<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 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 of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification 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) 227-5090
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH A COPY TO:
<TABLE>
<S> <C>
JOHN B. TEHAN, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being 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
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1)
<S> <C> <C> <C>
9 1/2% Series B Senior Subordinated Notes due 2009....... $300,000,000 100% $300,000,000
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
9 1/2% Series B Senior Subordinated Notes due 2009....... $90,909.09
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
------------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT WITHOUT
NOTICE. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION DATED MARCH 11, 1997
PRELIMINARY PROSPECTUS
[LOGO]
KINDERCARE LEARNING CENTERS, INC.
OFFER TO EXCHANGE $300,000,000 OF ITS
9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT,
FOR $300,000,000 OF ITS OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2009
------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED.
------------------------------
KinderCare Learning Centers, Inc. (the "Company" or "KinderCare"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange an aggregate of up to $300,000,000 principal
amount of 9 1/2% Series B Senior Subordinated Notes due 2009 (the "Exchange
Notes") of the Company for an identical face amount of the issued and
outstanding 9 1/2% Senior Subordinated Notes due 2009 (the "Old Notes" and
together with the Exchange Notes, the "Notes") of the Company from the Holders
(as defined) thereof. As of the date of this Prospectus, there is $300,000,000
aggregate principal amount of the Old Notes outstanding. The terms of the
Exchange Notes are identical in all material respects to the Old Notes, except
that the Exchange Notes have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and therefore will not bear legends
restricting their transfer and will not contain certain provisions providing for
an increase in the interest rate on the Old Notes under certain circumstances
described in the Registration Rights Agreement (as defined), which provisions
will terminate as to all of the Notes upon the consummation of the Exchange
Offer.
Interest on the Exchange Notes will be payable semi-annually on February 15 and
August 15 of each year, commencing on August 15, 1997. The Exchange Notes will
mature on February 15, 2009. Except as described below, the Company may not
redeem the Exchange Notes prior to February 15, 2002. On or after such date, the
Company may redeem the Exchange Notes, in whole or in part, at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time on or prior to February 15,
2000, the Company may, subject to certain requirements, redeem up to 40% of the
aggregate principal amount of the Exchange Notes originally issued with the net
proceeds of one or more Equity Offerings (as defined), at a price equal to
109.5% of the aggregate principal amount to be redeemed, together with accrued
and unpaid interest, if any, to the date of redemption; provided that at least
60% of the aggregate principal amount of the Exchange Notes remains outstanding
immediately after each such redemption. The Exchange Notes will not be subject
to any sinking fund requirements. Upon the occurrence of a Change of Control (as
defined), the Company will be required to make an offer to purchase the Exchange
Notes at a price equal to 101% of the aggregate principal amount thereof,
together with accrued and unpaid interest, if any, to the date of purchase. See
"Description of the Exchange Notes."
The Exchange Notes will be unsecured, will be subordinated in right of payment
to all existing and future Senior Indebtedness (as defined) of the Company and
will be effectively subordinated to all obligations of the subsidiaries of the
Company. The Exchange Notes will rank PARI PASSU with any future senior
subordinated indebtedness of the Company and will rank senior to all other
Subordinated Indebtedness (as defined) of the Company. The Indenture (as
defined) permits the Company to incur additional indebtedness, including up to
$550.0 million of Senior Indebtedness under the Credit Facilities (as defined),
subject to certain limitations. See "Description of the Exchange Notes." As of
December 13, 1996, on a pro forma basis, after giving effect to the Merger and
the Financings (as defined) (including the Offering, as defined), the aggregate
amount of the Company's outstanding Senior Indebtedness would have been
approximately $122.2 million (excluding unused commitments), and the Company
would have had no senior subordinated indebtedness outstanding other than the
Notes. See "Pro Forma Consolidated Financial Statements" and "Description of the
Exchange Notes--Subordination."
The Old Notes were issued and sold on February 13, 1997 in a transaction not
registered under the Securities Act in reliance upon an exemption from the
registration requirements thereof. In general, the Old Notes may not be offered
or sold unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act. The
Exchange Notes are being offered hereby in order to satisfy certain obligations
of the Company contained in the Registration Rights Agreement. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, PROVIDED that such Exchange Notes are acquired
in the ordinary course of such holder's business, such holder has no arrangement
with any person to participate in the distribution of such Exchange Notes and
neither such holder nor any such other person is engaging in or intends to
engage in a distribution of such Exchange Notes. However, the Company has not
sought, and does not intend to seek, its own no-action letter, and there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. Notwithstanding the foregoing, each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Company). The
Company has agreed that, for a period of 120 days after the date of this
Prospectus, it will make this Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution."
The Old Notes are designated for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market. There is no established
trading market for the Exchange Notes. The Company does not currently intend to
list the Exchange Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange. The date of acceptance and
exchange of the Old Notes (the "Exchange Date") will be the fourth business day
following the Expiration Date (as defined). Old Notes tendered pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date. The
Company will not receive any proceeds from the Exchange Offer. The Company will
pay all of the expenses incident to the Exchange Offer.
------------------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 17, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY INVESTORS IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE EXCHANGE NOTES.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. The Company is presently subject to the information requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Commission.
The Registration Statement, such reports and other information can be inspected
and copied at the Public Reference Section of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at
regional public reference facilities maintained by the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material, including copies of all or any portion of the Registration
Statement, can be obtained from the Public Reference Section of the Commission
at prescribed rates. Such material may also be accessed electronically by means
of the Commission's home page on the Internet (http://www.sec.gov).
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED THEREIN BY
REFERENCE) ARE AVAILABLE UPON REQUEST FROM KINDERCARE LEARNING CENTERS, INC.,
2400 PRESIDENTS DRIVE, MONTGOMERY, ALABAMA 36116, ATTENTION: CORPORATE SECRETARY
(TELEPHONE: 334-277-5090). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY , 1997.
------------------------
The names or phrases KinderCare At Work-Registered Trademark-, My Window On
The World-Registered Trademark-, Helping America's Busiest
Families-Registered Trademark-, Look At Me!-Registered Trademark-, Let Me Do
It!-Registered Trademark-, Let's Move, Let's Play-Registered Trademark-, Small
Talk-Registered Trademark-, The Whole Child Is The Whole
Idea-Registered Trademark-, Once Upon A Time . . .-TM-, Kid's Choice-TM-, and KC
Imagination Highway-TM-, as used herein, and the red schoolhouse logo, are
registered or unregistered trademarks of the Company.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED FINANCIAL AND OTHER INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS ARE URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY. ALL REFERENCES TO THE "COMPANY" OR "KINDERCARE"
SHALL MEAN KINDERCARE LEARNING CENTERS, INC. AND ITS CONSOLIDATED SUBSIDIARIES,
UNLESS THE CONTEXT INDICATES OTHERWISE. ALL REFERENCES TO FISCAL YEAR IN THIS
PROSPECTUS REFER TO THE FISCAL YEAR ENDING ON THE FRIDAY CLOSEST TO MAY 31 OF
EACH YEAR. ALL REFERENCES TO MARKET SHARE AND DEMOGRAPHIC DATA IN THIS
PROSPECTUS ARE BASED ON INDUSTRY AND GOVERNMENT PUBLICATIONS AND COMPANY DATA.
THE COMPANY
GENERAL
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 operating 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 December 13, 1996, the Company operated 1,148 child care
centers, of which 736 are owned, located in 38 states and the United Kingdom and
had enrollment of approximately 125,000 full-time and part-time children. The
Company's total center capacity at December 13, 1996 was approximately 142,000
full-time children. For the fiscal years ended May 31, 1996 ("fiscal 1996") and
June 2, 1995 ("fiscal 1995"), average occupancy was 75.9% and 76.3%,
respectively, and the average full-time three-year-old weekly tuition rate
(which the Company believes approximates the Company's average full-time weekly
tuition rate) was $100 and $96, respectively. For the twenty-eight weeks ended
December 13, 1996, average occupancy was 74.2%, and the average full-time
three-year-old weekly tuition rate was $104. For the twelve months ended
December 13, 1996, the Company generated operating revenues of $555.6 million
and Adjusted EBITDA (as defined) of $89.6 million.
THE CHILD CARE INDUSTRY
FAVORABLE DEMOGRAPHICS AND SOCIAL TRENDS. The U.S. child care industry
(including home-based care, employer on-site care, and care delivered by private
facilities, government-sponsored institutions, church-affiliated centers,
colleges and universities, group day care center chains, and civic groups such
as the YMCA) has grown at a compound annual growth 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 at a 6.8% compound annual growth rate for the rest of the
decade, according to Marketdata Enterprises, Inc., an independent market
research and consulting firm. This growth has been, and is expected to continue
to be, driven by several demographic and social trends, including: (i) an
increase in the number of births as compared generally to the 1970's and 1980's,
(ii) mothers continuing to enter the work force, and (iii) a significant
increase in the popularity of center-based care. According to the United States
National Center for Health Statistics, in 1989 (for the first time since 1964,
the final year of the "baby boom") and in each year since then through 1995, the
annual number of births approximated four million per year. The annual number of
births is expected to remain at or around this level through 2010. Furthermore,
the number of children under the age of five grew from approximately 16.1
million in 1975 to an estimated 20.2 million in 1995, according to the United
States Bureau of the Census (the "Census Bureau"). These trends are complemented
by the continued increase in mothers entering the work force. According to the
United States Bureau of Labor Statistics (the "USBLS"), the percentage of
mothers in the work force that have children under the age of six, relative to
all mothers that have children under the age of six, has risen from
approximately 39% in 1975 to an estimated 61% in 1995, and the percentage of
mothers in the work force that have children between the ages of five and
twelve, relative to all mothers that have children between the ages of five and
twelve, has risen from 53% in 1975 to 75% in 1995.
3
<PAGE>
Finally, there has also been a significant increase in the use of child care
centers by families with both working and non-working mothers as a method of
care for preschool age children. The Company believes this increase is due in
part to the recognition of the importance of early childhood development and
education. Center-based care typically offers a more structured curriculum,
better educational materials, more experienced personnel and more children for
social interaction than alternative forms of child care. Center-based care has
become an increasingly popular form of non-parental care for families with
working mothers, accounting for approximately 30% of such care in 1993,
according to the most recent data available from the Census Bureau, up from
about 6% in 1965, according to the National Association for the Education of
Young Children ("NAEYC"). Furthermore, 22% of children under the age of six with
mothers not in the labor force were enrolled in center-based child care programs
in 1995, according to the U.S. Department of Education.
FRAGMENTED INDUSTRY. The U.S. child care industry is highly fragmented,
with the aggregate capacity of the largest 50 for-profit child care companies
capable of serving less than 1% of the potential child care market, or
approximately 506,000 children out of a total of 51 million children under the
age of twelve in the United States as of January 1, 1996, according to CHILD
CARE INFORMATION EXCHANGE, an industry publication, and Company estimates.
KinderCare is the only child care company that has total center capacity in
excess of 100,000 children and the only company to operate more than 1,000
centers. Furthermore, including KinderCare, only nine for-profit companies have
a total center capacity in excess of 10,000 children and only seven have more
than 100 centers. Relative to smaller competitors, the few large national
operators such as KinderCare have a competitive advantage over other for-profit
child care companies and smaller independent operators with less extensive
resources.
COMPETITIVE STRENGTHS
LEADING MARKET POSITION. Based on the number of centers operated, children
served, operating revenues and operating income, KinderCare is the largest
provider of for-profit preschool educational and child care services in the
United States. At December 13, 1996, the Company operated 1,148 child care
centers in 38 states and the United Kingdom with total center capacity of
approximately 142,000 full-time children. In contrast, as of January 1, 1996,
the second and third largest for-profit competitors operated approximately 750
and 500 centers, respectively, with total center capacities of approximately
95,000 and 62,500 children, respectively, according to CHILD CARE INFORMATION
EXCHANGE. By virtue of its size and leadership position, the Company benefits
from several competitive advantages over smaller operations, including (i) the
resources available to invest in developing and regularly updating high quality
educational programs, services and curriculum materials; (ii) the expertise to
manage the complexities involved in complying with various state and local
regulations and licensing requirements; (iii) purchasing power in areas such as
insurance, equipment, supplies and food; and (iv) the ability to spread fixed
corporate and centralized support costs, including real estate, marketing and
educational staff, over a large center base.
STRONG BRAND IDENTITY AND REPUTATION. The Company's high quality preschool
educational and child care services have enabled it to develop a strong brand
identity and reputation in an industry where personal trust and parent referrals
play an important role in attracting new customers. The Company's brand
awareness is substantially greater than that of its closest competitor according
to recent market research commissioned by the Company. Throughout all of
KinderCare's communications (including informational brochures, parent
handbooks, advertising and marketing materials), the Company reinforces its
image as the market leader with a caring, well-trained staff having the
resources necessary to provide high quality preschool educational and child care
services.
HIGH QUALITY EDUCATIONAL PROGRAMS. The Company's resources have enabled it
to develop and regularly update a high quality proprietary curriculum that
incorporates professionally-designed, age-specific educational programs based on
its "Whole Child Development" concept. This concept includes
4
<PAGE>
programs that use developmentally appropriate materials, activities and
resources to promote the physical, intellectual, emotional and social
development of children ages six weeks to twelve years. In light of advancements
in childhood education theory and practice, new programs are introduced 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 and curriculum supervision. All of the Company's programs are designed
and tailored specifically to accommodate the needs and safety requirements of
children.
GEOGRAPHICALLY DIVERSIFIED OPERATIONS. The Company's operations are
geographically diversified, with 1,146 child care centers located throughout 38
states and two centers located in the United Kingdom. The five states in which
the highest number of the Company's centers are located (Texas, California,
Illinois, Florida and Ohio) are well-dispersed, and together these states
account for less than 40% of the Company's centers. The geographical diversity
of the Company's operations mitigates the potential impact of regional economic
downturns or adverse changes in local regulations.
VALUABLE REAL ESTATE PORTFOLIO. At December 13, 1996, the Company owned
736, or 64%, of its 1,148 centers, with the remainder under lease or management
contract. The Company's real estate portfolio provides it with considerable
financial flexibility. Land and buildings, at December 13, 1996, had a net book
value of $392.9 million.
BUSINESS STRATEGY
The Company's objective is to build on its position as the nation's leading
preschool educational and child care services provider by offering high quality
services in a safe, healthy and nurturing environment. To meet this objective,
management's business strategy includes the following:
ACCELERATE NEW CENTER DEVELOPMENT AND PURSUE SELECTIVE ACQUISITIONS. 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
fiscal 1996, the Company's newer community centers (operating for at least 18
months, but less than five years) had an average capacity of 145 full-time
children and achieved an average operating revenue of approximately $684,000
versus community centers opened prior to the fiscal year ended December 27, 1991
("fiscal 1991"), which had an average capacity of 115 full-time children and an
average operating revenue of approximately $453,000. These newer community
centers had an average occupancy rate and an average three-year-old weekly
tuition rate of 82% and $114, respectively, compared to community centers opened
prior to fiscal 1991, which achieved 76% and $99, respectively. Also, these
newer community centers achieved an average center controllable profit margin
(center operating revenues, less labor costs and controllable expenses, such as
food and supplies) which is four percentage points higher than community centers
opened prior to fiscal 1991.
In addition to accelerating new center development, the Company may seek to
acquire existing child care centers where demographics, operating standards, and
customer services complement the KinderCare business strategy. Management
believes that the Company's competitive position, economies of scale and
financial strength will allow it to capitalize on selective acquisition
opportunities in the fragmented child care industry.
INCREASE OCCUPANCY. The Company plans to increase center occupancy by (i)
emphasizing local marketing programs, (ii) enhancing recruiting, retention and
training of staff, and (iii) improving customer retention and loyalty. The
Company's marketing activities are currently designed to increase new
enrollments primarily through local marketing efforts, including direct mail
solicitation, telephone directory yellow pages and customer referrals. See
"Business--Marketing, Advertising and Promotions."
5
<PAGE>
These methods communicate to parents the Company's commitment to quality
preschool education and child care by emphasizing KinderCare's nurturing
environment, state-of-the-art educational programs, quality staff, and excellent
facilities and equipment, such as computers for children's educational programs.
Moreover, beginning in the current fiscal year that began June 1, 1996 ("fiscal
1997"), the Company implemented an automated consumer inquiry tracking system to
provide rapid responses more efficiently to inquiries from potential customers
and to develop a comprehensive consumer database.
Because a high quality teaching and administrative staff is a key factor in
maintaining and increasing center occupancy, the Company emphasizes recruiting,
retaining and training qualified center personnel. KinderCare's recruiting
process seeks to identify high quality candidates for its teaching, center
director and area coordinator positions. Furthermore, management believes its
current compensation and benefit plans are highly competitive in the child care
industry and, along with the Company's subsidized training programs, will result
in increased retention of qualified staff personnel. Additionally, the Company
rewards center directors and area coordinators through an annual bonus program
designed to increase center occupancy and center controllable profit.
The Company also strives to increase occupancy by improving its customer
retention and loyalty by strengthening its current parents' emotional commitment
to KinderCare. During fiscal 1997, the Company initiated parent orientation
meetings at centers during the fall enrollment season, introduced organized
parent involvement programs and parent advisory forums, and began conducting
ongoing market research on customer satisfaction.
ENHANCE EDUCATIONAL PROGRAMS AND QUALITY OF SERVICES. The Company
continually evaluates and strives to improve the quality of its preschool
educational and child care services. KinderCare has invested significant
resources in formulating a proprietary educational program, maintaining safe and
up-to-date facilities, and hiring, retaining, and training high quality
employees. The Company plans to continue to test and implement innovative
services and offerings, such as computers for children's educational programs
and its new program for school-aged children called KC Imagination Highway-TM-,
which encourages children to engage in meaningful, purposeful, long-lasting
projects that require an active imagination. The Company also plans to continue
encouraging its centers to become accredited by NAEYC, a national organization
that has established comprehensive criteria for providing quality child care and
implemented a formal, though voluntary, child care center accreditation process.
IMPROVE OPERATIONAL EFFICIENCIES. During fiscal 1996, the Company
introduced numerous organizational initiatives to increase the Company's
operating efficiencies by (i) streamlining management, (ii) increasing local
authority and decision making, and (iii) enhancing centralized support
productivity. The Company plans to continue to improve its operating performance
primarily by reducing center labor costs principally through improved staff
scheduling by utilizing automated information systems to match better the number
of staff personnel at work at a given time of day to the number of students in
attendance at that time in accordance with state required student/teacher
ratios. The Company also plans to continue to leverage its economies of scale
and purchasing power.
CAPITALIZE ON KINDERCARE'S STRONG BRAND IDENTITY. KinderCare's strong brand
identity plays a significant role in the Company's continued growth of its
preschool education and child care business, as management believes that, among
other benefits, this factor contributes to higher enrollment for new child care
centers. Furthermore, management believes that there are opportunities to
leverage the Company's brand identity. Possibilities include licensing of the
KinderCare name for educational materials, clothes, toys and other consumer
products, as well as potential brand extensions into other forms of educational
or child care services, such as the operation of primary and private schools.
6
<PAGE>
THE MERGER AND THE FINANCINGS
On October 3, 1996, the Company entered into an agreement and plan of
merger, as amended as of December 27, 1996 (the "Merger Agreement"), with KCLC
Acquisition Corp. ("KCLC Acquisition"). KCLC Acquisition was a wholly owned
subsidiary of KLC Associates, L.P. (the "Partnership"), a partnership formed at
the direction of Kohlberg Kravis Roberts & Co., L.P. ("KKR"), which is an
affiliate of Kohlberg Kravis Roberts & Co., a private investment firm. Pursuant
to the Merger Agreement, on February 13, 1997 (the "Effective Time") KCLC
Acquisition merged with and into the Company, with the Company as the surviving
corporation (the "Merger"). The Merger Agreement contemplates the conversion of
approximately 93% of the issued and outstanding shares of the Company's common
stock, $.01 par value per share (the "Common Stock"), at the election of each
holder, into $19.00 in cash per share, and the retention of approximately 7% of
the shares by stockholders. In addition, the Merger Agreement provides for the
cancellation and conversion of each warrant to purchase shares of Common Stock
(each a "Warrant" and collectively the "Warrants") issued and outstanding
immediately prior to the Effective Time into the right to receive an amount in
cash determined as specified in the Merger Agreement. Because the total number
of outstanding shares of Common Stock decreased from approximately 19,423,577,
as of January 8, 1997, to 9,210,526 immediately after the Merger, the
approximately 7% of the outstanding Common Stock (1,381,579 shares) retained by
existing stockholders in the Merger represented approximately 15% of the shares
outstanding immediately after the Merger and the 7,828,947 shares owned by the
Partnership represented approximately 85% of the shares outstanding immediately
after the Merger.
The transactions contemplated by the Merger Agreement were funded by (i)
approximately $76.2 million of bank borrowings by the Company (certain of which
borrowings have yet to be made) pursuant to a senior secured term loan facility
of up to $90.0 million (the "Term Loan Facility"), (ii) the offering of $300.0
million aggregate principal amount of Old Notes (the "Offering"), and (iii) an
equity contribution to the Company by the Partnership of approximately $148.8
million. Such amounts were used to (x) pay approximately $382.4 million of cash
merger consideration, (y) repay approximately $107.6 million of indebtedness of
the Company under its then-existing bank credit facility (the "Old Bank Credit
Facility") and (z) pay an estimated $35.0 million in transaction fees and
expenses incurred in connection with the Merger (certain of which fees have yet
to be paid). The Company also entered into a $300.0 million senior secured
revolving credit facility (the "Revolving Credit Facility") to provide for the
Company's working capital requirements and growth plans following the Merger.
The Revolving Credit Facility and the Term Loan Facility (collectively the
"Credit Facilities") have been provided by a group of banks led by The Chase
Manhattan Bank ("Chase"). The Credit Facilities and the Offering are
collectively referred to herein as the "Financings."
7
<PAGE>
The pro forma sources and uses of the funds for the Merger and the related
transactions (including the Financings), assuming that the Merger occurred on
December 13, 1996, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
SOURCES OF FUNDS
Term Loan Facility............................................... $ 75,981
<S> <C>
Old Notes........................................................ 300,000
Equity contribution.............................................. 148,750
---------
Total sources.............................................. $ 524,731
---------
---------
<CAPTION>
USES OF FUNDS
<S> <C>
Repayment of Old Bank Credit Facility (a)........................ $ 122,500
Payment of cash merger consideration (a)......................... 367,231
Estimated transaction fees and expenses (b)...................... 35,000
---------
Total uses................................................. $ 524,731
---------
---------
</TABLE>
- ------------------------
(a) Due to the exercise of a number of options and warrants prior to the
Effective Time, the cash merger consideration paid was approximately $382.4
million and the indebtedness repaid under the Old Bank Credit Facility was
approximately $107.6 million.
(b) Includes a transaction bonus of $1.0 million payable to certain members of
management of the Company.
8
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer................ The Company is offering to exchange pursuant to the
Exchange Offer up to $300,000,000 aggregate principal
amount of its new 9 1/2% Series B Senior Subordinated
Notes due 2009 (the "Exchange Notes") for a like
aggregate principal amount of its outstanding 9 1/2%
Senior Subordinated Notes due 2009 (the "Old Notes" and
together with the Exchange Notes, the "Notes"). The
terms of the Exchange Notes are identical in all
material respects (including principal amount, interest
rate and maturity) to the terms of the Old Notes for
which they may be exchanged pursuant to the Exchange
Offer, except that the Exchange Notes are freely
transferrable by Holders (as defined) thereof (other
than as provided herein), and are not subject to any
covenant regarding registration under the Securities
Act. See "The Exchange Offer."
Interest Payments................. Interest on the Exchange Notes shall accrue from the
last interest payment date (February 15 or August 15) on
which interest was paid on the Notes so surrendered or,
if no interest has been paid on such Notes, from
February 13, 1997 (the "Interest Payment Date").
Minimum Condition................. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered
for exchange.
Expiration Date; Withdrawal of
Tender.......................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1997, unless the Exchange Offer
is extended, in which case the term "Expiration Date"
means the latest date and time to which the Exchange
Offer is extended. Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer-- Withdrawal
Rights."
Exchange Date..................... The date of acceptance for exchange of the Old Notes
will be the fourth business day following the Expiration
Date.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Company currently expects that each of the conditions
will be satisfied and that no waivers will be necessary.
See "The Exchange Offer--Certain Conditions to the
Exchange Offer." The Company reserves the right to
terminate or amend the Exchange Offer at any time prior
to the Expiration Date upon the occurrence of any such
condition.
Procedures for Tendering
Old Notes....................... Each holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail
or otherwise deliver such Letter of
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Transmittal, or such facsimile, together with the Old
Notes and any other required documentation to the
Exchange Agent (as defined) at the address set forth
therein. See "The Exchange Offer--Procedures for
Tendering Old Notes" and "Plan of Distribution."
Use of Proceeds................... There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
Federal Income Tax Consequences... The exchange of Notes pursuant to the Exchange Offer
will not be a taxable event for federal income tax
purposes. See "Certain U.S. Federal Income Tax
Consequences."
Special Procedures for Beneficial
Owners.......................... Any beneficial owner whose Old Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender should
contact such registered holder promptly and instruct
such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing
the Letter of Transmittal and delivering the Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership
may take considerable time. See "The Exchange
Offer--Procedures for Tendering Old Notes."
Guaranteed Delivery Procedures.... Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes according to
the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering Old Notes."
Acceptance of Old Notes and
Delivery of Exchange Notes...... The Company will accept for exchange any and all Old
Notes which are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Notes issued pursuant to
the Exchange Offer will be delivered promptly following
the Expiration Date. See "The Exchange Offer--Acceptance
of Old Notes for Exchange; Delivery of Exchange Notes."
Effect on Holders of Old Notes.... As a result of the making of, and upon acceptance for
exchange of all validly tendered Old Notes pursuant to
the terms of this Exchange Offer, the Company will have
fulfilled a covenant contained in the Registration
Rights Agreement (the "Registration Rights Agreement")
dated February 13, 1997 among the Company and Chase
Securities Inc., BT Securities Corporation, Salomon
Brothers Inc and Smith Barney Inc. (the "Initial
Purchasers") and, accordingly, there will be no increase
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
in the interest rate on the Old Notes pursuant to the
terms of the Registration Rights Agreement, and the
holders of the Old Notes will have no further
registration or other rights under the Registration
Rights Agreement. Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will
continue to hold such Old Notes and will be entitled to
all the rights and limitations applicable thereto under
the Indenture between the Company and Marine Midland
Bank relating to the Old Notes and the Exchange Notes
(the "Indenture"), except for any such rights under the
Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a
result of the making of, and the acceptance for exchange
of all validly tendered Old Notes pursuant to, the
Exchange Offer. All untendered Old Notes will continue
to be subject to the restrictions on transfer provided
for in the Old Notes and in the Indenture. To the extent
that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered Old Notes could
be adversely affected.
Consequence of Failure to
Exchange........................ Holders of Old Notes who do not exchange their Old Notes
for Exchange Notes pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer
of such Old Notes as set forth in the legend thereon as
a consequence of the offer or sale of the Old Notes
pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the
Securities Act and applicable state securities laws. In
general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state
securities laws. The Company does not currently
anticipate that it will register the Old Notes under the
Securities Act.
Exchange Agent.................... Marine Midland Bank is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange Offer.
See "The Exchange Offer--Exchange Agent."
</TABLE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Securities Offered................ $300,000,000 principal amount of 9 1/2% Senior
Subordinated Notes due 2009.
Maturity Date..................... February 15, 2009.
Interest Payment Dates............ February 15 and August 15 of each year, commencing
August 15, 1997.
Optional Redemption............... Except as described below, the Company may not redeem
the Exchange Notes prior to February 15, 2002. On or
after such date, the Company may redeem the Exchange
Notes, in whole or in part, at the redemption prices set
forth herein, together
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior to
February 15, 2000, the Company may, subject to certain
requirements, redeem up to 40% of the original aggregate
principal amount of the Exchange Notes with the net
proceeds of one or more Equity Offerings (as defined),
at a price equal to 109.5% of the aggregate principal
amount to be redeemed, together with accrued and unpaid
interest, if any, to the date of redemption; provided
that at least 60% of the original aggregate principal
amount of the Notes remains outstanding immediately
after each such redemption. See "Description of the
Exchange Notes-- Optional Redemption."
Change of Control................. Upon the occurrence of a Change of Control (as defined),
the Company will be required to make an offer to
purchase the Exchange Notes at a price equal to 101% of
the principal amount thereof, together with accrued and
unpaid interest, if any, to the date of purchase. See
"Description of the Exchange Notes--Repurchase at the
Option of Holders--Change of Control."
Ranking........................... The Exchange Notes will be unsecured, will be
subordinated in right of payment to all existing and
future Senior Indebtedness (as defined) of the Company
and will be effectively subordinated to all obligations
of the subsidiaries of the Company. The Exchange Notes
will rank PARI PASSU with any future senior subordinated
indebtedness of the Company and will rank senior to all
other Subordinated Indebtedness (as defined) of the
Company. The Indenture (as defined) permits the Company
to incur additional indebtedness, including up to $550.0
million of Senior Indebtedness under the Credit
Facilities, subject to certain limitations. At December
13, 1996, on a pro forma basis after giving effect to
the Merger and the Financings (including the Offering),
the aggregate amount of the Company's outstanding Senior
Indebtedness would have been approximately $122.2
million (excluding unused commitments), and the Company
would have had no senior subordinated indebtedness
outstanding other than the Old Notes. See "Pro Forma
Consolidated Financial Statements" and "Description of
the Exchange Notes--Subordination."
Certain Covenants................. The Indenture contains covenants, including, but not
limited to, covenants with respect to the following
matters: (i) restricted payments; (ii) limitations on
incurrence of indebtedness and issuance of disqualified
stock; (iii) liens; (iv) merger, consolidation, or sale
of all or substantially all assets; (v) limitation on
transactions with affiliates; (vi) dividend and other
payment restrictions affecting restricted subsidiaries;
(vii) limitation on guarantees of indebtedness by
restricted subsidiaries; (viii) limitation on other
senior subordinated indebtedness; and (ix) asset sales.
See "Description of the Exchange Notes."
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Absence of Market................. The Exchange Notes are new securities for which there is
currently no established market. Accordingly, there can
be no assurance as to the development or liquidity of
any market for the Exchange Notes. The Company does not
intend to apply for a listing on a securities exchange
of the Exchange Notes.
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by holders of the Old Notes prior to tendering Old Notes in the
Exchange Offer.
13
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth certain summary consolidated financial and
other data of the Company. The historical consolidated statement of operations
data of the Company for the year ended May 28, 1993 is presented for comparison
to the fiscal years ended June 3, 1994, June 2, 1995 and May 31, 1996 to reflect
the Company's change in fiscal year. The historical consolidated statement of
operations data of the Company for the three fiscal years ended June 3, 1994,
June 2, 1995 and 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 included elsewhere in this Prospectus. The
historical unaudited consolidated financial data for the twenty-eight weeks
ended December 15, 1995 and December 13, 1996 have been derived from, and should
be read in conjunction with, the unaudited consolidated financial statements of
the Company and the related notes thereto included elsewhere in this Prospectus.
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 twenty-eight weeks ended
December 13, 1996 are not necessarily indicative of results that can be expected
for the entire 1997 fiscal year. The pro forma consolidated financial data have
been derived from the Pro Forma Financial Statements (as defined) and the
related notes thereto included elsewhere herein. The pro forma statement of
operations data for the periods presented give effect to the Merger and related
transactions as if such transactions were consummated as of June 3, 1995 for the
fiscal year ended May 31, 1996 and for the twenty-eight weeks ended December 13,
1996, and as of December 16, 1995 for the twelve months ended December 13, 1996.
The pro forma balance sheet data gives effect to the Merger and related
transactions as if such transactions had occurred as of December 13, 1996. The
statement of operations for the year ended May 28, 1993 is presented for
comparison to the fiscal years ended June 3, 1994, June 2, 1995 and May 31, 1996
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 on April 2, 1993 of fresh start reporting ("Fresh Start
Reporting") in accordance with AICPA Statement of Position 90-7 "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7),
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 December 13,
1996, and the statement of operations data for the years ended June 3, 1994,
June 2, 1995 and May 31, 1996, and twenty-eight weeks ended December 15, 1995
and December 13, 1996, after giving effect to the Company's Plan of
Reorganization, pursuant to which it emerged from bankruptcy on March 31, 1993,
are not comparable to the historical financial condition or results of
operations of the Company prior to the Plan of Reorganization. See "Pro Forma
Consolidated Financial Statements," "Selected Historical Consolidated Financial
and Other Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical consolidated financial statements
and the related notes thereto included elsewhere in this Prospectus.
14
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
TWENTY-EIGHT
FISCAL YEAR ENDED WEEKS ENDED (b) TWELVE MONTHS
YEAR ENDED ---------------------------------- ------------------------------ ENDED
MAY 28, JUNE 3, 1994 JUNE 2, MAY 31, DECEMBER 15, DECEMBER 13, DECEMBER 13,
1993 (a) (53 WEEKS) 1995 1996 1995 1996 1996 (c)
----------- ------------ --------- --------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT CHILD CARE CENTER DATA)
STATEMENT OF OPERATIONS
DATA:
Operating revenues........ $ 447,243 $ 488,726 $ 506,505 $ 541,264 $ 285,392 $ 299,751 $ 555,623
Operating income.......... 23,402 47,166 50,786 51,709 22,363 24,117 53,463
Net investment income..... 8,686 3,176 2,635 250 161 86 175
Interest expense (d)...... 24,709 17,675 17,318 16,727 9,219 8,141 15,649
Net income................ 61,685(e) 17,433 22,066 21,683 8,116 3,318 16,885
OTHER FINANCIAL DATA:
EBITDA (f)................ $ 114,175 $ 73,093 $ 81,492 $ 85,931 $ 40,577 $ 36,931 $ 82,285
Adjusted EBITDA (f)....... 51,399 72,314 77,969 87,165 39,397 41,798 89,566
Adjusted EBITDA margin.... 11.5% 14.8% 15.4% 16.1% 13.8% 13.9% 16.1%
Depreciation.............. 27,997 25,148 28,071 33,972 18,053 19,208 35,127
Capital expenditures...... 38,112 35,710 74,376 67,304 38,933 27,849 56,220
Ratio of earnings to fixed
charges (g)............. (g) 2.3x 2.4x 2.4x 1.9x 2.2x 2.5x
CHILD CARE CENTER DATA:
Number of centers (at end
of period).............. 1,166 1,132 1,137 1,148 1,142 1,148 1,148
Center capacity (at end of
period)................. 138,000 136,000 137,000 141,000 138,000 142,000 142,000
Average occupancy (h)..... 74% 77% 76% 76% 76% 74% 75%
Average three-year-old
weekly tuition rate
(h)..................... $ 83 $ 90 $ 96 $ 100 $ 100 $ 104 $ 104
PRO FORMA DATA:
EBITDA (f)................ $ 85,931 $ 36,931 $ 82,285
Adjusted EBITDA (f)....... 87,165 41,798 89,566
Cash interest expense
(i)..................... 38,001 20,163 37,546
Ratio of Adjusted EBITDA
to cash interest
expense................. 2.3x 2.1x 2.4x
Ratio of earnings to fixed
charges (g)............. 1.2x 1.1x 1.3x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 13, 1996
------------------------
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency) (j).................................................... $ (19,632) $ (19,632)
Total assets........................................................................ 529,438 547,515
Total debt (k)...................................................................... 168,763 422,244
Shareholders' equity (l)............................................................ 255,451 20,047
</TABLE>
- ------------------------------
(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.
Due to the implementation of Fresh Start Reporting, the operating results
for the year ended May 28, 1993 include both pre- and post-bankruptcy
amounts.
(b) The Company's fiscal year ends the Friday closest to May 31. The first
quarter is 16 weeks long and the second, third, and fourth quarters are each
twelve weeks long. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."
(c) Summary consolidated historical and pro forma financial data for the twelve
months ended December 13, 1996 have been presented in view of the effects of
seasonality upon the results presented for the twenty-eight weeks ended
December 13, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."
(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 of debt obligations classified as "Liabilities subject to settlement
under reorganization proceedings" on the Company's consolidated balance
sheet at January 1, 1993.
(e) In connection with the Company's emergence from bankruptcy in 1993, the
value of cash distributed, new debt and equity securities issued, and
liabilities assumed was $157.6 million less than the allowed claims of
$457.6 million and the resulting gain was recorded as an extraordinary item.
15
<PAGE>
(f) "EBITDA" represents earnings before interest expense, income taxes,
depreciation and amortization. "Adjusted EBITDA" represents EBITDA exclusive
of investment income, litigation settlements and restructuring costs
(income), net (which includes loss on asset impairment) and extraordinary
items as 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. The items reflected in the following table are more fully described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
TWENTY-EIGHT
FISCAL YEAR ENDED WEEKS ENDED
---------------------------------------------- --------------------------------
YEAR ENDED JUNE 3, 1994 DECEMBER 15, DECEMBER 13,
MAY 28, 1993 (53 WEEKS) JUNE 2, 1995 MAY 31, 1996 1995 1996
-------------- -------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
EBITDA............................ $ 114,175 $ 73,093 $ 81,492 $ 85,931 $ 40,577 $ 36,931
Adjustments--Increase (Decrease):
Investment income............... (8,686) (3,176) (2,635) (250) (161) (86)
Gain on litigation
settlements................... -- -- (888) (11,334) (11,334) (1,527)
Restructuring charge............ 103,483 -- -- 6,499 3,996 --
Loss on asset impairment........ -- -- -- 6,319 6,319 --
Extraordinary items............. (157,573) 2,397 -- -- -- 6,480
-------------- -------------- -------------- -------------- --------------- ---------------
Adjusted EBITDA................... $ 51,399 $ 72,314 $ 77,969 $ 87,165 $ 39,397 $ 41,798
-------------- -------------- -------------- -------------- --------------- ---------------
-------------- -------------- -------------- -------------- --------------- ---------------
<CAPTION>
TWELVE MONTHS
ENDED
DECEMBER 13,
1996
---------------
<S> <C>
EBITDA............................ $ 82,285
Adjustments--Increase (Decrease):
Investment income............... (175)
Gain on litigation
settlements................... (1,527)
Restructuring charge............ 2,503
Loss on asset impairment........ --
Extraordinary items............. 6,480
---------------
Adjusted EBITDA................... $ 89,566
---------------
---------------
</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. For the year
ended May 28, 1993, the deficiency of earnings to fixed charges was $96.1
million.
(h) Occupancy, a measure of the utilization of center capacity, is defined as
actual operating revenues for the respective period divided by 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
approximate average of all tuition rates at each center. Center occupancy
mix, however, can significantly affect these averages.
(i) Pro forma cash interest expense is defined as interest expense exclusive of
bank agency fees and amortization of deferred financing costs.
(j) Excludes cash and cash equivalents, bank overdrafts and current portion of
long-term debt.
(k) Total debt includes long-term debt and current portion of long-term debt.
(l) As part of the Merger and related transactions, KKR, through KCLC
Acquisition, contributed $148.75 million in common equity for approximately
85% of the shares outstanding immediately after the Merger, and existing
stockholders retained approximately 15% of the shares outstanding
immediately after the Merger. Thus, including the $26.25 million of equity
that was retained by existing stockholders, the implied value of
shareholders' equity to be purchased and retained in the Merger and related
transactions is approximately $175.0 million.
16
<PAGE>
RISK FACTORS
HOLDERS OF OLD NOTES SHOULD CONSIDER CAREFULLY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS BEFORE DECIDING
TO TENDER OLD NOTES IN THE EXCHANGE OFFER. THE RISK FACTORS SET FORTH BELOW ARE
GENERALLY APPLICABLE TO THE OLD NOTES AS WELL AS THE EXCHANGE NOTES.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
Old Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. The Company does not currently intend to register the Old Notes under the
Securities Act. Based on interpretations by the staff of the Commission, the
Company believes that Exchange Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such Old Notes were acquired in the
ordinary course of such Holders' business and such Holders have no arrangement
with any person to participate in the distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Old Notes, where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Notes will be adversely affected.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company incurred substantial indebtedness in connection with the Merger
and the Company is highly leveraged. See "The Merger" and "Capitalization." As
of December 13, 1996, after giving pro forma effect to the Merger and the
Financings (including the Offering), the Company would have had $422.2 million
of consolidated indebtedness and $20.0 million of consolidated shareholders'
equity. Upon completion of the Financings, the Company had consolidated
long-term indebtedness substantially greater than the Company's pre-Merger
long-term indebtedness. Upon execution of the Credit Facilities and consummation
of the Merger, the Company had $251.1 million available to be borrowed under the
$300.0 million Revolving Credit Facility (reduced by $48.9 million of
outstanding letters of credit). Also after giving pro forma effect to such
transactions, the Company's ratio of earnings to fixed charges would have been
1.1 to 1.0 and 1.2 to 1.0 for the twenty-eight weeks ended December 13, 1996 and
for the fiscal year ended May 31, 1996, respectively. Pro forma net income
(loss) for the twenty-eight weeks ended December 13, 1996 and the fiscal year
ended May 31, 1996 would have been $(5.1) million and $6.6 million,
respectively, as compared to $3.3 million and $21.7 million for the same periods
on a historical basis, and pro forma interest expense for the twenty-eight weeks
ended December 13, 1996 and fiscal year ended May 31, 1996 would have been $21.9
million and $41.4 million, respectively, as compared to $8.1 million and $16.7
million for the same periods on a historical basis. See "Capitalization" and
"Pro Forma Consolidated Financial Statements." The Company and its subsidiaries
may incur additional indebtedness in the future, subject to certain limitations
contained in the instruments governing its indebtedness. Accordingly, the
Company will have significant debt service obligations.
The Company's debt service obligations could have important consequences to
holders of the Notes, including the following: (i) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds
17
<PAGE>
available to the Company for operations, future business opportunities and other
purposes and increasing the Company's vulnerability to adverse general economic
and industry conditions; (ii) the Company's ability to obtain additional
financing in the future may be limited; (iii) certain of the Company's
borrowings (including, but not limited to, the amounts borrowed under the Credit
Facilities) will be at variable rates of interest, which could cause the Company
to be vulnerable to increases in interest rates; and (iv) all of the
indebtedness incurred in connection with the Credit Facilities will become due
prior to the time the principal payment on the Notes will become due.
The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Notes) and to
make scheduled payments under its operating leases depends on its future
performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control. Based upon the current level
of operations and anticipated growth, management believes that future cash flow
from operations, together with available borrowings under the Revolving Credit
Facility, will be adequate to meet the Company's anticipated requirements for
capital expenditures, interest payments and scheduled principal payments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." There can be no assurance,
however, that the Company's business will continue to generate sufficient cash
flow from operations in the future to service its debt and make necessary
capital expenditures. If unable to do so, the Company may be required to
refinance all or a portion of its existing debt, including the Notes, to sell
assets or to obtain additional financing. There can be no assurance that any
such refinancing would be possible or that any such sales of assets or
additional financing could be achieved.
RESTRICTIVE LOAN COVENANTS
The Credit Facilities and the Indenture contain numerous financial and
operating covenants that limit the discretion of the Company's management with
respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to make certain
payments and investments, and to sell or otherwise dispose of assets and merge
or consolidate with other entities. See "Description of Credit Facilities" and
"Description of the Exchange Notes--Certain Covenants." The Credit Facilities
will also require the Company to meet certain financial ratios and tests. A
failure to comply with the obligations contained in the Credit Facilities or the
Indenture could result in an event of default under either the Credit Facilities
or the Indenture which could result in acceleration of the related debt and the
acceleration of debt under other instruments evidencing indebtedness, that may
contain cross-acceleration or cross-default provisions. If, as a result thereof,
a default occurs with respect to Senior Indebtedness, the subordination
provisions in the Credit Facilities or the Indenture would likely restrict
payments to the holders of the Notes.
SUBORDINATION
The Company's obligations under the Notes are subordinate and junior in
right of payment to all existing and future Senior Indebtedness of the Company.
As of December 13, 1996, on a pro forma basis after giving effect to the Merger
and the Financings (including the Offering), the aggregate amount of the
Company's outstanding Senior Indebtedness would have been approximately $122.2
million (excluding unused commitments). Additional Senior Indebtedness may be
incurred by the Company from time to time, subject to certain restrictions. By
reason of such subordination, in the event of an insolvency, liquidation, or
other reorganization of the Company, the lenders under the Credit Facilities and
other creditors who are holders of Senior Indebtedness must be paid in full
before the holders of the Notes may be paid; accordingly, there may be
insufficient assets remaining after payment of prior claims to pay amounts due
on the Notes. In addition, under certain circumstances, no payments may be made
with respect to the Notes if a default exists with respect to Senior
Indebtedness. The Notes are also effectively
18
<PAGE>
subordinated to the obligations of the Company's subsidiaries. In the event of
an insolvency, liquidation or other reorganization of any of the subsidiaries of
the Company, the creditors of the Company (including the holders of the Notes),
as well as stockholders of the Company, will have no right to proceed against
the assets of such subsidiaries or to cause the liquidation or bankruptcy of
such subsidiaries under federal bankruptcy laws. Creditors of such subsidiaries
would be entitled to payment in full from such assets before the Company would
be entitled to receive any distribution therefrom. Except to the extent that the
Company may itself be a creditor with recognized claims against such
subsidiaries, claims of creditors of such subsidiaries will have priority with
respect to the assets and earnings of such subsidiaries over the claims of
creditors of the Company, including claims under the Notes. See "Description of
the Exchange Notes--Subordination."
ENCUMBRANCES ON ASSETS TO SECURE CREDIT FACILITIES
In addition to being subordinated to all existing and future Senior
Indebtedness of the Company, the Notes will not be secured by any of the
Company's assets. The Company's obligations under the Credit Facilities will be
secured by a first priority pledge of and security interest in certain common
stock of certain of the Company's subsidiaries and, in certain circumstances,
non-cash consideration received for certain sales of assets. In addition, the
Indenture permits the Company to incur secured indebtedness in connection with
any Real Estate Financing Transaction (as defined). If the Company becomes
insolvent or is liquidated, or if payment under any of the Credit Facilities or
any Real Estate Financing Transaction is accelerated, the lenders under the
Credit Facilities or such Real Estate Financing Transaction will be entitled to
exercise the remedies available to a secured lender under applicable law.
Accordingly, such lenders will have a prior claim with respect to the assets
securing such indebtedness. See "Description of Credit Facilities" and
"Description of the Exchange Notes."
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control the
Company will make an offer to purchase all or any part of the Notes at a price
in cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase. The Credit Facilities will
prohibit the Company from repurchasing any Notes, except with certain proceeds
of one or more Equity Offerings. The Credit Facilities also provide that certain
change of control events with respect to the Company would constitute a default
thereunder. Any future credit agreements or other agreements relating to Senior
Indebtedness to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing the Notes, or if the Company is
required to make an Asset Sale Offer (as defined) pursuant to the terms of the
Notes, the Company could seek the consent of its lenders to purchase the Notes
or could attempt to refinance the borrowings that contain such prohibition. If
the Company does not obtain such a consent or refinance such borrowings, the
Company will remain prohibited from purchasing the Notes. In such case, the
Company's failure to purchase tendered Notes would constitute an Event of
Default (as defined) under the Indenture. If, as a result thereof, a default
occurs with respect to any Senior Indebtedness, the subordination provisions in
the Indenture would likely restrict payments to the holders of the Notes. The
provisions relating to a Change of Control included in the Indenture may
increase the difficulty of a potential acquiror obtaining control of the
Company. See "Description of the Exchange Notes--Repurchase at the Option of
Holders--Change of Control."
COMPETITION
The U.S. 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 for-profit companies which may operate a number of centers.
Local nursery schools
19
<PAGE>
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 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 typically 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 includes other large, national, for-profit child care companies
that may have more aggressive tuition discounting and different pricing policies
than the Company. As a result of the above factors, the Company could suffer a
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 effected pursuant to the Merger is not a transfer of the
Company's business under applicable state and local regulations. If any
administrative body took a contrary position, the Company could, 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
jurisdictions.
GROWTH STRATEGY; MANAGEMENT OF GROWTH
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 expansion
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 successful advantage of any available acquisition opportunity
will be dependent, in part, on 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
20
<PAGE>
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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Business Strategy."
IMPACT OF POSSIBLE LOSS OF GOVERNMENT FUNDING
During the twenty-eight weeks ended December 13, 1996, approximately 13% of
the Company's 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, although
under the Internal Revenue Code of 1986, as amended (the "Code"), certain tax
incentives are available to parents utilizing child care programs, such
provisions of the Code are subject to change. See "Business--Governmental Laws
and Regulation."
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. To date, the Company has been able
to obtain insurance in amounts it believes to be appropriate. There can be no
assurance, however, that the Company's insurance premiums will not increase in
the future as a consequence of conditions in the insurance business generally or
the Company's experience in particular or that continuing publicity with respect
to alleged instances of child abuse will not result in the Company's being
unable to obtain insurance. Like its major competitors, the Company is
periodically subject to claims of child abuse arising out of alleged incidents
at its centers. In addition, any adverse publicity concerning reported incidents
of alleged physical or sexual abuse of children 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. New enrollments are generally highest in September and
January because children return to child care and/or school after summer and
holiday vacations; accordingly, August and December are ideal months to open new
centers. Centers which open at other times usually experience a lower rate of
enrollment during early months of operation. Enrollment generally decreases 5%
to 10% during holiday periods and summer months.
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
21
<PAGE>
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.
CONTROL BY KKR AFFILIATES
Approximately 83.6% of the outstanding shares of Common Stock is owned by
the Partnership, of which KKR Associates (KLC) L.P. ("KKR Associates (KLC)") is
the general partner. The general partner of KKR Associates (KLC) 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
the general partner of KKR. Accordingly, the members of KKR-KLC L.L.C. control
the Company and have the power to elect all of its directors (other than the
director appointed by Oaktree (as defined)), appoint new management and approve
any action requiring the approval of the Company's stockholders, including
adopting amendments to the Company's Certificate of Incorporation and approving
mergers or sales of 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 interests of the
members of KKR-KLC L.L.C. will not conflict with the interests of holders of the
Exchange Notes. The managing members of KKR-KLC L.L.C. are Messrs. Henry R.
Kravis, George R. Roberts, Robert I. MacDonnell, Paul E. Raether, Michael W.
Michelson, Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Clifton S.
Robbins, Scott M. Stuart and Edward A Gilhuly. Messrs. Kravis and Roberts are
members of the Executive Committee of KKR-KLC L.L.C. Messrs. Kravis, Roberts and
Robbins are also directors of the Company, as is Mr. Nils P. Brous who is a
limited partner of KKR Associates (KLC). Each of the members of KKR-KLC L.L.C.
is also a member of KKR & Co. L.L.C., the limited liability company which serves
as the general partner of KKR. See "Management," "Ownership of Common Stock" and
"Related Party Transactions."
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if the
Company, at the time it issued the Exchange Notes, (a) incurred such
indebtedness with the intent to hinder, delay or defraud creditors, or (b)(i)
received less than reasonably equivalent value or fair consideration, and
(ii)(A) was insolvent at the time of such incurrence, (B) was rendered insolvent
by reason of such incurrence (and the application of the proceeds thereof), (C)
was engaged or was about to engage in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital to
carry on its business, or (D) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature, then, in each
such case, a court of competent jurisdiction could avoid, in whole or in part,
the Exchange Notes or, in the alternative, subordinate the Exchange Notes to
existing and future indebtedness of the Company. The measure of insolvency for
purposes of the foregoing would likely vary depending upon the law applied in
such case. Generally, however, a debtor would be considered insolvent if the sum
of its debts, including contingent liabilities, was greater than all of its
assets at a fair valuation, or if the present fair saleable value of its assets
was less than the amount that would be required to pay the probable liabilities
on its existing debts, including contingent liabilities, as such debts become
absolute and matured. Management of the Company believes that, for purposes of
the United States Bankruptcy Code and state fraudulent transfer or conveyance
laws, the Exchange Notes are being issued without the intent to hinder, delay or
defraud creditors and for proper purposes and in good faith, and that the
Company will receive reasonably equivalent value or fair consideration therefor,
and that after the issuance of the Exchange Notes and the application of the net
proceeds therefrom, the Company will be solvent, will have sufficient capital
for carrying on its business and will be able to pay its debts as they mature.
