his name is due to the loss, misplacement or destruction of
such Certificates, you shall require such holder to furnish an appropriate
affidavit of loss and a bond of indemnity of a recognized surety company,
which shall include indemnification of you, the Company and all transfer
agents and registrars of Company Common Stock and Company Warrants, all in
such form as shall have been approved by counsel for the Company. Upon
receipt by you of the foregoing, you are authorized to transmit the Merger
Consideration or Warrant Consideration, as the case may be, to such holder
without surrender by him of Certificates.
12. Request for Information. You will comply with telephone requests
for information with respect to Forms of Election, Transmittal Letters,
Certificates, the surrender of shares of Company Common Stock or Company
Warrants and payment therefor; provided, that any telephone or written
request for information concerning dissenters' rights shall be referred to
the Company. In addition, you will transmit by telephone, and promptly
thereafter confirm in writing to, such persons as Company may designate,
any information which such persons reasonably request.
13. Dissenting Shares. Following the Effective Time, the Company
shall notify you of the names of holders of shares of Company Common Stock
who have preserved, and the number of shares of Company Common Stock with
respect to which there have been preserved, statutory rights of dissenting
stockholders. If you receive certificates representing shares of Company
Common Stock owned by any such holders you are authorized to, and you
shall, after consultation with Company, endorse or stamp such certificates
with a statement that such shares are
<PAGE>
8
Dissenting Shares and the certificates shall be returned to such holders.
To the extent that shares of Company Common Stock as to which dissenters'
rights have been demanded are deemed to be converted into the Merger
Consideration pursuant to Section 2.2 of the Merger Agreement, the Company
shall promptly notify you of the names of the holders of such shares and
number of shares deemed to be so converted, and you shall, as soon as
practicable upon receipt of Stock Transmittal Letters and certificates
with respect to such shares, deliver to the holders thereof the Merger
Consideration in accordance with the Merger Agreement.
14. Exchange Agent Fees. For your services as Exchange Agent
hereunder, the Company shall pay you the fees set forth in Exhibit C. The
Company shall also reimburse you for your reasonable out-of-pocket
expenses incurred in connection with your services hereunder after
submission to the Company of an itemized statement in reasonable detail.
15. Termination. Promptly following the date which is one year after
the Effective Time, upon request of the Company, you shall deliver to the
Company all cash, Certificates, stock lists and stock records of the
Company and other instruments in your possession relating to the
transactions described herein, accompanied by an accounting for all
payments made by you pursuant to this Agreement, and your duties shall
thereupon terminate. If any Certificates are surrendered to you for
payment after such termination, you will promptly forward such
Certificates, together with the related Transmittal Letters and any other
documents, to the Company, or as the Company may otherwise direct.
16. Indemnity, Etc. (a) We agree to indemnify you for, and to hold
you harmless against, any loss, liability or expense (including without
limitation any loss, liability, damage or expense incurred for submitting
for transfer shares of Company Common Stock tendered without a signature
guarantee pursuant to the Stock Transmittal Letter, or in connection with
any communication or message transmitted or purported to be transmitted
through electronic means to or from a Book-Entry Transfer Facility, and
the fees and expenses of counsel) incurred by you without gross
negligence, bad faith or willful failure on your part in the performance
of your duties as Exchange Agent in accordance with these instructions and
such further instructions as we may deliver to you from time to time in
writing, or as a result of defending yourself against any claim or
liability resulting from your actions as Exchange Agent pursuant hereto.
Anything in this agreement to the contrary notwithstanding, in no event
shall you be liable for special, indirect or consequential loss or damage
of any kind whatsoever (including but no limited to lost profits), even if
you have been advised of the likelihood of such loss or damage and
regardless of the form of action.
<PAGE>
9
(b) In no case shall the Company be liable under this indemnity with
respect to any claim against you unless the Company shall be notified by
you, by letter or by cable or telex confirmed by letter, of the written
assertion of a claim against you or of any action commenced against you,
promptly after you shall have received any such written assertion of a
claim or shall have been served with the summons or other first legal
process giving information as to the nature and basis of the claim, but
failure to so notify the Company shall not relieve the Company from any
liability which it may have otherwise than on account of this Section 16,
except to the extent that such failure prejudices the Company's rights
with respect to such claim. The Company shall be entitled to participate
at its own expense in the defense of any such claim, and if the Company so
elects at any time after receipt of such notice, it shall assume the
defense of any suit brought to enforce any such claim. In the event of
such assumption, the Company shall not be liable for any fees and expenses
of counsel thereafter incurred by you.