However, there can be no assurance that a court passing on such issues would
agree with the determination of the Company's management.
22
<PAGE>
LACK OF PRIOR MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in February 1997 to a small number of
institutional investors and are eligible for trading in the Private Offerings,
Resale and Trading through Automatic Linkages (PORTAL) Market.
The Company does not intend to apply for a listing of the Exchange Notes on
a securities exchange. There is currently no established market for the Exchange
Notes and there can be no assurance as to the liquidity of markets that may
develop for the Exchange Notes, the ability of the holders of the Exchange Notes
to sell their Exchange Notes or the price at which such holders would be able to
sell their Exchange Notes. If such markets were to exist, the Exchange Notes
could trade at prices that may be lower than the initial market values thereof
depending on many factors, including prevailing interest rates and the markets
for similar securities. Although there is currently no market for the Exchange
Notes, the Initial Purchasers have advised the Company that they currently
intend to make a market in the Exchange Notes. However, the Initial Purchasers
are not obligated to do so, and any market making with respect to the Exchange
Notes may be discontinued at any time without notice.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performances and financial condition, including,
in particular, the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of assumptions
and estimates which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur which will
affect the Company's results.
THE MERGER
Certain of the statements made under this heading relating to the Merger are
summaries of the agreements described therein, do not purport to be complete and
are qualified in their entirety by reference to such agreements, which are
incorporated herein by reference. See "Available Information" and "Incorporation
of Certain Information by Reference."
MERGER AGREEMENT
On October 3, 1996, the Company entered into the Merger Agreement, as
amended as of December 27, 1996, with KCLC Acquisition. KCLC Acquisition was a
wholly owned subsidiary of the Partnership. Pursuant to the Merger Agreement, at
the Effective Time KCLC Acquisition merged with and into the Company, with the
Company as the surviving corporation. The Merger Agreement contemplates the
conversion of approximately 93% of the issued and outstanding shares of the
Company's Common Stock at the election of each holder, into $19.00 in cash per
share, and the retention of approximately 7% of the shares by stockholders. In
addition, the Merger Agreement provides for the cancellation and conversion of
each Warrant issued and outstanding immediately prior to the Effective Time into
the right to receive an amount in cash determined as specified in the Merger
Agreement. Because the total number of outstanding shares of Common Stock
decreased from approximately 19,423,577, as of January 8, 1997, to 9,210,526
immediately after the Merger, the approximately 7% of the outstanding Common
Stock (1,381,579 shares) retained by existing stockholders in the Merger
represented approximately 15% of the shares outstanding immediately after the
Merger and the 7,828,947 shares owned by the Partnership represented
approximately 85% of the shares outstanding immediately after the Merger.
23
<PAGE>
STOCKHOLDERS' AGREEMENT
At the Effective Time, the Company, Oaktree Capital Management LLC
("Oaktree"), an affiliate of Oaktree (together with Oaktree, the "Oaktree
Investors" each of which is an affiliate of the TCW Group, Inc.), the
Partnership and an affiliate of the Partnership entered into a stockholders'
agreement (the "Stockholders' Agreement") in fulfillment in part of the terms of
a voting agreement among KCLC Acquisition, Oaktree and certain of Oaktree's
affiliates, dated as of October 3, 1996 and as amended as of December 27, 1996.
Pursuant to such voting agreement, Oaktree and such of its affiliates (who
collectively owned a majority of the issued and outstanding shares of Common
Stock immediately prior to the Effective Time) voted their shares in favor of
the approval and the adoption of the Merger Agreement. As a result of the
election by the Oaktree Investors to retain shares of Common Stock in the
Merger, the Oaktree Investors and the TCW Group, Inc. beneficially own 949,244
shares, or approximately 10.3% of the shares outstanding immediately after the
Merger. Subject to the terms of the Stockholders' Agreement, the Oaktree
Investors are entitled to designate one director to the Board of Directors of
the Company, who, initially, is Mr. Stephen A. Kaplan, a director of the Company
immediately prior to the Effective Time. In addition, the Stockholders'
Agreement provides that (i) the Oaktree Investors have the right to participate
pro rata in certain sales of Common Stock by the Partnership (or its affiliates)
and (ii) the Partnership (or its affiliates) 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 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 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 therein) or (b) the
Partnership and its affiliates, in the aggregate, own less than 15% of the
outstanding shares of Common Stock, on a fully diluted basis.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes pursuant
to the Exchange Offer.
The gross proceeds received by the Company from the Offering of the Old
Notes were $300 million. Such proceeds, together with borrowings under the Term
Loan Facility and the equity contribution by the Partnership, were used upon
consummation of the Merger to pay approximately $382.4 million of cash merger
consideration, repay approximately $107.6 million of indebtedness of the Company
under the Old Bank Credit Facility, and pay an estimated $35.0 million in
transaction fees and expenses (certain of which fees have yet to be paid), which
includes a transaction bonus of $1.0 million payable to certain members of
management of the Company. On a pro forma basis, assuming the Merger occurred on
December 13, 1996, the cash merger consideration and indebtedness under the Old
Bank Credit Facility would have been approximately $367.2 million and $122.5
million, respectively. Such pro forma calculations do not account for the effect
of the exercise of a number of options and warrants prior to the Effective Time.
See "The Merger" and "Capitalization."
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<PAGE>
CAPITALIZATION
The following table sets forth as of December 13, 1996 the (i) unaudited
consolidated historical capitalization of the Company and (ii) unaudited
consolidated pro forma capitalization of the Company, as adjusted to give effect
to the transactions contemplated by the Merger Agreement, including the sale of
the Old Notes pursuant to the Offering. This table should be read in conjunction
with the "Pro Forma Consolidated Financial Statements" and the notes thereto and
the consolidated financial statements of the Company and its subsidiaries and
the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 13, 1996
----------------------------------
<S> <C> <C>
PRO FORMA
FOR MERGER AND
HISTORICAL RELATED TRANSACTIONS
----------- ---------------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents..................................................... $ 10,426 $ 10,426
----------- ----------
----------- ----------
Debt:
10 3/8% Senior Notes........................................................ $ 211 $ 211
Old Bank Credit Facility.................................................... 122,500 --
Credit Facilities (a)....................................................... -- 75,981
Notes....................................................................... -- 300,000
Other debt (b).............................................................. 46,052 46,052
----------- ----------
Total debt................................................................ 168,763 422,244
Shareholders' equity (c)...................................................... 255,451 20,047
----------- ----------
Total capitalization...................................................... $ 424,214 $ 442,291
----------- ----------
----------- ----------
</TABLE>
- ------------------------
(a) At December 13, 1996, on a pro forma basis after giving effect to the
Merger, the Company would have had additional availability of $251.1 million
under the $300.0 million Revolving Credit Facility (reduced by $48.9 million
of outstanding letters of credit). See "Description of Credit Facilities."
(b) Consists of industrial revenue bonds and obligations secured by mortgages.
(c) As part of the Merger and related transactions, KKR, through KCLC
Acquisition, contributed $148.75 million in common equity for approximately
85% of the shares outstanding immediately after the Merger, and existing
stockholders retained approximately 15% of the shares outstanding
immediately after the Merger. Thus, including the $26.25 million of equity
that was retained by existing stockholders, the implied value of
shareholders' equity purchased and retained in the Merger and related
transactions is approximately $175.0 million.
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<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Financial Statements") have been derived by the application of pro
forma adjustments to the Company's historical consolidated financial statements
included elsewhere in this Prospectus. The pro forma consolidated statements of
operations for the periods presented gives effect to the Merger and related
transactions (including the Offering) as if such transactions were consummated
as of June 3, 1995 for the fiscal year ended May 31, 1996 and for the
twenty-eight weeks ended December 13, 1996, and as of December 16, 1995 for the
twelve months ended December 13, 1996. The pro forma consolidated balance sheet
gives effect to the Merger and related transactions as if such transactions had
occurred as of December 13, 1996. The adjustments are described in the
accompanying notes. The Pro Forma Financial Statements should not be considered
indicative of actual results that would have been achieved had the Merger and
related transactions (including the Offering) 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 Financial Statements should be read in conjunction with the Company's
historical consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
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.
26
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 13, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
----------- ------------ -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents........................................... $ 10,426 $ -- (a) $ 10,426
Receivables......................................................... 15,167 15,167
Prepaid expenses and supplies....................................... 10,240 10,240
Deferred income taxes............................................... 4,664 4,664
----------- -----------
Total current assets............................................ 40,497 40,497
Property and equipment, net......................................... 476,546 476,546
Deferred income taxes............................................... 4,454 4,454
Deferred financing costs............................................ -- 20,000(b) 20,000
Other assets........................................................ 7,941 (1,923)(c) 6,018
----------- ------------ -----------
Total Assets.......................................................... $ 529,438 $ 18,077 $ 547,515
----------- ------------ -----------
----------- ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................... $ 20,549 $ -- $ 20,549
Accrued liabilities................................................. 40,482 40,482
Current portion of long-term debt................................... 1,095 1,095
----------- -----------
Total current liabilities....................................... 62,126 62,126
Long-term debt........................................................ 167,668 253,481(d) 421,149
Other noncurrent liabilities.......................................... 23,983 23,983
Self insurance liabilities............................................ 20,210 20,210
----------- ------------ -----------
Total liabilities............................................... 273,987 253,481 527,468
Shareholders' equity.................................................. 255,451 (235,404)(e) 20,047
----------- ------------ -----------
Total Liabilities and Shareholders' Equity............................ $ 529,438 $ 18,077 $ 547,515
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
See Notes to Pro Forma Consolidated Balance Sheet.
27
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
The pro forma consolidated 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 will be accounted for as a
recapitalization which will have no impact on the historical basis of assets and
liabilities. The pro forma consolidated financial data assumes that there are no
dissenting stockholders to the Merger and that all options and warrants will be
redeemed for cash (rather than exercised).
(a) The net effect of $0 reflects the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
------------
<S> <C>
SOURCES OF FUNDS
Term Loan Facility.............................................................. $ 75,981
Old Notes....................................................................... 300,000
Equity contribution............................................................. 148,750
------------
Total sources............................................................... $ 524,731
------------
------------
USES OF FUNDS
Purchase equity................................................................. $ 342,623
Options/warrants redeemed....................................................... 24,608
Repayment of Old Bank Credit Facility........................................... 122,500
Estimated transaction fees and expenses......................................... 35,000
------------
Total uses.................................................................. $ 524,731
------------
------------
Net......................................................................... $ 0
------------
------------
</TABLE>
(b) To reflect 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) To reflect the write-off of deferred financing fees associated with the
termination of the Old Bank Credit Facility.
(d) To reflect the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
------------
<S> <C>
Repayment of Old Bank Credit Facility........................................... $ (122,500)
Old Notes....................................................................... 300,000
Term Loan Facility.............................................................. 75,981
------------
Total adjustment............................................................ $ 253,481
------------
------------
</TABLE>
28
<PAGE>
(e) To reflect the aggregate net change as a result of the Merger and the
related transactions:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-------------
<S> <C>
Convert to cash 18.0 million shares of Common Stock............................ $ (342,623)
Issue 7.8 million shares of Common Stock....................................... 148,750
Purchase Warrants.............................................................. (19,897)
Cancellation of Company stock options.......................................... (4,711)
Write-off of deferred financing fees referred to in note (c)................... (1,923)
Estimated transaction fees and expenses (1).................................... (15,000)
-------------
Total...................................................................... $ (235,404)
-------------
-------------
</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.
29
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
TWENTY-EIGHT WEEKS ENDED DECEMBER
FISCAL YEAR ENDED MAY 31, 1996 DECEMBER 13, 1996 13, 1996
---------------------------------------- ---------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA PRO PRO FORMA PRO
HISTORICAL ADJUSTMENTS(A) FORMA HISTORICAL ADJUSTMENTS(A) FORMA HISTORICAL
----------- ---------------- --------- ----------- ---------------- --------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues...... $ 541,264 $ 541,264 $ 299,751 $ 299,751 $ 555,623
Operating expenses...... 489,555 489,555 275,634 275,634 502,160
----------- ---------------- --------- ----------- ---------------- --------- -----------
Operating income........ 51,709 51,709 24,117 24,117 53,463
Net investment income... 250 250 86 86 175
Interest expense........ 16,727 $ 24,717(b) 41,444 8,141 $ 13,763(b) 21,904 15,649
----------- ---------------- --------- ----------- ---------------- --------- -----------
Income before income
taxes and
extraordinary item.... 35,232 (24,717) 10,515 16,062 (13,763) 2,299 37,989
Income tax expense...... 13,549 (9,640)(c) 3,909 6,264 (5,367)(c) 897 14,624
----------- ---------------- --------- ----------- ---------------- --------- -----------
Income before
extraordinary item.... 21,683 (15,077) 6,606 9,798 (8,396) 1,402 23,365
Extraordinary item--loss
on early
extinguishment of
debt, net of income
tax benefit........... 6,480 6,480 6,480
----------- ---------------- --------- ----------- ---------------- --------- -----------
Net income (loss)....... $ 21,683 $ (15,077) $ 6,606 $ 3,318 $ (8,396) $ (5,078) $ 16,885
----------- ---------------- --------- ----------- ---------------- --------- -----------
----------- ---------------- --------- ----------- ---------------- --------- -----------
Ratio of earnings to
fixed charges (d)..... 1.2x 1.1x
--------- ---------
<CAPTION>
<S> <C> <C>
PRO FORMA PRO
ADJUSTMENTS(A) FORMA
---------------- ---------
<S> <C> <C>
Operating revenues...... $ 555,623
Operating expenses...... 502,160
---------------- ---------
Operating income........ 53,463
Net investment income... 175
Interest expense........ $ 25,194(b) 40,843
---------------- ---------
Income before income
taxes and
extraordinary item.... (25,194) 12,795
Income tax expense...... (9,826)(c) 4,798
---------------- ---------
Income before
extraordinary item.... (15,368) 7,997
Extraordinary item--loss
on early
extinguishment of
debt, net of income
tax benefit........... 6,480
---------------- ---------
Net income (loss)....... $ (15,368) $ 1,517
---------------- ---------
---------------- ---------
Ratio of earnings to
fixed charges (d)..... 1.3x
---------
</TABLE>
See Notes to Pro Forma Consolidated Statements of Operations.
30
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The pro forma consolidated financial data have been derived by the
application of pro forma adjustments to the Company's historical consolidated
financial statements for the periods noted. The Merger will be accounted for as
a recapitalization which will have no impact on the historical basis of assets
and liabilities. The pro forma consolidated financial data assumes that there
are no dissenting stockholders to the Merger and that all options and Warrants
will be redeemed for cash (rather than exercised).
(a) As provided in note (e) to the Pro Forma Consolidated Balance Sheet, the pro
forma adjustments exclude (i) $4.7 million of compensation expense related
to the Company stock options assumed to be canceled in conjunction with the
Merger, (ii) write-off of $1.9 million of deferred financing fees associated
with the termination of the Old Bank Credit Facility, and (iii) $15.0
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 Consolidated
Statement of Operations for the period including the Merger.
(b) The pro forma adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED TWENTY-EIGHT WEEKS ENDED TWELVE MONTHS ENDED
MAY 31, 1996 DECEMBER 13, 1996 DECEMBER 13, 1996
------------------ -------------------------- ---------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest on historical debt repaid in Merger..... $ (12,241) $ (6,138) $ (11,764)
Interest expense on the Term Loan Facility
(assumed 8.5% rate)............................ 6,458 3,478 6,458
Interest expense on the Notes (at a 9.5% rate)... 28,500 15,346 28,500
Amortization of deferred financing costs
(10 years)..................................... 2,000 1,077 2,000
-------- -------- --------
Total adjustment............................. $ 24,717 $ 13,763 $ 25,194
-------- -------- --------
-------- -------- --------
</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 $0.10 million for
the fiscal year ended May 31, 1996 and the twelve months ended December 13,
1996 and $0.05 million for the twenty-eight weeks ended December 13, 1996.
(c) To reflect 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.
31
<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
of the Company for the 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
included elsewhere in this Prospectus. The historical unaudited consolidated
financial data for the twenty-eight weeks ended December 15, 1995 and December
13, 1996 have been derived from, and should be read in conjunction with, the
unaudited consolidated financial statements of the Company and the related notes
thereto included elsewhere in this Prospectus. 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 twenty-eight weeks ended December 13, 1996 are not necessarily
indicative of results that can be expected for the entire 1997 fiscal year. The
consolidated statement of operations for the year ended May 28, 1993 is
presented for comparison to the fiscal years ended June 3, 1994, June 2, 1995
and May 31, 1996 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. Due to the implementation on April 2,
1993 of Fresh Start Reporting in accordance with AICPA Statement of Position
90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7), the consolidated 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 consolidated balance sheet
data for the Company as of April 2, 1993, May 28, 1993, June 3, 1994, June 2,
1995, May 31, 1996 and December 13, 1996 and the consolidated statements of
operations data for the eight weeks ended May 28, 1993, the years ended June 3,
1994, June 2, 1995 and May 31, 1996, and the twenty-eight weeks ended December
15, 1995 and December 13, 1996, after giving effect to the Company's Plan of
Reorganization, pursuant to which it emerged from bankruptcy on March 31, 1993,
are not comparable to the historical financial condition or results of
operations of the Company prior to the Plan of Reorganization. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Notes to Consolidated Financial Statements" included elsewhere in this
Prospectus.
32
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
PRE-CONFIRMATION
----------------------------------------- POST-CONFIRMATION
--------------------------------------------
FISCAL YEAR ENDED
------------------------- FISCAL YEAR ENDED
JANUARY 3, THIRTEEN YEAR ENDED EIGHT ----------------------------
1992 JANUARY 1, WEEKS ENDED MAY 28, WEEKS ENDED, JUNE 3, 1994
(53 WEEKS) 1993 APRIL 2, 1993 1993 (A) MAY 28, 1993 (53 WEEKS) JUNE 2, 1995
------------ ----------- -------------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT CHILD CARE CENTER DATA)
STATEMENT OF OPERATIONS DATA:
Operating revenues......... $ 411,040 $ 437,203 $ 114,705 $ 447,243 $ 72,612 $ 488,726 $ 506,505
Operating expenses......... 412,299(c) 413,800(c) 104,675 423,841 68,609 441,560 455,719
------------ ----------- -------------- ----------- -------------- ------------- -------------
Operating income (loss).... (1,259) 23,403 10,030 23,402 4,003 47,166 50,786
Net investment income
(loss)................... (1,216) 5,908 3,309 8,686 140 3,176 2,635
Interest expense (d)....... 46,578 38,400 692 24,709 3,253 17,675 17,318
Reorganization items....... -- 1,879 101,604(e) 103,483(e) -- -- --
------------ ----------- -------------- ----------- -------------- ------------- -------------
Income (loss) before income
taxes and extraordinary
items.................... (49,053) (10,968) (88,957) (96,104) 890 32,667 36,103
Income tax expense
(benefit)................ 1,655 (246) 404 (216) 273 12,837 14,037
------------ ----------- -------------- ----------- -------------- ------------- -------------
Income (loss) before
extraordinary items...... (50,708) (10,722) (89,361) (95,888) 617 19,830 22,066
Extraordinary items, net of (2,397)
income taxes............. -- -- 157,573(f) 157,573(f) -- (g) --
------------ ----------- -------------- ----------- -------------- ------------- -------------
Net income (loss).......... $ (50,708) $ (10,722) $ 68,212 $ 61,685 $ 617 $ 17,433 $ 22,066
------------ ----------- -------------- ----------- -------------- ------------- -------------
------------ ----------- -------------- ----------- -------------- ------------- -------------
OTHER FINANCIAL DATA:
EBITDA (h)................. $ 24,594 $ 54,281 $ 76,173 $ 114,175 $ 8,373 $ 73,093 $ 81,492
Adjusted EBITDA (h)........ 25,810 50,252 16,895 51,399 8,233 72,314 77,969
Adjusted EBITDA margin..... 6.3% 11.5% 14.7% 11.5% 11.3% 14.8% 15.4%
Depreciation............... 27,069 26,849 6,865 27,997 4,230 25,148 28,071
Capital expenditures....... 27,492 34,498 5,927 38,112 5,839 35,710 74,376
Ratio of earnings to fixed
charges (i).............. (i) (i) (i) (i) 1.2x 2.3x 2.4x
CHILD CARE CENTER DATA:
Number of centers (at end
of period)............... 1,240 1,196 1,166 1,166 1,166 1,132 1,137
Center capacity (at end of
period) (j).............. 146,000 140,000 139,000 138,000 138,000 136,000 137,000
Average occupancy (k)...... 70% 72% 75% 74% 75% 77% 76%
Average three-year-old
weekly tuition rate
(k)...................... $ 80 $ 83 $ 83 $ 83 $ 83 $ 90 $ 96
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital
(deficiency) (l)......... $ (79,554) $ (23,789) $ (23,844) $ (22,745) $ (22,745) $ (23,323) $ (37,115)
Total assets............... 486,942 516,282 457,000 457,388 457,388 456,920 501,274
Total debt (m)............. 402,146 400,136 218,175 218,037 218,037 178,692 160,394
Shareholders' equity
(deficiency) (n)......... (34,164) (44,886) 178,870 179,487 179,487 206,905 244,239
<CAPTION>
See Notes to Selected Historical Consolidated Financial and Other Data.
<CAPTION>
TWENTY-EIGHT WEEKS
ENDED (B)
------------------------------
DECEMBER 15, DECEMBER 13,
MAY 31, 1996 1995 1996
------------- -------------- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues......... $ 541,264 $ 285,392 $ 299,751
Operating expenses......... 489,555 263,029 275,634
------------- -------------- --------------
Operating income (loss).... 51,709 22,363 24,117
Net investment income
(loss)................... 250 161 86
Interest expense (d)....... 16,727 9,219 8,141
Reorganization items....... -- -- --
------------- -------------- --------------
Income (loss) before income
taxes and extraordinary
items.................... 35,232 13,305 16,062
Income tax expense
(benefit)................ 13,549 5,189 6,264
------------- -------------- --------------
Income (loss) before
extraordinary items...... 21,683 8,116 9,798
Extraordinary items, net of
income taxes............. -- -- (6,480) (g)
------------- -------------- --------------
Net income (loss).......... $ 21,683 $ 8,116 $ 3,318
------------- -------------- --------------
------------- -------------- --------------
OTHER FINANCIAL DATA:
EBITDA (h)................. $ 85,931 $ 40,577 $ 36,931
Adjusted EBITDA (h)........ 87,165 39,397 41,798
Adjusted EBITDA margin..... 16.1% 13.8% 13.9%
Depreciation............... 33,972 18,053 19,208
Capital expenditures....... 67,304 38,933 27,849
Ratio of earnings to fixed
charges (i).............. 2.4x 1.9x 2.2x
CHILD CARE CENTER DATA:
Number of centers (at end
of period)............... 1,148 1,142 1,148
Center capacity (at end of
period) (j).............. 141,000 138,000 142,000
Average occupancy (k)...... 76% 76% 74%
Average three-year-old
weekly tuition rate
(k)...................... $ 100 $ 100 $ 104
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital
(deficiency) (l)......... $ (36,584) $ (29,519) $ (19,632)
Total assets............... 525,476 513,190 529,438
Total debt (m)............. 146,617 159,856 168,763
Shareholders' equity
(deficiency) (n)......... 265,458 245,222 255,451
</TABLE>
33
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
(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.
(b) The Company's fiscal year ends the Friday closest to May 31. The first
quarter is 16 weeks long and the second, third, and fourth quarters are each
twelve weeks long. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Seasonality."
(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 $7.0
million and $5.3 million are included in operating expenses for fiscal years
1991 and 1992, 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, 1992.
(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 of 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.
(f) In connection with the Company's emergence from bankruptcy in 1993, the
value of cash distributed, new debt and equity securities issued, and
liabilities assumed was $157.6 million less than the allowed claims of
$457.6 million and the resulting gain was recorded as an extraordinary item.
(g) In fiscal 1994 and during the twenty-eight weeks ended December 13, 1996,
the Company retired debt prior to maturity, the losses on which were
recorded as extraordinary items.
(h) "EBITDA" represents earnings before interest expense, income taxes,
depreciation and amortization. "Adjusted EBITDA" represents EBITDA exclusive
of investment income, litigation settlements and restructuring costs
(income), net (which includes loss on asset impairment) and extraordinary
items as 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. The items reflected in the following table are more fully described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED
JANUARY 3, ----------------------------
1992 JANUARY 1, YEAR ENDED JUNE 3, 1994
(53 WEEKS) 1993 MAY 28, 1993 (53 WEEKS) JUNE 2, 1995
----------- ----------- ------------- ------------- -------------
EBITDA.......................................... $ 24,594 $ 54,281 $ 114,175 $ 73,093 $ 81,492
Adjustments--Increase (Decrease):
Investment income............................. 1,216 (5,908) (8,686) (3,176) (2,635)
Gain on litigation settlements................ -- -- -- -- (888)
Restructuring charge.......................... -- 1,879 103,483 -- --
Loss on asset impairment...................... -- -- -- -- --
Extraordinary items........................... -- -- (157,573) 2,397 --
----------- ----------- ------------- ------------- -------------
Adjusted EBITDA................................. $ 25,810 $ 50,252 $ 51,399 $ 72,314 $ 77,969
----------- ----------- ------------- ------------- -------------
----------- ----------- ------------- ------------- -------------
<CAPTION>
<S> <C> <C> <C>
TWENTY-EIGHT WEEKS ENDED
--------------------------------
DECEMBER 15, DECEMBER 13,
MAY 31, 1996 1995 1996
------------- --------------- ---------------
EBITDA.......................................... $ 85,931 $ 40,577 $ 36,931
Adjustments--Increase (Decrease):
Investment income............................. (250) (161) (86)
Gain on litigation settlements................ (11,334) (11,334) (1,527)
Restructuring charge.......................... 6,499 3,996 --
Loss on asset impairment...................... 6,319 6,319 --
Extraordinary items........................... -- -- 6,480
------------- --------------- ---------------
Adjusted EBITDA................................. $ 87,165 $ 39,397 $ 41,798
------------- --------------- ---------------
------------- --------------- ---------------
</TABLE>
(i) 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. For the fiscal
years ended January 3, 1992 and January 1, 1993, the deficiency of earnings
to fixed charges was $49.1 million and $11.0 million, respectively. For the
thirteen weeks ended April 2, 1993, the deficiency of earnings to fixed
34
<PAGE>
charges was $89.0 million. For the year ended May 28, 1993, the deficiency
of earnings to fixed charges was $96.1 million.
(j) 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.
(k) Occupancy, a measure of the utilization of center capacity, is defined as
actual operating revenues for the respective period divided by 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
approximate average of all tuition rates at each center. Center occupancy
mix, however, can significantly affect these averages.
(l) Excludes cash and cash equivalents, bank overdrafts and current portion of
long-term debt.
(m) 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.
(n) As part of the Merger and related transactions, KKR, through KCLC
Acquisition, contributed $148.75 million in common equity for approximately
85% of the shares outstanding immediately after the Merger, and existing
stockholders retained approximately 15% of the shares outstanding
immediately after the Merger. Thus, including the $26.25 million of equity
that was retained by existing stockholders, the implied value of
shareholders' equity purchased and retained in the Merger and related
transactions is approximately $175.0 million.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this document. The
Company's fiscal year ends on the Friday closest to May 31. The information
presented herein refers to the twenty-eight weeks ended December 13, 1996
("year-to-date 1997") and December 15, 1995 ("year-to-date 1996") and the years
ended May 31, 1996 ("fiscal 1996"), June 2, 1995 ("fiscal 1995"), and June 3,
1994 ("fiscal 1994"). The sixteen weeks ended September 20, 1996, and the twelve
weeks ended December 13, 1996 are defined as "first quarter 1997" and "second
quarter 1997," respectively. Fiscal 1996 and fiscal 1995 were 52-week fiscal
years. Fiscal 1994 was a 53-week fiscal year with the additional week included
in the fourth quarter.
Occupancy, a measure of the utilization of center capacity, is defined as
actual operating revenues for the respective period divided by the building
capacity of each of the Company's centers multiplied by such center's basic
tuition rate for a full-time, three-year-old student 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 approximate average of
all tuition rates at each center. Center occupancy mix, however, can
significantly affect these averages with respect to any specific child care
center. This revenue measurement of center capacity utilization does not
necessarily reflect the actual number of full and part-time children enrolled.
THE TWENTY-EIGHT WEEKS ENDED DECEMBER 13, 1996, COMPARED TO THE TWENTY-EIGHT
WEEKS ENDED DECEMBER 15, 1995
The Company's operating results for the comparative twenty-eight week
periods were as follows (dollars in thousands):
<TABLE>
<CAPTION>
CHANGE
------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR-TO-DATE PERCENT OF YEAR-TO-DATE PERCENT OF PERCENT OF
1997 REVENUES 1996 REVENUES AMOUNT REVENUES
------------ ----------- ------------ ----------- --------- -------------
Operating revenues.......................... $ 299,751 100.0% $ 285,392 100.0% $ 14,359 -- %
------------ ----- ------------ ----- --------- ---
Operating expenses:
Salaries, wages and benefits.............. 162,215 54.1 150,814 52.9 11,401 1.2
Depreciation.............................. 19,208 6.4 18,053 6.3 1,155 0.1
Rent...................................... 14,507 4.8 14,367 5.0 140 (0.2)
Other..................................... 81,231 27.1 80,814 28.3 417 (1.2)
Litigation settlements and restructuring
costs (income), net..................... (1,527) (0.5) (1,019) (0.3) (508) (0.2)
------------ ----- ------------ ----- --------- ---
Total operating expenses.............. 275,634 91.9 263,029 92.2 12,605 (0.3)
------------ ----- ------------ ----- --------- ---
Operating income............................ $ 24,117 8.1% $ 22,363 7.8% $ 1,754 0.3%
------------ ----- ------------ ----- --------- ---
------------ ----- ------------ ----- --------- ---
Centers open at the end of each period...... 1,148 1,142 6
------------ ------------ ---------
------------ ------------ ---------
</TABLE>
OPERATING REVENUES. Operating revenues increased $14.4 million, or 5.0%, to
$299.8 million year-to-date 1997 versus year-to-date 1996. The increase in
revenues is attributable to 4.7% and 4.2% weighted average tuition increases
implemented during the second quarter of fiscal 1997 and fiscal 1996,
respectively, and new centers opened or acquired during fiscal 1996 and first
quarter 1997. These revenue increases were partially offset by center closings
during fiscal 1996 and first quarter 1997 and declines in total company average
occupancy in year-to-date 1997. Same center revenues, defined as revenues from
centers in operation during both full periods, were up 2.9% over year-to-date
1996. Same
36
<PAGE>
center revenue increases associated with the tuition increases for year-to-date
1997 were partially offset by same center occupancy declines during second
quarter 1997.
Total company average occupancy decreased to 74.2% year-to-date 1997 from
75.6% year-to-date 1996. Same center average occupancy also decreased to 74.8%
year-to-date 1997 from 76.2% year-to-date 1996. The Company believes these
declines in occupancy were caused by a variety of factors, including in
particular, the following recently implemented initiatives: (a) a reduced, lower
cost marketing program, (b) an expanded employee child care discount program
that may preclude the enrollment of tuition paying children, and (c) changes in
field operations management which provide less direct center supervision. The
Company is in the process of evaluating such initiatives.
During year-to-date 1997, the Company opened 11 new centers: ten KinderCare
community centers and one KinderCare at Work-Registered Trademark- center; and
closed 11 centers. During year-to-date 1996 (including the conversion of one
community center to a Kid's Choice-TM- center), the Company opened 22 new
centers: 11 community centers, four KinderCare at Work-Registered Trademark-
centers, and seven Kid's Choice-TM- centers; and closed 17 centers. Since the
end of second quarter 1996, the Company has opened a total of 26 new centers
with an average building capacity of 177 children and has closed 20 centers with
an average building capacity of 100 children. Total center capacity has
increased to approximately 142,000 at the end of second quarter 1997 from
approximately 138,000 at the end of second quarter 1996.
SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits expense
increased $11.4 million or 7.6%, to $162.2 million year-to-date 1997 versus the
comparable period in 1996. As a percentage of operating revenues, salaries,
wages and benefits increased to 54.1% year-to-date 1997 from 52.9% year-to-date
1996. Approximately 58% of the year-to-date increases are attributable to
increased center staff hours. Average hourly center staff wages increased
approximately 4% for year-to-date 1997 versus the comparable period in 1996. As
a percentage of operating revenues, a portion of the increase in salaries, wages
and benefits is due to an approximately 28% increase in employee-enrolled
children (who are only charged an administrative fee plus either a discounted
tuition fee or no tuition) in year-to-date 1997 versus year-to-date 1996, which
resulted in additional staffing costs without a commensurate increase in
operating revenues. The increase in employee-enrolled children is due to an
enhanced staff discount program initiated to improve staff retention. Management
has revised and continues to evaluate this program. Further, benefit costs have
increased slightly due to the partial implementation of new employee health
insurance plans. Higher center labor costs associated with these benefits have
been partially offset by improvements in field overhead and management
reorganizations implemented during 1996.
DEPRECIATION. Depreciation expense increased to $19.2 million year-to-date
1997 from $18.0 million year-to-date 1996 due to asset additions related to
renovations of existing centers, purchases of short-lived assets, and to the
opening of 26 new centers, offset partially by the closing of 20 centers since
the end of second quarter 1996 and by a reduction in depreciation expense
related to the end of the estimated depreciable lives of certain assets.
RENT. Rent expense increased to $14.5 million year-to-date 1997 from $14.4
million year-to-date 1996. Eleven leased centers have been opened and 15 leased
centers have been closed since the end of second quarter 1996.
OTHER. Other operating expenses increased to $81.2 million year-to-date
1997 from $80.8 million year-to-date 1996. As a percentage of operating
revenues, other operating expenses decreased to 27.1% year-to-date 1997 from
28.3% year-to-date 1996. This margin improvement is principally due to a
reduced, lower cost marketing program and improved administrative and center
support efficiencies from re-engineering efforts initiated during fiscal 1996.
37
<PAGE>
LITIGATION SETTLEMENTS AND RESTRUCTURING COSTS (INCOME), NET.
LITIGATION SETTLEMENTS. During first quarter 1996, the Company received
the final cash distribution of $11.3 million from The Enstar Group, Inc.
("Enstar"), the Company's former parent, in settlement of the Company's
$12.0 million claim against Enstar in U.S. Bankruptcy Court in Montgomery,
Alabama. During second quarter 1997, the Company received a $1.5 million
interest payment from Enstar in connection with this claim.
RESTRUCTURING. On June 15, 1995, the Board of Directors appointed Dr.
Sandra Scarr, Chairman of the Board, to be Chief Executive Officer ("CEO"),
replacing the former CEO whose resignation was effective on the same date.
Subsequent to this appointment, the Company made substantial changes to its
field operations management and support functions. As a result of these
changes, the Company charged $4.0 million of restructuring costs, primarily
severance agreements, against fiscal 1996 earnings during first quarter
1996.
Although substantial reorganization changes were implemented during
fiscal 1996, the Company continues to evaluate certain other support
functions and systems in an effort to improve future operating effectiveness
and efficiencies, as well as to improve the quality of services.
During first quarter 1996, management limited Kid's Choice-TM-
development to contracts in process until the concept is more fully
developed, and recorded an impairment loss of $6.3 million, consisting of a
writedown of $5.3 million for the recoverability of long lived assets,
primarily leasehold improvements, and $1.0 million for anticipated lease
termination costs.
OPERATING INCOME. Operating income increased $1.8 million, or 7.8% to $24.1
million year-to-date 1997 as compared to year-to-date 1996. Operating income
before litigation settlements and restructuring costs increased $1.2 million, or
5.8%, to $22.6 million year-to-date 1997 as compared to year-to-date 1996 for
the reasons discussed above.
Year-to-date 1997 EBITDA, defined as earnings before interest expense,
income taxes, depreciation, and amortization, of $36.9 million was $3.6 million
below year-to-date 1996. As a percentage of operating revenues, EBITDA for
year-to-date 1997 was 12.3% versus 14.2% for year-to-date 1996. Adjusted EBITDA,
defined as EBITDA excluding the effects of investment income; litigation
settlements and restructuring costs (income), net; and extraordinary items, was
$41.8 million year-to-date 1997, an increase of $2.4 million over year-to-date
1996. As a percentage of operating revenues, Adjusted EBITDA improved to 13.9%
year-to-date 1997 versus 13.8% year-to-date 1996. Neither EBITDA nor Adjusted
EBITDA is intended to indicate that cash flow is sufficient to fund all of the
Company's cash needs or represent cash flow from operations as defined by
generally accepted accounting principles.
NET INVESTMENT INCOME. Net investment income was $0.1 million year-to-date
1997 versus $0.2 million year-to-date 1996.
INTEREST EXPENSE. Interest expense decreased to $8.1 million from $9.2
million for year-to-date 1997 versus year-to-date 1996. The Company's weighted
average interest rate on its long-term debt, including debt cost amortization,
was 9.5% year-to-date 1997 versus 10.9% year-to-date 1996.
INCOME TAX EXPENSE. Income tax expense for year-to-date 1997 of $6.3
million is in excess of amounts computed by applying statutory federal income
tax rates to income before income taxes due primarily to state income taxes.
38
<PAGE>
THE FISCAL YEAR ENDED MAY 31, 1996, COMPARED TO THE FISCAL YEAR ENDED JUNE 2,
1995
The Company's operating results for the comparative fiscal years were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
CHANGE
----------------------
<S> <C> <C> <C> <C> <C> <C>
MAY 31, PERCENT OF JUNE 2, PERCENT OF PERCENT OF
1996 REVENUES 1995 REVENUES AMOUNT REVENUES
----------- ----------- ----------- ----------- --------- -----------
Operating revenues............................ $ 541,264 100.0% $ 506,505 100.0% $ 34,759 -- %
----------- ----- ----------- ----- --------- -----------
Operating expenses:
Salaries, wages and benefits................ 284,115 52.5 263,527 52.0 20,588 0.5
Depreciation................................ 33,972 6.3 28,071 5.5 5,901 0.8
Rent........................................ 26,515 4.9 26,099 5.2 416 (0.3)
Other....................................... 143,469 26.5 138,910 27.5 4,559 (1.0)
Litigation settlements and restructuring
costs (income), net....................... 1,484 0.3 (888) (0.2) 2,372 0.5
----------- ----- ----------- ----- --------- -----------
Total operating expenses................ 489,555 90.5 455,719 90.0 33,836 0.5
----------- ----- ----------- ----- --------- -----------
Operating income.............................. $ 51,709 9.5% $ 50,786 10.0% $ 923 (0.5)%
----------- ----- ----------- ----- --------- -----------
----------- ----- ----------- ----- --------- -----------
Centers open at the end of each fiscal year... 1,148 1,137 11
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
OPERATING REVENUES. Fiscal 1996 operating revenues increased $34.8 million
or 6.9% over fiscal 1995. The increase in operating revenues is primarily
attributable to a 4.2% weighted average tuition increase implemented during
second quarter 1996 and to new center openings and acquisitions, offset by a
slight decline in same center occupancy and center closings. Fiscal 1996 same
center operating revenues, defined as centers in operation during both full
years, increased 4.5% over fiscal 1995.
Total company average occupancy decreased slightly to 75.9% in fiscal 1996
from 76.3% in fiscal 1995. Same center average occupancy remained almost
constant at 76.9% for fiscal 1996 compared to 77.1% for fiscal 1995. The slight
decrease in same center average occupancy is attributable to heavy competitor
promotional activities and increasing market price sensitivities during the fall
of 1995.
During fiscal 1996 (including the conversion of one community center to a
Kid's Choice-TM- center), the Company opened 37 new centers: 22 KinderCare
community centers, six KinderCare at Work-Registered Trademark- centers and nine
Kid's Choice-TM- centers; and closed or sold 26 centers. During fiscal 1995
(including the conversion of three community centers to Kid's Choice-TM-
centers), the Company opened or acquired 45 new centers: 29 KinderCare community
centers (including 12 acquired centers), three KinderCare at
Work-Registered Trademark- centers and 13 Kid's Choice-TM- centers; and closed
or sold 40 centers. The average capacity for new community center openings or
acquisitions was 175 and 163 in fiscal 1996 and 1995, respectively, while closed
center average capacity was 103 and 112, respectively, and the average capacity
of the new Kid's Choice-TM- centers is 149. Total center capacity increased from
137,000 at the end of fiscal 1995 to 141,000 at the end of fiscal 1996.
SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits expense
increased, as a percentage of operating revenues, to 52.5% in fiscal 1996 from
52.0% in fiscal 1995. The increase is attributable to increased hours and wage
rates since the end of fiscal 1995 offset partially by improvements in field
overhead and administrative costs due to management reorganizations.
DEPRECIATION. Depreciation expense increased $5.9 million to $34.0 million
in fiscal 1996 from $28.1 million in fiscal 1995. This increase is primarily
attributable to the opening of 36 new centers and to the expenditure of $27.3
million in fiscal 1996 for center renovations and short-lived assets, such as
the
39
<PAGE>
computers for children's educational programs, offset somewhat by the closing or
sale of 25 older centers in fiscal 1996.
RENT. Rent expense increased $0.4 million in fiscal 1996 from fiscal 1995.
This increase is attributable to rent incurred on new Kid's Choice-TM- and
community center leases offset partially by the closing of 17 leased community
centers and the favorable effects of the disposal of some leased vehicles.
OTHER. Other operating expenses, as a percentage of operating revenues,
decreased to 26.5% in fiscal 1996 from 27.5% in fiscal 1995. This improvement is
primarily due to: (1) a decrease in insurance costs due to improving claims
experience, (2) gains on the sales of assets, and (3) improvements associated
with the field management reorganization such as decreases in travel costs and
office supplies. These improvements are partially offset by increased costs
associated with upgrades in the food and educational programs and increased
marketing costs.
OPERATING INCOME. Fiscal 1996 operating income increased 1.8% or $0.9
million from fiscal 1995. As a percentage of operating revenues, fiscal 1996
operating margin of 9.5% decreased from the prior year operating income margin
of 10.0% for the reasons discussed above. Before litigation settlements and
restructuring costs, fiscal 1996 operating income of $53.2 million is $3.3
million better than fiscal 1995 operating income of $49.9 million and, as a
percentage of revenues, operating income margin remained about flat at 9.8%.
Fiscal 1996 EBITDA, defined as earnings before interest expense, income
taxes, depreciation and amortization, increased 5.4% or $4.4 million from fiscal
1995. As a percentage of operating revenues, EBITDA decreased to 15.9% for
fiscal 1996 from 16.1% for fiscal 1995. Adjusted EBITDA increased 11.8% or $9.2
million to $87.2 million from $78.0 million in fiscal 1995, and, as a percentage
of operating revenues, improved to 16.1% from 15.4%. Neither EBITDA nor Adjusted
EBITDA is intended to indicate that cash flow is sufficient to fund all of the
Company's cash needs or represent cash flow from operations as defined by
generally accepted accounting principles.
NET INVESTMENT INCOME. Net investment income was $0.2 million for fiscal
1996 compared to $2.6 million for fiscal 1995. The decrease is primarily due to
the sale of securities during fiscal 1995.
INTEREST EXPENSE. Interest expense decreased to $16.7 million for fiscal
1996 from $17.3 million for fiscal 1995. This decrease is attributable to a
reduction of long-term debt obligations offset by higher average interest rates.
The Company's weighted average interest rate on its long-term debt, including
amortization of debt issuance costs, was 10.8% for fiscal 1996 versus 10.0% for
fiscal 1995.
INCOME TAX EXPENSE. Income tax expense for fiscal 1996 of $13.5 million was
in excess of amounts computed by applying statutory federal income tax rates to
income before income taxes due primarily to state income taxes. Additional
paid-in capital was increased by $4.1 million for tax benefits recognized in
fiscal 1996 relating to valuation allowances established for deferred taxes at
April 2, 1993, the effective date of the Company's emergence from bankruptcy.
40
<PAGE>
THE FISCAL YEAR ENDED JUNE 2, 1995 COMPARED TO THE FISCAL YEAR ENDED JUNE 3,
1994
The Company's operating results for the comparative fiscal years were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
CHANGE
------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 2, PERCENT OF JUNE 3, PERCENT OF PERCENT OF
1995 REVENUES 1994(A) REVENUES AMOUNT REVENUES
----------- ----------- ----------- ----------- --------- -------------
Operating revenues............................ $ 506,505 100.0% $ 488,726 100.0% $ 17,779 -- %
----------- ----- ----------- ----- --------- ---
Operating expenses:
Salaries, wages and benefits................ 263,527 52.0 256,468 52.5 7,059 (0.5)
Depreciation................................ 28,071 5.5 25,148 5.1 2,923 0.4
Rent........................................ 26,099 5.2 22,563 4.6 3,536 0.6
Other....................................... 138,910 27.5 137,381 28.1 1,529 (0.6)
Gain on litigation settlements.............. (888) (0.2) -- 0.0 (888) (0.2)
----------- ----- ----------- ----- --------- ---
Total operating expenses................ 455,719 90.0 441,560 90.3 14,159 (0.3)
----------- ----- ----------- ----- --------- ---
Operating income.............................. $ 50,786 10.0% $ 47,166 9.7% $ 3,620 0.3%
----------- ----- ----------- ----- --------- ---
----------- ----- ----------- ----- --------- ---
Centers open at the end of each fiscal year... 1,137 1,132 5
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
- ------------------------
(a) Fiscal 1994 was a 53-week year.
OPERATING REVENUES. Including the 53rd week in fiscal 1994, fiscal 1995
operating revenues (52 weeks) increased $17.8 million or 3.6%. After adjusting
fiscal 1994 to a comparable 52-week basis, fiscal 1995 revenues of $506.5
million increased $27.3 million or 5.7% over fiscal 1994. The increase in
operating revenues is primarily attributable to tuition increases. In fiscal
1995, weighted average tuition rates were increased approximately 4.4% during
the second quarter. In fiscal 1994, weighted average tuition rates were
increased 4.8% during the second quarter and increased an additional 1.0% during
the fourth quarter. Fiscal 1995 revenues also were favorably impacted by $0.5
million from 12 centers acquired on May 5, 1995. Fiscal 1995 same center
revenues, defined as centers in operation during both full years, increased 5.8%
over fiscal 1994, after adjusting fiscal 1994 to a comparable 52-week basis.
Total company average occupancy decreased slightly to 76.3% in fiscal 1995
from 76.5% in fiscal 1994. Same center average occupancy remained almost
constant at 77.1% for fiscal 1995 compared to 77.4% for fiscal 1994. The slight
decrease in occupancy is attributable to new center openings and a softer than
expected third and fourth quarter.
During fiscal 1995 (including the conversion of three community centers to
Kid's Choice-TM- centers), the Company opened or acquired 45 new centers: 29
KinderCare community centers (including 12 acquired centers of which 10 centers
were acquired in a single transaction), three KinderCare at
Work-Registered Trademark- centers and 13 Kid's Choice-TM- centers; and closed
or sold 40 centers. During fiscal 1994 (including the conversion of two
community centers to Kid's Choice-TM- centers), the Company opened 31 new
centers: four KinderCare community centers, four KinderCare at
Work-Registered Trademark- centers and 23 Kid's Choice-TM- centers; and closed
or sold 65 centers. The average capacity for new community center openings was
163 and 171 in fiscal 1995 and 1994, respectively, while closed center average
capacity was 112 and 101, respectively. Total center capacity remained
approximately the same.
SALARIES, WAGES AND BENEFITS. Salaries, wages and benefits expense
decreased, as a percentage of operating revenues, to 52.0% in fiscal 1995 from
52.5% in fiscal 1994. These improvements reflect continued management focus on
center staff scheduling initiated in early fiscal 1994, which led to improvement
throughout fiscal 1994 and 1995 and favorable cost reductions in employee
medical costs
41
<PAGE>
due to new program roll-outs and management focus on medical cost containment.
The improvement in center staff productivity (calculated as a percentage of
revenues) was partially offset by increased support services and the expansion
of the Kid's Choice-TM- format as the Company continued its focus on improving
the quality of services and the expansion of new centers and new center format
concepts.
DEPRECIATION. Depreciation expense increased $2.9 million to $28.1 million
in fiscal 1995 from $25.2 million in fiscal 1994. The increase is attributable
to the opening of 42 new centers, of which 28 were owned, offset somewhat by the
closing or sale of 37 older centers, of which only nine were owned, and
depreciation on short-lived assets acquired in fiscal 1995.
RENT. Rent expense increased $3.5 million in fiscal 1995 from fiscal 1994.
This increase is primarily attributable to an increase in rent on the Company's
vehicle leases and rent incurred on new Kid's Choice-TM- leases.
OTHER. Other operating expenses, as a percentage of operating revenues,
decreased to 27.5% in fiscal 1995 from 28.1% in fiscal 1994. This improvement is
mostly due to a decrease in insurance costs from improving claims experience,
which was partially offset by increases in support services, new center
development, replacement of educational supplies, and pre-opening and start-up
costs of new centers.
GAIN ON LITIGATION SETTLEMENTS. In third quarter 1995, the Company received
approximately $0.9 million in connection with litigation settlements with Enstar
and KinderCare's former Chairman of the Board.
OPERATING INCOME. Including the 53rd week in fiscal 1994, fiscal 1995
operating income (52 weeks) increased 7.7% or $3.6 million. After adjusting
fiscal 1994 to a comparable 52-week basis operating income for fiscal 1995 of
$50.8 million increased 9.8% or $4.5 million over fiscal 1994. As a percentage
of operating revenues, fiscal 1995 operating margin of 10.0% improved over the
prior year operating income margin of 9.7% for the reasons discussed above.
Including the 53rd week in fiscal 1994, fiscal 1995 EBITDA, defined as
earnings before interest expense, income taxes, depreciation and amortization,
increased 11.5% or $8.4 million for fiscal 1995 (52 weeks) versus fiscal 1994.
After adjusting fiscal 1994 to a comparable 52-week basis, EBITDA increased 8.6%
or $6.4 million over fiscal 1994 EBITDA. As a percentage of operating revenues,
the EBITDA margin, after adjusting fiscal 1994 to a comparable 52-week basis,
improved to 16.1% for fiscal 1995 from 15.7% for fiscal 1994. Including the 53rd
week in fiscal 1994, Adjusted EBITDA increased 7.8% or $5.7 million to $78.0
million for fiscal 1995 from $72.3 million in fiscal 1994. As a percentage of
operating revenues, it improved to 15.4% from 14.8%. After adjusting fiscal 1994
to a comparable 52-week basis, Adjusted EBITDA increased 8.4% or $6.1 million to
$78.0 million for fiscal 1995 from $71.9 million in fiscal 1994. As a percentage
of operating revenues, it improved to 15.4% from 15.0%. Neither EBITDA nor
Adjusted EBITDA is intended to indicate that cash flow is sufficient to fund all
of the Company's cash needs or represent cash flow from operations as defined by
generally accepted accounting principles.
NET INVESTMENT INCOME. Net investment income decreased $0.6 million from
$3.2 million in fiscal 1994 to $2.6 million in fiscal 1995. During fiscal 1995,
the Company recognized a $2.0 million gain on the sale of securities and earned
$0.6 million of interest on cash balances. In fiscal 1994, a $1.9 million gain
was recognized on the collection and retirement of the note receivable received
in conjunction with the sale of Sylvan Learning Corporation ("Sylvan"), a wholly
owned subsidiary, in July 1993, and earned $1.3 million interest on cash
balances.
INTEREST EXPENSE. Interest expense decreased slightly to $17.3 million for
fiscal 1995 from $17.7 million for fiscal 1994. This decrease is attributable to
a reduction of long term debt obligations offset by higher average interest
rates and amortization of debt issuance costs associated with the Refinancing
42
<PAGE>
Plan. The "Refinancing Plan," effective as of June 2, 1994, consisted of the
sale of $100.0 million principal amount of the 10 3/8% Senior Notes, the
execution of the Old Bank Credit Facility and a $35.0 million letter of credit
facility and the repayment in full of the Company's floating rate senior secured
notes due 2000 and the 12% senior secured notes due 2002, in an amount
aggregating $173.6 million (including accrued interest and redemption premiums).
The Company's weighted average interest rate on its long-term debt, including
amortization of debt issuance costs, was 10.0% for fiscal 1995 versus 9.6% for
fiscal 1994.
INCOME TAX EXPENSE. Income tax expense for fiscal 1995 of $14.0 million is
in excess of amounts computed by applying statutory federal income tax rates to
income before income taxes due primarily to state income taxes. Additional
paid-in capital was increased by $13.9 million for tax benefits recognized in
fiscal 1995 relating to valuation allowances established for deferred taxes at
April 2, 1993, the effective date of the Company's emergence from a
pre-organized bankruptcy.
LIQUIDITY AND CAPITAL RESOURCES
POST-MERGER (INCLUDING THE FINANCINGS)
The Company's principal sources of liquidity are cash flow generated from
operations and borrowings under the $300.0 million Revolving Credit Facility.
The Company's principal uses of liquidity will be to meet debt service
requirements, finance the Company's capital expenditures and provide working
capital.
The Company incurred substantial indebtedness in connection with the Merger.
On a pro forma basis to reflect the Merger, the Company had approximately $422.2
million of consolidated indebtedness as compared to $168.8 million of
consolidated indebtedness at December 13, 1996. The Company's debt service
obligations could have important consequences to holders of the Exchange Notes.
See "Risk Factors."
The Financings include $390.0 million under the Credit Facilities comprised
of a $90.0 million Term Loan Facility, of which $50.0 million was drawn at the
Effective Time with an additional amount to be drawn, and a $300.0 million
Revolving Credit Facility and the Offering of $300.0 million of Old Notes. The
gross proceeds from the Offering, together with borrowings under the Term Loan
Facility and the equity contribution by the Partnership, were used upon
consummation of the Merger to pay cash merger consideration, repay indebtedness
of the Company and pay transaction fees and expenses in connection therewith. At
December 13, 1996, on a pro forma basis after giving effect to the Merger, the
Company would have borrowed approximately $76.0 million under the Term Loan
Facility, issued $300.0 million of the Old Notes, and would have had additional
availability of $251.1 million under the $300.0 million Revolving Credit
Facility (reduced by $48.9 million of outstanding letters of credit).
The Term Loan Facility is also subject to mandatory prepayment with the
proceeds of certain asset sales and certain debt offerings and a portion of
Excess Cash Flow (as defined in the Credit Facilities). The Term Loan Facility
will terminate nine years after the Effective Time and will provide for nominal
annual amortization. The Revolving Credit Facility will terminate seven years
after the Effective Time.
The Company utilized approximately $56.5 million of net operating loss
carryforwards to offset taxable income in its 1994, 1995 and 1996 fiscal years.
Approximately $20.0 million of net operating loss carryforwards is available to
be utilized in the current and future fiscal years. If such net operating losses
were reduced, the Company could be required to pay additional taxes and
interest, thereby reducing available cash.
CAPITAL EXPENDITURES
The Company anticipates substantial increases in its capital expenditures
budget over the next several years. During fiscal 1997, the Company expects to
open 16 to 17 new centers consisting of 14 to
43
<PAGE>
15 community centers, one KinderCare at Work-Registered Trademark- center and
one center in the United Kingdom. The number of new center openings is down from
the 20 to 23 centers originally planned for 1997 because three community centers
originally scheduled to open in fiscal 1997 are now expected to open in fiscal
1998 and because of a reduction in planned openings in the United Kingdom from
two or three centers to one center. Over the next three years, the Company
expects to increase its rate of opening and/or acquiring new centers to between
50 and 75 new centers per year in the aggregate (excluding center closings),
which the Company expects will be primarily community centers, and to continue
its regular practice of closing a select number of centers per year that have
been identified as underperforming. The length of time from site selection to
the opening of a center ranges from 18 to 24 months. The average total cost per
community center ranges from approximately $1.2 million to $1.8 million
depending upon the size and location of the center; however, the actual costs of
a particular center may vary from such range. New centers are based upon
detailed site analyses that include feasibility and demographic studies and
financial modeling. No assurance can be given by the Company that it will be
able to successfully negotiate and acquire properties, or meet targeted
deadlines. Frequently, new site negotiations are delayed or canceled or
construction delayed for a variety of reasons, many outside the control of the
Company.
During the twenty-eight weeks ended December 13, 1996, the Company opened
ten community centers and one KinderCare at Work-Registered Trademark- center.
There are no planned additions to the Company's Kid's Choice-TM- format as
management does not believe the new format concept is meeting its full potential
and needs further refinement. The Company currently anticipates that any Kid's
Choice-TM- center that is underperforming when its lease expires will be closed
at that time. Fiscal 1996 new center openings totaled 37 centers (including the
conversion of one community center to a Kid's Choice-TM- center); consisting of
22 KinderCare community centers, six KinderCare at Work-Registered Trademark-
centers and nine Kid's Choice-TM- centers. This total compares to 45 center
openings or acquisitions in fiscal 1995, consisting of 29 KinderCare community
centers (including 12 acquired centers of which 10 centers were acquired in a
single transaction), three KinderCare at Work-Registered Trademark- centers and
13 Kid's Choice-TM- centers.
Capital expenditures year-to-date 1997 amounted to approximately $27.8
million. Approximately $7.6 million was spent on renovations and improvements to
existing facilities, approximately $4.1 million was spent on computers for
children's educational programs, approximately $14.0 million was spent on new
center development, and the remaining approximately $2.1 million was spent on
corporate information systems.
Capital expenditures during fiscal 1996 amounted to approximately $67.3
million. Approximately $14.9 million was spent on renovations and improvements
to existing facilities, approximately $12.4 million was spent on equipment
purchases, including $0.5 million on computers for children's educational
programs, and the remaining $40.0 million was spent on new center development.
Capital expenditures during fiscal 1995 amounted to approximately $74.4 million.
During fiscal 1995, approximately $13.5 million was spent on renovations and
improvements to existing facilities, approximately $17.4 million was spent on
equipment purchases, including $6.8 million on computers for children's
educational programs, and the remaining $43.5 million was spent on new center
development.
Management believes that cash flow generated from operations and borrowings
under the $300.0 million Revolving Credit Facility will adequately provide for
its working capital and debt service needs and will be sufficient to fund the
Company's expected capital expenditures over the next several years. Although no
assurance can be given that such sources will be sufficient, the capital
expenditure program has substantial flexibility and is subject to revision based
on various factors, including but not limited to, business conditions, changing
time constraints, cash flow requirements, debt covenants, competitive factors,
and seasonality of openings. If the Company experiences a lack of working
capital, it may reduce its capital expenditures. In the near term, if the
Company were to reduce substantially or postpone its capital expenditures,
management believes there would be no substantial impact on current operations
and it is likely that more cash would be available for working capital needs and
debt
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service. In the long term, if these expenditures were substantially reduced, in
management's opinion, its operations and its cash flow would be adversely
impacted.
YEAR TO DATE FISCAL YEAR 1997
The Company's consolidated net cash flow from operations year-to-date 1997
was $16.6 million, compared to $26.8 million for year-to-date 1996. The reduced
cash flow from operations year-to-date 1997 is due primarily to the receipt of a
$1.5 million interest payment from Enstar offset by a $5.2 million interest
payment on the Company's 10 3/8% Senior Notes during year-to-date 1997, as
compared to the Company's receipt of the final cash distribution of $11.3
million from Enstar offset by a $5.0 million one-time restructuring charge
during year-to-date 1996. As of December 13, 1996, the Company had $10.4 million
in cash and cash equivalents and its ratio of current assets to current
liabilities was 0.65 to 1 at December 13, 1996 versus 0.58 to 1 at May 31, 1996.
During first quarter 1997, the Company purchased $30.0 million aggregate
principal amount of its 10 3/8% Senior Notes at an aggregate price of $31.5
million. This transaction resulted in an extraordinary loss of $1.2 million, net
of income taxes, in first quarter 1997. During second quarter 1997, the Company
announced and completed a tender offer and consent solicitation for its
outstanding 10 3/8% Senior Notes seeking the elimination of substantially all of
the restrictive covenants, and 99.7% of the remaining notes were purchased at an
aggregate price of $76.8 million. This second transaction resulted in an
extraordinary loss of $5.3 million, net of income taxes, recorded in second
quarter 1997. The Company increased its Existing Bank Credit Facility by $50.0
million to $200.0 million to finance the tender offer.
On June 3, 1996, the Board of Directors authorized the repurchase of $23.0
million of the Company's Common Stock. As of the end of the first quarter 1997,
1,111,500 shares and 435,000 warrants had been repurchased for $18.3 million.
All shares that were repurchased have been retired. No shares of Common Stock or
warrants have been purchased since July 22, 1996.
FISCAL YEAR 1996
The Company's consolidated net cash flow from operations for fiscal year
1996 was $75.9 million compared to $73.0 million for the corresponding period in
fiscal year 1995.
During first quarter 1996, the Company received the final cash distribution
of $11.3 million from Enstar in connection with a settlement of the Company's
claim against Enstar in U.S. Bankruptcy Court in Montgomery, Alabama. During
second quarter 1996, the Company sold holdings in certain investments for $3.4
million. During fiscal 1996, the Company received $2.0 million in cash from the
repayments of notes receivable related to the sales of centers in prior years.
In addition, the Company also received $3.7 million in cash from the sale of
assets during the year.
FISCAL YEAR 1995
The Company's consolidated net cash flow from operations for the fiscal year
1995 was $73.0 million compared to $74.4 million for the corresponding period in
fiscal year 1994.
Other income included approximately $2.0 million from the sale of investment
securities during the third and fourth quarter of fiscal year 1995. In late
fiscal year 1994, the Company coordinated the transfer and sale of its fleet
vehicle leases from one leasing company to another and entered into a contract
with the new leasing company. As a result, during the first quarter of fiscal
1995, the Company received approximately $7.8 million relating to prepayments
and accelerated payments of principal required by the previous lessor. Also
included in cash flow from other income was $0.4 million received from the claim
against Enstar.
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RECENTLY ISSUED ACCOUNTING STANDARDS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), was issued. SFAS 123
encourages companies to adopt a fair value based method of accounting for
stock-based compensation plans in place of the intrinsic value based method
provided for by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25). Companies which continue to apply the
provisions of APB 25 must make pro forma disclosures in the notes to their
financial statements of net income and earnings per share as if the fair value
based method of accounting defined in SFAS 123 had been applied. The Company
plans to adopt SFAS 123 in fiscal year 1997 on a pro forma disclosure basis.
SEASONALITY
New enrollments are generally highest in September and January, with
attendance declining 5% to 10% during the summer months and the year-end holiday
period. As a result, the Company seeks to open centers in August and December in
anticipation of the peak enrollment periods. The combination of decreased
attendance and escalated center development in the summer months and during the
year-end holiday period may result in decreased liquidity during these periods.
GOVERNMENTAL LAWS AND REGULATIONS
There are certain tax incentives for child care programs. Section 21 of the
Code provides a federal income tax credit ranging from 20% to 30% of certain
child care expenses for "qualifying individuals" (as defined therein). The fees
paid to the Company for child care services by eligible taxpayers qualify for
the tax credit, subject to the limitations of Section 21. Approximately 13% of
the Company's operating revenues are generated from federal and state child care
assistance programs, primarily the Child Care and Development Block Grant and
At-Risk Programs. These programs are designed to assist low-income families with
child care expenses and are administered through various state agencies.
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.
INFLATION AND WAGE INCREASES
Approximately 58.0% of operating expenses during fiscal 1996 consisted of
salary, wages and benefits. As of May 31, 1996, the Company's average wage rate
for hourly employees was $6.45 per hour, compared to the current federal minimum
wage rate of $4.75 per hour.
Management does not believe that the effect of inflation on the results of
the Company's operations has been significant in recent periods. During 1996,
Congress enacted an increase in the minimum hourly wage from $4.25 to $4.75
effective October 1, 1996, with an additional increase to $5.15 to be effective
on September 1, 1997. Management currently believes that the new wage rates,
including the effects of wage compression (commensurate wage increases granted
to certain hourly employees (with two or more years experience at KinderCare at
the time of such increase) earning more than minimum wage), will result in
increased expenses of approximately $0.3 million in fiscal 1997 and $1.5 million
in fiscal 1998. On an annualized basis, the total effect of the two-step minimum
wage increases is expected to be approximately $1.8 million and the full effect
will not be experienced until fiscal 1999. The Company believes that, through
increases in its tuition rates, it can recover any increase in expenses caused
by the 1996-1997 wage adjustments and additional compensation adjustments
necessitated by such increases in the minimum wage rate. However, there can be
no assurance that the Company will be able to increase its rates sufficiently to
offset such increased costs. The Company continually evaluates its wage
structure and may implement further changes in addition to those discussed
above.
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BUSINESS
GENERAL
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 operating 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 December 13, 1996, the Company operated 1,148 child care
centers, of which 736 are owned, located in 38 states and the United Kingdom and
had enrollment of approximately 125,000 full-time and part-time children. The
Company's total center capacity at December 13, 1996 was approximately 142,000
full-time children. For the fiscal years ended May 31, 1996 and June 2, 1995,
average occupancy was 75.9% and 76.3%, respectively, and the average full-time
three-year-old weekly tuition rate (which the Company believes approximates the
Company's average full-time weekly tuition rate) was $100 and $96, respectively.
For the twenty-eight weeks ended December 13, 1996, average occupancy was 74.2%,
and the average full-time three-year-old weekly tuition rate was $104. For the
twelve months ended December 13, 1996, the Company generated operating revenues
of $555.6 million and EBITDA of $89.6 million.
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 a range of opportunities for motor skill development
through indoor and outdoor activities. "Computer Clubs," a program for children
of preschool 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-TM-
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 centers, which comprise approximately 93% of the
Company's centers, and KinderCare at Work-Registered Trademark- centers
typically provide educational and child care services to children between the
ages of six weeks and 12 years. Kid's Choice-TM- centers are for school age
children and are provided in separate facilities designed specifically for this
age group. 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 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 and with location,
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 standards. As of December 13, 1996, land and
buildings with respect to the 736 centers owned by the Company had a net book
value of $392.9 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.
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THE CHILD CARE INDUSTRY
FAVORABLE DEMOGRAPHICS AND SOCIAL TRENDS. The U.S. child care industry
(including home-based care, employer on-site care, and care delivered by private
facilities, government-sponsored institutions, church-affiliated centers,
colleges and universities, group day care center chains, and civic groups such
as the YMCA) has grown at a compound annual growth 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 at a 6.8% compound annual growth rate 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 the number of births as compared generally to the
1970's and 1980's, (ii) mothers continuing to enter the work force, and (iii) a
significant increase in the popularity of center-based care. According to the
United States National Center for Health Statistics, in 1989 (for the first time
since 1964, the final year of the "baby boom") and in each year since then
through 1995, the annual number of births approximated four million per year.
The annual number of births is expected to remain at or around this level
through 2010. Furthermore, the number of children under the age of five grew
from approximately 16.1 million in 1975 to an estimated 20.2 million in 1995,
according to the Census Bureau. These trends are complemented by the continued
increase in mothers entering the work force. According to the USBLS, the
percentage of mothers in the work force that have children under the age of six,
relative to all mothers that have children under the age of six, has risen from
approximately 39% in 1975 to an estimated 61% in 1995, and the percentage of
mothers in the work force that have children between the ages of five and
twelve, relative to all mothers that have children between the ages of five and
twelve, has risen from 53% in 1975 to 75% in 1995.
Finally, there has also been a significant increase in the use of child care
centers by families with both working and non-working mothers as a method of
care for preschool age children. The Company believes this increase is due in
part to the recognition of the importance of early childhood development and
education. Center-based care typically offers a more structured curriculum,
better educational materials, more experienced personnel and more children for
social interaction than alternative forms of child care. Center-based care has
become an increasingly popular form of non-parental care for families with
working mothers, accounting for approximately 30% of such care in 1993,
according to the most recent data available from the Census Bureau, up from
about 6% in 1965, according to NAEYC. Furthermore, 22% of children under the age
of six with mothers not in the labor force were enrolled in center-based child
care programs in 1995, according to the U.S. Department of Education.
FRAGMENTED INDUSTRY. The U.S. child care industry is highly fragmented,
with the aggregate capacity of the largest 50 for-profit child care companies
capable of serving less than 1% of the potential child care market, or
approximately 506,000 children out of a total of 51 million children under the
age of twelve in the United States as of January 1, 1996, according to CHILD
CARE INFORMATION EXCHANGE and Company estimates. KinderCare is the only child
care company that has total center capacity in excess of 100,000 children and
the only company to operate more than 1,000 centers. Furthermore, including
KinderCare, only nine for-profit companies have a total center capacity in
excess of 10,000 children and only seven have more than 100 centers. Relative to
smaller competitors, the few large national operators such as KinderCare have a
competitive advantage over other for-profit child care companies and smaller
independent operators with less extensive resources.
COMPETITIVE STRENGTHS
LEADING MARKET POSITION. Based on the number of centers operated, children
served, operating revenues and operating income, KinderCare is the largest
provider of for-profit preschool educational and child care services in the
United States. At December 13, 1996, the Company operated 1,148 child care
centers in 38 states and the United Kingdom with total center capacity of
approximately 142,000 full-time children. In contrast, as of January 1, 1996,
the second and third largest for-profit competitors operated approximately 750
and 500 centers, respectively, with total center capacities of approximately
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95,000 and 62,500 children, respectively, according to CHILD CARE INFORMATION
EXCHANGE. By virtue of its size and leadership position, the Company benefits
from several competitive advantages over smaller operations, including (i) the
resources available to invest in developing and regularly updating high quality
educational programs, services and curriculum materials; (ii) the expertise to
manage the complexities involved in complying with various state and local
regulations and licensing requirements; (iii) purchasing power in areas such as
insurance, equipment, supplies and food; and (iv) the ability to spread fixed
corporate and centralized support costs, including real estate, marketing and
educational staff, over a large center base.
STRONG BRAND IDENTITY AND REPUTATION. The Company's high quality preschool
educational and child care services have enabled it to develop a strong brand
identity and reputation in an industry where personal trust and parent referrals
play an important role in attracting new customers. The Company's brand
awareness is substantially greater than that of its closest competitor according
to recent market research commissioned by the Company. Throughout all of
KinderCare's communications (including informational brochures, parent
handbooks, advertising and marketing materials), the Company reinforces its
image as the market leader with a caring, well-trained staff having the
resources necessary to provide high quality preschool educational and child care
services.
HIGH QUALITY EDUCATIONAL PROGRAMS. The Company's resources have enabled it
to develop and regularly update a high quality proprietary curriculum that
incorporates professionally-designed, age-specific educational programs based on
its Whole Child Development concept. This concept includes programs that use
developmentally appropriate materials, activities and resources to promote the
physical, intellectual, emotional and social development of children ages six
weeks to twelve years. In light of advancements in childhood education theory
and practice, new programs are introduced 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 and curriculum
supervision. All of the Company's programs are designed and tailored
specifically to accommodate the needs and safety requirements of children.
GEOGRAPHICALLY DIVERSIFIED OPERATIONS. The Company's operations are
geographically diversified, with 1,146 child care centers located throughout 38
states and two centers located in the United Kingdom. The five states in which
the highest number of the Company's centers are located (Texas, California,
Illinois, Florida and Ohio) are well-dispersed, and together these states
account for less than 40% of the Company's centers. The geographical diversity
of the Company's operations mitigates the potential impact of regional economic
downturns or adverse changes in local regulations.
VALUABLE REAL ESTATE PORTFOLIO. At December 13, 1996, the Company owned
736, or 64%, of its 1,148 centers, with the remainder under lease or management
contract. The Company's real estate portfolio provides it with considerable
financial flexibility. Land and buildings, at December 13, 1996, had a net book
value of $392.9 million.
BUSINESS STRATEGY
The Company's objective is to build on its position as the nation's leading
preschool educational and child care services provider by offering high quality
services in a safe, healthy and nurturing environment. To meet this objective,
management's business strategy includes the following:
ACCELERATE NEW CENTER DEVELOPMENT AND PURSUE SELECTIVE ACQUISITIONS. 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
fiscal 1996, the Company's newer community centers (operating for at least
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18 months, but less than five years) had an average capacity of 145 full-time
children and achieved an average operating revenue of approximately $684,000
versus community centers opened prior to fiscal 1991, which had an average
capacity of 115 full-time children and an average operating revenue of
approximately $453,000. These newer community centers had an average occupancy
rate and an average three-year-old weekly tuition rate of 82% and $114,
respectively, compared to community centers opened prior to fiscal 1991, which
achieved 76% and $99, respectively. Also, these newer community centers achieved
an average center controllable profit margin (center operating revenues, less
labor costs and controllable expenses, such as food and supplies) which is four
percentage points higher than community centers opened prior to fiscal 1991.
In addition to accelerating new center development, the Company may seek to
acquire existing child care centers where demographics, operating standards, and
customer services complement the KinderCare business strategy. Management
believes that the Company's competitive position, economies of scale and
financial strength will allow it to capitalize on selective acquisition
opportunities in the fragmented child care industry.
INCREASE OCCUPANCY. The Company plans to increase center occupancy by (i)
emphasizing local marketing programs, (ii) enhancing recruiting, retention and
training of staff, and (iii) improving customer retention and loyalty. The
Company's marketing activities are currently designed to increase new
enrollments primarily through local marketing efforts, including direct mail
solicitation, telephone directory yellow pages and customer referrals. See
"--Marketing, Advertising and Promotions." These methods communicate to parents
the Company's commitment to quality preschool education and child care by
emphasizing KinderCare's nurturing environment, state-of-the-art educational
programs, quality staff, and excellent facilities and equipment, such as
computers for children's educational programs. Moreover, beginning in fiscal
1997, the Company implemented an automated consumer inquiry tracking system to
provide rapid responses more efficiently to inquiries from potential customers
and to develop a comprehensive consumer database.
Because a high quality teaching and administrative staff is a key factor in
maintaining and increasing center occupancy, the Company emphasizes recruiting,
retaining and training qualified center personnel. KinderCare's recruiting
process seeks to identify high quality candidates for its teaching, center
director and area coordinator positions. Furthermore, management believes its
current compensation and benefit plans are highly competitive in the child care
industry and, along with the Company's subsidized training programs, will result
in increased retention of qualified staff personnel. Additionally, the Company
rewards center directors and area coordinators through an annual bonus program
designed to increase center occupancy and center controllable profit.
The Company also strives to increase occupancy by improving its customer
retention and loyalty by strengthening its current parents' emotional commitment
to KinderCare. During fiscal 1997, the Company initiated parent orientation
meetings at centers during the fall enrollment season, introduced organized
parent involvement programs and parent advisory forums, and began conducting
ongoing market research on customer satisfaction.
ENHANCE EDUCATIONAL PROGRAMS AND QUALITY OF SERVICES. The Company
continually evaluates and strives to improve the quality of its preschool
educational and child care services. KinderCare has invested significant
resources in formulating a proprietary educational program, maintaining safe and
up-to-date facilities, and hiring, retaining, and training high quality
employees. The Company plans to continue to test and implement innovative
services and offerings, such as computers for children's educational programs
and its new program for school-aged children called KC Imagination Highway-TM-,
which encourages children to engage in meaningful, purposeful, long-lasting
projects that require an active imagination. The Company also plans to continue
encouraging its centers to become accredited by NAEYC, a national organization
that has established comprehensive criteria for providing quality child care and
implemented a formal, though voluntary, child care center accreditation process.
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IMPROVE OPERATIONAL EFFICIENCIES. During fiscal 1996, the Company
introduced numerous organizational initiatives to increase the Company's
operating efficiencies by (i) streamlining management, (ii) increasing local
authority and decision making, and (iii) enhancing centralized support
productivity. The Company plans to continue to improve its operating performance
primarily by reducing center labor costs through improved staff scheduling by
utilizing automated information systems to match better the number of staff
personnel at work at a given time of day to the number of students in attendance
at that time in accordance with state required student/teacher ratios. The
Company also plans to continue to leverage its economies of scale and purchasing
power.
CAPITALIZE ON KINDERCARE'S STRONG BRAND IDENTITY. KinderCare's strong brand
identity plays a significant role in the Company's continued growth of its
preschool education and child care business, as management believes that, among
other benefits, this factor contributes to higher enrollment for new child care
centers. Furthermore, management believes that there are opportunities to
leverage the Company's brand identity. Possibilities include licensing of the
KinderCare name for educational materials, clothes, toys and other consumer
products, as well as potential brand extensions into other forms of educational
or child care services, such as the operation of primary and private schools.
EDUCATIONAL PROGRAMS
The Company's educational programs are designed to provide opportunities for
the development of the whole child, as embraced in the Company's slogan, The
Whole Child is the Whole Idea-Registered Trademark-. The child-centered
environment consists of classrooms that have been designed and furnished to meet
the creative and developmental needs of young children. Classrooms encourage
children to explore and learn at their own pace. The schedule of activities
provides for quiet, active, group and individual participation with
opportunities for outdoor play on specially designed Playscapes. The Company's
age-specific programs offer a wide variety of curriculum activities based upon
monthly topics and weekly themes such as transportation, seasons, colors,
numbers, pets, safety, shapes, and sizes.
Each KinderCare center is designed to function as a neighborhood operation
where the center director has the necessary autonomy to tailor the programs to
the needs of the local community. The Company emphasizes selection of staff who
are responsive to children, and each teacher is given the opportunity, training
and resources to plan active and creative programs. Opportunity for professional
growth is available through company-wide training programs, the Certification of
Excellence Program (a professional development program established by the
Company), and tuition reimbursement for employment-related college course work
in connection with obtaining a Child Development Associate certificate. The
Company also maintains an Education and Training Department in its corporate
headquarters. This department is led by two professionals with Ph.D.'s in early
childhood education/curriculum supervision and is staffed by curriculum
specialists.
In the Infant Program (ages six weeks to one year), care is individualized
with daily routines focusing on one-on-one time to build affection and trust.
Language development activities begin in the infant care program as does
fostering physical and social skills through interaction with other infants and
adults. Strict health and sanitation policies have been developed in accordance
with state licensing requirements to ensure a safe environment which permits
infants' exploration of their surroundings.
Toddlers (ages one to two years) are encouraged to learn as they explore and
master the activity areas of their classrooms. The toddler program, Look At
Me!-Registered Trademark-, has been designed to develop the toddler through play
opportunities and support the toddler as he or she gains independence and
skills. Monthly curriculum ideas and activity suggestions emphasize fun learning
and self-help skills.
The Company's program for two-year-olds, Let Me Do
It!-Registered Trademark-, recognizes that a two-year-old's life is a time of
energy, curiosity and independence. The Let Me Do It!-Registered Trademark-
program is designed to help the child grow and develop by learning at his or her
own pace through play. The program emphasizes physical
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development, including dressing, feeding and toileting, and intellectual
development encompassing learning colors, shapes, language skills and
decision-making.
The Company has two preschool programs suitable for multi-age groups (ages
three to five years). My Window On The World-Registered Trademark- is designed
to encourage inquisitive children to discover questions and formulate answers
using the world of nature. KinderCare utilizes YOUR BIG BACKYARD, the National
Wildlife Federation's magazine for preschoolers, as a resource for this program.
Through this program, children learn expression through art, dramatic play,
science, table games, books and music, as well as important language, literacy,
and math skills. The Company's Once Upon a Time . . .-TM- program based on
children's literature, both classic and modern, is the second preschool program.
The concepts developed in the stories provide a foundation for learning math
relationships, colors and shapes, language and literacy skills, comparisons,
social awareness, fine-motor skills and creative expression.
Approximately two-thirds of the Company's centers have a Kindergarten at
KinderCare program where children learn through play, as well as activities and
experiences that are hands-on and sensory in nature. Children participate
primarily in small group instruction and carefully designed free exploration
activities that promote specific skills. Language arts, math, science, physical
education, fine arts and music, health and safety, and social studies are all
curriculum components of the nationally recognized curriculum, developed by
Development Learning Materials, a division of Science Research Associates, Inc.
The Company's newest program, KC Imagination Highway-TM-, is designed to
meet the needs of school-aged children. Because six to twelve-year-olds spend
most of their school day sitting at desks and tables engaged in relatively
quiet, traditional academic activities, the new program is designed to include a
number of stimulating and challenging activities and projects, ranging from loud
and active to quiet, thoughtful, and social. The foundation of this new program
is based upon group or individual involvement in projects. The goal is for
children to use their imaginations.
TUITION
The Company determines tuition charges based upon a number of factors
including age of child, full or part-time attendance, location and competition.
Tuition is generally collected on a weekly basis in advance, and tuition rates
are generally adjusted company-wide in the first week of November each year. An
increase averaging 4.7% was implemented in November 1996. For the fiscal years
ended May 31, 1996, June 2, 1995 and June 3, 1994, the Company's average weekly
full-time tuition rates for three-year-olds were $100, $96 and $90,
respectively. The Company believes that the three-year-old weekly tuition rate
approximates the Company's average weekly tuition rate.
MARKETING, ADVERTISING AND PROMOTIONS
Management believes that its national presence and reputation for high
quality preschool educational and child care services have created valuable and
strong name recognition and parent loyalty. In an industry where personal trust
and word-of-mouth referrals play a key role in attracting new customers, the
Company's reputation and strong name recognition are important competitive
advantages.
The Company intends to continue its marketing efforts through a program
consisting of various promotional activities and customer retention and customer
referral programs. Having implemented a lower cost marketing program in late
fiscal 1996, in part by discontinuing national television and magazine
advertising, the Company's promotional activities currently include year-round
targeted direct-mailings, seasonal radio advertisements in selected markets,
regional newspaper advertisements, telephone directory yellow page listings,
billboards and free standing inserts in newspapers. New centers receive the
benefit of pre-opening direct mail support as well as local public relation
articles and newspaper advertisements. Every new center hosts an open house and
provides for center tours where parents have opportunities to talk with staff,
visit classrooms and play with educational toys and
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computers. The Company has also developed a variety of specialized services
tailored to the busy lifestyles of its customers in a program called Helping
America's Busiest Families-Registered Trademark-. Under this program, a monthly
newsletter, Small Talk-Registered Trademark-, is mailed directly to customers
and provides parents with current information regarding child development
program information, parenting tips, child care ideas and center activities.
Other aspects of the marketing programs offered by each KinderCare center
include morning coffee for parents, periodic extended evening hours and a five
o'clock snack that is provided to the children as they are picked up by their
parents. Moreover, the Company sponsors a referral program under which parents
receive free tuition for a week for every new customer referral that leads to a
new enrollment.
Center directors and staff also are trained to market to parents via
telephone, local speaking engagements and interaction with local regulatory
agencies that may then refer potential customers to the Company. A telephone
inquiry tracking system is employed, and center tours and "meet the teachers"
events are held periodically. New parent orientation meetings are given in the
fall at which center directors and staff explain educational and development
programs as well as policies and procedures. The Company is also establishing
parent forums in centers to involve parents in center activities and events. At
these events, the Company is able to build a high awareness of the center in the
local community.
SITE SELECTION
The Company seeks to identify attractive new sites for its centers in large
metropolitan markets 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. The Company's real estate department performs comprehensive
studies of geographic markets to determine potential areas for new center
development. These studies include analyses of existing center areas,
competitors, tuition pricing, and demographic and marketplace data. Population,
age, household income, employment levels, growth, land prices and development
costs are all considered, as well as long-term growth opportunities for that
market. In addition, the Company reviews state and local laws, including zoning
requirements, development regulations and child care licensing regulations to
determine the timing requirements and probability of receiving the necessary
approvals to construct and operate a new child care center. The Company may
identify several new specific areas from each broader geographical market study.
KinderCare makes location decisions for new centers based upon a detailed
site analysis that includes feasibility and demographic studies as well as
comprehensive financial modeling. Within a prospective specific area, the
Company often analyzes several alternative sites. Each potential site is
evaluated against the Company's standards for location, convenience, visibility,
traffic patterns, size, layout, affordability and functionality, as well as
potential competition. The real estate and development staff, working closely
with operations, marketing and financial personnel, aims to open new centers
with the highest achievable occupancy and profitability levels.
CORPORATE CHILD CARE SERVICES
The Company organized its corporate child care services, referred to as
KinderCare at Work-Registered Trademark-, to offer businesses, including
universities and hospitals, alternatives for providing on-site
employer-sponsored child care. These alternatives include developing on-site
centers, operating employers' on-site centers through management contracts, and
providing consulting services for developing and managing centers.
The Company currently operates 39 on-site/near-site employer-sponsored child
centers for corporations such as Delco Electronics Corp., Ford Motor Co., Lego
Systems, Inc., The Walt Disney Company, Inc., several universities and various
hospitals. Of the 39 on-site centers, 35 are Company-owned or
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leased, with four operated by the Company under management fee contracts. The
management contracts for KinderCare At Work-Registered Trademark- centers
generally provide for a three-to-five-year initial period with renewal options
ranging from two to five years. The Company's compensation under such agreements
is generally based on a fixed fee with annual escalations. One KinderCare At
Work-Registered Trademark- center has been opened in fiscal 1997.
The Company also sponsors a tuition discount program, Kindustry, for over
400 companies nationwide, including several Fortune 500 corporations, city/state
governments, and health care providers. Companies that participate in Kindustry
qualify for a 10% tuition discount on the KinderCare child care services they
offer to their employees.
PERSONNEL
The Company's center operations are organized into four regions and 50 areas
reporting to a vice president of operations. Individual centers are managed by a
director and an assistant director. The Company has recently established a
position of primary teacher who supervises the teachers for all classes in a
specific age group, in order to provide proper supervision at every level, and
the Company is in the process of introducing such positions in the centers. All
center directors participate in periodic training programs or meetings and must
comply with applicable state and local licensing regulations. All center
teaching and other non-management staff are required to attend an initial
half-day training session prior to beginning work. Additionally, the Company has
developed and implemented extensive training programs to certify personnel as
teachers of various age groups in accordance with the Company's internal
standards and in connection with its age-specific educational programs. Due to
high employee turnover rates in the child care industry in general, the Company
focuses on and emphasizes recruiting and retaining qualified personnel. The
turnover of personnel experienced by the Company results in part from the fact
that a significant portion of the Company's employees earn entry-level wages.
Management believes that the turnover of the Company's employees is in line with
other companies in the industry. The Corporate Human Resources department is
organized to monitor salaries and benefits for competitiveness as well as to
develop sound human resources policies and programs. The Company also has
developed an assessment program which aids in identification of high quality
area coordinator and center director candidates.
The Company strives to ensure the care and safety of the children enrolled
in its centers. Extensive precautions are taken to ensure the safety and
well-being of all children; however, a small number of incidents of alleged
child abuse have been reported. It is the Company's policy to report any
allegation of abuse to the appropriate authorities, to investigate all
allegations of abuse, and, if appropriate, to place any accused employee on
administrative leave pending resolution of the incident. Although no assurances
can be made that allegations of abuse will not occur in the future, the
Company's procedures are designed to prevent child abuse, and the Company has
not historically experienced a material adverse impact from allegations of child
abuse.
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COMPETITION
The U.S. child care and preschool education 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 for-profit companies which may 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 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 that may have more aggressive tuition
discounting and other pricing policies than the Company. The Company competes by
offering professionally planned educational and recreational programs,
contemporary, well-equipped facilities, trained teachers and supervisory
personnel, and a range of services, including infant and toddler care, drop-in
service and the transportation of older children enrolled in the Company's
before-and after-school program between the Company's child care centers and
schools.
EMPLOYEES
As of December 13, 1996, the Company employed approximately 22,000 persons,
of whom 305 were employed at corporate headquarters, 137 were regional or area
managers and support personnel, and the remainder were employed at the centers.
Center employees include: center directors; assistant directors; primary
teachers; regular full-time and part-time teachers; temporary and substitute
teachers; teachers' aides; and non-teaching staff, including cooks and van
drivers. Approximately ten percent of the 22,000 employees, including all
management and supervisory personnel (which includes primary teachers), are
salaried; all other employees are paid on an hourly basis. The Company does not
have an agreement with any labor union and believes that its relations with its
employees are good.
GOVERNMENTAL LAWS AND REGULATION
Child care centers are subject to numerous state and local regulations and
licensing requirements, and the Company has policies and procedures in place in
order to comply with such regulations and requirements. Although these
regulations vary 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. In most jurisdictions, these agencies conduct scheduled and
unscheduled inspections of the centers, and licenses must be renewed
periodically. Repeated failures of a center to comply with applicable
regulations can subject it to sanctions, which might include probation or, in
more serious cases, suspension or revocation of the center's license to operate.
The Company believes that its operations are in substantial compliance with all
material regulations applicable to its business.
There are certain tax incentives for child care programs. Section 21 of the
Code provides a federal income tax credit ranging from 20% to 30% of certain
child care expenses for "qualifying individuals" (as defined therein). The fees
paid to the Company for child care services by eligible taxpayers qualify for
the tax credit, subject to the limitations of Section 21. Approximately 13% of
the Company's operating revenues are generated from federal and state child care
assistance programs, primarily the Child Care and Development Block Grant and
At-Risk Programs. These programs are designed to assist low-income families with
child care expenses and are administered through various state agencies.
Although under new legislation, signed by President Clinton in August 1996,
additional funding for child care will
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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.
The Federal Americans With Disabilities Act (the "Disabilities Act")
prohibits discrimination on the basis of disability in public accommodations and
employment. The Disabilities Act became effective as to public accommodations in
January 1992 and as to employment in July 1992. Since effectiveness of the
Disabilities Act, the Company has not experienced any material adverse impact as
a result of the legislation.
INSURANCE
The Company's insurance program currently includes the following types of
policies: workers' compensation, comprehensive general liability, automobile
liability, property, excess "umbrella" liability, and a medical payment program
for accidents which applies to each child enrolled in a Company center. The
policies provide for a variety of coverages, are subject to various limits, and
include substantial deductibles or self-insured retention. For liability
insurance purposes, the Company's policies generally have retention limits of
$1.0 million per occurrence. Property insurance policy deductibles vary,
depending upon the nature of the insured event. Special insurance is sometimes
obtained with respect to specific hazards, when and if deemed appropriate and
available at reasonable cost. As of December 13, 1996, the Company had
approximately $14.2 million of letters of credit available to secure its
obligations under retrospective and self-insurance programs. There is no
assurance that claims in excess of, or not included within, the Company's
coverage will not be asserted, the effect of which could have an adverse effect
on the Company.
COMMUNICATION AND INFORMATION SYSTEMS
The Company has a fully automated information, communication and financial
reporting system for its centers. The system uses personal computers and links
every center and regional office to the corporate headquarters. This system
provides timely information on such items as weekly revenues, expenses,
enrollments, attendance, payroll, and staff hours. The Company is also updating
its financial reporting and human resources systems to provide more
comprehensive and timely information throughout the Company.
The Company also seeks to improve its operating efficiencies by
re-engineering its support services and providing management with more timely
information through its nationwide communications network and its automated
information systems. In order to improve and increase the span of control for
field managers, the Company introduced within the past year companywide e-mail
and on-line inquiry for all managers.
KinderCare is expanding its nationwide network to include the Internet and
company-wide Intranet applications. Through the use of Netscape
Navigator-Registered Trademark- software, the Company's intranet, called
"KinderNet," allows center directors to have point and click access to corporate
information, and provides center directors with the ability to distribute
reports and questionnaires, update databases, and revise center listings on a
daily basis. The Company believes that the sophistication and scope of its
communications network and information system makes such system one of the most
advanced in the child care industry and enables it to improve further the
efficiency and quality of child care and enhance the educational experience of
KinderCare students.
TRADEMARKS
The Company has various registered and unregistered trademarks covering the
name KinderCare, its schoolhouse logo, and a number of other names, slogans and
designs, including, but not limited to: KinderCare At
Work-Registered Trademark-, My Window On The World-Registered Trademark-,
Helping America's Busiest Families-Registered Trademark-, Look At
Me!-Registered Trademark-, Let Me Do It!-Registered Trademark-, Let's Move,
Let's Play-Registered Trademark-, Small Talk-Registered Trademark-, The Whole
Child Is The Whole Idea-Registered Trademark-, Once Upon a
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Time . . .-TM-, Kid's Choice-TM- and KC Imagination Highway-TM-. A
federally-registered trademark in the United States is effective for ten years
subject only to a required filing and the continued use of the mark by the
registrant. A federally-registered trademark provides the presumption of
ownership of the mark by the registrant in connection with its goods or services
and constitutes constructive notice throughout the United States of such
ownership. In addition, the Company has registered various trademarks in certain
other countries, including Canada, Germany, Japan, the Peoples Republic of
China, and the United Kingdom. The Company believes that its name and logo are
important to its operations and intends to continue to renew the trademark
registrations thereof.
PROPERTIES
The Company's home office is located in Montgomery, Alabama, in a 60,000
square foot building owned by the Company. At December 13, 1996, the Company
owned 736 of its operating child care centers and leased or subleased 408
operating child care centers and operated four child care centers under
management fee contracts. The Company owns or leases certain other child care
centers which have not yet been opened or which are being held for disposition.
In addition, the Company owns certain real property held for future development
of centers.
A typical KinderCare community center is a one-story, air-conditioned
building located on approximately one acre of land (larger capacity centers are
situated on parcels ranging from one to four acres of land) constructed in
accordance with model designs generally developed by the Company. The community
centers contain open classroom and play areas and complete kitchen and bathroom
facilities and can accommodate from 50 to 281 children, with most centers able
to accommodate 90 to 135 children. Over the past few years, the Company opened
community centers that are larger in size with a capacity ranging from 165 to
281 children. Each center is equipped with a variety of audio and visual aids,
educational supplies, games, puzzles, toys and vehicles used for field trips and
transporting children enrolled in the Company's after-school program. All
KinderCare community centers are equipped with computers for children's
educational programs.
KinderCare at Work-Registered Trademark- provides individualized child care
programs for each corporate sponsor. Facilities are on the corporate sponsor's
site and range in capacity from 42 to 187 children. Kid's Choice-TM- centers
contain homework, computer and game rooms, and are able to accommodate from 74
to 180 children. Each provides school-age children with areas to perform
activities of interest to them.
The following table summarizes center openings and closings, for the
indicated periods:
<TABLE>
<CAPTION>
TWENTY-ONE
WEEKS
FISCAL ENDED FISCAL FISCAL
YEAR MAY 28, YEAR YEAR
1992 1993 1994 1995
----------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Openings:
KinderCare community centers.................................... 8 1 4 29
KinderCare at Work-Registered Trademark- centers................ 5 3 4 3
Kid's Choice-TM- centers........................................ -- -- 23 13
Centers sold or closed (a)........................................ 57 34 65 40
<CAPTION>
FISCAL
YEAR
1996
-----------
<S> <C>
Openings:
KinderCare community centers.................................... 22
KinderCare at Work-Registered Trademark- centers................ 6
Kid's Choice-TM- centers........................................ 9
Centers sold or closed (a)........................................ 26
</TABLE>
- ------------------------
(a) Includes the conversion of the following number of KinderCare community
centers to Kid's Choice-TM- centers: one in fiscal 1996, three in fiscal
1995 and two in fiscal 1994.
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The KinderCare community centers, KinderCare at Work-Registered Trademark-
centers and Kid's Choice-TM- centers operated by the Company at December 13,
1996 were located as follows:
<TABLE>
<CAPTION>
KINDERCARE
AT WORK-
KINDERCARE REGISTERED KIDS
COMMUNITY TRADEMARK- CHOICE- TM-
LOCATION CENTERS CENTERS CENTERS
- -------------------------------------------------------- ------------- --------------- -------------
<S> <C> <C> <C>
Alabama................................................. 13 -- 1
Arizona................................................. 16 2 --
Arkansas................................................ 4 -- --
California.............................................. 93 -- 2
Colorado................................................ 24 -- 1
Connecticut............................................. 13 2 --
Delaware................................................ 5 -- --
Florida................................................. 67 6 2
Georgia................................................. 37 -- 2
Illinois................................................ 72 3 8
Indiana................................................. 26 1 1
Iowa.................................................... 7 2 1
Kansas.................................................. 18 -- --
Kentucky................................................ 13 1 1
Louisiana............................................... 13 2 --
Maryland................................................ 23 -- 1
Massachusetts........................................... 17 -- --
Michigan................................................ 32 2 1
Minnesota............................................... 31 -- 1
Mississippi............................................. 4 -- --
Missouri................................................ 48 -- --
Nebraska................................................ 10 1 --
Nevada.................................................. 10 -- --
New Jersey.............................................. 28 4 --
New Mexico.............................................. 7 -- --
New York................................................ 2 1 --
North Carolina.......................................... 33 -- 2
Ohio.................................................... 56 3 6
Oklahoma................................................ 10 -- --
Oregon.................................................. 13 3 --
Pennsylvania............................................ 41 -- --
Rhode Island............................................ -- 1 --
Tennessee............................................... 27 2 2
Texas................................................... 124 1 7
Utah.................................................... 6 1 --
Virginia................................................ 51 -- 2
Washington.............................................. 47 -- 2
Wisconsin............................................... 23 1 --
United Kingdom.......................................... 2 -- --
-- --
-----
Total................................................... 1,066 39 43
-- --
-- --
-----
-----
</TABLE>
Subsequent to January 1, 1993, the Company renegotiated approximately 70
leases related to underperforming centers in order to amend the terms and allow
the Company to terminate these leases
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at any time with minimal notice. In connection with the termination option, the
Company, in certain instances, prepaid rent totaling approximately $3.2 million.
Such amounts are being amortized over the termination period or over the
appropriate remaining months of the lease period. Commitments under these
amended leases totaled approximately $16.8 million over the original lease
terms. Upon giving the landlord termination notice of at least six months, the
amendments provide that the Company would be permitted to utilize the facilities
for the final six-month period rent-free, as well as relieve itself of all
future commitments remaining under the lease. As of December 13, 1996, the
Company has elected to close 32 of these centers and the remaining unamortized
prepaid balance is $2.4 million.
In 1992, the Company fully implemented a centralized maintenance program to
improve the maintenance of its facilities located across the country. The
department's maintenance technicians handle routine and preventative maintenance
functions through the central telephone dispatch and systematic checklist
system. Each technician is responsible for the support of approximately 20
centers. A level of supervision also has been added to provide guidance and
additional technical support to the technicians. These supervisors are
responsible for specific geographic areas and each manages approximately 5
technicians. In May 1996, the department completed the final phase of this
implementation and reduced the staff of technicians from 90 to 65.
The Company believes that its properties are in good condition and are
adequate to meet its current and reasonably anticipated future needs.
LEGAL PROCEEDINGS
The Company is presently, and is from time to time, subject to claims and
suits arising in the ordinary course of business, including suits alleging child
abuse. The Company believes that none of the claims or suits of which it is
currently aware will materially affect its financial position or future
operating results, although no assurance can be given with respect to the
ultimate outcome of any such actions.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions with the Company of the
persons who will serve as directors and executive officers of the Company,
together with certain other key personnel, after the Effective Time. The Board
of Directors is subject to change from time to time. The Merger Agreement
provides that the officers of KinderCare at the Effective Time will be the
officers of the Company following the Merger until such time as may be
determined by the Board of Directors following the Merger.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --------- ------------------------------------------------------
<S> <C> <C>
David J. Johnson.......................... 50 Chief Executive Officer and Chairman of the Board
Philip L. Maslowe......................... 50 Executive Vice President and Chief Financial Officer
Rebecca S. Bryan.......................... 39 Vice President/General Counsel/Corporate Secretary
William E. Bailey......................... 37 Vice President/Corporate Controller
Joe R. Cooper............................. 39 Vice President/Finance
Robert H. Fries........................... 48 Vice President/Treasurer
Marcia P. Guddemi, Ph.D................... 43 Vice President/Education, Research, and Training
Jerry B. Hill............................. 57 Vice President/Human Resources
Mark F. Hoffman........................... 33 Vice President/Real Estate
S. Wray Hutchinson........................ 36 Vice President/Operations
Bob J. Willey............................. 56 Vice President/Information Services
Sandra W. Scarr, Ph.D. ................... 60 Director
Henry R. Kravis........................... 53 Director
George R. Roberts......................... 53 Director
Clifton S. Robbins........................ 38 Director
Nils P. Brous............................. 32 Director
Stephen A. Kaplan......................... 37 Director
</TABLE>
DAVID J. JOHNSON joined the Company as Chief Executive Officer and Chairman
of the Board at the Effective Time. Between September 1991 and November 1996,
Mr. Johnson served as President, Chief Executive Officer and Chairman of the
Board of Red Lion Hotels, Inc. (formerly a KKR affiliate) or its predecessor.
From 1989 to September 1991, Mr. Johnson was a general partner of Hellman &
Freidman, a private equity investment firm based in San Francisco. From 1986 to
1988, he served as President, Chief Operating Officer and director of Dillingham
Holdings, a diversified company headquartered in San Francisco. From 1984 to
1987, Mr. Johnson was President and Chief Executive Officer of Cal Gas
Corporation, a principal subsidiary of Dillingham Holdings.
PHILIP L. MASLOWE joined the Company as Chief Financial Officer on July 26,
1993 and was promoted to Executive Vice President in September 1995. From
February 1991 until June 1993, Mr. Maslowe served as Executive Vice President,
Chief Financial Officer, Treasurer and, beginning in
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September 1992, as a member of the Board of Directors of Thrifty Corporation, a
retail chain operating over 1,000 drug, membership discount, and sporting goods
stores located throughout the United States. Prior to joining Thrifty
Corporation, Mr. Maslowe spent over ten years at the Vons Companies, Inc., a
food/drug retail chain located primarily in Southern California and Nevada. From
1987 to 1991, he was Group Vice President of Finance at Vons.
REBECCA S. BRYAN has been Vice President and General Counsel since June 1989
and Secretary since March 1991. She joined the Company in June 1987 as Assistant
General Counsel and Assistant Secretary.
WILLIAM E. BAILEY was promoted to Vice President/Corporate Controller in
February 1993. Mr. Bailey joined the Company in August 1987 as Manager of
Financial Reporting and Senior Accountant, served as Director of Planning and
Analysis from June 1989 to October 1991 and as Corporate Controller from October
1991 to February 1993.
JOE R. COOPER joined the Company in May 1996 as Vice President of Finance.
Prior to joining the Company, he was Financial Controller for Bath & Body Works
(division of The Limited, Inc.) from 1995 to 1996 and from 1991 through 1995, he
was employed by The Limited, Inc. in the positions of Director of Financial
Reporting and Manager of Financial Reporting.
ROBERT H. FRIES was promoted to Vice President and Treasurer in April 1996.
Mr. Fries began his employment with the Company in March 1994 as Assistant
Treasurer, Debt and Income Taxes and Assistant Secretary. Prior to his joining
KinderCare, Mr. Fries served as Director of Taxes for Blount, Inc. from 1986
until 1994.
MARCIA P. GUDDEMI, PH.D. joined the Company in August 1991 as Vice President
of Education, Research, and Training. For over six years prior to joining the
Company, she was an assistant professor of early childhood education at the
University of South Florida and at the University of South Carolina.
JERRY B. HILL was named Vice President of Human Resources in October 1995.
He joined the Company in July 1987 as Director of Risk Management and was named
Vice President of Corporate Insurance and Risk Management in June 1989.