17. Depository Trust Company. You shall make arrangements with
respect to delivery of shares of Company Common Stock and Company Warrants
and Certificates by the Depository Trust Company in connection with the
Merger in accordance with your customary procedures for such transfer not
inconsistent with the terms of this Agreement.
18. Further Information. Should you have any questions which are not
covered by these instructions, you will consult with representatives of
KCLC and act in accordance with their instructions.
19. Notices. All notices and other communications hereunder shall be
delivered to the respective parties at the following addresses:
If to the Company: KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36166
Attention: Chief Financial Officer
If to the Exchange
Agent: ChaseMellon Shareholder Services
85 Challenger Road, 1st Floor
Ridgefield, New Jersey 07660
Attention: Reorganization
Department
<PAGE>
10
20. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the law of the State of New
York, without regard to the conflicts of law rules thereof.
Please confirm your agreement to act as Exchange Agent by signing in
the space indicated below.
Very truly yours,
KINDERCARE LEARNING CENTERS, INC.
By: _______________________________
Title:
The undersigned hereby accepts its appointment as Exchange Agent on
the terms set forth above as of the date first above written.
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By: ________________________________
Title:
<PAGE>
EX-99.5
Correspondence
Exhibit 99.5
January 3, 1996
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36116
Ladies and Gentlemen:
I hereby consent to the references to my becoming a director of KinderCare
Learning Centers, Inc. ("KinderCare") in the Registration Statement on Form S-4
of KinderCare relating to the proxy statement of KinderCare, the preliminary
copy of which was initially filed on October 22, 1996 with the Securities and
Exchange Commission.
Sincerely yours,
/s/ CLIFTON S. ROBBINS
----------------------------
Clifton S. Robbins
<PAGE>
EX-99.6
Correspondence
Exhibit 99.6
January 3, 1996
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36116
Ladies and Gentlemen:
I hereby consent to the references to my becoming a director of KinderCare
Learning Centers, Inc. ("KinderCare") in the Registration Statement on Form S-4
of KinderCare relating to the proxy statement of KinderCare, the preliminary
copy of which was initially filed on October 22, 1996 with the Securities and
Exchange Commission.
Sincerely yours,
/s/ NILS P. BROUS
----------------------------
Nils P. Brous
<PAGE>
EX-99.7
Correspondence
Exhibit 99.7
January 3, 1996
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36116
Ladies and Gentlemen:
I hereby consent to the references to my becoming a director of KinderCare
Learning Centers, Inc. ("KinderCare") in the Registration Statement on Form S-4
of KinderCare relating to the proxy statement of KinderCare, the preliminary
copy of which was initially filed on October 22, 1996 with the Securities and
Exchange Commission.
Sincerely yours,
/s/ HENRY R. KRAVIS
----------------------------
Henry R. Kravis
<PAGE>
EX-99.8
Correspondence
Exhibit 99.8
January 3, 1996
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36116
Ladies and Gentlemen:
I hereby consent to the references to my becoming a director of KinderCare
Learning Centers, Inc. ("KinderCare") in the Registration Statement on Form S-4
of KinderCare relating to the proxy statement of KinderCare, the preliminary
copy of which was initially filed on October 22, 1996 with the Securities and
Exchange Commission.
Sincerely yours,
/s/ GEORGE R. ROBERTS
----------------------------
George R. Roberts
<PAGE>
EX-99.9
Correspondence
Exhibit 99.9
January 3, 1996
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36116
Ladies and Gentlemen:
I hereby consent to the references to my becoming a director of KinderCare
Learning Centers, Inc. ("KinderCare") in the Registration Statement on Form S-4
of KinderCare relating to the proxy statement of KinderCare, the preliminary
copy of which was initially filed on October 22, 1996 with the Securities and
Exchange Commission.
Sincerely yours,
/s/ DAVID J. JOHNSON
----------------------------
David J. Johnson