MARK F. HOFFMANN joined the Company in February 1996 as Vice President of
Real Estate. Prior to joining the Company, Mr. Hoffmann served as the Director
of Real Estate for B.C. Great Lakes, LLC, a partner of Boston Chicken, Inc.,
from 1993 until 1996 and in various real estate finance management positions
with Taco Bell Corporation from 1989 through 1993.
S. WRAY HUTCHINSON was promoted to Vice President of Operations in April of
1996. He began his employment with the Company in 1992 as a District Manager in
New Jersey and was later promoted to Region Manager for the Chicago area. From
1990 until 1992, Mr. Hutchinson was self-employed.
BOB J. WILLEY joined the Company in June 1995 as Vice President of
Information Services. From 1992 to 1995, Mr. Willey served as MIS Director for
PETSTUFF, Inc. and was Corporate Information Officer for ANCO Management
Service, Inc. from 1989 to 1992.
SANDRA W. SCARR, PH.D. served as Chief Executive Officer since June 16, 1995
and Chairman of the Board since July 1994 until her retirement from such
positions at the Effective Time. Dr. Scarr was elected a Director in June 1990
and was a Commonwealth Professor, Department of Psychology of the University of
Virginia, from September 1983 until joining the Company in June 1995. 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.
HENRY R. KRAVIS is a Founding Partner of KKR and effective January 1, 1996
he became a managing member and member of the Executive Committee of the limited
liability company which serves as the general partner of KKR. He is also a
director of AutoZone, Inc., Borden, Inc., Bruno's, Inc., Evenflo & Spalding
Holdings Corporation, Flagstar Companies Inc., Flagstar Corporation, The
Gillette Company,
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IDEX Corporation, K-III Communications Corporation, Merit Behavioral Care
Corporation, Newsquest Capital plc, Owens-Illinois, Inc., Owens-Illinois Group,
Inc., Safeway, Inc., Sotheby's Holdings Inc., Union Texas Petroleum Holdings,
Inc., and World Color Press, Inc.
GEORGE R. ROBERTS is a Founding Partner of KKR and effective January 1, 1996
he became a managing member and member of the Executive Committee of the limited
liability company which serves as the general partner of KKR. He is also a
director of AutoZone, Inc., Borden, Inc., Bruno's, Inc., Evenflo & Spalding
Holdings Corporation, Flagstar Companies Inc., Flagstar Corporation, IDEX
Corporation, K-III Communications Corporation, Merit Behavioral Care
Corporation, Newsquest Capital plc, Owens-Illinois, Inc., Owens-Illinois Group,
Inc., Safeway, Inc., Union Texas Petroleum Holdings, Inc., and World Color
Press, Inc.
CLIFTON S. ROBBINS was a General Partner of KKR from January 1, 1995 until
January 1, 1996 when he became a member of the limited liability company which
serves as the general partner of KKR. Prior thereto, he was an executive
thereof. Mr. Robbins is a director of AEP Industries Inc., Borden Inc., Flagstar
Companies Inc., Flagstar Corporation, IDEX Corporation, Newsquest Capital plc
and Newsquest Holdings Limited.
NILS P. BROUS has been, since 1992, an executive of KKR. Prior thereto, he
was an associate at Goldman, Sachs & Co. Mr. Brous is a director of Bruno's,
Inc., and Canadian General Insurance Group Limited.
STEPHEN A. KAPLAN has served as a director since January 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 director of Chief Auto Parts, Inc., Vision Hardware
Group, Inc., Stratagene Holding Corporation, and Decorative Home Accents, Inc.
Messrs. Kravis and Roberts are first cousins.
The business address of Messrs. Kravis, Robbins and Brous is 9 West 57th
Street, New York, New York 10019 and of Mr. Roberts is 2800 Sand Hill Road,
Suite 200, Menlo Park, California 94025. The business address of Mr. Kaplan is
550 South Hope Street, 22nd Floor, Los Angeles, California 90071.
BOARD COMPENSATION
All directors are reimbursed for their usual and customary expenses incurred
in attending all Board and committee meetings, and it is anticipated that all
such directors will continue to be so reimbursed after the Effective Time. The
annual fee that each director who is not an employee of the Company will receive
will be $30,000. Directors who are also employees of the Company do not receive
remuneration for serving as directors.
EXECUTIVE COMPENSATION
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities for the fiscal year ended May 31, 1996, the fiscal year ended June 2,
1995, and the fiscal year ended June 3, 1994, for (i) the CEO of the Company
during such fiscal years and (ii) each of the five other most highly compensated
executive officers of the Company, determined as of May 31, 1996 (collectively,
the "Named Executive Officers").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------
---------------------------------------- SECURITIES
NAME AND FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPLE POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION (a)
- -------------------------------- ----------- ----------- ----------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
SANDRA W. SCARR, PH.D. (b)...... 1996 $ 339,242 $ 151,637(c) $ -- 100,000(d) $ 12,064
Chief Executive Officer 1995 -- -- -- -- --
and Chairman of the Board 1994 -- -- -- -- --
PHILIP L. MASLOWE............... 1996 226,923 63,000 -- -- 11,361
Executive Vice President 1995 211,288 90,000 97,683(e) 25,000(d) --
and Chief Financial Officer 1994 173,077 86,400 49,337(f) 50,000(d) --
REBECCA S. BRYAN................ 1996 98,484 24,555 -- -- --
Vice President/General 1995 90,019 20,475 -- -- --
Counsel/Corporate Secretary 1994 89,692 20,790 -- -- --
WILLIAM E. BAILEY............... 1996 84,980 20,739 -- -- --
Vice President/Controller 1995 78,057 18,225 -- -- --
1994 73,384 17,010 -- -- --
JERRY B. HILL................... 1996 90,692 20,356 -- -- --
Vice President/ 1995 85,173 19,345 -- -- --
Human Resources 1994 83,067 19,254 -- -- --
BOB J. WILLEY................... 1996 98,280 24,344 -- 10,000(d) --
Vice President/ 1995 -- -- -- -- --
Information Services 1994 -- -- -- -- --
</TABLE>
- ------------------------
(a) Term life insurance premiums paid by the Company for the benefit of the
Named Executive Officers.
(b) As of the Effective Time, Dr. Scarr retired from her position as Chief
Executive Officer and Chairman of the Board.
(c) Includes payment of a signing bonus in the amount of $29,137 (which reflects
payments made in respect of certain taxes due on such bonus) pursuant to Dr.
Scarr's employment agreement.
(d) Stock options granted under the Company's 1993 Stock Option and Incentive
Plan. All such options that remained unexercised were canceled and exchanged
for payment in the Merger.
(e) Payment of relocation expenses in the amount of $92,665 and the value of the
personal use of an automobile in the amount of $5,018.
(f) Payment of relocation expenses in the amount of $48,503 and the value of
the personal use of an automobile in the amount of $834.
STOCK OPTION PLANS
At the Effective Time, each employee or director stock option to purchase
shares of 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 (the
"1993 Stock Option Plan," and together with the 1993 Director Stock Option Plan,
the "Stock Plans") outstanding immediately prior to the Effective Time, whether
or not then exercisable, was canceled, and each Company Stock Option having an
exercise price of less than $19.00 (which constitutes all outstanding Company
Stock Options) is being exchanged for a payment from the Company after the
Merger (subject to any applicable withholding taxes) equal to the product of (i)
the total number of shares of Common Stock previously subject to such Company
Stock Option and (ii) the excess of $19.00 over the exercise price per share of
Common Stock previously subject to such Company Stock Option, payable in cash
immediately following the Effective Time, representing approximately $4.7
million in the aggregate. The Stock Plans terminated as of the Effective Time.
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After the Effective Time, the Company intends to adopt a stock purchase and
option plan for key employees of the Company.
SAVINGS AND INVESTMENT PLAN
The Board of Directors of the Company adopted the Savings and Investment
Plan (the "Savings Plan") effective January 1, 1990. All full-time employees of
the Company and its subsidiaries are eligible to participate in the Savings Plan
upon completion of one year of service and the attainment of age 18.
Participants may contribute, in increments of 1%, up to 10% (6% before July 1,
1994) of their compensation to the Savings Plan. In accordance with the
provisions of the Savings Plan, the Board of Directors has elected, since April
1, 1991, not to match employee contributions. Pursuant to the Merger Agreement,
subject to certain exceptions, the Company will continue to maintain the Savings
Plan and other benefit plans of the Company, or substitute plans that are no
less favorable in the aggregate to the employees of the Company than such
existing plans, until December 31, 1997.
EMPLOYMENT CONTRACTS
SANDRA W. SCARR, PH.D. Pursuant to an agreement between KCLC Acquisition
and Dr. Sandra W. Scarr (the "Scarr Letter Agreement"), as of the Effective
Time, Dr. Scarr retired from her position as Chairman of the Board and Chief
Executive Officer of the Company. Dr. Scarr continues to serve as a director of
the Company following her retirement. In connection with the Scarr Letter
Agreement, (i) she received a lump sum payment equal to a pro rata portion of
her salary for the period from the Effective Time through June 15, 1997; (ii)
the Company 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, pursuant
to the Scarr Letter Agreement, the Company will continue to provide certain
medical, disability and life insurance coverage through December 15, 1998.
Pursuant to the terms of the employment agreement entered into between the
Company and Dr. Scarr on June 16, 1995 (the "Scarr Employment Agreement"), which
terminated at the Effective Time, Dr. Scarr received an annual base salary of
$350,000 for her service as Chief Executive Officer of the Company during the
first year of the contract, which was increased to $400,000 as of June 15, 1996.
The Company also paid Dr. Scarr a $25,000 signing bonus. The Scarr Employment
Agreement also provided for an annual formula-determined incentive bonus of a
maximum of 50% of Dr. Scarr's base salary and for participation in benefits
plans, pension plans, health and accident plans or other arrangements made
generally available to senior executives of the Company. Pursuant to the Scarr
Employment Agreement, the Company also purchased life insurance, accidental
death coverage and a disability income policy in specified amounts, the payments
for each of which will terminate or be modified in accordance with the Scarr
Letter Agreement. Under the terms of the Scarr Employment Agreement, Dr. Scarr
was granted options under the Company's 1993 Stock Option Plan to purchase an
aggregate of 100,000 shares of Common Stock. All such options that remained
unexercised were canceled and exchanged for payment in the Merger.
PHILIP L. MASLOWE. On May 8, 1995, the Company entered into an employment
agreement with Mr. Maslowe, which provides for a two-year term with automatic
renewals unless (i) one party gives written notice of non-renewal to the other
at least three months prior to the expiration of the term or (ii) termination
occurs under other certain circumstances. Upon termination, Mr. Maslowe is
entitled to certain severance payments and benefits. Under the agreement, Mr.
Maslowe agrees to serve as Senior Vice President (after the signing of the
contract Mr. Maslowe was promoted to Executive Vice President) and Chief
Financial Officer of the Company at an annual base salary of $225,000. In June
of 1996, the Board approved a $25,000 base salary increase for Mr. Maslowe. In
addition, Mr. Maslowe is to receive an annual incentive bonus payment based on a
formula approved by the Board which currently provides
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<PAGE>
for an annual incentive target bonus payment of 40% of his base salary. The
agreement further provides that Mr. Maslowe is entitled to participate in or
receive benefits under any presently existing or future benefit plans, pension
plans, health and accident plans or other arrangements made generally available
to senior executives of the Company. The Company is also required to use its
best efforts to purchase life insurance for Mr. Maslowe in an amount not less
than three times his annual base compensation, an equal amount of accidental
death coverage and a disability income policy in an amount not less than 60% of
his base compensation. In addition, the Company agreed to provide a temporary
housing allowance in the amount of $1,250 per month through May 31, 1996. Under
the terms of the employment agreement, Mr. Maslowe was granted options under the
Company's 1993 Stock Option Plan to purchase an aggregate of 25,000 shares of
Common Stock. All such options that remained unexercised were canceled and
exchanged for payment in the Merger. Upon termination of the agreement in the
event of Mr. Maslowe's death, his estate is entitled to receive any base salary
installments, any accrued incentive bonus payment and any accrued reimbursable
expenses due for a period of three months. In the case of termination of the
agreement by the Company "without cause" or if Mr. Maslowe terminates his
employment for "good reason" as those terms are defined by the agreement, which
includes certain events following a "change of control" or a "potential change
of control," as those terms are defined by the agreement, the Company is
required to pay to Mr. Maslowe an amount equal to (i) his full base salary and
any accrued annual incentive bonus payment and any accrued reimbursable
expenses, through the date of termination, plus (ii) an amount equal to two
times his annual base salary in effect on the date of termination, plus (iii) an
amount equal to two times the annual incentive bonus which would have been
payable to Mr. Maslowe for the year in which the termination occurs. Such
provisions would likely apply upon consummation of the Merger, and such
severance payments would be due upon termination of Mr. Maslowe by the Company
"without cause" or by Mr. Maslowe for "good reason." Upon termination of Mr.
Maslowe's employment under either of such circumstances, the Company is also
obligated to continue to provide certain other benefits under the contract. In
addition, the agreement contains (i) a confidentiality provision prohibiting Mr.
Maslowe during the term of the agreement and for a period of two years
thereafter from disclosing, with certain exceptions, any confidential
information obtained by him while employed by the Company and (ii) a
noncompetition clause prohibiting Mr. Maslowe during the term of the agreement
and for a period of 12 months thereafter from competing with, owning, managing,
or having any financial interest in any business which competes with the
Company.
MANAGEMENT STOCKHOLDER'S AGREEMENTS
Members of management may be offered the opportunity to become stockholders
of the Company. The Company will enter into stockholder's agreements with any
management employees that become stockholders of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Company's Compensation Committee
beginning February 1996 to May 31, 1996 (fiscal year 1996 end): Mr. Kaplan
(joined Compensation Committee in May of 1996) and Dr. Scarr.
The Company, from time to time, has made loans or advances to its executive
officers, primarily for relocation expenses. On August 14, 1995, the Company
loaned Dr. Scarr the amount of $125,000. No interest accrued on this loan and
$107,000 was repaid to the Company in August 1996. The balance of the loan was
forgiven by the Company pursuant to Dr. Scarr's relocation package. With the
exception of this loan, the Company believes that the above-described
transactions were on terms as favorable as those which might have been obtained
from unaffiliated parties.
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<PAGE>
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information concerning the beneficial
ownership of shares of Common Stock on February 14, 1997 (after the Effective
Time) by: (i) all persons known to the Company to own beneficially more than 5%
of the outstanding shares of Common Stock; (ii) each person who is a director of
the Company; (iii) each person who is a Named Executive Officer; 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>
KKR-KLC L.L.C. (and certain affiliated entities) c/o Kohlberg Kravis Roberts &
Co., L.P.
9 West 57th Street
New York, NY 10019 (b)..................................................... 7,828,947 83.6%
The TCW Group, Inc. (and certain affiliated entities ("TCW"))
865 South Figueroa Street
Los Angeles, CA 90017 (c).................................................. 949,244 10.1%
Henry R. Kravis (b)............................................................ -- --
George R. Roberts (b).......................................................... -- --
Clifton S. Robbins (b)......................................................... -- --
Nils P. Brous (b).............................................................. -- --
Stephen A. Kaplan (c).......................................................... -- --
Sandra W. Scarr, Ph.D.......................................................... -- --
David J. Johnson (d)(e)........................................................ 157,895 1.7%
Philip L. Maslowe (d)(f)....................................................... 14,363 *
William E. Bailey (d).......................................................... -- --
Rebecca S. Bryan (d)........................................................... -- --
Jerry B. Hill (d).............................................................. -- --
Bob J. Willey (d).............................................................. -- --
All directors and executive officers as group (17 persons) (b)(c).............. -- --
</TABLE>
- ------------------------
* Less than one percent.
(a) The amounts and percentage of Common Stock beneficially owned are reported
on the basis of regulations of the Commission governing the determination of
beneficial ownership of securities. Under the rules of the Commission, a
person is deemed to be a "beneficial owner" of a security if that person has
or shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has a
right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be deemed a beneficial owner of the same securities
and a person may be deemed to be a beneficial owner of securities as to
which he has no economic interest. The percentage of class outstanding after
the Effective Time is based on the 9,368,421 shares of
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<PAGE>
Common Stock outstanding as of February 13, 1997 following the purchase of
shares by Mr. Johnson described in note (e) below.
(b) Shares of Common Stock shown as beneficially owned by KKR-KLC L.L.C. are
held by the Partnership. KKR-KLC L.L.C. is the sole general partner of KKR
Associates (KLC). KKR Associates (KLC), a limited partnership, is the sole
general partner of the Partnership and possesses sole voting and investment
power with respect to such shares. KKR-KLC L.L.C. is a limited liability
company, the members of which are Messrs. Henry R. Kravis, George R.
Roberts, Robert I. MacDonnell, Paul E. Raether, Michael W. Michelson, James
H. Greene, Jr., Michael T. Tokarz, Perry Golkin, Clifton S. Robbins, Scott
M. Stuart and Edward A. Gilhuly. Messrs. Kravis and Roberts are members of
the Executive Committee of KKR-KLC L.L.C. Messrs. Kravis, Roberts and
Robbins are also directors of the Company. Mr. Nils P. Brous is a limited
partner of KKR Associates (KLC) and is also a director of the Company. Each
of such individuals may be deemed to share beneficial ownership of the
shares shown as beneficially owned by KKR-KLC L.L.C. Each of such
individuals disclaims beneficial ownership of such shares. KKR Partners II,
L.P. owns 1.1% of the outstanding Common Stock.
(c) As of February 14, 1997, TCW beneficially owned 949,244 shares of Common
Stock, or 10.1% of the shares of Common Stock outstanding on such date. TCW
and certain of its affiliates have voting and dispositive powers over such
shares as an investment manager on behalf of TCW Special Credits Fund V-The
Principal Fund (the "Principal Fund"). In addition, Oaktree is an investment
subadvisor with respect to the Principal Fund. Stephen A. Kaplan continues
to serve as a director of the Company following the Merger pursuant to the
terms of the Merger Agreement. To the extent Mr. Kaplan, on behalf of
Oaktree or affiliates of TCW, as applicable, participates in the process to
vote or dispose of any such shares, Mr. Kaplan may be deemed under such
circumstances for the purpose of Section 13 of the Exchange Act to be the
beneficial owner of such shares. Mr. Kaplan disclaims beneficial ownership
of all shares beneficially held by Oaktree and TCW.
(d) Does not include shares of Common Stock that may be reserved for options and
other stock purchase rights that are anticipated to be granted to management
under a stock purchase and option plan for key employees of the Company
which the Company intends to adopt after the Effective Time.
(e) Following the Effective Time, Mr. Johnson purchased 157,895 shares of Common
Stock at a purchase price of $19.00 per share. In accordance with such
purchase, Mr. Johnson has been granted options to acquire an additional
421,053 shares of Common Stock.
(f) Comprised of 1,064 shares of Common Stock held in a trust of which Mr.
Maslowe is the trustee and 13,299 shares of Common Stock held jointly with
Mr. Maslowe's spouse. Mr. Maslowe disclaims beneficial ownership of the
shares of Common Stock held in the trust.
RELATED PARTY TRANSACTIONS
KKR-KLC L.L.C. and certain affiliated entities beneficially own
approximately 83.6% of the Company's outstanding shares of Common Stock. The
members of KKR-KLC L.L.C. are Messrs. Henry R. Kravis, George R. Roberts, Robert
I. MacDonnell, Paul E. Raether, Michael W. Michelson, Michael T. Tokarz, James
H. Greene, Jr., Perry Golkin, Clifton S. Robbins, Scott M. Stuart and Edward A.
Gilhuly. Messrs. Kravis, Roberts and Robbins are also directors of the Company,
as is Mr. Nils P. Brous who is a limited partner of KKR Associates (KLC). Each
of the members of KKR-KLC L.L.C. is also a member of the limited liability
company which serves as the general partner of KKR and Mr. Brous is an executive
of KKR. KKR, an affiliate of the Partnership and KKR-KLC L.L.C., received a fee
of $8.0 million in cash for negotiating the Merger and arranging the financing
therefor, plus the reimbursement of its expenses in connection therewith, and,
from time to time in the future, KKR may receive customary investment banking
fees for services rendered to the Company in connection with divestitures,
acquisitions and certain other transactions. In addition, KKR has agreed to
render management, consulting and financial
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<PAGE>
services to the Company for customary fees. See "Management--Directors and
Executive Officers" and "Ownership of Common Stock."
KKR-KLC L.L.C. is the general partner of KKR Associates (KLC), a Delaware
limited partnership, of which certain past and present employees of KKR and
partnerships and trusts for the benefit of the families of such past and present
employees and a former partner of KKR are the limited partners. KKR Associates
(KLC) is the general partner of the Partnership, which owns approximately 83.6%
of the outstanding Common Stock.
The Partnership has the right, under certain circumstances and subject to
certain conditions, to require the Company to register under the Securities Act
shares of Common Stock held by it pursuant to a registration rights agreement
entered into in connection with the Merger and certain stockholders' agreements.
Such registration rights will generally be available to the Partnership until
registration under the Securities Act is no longer required to enable it to
resell the Common Stock owned by it. Such registration rights agreement
provides, among other things, that the Company will pay all expenses in
connection with the first six registrations requested by the Partnership and in
connection with any registration commenced by the Company as a primary offering.
In addition, Oaktree has the right, under certain circumstances and subject to
certain conditions, to participate in any registration process, and other
stockholders besides the Partnership and Oaktree, possibly including certain
members of management, may be allowed to participate in any registration
process, subject to certain conditions and exceptions.
In addition, certain officers and key employees of the Company and its
subsidiaries, including Dr. Scarr and Mr. Maslowe, shared a transaction bonus
payment of $1 million in the aggregate in connection with consummation of the
Merger.
DESCRIPTION OF CREDIT FACILITIES
The Credit Facilities are provided by a syndicate of banks and other
financial institutions (the "Lenders") led by Chase, as administrative agent
(the "Administrative Agent"), Chase Securities Inc., as arranger, Bankers Trust
Company, as syndication agent, and Wells Fargo Bank, N.A., as documentation
agent. The Credit Facilities provide for the Term Loan Facility of up to $90.0
million and the $300.0 million Revolving Credit Facility. Any portion of the
Term Loan Facility not drawn at the Effective Time will be available in a single
additional drawing for the first six months following the Effective Time. The
Revolving Credit Facility includes borrowing capacity of up to $75.0 million for
letters of credit, and up to $25.0 million for short-term borrowings ("Swingline
Loans"). The Term Loan Facility will mature on the date that is nine years after
the Effective Time and will provide for nominal annual amortization. The
Revolving Credit Facility commitment will mature seven years after the Effective
Time.
The interest rate under the Term Loan Facility will initially be, at the
option of the Company, Adjusted LIBOR plus 3.00% or ABR plus 1.75%. The interest
rate under the Revolving Credit Facility will initially be, at the option of the
Company, Adjusted LIBOR plus 2.50% or ABR plus 1.25%. The Company may elect
interest periods of 1, 2, 3 or 6 months (or 9 or 12 months, to the extent
available from all the Lenders under the relevant Facility) for Adjusted LIBOR
borrowings. Calculation of interest shall be on the basis of actual days elapsed
in a year of 360 days (or 365 or 366 days, as the case may be, in the case of
ABR loans based on the Prime Rate) and interest shall be payable at the end of
each interest period and, in any event, at least every 3 months or 90 days, as
the case may be. ABR is the Alternate Base Rate, which is the highest of Chase's
Prime Rate, the Federal Funds Effective Rate plus 1/2 of 1% and the Base CD Rate
plus 1%. Adjusted LIBOR and the Base CD Rate will at all times include statutory
reserves to the extent actually incurred (and, in the case of the Base CD Rate,
FDIC assessment rates).
The Company will pay a commitment fee at a rate equal to 1/2 of 1% per annum
on the undrawn portion of the commitments in respect of the Credit Facilities,
commencing to accrue with respect to each Lender's commitment upon the
acceptance by the Company of such Lender's commitment,
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<PAGE>
payable at the Effective Time (but only if the Effective Time occurs) and
quarterly in arrears after the Effective Time. The commitment fees will at all
times be calculated based on the actual number of days elapsed over a 365-day
year.
The Company will pay a letter of credit fee equal to a rate per annum equal
to the margin for Adjusted LIBOR loans under the Revolving Credit Facility, less
1/8 of 1%, on the aggregate face amount of outstanding letters of credit under
the Revolving Credit Facility, payable in arrears at the end of each quarter and
upon the termination of the Revolving Credit Facility, in each case for the
actual number of days elapsed over a 365-day year. In addition, the Company will
pay to the Fronting Bank, for its own account, (a) a fronting fee of 1/8 of 1%
per annum on the aggregate face amount of outstanding letters of credit, payable
in arrears at the end of each quarter and upon the termination of the Revolving
Credit Facility, in each case for the actual number of days elapsed over a
365-day year, and (b) customary issuance, amendment and administration fees.
The Credit Facilities contain provisions under which commitment fees and
interest rates will be adjusted in increments based on the achievement of
certain performance goals.
The Term Loans will be subject to mandatory prepayment with (a) 100% of the
net cash proceeds of certain non-ordinary-course asset sales or other
dispositions of property by the Company and its subsidiaries, except to the
extent that such proceeds are reinvested in the business of the Company and its
subsidiaries (subject to the line of business covenant) within a specified time
period and subject to certain other exceptions, (b) 100% of the net cash
proceeds from certain sale leaseback transactions, asset securitizations or
mortgage financings involving the Company's existing centers as of the Effective
Time, except for up to an aggregate amount of $50,000,000 during the term of the
Credit Facilities in any such net cash proceeds from sale leaseback
transactions, asset securitizations or mortgage financings, (c) 50% of excess
cash flow, to the extent not reinvested in the business of the Company and its
subsidiaries within six months after each yearly test period and (d) 100% of the
net proceeds of certain issuances of debt obligations of the Borrower and its
subsidiaries. Voluntary prepayments and Revolving Credit Facility commitment
reductions are permitted in whole or in part at the option of the Company, in
minimum principal amounts, without premium or penalty, subject to reimbursement
of certain of the Lenders' costs under certain conditions.
The Company's obligations under the Credit Facilities are secured by a
perfected first priority pledge of and security interest in all the common stock
of each existing and subsequently acquired direct domestic subsidiary of the
Company and 65% of the common stock of each existing and subsequently acquired
direct foreign subsidiary and, in certain circumstances, non-cash consideration
received for certain sales of assets. In addition, indebtedness under the Credit
Facilities is guaranteed by each existing and subsequently acquired domestic
subsidiary of the Company. See "Description of the Exchange
Notes--Subordination" and "Risk Factors--Subordination" and "--Encumbrances on
Assets to Secure Credit Facilities."
The Credit Facilities contain customary covenants and restrictions on the
Company's ability to engage in certain activities. In addition, the Credit
Facilities provide that the Company must meet or exceed an interest coverage
ratio and must not exceed a leverage ratio.
The Credit Facilities include customary events of default.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $300 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of Old Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Old Notes.
As of the date of this Prospectus, $300 million aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1997, to all holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions set
forth under "Certain Conditions to the Exchange Offer" below. The Company
currently expects that each of the conditions will be satisfied and that no
waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were issued on February 13, 1997 in a transaction exempt from
the registration requirements of the Securities Act. Accordingly, the Old Notes
may not be reoffered, resold, or otherwise transferred unless so registered or
unless an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.
In connection with the issuance and sale of the Old Notes, the Company
entered into the Registration Rights Agreement, which requires the Company to
file with the Commission a registration statement relating to the Exchange Offer
not later than 45 days after the date of issuance of the Old Notes, and to use
its best efforts to cause the registration statement relating to the Exchange
Offer to become effective under the Securities Act not later than 150 days after
the date of issuance of the Old Notes and the Exchange Offer to be consummated
not later than 30 days after the date of the effectiveness of the Registration
Statement (or use its best efforts to cause to become effective by the 180th
calendar day after the Issuance Date (as defined) a shelf registration statement
with respect to resales of the Old Notes). A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement.
The Exchange Offer is being made by the Company to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Notes are held of record by The Depository Trust Company. Other than
pursuant to the Registration Rights Agreement, the Company is not required to
file any registration statement to register any outstanding Old Notes. Holders
of Old Notes who do not tender their Old Notes or whose Old Notes are tendered
but not accepted would have to rely on exemptions to registration requirements
under the securities laws, including the Securities Act, if they wish to sell
their Old Notes.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance that the staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
Staff, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an
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"affiliate" of the Company within the meaning of Rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such Holder's business and that such Holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. See "--Resale of Exchange Notes." Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Old Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Old Notes for which they may be exchanged pursuant
to this Exchange Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof and will not be subject to any covenant
regarding registration. The Exchange Notes will evidence the same indebtedness
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Old
Notes may be offered for sale, resold or otherwise transferred by any holder
without compliance with the registration and prospectus delivery provisions of
the Securities Act. Instead, based on an interpretation by the staff of the
Commission set forth in a series of no-action letters issued to third parties,
the Company believes that Exchange Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for sale, resold and otherwise
transferred by any holder of such Exchange Notes (other than any such holder
that is a broker-dealer or is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any other
such person is engaging in or intends to engage in a distribution of such
Exchange Notes. Since the Commission has not considered the Exchange Offer in
the context of a no-action letter, there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Any holder who is an affiliate of the Company or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes cannot rely on such interpretation by the staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
Interest on the Exchange Notes will accrue from the last Interest Payment
Date on which interest was paid on the Old Notes so surrendered or, if no
interest has been paid on such Notes, from February 13, 1997.
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Tendering holders of the Old Notes shall not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, has extended the
period of time for which the Exchange Offer is open (such date, as it may be
extended, is referred to herein as the "Expiration Date") . The Expiration Date
will be at least 20 business days after the commencement of the Exchange Offer
in accordance with Rule 14e-1(a) under the Exchange Act. The Company expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Old Notes, by giving oral or written notice to the Exchange
Agent and by timely public announcement no later than 9:00 a.m. New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer unless properly withdrawn.
The Company expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Old Notes not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "Certain Conditions to the Exchange Offer" which have not been waived by
the Company and (ii) amend the terms of the Exchange Offer in any manner which,
in its good faith judgment, is advantageous to the holders of the Old Notes,
whether before or after any tender of the Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the Old
Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Company
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Company will exchange the Exchange Notes for the Old Notes
on the Exchange Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
and any other documents required by the Letter of Transmittal, to the Exchange
Agent at its address set forth below on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO
THE COMPANY.
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If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (also referred to as a
"book-entry transfer facility") whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to be delivered to an address
other than that of the registered holder appearing on the note register for the
Old Notes, the signature in the Letter of Transmittal must be guaranteed by an
Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the Old
Notes at the book-entry transfer facility for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date, a letter,
telegram or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) from an Eligible Institution
setting forth the name and address of the tendering holder, the names in which
the Old Notes are registered and, if possible, the certificate numbers of the
Old Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date, the Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), the Company may, at its option, reject the
tender. Copies of the notice of guaranteed delivery ("Notice of Guaranteed
Delivery") which may be used by Eligible Institutions for the purposes described
in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of
Exchange Notes in exchange for Old Notes tendered
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pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) by an Eligible Institution
will be made only against deposit of the Letter of Transmittal (and any other
required documents) and the tendered Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company, or if it is an affiliate it will
comply with the registration and prospectus requirements of the Securities Act
to the extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges, assigns
and transfers the Old Notes to the Company and irrevocably constitutes and
appoints the Exchange Agent as the Transferor's agent and attorney-in-fact to
cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens,
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restrictions, charges and encumbrances and not subject to any adverse claim. The
Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the exchange, assignment and transfer of tendered Old
Notes or transfer ownership of such Old Notes on the account books maintained by
a book-entry transfer facility. The Transferor further agrees that acceptance of
any tendered Old Notes by the Company and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Company of certain
of its obligations under the Registration Rights Agreement. All authority
conferred by the Transferor will survive the death or incapacity of the
Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
The Transferor certifies that it is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act and that it is acquiring the
Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes. Each holder, other than
a broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of Exchange Notes. Each Transferor which is a
broker-dealer receiving Exchange Notes for its own account must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company will, for a period of 120 days after the Expiration
Date, make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) specify the principal
amount of Notes to be withdrawn, (iv) include a statement that such holder is
withdrawing his election to have such Old Notes exchanged, (v) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered or as otherwise described above (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Indenture register the transfer of such
Old Notes into the name of the person withdrawing the tender and (vi) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. The Exchange Agent will return the properly withdrawn Old
Notes promptly following receipt of notice of withdrawal. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn Old Notes or otherwise
comply with the book-entry transfer facility procedure. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company and such determination will be final and binding on
all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the book-entry
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transfer facility pursuant to the book-entry transfer procedures described
above, such Old Notes will be credited to an account with such book-entry
transfer facility specified by the holder) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "Procedures for Tendering Old Notes" above at any time on or
prior to the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly on the Exchange Date, all Old Notes properly
tendered and will issue the Exchange Notes promptly after such acceptance. See
"Certain Conditions to the Exchange Offer" below. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted properly tendered Old Notes
for exchange when, as and if the Company has given oral or written notice
thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely book-entry
confirmation of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Old Notes will be credited to an account
maintained with such book-entry transfer facility) as promptly as practicable
after the expiration of the Exchange Offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Old Notes and may terminate or
amend the Exchange Offer (by oral or written notice to the Exchange Agent or by
a timely press release) if at any time before the acceptance of such Old Notes
for exchange or the exchange of the Exchange Notes for such Old Notes, any of
the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or have a material
adverse effect on the contemplated benefits of the Exchange Offer to the
Company; or
(b) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company that is or may be adverse to the Company, or the
Company shall have become aware of facts that have or may have adverse
significance with respect to the value of the Old Notes or the Exchange
Notes or that may materially impair the contemplated benefits of the
Exchange Offer to the Company; or
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(c) any law, rule or regulation or applicable interpretations of the
staff of the Commission is issued or promulgated which, in the good faith
determination of the Company, do not permit the Company to effect the
Exchange Offer; or
(d) any governmental approval has not been obtained, which approval the
Company, in its sole discretion, deems necessary for the consummation of the
Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation (or an amendment to any existing law statute, rule or
regulation) which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or have
a material adverse effect on the contemplated benefits of the Exchange Offer
to the Company; or
(f) there shall occur a change in the current interpretation by the
staff of the Commission which permits the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such
Exchange Notes are acquired in the ordinary course of such holders' business
and such holders have no arrangement with any person to participate in the
distribution of such Exchange Notes; or
(g) there shall have occurred (i) any general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on any
national securities exchange or in the over-the-counter market (whether or
not mandatory), (ii) any limitation by any govermental agency or authority
which may adversely affect the ability of the Company to complete the
transactions contemplated by the Exchange Offer, (iii) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
Federal or state authorities in the United States (whether or not
mandatory), (iv) a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the United
States, (v) any limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of affecting,
the extension of credit by banks or other leading institutions in the United
States, or (vi) in the case of any of the foregoing existing at the time of
the commencement of the Exchange Offer, a material acceleration or worsening
thereof.
The Company expressly reserves the right to terminate the Exchange Offer and
not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth above occur. Moreover, regardless of whether any
of such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the Old
Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. If the Company waives or amends the foregoing
conditions, it will, if required by law, extend the Exchange Offer for a minimum
of five business days from the date that the Company first gives notice, by
public announcement or otherwise, of such waiver or amendment, if the Exchange
Offer would otherwise expire within such five business-day period. Any
determination by the Company concerning the events described above will be final
and binding upon all parties.
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In addition, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. In any such event the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
Marine Midland Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C>
BY HAND/OVERNIGHT COURIER: BY MAIL:
Marine Midland Bank Marine Midland Bank
Attn: Corporate Trust Operations Attn: Corporate Trust Operations
140 Broadway, Level A 140 Broadway, Level A
New York, New York 10005-1180 New York, New York 10005-1180
BY FACSIMILE:
(212) 658-2292
Attn.: Paulette Shaw
Telephone: (212) 658-5931
</TABLE>
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER OTHER THAN THE
ONES SET FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID
DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this and other related documents to the beneficial owners of the Old
Notes and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $500,000, which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company.
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Neither the delivery of this Prospectus nor any exchange made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction in which the securities laws or blue
sky laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdication.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Old Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of Exchange Notes for Old Notes. Expenses incurred in
connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. Old Notes not
exchanged pursuant to the Exchange Offer will continue to remain outstanding in
accordance with their terms. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Company does not currently anticipate that it will
register the Old Notes under the Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of Old Notes are urged
to consult their financial and tax advisors in making their own decision on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and limitations applicable thereto under the Indenture, except for
any such rights under the Registration Rights Agreement that by their terms
terminate or cease to have further effectiveness as a result of the making of
this Exchange
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Offer. All untendered Old Notes will continue to be subject to the restrictions
on transfer set forth in the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
Old Notes could be adversely affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
RESALE OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance that the Staff would make
a similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a Holder (other than any Holder who is a broker-dealer
or an "affiliate" of the Company within the meaning of Rule 405 of the
Securities Act) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such Holder's business and that such
Holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. However, any holder who is an "affiliate" of the
Company or who has an arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the Exchange
Offer, or any broker-dealer who purchased Old Notes from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
(i) could not rely on the applicable interpretations of the staff and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act. A broker-dealer who holds Old Notes that were acquired for its
own account as a result of market-making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of Exchange Notes. Each such broker-dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Exchange Notes reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Exchange Notes.
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DESCRIPTION OF THE EXCHANGE NOTES
The Old Notes were issued and the Exchange Notes offered hereby will be
issued under an indenture dated as of February 13, 1997 (the "Indenture")
between the Company, as issuer, and Marine Midland Bank, as trustee (the
"Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Exchange
Notes are subject to all such terms, and holders of the Exchange Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture describes the
material terms of the Indenture but does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Indenture, including the definitions of certain terms contained therein and
those terms made part of the Indenture by reference to the Trust Indenture Act.
For definitions of certain capitalized terms used in the following summary, see
"--Certain Definitions." The Indenture is an exhibit to the Registration
Statement of which this Prospectus is a part.
On February 13, 1997, the Company issued $300 million aggregate principal
amount of Old Notes under the Indenture. The terms of the Exchange Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Old Notes for Exchange Notes. The Trustee will authenticate and deliver Exchange
Notes for original issue only in exchange for a like principal amount of Old
Notes. Any Old Notes that remain outstanding after the consummation of the
Exchange Offer, together with the Exchange Notes, will be treated as a single
class of securities under the Indenture. Accordingly, all references herein to
specified percentages in aggregate principal amount of the outstanding Exchange
Notes shall be deemed to mean, at any time after the Exchange Offer is
consummated, such percentage in aggregate principal amount of the Old Notes and
Exchange Notes then outstanding.
GENERAL
The Exchange Notes will mature on February 15, 2009, will be limited to
$300,000,000 aggregate principal amount and will be unsecured senior
subordinated obligations of the Company. Each Exchange Note will bear interest
at the rate set forth on the cover page hereof from February 13, 1997, or from
the most recent interest payment date to which interest has been paid or duly
provided for, payable on August 15, 1997, and semiannually thereafter on
February 15 and August 15 in each year until the principal thereof is paid or
duly provided for to the Person in whose name the Exchange Note (or any
predecessor Exchange Note) is registered at the close of business on the
February 1 or August 1 next preceding such interest payment date. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes will be exchangeable and transferable, at the
office or agency of the Company in the City of New York maintained for such
purposes (which initially will be the Trustee); PROVIDED, HOWEVER, that, at the
option of the Company, interest may be paid by check mailed to the address of
the Person entitled thereto as such address appears on the security register.
The Exchange Notes will be issued only in fully registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange or
redemption of Exchange Notes, but the Company may require payment in certain
circumstances of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith.
Old Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Notes issued in connection with the Exchange Offer will be
treated as a single class of securities under the Indenture.
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SUBORDINATION
The payment of the Subordinated Note Obligations will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full in
cash equivalents of all Senior Indebtedness, whether outstanding on the date of
the Indenture or thereafter incurred. Upon any distribution to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior
Indebtedness will be entitled to receive payment in full in cash equivalents of
such Senior Indebtedness before the holders of Exchange Notes will be entitled
to receive any payment with respect to the Subordinated Note Obligations, and
until all Senior Indebtedness is paid in full in cash equivalents, any
distribution to which the holders of Exchange Notes would be entitled shall be
made to the holders of Senior Indebtedness (except that holders of Exchange
Notes may receive (i) shares of stock and any debt securities that are
subordinated at least to the same extent as the Exchange Notes to (a) Senior
Indebtedness and (b) any securities issued in exchange for Senior Indebtedness
and (ii) payments made from the trusts described under "--Legal Defeasance and
Covenant Defeasance").
The Company also may not make any payment upon or in respect of the
Subordinated Note Obligations (except in such subordinated securities or from
the trust described under "--Legal Defeasance and Covenant Defeasance") if (i) a
default in the payment of the principal of, premium, if any, or interest on, or
of unreimbursed amounts under drawn letters of credit or in respect of bankers'
acceptances or fees relating to letters of credit or bankers' acceptances
constituting, Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace (a "payment default") or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity (a "non-payment default") and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from a
representative of holders of such Designated Senior Indebtedness. Payments on
the Exchange Notes, including any missed payments, may and shall be resumed (a)
in the case of a payment default, upon the date on which such default is cured
or waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full in cash equivalents and (b) in case
of a nonpayment default, the earlier of (x) the date on which such nonpayment
default is cured or waived, (y) 179 days after the date on which the applicable
Payment Blockage Notice is received (each such period, the "Payment Blockage
Period") or (z) the date such Payment Blockage Period shall be terminated by
written notice to the Trustee from the requisite holders of such Designated
Senior Indebtedness necessary to terminate such period or from their
representative. No new period of payment blockage may be commenced unless and
until 365 days have elapsed since the effectiveness of the immediately preceding
Payment Blockage Notice. However, if any Payment Blockage Notice within such
365-day period is given by or on behalf of any holders of Designated Senior
Indebtedness (other than the agent under the Senior Credit Facility), the agent
under the Senior Credit Facility may give another Payment Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate
during any 365 consecutive day period. No nonpayment default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been cured or waived for a period of not less than 90
days.
If the Company fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Exchange Notes
to accelerate the maturity thereof.
The Indenture further requires that the Company promptly notify holders of
Senior Indebtedness if payment of the Exchange Notes is accelerated because of
an Event of Default.
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As a result of the subordination provisions described above, in the event of
insolvency, bankruptcy, administration, reorganization, receivership or similar
proceedings relating to the Company, holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Indebtedness. At
December 13, 1996, on a pro forma basis after giving effect to the Merger and
the Financings (including the Offering), the Company would have had
approximately $122.2 million of Senior Indebtedness outstanding and the Company
would have had additional availability of $251.1 million (reduced by $48.9
million of outstanding letters of credit) for borrowings under the Senior Credit
Facility, all of which would be Senior Indebtedness of the Company. In addition,
the Exchange Notes will be structurally subordinated to the liabilities of
Subsidiaries of the Company. Although the Indenture contains limitations on the
amount of additional Indebtedness that the Company and its Subsidiaries may
incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"--Certain Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock."
"Designated Senior Indebtedness" means (i) Senior Indebtedness under the
Senior Credit Facility and (ii) any other Senior Indebtedness permitted under
the Indenture the principal amount of which is $50 million or more and that has
been designated by the Company as Designated Senior Indebtedness.
"Senior Indebtedness" means (i) the Obligations under the Senior Credit
Facility and (ii) any other Indebtedness permitted to be incurred by the Company
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Exchange Notes, including, with respect
to (i) and (ii), interest accruing subsequent to the filing of, or which would
have accrued but for the filing of, a petition for bankruptcy, whether or not
such interest is an allowable claim in such bankruptcy proceeding.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
will not include (1) any liability for federal, state, local or other taxes owed
or owing by the Company, (2) any obligation of the Company to any of its
Subsidiaries, (3) any accounts payable or trade liabilities arising in the
ordinary course of business (including instruments evidencing such liabilities)
other than obligations in respect of bankers' acceptances and letters of credit
under the Senior Credit Facility, (4) any Indebtedness that is incurred in
violation of the Indenture, (5) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to the Company, (6) any Indebtedness, guarantee or
obligation of the Company which is subordinate or junior to any other
Indebtedness, guarantee or obligation of the Company, (7) Indebtedness evidenced
by the Exchange Notes and (8) Capital Stock of the Company.
"Subordinated Note Obligations" means any principal of, premium, if any, and
interest on the Exchange Notes payable pursuant to the terms of the Exchange
Notes or upon acceleration, together with and including any amounts received
upon the exercise of rights of rescission or other rights of action (including
claims for damages) or otherwise, to the extent relating to the purchase price
of the Exchange Notes or amounts corresponding to such principal, premium, if
any, or interest on the Exchange Notes.
The Exchange Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Company. At the Issuance Date the Company had no
Subordinated Indebtedness.
MANDATORY REDEMPTION
The Company will not be required to make mandatory redemptions or sinking
fund payments prior to maturity of the Exchange Notes.
OPTIONAL REDEMPTION
Except as described below, the Exchange Notes will not be redeemable at the
Company's option prior to February 15, 2002. From and after February 15, 2002,
the Exchange Notes will be subject to
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redemption at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days' written notice, at the redemption prices (expressed as
a percentage of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on February 15 of each of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ------------------------------------------------------------------------------------ ------------
<S> <C>
2002................................................................................ 104.750%
2003................................................................................ 103.167%
2004................................................................................ 101.583%
2005 and thereafter................................................................. 100.000%
</TABLE>
In addition, at any time or from time to time, on or prior to February 15,
2000, the Company may, at its option, redeem up to 40% of the aggregate
principal amount of Exchange Notes originally issued under the Indenture on the
Issuance Date at a redemption price equal to 109.5% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
redemption date, with the net proceeds of one or more Equity Offerings; provided
that at least 60% of the aggregate principal amount of Exchange Notes originally
issued under the Indenture on the Issuance Date remains outstanding immediately
after the occurrence of such redemption; PROVIDED FURTHER that such redemption
occurs within 60 days of the date of closing of each such Equity Offering. The
Trustee shall select the Exchange Notes to be purchased in the manner described
under "Repurchase at the Option of Holders--Selection and Notice."
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL. The Indenture provides that, upon the occurrence of a
Change of Control, the Company will make an offer to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of the Exchange Notes pursuant
to the offer described below (the "Change of Control Offer") at a price in cash
(the "Change of Control Payment") equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase. The Indenture provides that within 30 days following any Change of
Control, the Company will mail a notice to each Holder of Exchange Notes issued
under the Indenture, with a copy to the Trustee, with the following information:
(1) a Change of Control Offer is being made pursuant to the covenant entitled
"Change of Control," and that all Exchange Notes properly tendered pursuant to
such Change of Control Offer will be accepted for payment; (2) the purchase
price and the purchase date, which will be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, except as may be otherwise
required by applicable law (the "Change of Control Payment Date"); (3) any
Exchange Note not properly tendered will remain outstanding and continue to
accrue interest; (4) unless the Company defaults in the payment of the Change of
Control Payment, all Exchange Notes accepted for payment pursuant to the Change
of Control Offer will cease to accrue interest on the Change of Control Payment
Date; (5) Holders electing to have any Exchange Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Exchange Notes, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Exchange Notes completed, to the paying agent and at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date; (6) Holders will be entitled to withdraw
their tendered Exchange Notes and their election to require the Company to
purchase such Exchange Notes, provided that the paying agent receives, not later
than the close of business on the last day of the offer period, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of Exchange Notes tendered for purchase, and a statement
that such Holder is withdrawing his tendered Exchange Notes and his election to
have such Exchange Notes purchased; and (7) that Holders whose Exchange Notes
are being purchased only in part will be issued new Exchange Notes equal in
principal amount to the unpurchased portion of the
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Exchange Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding amounts under the Senior Credit
Facility or offer to repay in full all outstanding amounts under the Senior
Credit Facility and repay the Obligations held by each lender who has accepted
such offer or obtain the requisite consents, if any, under the Senior Credit
Facility to permit the repurchase of the Exchange Notes required by this
covenant.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Exchange Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The Indenture provides that on the Change of Control Payment Date, the
Company will, to the extent permitted by law, (1) accept for payment all
Exchange Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the paying agent an amount equal to the
aggregate Change of Control Payment in respect of all Exchange Notes or portions
thereof so tendered and (3) deliver, or cause to be delivered, to the Trustee
for cancellation the Exchange Notes so accepted together with an Officers'
Certificate stating that such Exchange Notes or portions thereof have been
tendered to and purchased by the Company. The Indenture provides that the paying
agent will promptly mail to each Holder of Exchange Notes the Change of Control
Payment for such Exchange Notes, and the Trustee will promptly authenticate and
mail to each Holder a new Exchange Note equal in principal amount to any
unpurchased portion of the Exchange Notes surrendered, if any, provided, that
each such new Exchange Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Senior Credit Facility does, and future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a party
may, prohibit the Company from purchasing any Exchange Notes as a result of a
Change of Control and/or provide that certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing the Exchange Notes, the Company could seek the consent of its lenders
to the purchase of the Exchange Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company will remain prohibited from
purchasing the Exchange Notes. In such case, the Company's failure to purchase
tendered Exchange Notes would constitute an Event of Default under the
Indenture. If, as a result thereof, a default occurs with respect to any Senior
Indebtedness, the subordination provisions in the Indenture would likely
restrict payments to the Holders of the Exchange Notes.
The existence of a Holder's right to require the Company to repurchase such
Holder's Exchange Notes upon the occurrence of a Change of Control may deter a
third party from seeking to acquire the Company in a transaction that would
constitute a Change of Control.
ASSET SALES. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist an
Asset Sale, unless (x) the Company, or its Restricted Subsidiaries, as the case
may be, receives consideration at the time of such Asset Sale at least equal to
the fair market value (as determined in good faith by the Company) of the assets
sold or otherwise disposed of and (y) at least 75% of the proceeds from such
Asset Sale when received consists of cash or Cash Equivalents; provided that the
amount of (a) any liabilities (as shown on the Company's
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or such Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Exchange Notes) that are assumed by the transferee of any
such assets, (b) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are converted by the
Company or such Restricted Subsidiary into cash within 180 days after such Asset
Sale (to the extent of the cash received) and (c) any Designated Noncash
Consideration received by the Company or any of its Restricted Subsidiaries in
such Asset Sale having an aggregate fair market value, taken together with all
other Designated Noncash Consideration received pursuant to this clause (c) that
is at that time outstanding, not to exceed the greater of (x) $100 million or
(y) 20% of Total Assets at the time of the receipt of such Designated Noncash
Consideration (with the fair market value of each item of Designated Noncash
Consideration being measured at the time received and without giving effect to
subsequent changes in value), shall be deemed to be cash for the purposes of
this provision.
Within 30 months after the Company's or any Restricted Subsidiary's receipt
of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary
may apply the Net Proceeds from such Asset Sale, at its option, (i) to
permanently reduce Obligations under the Senior Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other Senior
Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce Obligations under the Exchange Notes if the Exchange Notes are then
prepayable or, if the Exchange Notes may not be then prepaid, the Company shall
make an offer (in accordance with the procedures set forth below for an Asset
Sale Offer) to all Holders to purchase at 100% of the principal amount thereof
the amount of Exchange Notes that would otherwise be prepaid), (ii) to an
investment in any one or more businesses, capital expenditures or acquisitions
of other assets in each case, used or useful in a Similar Business and/or (iii)
to an investment in properties or assets that replace the properties and assets
that are the subject of such Asset Sale. Pending the final application of any
such Net Proceeds, the Company or such Restricted Subsidiary may temporarily
reduce Indebtedness under a revolving credit facility, if any, or otherwise
invest such Net Proceeds in Cash Equivalents or Investment Grade Securities. The
Indenture provides that any Net Proceeds from the Asset Sale that are not
invested as provided and within the time period set forth in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $15 million, the Company shall make
an offer to all Holders of Exchange Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of Exchange Notes, that is an integral multiple of
$1,000, that may be purchased out of the Excess Proceeds at an offer price in
cash equal to 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date fixed for the closing of such offer, in accordance
with the procedures set forth in the Indenture. The Company will commence an
Asset Sale Offer with respect to Excess Proceeds within ten Business Days after
the date that Excess Proceeds exceeds $15 million by mailing the notice required
pursuant to the terms of the Indenture, with a copy to the Trustee. To the
extent that the aggregate amount of Exchange Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Exchange Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Exchange Notes to be purchased in
the manner described under the caption "Selection and Notice" below. Upon
completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Exchange Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
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SELECTION AND NOTICE. If less than all of the Exchange Notes are to be
redeemed at any time or if more Exchange Notes are tendered pursuant to an Asset
Sale Offer than the Company is required to purchase, selection of such Exchange
Notes for redemption or purchase, as the case may be, will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Exchange Notes are listed, or, if such Exchange
Notes are not so listed, on a pro rata basis, by lot or by such other method as
the Trustee shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements); provided that no Exchange Notes of $1,000 or
less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Exchange Notes to be purchased or redeemed at
such Holder's registered address. If any Exchange Note is to be purchased or
redeemed in part only, any notice of purchase or redemption that relates to such
Exchange Note shall state the portion of the principal amount thereof that has
been or is to be purchased or redeemed.
A new Exchange Note in principal amount equal to the unpurchased or
unredeemed portion of any Exchange Note purchased or redeemed in part will be
issued in the name of the Holder thereof upon cancellation of the original
Exchange Note. On and after the purchase or redemption date, unless the Company
defaults in payment of the purchase or redemption price, interest shall cease to
accrue on Exchange Notes or portions thereof purchased or called for redemption.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any dividend or distribution payable in connection with any merger or
consolidation (other than (A) dividends or distributions by the Company payable
in Equity Interests (other than Disqualified Stock) of the Company or (B)
dividends or distributions by a Restricted Subsidiary so long as, in the case of
any dividend or distribution payable on or in respect of any class or series of
securities issued by a Subsidiary other than a Wholly Owned Subsidiary, the
Company or a Restricted Subsidiary receives at least its PRO RATA share of such
dividend or distribution in accordance with its Equity Interests in such class
or series of securities); (ii) purchase, redeem, defease or otherwise acquire or
retire for value any Equity Interests of the Company; (iii) make any principal
payment on, or redeem, repurchase, defease or otherwise acquire or retire for
value in each case, prior to any scheduled repayment, or maturity, any
Subordinated Indebtedness; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of
additional Indebtedness under the provisions of the first paragraph of
"--Limitations on Incurrence of Indebtedness and Issuance of Disqualified
Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Issuance Date (including Restricted Payments permitted by clauses
(i), (ii) (with respect to the payment of dividends on Refunding Capital
Stock pursuant to clause (b) thereof), (iv) (only to the extent that amounts
paid pursuant to such clause are greater than amounts that would have been
paid pursuant to such clause if $5 million and $10 million were substituted
in such clause for $10 million and $20 million, respectively),
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(v), (viii) and (ix) of the next succeeding paragraph, but excluding all
other Restricted Payments permitted by the next succeeding paragraph), is
less than the sum of (i) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the fiscal quarter that
first begins after the Issuance Date to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, in the case such
Consolidated Net Income for such period is a deficit, minus 100% of such
deficit); PROVIDED, HOWEVER, that for the purposes of this clause (i),
Consolidated Net Income shall be deemed to include any increases during such
period to Consolidated Additional Paid-In Capital of the Company, which
increases are attributable to tax benefits from net operating losses
incurred prior to the Issuance Date and are not otherwise included in
Consolidated Net Income of the Company for such period, plus (ii) 100% of
the aggregate net cash proceeds and the fair market value, as determined in
good faith by the Board of Directors, of marketable securities received by
the Company since immediately after the closing of the Merger and the
Financings from the issue or sale of Equity Interests (including Retired
Capital Stock (as defined below), but excluding cash proceeds and marketable
securities received from the sale of Equity Interests to members of
management, directors or consultants of the Company and its Subsidiaries
after the Issuance Date to the extent such amounts have been applied to
Restricted Payments in accordance with clause (iv) of the next succeeding
paragraph) or debt securities of the Company that have been converted into
such Equity Interests of the Company (other than Refunding Capital Stock (as
defined below) or Equity Interests or convertible debt securities of the
Company sold to a Restricted Subsidiary and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock), plus
(iii) 100% of the aggregate amount of cash and marketable securities
contributed to the capital of the Company following the Issuance Date, plus
(iv) 100% of the aggregate amount received in cash and the fair market value
of marketable securities (other than Restricted Investments) received from
(A) the sale or other disposition (other than to the Company or a Restricted
Subsidiary) of Restricted Investments made by the Company and its Restricted
Subsidiaries or (B) a dividend from, or the sale (other than to the Company
or a Restricted Subsidiary) of the stock of, an Unrestricted Subsidiary
(other than an Unrestricted Subsidiary the Investment in which was made by
the Company or a Restricted Subsidiary pursuant to clauses (vi) or (x)
below).
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) (a) the redemption, repurchase, retirement or other acquisition of
any Equity Interests (the "Retired Capital Stock") or Subordinated
Indebtedness of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary) of,
Equity Interests of the Company (other than any Disqualified Stock) (the
"Refunding Capital Stock"), and (b) if immediately prior to the retirement
of Retired Capital Stock, the declaration and payment of dividends thereon
was permitted under clause (v) of this paragraph, the declaration and
payment of dividends on the Refunding Capital Stock in an aggregate amount
per year no greater than the aggregate amount of dividends per annum that
was declarable and payable on such Retired Capital Stock immediately prior
to such retirement; PROVIDED, HOWEVER, that at the time of the declaration
of any such dividends, no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof;
(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, new Indebtedness of the
Company so long as (A) the principal amount of such new Indebtedness does
not exceed the principal amount of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired for value (plus the amount of any
premium required to be paid under the terms of the instrument governing the
Subordinated Indebtedness being so
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redeemed, repurchased, acquired or retired), (B) such Indebtedness is
subordinated to the Senior Indebtedness and the Exchange Notes at least to
the same extent as such Subordinated Indebtedness so purchased, exchanged,
redeemed, repurchased, acquired or retired for value, (C) such Indebtedness
has a final scheduled maturity date equal to or later than the final
scheduled maturity date of the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired and (D) such Indebtedness has a Weighted
Average Life to Maturity equal to or greater than the remaining Weighted
Average Life to Maturity of the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired;
(iv) a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of common Equity Interests of the
Company held by any future, present or former employee, director or
consultant of the Company or any Subsidiary pursuant to any management
equity plan or stock option plan or any other management or employee benefit
plan or agreement; PROVIDED, HOWEVER, that the aggregate Restricted Payments
made under this clause (iv) does not exceed in any calendar year $10 million
(with unused amounts in any calendar year being carried over to succeeding
calendar years subject to a maximum (without giving effect to the following
proviso) of $20 million in any calendar year); PROVIDED FURTHER that such
amount in any calendar year may be increased by an amount not to exceed (i)
the cash proceeds from the sale of Equity Interests of the Company to
members of management, directors or consultants of the Company and its
Subsidiaries that occurs after the Issuance Date (to the extent the cash
proceeds from the sale of such Equity Interest have not otherwise been
applied to the payment of Restricted Payments by virtue of the preceding
paragraph (c)) plus (ii) the cash proceeds of key man life insurance
policies received by the Company and its Restricted Subsidiaries after the
Issuance Date less (iii) the amount of any Restricted Payments previously
made pursuant to clauses (i) and (ii) of this subparagraph (iv); and
PROVIDED FURTHER that cancellation of Indebtedness owing to the Company from
members of management of the Company or any of its Restricted Subsidiaries
in connection with a repurchase of Equity Interests of the Company will not
be deemed to constitute a Restricted Payment for purposes of this covenant
or any other provision of the Indenture;
(v) the declaration and payment of dividends to holders of any class or
series of Designated Preferred Stock (other than Disqualified Stock) issued
after the Issuance Date (including, without limitation, the declaration and
payment of dividends on Refunding Capital Stock in excess of the dividends
declarable and payable thereon pursuant to clause (ii)); PROVIDED, HOWEVER,
that for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
of issuance of such Designated Preferred Stock, after giving effect to such
issuance on a pro forma basis, the Company and its Restricted Subsidiaries
would have had a Fixed Charge Coverage Ratio of at least 1.75 to 1.00;
(vi) Investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to
this clause (vi) that are at that time outstanding, not to exceed $20
million at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value);
(vii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(viii) the payment of dividends on the Company's Common Stock, following
the first public offering of the Company's Common Stock after the Issuance
Date, of up to 6% per annum of the net proceeds received by the Company in
such public offering, other than public offerings with respect to the
Company's Common Stock registered on Form S-8;
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(ix) a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of Equity Interests of the Company in
existence on the Issuance Date and which are not held by KKR or any of their
Affiliates or the Management Group on the Issuance Date (including any
Equity Interests issued in respect of such Equity Interests as a result of a
stock split, recapitalization, merger, combination, consolidation or
otherwise, but excluding any management equity plan or stock option plan or
similar agreement), provided that the aggregate Restricted Payments made
under this clause (ix) shall not exceed $30 million, PROVIDED FURTHER that
notwithstanding the foregoing proviso, the Company shall be permitted to
make Restricted Payments under this clause (ix) only if after giving effect
thereto, the Company would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first sentence of the covenant described under "--Limitations
on Incurrence of Indebtedness and Issuance of Disqualified Stock"; and
(x) other Restricted Payments in an aggregate amount not to exceed $20
million; PROVIDED, HOWEVER, that at the time of, and after giving effect to,
any Restricted Payment permitted under clauses (iii), (iv), (v), (vi),
(vii), (viii), (ix) and (x), no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof; and
PROVIDED FURTHER that for purposes of determining the aggregate amount
expended for Restricted Payments in accordance with clause (c) of the
immediately preceding paragraph, only the amounts expended under clauses
(i), (ii) (with respect to the payment of dividends on Refunding Capital
Stock pursuant to clause (b) thereof), (iv) (only to the extent that amounts
paid pursuant to such clause are greater than amounts that would have been
paid pursuant to such clause if $5 million and $10 million were substituted
in such clause for $10 million and $20 million, respectively), (v), (viii)
and (ix) shall be included.
As of the Issuance Date, all of the Company's Subsidiaries will be
Restricted Subsidiaries. The Company will not permit any Unrestricted Subsidiary
to become a Restricted Subsidiary except pursuant to the second to last sentence
of the definition of "Unrestricted Subsidiary." For purposes of designating any
Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments
by the Company and its Restricted Subsidiaries (except to the extent repaid) in
the Subsidiary so designated will be deemed to be Restricted Payments in an
amount determined as set forth in the last sentence of the definition of
"Investments." Such designation will only be permitted if a Restricted Payment
in such amount would be permitted at such time and if such Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries
will not be subject to any of the restrictive covenants set forth in the
Indenture.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED
STOCK. The Indenture provides that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur" and collectively, an "incurrence" of) any
Indebtedness (including Acquired Indebtedness) or any shares of Disqualified
Stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness or issue
shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company
and its Restricted Subsidiaries for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of such incurrence would have been at least 1.75 to 1.00
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock had been issued, as the case may be, and the application of
proceeds had occurred at the beginning of such four-quarter period.
The foregoing limitations will not apply to:
(a) the incurrence by the Company of Indebtedness under the Senior
Credit Facility and the issuance and creation of letters of credit and
banker's acceptances thereunder (with letters of credit and banker's
acceptances being deemed to have a principal amount equal to the face amount
thereof) up to an aggregate principal amount of $550 million outstanding at
any one time;
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(b) any Real Estate Financing Transaction; PROVIDED, HOWEVER, that the
amount of Indebtedness outstanding under clause (a) above and this clause
(b) shall not in the aggregate exceed $550 million at any time outstanding;
(c) the incurrence by the Company of Indebtedness represented by the Old
Notes issued on the Issuance Date;
(d) Existing Indebtedness (other than Indebtedness described in clauses
(a) and (c));
(e) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (e) (together with any Refinancing
Indebtedness with respect thereto), does not exceed the greater of (x) $50
million or (y) 10% of Total Assets;
(f) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; PROVIDED, HOWEVER, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(g) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; PROVIDED, HOWEVER, that (i) such Indebtedness is
not reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(i)) and (ii) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being measured at
the time received and without giving effect to any subsequent changes in
value) actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(h) Indebtedness of the Company to a Restricted Subsidiary; provided
that any such Indebtedness is made pursuant to an intercompany note and is
subordinated in right of payment to the Exchange Notes; PROVIDED FURTHER
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any other subsequent transfer of any such
Indebtedness (except to the Company or another Restricted Subsidiary) shall
be deemed, in each case to be an incurrence of such Indebtedness;
(i) Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; provided that (i) any such Indebtedness is made
pursuant to an intercompany note and (ii) if a Guarantor incurs such
Indebtedness from a Restricted Subsidiary that is not a Guarantor such
Indebtedness is subordinated in right of payment to the Guarantee of such
Guarantor; PROVIDED FURTHER that any subsequent transfer of any such
Indebtedness (except to the Company or another Restricted Subsidiary) shall
be deemed, in each case to be an incurrence of such Indebtedness;
(j) Hedging Obligations that are incurred in the ordinary course of
business (1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by
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the terms of the Indenture to be outstanding or (2) for the purpose of
fixing or hedging currency exchange rate risk with respect to any currency
exchanges;
(k) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(l) Indebtedness of any Guarantor in respect of such Guarantor's
Guarantee;
(m) Indebtedness of the Company and any of its Foreign Subsidiaries not
otherwise permitted hereunder in an aggregate principal amount, which when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (m), does not exceed $150
million at any one time outstanding; PROVIDED, HOWEVER, that Indebtedness of
Foreign Subsidiaries, which when aggregated with the principal amount of all
other Indebtedness of Foreign Subsidiaries then outstanding and incurred
pursuant to this clause (m), does not exceed $75 million (or the equivalent
thereof in any other currency) at any one time outstanding;
(n) (i) any guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the incurrence
of such Indebtedness incurred by such Restricted Subsidiary is permitted
under the terms of the Indenture and (ii) any Excluded Guarantee (as defined
below under "--Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries") of a Restricted Subsidiary;
(o) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness which serves to refund, refinance or restructure any
Indebtedness incurred as permitted under the first paragraph of this
covenant and clauses (c) and (d) above, or any Indebtedness issued to so
refund, refinance or restructure such Indebtedness including additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
"Refinancing Indebtedness") prior to its respective maturity; PROVIDED,
HOWEVER, that such Refinancing Indebtedness (i) has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred which is
not less than the remaining Weighted Average Life to Maturity of
Indebtedness being refunded or refinanced, (ii) to the extent such
Refinancing Indebtedness refinances Indebtedness subordinated or pari passu
to the Exchange Notes, such Refinancing Indebtedness is subordinated or pari
passu to the Exchange Notes at least to the same extent as the Indebtedness
being refinanced or refunded and (iii) shall not include (x) Indebtedness of
a Subsidiary that refinances Indebtedness of the Company or (y) Indebtedness
of the Company or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary; and PROVIDED FURTHER that subclauses (i) and (ii)
of this clause (o) will not apply to any refunding or refinancing of any
Senior Indebtedness; and
(p) Indebtedness or Disqualified Stock of Persons that are acquired by
the Company or any of its Restricted Subsidiaries or merged into a
Restricted Subsidiary in accordance with the terms of the Indenture;
provided that such Indebtedness or Disqualified Stock is not incurred in
contemplation of such acquisition or merger; and PROVIDED FURTHER that after
giving effect to such acquisition, either (i) the Company would be permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first sentence of this covenant
or (ii) the Fixed Charge Coverage Ratio is greater than immediately prior to
such acquisition.
LIENS. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly create,
incur, assume or suffer to exist any Lien that secures obligations under any
Pari Passu Indebtedness or Subordinated Indebtedness on any asset or property of
the Company or such Restricted Subsidiary, or any income or profits therefrom,
or assign or convey any right to receive income therefrom, unless the Exchange
Notes are equally and ratably secured with the obligations so secured or until
such time as such obligations are no longer secured by a Lien.
The Indenture provides that no Guarantor will directly or indirectly create,
incur, assume or suffer to exist any Lien that secures obligations under any
Pari Passu Indebtedness or Subordinated Indebtedness of such Guarantor on any
asset or property of such Guarantor or any income or profits therefrom, or
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assign or convey any right to receive income therefrom, unless the Guarantee of
such Guarantor is equally and ratably secured with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
Notwithstanding the foregoing, no such equal and ratable security need be
provided if the Indebtedness secured is incurred pursuant to a Real Estate
Financing Transaction.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS. The
Indenture provides that the Company may not consolidate or merge with or into or
wind up into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions (other than
pursuant to a Real Estate Financing Transaction) to, any Person unless (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been made
is a corporation organized or existing under the laws of the United States, any
state thereof, the District of Columbia, or any territory thereof (the Company
or such Person, as the case may be, being herein called the "Successor
Company"); (ii) the Successor Company (if other than the Company) expressly
assumes all the obligations of the Company under the Indenture and the Exchange
Notes pursuant to a supplemental indenture or other documents or instruments in
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; (iv) immediately after giving
pro forma effect to such transaction, as if such transaction had occurred at the
beginning of the applicable four-quarter period, (A) the Successor Company would
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first sentence of the covenant
described under "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock" or (B) the Fixed Charge Coverage Ratio for the Successor
Company and its Restricted Subsidiaries would be greater than such Ratio for the
Company and its Restricted Subsidiaries immediately prior to such transaction;
(v) each Guarantor, if any, unless it is the other party to the transactions
described above, shall have by supplemental indenture confirmed that its
Guarantee shall apply to such Person's obligations under the Indenture and the
Exchange Notes; and (vi) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. The Successor Company will succeed to, and be
substituted for, the Company under the Indenture and the Exchange Notes.
Notwithstanding the foregoing clause (iv), (a) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (b) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
State of the United States so long as the amount of Indebtedness of the Company
and its Restricted Subsidiaries is not increased thereby.
Each Guarantor, if any, shall not, and the Company will not permit a
Guarantor to, consolidate or merge with or into or wind up into (whether or not
such Guarantor is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, any Person unless (i) such
Guarantor is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made is a corporation organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any territory thereof
(such Guarantor or such Person, as the case may be, being herein called the
"Successor Guarantor"); (ii) the Successor Guarantor (if other than such
Guarantor) expressly assumes all the obligations of such Guarantor under the
Indenture and such Guarantor's Guarantee pursuant to a supplemental indenture or
other documents or instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of Default exists;
and (iv) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with
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the Indenture. The Successor Guarantor will succeed to, and be substituted for,
such Guarantor under the Indenture and such Guarantor's Guarantee.
TRANSACTIONS WITH AFFILIATES. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction") involving
aggregate consideration in excess of $5 million, unless:
(a) such Affiliate Transaction is on terms that are not materially less
favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person; and
(b) the Company delivers to the Trustee with respect to any Affiliate
Transaction involving aggregate payments in excess of $10 million, a
resolution adopted by a majority of the Board of Directors approving such
Affiliate Transaction and set forth in an Officers' Certificate certifying
that such Affiliate Transaction complies with clause (a) above.
The foregoing provisions will not apply to the following: (i) transactions
between or among the Company and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments permitted by the provisions of the Indenture described above
under the covenant "--Limitation on Restricted Payments"; (iii) the payment of
customary annual management, consulting and advisory fees and related expenses
to KKR and its Affiliates; (iv) the payment of reasonable and customary fees
paid to, and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Restricted Subsidiary; (v) payments by the
Company or any of its Restricted Subsidiaries to KKR and its Affiliates made for
any financial advisory, financing, underwriting or placement services or in
respect of other investment banking activities, including, without limitation,
in connection with acquisitions or divestitures which payments are approved by a
majority of the Board of Directors of the Company in good faith; (vi)
transactions in which the Company or any of its Restricted Subsidiaries, as the
case may be, delivers to the Trustee a letter from an Independent Financial
Advisor stating that such transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view or meets the requirements of clause
(a) of the preceding paragraph; (vii) payments or loans to employees or
consultants which are approved by a majority of the Board of Directors of the
Company in good faith; (viii) any agreement as in effect as of the Issuance Date
or any amendment thereto (so long as any such amendment is not disadvantageous
to the holders of the Exchange Notes in any material respect) or any transaction
contemplated thereby; (ix) the existence of, or the performance by the Company
or any of its Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or purchase
agreement related thereto) to which it is a party as of the Issuance Date and
any similar agreements which it may enter into thereafter; PROVIDED, HOWEVER,
that the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of obligations under any future amendment to any such
existing agreement or under any similar agreement entered into after the
Issuance Date shall only be permitted by this clause (ix) to the extent that the
terms of any such amendment or new agreement are not otherwise disadvantageous
to the holders of the Exchange Notes in any material respect; (x) the payment of
all fees and expenses related to the Merger and the Financings; and (xi)
transactions with customers, clients, suppliers, or purchasers or sellers of
goods or services, in each case in the ordinary course of business and otherwise
in compliance with the terms of the Indenture which are fair to the Company or
its Restricted Subsidiaries, in the reasonable determination of the Board of
Directors of the Company or the senior management thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause to
become effective any consensual encumbrance or consensual restriction on the
ability of any such Restricted Subsidiary to:
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(a) (i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on its Capital Stock or any other
interest or participation in, or measured by, its profits or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease, or transfer any of its properties or assets to the
Company, or any of its Restricted Subsidiaries;
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(1) contractual encumbrances or restrictions in effect on the Issuance
Date, including pursuant to the Senior Credit Facility and its related
documentation;
(2) the Indenture, the Exchange Notes and the Old Notes;
(3) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(4) applicable law or any applicable rule, regulation or order;
(5) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person,
so acquired;
(6) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;
(7) secured Indebtedness otherwise permitted to be incurred pursuant to
the covenants described under "Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock" and "Liens" that limit the right of the
debtor to dispose of the assets securing such Indebtedness;
(8) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(9) other Indebtedness of Foreign Subsidiaries permitted to be incurred
subsequent to the Issuance Date pursuant to the provisions of the covenant
described under "--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock";
(10) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business;
(11) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
(12) restrictions created in connection with any Real Estate Financing
Transaction that, in the good faith determination of the Board of Directors
of the Company, are necessary or advisable to effect such Real Estate
Financing Transaction; and
(13) any encumbrances or restrictions of the type referred to in clauses
(a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in
clauses (1) through (12) above, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the
Company's Board of Directors, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the dividend
or other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
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LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES. (a)
The Indenture provides that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a Guarantee of payment of the Exchange Notes by such
Restricted Subsidiary except that (A) if the Exchange Notes are subordinated in
right of payment to such Indebtedness, the Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee with
respect to such Indebtedness substantially to the same extent as the Exchange
Notes are subordinated to such Indebtedness under the Indenture and (B) if such
Indebtedness is by its express terms subordinated in right of payment to the
Exchange Notes, any such guarantee of such Restricted Subsidiary with respect to
such Indebtedness shall be subordinated in right of payment to such Restricted
Subsidiary's Guarantee with respect to the Exchange Notes substantially to the
same extent as such Indebtedness is subordinated to the Exchange Notes; (ii)
such Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Guarantee; and (iii) such Restricted Subsidiary shall deliver to the Trustee an
opinion of counsel to the effect that (A) such Guarantee of the Exchange Notes
has been duly executed and authorized and (B) such Guarantee of the Exchange
Notes constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitation, all laws relating to
fraudulent transfers) and except insofar as enforcement thereof is subject to
general principles of equity; provided that this paragraph (a) shall not be
applicable to any guarantee of any Restricted Subsidiary (x) that (A) existed at
the time such Person became a Restricted Subsidiary of the Company and (B) was
not incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary of the Company or (y) that guarantees the payment of
Obligations of the Company or any Restricted Subsidiary under the Senior Credit
Facility or any other bank facility which is designated as Senior Indebtedness
and any refunding, refinancing or replacement thereof, in whole or in part,
provided that such refunding, refinancing or replacement thereof constitutes
Senior Indebtedness and is not incurred pursuant to a registered offering of
securities under the Securities Act or a private placement of securities
(including under Rule 144A) pursuant to an exemption from the registration
requirements of the Securities Act, which private placement provides for
registration rights under the Securities Act (any guarantee excluded by
operations of this clause (y) being an "Excluded Guarantee").
(b) Notwithstanding the foregoing and the other provisions of the Indenture,
any Guarantee by a Restricted Subsidiary of the Exchange Notes shall provide by
its terms that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii) the release or
discharge of the guarantee which resulted in the creation of such Guarantee,
except a discharge or release by or as a result of payment under such guarantee.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Indenture
provides that the Company will not, and will not permit any Guarantor to,
directly or indirectly, incur any Indebtedness (including Acquired Indebtedness)
that is subordinate in right of payment to any Indebtedness of the Company or
any Indebtedness of any Guarantor, as the case may be, unless such Indebtedness
is either (a) pari passu in right of payment with the Exchange Notes or such
Guarantor's Guarantee, as the case may be or (b) subordinate in right of payment
to the Exchange Notes, or such Guarantor's Guarantee, as the case may be, in the
same manner and at least to the same extent as the Exchange Notes are
subordinate to Senior Indebtedness or such Guarantor's Guarantee is subordinate
to such Guarantor's Senior Indebtedness, as the case may be.
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REPORTS AND OTHER INFORMATION. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms provided for such
annual and quarterly reporting pursuant to rules and regulations promulgated by
the Securities and Exchange Commission (the "Commission"), the Indenture
requires the Company to file with the Commission (and provide the Trustee and
Holders with copies thereof, without cost to each Holder, within 15 days after
it files them with the Commission), (a) within 90 days after the end of each
fiscal year, annual reports on Form 10-K (or any successor or comparable form)
containing the information required to be contained therein (or required in such
successor or comparable form); (b) within 45 days after the end of each of the
first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any
successor or comparable form); (c) promptly from time to time after the
occurrence of an event required to be therein reported, such other reports on
Form 8-K (or any successor or comparable form); and (d) any other information,
documents and other reports which the Company would be required to file with the
Commission if it were subject to Section 13 or 15(d) of the Exchange Act;
PROVIDED, HOWEVER, the Company shall not be so obligated to file such reports
with the Commission if the Commission does not permit such filing, in which
event the Company will make available such information to prospective purchasers
of Exchange Notes, in addition to providing such information to the Trustee and
the Holders, in each case within 15 days after the time the Company would be
required to file such information with the Commission, if it were subject to
Sections 13 or 15(d) of the Exchange Act.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium on, if any, the
Exchange Notes whether or not such payment shall be prohibited by the
subordination provisions relating to the Exchange Notes;
(ii) default for 30 days or more in the payment when due of interest on
or with respect to the Exchange Notes whether or not such payment shall be
prohibited by the subordination provisions relating to the Exchange Notes;
(iii) failure by the Company or any Guarantor for 30 days after receipt
of written notice given by the Trustee or the holders of at least 30% in
principal amount of the Exchange Notes then outstanding to comply with any
of its other agreements in the Indenture or the Exchange Notes;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Restricted Subsidiaries or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is created
after the Issuance Date, if both (A) such default either (1) results from
the failure to pay any such Indebtedness at its stated final maturity (after
giving effect to any applicable grace periods) or (2) relates to an
obligation other than the obligation to pay principal of any such
Indebtedness at its stated final maturity and results in the holder or
holders of such Indebtedness causing such Indebtedness to become due prior
to its stated maturity and (B) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at stated final maturity (after giving effect
to any applicable grace periods), or the maturity of which has been so
accelerated, aggregate $20 million or more at any one time outstanding;
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(v) failure by the Company or any of its Significant Subsidiaries to pay
final judgments aggregating in excess of $20 million, which final judgments
remain unpaid, undischarged and unstayed for a period of more than 60 days
after such judgment becomes final, and in the event such judgment is covered
by insurance, an enforcement proceeding has been commenced by any creditor
upon such judgment or decree which is not promptly stayed;
(vi) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; or
(vii) any Guarantee shall for any reason cease to be in full force and
effect or be declared null and void or any responsible officer of the
Company or any Guarantor denies that it has any further liability under any
Guarantee or gives notice to such effect (other than by reason of the
termination of the Indenture or the release of any such Guarantee in
accordance with the Indenture).
If any Event of Default (other than of a type specified in clause (vi)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding Exchange Notes may
declare the principal, premium, if any, interest and any other monetary
obligations on all the then outstanding Exchange Notes to be due and payable
immediately; PROVIDED, HOWEVER, that, so long as any Indebtedness permitted to
be incurred pursuant to the Senior Credit Facility shall be outstanding, no such
acceleration shall be effective until the earlier of (i) acceleration of any
such Indebtedness under the Senior Credit Facility or (ii) five business days
after the giving of written notice to the Company and the administrative agent
under the Senior Credit Facility of such acceleration. Upon the effectiveness of
such declaration, such principal and interest will be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising under clause (vi) of the first paragraph of this section, all
outstanding Exchange Notes will become due and payable without further action or
notice. Holders of Exchange Notes may not enforce the Indenture or the Exchange
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Exchange Notes
may direct the Trustee in its exercise of any trust or power. The Indenture
provides that the Trustee may withhold from Holders of Exchange Notes notice of
any continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal, premium, if any, or interest) if it
determines that withholding notice is in their interest. In addition, the
Trustee shall have no obligation to accelerate the Exchange Notes if in the best
judgment of the Trustee acceleration is not in the best interest of the Holders
of such Exchange Notes.
The Indenture provides that the Holders of a majority in aggregate principal
amount of the then outstanding Exchange Notes issued thereunder by notice to the
Trustee may on behalf of the Holders of all of such Exchange Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
premium, if any, or the principal of, any such Exchange Note held by a
non-consenting Holder. In the event of any Event of Default specified in clause
(iv) above, such Event of Default and all consequences thereof (including
without limitation any acceleration or resulting payment default) shall be
annulled, waived and rescinded, automatically and without any action by the
Trustee or the Holders of the Exchange Notes, if within 20 days after such Event
of Default arose (x) the Indebtedness or guarantee that is the basis for such
Event of Default has been discharged, or (y) the holders thereof have rescinded
or waived the acceleration, notice or action (as the case may be) giving rise to
such Event of Default, or (z) if the default that is the basis for such Event of
Default has been cured.
The Indenture provides that the Company is required to deliver to the
Trustee annually a statement regarding compliance with the Indenture, and the
Company is required, within five Business Days, upon becoming aware of any
Default or Event of Default or any default under any document, instrument or
agreement representing Indebtedness of the Company or any Guarantor, to deliver
to the Trustee a statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor shall have any liability for any obligations of the Company or
the Guarantors under the Exchange Notes, the Guarantees or the Indenture or for
any claim based on, in respect of, or by reason of such obligations or their
creation. Each Holder of the Exchange Notes by accepting an Exchange Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Exchange Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Guarantors, if any, under the
Indenture will terminate (other than certain obligations) and will be released
upon payment in full of all of the Exchange Notes. The Company may, at its
option and at any time, elect to have all of its obligations discharged with
respect to the outstanding Exchange Notes and have each Guarantor's obligation
discharged with respect to its Guarantee ("Legal Defeasance") and cure all then
existing Events of Default except for (i) the rights of Holders of outstanding
Exchange Notes to receive payments in respect of the principal of, premium, if
any, and interest on such Exchange Notes when such payments are due solely out
of the trust created pursuant to the Indenture, (ii) the Company's obligations
with respect to Exchange Notes concerning issuing temporary Exchange Notes,
registration of such Exchange Notes, mutilated, destroyed, lost or stolen
Exchange Notes and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and each Guarantor released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Exchange Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment on other
indebtedness, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Exchange Notes:
(i) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Exchange Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, and interest due on the outstanding Exchange Notes on the stated
maturity date or on the applicable redemption date, as the case may be, of
such principal, premium, if any, or interest on the outstanding Exchange
Notes;
(ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary assumptions
and exclusions, (A) the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or (B)
since the Issuance Date, there has been a change in the applicable U.S.
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel in the United States shall confirm that, subject to
customary assumptions and exclusions, the Holders of the outstanding
Exchange Notes will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of such Legal Defeasance and will be subject
to U.S. federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred;
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(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the outstanding Exchange Notes
will not recognize income, gain or loss for U.S. federal income tax purposes
as a result of such Covenant Defeasance and will be subject to such tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing with respect to certain Events of Default on the date of such
deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to which the Company or
any Guarantor is a party or by which the Company or any Guarantor is bound;
(vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable U.S. federal or state law, and that the Trustee has a
perfected security interest in such trust funds for the ratable benefit of
the Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of the
Company or any Guarantor or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all Exchange Notes issued thereunder, when either (a) all such Exchange Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Exchange Notes which have been replaced or paid and Exchange Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid to
the Company) have been delivered to the Trustee for cancellation; or (b) (i) all
such Exchange Notes not theretofore delivered to such Trustee for cancellation
have become due and payable by reason of the making of a notice of redemption or
otherwise or will become due and payable within one year and the Company or any
Guarantor has irrevocably deposited or caused to be deposited with such Trustee
as trust funds in trust an amount of money sufficient to pay and discharge the
entire indebtedness on such Exchange Notes not theretofore delivered to the
Trustee for cancellation for principal, premium, if any, and accrued interest to
the date of maturity or redemption; (ii) no Default or Event of Default with
respect to the Indenture or the Exchange Notes shall have occurred and be
continuing on the date of such deposit or shall occur as a result of such
deposit and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Company or any
Guarantor is a party or by which the Company or any Guarantor is bound; (iii)
the Company or any Guarantor has paid or caused to be paid all sums payable by
it under such Indenture; and (iv) the Company has delivered irrevocable
instructions to the Trustee under such Indenture to apply the deposited money
toward the payment of such Exchange Notes at maturity or the redemption date, as
the case may be. In addition, the Company must deliver an Officers' Certificate
and an opinion of counsel to the Trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, any
Guarantee and the Exchange Notes issued thereunder may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Exchange Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the Exchange Notes), and
any existing default or compliance with any provision of the Indenture or the
Exchange Notes may be waived with the consent of the Holders of a majority in
principal amount of the outstanding Exchange Notes (including consents obtained
in connection with a tender offer or exchange offer for the Exchange Notes).
The Indenture provides that without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Exchange Notes held by a
nonconsenting Holder of the Exchange Notes): (i) reduce the principal amount of
the Exchange Notes whose Holders must consent to an amendment, supplement or
waiver, (ii) reduce the principal of or change the fixed maturity of any such
Exchange Note or alter or waive the provisions with respect to the redemption of
the Exchange Notes (other than provisions relating to the covenants described
under "--Repurchase at the Option of Holders"), (iii) reduce the rate of or
change the time for payment of interest on any Exchange Note, (iv) waive a
Default or Event of Default in the payment of principal of, premium, if any, or
interest on the Exchange Notes (except a rescission of acceleration of the
Exchange Notes by the Holders of at least a majority in aggregate principal
amount of such Exchange Notes and a waiver of the payment default that resulted
from such acceleration), or in respect of a covenant or provision contained in
the Indenture or any Guarantee which cannot be amended or modified without the
consent of all Holders, (v) make any Exchange Note payable in money other than
that stated in such Exchange Notes, (vi) make any change in the provisions of
the Indenture relating to waivers of past Defaults or the rights of Holders of
such Exchange Notes to receive payments of principal of, premium, if any, or
interest on such Exchange Notes, (vii) make any change in the foregoing
amendment and waiver provisions, (viii) impair the right of any Holder of the
Exchange Notes to receive payment of principal of, or interest on such Holder's
Exchange Notes on or after the due dates therefore or to institute suit for the
enforcement of any payment on or with respect to such Holder's Exchange Notes,
or (ix) make any change in the subordination provisions of the Indenture that
would adversely affect the holders of the Exchange Notes.
The Indenture provides that, notwithstanding the foregoing, without the
consent of any Holder of Exchange Notes, the Company, any Guarantor (with
respect to a Guarantee or the Indenture to which it is party) and the Trustee
together may amend or supplement the Indenture, any Guarantee or the Exchange
Notes (i) to cure any ambiguity, defect or inconsistency, (ii) to provide for
uncertificated Exchange Notes in addition to or in place of certificated
Exchange Notes, (iii) to comply with the covenant relating to mergers,
consolidations and sales of assets, (iv) to provide for the assumption of the
Company's or any Guarantor's obligations to Holders of such Exchange Notes, (v)
to make any change that would provide any additional rights or benefits to the
Holders of the Exchange Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder, (vi) to add covenants for the benefit of
the Holders or to surrender any right or power conferred upon the Company, (vii)
to comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or (viii) to add a
Guarantor under the Indenture.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
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transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Indenture provides that the Holders of a majority in principal amount of
the outstanding Exchange Notes issued thereunder will have the right to direct
the time, method and place of conducting any proceeding for exercising any
remedy available to the Trustee, subject to certain exceptions. The Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any Holder of such
Exchange Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
GOVERNING LAW
The Indenture, the Exchange Notes and the Guarantees, if any, are and will
be, subject to certain exceptions, governed by and construed in accordance with
the internal laws of the State of New York, without regard to the choice of law
rules thereof.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided. For
purposes of the Indenture, unless otherwise specifically indicated, the term
"consolidated" with respect to any Person refers to such Person consolidated
with its Restricted Subsidiaries, and excludes from such consolidation any
Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate
of such Person.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Restricted Subsidiary of such
specified Person and (ii) Indebtedness encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, PROVIDED, HOWEVER,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Sale" means:
(i) the sale, conveyance, transfer or other disposition (whether in a
single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary (each referred to in this definition as a
"disposition") or
(ii) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than:
(a) a disposition of Cash Equivalents or Investment Grade Securities or
obsolete equipment in the ordinary course of business;
(b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described above
under "--Merger, Consolidation or Sale of All or Substantially All Assets"
or any disposition that constitutes a Change of Control pursuant to the
Indenture;
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(c) any Restricted Payment that is permitted to be made, and is made,
under the first paragraph of the covenant described above under "Limitation
on Restricted Payments";
(d) any disposition of assets with an aggregate fair market value of
less than $1 million;
(e) any disposition of property or assets by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Restricted Subsidiary;
(f) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Similar Business;
(g) any financing transaction with respect to property built or acquired
by the Company or any Restricted Subsidiary after the Issuance Date
including, without limitation, sale-leasebacks and asset securitizations;
(h) foreclosures on assets; and
(i) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary.
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership.
"Capitalized Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet in accordance with GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof, (iii) certificates of deposit, time
deposits and eurodollar time deposits with maturities of one year or less from
the date of acquisition, bankers' acceptances with maturities not exceeding one
year and overnight bank deposits, in each case with any commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
"Change of Control" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole (other than pursuant to a Real Estate
Financing Transaction); or
(ii) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any
successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders and
their Related Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination
or purchase of beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act, or any successor provision) of beneficial ownership of
more of the total voting power of the Voting Stock of the Company than
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the Permitted Holders and their Related Parties beneficially own at the time
the Company so becomes aware of such acquisition and the Permitted Holders
and their Related Parties do not, at such time, have the right or the
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company.
"Consolidated Additional Paid-In Capital" means, with respect to any Person
for any period, the aggregate of the additional paid-in capital of such Person
and its Restricted Subsidiaries for such period, on a consolidated basis, and
otherwise determined in accordance with GAAP.
"Consolidated Depreciation and Amortization Expense" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense and other noncash charges (excluding any noncash item that represents an
accrual, reserve or amortization of a cash expenditure for a future period) of
such Person and its Restricted Subsidiaries for such period on a consolidated
basis and otherwise determined in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, the sum
of: (a) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, to the extent such expense was deducted in
computing Consolidated Net Income (including amortization of original issue
discount, non-cash interest payments, the interest component of Capitalized
Lease Obligations, and net payments (if any) pursuant to Hedging Obligations,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued, to the extent such expense was deducted in
computing Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, and otherwise determined in accordance
with GAAP; PROVIDED, HOWEVER, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) the
Net Income for such period shall not include the cumulative effect of a change
in accounting principles during such period, (iii) any net after-tax income
(loss) from discontinued operations and any net after-tax gains or losses on
disposal of discontinued operations shall be excluded, (iv) any net after-tax
gains or losses (less all fees and expenses relating thereto) attributable to
asset dispositions other than in the ordinary course of business (as determined
in good faith by the Board of Directors of the Company) shall be excluded, (v)
the Net Income for such period of any Person that is not a Subsidiary, or is an
Unrestricted Subsidiary, or that is accounted for by the equity method of
accounting, shall be included only to the extent of the amount of dividends or
distributions or other payments paid in cash (or to the extent converted into
cash) to the referent Person or a Wholly Owned Restricted Subsidiary thereof in
respect of such period, (vi) the Net Income of any Person acquired in a pooling
of interests transaction shall not be included for any period prior to the date
of such acquisition and (vii) the Net Income for such period of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of its Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or indirectly,
by the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders, unless such restriction with
respect to the payment of dividends or in similar distributions has been legally
waived.
"Contingent Obligations" means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the
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primary obligor, or (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation
against loss in respect thereof.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Designated Preferred Stock" means preferred stock of the Company (other
than Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of the Company, on the issuance date thereof, the
cash proceeds of which are excluded from the calculation set forth in paragraph
(c) of the "Restricted Payments" covenant.
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which, by its terms (or by the terms of any security into which it
is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, in each case prior to the date 91 days after the
maturity date of the Exchange Notes; PROVIDED, HOWEVER, that if such Capital
Stock is issued to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall not
constitute Disqualified Stock solely because it may be required to be
repurchased by the Company in order to satisfy applicable statutory or
regulatory obligations.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus (a) provision for taxes based on
income or profits of such Person for such period deducted in computing
Consolidated Net Income, plus (b) Consolidated Interest Expense of such Person
for such period, plus (c) Consolidated Depreciation and Amortization Expense of
such Person for such period to the extent such depreciation and amortization
were deducted in computing Consolidated Net Income, plus (d) any expenses or
charges related to any Equity Offering or Indebtedness permitted to be incurred
by the Indenture (including such expenses or charges related to the Merger and
the Financings) and deducted in such period in computing Consolidated Net
Income, plus (e) the amount of any restructuring charge or reserve deducted in
such period in computing Consolidated Net Income, plus (f) without duplication,
any other non-cash charges reducing Consolidated Net Income for such period
(excluding any such charge which requires an accrual of a cash reserve for
anticipated cash charges for any future period), less (g) without duplication,
non-cash items increasing Consolidated Net Income of such Person for such period
(excluding any items which represent the reversal of any accrual of, or cash
reserve for, anticipated cash charges in any prior period).
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public or private sale of common stock or
preferred stock of the Company (excluding Disqualified Stock), other than public
offerings with respect to the Company's Common Stock registered on Form S-8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
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"Existing Indebtedness" means Indebtedness of the Company or its Restricted
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Exchange Notes as
described in this Prospectus.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness
(other than in the case of revolving credit borrowings, in which case interest
expense shall be computed based upon the average daily balance of such
Indebtedness during the applicable period) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter period. For purposes of making the
computation referred to above, Investments, acquisitions, dispositions, mergers,
consolidations and discontinued operations (as determined in accordance with
GAAP) that have been made by the Company or any of its Restricted Subsidiaries
during the four-quarter reference period or subsequent to such reference period
and on or prior to or simultaneously with the Calculation Date shall be
calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, discontinued operations, mergers and consolidations
(and the reduction of any associated fixed charge obligations and the change in
EBITDA resulting therefrom) had occurred on the first day of the four-quarter
reference period. If since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition, discontinued operation,
merger or consolidation that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto for such period as if such Investment, acquisition,
disposition, discontinued operation, merger or consolidation had occurred at the
beginning of the applicable four-quarter period. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the Calculation Date had been
the applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Indebtedness). Interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by a responsible financial or accounting officer of the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP. For purposes of making the computation referred to above, interest on any
Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period. Interest on Indebtedness that may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rate, shall be deemed to have been
based upon the rate actually chosen, or, if none, then based upon such optional
rate chosen as the Company may designate.
"Fixed Charges" means, with respect to any Person for any period, the sum of
(a) Consolidated Interest Expense of such Person for such period and (b) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person.
"Foreign Subsidiary" means a Restricted Subsidiary not organized or existing
under the laws of the United States, any State thereof, the District of Columbia
or any territory thereof.
"GAAP" means 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
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statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on the
Issuance Date. For the purposes of the Indenture, the term "consolidated" with
respect to any Person shall mean such Person consolidated with its Restricted
Subsidiaries, and shall not include any Unrestricted Subsidiary.
"Government Securities" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"Guarantee" means any guarantee of the obligations of the Company under the
Indenture and the Exchange Notes by any Person in accordance with the provisions
of the Indenture. When used as a verb, "Guarantee" shall have a corresponding
meaning. No Guarantees will be issued in connection with the initial offering
and sale of the Exchange Notes.
"Guarantor" means any Person that incurs a Guarantee; provided that upon the
release and discharge of such Person from its Guarantee in accordance with the
Indenture, such Person shall cease to be a Guarantor. No Guarantees will be
issued in connection with the initial offering and sale of the Exchange Notes.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"Holder" means a holder of the Exchange Notes.
"Indebtedness" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes a trade payable or
similar obligation to a trade creditor, in each case accrued in the ordinary
course of business or (iv) representing any Hedging Obligations, if and to the
extent of any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) that would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, (b) to the extent not otherwise
included, any obligation by such Person to be liable for, or to pay, as obligor,
guarantor or otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business) and (c) to the extent not otherwise included, Indebtedness of another
Person secured by a Lien on any asset owned by such Person (whether or not such
Indebtedness is assumed by such Person); PROVIDED, HOWEVER, that Contingent
Obligations incurred in the ordinary course of business shall be deemed not to
constitute Indebtedness.
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"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the judgment of the Company's Board
of Directors, qualified to perform the task for which it has been engaged.
"Investment Grade Securities" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding advances to customers,
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
of the Company in the same manner as the other investments included in this
definition to the extent such transactions involve the transfer of cash or other
property. For purposes of the definition of "Unrestricted Subsidiary" and the
covenant described under "--Certain Covenants--Restricted Payments," (i)
"Investments" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issuance Date" means the closing date for the sale and original issuance of
the Old Notes under the Indenture.
"Letter of Credit/Bankers' Acceptance Obligations" means Indebtedness of the
Company or any of its Restricted Subsidiaries with respect to letters of credit
or bankers' acceptances constituting Senior Indebtedness or Pari Passu
Indebtedness which shall be deemed to consist of (i) the aggregate maximum
amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), (ii) the aggregate face amount of all unmatured bankers'
acceptances and (iii) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit or creation of such
bankers' acceptances.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction); provided that in
no event shall an operating lease be deemed to constitute a Lien.
"Management Group" means the group consisting of the Officers of the
Company.
"Moody's" means Moody's Investors Service, Inc.
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"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and brokerage and sales commissions),
and any relocation expenses incurred as a result thereof, taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of principal, premium (if any) and interest on Indebtedness
required (other than required by clause (i) of the second paragraph of
"--Repurchase at the Option of Holders--Asset Sales") to be paid as a result of
such transaction and any deduction of appropriate amounts to be provided by the
Company as a reserve in accordance with GAAP against any liabilities associated
with the asset disposed of in such transaction and retained by the Company after
such sale or other disposition thereof, including, without limitation, pension
and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"Oaktree" means Oaktree Capital Management, LLC, a California limited
liability company.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Officer" means the Chairman of the Board, the President, any Executive Vice
President or Vice President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company that meets the requirements set forth in the
Indenture.
"Pari Passu Indebtedness" means (a) with respect to the Exchange Notes,
Indebtedness which ranks pari passu in right of payment to the Exchange Notes
and (b) with respect to any Guarantee, Indebtedness which ranks pari passu in
right of payment to such Guarantee.
"Permitted Holders" means Oaktree, KKR and any of their Affiliates and the
Management Group.
"Permitted Investments" means (a) any Investment in the Company or any
Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or
Investment Grade Securities; (c) any Investment by the Company or any Restricted
Subsidiary of the Company in a Person that is a Similar Business if as a result
of such Investment (i) such Person becomes a Restricted Subsidiary or (ii) such
Person, in one transaction or a series of related transactions, is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Restricted
Subsidiary; (d) any Investment in securities or other assets not constituting
cash or Cash Equivalents and received in connection with an Asset Sale made
pursuant to the provisions of "--Repurchase at the Option of Holders--Asset
Sales" or any other disposition of assets not constituting an Asset Sale; (e)
any Investment existing on the Issuance Date; (f) advances to employees not in
excess of $10 million outstanding at any one time; (g) any Investment acquired
by the Company or any of its Restricted Subsidiaries (i) in exchange for any
other Investment or accounts receivable held by the Company or any such
Restricted Subsidiary in connection with or as a result of a bankruptcy,
workout, reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (ii) as a result of a foreclosure by the
Company or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured Investment in
default; (h) Hedging Obligations permitted under clause (j) of the "Limitation
of Incurrence of Indebtedness and Issuance of Disqualified Stock" covenant; (i)
loans and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in each case
incurred in the ordinary course of
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business; (j) any Investment in a Similar Business (other than an Investment in
an Unrestricted Subsidiary) having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (j) that are at
that time outstanding, not to exceed the greater of (x) $80 million or (y) 15%
of Total Assets at the time of such Investment (with the fair market value of
each Investment being measured at the time made and without giving effect to
subsequent changes in value); (k) Investments the payment for which consists of
Equity Interests of the Company (exclusive of Disqualified Stock); PROVIDED,
HOWEVER, that such Equity Interests will not increase the amount available for
Restricted Payments under clause (c) of the "Restricted Payments" covenant; (l)
additional Investments having an aggregate fair market value, taken together
with all other Investments made pursuant to this clause (l) that are at that
time outstanding, not to exceed the greater of (x) $25 million or (y) 5% of
Total Assets at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value); (m) any transaction to the extent it constitutes
an investment that is permitted by and made in accordance with the provisions of
the second paragraph of the covenant described under "--Certain
Covenants--Transactions with Affiliates" (except transactions described in
clauses (ii) and (vi) of such paragraph); (n) any Investment by Restricted
Subsidiaries in other Restricted Subsidiaries and Investments by Subsidiaries
that are not Restricted Subsidiaries in other Subsidiaries that are not
Restricted Subsidiaries; and (o) Investments in any special purpose, Wholly
Owned Subsidiary of the Company organized after the Issuance Date in connection
with a Real Estate Financing Transaction that, in the good faith determination
of the Board of Directors of the Company, are necessary or advisable to effect
such Real Estate Financing Transaction.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"preferred stock" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"Real Estate Financing Transaction" means a financing or series of
financings consisting principally of one or more mortgage financings, real
estate sale or leaseback transactions or an asset-backed program based on real
estate owned by the Company or any of its Subsidiaries (funded by the issuance
of commercial paper, medium term notes or other forms of borrowing and including
credit enhancement facilities), and which may consist of or include such other
forms of financing consistent with the foregoing as the Board of Directors of
the Company shall approve in good faith.
"Related Parties" means any Person controlled by a Permitted Holder,
including any partnership of which a Permitted Holder or its Affiliates is the
general partner.
"Repurchase Offer" means an offer made by the Company to purchase all or any
portion of a Holder's Exchange Notes pursuant to the provisions described under
the covenants entitled "--Repurchase at the Option of Holders--Change of
Control" or "--Repurchase at the Option of Holders--Asset Sales."
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon the occurrence of any Unrestricted Subsidiary ceasing to be
an Unrestricted Subsidiary, such Subsidiary shall be included in the definition
of "Restricted Subsidiary."
"S&P" means Standard and Poor's Ratings Group.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Senior Credit Facility" means that certain credit facility described in
this Prospectus among the Company and the lenders from time to time party
thereto, including any collateral documents, instruments and agreements executed
in connection therewith, and the term Senior Credit Facility shall also
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include any amendments, supplements, modifications, extensions, renewals,
restatements or refundings thereof and any credit facilities that replace,
refund or refinance any part of the loans, other credit facilities or
commitments thereunder, including any such replacement, refunding or refinancing
facility that increases the amount borrowable thereunder or alters the maturity
thereof, PROVIDED, HOWEVER, that there shall not be more than one facility at
any one time that constitutes the Senior Credit Facility and, if at any time
there is more than one facility which would constitute the Senior Credit
Facility, the Company will designate to the Trustee which one of such facilities
will be the Senior Credit Facility for purposes of the Indenture.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issuance
Date.
"Similar Business" means a business, the majority of whose revenues are
derived from preschool and child care services, or from any educational
activities, or whose revenues are derived from the licensing of the KinderCare
name, or any business or activity that is reasonably similar thereto or a
reasonable extension, development or expansion thereof or ancillary thereto,
including, without limitation, educational materials, clothes, toys, and other
similar consumer products, as well as the operation of primary and private
schools.
"Subordinated Indebtedness" means (a) with respect to the Exchange Notes,
any Indebtedness of the Company which is by its terms subordinated in right of
payment to the Exchange Notes and (b) with respect to any Guarantee, any
Indebtedness of the applicable Guarantor which is by its terms subordinated in
right of payment to such Guarantee.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
Person or any Wholly Owned Restricted Subsidiary of such Person is a controlling
general partner or otherwise controls such entity.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of the Company, as provided below) and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any existing Subsidiary and any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Equity Interests of, or
owns, or holds any Lien on, any property of, the Company or any Subsidiary of
the Company (other than any Subsidiary of the Subsidiary to be so designated),
provided that (a) any Unrestricted Subsidiary must be an entity of which shares
of the capital stock or other equity interests (including partnership interests)
entitled to cast at least a majority of the votes that may be cast by all shares
or equity interests having ordinary voting power for the election of directors
or other governing body are owned, directly or indirectly, by the Company, (b)
the Company certifies that such designation complies with the covenants
described under "--Certain Covenants--Restricted Payments" and (c) each of (I)
the Subsidiary to be so designated and (II) its Subsidiaries has not at the time
of designation, and does not thereafter, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to any
Indebtedness pursuant to which the lender has recourse to
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any of the assets of the Company or any of its Restricted Subsidiaries. The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that, immediately after giving effect to such designation,
the Company could incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test described under "--Certain
Covenants--Limitations on Incurrence of Indebtedness and Disqualified Stock" on
a pro forma basis taking into account such designation. Any such designation by
the Board of Directors shall be notified by the Company to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" means, with respect to any Person, any class or series of
capital stock of such Person that is ordinarily entitled to vote in the election
of directors thereof at a meeting of stockholders called for such purpose,
without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
BOOK-ENTRY DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described in the next paragraph, the Exchange Notes
initially will be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (the "Global Exchange
Note") and will be deposited with the Trustee as custodian for The Depository
Trust Company, New York, New York ("DTC") and registered in the name of a
nominee of DTC.
Exchange Notes held by persons who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered certificated form (a "Certificated Exchange Note"). Upon the transfer
of any Certificated Exchange Note initially issued to a Non-Global Holder, such
Certificated Exchange Note will, unless the transferee requests otherwise or a
Global Exchange Note has previously been exchanged in whole for Certificated
Exchange Notes, be exchanged for an interest in such Global Exchange Note.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provision of Section 17A of the Exchange Act. DTC was created to hold securities
for its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Upon the issuance of the Global Exchange Note, DTC or its custodian will
credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by such Global
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Exchange Note to the accounts of persons who have accounts with such depositary.
Such accounts initially will be designated by or on behalf of the Initial
Purchasers. Ownership of beneficial interests in the Global Exchange Note will
be limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. Ownership of beneficial interests in the
Global Exchange Note will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC or its nominee is the registered owner or holder of the
Global Exchange Note, DTC or such nominee, as the case may be, will be
considered the sole record owner or holder of the Exchange Notes represented by
such Global Exchange Note for all purposes under the Indenture and the Exchange
Notes. No beneficial owners of an interest in the Global Exchange Note will be
able to transfer that interest except in accordance with DTC's applicable
procedures.
The Company understands that, under existing industry practices, in the
event that the Company requests any action of Holders, or an owner of a
beneficial interest in such permanent Global Exchange Note desires to give or
take any action (including a suit for repayment of principal, premium or
interest) that a Holder is entitled to give or take under the Notes, DTC would
authorize the participants holding the relevant beneficial interests to give or
take such action, and such participants would authorize beneficial owners owning
through such participants to give or take such action or would otherwise act
upon the instruction of beneficial owners owning through them.
Payments of the principal of, premium, if any, and interest on the Global
Exchange Note will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. Neither the Company, the Trustee, nor any paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Exchange Note or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Exchange Note
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial ownership interests in the principal amount of such
Global Exchange Note, as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
such Global Exchange Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a Holder requires physical delivery of
Certificated Exchange Notes for any reason, including to sell Exchange Notes to
persons in states which require such delivery of such Exchange Notes or to
pledge such Exchange Notes, such holder must transfer its interest in the Global
Exchange Note, in accordance with the normal procedures of DTC and the
procedures set forth in the Indenture.
Neither the Company nor the Trustee will have any responsibility for the
performance by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Subject to certain conditions, any person having a beneficial interest in
the Global Exchange Note may, upon request to the Trustee, exchange such
beneficial interest for Exchange Notes in the form of Certificated Exchange
Notes. Upon any such issuance, the Trustee is required to register such
Certificated Exchange Notes in the name of, and cause the same to be delivered
to, such person or persons (or the nominee of any thereof). In addition, if DTC
is at any time unwilling or unable to continue as a depositary for the Global
Exchange Note and a successor depositary is not appointed by the Company within
90 days, the Company will issue Certificated Exchange Notes in exchange for the
Global Exchange Note.
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EXCHANGE OFFER; REGISTRATION RIGHTS
EXCHANGE OFFER. The Company and the Initial Purchasers entered into the
Registration Rights Agreement on the Issuance Date, pursuant to which the
Company agreed, for the benefit of the holders of the Old Notes, that it will,
at its own expense, (i) file the Exchange Offer Registration Statement with the
Commission with respect to the Exchange Offer to exchange the Old Notes for
Exchange Notes having substantially identical terms in all material respects to
the Old Notes (except that the Exchange Notes will not contain terms with
respect to transfer restrictions or interest rate increases as described herein)
within 45 calendar days after the Issuance Date, (ii) use its best efforts to
cause the Exchange Offer Registration Statement to be declared effective by the
Commission under the Securities Act within 150 calendar days after the Issuance
Date and (iii) use its best efforts to consummate the Exchange Offer within 180
calendar days after the Issuance Date. Upon the Exchange Offer Registration
Statement being declared effective, the Company will offer the Exchange Notes in
exchange for surrender of the Old Notes. The Company will keep the Exchange
Offer open for at least 20 business days (or longer if required by applicable
law) after the date that notice of the Exchange Offer is mailed to the holders
of the Old Notes. For each Old Note surrendered to the Company pursuant to the
Exchange Offer, the holder who surrendered such Old Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Old
Note. Interest on each Exchange Note will accrue from the last interest payment
date on which interest was paid on the Old Note surrendered in exchange therefor
or, if no interest has been paid on such Old Note, from the original issue date
of such Exchange Note. Under existing interpretations of the staff of the
Commission contained in several no-action letters to third parties, the Exchange
Notes would generally be freely transferable after the Exchange Offer without
further registration under the Securities Act (subject to certain
representations required to be made by each holder of Old Notes, as set forth
below). However, any purchaser of Old Notes who is an "affiliate" of the Company
or who intends to participate in the Exchange Offer for the purpose of
distributing the Exchange Notes (i) will not be able to rely on the
interpretations of the staff of the Commission, (ii) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or transfer of the Old Notes unless such sale or transfer is made
pursuant to an exemption from such requirements. In addition, in connection with
any resales of Exchange Notes, any broker-dealer (a "Participating
Broker-Dealer") which acquired the Old Notes for its own account as a result of
market making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Old Notes) with the prospectus contained in the
Exchange Offer Registration Statement. The Company has agreed to make available
for a period of up to 120 days after consummation of the Exchange Offer a
prospectus meeting the requirements of the Securities Act to any Participating
Broker-Dealer and any other persons, if any, with similar prospectus delivery
requirements, for use in connection with any resale of Exchange Notes. A
Participating Broker-Dealer or any other person that delivers such a prospectus
to purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations thereunder).
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be
required to make certain representations, including representations that (i) any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business, (ii) it has no arrangement or understanding with any person to
participate in the distribution (within the meaning of the Securities Act) of
the Exchange Notes, (iii) it is not an "affiliate" (as defined in Rule 405 under
the Securities Act) of the Company or, if it is such an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable and (iv) it is not acting on behalf of
any person who could not truthfully make the foregoing representations.
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SHELF REGISTRATION. In the event that (i) any changes in law or the
applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer, (ii) for any other reason the Exchange
Offer is not consummated within 180 calendar days after the Issuance Date, (iii)
under certain circumstances, if the Initial Purchasers shall so request or (iv)
any holder of Old Notes (other than the Initial Purchasers) is not eligible to
participate in the Exchange Offer, the Company will, at its expense, (a) as
promptly as reasonably practicable file the Shelf Registration Statement
covering resales of the Old Notes, (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act by the
180th calendar day after the Issuance Date and (c) use its best efforts to keep
effective the Shelf Registration Statement until the earlier of three years from
the Issuance Date (or one year from the date the Shelf Registration Statement is
declared effective if such Shelf Registration Statement is filed upon the
request of any Initial Purchaser pursuant to clause (iii) above) or such shorter
period ending when all Old Notes covered by the Shelf Registration Statement
have been sold in the manner set forth and as contemplated in the Shelf
Registration Statement or when the Old Notes become eligible for resale pursuant
to Rule 144 under the Securities Act without volume restrictions, if any. The
Company, will, in the event of the filing of the Shelf Registration Statement,
provide to each holder of the Old Notes copies of the prospectus which is a part
of the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Old Notes. A holder of Old
Notes that sells its Old Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to such a holder (including certain
indemnification rights and obligations thereunder). In addition, each holder of
the Old Notes will be required to deliver information to be used in connection
with the Shelf Registration Statement and to provide comments on the Shelf
Registration Statement within the time periods set forth in the Registration
Rights Agreement in order to have their Old Notes included in the Shelf
Registration Statement and to benefit from the provisions regarding liquidated
damages set forth in the following paragraph.
Although the Company intends to file the registration statements described
above, as required, there can be no assurance that such registration statements
will be filed, or, if filed, that they will become effective. In the event that
(a) the Exchange Offer Registration Statement is not filed with the Commission
on or prior to the 45th calendar day following the Issuance Date, (b) the
Exchange Offer Registration Statement has not been declared effective on or
prior to the 150th calendar day following the Issuance Date or (c) the Exchange
Offer is not consummated or a Shelf Registration Statement is not declared
effective on or prior to the 180th calendar day following the Issuance Date, the
interest rate borne by the Old Notes shall be increased by one-quarter of one
percent per annum following such 45-day period in the case of clause (a) above,
following such 150-day period in the case of clause (b) above or following such
180-day period in the case of clause (c) above, which rate will be increased by
an additional one-quarter of one percent per annum for each 90-day period that
any additional interest continues to accrue; provided that the aggregate
increase in such annual interest rate may in no event exceed one percent. Upon
(x) the filing of the Exchange Offer Registration Statement after the 45-day
period described in clause (a) above, (y) the effectiveness of the Exchange
Offer Registration Statement after the 150-day period described in clause (b)
above or (z) the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, as the case may be, after the 180-day period
described in clause (c) above, the interest rate borne by the Old Notes from the
date of such filing, effectiveness or consummation, as the case may be, will be
reduced to the original interest rate if the Company is otherwise in compliance
with this paragraph; PROVIDED, HOWEVER, that if, after any such reduction in
interest rate, a different event specified in clause (a), (b) or (c) above
occurs, the interest rate may again be increased and thereafter reduced pursuant
to the foregoing provisions. Pending the announcement of a material corporate
transaction, if the Company issues a notice that the Shelf Registration
Statement
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is unusable, or such a notice is required under applicable securities laws to be
issued by the Company, and the aggregate number of days in any consecutive
twelve-month period for which all such notices are issued or required to be
issued exceeds 30 days in the aggregate, then the interest rate borne by the Old
Notes will be increased by one-quarter of one percent per annum following the
date that such Shelf Registration Statement ceases to be usable beyond the
30-day period permitted above, which rate shall be increased by an additional
one-quarter of one percent per annum at the beginning of each subsequent 90-day
period that such additional interest continues to accrue; provided that the
aggregate increase in such annual interest rate may in no event exceed one
percent per annum. Upon the Company declaring that the Shelf Registration
Statement is usable after the period of time described in the preceding
sentence, the interest rate borne by the Old Notes will be reduced to the
original interest rate if the Company is otherwise in compliance with this
paragraph; PROVIDED, HOWEVER, that if after any such reduction in interest rate
the Shelf Registration Statement again ceases to be usable beyond the period
permitted above, the interest rate may again be increased and thereafter reduced
pursuant to the foregoing provisions.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement. The
Registration Rights Agreement is an exhibit to the Registration Statement of
which this Prospectus is a part.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for Exchange Notes should not constitute
recognition events for federal income tax purposes. Consequently, no gain or
loss should be recognized by Holders upon receipt of the Exchange Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of
Exchange Notes, a Holder's basis in Exchange Notes should be the same as such
Holder's basis in the Old Notes exchanged therefor. Holders should be considered
to have held the Exchange Notes from the time of their original acquisition of
the Old Notes.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR EXCHANGE
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTIONS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. To the extent any such broker-dealer participates in
the Exchange Offer and so notifies the Company, or causes the Company to be so
notified in writing, the Company has agreed that a period of 120 days after the
date of this Prospectus, it will make this Prospectus, as amended or
supplemented, available to such broker-dealer for use in connection with any
such resale, and will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at prevailing market prices at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers or any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Exchange Offer
(other than commissions and concessions of any broker-dealers), subject to
certain prescribed limitations, and will indemnify the holders of the Old Notes
against certain liabilities, including certain liabilities that may arise under
the Securities Act.
By its acceptance of the Exchange Offer, any broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer of
Exchange Notes, and acknowledges and agrees that, upon receipt of notice from
the Company of the happening of any event which makes any statement in the
Prospectus untrue in any material respect or which requires the making of any
changes in the Prospectus in order to make the statements therein not misleading
or which may impose upon the Company disclosure obligations that may have a
material adverse effect on the Company (which notice the Company agrees to
deliver promptly to such broker-dealer), such broker-dealer will suspend use of
the Prospectus until the Company has notified such broker-dealer that delivery
of the Prospectus may resume and has furnished copies of any amendment or
supplement to the Prospectus to such broker-dealer.
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LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Alston & Bird,
Atlanta, Georgia and by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York.
EXPERTS
The consolidated balance sheets as of May 31, 1996 and June 2, 1995 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended May 31, 1996, June 2, 1995, and June 3, 1994 of
KinderCare Learning Centers, Inc. have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference and shall be deemed to be a part hereof:
1. Annual Report of the Company on Form 10-K for the year ended May 31,
1996 (as amended by Form 10-K/A filed with the Commission on September 30,
1996);
2. Current Reports of the Company on Form 8-K dated October 3, 1996,
November 14, 1996, December 27, 1996 and February 13, 1997; and
3. Quarterly Reports of the Company on Form 10-Q for the sixteen weeks
ended September 20, 1996 and for the twelve weeks ended December 13, 1996.
All documents and reports filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus shall be deemed incorporated herein by reference and shall be deemed
to be a part hereof from the date of filing of such documents and reports. 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 Prospectus to the extent that a statement contained herein or in any
subsequently filed document or report 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 a part of this Prospectus.
The Company will provide, without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits, unless such exhibits specifically are
incorporated by reference into such documents or this Prospectus). Requests for
such documents should be submitted in writing, addressed to the Corporate
Secretary, KinderCare Learning Centers, Inc., 2400 Presidents Drive, Montgomery,
Alabama 36116.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Financial Statements
Independent Auditors' Report....................................................... F-2
Consolidated Statements of Operations for the fiscal years ended May 31, 1996, June
2, 1995, and June 3, 1994........................................................ F-3
Consolidated Balance Sheets as of May 31, 1996 and June 2, 1995.................... F-4
Consolidated Statements of Shareholders' Equity for the fiscal years ended May 31,
1996, June 2, 1995, and June 3, 1994............................................. F-5
Consolidated Statements of Cash Flows for the fiscal years ended May 31, 1996, June
2, 1995, and June 3, 1994........................................................ F-6
Notes to Consolidated Financial Statements......................................... F-7
Unaudited Consolidated Financial Statements
Consolidated Statements of Operations for the (unaudited) twelve weeks and
twenty-eight weeks ended December 13, 1996 and December 15, 1995................. F-19
Consolidated Balance Sheet as of (unaudited) December 13, 1996..................... F-20
Consolidated Statements of Cash Flows for the (unaudited) twenty-eight weeks ended
December 13, 1996 and December 15, 1995.......................................... F-21
Notes to Unaudited Consolidated Financial Statements............................... F-22
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
KinderCare Learning Centers, Inc.:
We have audited the consolidated balance sheets of KinderCare Learning Centers,
Inc. and subsidiaries as of May 31, 1996 and June 2, 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the years ended May 31, 1996, June 2, 1995, and June 3, 1994. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of KinderCare Learning
Centers, Inc. and subsidiaries as of May 31, 1996 and June 2, 1995, and the
results of their operations and their cash flows for the years ended May 31,
1996, June 2, 1995, and June 3, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, during the year
ended May 31, 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121 and changed its method of accounting for the
impairment of long-lived assets and for long-lived assets to be disposed of.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
August 9, 1996
F-2
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JUNE 3, 1994 JUNE 2, 1995 MAY 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues.................................................. $ 488,726 $ 506,505 $ 541,264
Operating expenses:
Salaries, wages and benefits...................................... 256,468 263,527 284,115
Depreciation...................................................... 25,148 28,071 33,972
Rent.............................................................. 22,563 26,099 26,515
Provision for allowance for doubtful accounts..................... 3,885 3,612 3,908
Other............................................................. 133,496 135,298 139,561
Litigation settlements and restructuring costs (income), net...... -- (888) 1,484
------------- ------------- -------------
Total operating expenses........................................ 441,560 455,719 489,555
------------- ------------- -------------
Operating income.................................................... 47,166 50,786 51,709
Net investment income............................................... 3,176 2,635 250
Interest expense.................................................... 17,675 17,318 16,727
------------- ------------- -------------
Income before income taxes and extraordinary item................... 32,667 36,103 35,232
Income tax expense.................................................. 12,837 14,037 13,549
------------- ------------- -------------
Income before extraordinary item.................................... 19,830 22,066 21,683
Extraordinary item -- loss on debt discharge, net of income taxes of
$1,597 in 1994.................................................... (2,397) -- --
Net income...................................................... $ 17,433 $ 22,066 $ 21,683
------------- ------------- -------------
------------- ------------- -------------
Primary income per common share:
Income before extraordinary item.................................. $ .97 $ 1.07 $ 1.10
Extraordinary item -- loss on debt discharge.................... (.12) -- --
------------- ------------- -------------
Net income...................................................... $ .85 $ 1.07 $ 1.10
------------- ------------- -------------
------------- ------------- -------------
Weighted average common shares and share equivalents................ 20,533 20,683 19,752
------------- ------------- -------------
------------- ------------- -------------
Fully-diluted income per common share:
Net income...................................................... $ 1.05
-------------
-------------
Weighted average common shares and share equivalents............ 20,683
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
JUNE 2,
1995 MAY 31, 1996
----------- ------------
Current assets:
Cash and cash equivalents............................................... $ 14,233 $ 15,597
Receivables:
Tuition (net of allowance for doubtful accounts of $873 and $1,884 at
June 2, 1995 and May 31, 1996, respectively)........................ 9,913 14,566
Other................................................................. 1,156 563
Prepaid expenses and supplies........................................... 8,282 9,116
Deferred income taxes................................................... 2,099 4,664
----------- ------------
Total current assets................................................ 35,683 44,506
----------- ------------
Property and equipment, at cost:
Land.................................................................... 135,965 142,856
Buildings and leasehold improvements.................................... 269,938 305,292
Equipment............................................................... 78,414 96,216
Construction in progress................................................ 13,373 16,825
----------- ------------
497,690 561,189
Less accumulated depreciation and amortization........................ 55,244 92,664
----------- ------------
Net property and equipment............................................ 442,446 468,525
----------- ------------
Investments............................................................... 1,981 --
Deferred income taxes..................................................... 9,502 4,422
Other assets.............................................................. 11,662 8,023
----------- ------------
$ 501,274 $ 525,476
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 12,639 $ 14,330
Bank overdrafts......................................................... 7,017 9,768
Current portion of long-term debt....................................... 889 853
Accrued expenses and other liabilities.................................. 45,926 51,163
----------- ------------
Total current liabilities........................................... 66,471 76,114
Long-term debt............................................................ 159,505 145,764
Self insurance liabilities................................................ 17,927 17,652
Other noncurrent liabilities.............................................. 13,132 20,488
----------- ------------
Total liabilities................................................... 257,035 260,018
----------- ------------
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; none
outstanding........................................................... -- --
Common stock, $.01 par value; authorized 40,000,000 shares; issued
20,119,818 and 19,981,807 shares at June 2, 1995 and May 31, 1996,
respectively; outstanding 20,119,818 and 19,946,807 shares at June 2,
1995 and May 31, 1996, respectively................................... 201 199
Additional paid-in capital................................................ 203,890 204,003
Retained earnings......................................................... 40,116 61,799
Cumulative translation adjustment......................................... 32 (20)
----------- ------------
244,239 265,981
Less treasury stock, at cost (35,000 common shares at May 31, 1996)....... -- (523)
----------- ------------
Total shareholders' equity.......................................... 244,239 265,458
----------- ------------
$ 501,274 $ 525,476
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON COMMON PAID-IN RETAINED TRANSLATION TREASURY
SHARES STOCK CAPITAL EARNINGS ADJUSTMENT STOCK
------------- ------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 28, 1993................... 20,000,190 200 178,670 617 --
Net income.............................. -- -- -- 17,433 --
Tax benefits of the valuation allowance
for deferred tax assets............... -- -- 9,884 -- --
Exercise of stock options and
warrants.............................. 9,327 -- 101 --
--
------------- --- ----------- ----------- ---
Balance at June 3, 1994................... 20,009,517 200 188,655 18,050 --
Net income.............................. -- -- -- 22,066 -- --
Tax benefits of the valuation allowance
for deferred tax assets............... -- -- 13,932 -- -- --
Cumulative translation adjustment....... -- -- -- -- 32 --
Exercise of stock options and
warrants.............................. 110,301 1 1,303 -- -- --
--
------------- --- ----------- ----------- ---
Balance at June 2, 1995................. 20,119,818 201 203,890 40,116 32 --
Net income.............................. -- -- -- 21,683 -- --
Tax benefits of the valuation allowance
for deferred tax assets............... -- -- 4,121 -- -- --
Cumulative translation adjustment....... -- -- -- -- (52) --
Tax benefit of option exercises......... -- -- 993 -- -- --
Repurchase and retirement of stock and
warrants.............................. (969,883) (10) (13,477) -- -- (523)
Exercise of stock options and
warrants.............................. 831,872 8 8,476 -- --
--
------------- --- ----------- ----------- ---
Balance at May 31, 1996................. 19,981,807 199 204,003 61,799 (20) (523)
--
--
------------- --- ----------- ----------- ---
------------- --- ----------- ----------- ---
<CAPTION>
TOTAL
---------
<S> <C>
Balance at May 28, 1993................... 179,487
Net income.............................. 17,433
Tax benefits of the valuation allowance
for deferred tax assets............... 9,884
Exercise of stock options and
warrants.............................. 101
---------
Balance at June 3, 1994................... 206,905
Net income.............................. 22,066
Tax benefits of the valuation allowance
for deferred tax assets............... 13,932
Cumulative translation adjustment....... 32
Exercise of stock options and
warrants.............................. 1,304
---------
Balance at June 2, 1995................. 244,239
Net income.............................. 21,683
Tax benefits of the valuation allowance
for deferred tax assets............... 4,121
Cumulative translation adjustment....... (52)
Tax benefit of option exercises......... 993
Repurchase and retirement of stock and
warrants.............................. (14,010)
Exercise of stock options and
warrants.............................. 8,484
---------
Balance at May 31, 1996................. 265,458
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JUNE 3, JUNE 2, MAY 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss)....................................................... $ 17,433 $ 22,066 $ 21,683
Operating activities not requiring (providing) cash:
Depreciation.......................................................... 25,148 28,071 33,972
Write-down of Kid's Choice-TM- property and equipment................. -- -- 5,312
Amortization of intangibles and other assets.......................... 95 1,681 1,533
Amortization of debt premium/discount................................. (165) -- --
Gain on sales and disposals of property and equipment, net............ -- -- (1,684)
Gain on sale of Sylvan Learning Corporation........................... (1,900) -- --
Deferred tax expense.................................................. 10,342 9,862 12,285
Equity in earnings of leveraged preferred stock partnerships and other
investments......................................................... (49) (24) --
Extraordinary item-loss on debt discharge............................. 2,397 -- --
Changes in operating assets and liabilities:
Receivables......................................................... (519) 4,440 (2,473)
Prepaid expenses and supplies....................................... 680 2,900 (1,354)
Other assets........................................................ 6,900 (978) 116
Accounts payable, accrued expenses and other liabilities............ 12,598 7,813 7,735
Other, net............................................................ 1,391 (2,868) (1,228)
----------- ----------- -----------
Net cash provided by operating activities................................. 74,351 72,963 75,897
----------- ----------- -----------
Cash flow from investing activities:
Purchases of property and equipment................................... (35,710) (74,376) (67,304)
Proceeds from sales of property and equipment......................... 4,253 12,454 3,883
Proceeds from sales or redemption of investments...................... 1,759 2,211 3,396
Proceeds from collection of notes receivable.......................... 2,042
Proceeds from the sale of Sylvan Learning Corporation................. 3,150 -- --
Other, net............................................................ (156) 82 --
----------- ----------- -----------
Net cash used by investing activities..................................... (26,704) (59,629) (57,983)
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock and warrants............................... -- -- (14,010)
Payments on long-term borrowings...................................... (179,097) (18,298) (13,777)
Exercise of stock options and warrants................................ 101 1,303 8,484
Bank overdrafts....................................................... (11,224) 5,931 2,753
Proceeds from long-term borrowings.................................... 130,504 -- --
----------- ----------- -----------
Net cash used by financing activities..................................... (59,716) (11,064) (16,550)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents.......................... (12,069) 2,270 1,364
Cash and cash equivalents at the beginning of the period.................. 24,032 11,963 14,233
----------- ----------- -----------
Cash and cash equivalents at the end of the period........................ $ 11,963 $ 14,233 $ 15,597
----------- ----------- -----------
----------- ----------- -----------
Supplemental cash flow information:
Interest paid (net of amounts capitalized).............................. $ 19,835 $ 14,850 $ 8,944
----------- ----------- -----------
----------- ----------- -----------
Income taxes paid....................................................... $ 8,352 $ 2,551 $ 3,795
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
KinderCare Learning Centers, Inc. ("KinderCare" or the "Company") is the
largest preschool and child care company in the United States. At the end of
fiscal 1996, KinderCare operated 1,147 centers in 38 states in the United States
and one center in the United Kingdom. The consolidated financial statements
include the financial statements of the "Company" and its wholly owned
subsidiaries: Mini-Skools Limited ("Mini-Skools"); KinderCare Development
Corporation; KinderCare Real Estate; KinderCare Learning Centres, Limited; and
KinderCare Properties, Limited. All significant intercompany balances and
transactions have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Friday closest to May 31. The first
quarter is 16 weeks long and the second, third, and fourth quarters are each
twelve weeks long. The fiscal year ended June 3, 1994 ("fiscal 1994") was a
53-week fiscal year. The fiscal years ended June 2, 1995 ("fiscal 1995") and May
31, 1996 ("fiscal 1996") were 52-week fiscal years.
REVENUE RECOGNITION
The Company recognizes revenue for child care services as earned.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of"(SFAS No. 121). SFAS No. 121 requires that,
when certain conditions are present, the carrying value of long-lived assets be
reviewed for impairment and be reported at the lower of carrying amount or fair
value less costs to dispose. SFAS No. 121 also establishes the procedures for
review of recoverability, and measurement of impairment if necessary, of
long-lived assets used by an entity. The Company adopted SFAS No. 121 during the
first quarter of fiscal 1996, evaluated the recoverability of long-lived assets,
and, recorded a one-time, non-recurring expense of $5.3 million for the
impairment of certain long-lived assets utilized in operating its Kid's
Choice-TM- child care format (primarily leasehold improvements, which were
valued based on anticipated discounted cash flows).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash held in banks and liquid
investments with original maturities not exceeding 90 days.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on buildings and
equipment is provided on the straight-line basis over the estimated useful lives
of the assets. Leasehold improvements are amortized over the shorter of the
estimated useful life of the improvements or the lease term, including expected
lease renewal options where the Company has the unqualified right to exercise
the option.
F-7
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's property and equipment is depreciated using the following
estimated useful lives:
<TABLE>
<CAPTION>
LIFE
--------------
<S> <C>
Buildings..................................................................... 10-40 years
Building renovations.......................................................... 5-10 years
Leasehold improvements........................................................ 5-10 years
Computer equipment............................................................ 3 years
All other equipment........................................................... 5-10 years
</TABLE>
INVESTMENTS
Investments are accounted for under the specific identification method.
For years prior to fiscal 1996, the Company accounted for its investments in
leveraged preferred stock partnerships under the equity method. All of the
Company's holdings in leveraged preferred stock partnerships were liquidated in
fiscal 1996.
PRE-OPENING COSTS
Costs incurred prior to a center's opening are deferred and amortized over
one year. Pre-opening costs include training salaries, grand opening and
promotion expenses, and the initial purchase of forms and supplies needed to
operate the center.
SELF INSURANCE PROGRAMS
The Company is self-insured for certain levels of general liability,
workers' compensation, property and employee medical coverage. Estimated costs
of these self-insurance programs are accrued at the undiscounted value of
projected settlements for known and anticipated claims.
INCOME TAXES
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current year's presentation.
F-8
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LITIGATION SETTLEMENTS AND RESTRUCTURING COSTS (INCOME), NET
On July 3, 1995, the Company received a cash distribution of $11.3 million
from The Enstar Group, Inc., the Company's former parent, in connection with a
settlement of the Company's claim against Enstar in the U.S. Bankruptcy Court in
Montgomery.
On June 15, 1995, the Board of Directors appointed Dr. Sandra Scarr,
Chairman of the Board, to be Chief Executive Officer ("CEO"), replacing the
former CEO whose resignation was effective on the same date. Subsequent to the
appointment, the Company made substantial changes to its field operations
management and support functions. As a result of these changes, the Company
provided $4.0 million for restructuring costs, primarily severance, during the
quarter ending September 22, 1995 ("first quarter 1996").
On April 16, 1996, the Company implemented further organization changes in
both field and facilities management, redefining the roles and responsibilities
of Center Directors and the other field management positions. These changes are
resulting in increased management span of control, increased empowerment at the
center director level, and increased operating efficiencies. One-time costs of
$2.5 million were charged against earnings during the fourth quarter of fiscal
1996, primarily to cover severance arrangements.
In connection with the above, less than 100 positions were eliminated. The
Company is continuing to evaluate certain other support functions and systems in
an effort to improve future operating effectiveness and efficiencies as well as
to improve the quality of services.
Management has limited Kid's Choice-TM- development to contracts in process
until the concept is more fully developed, and recorded an impairment loss of
$6.3 million in first quarter 1996, consisting of a writedown of $5.3 million
for the recoverability of certain long lived assets, primarily leasehold
improvements, and $1.0 million for anticipated lease termination costs.
Information relating to the reserves recorded for the changes in management
organization and anticipated Kid's Choice-TM- lease termination costs are as
follows (dollars in thousands):
<TABLE>
<S> <C>
Restructuring charges and lease termination costs recorded in fiscal 1996.......... $ 7,531
Cash payments primarily severance and lease termination costs...................... (4,440)
---------
Remaining liabilities at May 31, 1996.............................................. $ 3,091
---------
---------
</TABLE>
In the third quarter of 1995, the Company received approximately $0.9
million in connection with litigation settlements with Enstar and KinderCare's
former Chairman of the Board.
3. PREPAID EXPENSES AND SUPPLIES
Prepaid expenses and supplies are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
JUNE 2, 1995 MAY 31, 1996
------------- -------------
<S> <C> <C>
Prepaid rent.................................................... $ 3,847 $ 3,676
Inventories..................................................... 2,350 2,491
Other........................................................... 2,085 2,949
------------- -------------
$ 8,282 $ 9,116
------------- -------------
------------- -------------
</TABLE>
F-9
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS
Net investment income is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 3, 1994 JUNE 2, 1995 MAY 31, 1996
------------- ------------- ---------------
<S> <C> <C> <C>
Interest income..................................................... $ 1,241 $ 612 $ 199
Gain on sale of leveraged preferred stock partnerships.............. 215
Gain on sale of Securities.......................................... -- 2,000 --
Gain on sale of Sylvan.............................................. 1,900 -- --
Equity in earnings of leveraged preferred stock partnerships........ 48 23 --
Other............................................................... (13) -- (164)
------------- ------------- ------
$ 3,176 $ 2,635 $ 250
------------- ------------- ------
------------- ------------- ------
</TABLE>
During fiscal 1996, the Company sold all of its holdings in leveraged
preferred stock partnerships at a gain of $0.2 million.
During fiscal 1995, the Company sold investment securities with a carrying
value of $0.2 million resulting in a gain of $2.0 million.
On January 29, 1993, the Company sold 100% of the outstanding common stock
of Sylvan, a wholly-owned subsidiary, for $8.0 million. The Company received
$4.5 million in cash and a promissory note in the amount of $3.5 million. A gain
of approximately $3.0 million was recognized at the time of the sale. The
remaining gain of approximately $2.3 million was deferred to be recognized under
the installment method. On July 15, 1993, the Company accepted prepayment of the
$3.5 million note at a discounted amount of $3.2 million. In connection with the
early retirement, the Company recognized a $1.9 million gain in fiscal 1994.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
JUNE 2, 1995 MAY 31, 1996
------------- -------------
<S> <C> <C>
Accrued compensation and related taxes.......................... $ 18,219 $ 17,282
Self insurance.................................................. 6,457 6,707
Deferred revenue................................................ 5,132 6,451
Accrued property taxes.......................................... 5,712 5,633
Accrued interest................................................ 165 5,585
Accrued restructuring and lease termination costs............... -- 3,091
Accrued income taxes............................................ 6,967 2,402
Other........................................................... 3,274 4,012
------------- -------------
$ 45,926 $ 51,163
------------- -------------
------------- -------------
</TABLE>
F-10
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT
Long-term debt is as follows (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 2, 1995 MAY 31, 1996
------------- -------------
<S> <C> <C>
Secured:
Borrowings under Revolving Credit Facility at LIBOR plus 1.25%.................... $ 13,000 $ --
Industrial refunding revenue bonds at variable rates of interest from 3.85% to
5.57% at May 31, 1996, and 3.95% to 6.25% at June 2, 1995 supported by letters
of credit, maturing 1999 to 2009................................................ 33,025 33,025
Industrial revenue bonds secured by real property with maturities to 2005 at rates
of 4.20% to 12.75%.............................................................. 5,939 5,738
Obligations secured by mortgages on real and personal property payable in monthly
installments through 2004 at rates of 8.75% to 12.25%........................... 8,430 7,854
Unsecured:
Senior Notes due 2001 at 10 3/8%.................................................. 100,000 100,000
------------- -------------
160,394 146,617
Less current portion of long-term debt.............................................. 889 853
------------- -------------
$ 159,505 $ 145,764
------------- -------------
------------- -------------
</TABLE>
REVOLVING CREDIT FACILITY
The Company has an agreement with a number of participating banks providing
for: (i) a $115.0 million secured three-year Revolving Credit Facility which may
be used for general corporate purposes, including construction of new facilities
and permitted acquisitions, and (ii) a letter of credit facility of
approximately $35.0 million used to replace letters of credit securing
obligations of the Company to various issuers of industrial revenue bonds. (See
"Industrial Revenue Bonds" below.) Additionally, up to $25.0 million of the
Revolving Credit Facility is available for the issuance of letters of credit
required in the ordinary course of business.
Obligations outstanding under the Revolving Credit Facility mature on May
15, 1998, with up to two annual extensions remaining. Outstanding advances bear
interest at a rate equal to, at the option of the Company, either the base rate
or LIBOR, plus the applicable margins, each as defined in the agreement. The
base rate is the higher of the federal funds rate plus 0.5% or the agent bank's
prime rate. The applicable margin is 1.25% and may be increased or decreased by
0.25% based upon the Company's debt/cash flow ratio. The Company must pay an
annual commitment fee equal to 0.5% (and may be increased or decreased by
0.125%) of the unused portion of the Revolving Credit Facility. The Company, at
its option, may prepay the outstanding indebtedness under the New Credit
Facility at any time, in whole or in part, without penalty.
The Revolving Credit Facility is secured by a first priority lien on
substantially all of the assets of the Company and Mini-Skools, except for
certain leasehold interests and approximately 163 centers (22 of which have been
previously closed) and 12 other real estate sites owned by the Company. In
addition, the Company has pledged the stock of all its subsidiaries as security.
At May 31, 1996, the Company had approximately $13.7 million committed on
outstanding letters of credit and $101.3 million of available credit under the
Revolving Credit Facility.
F-11
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
The Revolving Credit Facility contains several covenants which are customary
in similar agreements, including, but not limited to, restrictions on incurrence
of additional indebtedness, creation of liens, asset or subsidiary sales,
transactions with affiliates, investments and guarantees.
INDUSTRIAL REVENUE BONDS
SERIES A THROUGH E INDUSTRIAL REVENUE BONDS--The Company is obligated to
various issuers of industrial revenue bonds (the "Refunded IRBs") in an amount
totaling approximately $33.0 million outstanding as of May 31, 1996 and June 2,
1995. The Refunded IRBs were issued to provide funds for refunding an equal
principal amount of industrial revenue bonds which were used to finance the cost
of acquiring, constructing and equipping certain child care facilities and the
Company's Montgomery, Alabama corporate headquarters. Each of these Refunded
IRBs is secured by a letter of credit obtained under the Letter of Credit
Facility.
OTHER IRBS--The Company also is obligated to various issuers of other
industrial revenue bonds (the "IRBs") in the aggregate principal amount of
approximately $5.7 million and $5.9 million as of May 31, 1996 and June 2, 1995,
respectively. The principal amount of such IRBs was used to finance the cost of
acquiring, constructing and equipping certain child care facilities and the IRBs
are secured by these facilities.
SENIOR NOTES
On June 2, 1994, the Company issued $100 million in unsecured senior notes
due June 1, 2001. The Notes were issued under an indenture (the "Indenture")
between the Company and AmSouth Bank N.A. as trustee.
The Notes bear interest at a fixed rate of 10 3/8% per annum, payable
semi-annually on December 1 and June 1 of each year, and are effectively
subordinated to the secured indebtedness of the Company, including indebtedness
under the Revolving Credit Facility.
The Notes are callable by the Company at 105 3/16% of par from June 1, 1998
through June 1, 1999. On June 1, 1999, the redemption price is reduced to 102%
of par, and on June 1, 2000, until maturity, the Notes may be redeemed at par.
Upon a change of control, as defined in the Indenture, each holder of the Notes
may require the Company to repurchase all or a portion of such holder's Notes at
a purchase price in cash equal to 101% of par, together with accrued and unpaid
interest to the date of repurchase.
The Indenture contains a number of covenants similar to those in the
Revolving Credit Facility. Certain limitations exist with respect to payment of
dividends, incurrence of additional indebtedness, creation of liens, asset or
subsidiary sales, transactions with affiliates, investments and guarantees, all
of which are defined in the Indenture.
F-12
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
PRINCIPAL PAYMENTS
The aggregate minimum annual maturities of long-term debt for the five
fiscal years subsequent to May 31, 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- --------------------------------------------------------------------------------- -----------
<S> <C>
1997............................................................................. $ 853
1998............................................................................. 1,200
1999............................................................................. 1,274
2000............................................................................. 12,203
2001............................................................................. 114,075
Thereafter....................................................................... 17,012
-----------
Total........................................................................ $ 146,617
-----------
-----------
</TABLE>
7. INCOME TAXES
The provision (benefit) for income taxes attributable to income before
income taxes and extraordinary item is as follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED JUNE 3, 1994 JUNE 2, 1995 MAY 31, 1996
- -------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal........................................................... $ 1,217 $ 2,909 $ 832
State............................................................. 604 662 (132)
Foreign........................................................... 674 604 564
------------- ------------- -------------
2,495 4,175 1,264
------------- ------------- -------------
Deferred:
Federal........................................................... 8,370 8,293 10,292
State............................................................. 1,972 1,859 2,137
Foreign........................................................... -- (290) (144)
------------- ------------- -------------
10,342 9,862 12,285
------------- ------------- -------------
$ 12,837 $ 14,037 $ 13,549
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective income tax rates on continuing operations is as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED JUNE 3, 1994 JUNE 2, 1995 MAY 31, 1996
- -------------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
% % %
Expected tax rate on income before income taxes and extraordinary
item at federal rate.............................................. 35.0 35.0 35.0
State income taxes, net of federal tax benefit...................... 5.1 4.5 3.7
Other, net.......................................................... (0.8) (0.6) (0.2)
--- --- ---
39.3 38.9 38.5
--- --- ---
--- --- ---
</TABLE>
F-13
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 2, 1995
and May 31, 1996 are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 2, 1995 MAY 31, 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Self-insurance reserves....................................... $ 8,871 $ 9,099
Net operating loss carryforwards.............................. 13,354 7,895
Capital loss carryforwards.................................... 12,732 4,818
Tax credits................................................... 3,200 3,172
Property and equipment, basis differences..................... 8,498 2,458
Other......................................................... 3,597 6,098
------------- -------------
Total gross deferred tax assets............................. 50,252 33,540
Less valuation allowance.................................... (27,929) (10,310)
------------- -------------
Net deferred tax assets..................................... 22,323 23,230
------------- -------------
Deferred tax liabilities:
Property and equipment, basis differences of foreign
subsidiary.................................................. (9,232) (9,088)
Stock basis of foreign subsidiary............................. -- (3,622)
Other......................................................... (1,490) (1,434)
------------- -------------
Total gross deferred tax liabilities........................ (10,722) (14,144)
------------- -------------
Financial statement net deferred tax asset (liability)...... $ 11,601 $ 9,086
------------- -------------
------------- -------------
</TABLE>
The valuation allowance decreased by $17.6 million during the year ended May
31, 1996. Deferred tax assets have been recognized to the extent of existing
deferred tax liabilities and income taxes paid that are subject to recovery
through carryback. Future recognized tax benefits relating to the valuation
allowance for deferred tax assets at May 31, 1996 will be recorded as direct
additions to additional paid-in capital.
At May 31, 1996, the Company had $20.0 million of net operating losses
available for carryforward which expire in 2008. Utilization of the net
operating losses is subject to an annual limitation of $19.1 million. The
Company also has capital losses of $8.7 million, which are available to offset
future capital gains, and expire in varying amounts through 2000. Additionally,
the Company has tax credits available for carryforward for federal income tax
purposes of $3.2 million which are available to offset future federal income
taxes through 2010.
8. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLANS
On February 9, 1993, the Company adopted the KinderCare Learning Centers,
Inc. 1993 Stock Option and Incentive Plan (the "1993 Stock Option Plan"). This
plan authorizes a committee of the Board of Directors of the Company to grant or
award to eligible employees of the Company and its subsidiaries and affiliates,
stock options and restricted stock and related warrants of the Company beginning
on March 31, 1993 and expiring on the tenth anniversary of such date. In
connection with the 1993 Stock Option Plan, the Company reserved approximately
1.9 million shares of Common Stock for issuance to
F-14
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
employees of the Company upon exercise of options available for grant by the
Board of Directors of the Company.
A summary of option transactions under the 1993 Stock Option Plan is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
OPTION PRICE NUMBER OF TOTAL OPTION
PER SHARE SHARES PRICE
------------------- ----------- ------------
<S> <C> <C> <C>
Granted in connection with the Plan............................. $ 7.50 to $10.00 1,311,500 $ 12,740
Canceled........................................................ 10.00 (5,960) (60)
----------- ------------
Outstanding May 28, 1993........................................ 1,305,540 12,680
Granted......................................................... $ 10.76 51,600 555
Exercised....................................................... 10.00 (6,512) (65)
Canceled........................................................ 10.00 (55,620) (556)
----------- ------------
Outstanding June 3, 1994........................................ 1,295,008 12,614
----------- ------------
Granted......................................................... $ 12.50 to $13.75 196,500 2,487
Exercised....................................................... 10.00 to 12.50 (108,110) (1,083)
Canceled........................................................ 10.00 to 12.50 (75,760) (801)
----------- ------------
Outstanding June 2, 1995........................................ 1,307,638 13,217
----------- ------------
Granted......................................................... $ 12.88 to $13.63 256,700 3,345
Exercised....................................................... 7.50 to 12.88 (746,560) (7,164)
Canceled........................................................ 10.00 to 12.88 (73,640) (856)
----------- ------------
Outstanding May 31, 1996........................................ 744,138 $ 8,542
----------- ------------
----------- ------------
</TABLE>
At May 31, 1996, options for a total of 358,978 shares of stock were
exercisable with a total option price of approximately $3.9 million.
SAVINGS AND INVESTMENT PLAN
The Board of Directors of the Company adopted the KinderCare Learning
Centers, Inc. Savings and Investment Plan (the "Savings Plan") effective January
1, 1990. All full-time employees of the Company and its subsidiaries are
eligible to participate in the Savings Plan upon completion of one year of
service and the attainment of age 18. Participants may contribute, in increments
of 1%, up to 10% (6% before July 1, 1994) of their compensation to the Savings
Plan. In accordance with the provisions of the Savings Plan, the Board of
Directors has elected, since April 1, 1991, not to match employee contributions.
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires the Company to disclose estimated fair
values for its financial instruments. Fair value estimates, methods, and
assumptions are set forth below for the Company's financial instruments as of
May 31, 1996 and June 2, 1995.
CASH AND CASH EQUIVALENTS, SHORT TERM INVESTMENTS, TRADE RECEIVABLES AND TRADE
PAYABLES
Fair value approximates cost as reflected in the consolidated balance sheets
at May 31, 1996 and June 2, 1995 because of the short term maturity of these
instruments.
F-15
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM DEBT
The carrying value and the fair value for the Company's 10 3/8 Senior Notes
are $100.0 million and $105.0 million at May 31, 1996, respectively, based on
current market activity, while the carrying value of $100.0 million at June 2,
1995 approximated fair value due to the recent refinancing. The carrying values
for the Company's remaining long-term debt of $46.6 million and $60.4 million at
May 31, 1996, and June 2, 1995, respectively, approximates market value based on
current rates that management believes could be obtained for similar debt.
10. QUARTERLY RESULTS (UNAUDITED)
A summary of results of operations for the years ended May 31, 1996 and June
2, 1995 are as follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER(a) QUARTER(b) QUARTER(b) QUARTER(b)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended May 31, 1996:
Operating Revenues......................................... $ 161,313 $ 124,079 $ 123,641 $ 132,231
Operating income........................................... 11,141 11,222 13,514 15,832
Net income................................................. 3,565 4,551 5,868 7,699
Net income per share (primary)............................. $ .17 $ .23 $ .30 $ .39
Net income per share (fully-diluted)....................... N/C N/C N/C $ .37
Year ended June 2, 1995:
Operating Revenues......................................... $ 151,502 $ 116,765 $ 115,696 $ 122,542
Operating income........................................... 10,352 11,394 12,120 16,920
Net income................................................. 3,091 4,511 5,604 8,860
Net income per share....................................... $ .15 $ .22 $ .28 $ .43
</TABLE>
- ------------------------
N/C -- Not calculated
(a) Sixteen week quarters
(b) Twelve week quarters
The computation of fully-diluted earnings per share is based on the higher
of the average or year-end market price of the Company's common stock.
Fully-diluted earnings per share need not be presented for 1995 since further
dilution from primary earnings per share was less than 3 percent.
11. COMPUTATION OF EARNINGS PER SHARE
Earnings per share amounts are computed based on the weighted average number
of shares actually outstanding for the fiscal years ended May 31, 1996 and June
2, 1995, plus the shares that would be outstanding assuming the exercise of
dilutive stock options and the Warrants, all of which are considered common
stock equivalents. The number of shares that would be issued from the exercise
of the stock options and the Warrants has been reduced by the number of shares
that could have been purchased from the proceeds at the average market price of
the Company's stock, up to 20% of the
F-16
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
outstanding shares. A reconciliation of the actual weighted average shares to
the shares used in the computation of earnings per share for the periods
indicated is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 3, 1994 JUNE 2, 1995 MAY 31, 1996
------------- ------------- -------------
<S> <C> <C> <C>
Primary
Weighted average common shares outstanding........................ 20,004 20,093 19,752
Dilutive effect of common stock equivalents....................... 529 590 --
------------- ------------- -------------
Weighted average common and common equivalent shares
outstanding..................................................... 20,533 20,683 19,752
------------- ------------- -------------
Fully Diluted
Dilutive effect of common stock equivalents....................... N/A N/A 931
------------- ------------- -------------
Adjusted outstanding.............................................. N/A N/A 20,683
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ------------------------
N/A -- Not applicable
Fully diluted earnings were not required to be reported for the years ended
June 2, 1995 and June 3, 1994 since dilution was less than 3 percent.
12. COMMITMENTS AND CONTINGENCIES
The Company conducts a portion of its operations from leased or subleased
day care centers. Additionally, the Company leases its fleet vehicles under a 12
month non-cancelable master lease. The lease may be renewed on a month-to-month
basis after 12 months. The vehicle leases require that the Company guarantee
specified residual values upon cancellation. All of the leases are classified as
operating leases. In most cases, management expects that in the normal course of
business substantially all of the leases will be renewed or replaced by other
leases.
Subsequent to January 1, 1993, the Company re-negotiated certain day care
center leases to amend the terms to allow the Company the right to terminate the
lease at any time with minimal notice. In connection with the termination
option, the Company, in certain instances, prepaid up to 12 months rent. Such
amounts, totaling approximately $3.2 million, will be amortized over the
termination transition period or over the appropriate remaining months of the
lease period. As of May 31, 1996, the remaining unamortized balance of the
prepaid amount was $2.6 million. In addition, several leases were re-negotiated
to decrease the monthly fixed rental payments.
Following is a schedule of future minimum lease payments under operating
leases, that have initial or remaining non-cancelable lease terms in excess of
one year as of May 31, 1996 (dollars in thousands):
<TABLE>
<S> <C>
FISCAL YEAR:
1997.............................................. $ 15,695
1998.............................................. 15,034
1999.............................................. 13,512
2000.............................................. 11,744
2001.............................................. 9,559
Subsequent years.................................. 37,239
</TABLE>
F-17
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company was a co-defendant to a stockholder suit filed in the Circuit
Court of Montgomery County, Montgomery, Alabama styled Peter N. Zachary, et al.
v. Richard Grassgreen, Perry Mendel, and KinderCare Learning Centers, Inc. in
the Circuit Court for Montgomery, Alabama, Case No. CV-91-2801-G. The suit was
for $20 million in compensatory damages and $20 million in punitive damages in
each of seven counts. The Company was named as a defendant in five of those
seven counts. In December 1995, the other defendants settled with the
shareholders. The plaintiffs have dismissed all charges against the Company.
On July 7, 1992, KinderCare filed a Proof of Claim in the United States
District Court for the Southern District of New York in a pending action brought
by Presidential Life Insurance Company against Michael R. Milken, et al. styled
Presidential Life Insurance Co., v. Michael R. Milken, et al., Class Action in
District Court, Southern District of New York, 92 Civ. 1151 (MP). The claim
alleges that, but for the defendants' wrongful conduct as described in the
claim, the Company would not have made the junk bond purchases outlined in the
claim. The total amount of damages claimed by the Company is approximately $37.1
million. The claim has been evaluated at $15.6 million by the Presidential Life
Executive Committee and reviewed and submitted to the Court for approval by the
SEC representative. This amount is subject to final approval by the Court and to
available distribution. The Company estimates it will receive approximately 5%
of this amount based on available distribution funds; however, there are no
assurances that the Company will receive this or any other amount pursuant to
the claim.
The Company is presently, and is from time to time, subject to additional
claims and suits arising in the ordinary course of business, including suits
alleging child abuse. In certain of such actions, plaintiffs request damages
that are covered by insurance. The Company believes that none of the additional
actions of which it is currently aware will materially affect its financial
position or future operating results, although no assurance can be given with
respect to the ultimate outcome of any such actions.
13. STOCK REPURCHASE PROGRAMS AND SUBSEQUENT EVENTS
On February 15, 1995 the Board of Directors of KinderCare authorized the
repurchase of up to $10 million of the Company's Common Stock. This repurchase
was completed and all shares retired during the second quarter ending December
15, 1995. On May 2, 1996, the Board of Directors authorized another repurchase
of $10 million and increased it to $23.0 million on June 3, 1996. As of May 31,
1996, under the second stock buyback program, 259,000 shares and 120,000
warrants had been repurchased for $4.2 million. As of July 27, 1996, under the
second stock buyback program, 1,111,500 shares and 435,000 warrants had been
repurchased for $18.3 million.
On June 3, 1996, the Board of Directors of KinderCare authorized the
purchase of up to $30 million par of the Company's 10 3/8% Senior Notes due
2001. As of July 26, 1996, the Company had purchased $30 million par of the
Notes at an aggregate price of $31.5 million. This transaction results in
recording an extraordinary loss of $1.2 million, net of $0.8 million in tax
benefits, in the first quarter of fiscal 1997.
F-18
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-EIGHT WEEKS ENDED
------------------------------ ------------------------------
DECEMBER 15, DECEMBER 13, DECEMBER 15, DECEMBER 13,
1995 1996 1995 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating revenues............................... $ 124,079 $ 128,324 $ 285,392 $ 299,751
-------------- -------------- -------------- --------------
Operating expenses:
Salaries, wages and benefits................... 65,003 68,875 150,814 162,215
Depreciation................................... 7,864 7,351 18,053 19,208
Rent........................................... 6,032 5,857 14,367 14,507
Provision for allowance for doubtful
accounts..................................... 1,030 811 1,792 1,851
Other.......................................... 32,928 32,591 79,022 79,380
Litigation settlements and restructuring costs
(income), net................................ -- (1,527) (1,019) (1,527)
-------------- -------------- -------------- --------------
Total operating expenses................... 112,857 113,958 263,029 275,634
-------------- -------------- -------------- --------------
Operating income................................. 11,222 14,366 22,363 24,117
Net investment income............................ 50 15 161 86
Interest expense................................. 3,811 3,201 9,219 8,141
-------------- -------------- -------------- --------------
Income before income taxes and extraordinary
item........................................... 7,461 11,180 13,305 16,062
Income tax expense............................... 2,910 4,360 5,189 6,264
-------------- -------------- -------------- --------------
Income before extraordinary item................. 4,551 6,820 8,116 9,798
Extraordinary item--loss on early extinguishment
of debt, net of income tax benefit............. -- 5,251 -- 6,480
-------------- -------------- -------------- --------------
Net income $ 4,551 $ 1,569 $ 8,116 $ 3,318
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Income per share:
Income before extraordinary item............... $ 0.23 $ 0.33 $ 0.40 $ 0.48
Extraordinary item--loss on early
extinguishment of debt....................... -- (0.25) -- (0.32)
-------------- -------------- -------------- --------------
Net Income....................................... $ 0.23 $ 0.08 $ 0.40 $ 0.16
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Weighted average common shares and share
equivalents.................................... 19,939 20,599 20,285 20,334
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-19
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31, DECEMBER 13,
1996 1996
----------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 15,597 $ 10,426
Receivables:
Tuition (net of allowance for doubtful accounts of $2,234 and $1,884 at December
13, 1996 and May 31, 1996, respectively)....................................... 14,566 14,728
Other............................................................................ 563 439
Prepaid expenses and supplies...................................................... 9,116 10,240
Deferred income taxes.............................................................. 4,664 4,664
----------- --------------
Total current assets........................................................... 44,506 40,497
----------- --------------
Property and equipment, at cost.................................................... 561,189 580,349
Less accumulated depreciation and amortization................................... 92,664 103,803
----------- --------------
Net property and equipment..................................................... 468,525 476,546
----------- --------------
Deferred income taxes................................................................ 4,422 4,454
Other assets......................................................................... 8,023 7,941
----------- --------------
$ 525,476 $ 529,438
----------- --------------
----------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 14,330 $ 9,221
Bank overdrafts.................................................................... 9,768 11,328
Current portion of long-term debt.................................................. 853 1,095
Accrued expenses and other liabilities............................................. 51,163 40,482
----------- --------------
Total current liabilities...................................................... 76,114 62,126
Long-term debt....................................................................... 145,764 167,668
Self-insurance liabilities........................................................... 17,652 20,210
Other noncurrent liabilities......................................................... 20,488 23,983
----------- --------------
Total liabilities.............................................................. 260,018 273,987
----------- --------------
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; none outstanding.... -- --
Common stock, $.01 par value; authorized 40,000,000 shares; issued 19,414,367 and
19,981,807 shares at December 13, 1996 and May 31, 1996, respectively;
outstanding 19,414,367 and 19,946,807 at December 13, 1996 and May 31, 1996,
respectively..................................................................... 199 191
Additional paid-in capital........................................................... 204,003 190,119
Retained earnings.................................................................... 61,799 65,117
Cumulative translation adjustment.................................................... (20) 24
Less treasury stock, at cost (35,000 shares at May 31, 1996)......................... (523) --
----------- --------------
Total shareholders' equity..................................................... 265,458 255,451
----------- --------------
$ 525,476 $ 529,438
----------- --------------
----------- --------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-20
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED
------------------------------
DECEMBER 15, DECEMBER 13,
1995 1996
-------------- --------------
<S> <C> <C>
Cash flows from operations:
Net income...................................................................... $ 8,116 $ 3,318
Operating activities not requiring (providing) cash:
Depreciation.................................................................. 18,053 19,208
Amortization of intangibles and other assets.................................. 734 783
Writedown of Kid's Choice-TM- property and equipment.......................... 5,312 --
Gain on sales and disposals of property and equipment......................... (1,178) (34)
Extraordinary item--loss on early extinguishment of debt........................ -- 6,480
Changes in operating assets and liabilities:
Receivables................................................................... (2,446) 97
Prepaid expenses and supplies................................................. (2,388) (1,124)
Other assets.................................................................. (166) (2,393)
Accounts payable, accrued expenses and other liabilities...................... 1,393 (9,676)
Other, net...................................................................... (603) (48)
-------------- --------------
Net cash provided by operating activities......................................... $ 26,827 $ 16,611
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment............................................. $ (38,933) $ (27,849)
Proceeds from sales of property and equipment................................... 3,366 518
Proceeds from collection of notes receivable.................................... 2,029 12
Proceeds from sale of investment................................................ 3,396 --
Other, net...................................................................... -- (22)
-------------- --------------
Net cash used by investing activities............................................. (30,142) (27,341)
-------------- --------------
Cash flows from financing activities:
Borrowings on revolving credit facility......................................... -- 122,500
Payments on long-term borrowings................................................ (538) (105,133)
Purchase and retirement of treasury stock....................................... (10,000) (14,251)
Bank overdrafts................................................................. 8,970 1,560
Exercise of stock options and warrants.......................................... 1,207 883
-------------- --------------
Net cash provided (used) by financing activities.................................. (361) 5,559
-------------- --------------
Decrease in cash and cash equivalents............................................. (3,676) (5,171)
Cash and cash equivalents at the beginning of the period.......................... 14,237 15,597
-------------- --------------
Cash and cash equivalents at the end of the period................................ $ 10,561 $ 10,426
-------------- --------------
-------------- --------------
Supplemental cash flow information:
Interest paid................................................................... $ 7,601 $ 11,774
-------------- --------------
-------------- --------------
Income taxes paid............................................................... $ 2,134 $ 920
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-21
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
The consolidated financial statements of KinderCare Learning Centers, Inc.
(the "Company") are unaudited and, in the opinion of management, include all
adjustments necessary to fairly state the Company's financial condition and
results of operations for the interim period. The results of operations for the
twenty-eight weeks ended December 13, 1996 are not necessarily indicative of the
results to be expected for the full year. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended May 31, 1996, and in conjunction with the
Company's Form S-4 Registration Statement under the Securities Act of 1933 as
filed with the Securities and Exchange Commission on January 7, 1997.
(2) FISCAL YEAR
The Company's fiscal year ends on the Friday closest to May 31. The first
quarter is 16 weeks long and the second, third, and fourth quarters are each
twelve weeks long. The 1997 and 1996 fiscal years are each 52 weeks long.
(3) AGREEMENT AND PLAN OF MERGER
On October 3, 1996, the Company entered into an Agreement and Plan of Merger
("Agreement") whereby, on the effective date, ownership of approximately 85% of
the Company will be acquired by an entity organized at the direction of Kohlberg
Kravis Roberts & Co., L.P. ("KKR"). On December 27, 1996, the Agreement was
amended to revise the consideration to be paid in connection with the Merger
("Amended Agreement"). Subject to certain provisions of the Amended Agreement,
each issued and outstanding share of Common Stock will be converted, at the
election of the holder, into either the right to receive $19.00 in cash or the
right to retain one share of Common Stock, subject to proration. Under the terms
of the Amended Agreement, approximately $122.5 million of existing debt will be
retired and approximately $367.2 million will be paid by the Company to redeem
Common Stock, warrants, and options. The acquisition will be financed by the
issuance of approximately $376.0 million in new debt and approximately $148.8
million of equity will be invested by a KKR affiliate. The total value of the
transaction, including equity, debt and fees, is approximately $524.7 million.
Among other conditions, the transaction is contingent upon approval of a
majority of the outstanding shares of Common Stock of the Company and the
obtaining of the required financing. Holders of approximately 51.4% of the
shares of Common Stock outstanding as of January 8, 1997 have agreed to vote in
favor of the transaction. In connection with the merger, the Company also has
secured commitments for a $490.0 million senior secured facility to complete the
Merger and to fund future growth and acquisitions. Effective with and subject to
the closing of the Merger, Dr. Sandra Scarr, Chairman of the Board and Chief
Executive Officer ("CEO"), will retire from her positions with the Company,
while agreeing to remain on the Board of Directors. David J. Johnson, most
recently Chairman and Chief Executive Officer of Red Lion Hotels, Inc. (formerly
a KKR affiliate) or its predecessor, will succeed Dr. Scarr as CEO.
(4) EXTRAORDINARY LOSS
During the first quarter of fiscal 1997, the Company purchased $30.0 million
principal aggregate amount of its 10 3/8% Senior Notes due 2001 at an aggregate
price of $31.5 million. This transaction resulted in an extraordinary loss of
$1.2 million, net of income taxes, in the first quarter of fiscal 1997.
F-22
<PAGE>
KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
On October 16, 1996, the Company announced the commencement of a tender
offer and consent solicitation for its outstanding 10 3/8% Senior Notes due 2001
seeking the elimination of substantially all of the restrictive covenants. On
November 14, 1996, 99.7% of the outstanding Notes were purchased at an aggregate
price of $76.8 million. This second transaction resulted in an extraordinary
loss of $5.3 million, net of income taxes, recorded in second quarter 1997. The
Company increased its existing revolving credit facility by $50.0 million to
$200.0 million to finance the tender offer.
(5) STOCK REPURCHASE PROGRAM
In 1996, the Company repurchased 745,883 shares of its Common Stock for
$10.0 million, at an average cost of $13.41 per common share. During first
quarter 1997, the Board of Directors authorized the repurchase of $23.0 million
of the Company's Common Stock. As of the end of first quarter 1997, 1,111,500
shares and 435,000 warrants had been repurchased for $18.3 million. All shares
repurchased have been retired. No shares or warrants have been purchased since
July 22, 1996.
(6) COMPUTATION OF INCOME PER SHARE
Income per share amounts are computed based on the weighted average number
of shares actually outstanding for the respective periods, plus the shares that
would be outstanding assuming the exercise of dilutive stock options and
warrants, all of which are considered common stock equivalents. The number of
shares that would be issued from the exercise of the stock options and the
warrants has been reduced by the number of shares that could have been purchased
from the proceeds at the average market price (period end market price, if
higher, for fully diluted computations) of the Company's stock. A reconciliation
of the actual weighted average shares to the number of shares used in the
computation of earnings per share for the periods indicated is as follows (in
thousands):
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-EIGHT WEEKS ENDED
------------------------------ ------------------------------
DECEMBER 15, DECEMBER 13, DECEMBER 15, DECEMBER 13,
1995 1996 1995 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding....... 19,504 19,245 19,781 19,255
Dilutive effect of common stock equivalents.... 435 1,354 504 1,079
------- ------- ------- -------
Primary shares outstanding....................... 19,939 20,599 20,285 20,334
Fully dilutive effect of common stock
equivalents.................................. -- 79 -- 447
------- ------- ------- -------
Fully diluted shares outstanding................. 19,939 20,678 20,285 20,781
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
(7) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
presentation.
F-23
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 17
The Merger............................ 23
Use of Proceeds....................... 24
Capitalization........................ 25
Pro Forma Consolidated Financial
Statements.......................... 26
Selected Historical Consolidated
Financial and Other Data............ 32
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 36
Business.............................. 47
Management............................ 60
Ownership of Common Stock............. 66
Related Party Transactions............ 67
Description of Credit Facilities...... 68
The Exchange Offer.................... 70
Description of the Exchange Notes..... 81
Exchange Offer; Registration Rights... 114
Certain U.S. Federal Income Tax
Consequences........................ 116
Plan of Distribution.................. 117
Legal Matters......................... 118
Independent Auditors.................. 118
Incorporation of Certain Information
by Reference........................ 118
Index to Financial Statements......... F-1
</TABLE>
-------------------------------------------
PRELIMINARY PROSPECTUS
$300,000,000
KINDERCARE LEARNING
CENTERS, INC.
[LOGO]
OFFER TO EXCHANGE $300,000,000 OF ITS 9 1/2% SERIES B SENIOR SUBORDINATED NOTES
DUE 2009, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR $300,000,000
OF ITS OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2009.
, 1997
<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 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 Restated 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 March 11, 1997.
KINDERCARE LEARNING CENTERS, INC.
BY: /S/ DAVID J. JOHNSON
-----------------------------------------
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed on the 11th day of March, 1997 by the following
persons in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ ---------------------------
Chief Executive Officer,
/s/ DAVID J. JOHNSON and Chairman of the Board
- ------------------------------ of Directors (Principal
David J. Johnson Executive Officer)
Executive Vice President/
/s/ PHILIP L. MASLOWE Chief Financial Officer
- ------------------------------ (Principal Financial and
Philip L. Maslowe Accounting Officer)
* Director
- ------------------------------
Henry R. Kravis
* Director
- ------------------------------
George R. Roberts
* Director
- ------------------------------
Clifton S. Robbins
* Director
- ------------------------------
Nils P. Brous
* Director
- ------------------------------
Sandra W. Scarr, Ph.D.
* Director
- ------------------------------
Stephen Kaplan
*BY: /s/ PHILIP L. MASLOWE
.........................
Philip L. Maslowe,
ATTORNEY-IN-FACT
II-4
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of KinderCare Learning Centers,
Inc., do hereby constitute and appoint David J. Johnson and Philip L. Maslowe,
or either of them, our true and lawful attorneys and agents, to do any and all
acts and things in our name and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents, or either of them,
may deem necessary or advisable to enable said Corporation to comply with the
Securities Act of 1933 and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names in the capacities indicated below, any
and all amendments (including post-effective amendments) hereto and we do hereby
ratify and confirm all that said attorneys and agents, or either of them, shall
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 on the 11th day of March 1997 by the
following persons in the capacities indicated:
SIGNATURE TITLE
- ------------------------------ ---------------------------
Chief Executive Officer,
/s/ DAVID J. JOHNSON and Chairman of the Board
- ------------------------------ of Directors (Principal
David J. Johnson Executive Officer)
Executive Vice
/s/ PHILIP L. MASLOWE President/Chief Financial
- ------------------------------ Officer (Principal
Philip L. Maslowe Financial and Accounting
Officer)
/s/ HENRY R. KRAVIS Director
- ------------------------------
Henry R. Kravis
/s/ GEORGE R. ROBERTS Director
- ------------------------------
George R. Roberts
/s/ CLIFTON S. ROBBINS Director
- ------------------------------
Clifton S. Robbins
/s/ NILS P. BROUS Director
- ------------------------------
Nils P. Brous
/s/ SANDRA W. SCARR, PH.D. Director
- ------------------------------
Sandra W. Scarr, Ph.D.
/s/ STEPHEN KAPLAN Director
- ------------------------------
Stephen Kaplan
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
<CAPTION>
***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 Acquisition") (incorporated by reference to
Exhibit 2.1(a) to KinderCare's Form S-4, filed January 7, 1997, File no. 333-19345).
<C> <S>
(b) Merger Agreement Amendment dated as of December 27, 1996 between KinderCare and KCLC Acquisition
(incorporated by reference to Exhibit 2.1(b) to KinderCare's Form S-4, filed January 7, 1997, File
no. 333-19345).
***2.2 (a) Voting Agreement, dated as of October 3, 1996, among KCLC Acquisition and the stockholders parties
thereto (incorporated by reference to Exhibit 2.2(a) to KinderCare's Form S-4, filed January 7,
1997, File no. 333-19345).
(b) Voting Agreement Amendment, dated as of December 27, 1997 among KCLC Acquisition and the
stockholders parties thereto (incorporated by reference to Exhibit 2.2(b) to KinderCare's Form S-4,
filed January 7, 1997, File no. 333-19345).
*2.3 Stockholders' Agreement between KinderCare Learning Centers, Inc. and the stockholders parties thereto.
*3.1 Certificate of Merger of KCLC Acquisition Corp. into KinderCare Learning Centers, Inc.
*3.2 By-Laws of KinderCare Learning Centers, Inc.
*4.1 Indenture dated as of February 13, 1997 between KinderCare Learning Centers, Inc. and Marine Midland
Bank, as Trustee.
*4.2 Form of 9 1/2% Senior Subordinated Note due 2009.
**4.3 Form of 9 1/2% Series B Senior Subordinated Note due 2009.
*4.4 Registration Rights Agreement dated February 13, 1997 among KinderCare Learning Centers, Inc., Chase
Securities Inc., BT Securities Corporation, Salomon Brothers Inc and Smith Barney Inc.
**5 Opinion of Simpson Thacher & Bartlett.
*10.1 Credit Agreement, dated as of February 13, 1997, among KinderCare Learning Centers, Inc., the several
lenders from time to time parties thereto, and The Chase Manhattan Bank, as administrative agent.
*10.2 Registration Rights Agreement, dated as of February 13, 1997, among KCLC Acquisition Corp., KLC
Associates L.P. and KKR Partners II, L.P.
*10.3 Purchase Agreement, dated as of February 13, 1997, among KinderCare Learning Centers, Inc. Chase
Securities Inc., BT Securities Corporation, Salomon Brothers Inc and Smith Barney Inc.
**12 Computation of Ratio of Earnings to Fixed Charges
**23.1 Consent of Simpson Thacher & Bartlett (included as part of its opinion filed as Exhibit 5 hereto).
*23.2 Consent of KPMG Peat Marwick LLP, independent certified public accountants.
*24 Powers of Attorney (included on page II-5).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
*25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Marine Midland Bank, as
Trustee.
**99.1 Form of Letter of Transmittal.
**99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
*** Incorporated by reference.
<PAGE>
Exhibit 2.3
STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement"), is entered into as
of February 13, 1997 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 KLC Associates, L.P., a
Delaware limited partnership, and KKR Partners II, a Delaware limited
partnership (collectively, the "KKR Investors").
RECITALS
WHEREAS, KCLC Acquisition Corp. and the Company have entered into
that certain Agreement and Plan of Merger dated as of October 3, 1996 and as
amended as of December 27, 1996 (the "Merger Agreement"), pursuant to which the
KKR Investors have 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 949,244 shares of Common Stock.
WHEREAS, that certain Voting Agreement entered into by an affiliate
of the KKR Investors, 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.
<PAGE>
2
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 Investors 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 Investors; provided,
however, that KKR Affiliate shall not in any event include the limited partners
of the KKR Investors or the limited partners of the general partner of the KKR
Investors.
KKR Holder: The KKR Investors 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.
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
<PAGE>
3
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 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
<PAGE>
4
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
<PAGE>
5
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 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 Investors to any KKR Affiliates,
(ii) sales by any KKR Affiliate to another KKR Affiliate or to the KKR
Investors, (iii) transfers
<PAGE>
6
by the KKR Investors 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 Investors which, taken together with all prior sales by the KKR
Investors, 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" 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
<PAGE>
7
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.
<PAGE>
8
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 Investors, 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.
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
<PAGE>
9
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
<PAGE>
10
laws. Each of the parties 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
<PAGE>
11
Vice President/General Counsel
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: David J. Sorkin
(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.
<PAGE>
12
(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.
<PAGE>
13
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: /s/ Philip L. Maslowe
------------------------------
Name: Philip L. Maslowe
Title: Chief Financial Officer
and Senior Vice
President
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
<PAGE>
14
OAKTREE CAPITAL MANAGEMENT, LLC,
By: /s/ Kenneth Liang
---------------------------
Name: Kenneth Liang
Title:
By: /s/ Stephen Kaplan
----------------------------
Name: Stephen Kaplan
Title:
<PAGE>
15
KLC ASSOCIATES, L.P.
By KKR ASSOCIATES (KLC) L.P,
General Partner
By KKR-KLC L.L.C.,
General Partner
By: /s/ Clifton S. Robbins
------------------------------
Name: Clifton S. Robbins
Title: Member
KKR PARTNERS II, L.P.
By KKR ASSOCIATES L.P.,
General Partner
By: /s/ Clifton S. Robbins
------------------------------
Name: Clifton S. Robbins
Title: General Partner
<PAGE>
Exhibit 3.1
CERTIFICATE OF MERGER
OF
KCLC ACQUISITION CORP.
INTO
KINDERCARE LEARNING CENTERS, INC.
UNDER SECTION 251 OF THE
GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Pursuant to Section 251(c) of the General Corporation Law of the
State of Delaware, KinderCare Learning Centers, Inc., a Delaware corporation
(the "Corporation"), hereby certifies the following information relating to the
merger of KCLC Acquisition Corp., a Delaware corporation ("Newco"), with and
into the Corporation (the "Merger"):
FIRST: The names of the constituent corporations in the Merger (the
"Constituent Corporations") and their states of incorporation are as follows:
Name State
---- -----
KinderCare Learning Centers, Inc. Delaware
KCLC Acquisition Corp. Delaware
SECOND: The Agreement and Plan of Merger, dated as of October 3,
1996 and as amended as of December 27, 1996 (the "Merger Agreement") between
Newco and the Corporation, setting forth the terms and conditions of the Merger,
has been approved, adopted, certified, executed and acknowledged by each of the
Constituent Corporations in accordance with the provisions of
<PAGE>
2
Section 251 of the General Corporation Law of the State of Delaware.
THIRD: The surviving corporation in the Merger is the Corporation
(the "Surviving Corporation").
FOURTH: The certificate of incorporation of the Surviving
Corporation shall be amended in its entirety to read as follows:
"FIRST: The name of the Corporation is KinderCare Learning Centers,
Inc.
SECOND: The registered office and registered agent of the
Corporation is The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the
Delaware General Corporation Law.
FOURTH: The total number of shares of stock that the Corporation is
authorized to issue is 20,000,000 shares of Common Stock, par value
$.01 each and 10,000,000 shares of preferred stock, par value $.01
each (hereinafter referred to as "Preferred Stock"). The Preferred
Stock may be issued from time to time in one or more series with
such distinctive designations as may be stated in the resolution or
resolutions providing for the issue of a duly authorized committee
thereof. The resolution or resolutions providing for the issue of
shares of a particular series shall fix, subject to applicable laws
and the provisions of this ARTICLE FOURTH, for each such series the
number of shares constituting such series and the designations and
powers, preferences and relative participating, optional or other
special rights and qualifications, limitations or restrictions
thereof, including, without limiting the generality of the
foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors or a
duly authorized committee thereof under the Delaware General
Corporation Law. The number of authorized shares of any class or
classes of stock may be increased or decreased (but not below the
number of shares thereof
<PAGE>
3
then outstanding) by the affirmative vote of the holders of a
majority of the Common Stock of the Corporation irrespective of the
provisions of Section 242(b)(2) of the Delaware General Corporation
Law or any corresponding provision hereinafter enacted.
FIFTH: The Board of Directors of the Corporation, acting by majority
vote, may alter, amend or repeal the By-Laws of the Corporation.
SIXTH: Except as otherwise provided by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no
director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of this
Article SEVENTH by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
SEVENTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty by such director as a director, except
for liability as a director (A) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (B) for acts
or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (C) under Section 174 of
the Delaware General Corporation Law; or (D) for any transaction
from which the director derived an improper personal benefit. If the
Delaware General Corporation Law is amended after this Certificate
of Incorporation becomes effective to authorize corporate action
further eliminating or limiting the personal liability of directors,
then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the
Delaware General Corporation law, as so amended.
EIGHTH: Indemnification.
8.1 Certain Definitions. As used in this Article, the term:
(a) "Corporation" includes any domestic or foreign
predecessor entity of this Corporation in a merger or
other transaction in which the predecessor's existence
ceased upon consummation of the transaction.
(b) "Change in Control" shall have occurred if, during any
period of two consecutive years,
<PAGE>
4
individuals who at the beginning of such period
constitute the Board of Directors of the Corporation
cease for any reason to constitute at least a majority
thereof, unless the election of each new director was
approved in advance by a vote of at least a majority of
the directors then still in office who were directors at
the beginning of the period.
(c) "Director" means an individual who is or was a director
of the Corporation or an individual who, while a
director of the Corporation, is or was serving at the
Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise. A director
is considered to be serving an employee benefit plan at
the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or
beneficiaries of the plan. "Director" includes, unless
the context requires otherwise, the estate or personal
representative of a director.
(d) "Expenses" includes attorneys' fees.
(e) "Liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax
assessed with respect to an employee benefit plan), or
reasonable expenses incurred with respect to a
proceeding.
(f) "Officer" means an individual who is or was an officer
of the Corporation or an individual who, while an
officer of the Corporation, is or was serving at the
Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise. An officer
is considered to be serving an employee benefit plan at
the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or
beneficiaries of the plan. "Officer" includes, unless
the context
<PAGE>
5
requires otherwise, the estate or personal
representative of an officer.
(g) "Party" includes an individual who was, is, or is
threatened to be made a named defendant or respondent in
a proceeding.
(h) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or
informal.
(i) "Reviewing Party" shall mean the person or persons
making the entitlement determination pursuant to Section
8.4 of this Article, and shall not include a court
making any determination under this Article or
otherwise.
Section 8.2 Basic Indemnification Arrangement.
(a) Except as provided in subsections 8.2(d), 8.2(e) and
8.2(f) below, the Corporation shall indemnify an
individual who is made a party to a proceeding because
he is or was a director or officer against liability
incurred by him in the proceeding if he acted in good
faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation
and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful.
(b) A person's conduct with respect to an employee benefit
plan for a purpose he believed in good faith to be in
the interests of the participants in and beneficiaries
of the plan is conduct that satisfies the requirement of
subsection 8.2(a).
(c) The termination of a proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo
contendere or its equivalent shall not, of itself, be
determinative that the proposed indemnitee did not meet
the standard of conduct set forth in subsection 8.2(a).
(d) The Corporation shall not indemnify a person under this
Article in connection with a proceeding by or in the
right of the Corporation in which such person was
adjudged liable to the Corporation, unless, and then
<PAGE>
6
only to the extent that, the Reviewing Party, or a court
of competent jurisdiction acting pursuant to Section 8.5
of this Article, determines that, in view of the
circumstances of the case, the indemnitee is fairly and
reasonably entitled to indemnification.
(e) Indemnification permitted under this Article in
connection with a proceeding by or in the right of the
Corporation shall include reasonable expenses,
penalties, fines (including an excise tax assessed with
respect to an employee benefit plan) and amounts paid in
settlement (provided that such settlement and the
amounts paid in connection therewith are not
unreasonable, as determined by the Reviewing Party
responsible for making the determination that
indemnification is permissible as described in Section
8.4(b) below) in connection with the proceeding, but,
unless ordered by a court, shall not include judgments.
(f) Notwithstanding any other provision of this Article, no
person shall be entitled to indemnification or
advancement of expenses hereunder with respect to any
proceeding or claim brought or made by him against the
Corporation, other than a proceeding or claim seeking or
defending such person's right to indemnification or
advancement of expense pursuant to Section 8.5 hereof or
otherwise.
(g) If any person is entitled under any provision of this
Article to indemnification by the Corporation for some
portion of liability incurred by him, but not the total
amount thereof, the Corporation shall indemnify such
person for the portion of such liability to which he is
entitled.
(h) The Corporation shall indemnify a director or officer to
the extent that he has been successful, on the merits or
otherwise, in the defense of any proceeding to which he
was a party, or in defense of any claim, issue or matter
therein, because he is or was a director or officer,
against reasonable expenses incurred by him in
connection with the proceeding.
<PAGE>
7
Section 8.3 Advances for Expenses.
(a) The Corporation shall pay for or reimburse the
reasonable expenses incurred by a director or officer as
a party to a proceeding in advance of final disposition
of the proceeding if:
(i) Such person furnishes the Corporation a written
affirmation of his good faith belief that he has
met the standard of conduct set forth in
subsection 8.2(a) above, and
(ii) Such person furnishes the Corporation a written
undertaking (meeting the qualifications set forth
below in subsection 8.3(b)), executed personally
or on his behalf, to repay any advances if it is
ultimately determined that he is not entitled to
indemnification under this Article or otherwise.
(b) The undertaking required by subsection 8.3(a)(ii) above
must be an unlimited general obligation of the proposed
indemnitee but need not be secured and shall be accepted
without reference to financial ability to make
repayment. If a director or officer seeks to enforce his
rights to indemnification in a court pursuant to Section
8.5, such undertaking to repay shall not be applicable
or enforceable unless and until there is a final court
determination that he is not entitled to
indemnification, as to which all rights of appeal have
been exhausted or have expired.
Section 8.4 Authorization of and Determination of Entitlement to
Indemnification.
(a) The Corporation acknowledges that indemnification of a
director or officer under Section 8.2 has been
pre-authorized by the Corporation in the manner
described in subsection 8.4(b) below. Nevertheless, the
Corporation shall not indemnify a director or officer
under Section 8.2 unless a separate determination has
been made in the specific case that indemnification of
such person is permissible in the circumstances because
he has met the standard of conduct set forth in
<PAGE>
8
subsection 8.2(a); provided, however, that no such
entitlement decision need be made prior to the
advancement of expenses and that, regardless of the
result or absence of any such determination, the
Corporation shall make any indemnification mandated by
Section 8.2(h) above.
(b) The determination referred to in subsection 8.4(a) above
shall be made, at the election of the Board of Directors
(unless a Change in Control shall have occurred, in
which case the proposed indemnitee director or officer
shall be entitled to designate that the determination
shall be made by special legal counsel selected by him):
(i) by the Board of Directors of the Corporation by
majority vote of a quorum consisting of directors
not at the time parties to the proceeding;
(ii) if a quorum cannot be obtained under subdivision
(i), by a majority vote of a committee duly
designated by the Board of Directors (in which
designation directors who are parties may
participate), consisting solely of two or more
directors not at the time parties to the
proceeding;
(iii) by special legal counsel:
(1) selected by the Board of Directors or its
committee in the manner prescribed in
subdivision (i) or (ii); or
(2) if a quorum of the Board of Directors
cannot be obtained under subdivision (i)
and a committee cannot be designated under
subdivision (ii), selected by a majority
vote of the full Board of Directors (in
which selection directors who are parties
may participate); or
(iv) by the stockholders; provided that shares owned by
or voted under the control of directors or
officers
<PAGE>
9
who are at the time parties to the proceeding may
not be voted on the determination.
(c) As acknowledged above, the Corporation has
pre-authorized the indemnification of directors and
officers hereunder, subject to a case-by-case
determination that the proposed indemnitee met the
applicable standard of conduct under subsection 8.2(a).
Consequently, no further decision need or shall be made
on a case-by-case basis as to the authorization of the
Corporation's indemnification of, or advancement of
expenses to, directors and officers hereunder.
Nevertheless, except as set forth in subsection 8.4(d)
below, evaluation as to reasonableness of expenses of a
director or officer in the specific case shall be made
in the same manner as the determination that
indemnification is permissible, as described in
subsection 8.4(d) above, except that if the
determination is made by special legal counsel,
evaluation as to reasonableness of expenses shall be
made by those entitled under subsection 8.4(b)(iii) to
select counsel.
(d) Notwithstanding the requirement under subsection 8.4(c)
that the Reviewing Party evaluate the reasonableness of
expenses claimed by the proposed indemnitee, any
expenses claimed by the proposed indemnitee shall be
deemed reasonable if the Reviewing Party fails to make
the evaluation required by subsection 8.4(c) within
thirty (30) days following the proposed indemnitee's
written request for indemnification for, or advancement
of, expenses.
(e) The Reviewing Party, however chosen, shall make the
requested determination as promptly as reasonably
practical after a request for indemnification is
presented.
Section 8.5 Court-Ordered Indemnification and Advances for Expenses.
A director or officer who is a party to a proceeding may apply for
indemnification or advances for expenses to the court conducting the
proceeding or to another court of competent jurisdiction. For
purposes of this Article, the Corporation hereby consents to
personal jurisdiction and venue in any court in which is pending a
proceeding to which a director or officer is a party. Regardless of
any
<PAGE>
10
determination by the Reviewing Party that the proposed indemnitee is
not entitled to indemnification or advancement of expenses or as to
the reasonableness of expenses, and regardless of any failure by the
Reviewing Party to make a determination as to such entitlement or
the reasonableness of expenses, such court's review shall be a de
novo review. On application, the court, after giving any notice it
considers necessary, may order indemnification or advancement of
expenses if it determines that:
(i) The applicant is entitled to mandatory indemnification under
Section 8.2(h) above (in which case the Corporation shall pay
the indemnitee's reasonable expenses incurred to obtain
court-ordered indemnification);
(ii) The applicant is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances,
whether or not he met the standard of conduct set forth in
subsection 8.2(a) above or was adjudged liable as described in
subsection 8.2(d) above (in which case any court-ordered
indemnification need not be limited to reasonable expenses
incurred by the indemnitee but may include expenses,
penalties, fines, judgments, amounts paid in settlement and
any other amounts ordered by the court to be indemnified, and,
whether or not so ordered, the Corporation shall pay the
applicant's reasonable expenses incurred to obtain
court-ordered indemnification); or
(iii) In the case of advances for expenses, the applicant is
entitled pursuant to this Restated Certificate of
Incorporation, Amended and Restated Bylaws or applicable
resolution or agreement to payment for or reimbursement of his
reasonable expenses incurred as a party to a proceeding in
advance of final disposition of the proceeding (in which case
the Corporation shall pay the applicant's reasonable expenses
incurred to obtain court-ordered advancement of expenses); or
(iv) The applicant is otherwise entitled to enforcement of his
rights hereunder (in which case the Corporation shall pay the
indemnitee's reasonable expenses incurred to obtain such
enforcement).
Section 8.6 Indemnification of Employees and Agents. The Corporation
may, subject to authorization in the specific case, indemnify and
advance expenses under this Article to an employee or agent of the
Corporation who is not a director or officer, to the same extent as
to a director or officer or to any lesser extent (or
051200\0220\01996\9717F2C7.CRT 03/01/97 0:4AM
<PAGE>
11
greater extent if permitted by law) determined by the Board of
Directors.
Section 8.7 Liability Insurance. The Corporation may purchase and
maintain insurance on behalf of a director or officer or an
individual who is or was an employee or agent of the Corporation or
who, while a director, officer, employee or agent of the
Corporation, is or was serving at the request of the Corporation as
a director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise against liability
asserted against or incurred by him in that capacity or arising from
his status as a director, officer, employee, or agent, whether or
not the Corporation would have power to indemnify him against the
same liability under Section 8.2, Section 8.3 or Section 8.4 above.
Section 8.8 Witness Fees. Nothing in this Article shall limit the
Corporation's power to pay or reimburse expenses incurred by a
person in connection with his appearance as a witness in a
proceeding at a time when he has not been made a named defendant or
respondent in this proceeding.
Section 8.9 Report to Stockholders. If the Corporation indemnifies
or advances expenses to a director or officer in connection with a
proceeding by or in the right of the Corporation, to the extent
required by law the Corporation shall report the indemnification or
advance, in writing, to the stockholders with or before the notice
of the next stockholders' meeting.
Section 8.10 Security for Indemnification Obligations. The
Corporation may at any time and in any manner, at the discretion of
the Board of Directors, secure the Corporation's obligations to
indemnify or advance expenses to a person pursuant to this Article.
Section 8.11 No Duplication of Payments. The Corporation shall not
be liable under this Article to make any payment to a person
hereunder to the extent such person has otherwise actually received
payment (under any insurance policy, agreement or otherwise) of the
amounts otherwise payable hereunder.
Section 8.12 Subrogation. In the event of payment under this
Article, the Corporation shall be subrogated to the extent of such
payment to all of the rights of recovery of the indemnitee, who
shall execute all papers required and shall do everything that may
be necessary to secure such rights, including the
<PAGE>
12
execution of such documents necessary to enable the Corporation
effectively to bring suit to enforce such rights.
Section 8.13 Contract Rights. The right to indemnification and
advancement of expenses conferred hereunder to directors and
officers shall be a contract right and shall not be affected
adversely to any director or officer by any amendment of this
Restated Certificate of Incorporation with respect to any action or
inaction occurring prior to such amendment; provided, however, that
this provision shall not confer upon any indemnitee or potential
indemnitee (in his capacity as such) the right to consent or object
to any subsequent amendment of this Restated Certificate of
Incorporation.
Section 8.14 Specific Performance. In any proceeding brought by or
on behalf of an officer or director to specifically enforce the
provisions of this Article, the Corporation hereby waives the claim
or defense therein that the plaintiff or claimant has an adequate
remedy at law, and the Corporation shall not urge in any such
proceeding the claim or defense that such remedy at law exists. The
provisions of this Section 8.14, however, shall not prevent the
officer or director from seeking a remedy at law in connection with
any breach of the provisions of this Article.
Section 8.15 Non-exclusivity, Etc. The rights of a director or
officer hereunder shall be in addition to any other rights with
respect to indemnification, advancement of expenses or otherwise
that he may have under contract or the General Corporation Law of
the State of Delaware or otherwise.
Section 8.16 Amendments. It is the intent of the Corporation to
indemnify and advance expenses to its directors and officers to the
full extent permitted by the Delaware General Corporation Law, as
amended from time to time. To the extent that the Delaware General
Corporation Law is hereafter amended to permit a Delaware business
corporation to provide to its directors greater rights to
indemnification or advancement of expenses than those specifically
set forth hereinabove, this Article shall be construed to require
such greater indemnification or more liberal advancement of expenses
to the Corporation's directors and officers, in each case consistent
with the Delaware General Corporation Law as so amended from time to
time. No amendment, modification or rescission of this Article, or
any provision hereof, the effect of which would diminish the rights
to indemnification or advancement of expenses as set forth herein
shall be
<PAGE>
13
effective as to any person with respect to any action taken or
omitted by such person prior to such amendment, modification or
rescission.
Section 8.17 Severability. To the extent that the provisions of this
Article are held to be inconsistent with the provisions of Section
145 of the Delaware General Corporation Law (including subsection
(f) thereof), such provisions of such statute shall govern. In the
event that any of the provisions of this Article (including any
provision within a single section, subsection, division or sentence)
is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions of this Article
shall remain enforceable to the fullest extent permitted by law."
FIFTH: The executed Merger Agreement is on file at the principal
place of business of the Surviving Corporation, 2400 Presidents Drive,
Montgomery, Alabama 36116.
SIXTH: A copy of the Merger Agreement will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of either
of the Constitutent Corporations.
SEVENTH: This Certificate of Merger, and the Merger provided for
herein, shall become effective upon filing on February 13, 1997.
<PAGE>
14
IN WITNESS WHEREOF, this Certificate of Merger has been executed on
the 13th day of February, 1997.
KINDERCARE LEARNING CENTERS, INC.
By /s/ PHILIP L. MASLOWE
-----------------------------------
Name: Philip L. Maslowe
Title: Chief Financial Officer
and Senior Vice President
Attest:
/s/ REBECCA S. BRYAN
- ------------------------------------
Name: Rebecca S. Bryan
Title: Vice President, Secretary and
General Counsel
<PAGE>
Exhibit 3.2
BY-LAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the stockholders
of the Corporation shall be held at such place either within or without the
State of Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of the stockholders may be called by the President for any purpose and
shall be called by the President or Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
capital stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.
Section 3. Notice. Except as otherwise provided by law, at least 10
and not more than 60 days before each meeting of stockholders, written notice of
the time, date and place of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be given to each
stockholder.
Section 4. Quorum. At any meeting of stockholders, the holders of
record, present in person or by proxy, of a majority of the Corporation's issued
and outstanding capital stock shall constitute a quorum for the transaction of
business, except as otherwise provided by law. In the absence of a quorum, any
officer entitled to preside at or to act as secretary of the meeting shall have
power to adjourn the meeting from time to time until a quorum is present.
Section 5. Voting. Except as otherwise provided by law, all matters
submitted to a meeting of stockholders shall be decided by vote of the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock.
<PAGE>
2
ARTICLE II
DIRECTORS
Section 1. Number, Election and Removal of Directors. The number of
Directors that shall constitute the Board of Directors shall not be less than
one or more than fifteen. The first Board of Directors shall consist of two
Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or the stockholders. The
Directors shall be elected by stockholders at their annual meeting. Vacancies
and newly created directorships resulting from any increase in the number of
Directors may be filled by a majority of the Directors then in office, although
less than a quorum, or by the sole remaining Director or by the stockholders. A
Director may be removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of Directors
shall be held at such times and places as may from time to time be fixed by the
Board of Directors or as may be specified in a notice of meeting.
Section 3. Quorum. One-third of the total number of Directors shall
constitute a quorum for the transaction of business. If a quorum is not present
at any meeting of the Board of Directors, the Directors present may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until such a quorum is present. Except as otherwise provided by law,
the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.
Section 4. Committees. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate one or more committees,
including, without limitation, an Executive Committee, to have and exercise such
power and authority as the Board of Directors shall specify. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
absent or disqualified member.
<PAGE>
3
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President, a Vice
President, a Secretary, a Treasurer and such other additional officers with such
titles as the Board of Directors shall determine, all of which shall be chosen
by and shall serve at the pleasure of the Board of Directors. Such officers
shall have the usual powers and shall perform all the usual duties incident to
their respective offices. All officers shall be subject to the supervision and
direction of the Board of Directors. The authority, duties or responsibilities
of any officer of the Corporation may be suspended by the President with or
without cause. Any officer elected or appointed by the Board of Directors may be
removed by the Board of Directors with or without cause.
ARTICLE IV
INDEMNIFICATION
The Corporation shall indemnify Directors and Officers (as such
terms are defined in the Certificate of Incorporation) of the Corporation as
specified in the Certificate of Incorporation. In addition, to the fullest
extent permitted by the Delaware General Corporation Law, the corporation shall
indemnify any current or former Director or officer of the Corporation and may,
at the discretion of the Board of Directors, indemnify any current or former
employee or agent of the Corporation against all expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any threatened, pending or completed action, suit or proceeding brought by
or in the right of the Corporation or otherwise, to which he was or is a party
by reason of his current or former position with the Corporation or by reason of
the fact that he is or was serving, at the request of the Corporation, as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
Expenses incurred by a person who is or was a director or officer of
the Corporation in appearing at, participating in or defending any such action,
suit or proceeding shall be paid by the Corporation at reasonable intervals in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized by this Article. If a claim under
this Article is not paid in full by the Corporation within ninety days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in
<PAGE>
4
part, the claimant shall be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law or
other applicable law for the corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law or other
applicable law, nor an actual determination by the Corporation (including its
board of directors, independent legal counsel, or its stockholders) that the
claimant has not met the applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
ARTICLE V
GENERAL PROVISIONS
Section 1. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears in the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
<PAGE>
Exhibit 4.1
CONFORMED COPY
================================================================================
KINDERCARE LEARNING CENTERS, INC.,
as Issuer
and
MARINE MIDLAND BANK,
as Trustee
--------------------
Indenture
Dated as of February 13, 1997
---------------------
$300,000,000
9-1/2% Senior Subordinated Notes due 2009
9-1/2% Series B Senior Subordinated Notes due 2009
================================================================================
<PAGE>
KINDERCARE LEARNING CENTERS, INC.*
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of February 13, 1997
Trust Indenture
Act Section Indenture Section
ss. 310(a)(1) .......................................... 608
(a)(2) .......................................... 608
(b) .......................................... 609
ss. 312(a) .......................................... 701
(c) .......................................... 702
ss. 313(a) .......................................... 703
(c) .......................................... 703
ss. 314(a)(4) .......................................... 1010(a)
(c)(1) .......................................... 102
(c)(2) .......................................... 102
(e) .......................................... 102
ss.315(a) .......................................... 601(a)
(b) .......................................... 602
(c) .......................................... 601(b)
(d) .......................................... 601(c), 603
316(a)(last
sentence) .......................................... 101 ("Outstanding")
(a)(1)(A) .......................................... 502, 512
(a)(1)(B) .......................................... 513
(b) .......................................... 508
(c) .......................................... 104(d)
ss. 317(a)(1) .......................................... 503
(a)(2) .......................................... 504
(b) .......................................... 1003
ss. 318(a) .......................................... 111
- ----------
*Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS*
Page
PARTIES.................................................................... 1
RECITALS OF THE COMPANY.................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions............................................... 2
Acquired Indebtedness.............................................. 3
Act ............................................................... 3
Affiliate ......................................................... 3
Agent.............................................................. 3
Asset Sale......................................................... 3
Authenticating Agent............................................... 4
Bank Agent......................................................... 4
Bankruptcy Law..................................................... 4
Board of Directors................................................. 4
Board Resolution................................................... 5
Business Day....................................................... 5
Capital Stock...................................................... 5
Capitalized Lease Obligation....................................... 5
Cash Equivalents................................................... 5
Change of Control.................................................. 6
Commission......................................................... 6
Common Stock....................................................... 6
Company ........................................................... 6
Company Request or Company Order................................... 7
Consolidated Additional Paid-In Capital............................ 7
Consolidated Depreciation and Amortization Expense................. 7
Consolidated Interest Expense...................................... 7
Consolidated Net Income............................................ 7
Contingent Obligations............................................. 8
Corporate Trust Office............................................. 8
- ----------
*Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
Page
Custodian ......................................................... 8
Default............................................................ 9
Defaulted Interest................................................. 9
Depositary......................................................... 9
Designated Noncash Consideration................................... 9
Designated Preferred Stock......................................... 9
Designated Senior Indebtedness..................................... 9
Disqualified Stock................................................. 9
EBITDA............................................................. 9
Equity Interests................................................... 10
Equity Offering.................................................... 10
Event of Default................................................... 10
Exchange Act....................................................... 10
Exchange Notes..................................................... 10
Exchange Offer..................................................... 10
Exchange Offer Registration Statement.............................. 11
Existing Indebtedness.............................................. 11
Financings......................................................... 11
Fixed Charge Coverage Ratio........................................ 11
Fixed Charges...................................................... 12
Foreign Subsidiary................................................. 12
GAAP or Generally Accepted Accounting Principles................... 12
Government Securities.............................................. 12
guarantee.......................................................... 13
Guarantee.......................................................... 13
Guarantor.......................................................... 13
Hedging Obligations................................................ 13
Holder............................................................. 13
Indebtedness....................................................... 13
Indenture ......................................................... 14
Independent Financial Advisor...................................... 14
Initial Notes...................................................... 14
Initial Purchasers................................................. 14
Interest Payment Date.............................................. 14
Investment Grade Securities........................................ 14
Investments........................................................ 15
Issuance Date...................................................... 15
KKR................................................................ 15
Letter of Credit/Bankers' Acceptance Obligations................... 15
Lien............................................................... 15
Management Group................................................... 16
Maturity .......................................................... 16
Merger............................................................. 16
ii
<PAGE>
Page
Moody's............................................................ 16
Net Income......................................................... 16
Net Proceeds....................................................... 16
Note Register and Note Registrar................................... 17
Notes.............................................................. 17
Oaktree............................................................ 17
Obligations........................................................ 17
Offering Memorandum................................................ 17
Officer............................................................ 17
Officers' Certificate.............................................. 17
Opinion of Counsel................................................. 17
Outstanding........................................................ 17
Pari Passu Indebtedness............................................ 18
Paying Agent....................................................... 18
Permitted Holders.................................................. 19
Permitted Investments.............................................. 19
Person............................................................. 20
Predecessor Note................................................... 20
preferred stock.................................................... 21
QIB................................................................ 21
Real Estate Financing Transaction.................................. 21
Redemption Date.................................................... 21
Redemption Price................................................... 21
Registration Rights Agreement...................................... 21
Regular Record Date................................................ 21
Regulation S....................................................... 21
Related Parties.................................................... 21
Representative..................................................... 21
Responsible Officer................................................ 22
Restricted Investment.............................................. 22
Restricted Subsidiary.............................................. 22
Rule 144A ......................................................... 22
S&P................................................................ 22
Securities Act..................................................... 22
Senior Credit Facility............................................. 22
Senior Indebtedness................................................ 23
Shelf Registration Statement....................................... 23
Significant Subsidiary............................................. 23
Similar Business................................................... 23
Special Record Date................................................ 23
Stated Maturity.................................................... 23
Subordinated Indebtedness.......................................... 24
Subordinated Note Obligations...................................... 24
iii
<PAGE>
Page
Subsidiary......................................................... 24
Total Assets....................................................... 24
Trust Indenture Act or TIA......................................... 24
Trustee............................................................ 24
Unrestricted Subsidiary............................................ 25
Vice President..................................................... 25
Voting Stock....................................................... 25
Weighted Average Life to Maturity.................................. 25
Wholly Owned Restricted Subsidiary................................. 26
Wholly Owned Subsidiary............................................ 26
SECTION 102. Compliance Certificates and Opinions...................... 26
SECTION 103. Form of Documents Delivered to Trustee.................... 27
SECTION 104. Acts of Holders........................................... 27
SECTION 105. Notices, Etc., to Trustee, the Company and any Guarantor.. 29
SECTION 106. Notice to Holders; Waiver................................. 29
SECTION 107. Effect of Headings and Table of Contents.................. 30
SECTION 108. Successors and Assigns.................................... 30
SECTION 109. Separability Clause....................................... 30
SECTION 110. Benefits of Indenture..................................... 30
SECTION 111. Governing Law............................................. 31
SECTION 112. Legal Holidays............................................ 31
SECTION 113. No Personal Liability of Directors, Officers, Employees,
Stockholders or Incorporators........................... 31
SECTION 114. Counterparts.............................................. 31
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally........................................... 32
SECTION 202. Restrictive Legends....................................... 33
SECTION 203. Form of Certificate to Be Delivered upon Termination of
Restricted Period....................................... 36
SECTION 204. Form of Face of Note...................................... 37
SECTION 205. Form of Reverse of Note................................... 41
SECTION 206. Form of Trustee's Certificate of Authentication........... 49
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms........................................... 49
SECTION 302. Denominations............................................. 50
iv
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SECTION 303. Execution, Authentication, Delivery and Dating............ 50
SECTION 304. Temporary Notes........................................... 52
SECTION 305. Registration, Registration of Transfer and Exchange....... 53
SECTION 306. Book-Entry Provisions for U.S. Global Note................ 54
SECTION 307. Special Transfer Provisions............................... 56
SECTION 308. Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors. 60
SECTION 309. Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S...................... 62
SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes............... 64
SECTION 311. Payment of Interest; Interest Rights Preserved............ 64
SECTION 312. Persons Deemed Owners..................................... 66
SECTION 313. Cancellation.............................................. 66
SECTION 314. Computation of Interest................................... 66
SECTION 315. CUSIP Numbers............................................. 66
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture................... 67
SECTION 402. Application of Trust Money................................ 69
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default......................................... 69
SECTION 502. Acceleration of Maturity; Rescission and Annulment........ 71
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee ................................................ 73
SECTION 504. Trustee May File Proofs of Claim.......................... 73
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.... 74
SECTION 506. Application of Money Collected............................ 74
SECTION 507. Limitation on Suits....................................... 75
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.................................... 76
SECTION 509. Restoration of Rights and Remedies........................ 76
SECTION 510. Rights and Remedies Cumulative............................ 76
SECTION 511. Delay or Omission Not Waiver.............................. 77
SECTION 512. Control by Holders........................................ 77
SECTION 513. Waiver of Past Defaults................................... 77
SECTION 514. Waiver of Stay or Extension Laws.......................... 78
SECTION 515. Undertaking for Costs..................................... 78
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ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities....................... 79
SECTION 602. Notice of Defaults........................................ 80
SECTION 603. Certain Rights of Trustee................................. 81
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes. 82
SECTION 605. May Hold Notes............................................ 82
SECTION 606. Money Held in Trust....................................... 83
SECTION 607. Compensation and Reimbursement............................ 83
SECTION 608. Corporate Trustee Required; Eligibility................... 84
SECTION 609. Resignation and Removal; Appointment of Successor......... 84
SECTION 610. Acceptance of Appointment by Successor.................... 86
SECTION 611. Merger, Conversion, Consolidation or Succession to Business 86
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses............ 87
SECTION 702. Disclosure of Names and Addresses of Holders.............. 87
SECTION 703. Reports by Trustee........................................ 87
ARTICLE EIGHT
MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms...... 88
SECTION 802. Successor Substituted..................................... 90
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders........ 90
SECTION 902. Supplemental Indentures with Consent of Holders........... 91
SECTION 903. Execution of Supplemental Indentures...................... 92
SECTION 904. Effect of Supplemental Indentures......................... 93
SECTION 905. Conformity with Trust Indenture Act....................... 93
SECTION 906. Reference in Notes to Supplemental Indentures............. 93
SECTION 907. Notice of Supplemental Indentures......................... 93
SECTION 908. Effect on Senior Indebtedness............................. 93
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest...... 94
SECTION 1002. Maintenance of Office or Agency.......................... 94
SECTION 1003. Money for Note Payments to Be Held in Trust.............. 94
SECTION 1004. Corporate Existence...................................... 96
SECTION 1005. Payment of Taxes and Other Claims........................ 96
SECTION 1006. Maintenance of Properties................................ 96
SECTION 1007. Insurance................................................ 97
SECTION 1008. Compliance with Laws..................................... 97
SECTION 1009. Limitation on Restricted Payments........................ 97
SECTION 1010. Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock.....................................102
SECTION 1011. Limitation on Liens......................................106
SECTION 1012. Limitation on Transactions with Affiliates...............106
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.................................107
SECTION 1014. Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries...........................................109
SECTION 1015. Limitation on Other Senior Subordinated Indebtedness.....110
SECTION 1016. Purchase of Notes upon a Change of Control...............111
SECTION 1017. Limitation on Sales of Assets............................113
SECTION 1018. Statement by Officers as to Default......................115
SECTION 1019. Commission Reports and Reports to Holders................116
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Redemption...............................................116
SECTION 1102. Applicability of Article.................................117
SECTION 1103. Election to Redeem; Notice to Trustee....................117
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.............117
SECTION 1105. Notice of Redemption.....................................118
SECTION 1106. Deposit of Redemption Price..............................119
SECTION 1107. Notes Payable on Redemption Date.........................119
SECTION 1108. Notes Redeemed in Part...................................119
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ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Legal Defeasance or Covenant
Defeasance.........................................................120
SECTION 1202. Legal Defeasance and Discharge...........................120
SECTION 1203. Covenant Defeasance......................................120
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance....121
SECTION 1205. Deposited Money and U.S. Government Securities to Be
Held in Trust; Other Miscellaneous Provisions..........123
SECTION 1206. Reinstatement............................................123
ARTICLE THIRTEEN
SUBORDINATION OF NOTES
SECTION 1301. Notes Subordinate to Senior Indebtedness.................124
SECTION 1302. Payment over of Proceeds upon Dissolution, Etc...........124
SECTION 1303. Suspension of Payment When Senior Indebtedness in
Default ...............................................125
SECTION 1304. Acceleration of Notes....................................126
SECTION 1305. When Distribution Must Be Paid Over......................126
SECTION 1306. Notice by Company........................................127
SECTION 1307. Payment Permitted If No Default..........................127
SECTION 1308. Subrogation to Rights of Holders of Senior Indebtedness..127
SECTION 1309. Provisions Solely to Define Relative Rights..............127
SECTION 1310. Trustee to Effectuate Subordination......................128
SECTION 1311. Subordination May Not Be Impaired by Company.............128
SECTION 1312. Distribution or Notice to Representative.................128
SECTION 1313. Notice to Trustee........................................129
SECTION 1314. Reliance on Judicial Order or Certificate of Liquidating
Agent .................................................129
SECTION 1315. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustees' Rights.......................130
SECTION 1316. Article Applicable to Paying Agents......................130
SECTION 1317. No Suspension of Remedies................................130
SECTION 1318. Modification of Terms of Senior Indebtedness.............130
SECTION 1319. Certain Terms............................................131
SECTION 1320. Trust Moneys Not Subordinated............................131
SIGNATURES.................................................................132
viii
<PAGE>
INDENTURE, dated as of February 13, 1997, between KINDERCARE
LEARNING CENTERS, INC., a corporation duly organized and existing under the laws
of the State of Delaware (the "Company"), having its principal office at 2400
Presidents Drive, Montgomery, Alabama 36116, and MARINE MIDLAND BANK, a New York
banking corporation and trust company, as trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issuance of its
9-1/2% Senior Subordinated Notes due 2009 (the "Initial Notes"), and 9-1/2%
Series B Senior Subordinated Notes due 2009 (the "Exchange Notes", and together
with the Initial Notes, the "Notes"), of substantially the tenor and amount
hereinafter set forth, and to provide therefor the Company has duly authorized
the execution and delivery of this Indenture.
Upon the issuance of the Exchange Notes, if any, or the
effectiveness of the Shelf Registration Statement (as defined herein), this
Indenture will be subject to, and shall be governed by, the provisions of the
Trust Indenture Act of 1939, as amended, that are required or deemed to be part
of and to govern indentures qualified thereunder.
All things necessary have been done to make the Notes, when executed
and duly issued by the Company and authenticated and delivered hereunder by the
Trustee or the Authenticating Agent, the valid obligations of the Company and to
make this Indenture a valid agreement of the Company in accordance with their
and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and words in the singular include the plural as well
as the singular, and words in the plural include the singular as well as
the plural;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, or defined by
Commission rule and not otherwise defined herein have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under the
Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with Generally Accepted Accounting
Principles;
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision;
(e) the word "or" is not exclusive; and
(f) provisions of the Indenture apply to successive events and
transactions.
<PAGE>
3
Certain terms, used principally in Articles Two, Ten, Twelve and
Thirteen, are defined in those Articles.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person
merged with or into or became a Restricted Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Restricted Subsidiary of such
specified Person and (ii) Indebtedness encumbering any asset acquired by such
specified Person.
"Act," when used with respect to any Holder, has the meaning set
forth in Section 104.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Agent" means any Paying Agent, Authenticating Agent and Note
Registrar under this Indenture.
"Asset Sale" means:
(i) the sale, conveyance, transfer or other disposition (whether in
a single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary (each referred to in this definition as a
"disposition") or
(ii) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than:
(a) a disposition of Cash Equivalents or Investment Grade Securities
or obsolete equipment in the ordinary course of business;
<PAGE>
4
(b) the disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions described in
Section 801 herein or any disposition that constitutes a Change of Control
pursuant to this Indenture;
(c) any Restricted Payment that is permitted to be made, and is
made, under the paragraph (a) of Section 1009;
(d) any disposition of assets with an aggregate fair market value of
less than $1 million;
(e) any disposition of property or assets by a Restricted Subsidiary
to the Company or by the Company or a Restricted Subsidiary to a Wholly
Owned Restricted Subsidiary;
(f) any exchange of like property pursuant to Section 1031 of the
Internal Revenue Code of 1986, as amended, for use in a Similar Business;
(g) any financing transaction with respect to property built or
acquired by the Company or any Restricted Subsidiary after the Issuance
Date including, without limitation, sale-leasebacks and asset
securitizations;
(h) foreclosures on assets; and
(i) any sale of Equity Interests in, or Indebtedness or other
securities of, an Unrestricted Subsidiary.
"Authenticating Agent" means the Person appointed, if any, by the
Trustee as an authenticating agent pursuant to the last paragraph of Section
303.
"Bank Agent" means The Chase Manhattan Bank, in its capacity as
administrative agent under the Senior Credit Facility, and any successor
administrative agent thereunder.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state or foreign law
relating to bankruptcy, insolvency, receivership, winding-up, liquidation,
reorganization or relief of debtors or any amendment to, succession to or change
in any such law.
"Board of Directors" means, with respect to any Person, either the
board of directors of such Person or any duly authorized committee thereof.
<PAGE>
5
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
"Capital Stock" means with respect to any Person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock of such Person, including, without limitation, if
such Person is a partnership, partnership interests (whether general or limited)
and any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
such partnership.
"Capitalized Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized and reflected as a
liability on a balance sheet in accordance with GAAP.
"Cash Equivalents" means (a) United States dollars, (b) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof, (c) certificates of
deposit, time deposits and eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding one year and overnight bank deposits, in each case with any commercial
bank having capital and surplus in excess of $500 million, (d) repurchase
obligations for underlying securities of the types described in clauses (b) and
(c) entered into with any financial institution meeting the qualifications
specified in clause (c) above, (e) commercial paper rated A-1 or the equivalent
thereof by Moody's or S&P and in each case maturing within one year after the
date of acquisition, (f) investment funds investing 95% of their assets in
securities of the types described in clauses (a)-(e) above, (g) readily
marketable direct obligations issued by any state of the United States of
America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P and (h) Indebtedness or
preferred stock issued by Persons with a rating of "A" or higher from S&P or
"A2" or higher from Moody's.
<PAGE>
6
"Change of Control" means the occurrence of any of the following:
(a) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries, taken as a whole (other than pursuant to a Real Estate
Financing Transaction); or
(b) the Company becomes aware of (by way of a report or any other
filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written
notice or otherwise) the acquisition by any Person or group (within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or
any successor provision), including any group acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than the Permitted Holders and
their Related Parties, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business
combination or purchase of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or any successor provision) of
beneficial ownership of more of the total voting power of the Voting Stock
of the Company than the Permitted Holders and their Related Parties
beneficially own at the time the Company so becomes aware of such
acquisition and the Permitted Holders and their Related Parties do not, at
such time, have the right or the ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of the Company.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issuance Date or issued after Issuance Date, and includes, without limitation,
all series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
<PAGE>
7
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company (a) by its Chairman, a Vice-Chairman,
its President or any Vice President and (b) by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee;
provided, however, that such written request or order may be signed by any two
of the officers or directors listed in clause (a) above in lieu of being signed
by one of such officers or directors listed in such clause (a) and one of the
officers listed in clause (b) above.
"Consolidated Additional Paid-In Capital" means, with respect to any
Person for any period, the aggregate of the additional paid-in capital of such
Person and its Restricted Subsidiaries for such period, on a consolidated basis,
and otherwise determined in accordance with GAAP.
"Consolidated Depreciation and Amortization Expense" means with
respect to any Person for any period, the total amount of depreciation and
amortization expense and other noncash charges (excluding any noncash item that
represents an accrual, reserve or amortization of a cash expenditure for a
future period) of such Person and its Restricted Subsidiaries for such period on
a consolidated basis and otherwise determined in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period,
the sum of: (a) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, to the extent such expense was deducted in
computing Consolidated Net Income (including amortization of original issue
discount, noncash interest payments, the interest component of Capitalized Lease
Obligations, and net payments (if any) pursuant to Hedging Obligations,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued, to the extent such expense was deducted in
computing Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, and otherwise determined
in accordance with GAAP; provided, however, that (i) any net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto)
shall be excluded, (ii) the Net Income for such period shall not include the
cumulative effect of a change in accounting principles during such period, (iii)
any net after-tax income (loss) from discontinued operations and any net
after-tax gains or losses on disposal of discontinued operations shall be
excluded, (iv) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to asset dispositions other than in the ordinary
course of business (as determined in good faith by the Board of Directors of the
Company) shall be excluded,
<PAGE>
8
(v) the Net Income for such period of any Person that is not a Subsidiary, or is
an Unrestricted Subsidiary, or that is accounted for by the equity method of
accounting, shall be included only to the extent of the amount of dividends or
distributions or other payments paid in cash (or to the extent converted into
cash) to the referent Person or a Wholly Owned Restricted Subsidiary thereof in
respect of such period, (vi) the Net Income of any Person acquired in a pooling
of interests transaction shall not be included for any period prior to the date
of such acquisition and (vii) the Net Income for such period of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of its Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or indirectly,
by the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders, unless such restriction with
respect to the payment of dividends or in similar distributions has been legally
waived.
"Contingent Obligations" means, with respect to any Person, any
obligation of such Person guaranteeing any leases, dividends or other
obligations that do not constitute Indebtedness ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (A) for the purchase or payment of any such primary obligation or
(B) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, or (iii)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation against loss in respect
thereof.
"Corporate Trust Office" means the principal corporate trust office
of the Trustee, at which at any particular time its corporate trust business
shall be administered, which office at the date of execution of this Indenture
is located at 140 Broadway, 12th Floor, New York, NY 10005, except that with
respect to presentation of Notes for payment or for registration of transfer or
exchange, such term shall mean any office or agency of the Trustee at which, at
any particular time, its corporate agency business shall be conducted.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
<PAGE>
9
"Default" means any event that is, or with the passage of time or
the giving of notice or both would be, an Event of Default.
"Defaulted Interest" has the meaning set forth in Section 311.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Designated Noncash Consideration" means the fair market value of
noncash consideration received by the Company or one of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate, setting
forth the basis of such valuation, executed by the principal executive officer
and the principal financial officer of the Company, less the amount of cash or
Cash Equivalents received in connection with a sale of such Designated Noncash
Consideration.
"Designated Preferred Stock" means preferred stock of the Company
(other than Disqualified Stock) that is issued for cash (other than to a
Restricted Subsidiary) and is so designated as Designated Preferred Stock,
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company, on the issuance date
thereof, the cash proceeds of which are excluded from the calculation set forth
in clause (3) of paragraph (a) of Section 1009.
"Designated Senior Indebtedness" means (a) Senior Indebtedness under
the Senior Credit Facility and (b) any other Senior Indebtedness permitted under
this Indenture the principal amount of which is $50 million or more and that has
been designated by the Company as Designated Senior Indebtedness.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which, by its terms (or by the terms of any security into
which it is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, in each case prior to the date 91 days after the
maturity date of the Notes; provided, however, that if such Capital Stock is
issued to any plan for the benefit of employees of the Company or its
Subsidiaries or by any such plan to such employees, such Capital Stock shall not
constitute Disqualified Stock solely because it may be required to be
repurchased by the Company in order to satisfy applicable statutory or
regulatory obligations.
"EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (a) provision for
taxes based
<PAGE>
10
on income or profits of such Person for such period deducted in computing
Consolidated Net Income, plus (b) Consolidated Interest Expense of such Person
for such period, plus (c) Consolidated Depreciation and Amortization Expense of
such Person for such period to the extent such depreciation and amortization
were deducted in computing Consolidated Net Income, plus (d) any expenses or
charges related to any Equity Offering or Indebtedness permitted to be incurred
by this Indenture (including such expenses or charges related to the Merger and
the Financings) and deducted in such period in computing Consolidated Net
Income, plus (e) the amount of any restructuring charge or reserve deducted in
such period in computing Consolidated Net Income, plus (f) without duplication,
any other noncash charges reducing Consolidated Net Income for such period
(excluding any such charge which requires an accrual of a cash reserve for
anticipated cash charges for any future period), less (g) without duplication,
noncash items increasing Consolidated Net Income of such Person for such period
(excluding any items which represent the reversal of any accrual of, or cash
reserve for, anticipated cash charges in any prior period).
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public or private sale of Common Stock
or preferred stock of the Company (excluding Disqualified Stock), other than
public offerings with respect to the Company's Common Stock registered on Form
S-8.
"Event of Default" has the meaning set forth in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that (i) such Exchange Notes shall not
contain terms with respect to transfer restrictions and shall be registered
under the Securities Act, and (ii) certain provisions relating to an increase in
the stated rate of interest thereon shall be eliminated) that are issued and
exchanged for the Initial Notes in accordance with the Exchange Offer, as
provided for in the Registration Rights Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of
the Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided for in the Registration Rights Agreement.
<PAGE>
11
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company or its
Restricted Subsidiaries in existence on the Issuance Date, plus interest
accruing thereon, after application of the net proceeds of the sale of the Notes
as described in the Offering Memorandum.
"Financings" means the financing transactions consummated on the
Issuance Date in conjunction with the Merger, and consists of (a) the
consummation of the Senior Credit Facility and (b) the issuance and sale of the
Notes to the Initial Purchasers.
"Fixed Charge Coverage Ratio" means, with respect to any Person for
any period, the ratio of EBITDA of such Person for such period to the Fixed
Charges of such Person for such period. In the event that the Company or any of
its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than in the case of revolving credit borrowings, in which
case interest expense shall be computed based upon the average daily balance of
such Indebtedness during the applicable period) or issues or redeems preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter period. For purposes of making the
computation referred to above, Investments, acquisitions, dispositions, mergers,
consolidations and discontinued operations (as determined in accordance with
GAAP) that have been made by the Company or any of its Restricted Subsidiaries
during the four-quarter reference period or subsequent to such reference period
and on or prior to or simultaneously with the Calculation Date shall be
calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, discontinued operations, mergers and consolidations
(and the reduction of any associated fixed charge obligations and the change in
EBITDA resulting therefrom) had occurred on the first day of the four-quarter
reference period. If since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition, discontinued operation,
merger or consolidation that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto for such period as if such Investment, acquisition,
disposition, discontinued operation, merger or consolidation had occurred at the
beginning of the applicable four-quarter period. For purposes of this
definition,
<PAGE>
12
whenever pro forma effect is to be given to a transaction, the pro forma
calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the Calculation Date had been
the applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Indebtedness). Interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by a responsible financial or accounting officer of the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP. For purposes of making the computation referred to above, interest on any
Indebtedness under a revolving credit facility computed on a pro forma basis
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period. Interest on Indebtedness that may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rate, shall be deemed to have been
based upon the rate actually chosen, or, if none, then based upon such optional
rate chosen as the Company may designate.
"Fixed Charges" means, with respect to any Person for any period,
the sum of (a) Consolidated Interest Expense of such Person for such period and
(b) all cash dividend payments (excluding items eliminated in consolidation) on
any series of preferred stock of such Person.
"Foreign Subsidiary" means a Restricted Subsidiary not organized or
existing under the laws of the United States, any State thereof, the District of
Columbia or any territory thereof.
"GAAP" or "Generally Accepted Accounting Principles" means 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 have been
approved by a significant segment of the accounting profession, which are in
effect on the Issuance Date. For the purposes hereof, the term "consolidated"
with respect to any Person shall mean such Person consolidated with its
Restricted Subsidiaries, and shall not include any Unrestricted Subsidiary.
"Government Securities" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of
<PAGE>
13
America, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such Government Securities or a specific payment of principal of or
interest on any such Government Securities held by such custodian for the
account of the holder of such depository receipt; provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the Government Securities or the specific payment
of principal of or interest on the Government Securities evidenced by such
depository receipt.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness or other obligations.
"Guarantee" means any guarantee of the obligations of the Company
under the Indenture and the Notes by any Person in accordance with the
provisions of this Indenture. When used as a verb, "Guarantee" shall have a
corresponding meaning.
"Guarantor" means any Person that incurs a Guarantee; provided that
upon the release and discharge of such Person from its Guarantee in accordance
with this Indenture, such Person shall cease to be a Guarantor.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (a) currency exchange or interest rate swap
agreements, currency exchange or interest rate cap agreements and currency
exchange or interest rate collar agreements and (b) other agreements or
arrangements designed to protect such Person against fluctuations in currency
exchange or interest rates.
"Holder" means the Person in whose name a Note is registered in the
Note Register.
"Indebtedness" means, with respect to any Person, (a) any
indebtedness of such Person, whether or not contingent (i) in respect of
borrowed money, (ii) evidenced by bonds, notes, debentures or similar
instruments or letters of credit or bankers' acceptances (or, without double
counting, reimbursement agreements in respect thereof), (iii) representing the
balance deferred and unpaid of the purchase price of any property (including
Capitalized Lease Obligations), except any such balance that constitutes a trade
payable or similar obligation to a trade creditor, in each case accrued in the
ordinary course of business or (iv) representing any Hedging Obligations, if and
to the extent of
<PAGE>
14
any of the foregoing Indebtedness (other than letters of credit and Hedging
Obligations) that would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, (b) to the extent not otherwise
included, any obligation by such Person to be liable for, or to pay, as obligor,
guarantor or otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business) and (c) to the extent not otherwise included, Indebtedness of another
Person secured by a Lien on any asset owned by such Person (whether or not such
Indebtedness is assumed by such Person); provided, however, that Contingent
Obligations incurred in the ordinary course of business shall be deemed not to
constitute Indebtedness.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Independent Financial Advisor" means an accounting, appraisal,
investment banking firm or consultant to Persons engaged in Similar Businesses
of nationally recognized standing that is, in the judgment of the Company's
Board of Directors, qualified to perform the task for which it has been engaged.
"Initial Notes" has the meaning specified in the recitals to this
Indenture.
"Initial Purchasers" means Chase Securities Inc., BT Securities
Corporation, Salomon Brothers Inc and Smith Barney Inc., as purchasers of the
Initial Notes.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
"Investment Grade Securities" means (a) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof (other than Cash Equivalents), (b) debt
securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 or
higher by Moody's or the equivalent of such rating by such rating organization,
or, if no rating of S&P or Moody's then exists, the equivalent of such rating by
any other nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries, and (c) investments in any fund that invests exclusively in
investments of the type described in clauses (a) and (b) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
<PAGE>
15
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of loans
(including guarantees), advances or capital contributions (excluding advances to
customers, commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities issued by
any other Person and investments that are required by GAAP to be classified on
the balance sheet of the Company in the same manner as the other investments
included in this definition to the extent such transactions involve the transfer
of cash or other property. For purposes of the definition of "Unrestricted
Subsidiary" and Section 1009, (a) "Investments" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of a Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the
Company's "Investment" in such Subsidiary at the time of such redesignation less
(y) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation; and (b) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"Issuance Date" means the closing date for the sale and original
issuance of the Notes hereunder.
"KKR" means Kohlberg Kravis Roberts & Co., L.P.
"Letter of Credit/Bankers' Acceptance Obligations" means
Indebtedness of the Company or any of its Restricted Subsidiaries with respect
to letters of credit or bankers' acceptances constituting Senior Indebtedness or
Pari Passu Indebtedness which shall be deemed to consist of (i) the aggregate
maximum amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), (ii) the aggregate face amount of all unmatured bankers'
acceptances and (iii) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit or creation of such
bankers' acceptances.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any
<PAGE>
16
option or other agreement to sell or give a security interest in and any filing
of or agreement to give any financing statement under the Uniform Commercial
Code (or equivalent statutes) of any jurisdiction); provided that in no event
shall an operating lease be deemed to constitute a Lien.
"Management Group" means the group consisting of the Officers of the
Company.
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity by declaration of acceleration, call for
redemption or purchase or otherwise.
"Merger" means the merger between the Company and KCLC Acquisition
Corp., with the surviving corporation being the Company, pursuant to an
agreement and plan of merger dated as of October 3, 1996, as amended as of
December 27, 1996, between the Company and KCLC Acquisition Corp.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and brokerage and sales
commissions), and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the repayment of principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of the second paragraph
of Section 1017) to be paid as a result of such transaction and any deduction of
appropriate amounts to be provided by the Company as a reserve in accordance
with GAAP against any liabilities associated with the asset disposed of in such
transaction and retained by the Company after such sale or other disposition
thereof, including, without limitation, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with such transaction.
<PAGE>
17
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Notes" has the meaning stated in the first recital of this
Indenture and more particularly means any Notes authenticated and delivered
under this Indenture.
"Oaktree" means Oaktree Capital Management, LLC, a California
limited liability company.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Offering Memorandum" means the Offering Memorandum dated February
10, 1997 with respect to the offering of the Notes.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, any Executive Vice President or Vice President, the Treasurer or the
Corporate Secretary of the Company.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company that meets the requirements set
forth in Section 102.
"Opinion of Counsel" means a written opinion of counsel, which and
who are reasonably acceptable to, and addressed to, the Trustee complying with
the requirements of Section 102. Unless otherwise required by the TIA, such
legal counsel may be an employee of or counsel to the Company or the Trustee.
"Outstanding," when used with respect to Notes, means, as of the
date of determination, all Notes theretofore authenticated and delivered under
this Indenture, except:
(a) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust
<PAGE>
18
by the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Notes; provided that, if such Notes are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture
or provision therefor satisfactory to the Trustee has been made;
(c) Notes, except to the extent provided in Sections 1202 and 1203,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Eleven; and
(d) Notes in exchange for or in lieu of which other Notes (including
pursuant to Section 310) have been authenticated and delivered pursuant to
this Indenture, other than any such Notes in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such
Notes are held by a bona fide purchaser in whose hands the Notes are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding
(provided, that in connection with any offer by the Company or any obligor to
purchase the Notes, Notes tendered for purchase will be deemed to be Outstanding
and held by the tendering Holder until the date of purchase), except that, in
determining whether the Trustee shall be protected in making such calculation or
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes which the Trustee actually knows to be so owned
shall be so disregarded. Notes so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Notes and that
the pledgee is not the Company or any other obligor upon the Notes or any
Affiliate of the Company or such other obligor.
"Pari Passu Indebtedness" means (a) with respect to the Notes,
Indebtedness which ranks pari passu in right of payment to the Notes and (b)
with respect to any Guarantee, Indebtedness which ranks pari passu in right of
payment to such Guarantee.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Notes on behalf of the Company.
<PAGE>
19
"Permitted Holders" means Oaktree, KKR and any of their Affiliates
and the Management Group.
"Permitted Investments" means any of the following:
(a) any Investment in the Company or any Restricted Subsidiary;
(b) any Investment in cash and Cash Equivalents or Investment Grade
Securities;
(c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person that is a Similar Business if as a result of such
Investment (i) such Person becomes a Restricted Subsidiary or (ii) such
Person, in one transaction or a series of related transactions, is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or
a Restricted Subsidiary;
(d) any Investment in securities or other assets not constituting
cash or Cash Equivalents and received in connection with an Asset Sale
made pursuant to Section 1017 or any other disposition of assets not
constituting an Asset Sale;
(e) any Investment existing on the Issuance Date;
(f) advances to employees not in excess of $10 million outstanding
at any one time;
(g) any Investment acquired by the Company or any of its Restricted
Subsidiaries (i) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts
receivable or (ii) as a result of a foreclosure by the Company or any of
its Restricted Subsidiaries with respect to any secured Investment or
other transfer of title with respect to any secured Investment in default;
(h) Hedging Obligations permitted under clause (x) of paragraph (b)
of Section 1010;
(i) loans and advances to officers, directors and employees for
business-related travel expenses, moving expenses and other similar
expenses, in each case incurred in the ordinary course of business;
<PAGE>
20
(j) any Investment in a Similar Business (other than an Investment
in an Unrestricted Subsidiary) having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (j)
that are at that time outstanding, not to exceed the greater of (x) $80
million or (y) 15% of Total Assets at the time of such Investment (with
the fair market value of each Investment being measured at the time made
and without giving effect to subsequent changes in value);
(k) Investments the payment for which consists of Equity Interests
of the Company (exclusive of Disqualified Stock); provided, however, that
such Equity Interests will not increase the amount available for
Restricted Payments under clause (3) of paragraph (a) of Section 1009;
(l) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (l)
that are at that time outstanding, not to exceed the greater of (x) $25
million or (y) 5% of Total Assets at the time of such Investment (with the
fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value);
(m) any transaction to the extent it constitutes an investment that
is permitted by and made in accordance with the provisions of paragraph
(b) of Section 1012 (except transactions described in clauses (ii) and
(vi) of such paragraph);
(n) any Investment by Restricted Subsidiaries in other Restricted
Subsidiaries and Investments by Subsidiaries that are not Restricted
Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries;
and
(o) Investments in any special purpose, Wholly Owned Subsidiary of
the Company organized after the Issuance Date in connection with a Real
Estate Financing Transaction that, in the good faith determination of the
Board of Directors of the Company, are necessary or advisable to effect
such Real Estate Financing Transaction.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note;
<PAGE>
21
and, for the purposes of this definition, any Note authenticated and delivered
under Section 310 in exchange for a mutilated security or in lieu of a lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"preferred stock" means any Equity Interest with preferential right
of payment of dividends or upon liquidation, dissolution, or winding up.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A.
"Real Estate Financing Transaction" means a financing or series of
financings consisting principally of one or more mortgage financings, real
estate sale or leaseback transactions or an asset-backed program based on real
estate owned by the Company or any of its Subsidiaries (funded by the issuance
of commercial paper, medium term notes or other forms of borrowing and including
credit enhancement facilities), and which may consist of or include such other
forms of financing consistent with the foregoing as the Board of Directors of
the Company shall approve in good faith.
"Redemption Date," when used with respect to any Note to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of February 13, 1997, among the Company and the holders of
Initial Notes.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the February 1 or August 1 (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Related Parties" means any Person controlled by the Permitted
Holder, including any partnership of which a Permitted Holder or its Affiliates
is the general partner.
"Representative" means (a) with respect to the Senior Credit
Facility, the Bank Agent and (b) with respect to any other Senior Indebtedness,
the indenture trustee or other trustee, agent or representative for the holders
of such Senior Indebtedness.
<PAGE>
22
"Responsible Officer," when used with respect to the Trustee, means
the chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
trust officer or assistant trust officer, the controller or any assistant
controller or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above-designated officers, and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means, at any time, any direct or indirect
Subsidiary of the Company that is not then an Unrestricted Subsidiary; provided,
however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be
an Unrestricted Subsidiary, such Subsidiary shall be included in the definition
of "Restricted Subsidiary."
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-
Hill, Inc. and its successors.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Senior Credit Facility" means that certain credit facility pursuant
to the Credit Agreement dated as of February 13, 1997, among the Company, the
lenders from time to time party thereto, The Chase Manhattan Bank, as
administrative agent, Bankers Trust Company, as syndication agent, Wells Fargo
Bank, N.A., as documentation agent, and Chase Securities Inc., as arranger,
including any collateral documents, instruments and agreements executed in
connection therewith, and the term Senior Credit Facility shall also include any
amendments, supplements, modifications, extensions, renewals, restatements or
refundings thereof and any credit facilities that replace, refund or refinance
any part of the loans, other credit facilities or commitments thereunder,
including any such replacement, refunding or refinancing facility that increases
the amount borrowable thereunder or alters the maturity thereof.
<PAGE>
23
"Senior Indebtedness" means (a) the Obligations under the Senior
Credit Facility and (b) any other Indebtedness permitted to be incurred by the
Company hereunder, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes, including, with respect to clauses (a) and (b),
interest accruing subsequent to the filing of, or which would have accrued but
for the filing of, a petition for bankruptcy, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (i) any
liability for federal, state, local or other taxes owed or owing by the Company,
(ii) any obligation of the Company to any of its Subsidiaries, (iii) any
accounts payable or trade liabilities arising in the ordinary course of business
(including instruments evidencing such liabilities) other than obligations in
respect of bankers' acceptances and letters of credit under the Senior Credit
Facility, (iv) any Indebtedness that is incurred in violation hereof, (v)
Indebtedness which, when incurred and without respect to any election under
Section 1111(b) of Title 11, United States Code, is without recourse to the
Company, (vi) any Indebtedness, guarantee or obligation of the Company which is
subordinate or junior to any other Indebtedness, guarantee or obligation of the
Company, (vii) Indebtedness evidenced by the Notes and (viii) Capital Stock of
the Company.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issuance Date.
"Similar Business" means a business, the majority of whose revenues
are derived from preschool and child care services, or from any educational
activities, or whose revenues are derived from the licensing of the KinderCare
name, or any business or activity that is reasonably similar thereto or a
reasonable extension, development or expansion thereof or ancillary thereto,
including, without limitation, educational materials, clothes, toys, and other
similar consumer products, as well as the operation of primary and private
schools.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 311.
"Stated Maturity" when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable, and, when used with respect to any other Indebtedness, means
the date specified in the instrument
<PAGE>
24
governing such Indebtedness as the fixed date on which the principal of such
Indebtedness, or any installment of interest thereon, is due and payable.
"Subordinated Indebtedness" means (a) with respect to the Notes, any
Indebtedness of the Company which is by its terms subordinated in right of
payment to the Notes and (b) with respect to any Guarantee, any Indebtedness of
the applicable Guarantor which is by its terms subordinated in right of payment
to such Guarantee.
"Subordinated Note Obligations" means any principal of, premium, if
any, and interest on the Notes payable pursuant to the terms of the Notes or
upon acceleration, together with and including any amounts received upon the
exercise of rights of rescission or other rights of action (including claims for
damages) or otherwise, to the extent relating to the purchase price of the Notes
or amounts corresponding to such principal, premium, if any, or interest on the
Notes.
"Subsidiary" means, with respect to any Person, (a) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (b) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
Person or any Wholly Owned Restricted Subsidiary of such Person is a controlling
general partner or otherwise controls such entity.
"Total Assets" means the total consolidated assets of the Company
and its Restricted Subsidiaries, as shown on the most recent balance sheet of
the Company.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force on the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
<PAGE>
25
"Unrestricted Subsidiary" means (a) any Subsidiary of the Company
which at the time of determination is an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (b) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any existing Subsidiary
and any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity
Interests of, or owns, or holds any Lien on, any property of, the Company or any
Subsidiary of the Company (other than any Subsidiary of the Subsidiary to be so
designated), provided that (i) any Unrestricted Subsidiary must be an entity of
which shares of the capital stock or other equity interests (including
partnership interests) entitled to cast at least a majority of the votes that
may be cast by all shares or equity interests having ordinary voting power for
the election of directors or other governing body are owned, directly or
indirectly, by the Company, (ii) the Company certifies that such designation
complies with the requirements of Section 1009 and (iii) each of (A) the
Subsidiary to be so designated and (B) its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Indebtedness
pursuant to which the lender has recourse to any of the assets of the Company or
any of its Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that,
immediately after giving effect to such designation, the Company could incur at
least $1.00 of additional Indebtedness under paragraph (a) of Section 1010 on a
pro forma basis taking into account such designation. Any such designation by
the Board of Directors shall be notified by the Company to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving effect to
such designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means, with respect to any Person, any class or
series of capital stock of such Person that is ordinarily entitled to vote in
the election of directors thereof at a meeting of stockholders called for such
purpose, without the occurrence of any additional event or contingency.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness or Disqualified Stock, as the case may be, at any date, the
quotient obtained by dividing (a) the sum of the products of the number of years
from the date of determination to the date of each successive scheduled
principal payment of such
<PAGE>
26
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (b) the sum of all such
payments.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary
that is a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person 100% of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company and any
Guarantor (if applicable) and any other obligor on the Notes (if applicable)
shall furnish to the Trustee an Officers' Certificate in form and substance
reasonably acceptable to the Trustee stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (including certificates
provided pursuant to Section 1018(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary
to enable him
<PAGE>
27
or it to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company, any
Guarantor or other obligor on the Notes may be based, insofar as it relates to
legal matters, upon a certificate or opinion of, or representations by, counsel,
unless such officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate or Opinion of Counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company, any Guarantor or other obligor on the Notes stating
that the information with respect to such factual matters is in the possession
of the Company, any Guarantor or other obligor on the Notes unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly
<PAGE>
28
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company, if made in the manner provided in this Section 104.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the Outstanding Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
<PAGE>
29
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof (including in
accordance with Section 310) in respect of anything done, omitted or suffered to
be done by the Trustee, any Paying Agent or the Company or any Guarantor in
reliance thereon, whether or not notation of such action is made upon such Note.
SECTION 105. Notices, Etc., to Trustee, the Company and any
Guarantor.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company or any Guarantor or
any other obligor on the Notes shall be sufficient for every purpose
hereunder if made, given, furnished or delivered in writing and mailed,
first-class postage prepaid, or delivered by recognized overnight courier,
to or with the Trustee and received at its Corporate Trust Office,
Attention: Corporate Trust Services--KinderCare, or
(2) the Company or any Guarantor by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or delivered, in writing, or
mailed, first-class postage prepaid, or delivered by recognized overnight
courier, to the Company or such Guarantor addressed to it at the address
of its principal office specified in the first paragraph of this
Indenture, or at any other address previously furnished in writing to the
Trustee by the Company or such Guarantor.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been
<PAGE>
30
received by such Holder, whether or not such Holder actually receives such
notice. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, (other than the parties hereto, any Agent and their
successors hereunder and each of the Holders and, with respect to any provisions
hereof relating to the subordination of the Notes or the rights of holders of
Senior Indebtedness, the holders of Senior Indebtedness) any benefit or any
legal or equitable right, remedy or claim under this Indenture.
<PAGE>
31
SECTION 111. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY RULE
OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK. UPON THE ISSUANCE OF THE EXCHANGE NOTES OR THE
EFFECTIVENESS OF THE SHELF REGISTRATION STATEMENT, THIS INDENTURE SHALL BE
SUBJECT TO THE PROVISIONS OF THE TRUST INDENTURE ACT THAT ARE REQUIRED TO BE
PART OF THIS INDENTURE AND SHALL, TO THE EXTENT APPLICABLE, BE GOVERNED BY SUCH
PROVISIONS.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, any date established
for payment of Defaulted Interest pursuant to Section 311 or Redemption Date or
Stated Maturity or Maturity of any Note shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Notes) payment
of principal (or premium, if any) or interest need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date or date established for payment of
Defaulted Interest pursuant to Section 311, Redemption Date, or at the Stated
Maturity or Maturity; provided that no interest shall accrue for the period from
and after such Interest Payment Date, Redemption Date or date established for
payment of Defaulted Interest pursuant to Section 311, Stated Maturity or
Maturity, as the case may be, to the next succeeding Business Day.
SECTION 113. No Personal Liability of Directors, Officers,
Employees, Stockholders or Incorporators.
No director, officer, employee, incorporator or stockholders, as
such, of the Company or any Guarantor shall have any liability for any
obligations of the Company or such Guarantor under the Notes, this Indenture or
any Guarantee or for any claim based on, in respect of, or by reason of, such
obligations or their creations. Each Holder by accepting a Note waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
SECTION 114. Counterparts.
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32
This Indenture may be executed in any number of counterparts, each
of which shall be original; but such counterparts shall together constitute but
one and the same instrument.
ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
The Initial Notes shall be known as the "9-1/2% Senior Subordinated
Notes due 2009" and the Exchange Notes shall be known as the "9-1/2% Series B
Senior Notes due 2009", in each case, of the Company. The Notes and the
Trustee's certificate of authentication shall be in substantially the forms set
forth in this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or as may, consistently herewith, be
determined by the officers executing such Notes, as evidenced by their execution
of the Notes. Any portion of the text of any Note may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the Note.
Each Note shall be dated the date of its authentication.
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Notes, as evidenced by their
execution of such Notes.
Initial Notes offered and sold in reliance on Rule 144A to QIBs or
on another exemption under the Securities Act to institutional "Accredited
Investors" (as defined in Rule 501(a)(1), (2), (3) or (7) of the Securities Act)
("IAIs") will be issued on the Issuance Date in the form of two permanent global
Notes (with separate CUSIP numbers) substantially in the form set forth in
Sections 204 and 205 (each a "U.S. Global Note") deposited with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided. One U.S. Global Note (which may be
represented by more than one certificate, if so required by the Depositary's
rules regarding the maximum principal amount to be represented by a single
certificate) will represent Initial Notes sold to QIB's, and the other will
represent Initial Notes sold to IAIs. The aggregate principal amount of each
U.S. Global Note may from time to time be increased or decreased by adjustments
made on the records of the Trustee, as custodian
<PAGE>
33
for the Depositary or its nominee, as hereinafter provided. Transfers of Initial
Notes from QIBs to IAIs, and from IAIs to QIBs, will be represented by
appropriate increases and decreases to the respective amounts of the appropriate
U.S. Global Notes, as more fully provided in Section 307.
Initial Notes offered and sold in reliance on Regulation S, if any,
shall be issued initially in the form of temporary certificated Notes in
registered form substantially in the form set forth in Sections 204 and 205 (the
"Temporary Offshore Physical Notes"). The Temporary Offshore Physical Notes will
be registered in the name of, and held by, a temporary certificate holder
designated by Chase Securities Inc. until the later of the completion of the
distribution of the Initial Notes and the termination of the "restricted period"
(as defined in Regulation S) with respect to the offer and sale of the Initial
Notes (the "Offshore Notes Exchange Date"). The Company shall promptly notify
the Trustee in writing of the occurrence of the Offshore Notes Exchange Date
and, at any time following the Offshore Notes Exchange Date, upon receipt by the
Trustee and the Company of a certificate substantially in the form set forth in
Section 203, the Company shall execute, and the Trustee shall authenticate and
deliver, one or more permanent certificated Notes in registered form
substantially in the form set forth in Sections 204 and 205 (the "Permanent
Offshore Physical Notes") in exchange for the Temporary Offshore Physical Notes
of like tenor and amount.
Initial Notes offered and sold other than as described in the
preceding two paragraphs, if any, shall be issued in the form of permanent
certificated Notes in registered form in substantially the form set forth in
Sections 204 and 205 (the "U.S.
Physical Notes").
The Temporary Offshore Physical Notes, Permanent Offshore Physical
Notes and U.S. Physical Notes are sometimes collectively herein referred to as
the "Physical Notes".
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement or (ii) an Initial Note is exchanged for an Exchange Note
in connection with an effective Registration Statement, in each case pursuant to
the Registration Rights Agreement, each such U.S. Global Note, Temporary
Offshore Physical Note, Permanent Offshore Physical Note and U.S. Physical Note
shall bear the following legend (the "Private Placement Legend") on the face
thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES
<PAGE>
34
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE
HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO
THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS
SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT (AND IF ACQUIRING THE SECURITIES FROM SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR", IS ACQUIRING SECURITIES HAVING AN AGGREGATE
PRINCIPAL AMOUNT OF NOT LESS THAN $250,000), OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT; PROVIDED THAT THE COMPANY AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO
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35
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND
(ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.
Each U.S. Global Note, whether or not an Initial Note, shall also
bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER REPRESENTATIVE OF
DTC AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
<PAGE>
36
SECTION 203. Form of Certificate to Be Delivered upon Termination
of Restricted Period.
On or after March 25, 1997
MARINE MIDLAND BANK
140 Broadway, 12th Floor
New York, NY 10005
Attention: Corporate Trust Services - KinderCare
Re: KINDERCARE LEARNING CENTERS, INC.
(the "Company")
9-1/2% Senior Subordinated Notes due 2009 (the "Notes")
Ladies and Gentlemen:
This letter relates to Notes represented by a temporary global note
certificate (the "Temporary Certificate"). Pursuant to Section 201 of the
Indenture dated as of February 13, 1997 relating to the Notes (the "Indenture"),
we hereby certify that (1) we are the beneficial owner of $[ ] principal
amount of Notes represented by the Temporary Certificate and (2) we are a person
outside the United States to whom the Notes could be transferred in accordance
with Rule 904 of Regulation S promulgated under the Securities Act of 1933, as
amended. Accordingly, you are hereby requested to issue a Certificated Note
representing the undersigned's interest in the principal amount of Notes
represented by the Temporary Certificate, all in the manner provided by the
Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters
<PAGE>
37
covered hereby. Terms used in this certificate have the meanings set forth in
Regulation S.
Very truly yours,
[Name of Holder]
By:______________________________________
Authorized Signature
SECTION 204. Form of Face of Note.
KINDERCARE LEARNING CENTERS, INC.
9-1/2% [Series B]* Senior Subordinated Note due 2009
CUSIP No. _____
No. __________ $________
KINDERCARE LEARNING CENTERS, INC., a Delaware corporation (herein
called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to ____________________ or registered assigns, the principal sum of
____________________ Dollars on February 15, 2009, at the office or agency of
the Company referred to below, and to pay interest thereon on August 15, 1997
and semi-annually thereafter, on February 15 and August 15 in each year, from
February 13, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, at the rate of 9-1/2% per annum,
until the principal hereof is paid or duly provided for, and (to the extent
lawful) to pay on demand interest on any overdue interest at the rate borne by
the Notes from the date on which such overdue interest becomes payable to the
date payment of such interest has been made or duly provided for. The interest
so payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in such Indenture, be paid to the Person in whose name
this Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest, which shall be the
February 1 or August 1 (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for shall
- ----------
* Include only for Exchange Notes.
<PAGE>
38
forthwith cease to be payable to the Holder on such Regular Record Date, and
such defaulted interest, and (to the extent lawful) interest on such defaulted
interest at the rate borne by the Notes, may be paid to the Person in whose name
this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
[The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of February 13, 1997 (the "Registration
Rights Agreement"), between the Company and the Initial Purchasers named
therein. In the event that either (a) an Exchange Offer Registration Statement
(as such term is defined in the Registration Rights Agreement) is not filed with
the Commission on or prior to the 45th day following the date of original issue
of the Notes, (b) such Exchange Offer Registration Statement has not been
declared effective on or prior to the 150th day following the date of original
issue of the Notes or (c) the Exchange Offer (as such term is defined in the
Registration Rights Agreement) is not consummated on or prior to the 180th day
following the date of original issue of the Notes or a Shelf Registration
Statement (as such term is defined in the Registration Rights Agreement) with
respect to the Notes is not declared effective on or prior to the 180th day
following the date of original issue of the Notes, the interest rate borne by
this Note shall be increased by one-quarter of one percent per annum following
such 45-day period in the case of clause (a) above, such 150-day period in the
case of clause (b) above or such 180-day period in the case of clause (c) above,
which rate will be increased by an additional one-quarter of one percent per
annum for each 90-day period that any such additional interest continues to
accrue; provided that the aggregate increase in such annual interest rate will
in no event exceed one percent. Upon (x) the filing of the Exchange Offer
Registration Statement after the 45-day period described in clause (a) above,
(y) the effectiveness of the Exchange Offer Registration Statement after the
150-day period described in clause (b) above or (z) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 180-day period described in clause (c) above, the
interest rate borne by the Note from the date of such filing, effectiveness or
consummation, as the case may be, will be reduced to the original interest rate
set forth above if the Company is otherwise in compliance with this paragraph;
provided, however, that, if after such reduction in interest rate, a different
event specified in clause (a), (b) or (c) above occurs, the interest rate may
again be increased and thereafter reduced pursuant to the foregoing provisions.
If the Company issues a notice that the Shelf Registration Statement is unusable
pending the announcement of a material corporate transaction or otherwise
pursuant to Section 3(k) of the Registration Rights Agreement, or such a notice
is required
<PAGE>
39
under applicable securities laws to be issued by the Company, and the aggregate
number of days in any consecutive twelve-month period for which all such notices
are issued or required to be issued exceeds 30 days in the aggregate, then the
interest rate borne by the Notes will be increased by one-quarter of one percent
per annum following the date that such Shelf Registration Statement ceases to be
usable beyond the period permitted above, which rate shall be increased by an
additional one-quarter of one percent per annum for each 90-day period that such
additional interest continues to accrue; provided that the aggregate increase in
such annual interest rate may in no event exceed one percent. Upon the Company
declaring that the Shelf Registration Statement is usable after the interest
rate has been increased pursuant to the preceding sentence, the interest rate
borne by the Notes will be reduced to the original interest rate if the Company
is otherwise in compliance with this paragraph; provided, however, that if after
any such reduction in interest rate the Shelf Registration Statement again
ceases to be usable beyond the period permitted above, the interest rate will
again be increased and thereafter reduced pursuant to the foregoing
provisions.]*
Payment of the principal of (and premium, if any, on) and interest
on this Note will be made at the office or agency of the Company maintained for
that purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that payment of interest may be
made at the option of the Company (i) by check mailed to the address of the
Person entitled thereto as such address shall appear on the Note Register or
(ii) by wire transfer to an account maintained by the payee located in the
United States.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee or the Authenticating Agent referred to on the reverse
hereof by manual
- ----------
* Include only for Initial Notes.
<PAGE>
40
signature, this Note shall not be entitled to any benefit under the Indenture,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
KINDERCARE LEARNING CENTERS,
INC.
By_______________________________________
Name:
Title:
Attest: [SEAL]
____________________________
Authorized Officer
<PAGE>
41
SECTION 205. Form of Reverse of Note.
This Note is one of a duly authorized issue of securities of the
Company designated as its 9-1/2% [Series B]* Senior Subordinated Notes due 2009
(the "Notes"), limited (except as otherwise provided in the Indenture referred
to below) in aggregate principal amount to $300,000,000, which may be issued
under an indenture (the "Indenture") dated as of February 13, 1997 between the
Company and Marine Midland Bank, as trustee (the "Trustee", which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the Notes, and of the
terms upon which the Notes are, and are to be, authenticated and delivered.
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness as defined in the
Indenture, and this Note is issued subject to such provisions. Each Holder of
this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in the Indenture and (c) appoints the Trustee his attorney-in-fact for
such purpose.
On or before each payment date, the Company shall deliver or cause
to be delivered to the Trustee or the Paying Agent an amount in dollars
sufficient to pay the amount due on such payment date.
The Notes are subject to redemption upon not less than 30 nor more
than 60 days', written notice, at any time on and after February 15, 2002, as a
whole or in part, at the election of the Company, at a Redemption Price equal to
the percentage of the principal amount set forth below, plus, in each case,
accrued and unpaid interest, if
- ----------
* Include only for the Exchange Notes
<PAGE>
42
any, to the applicable Redemption Date, if redeemed during the twelve month
period beginning February 15, of the years indicated below:
Redemption
Year Price
---- -----
2002 ............................................ 104.750%
2003 ............................................ 103.167%
2004 ............................................ 101.583%
2005 and thereafter ............................. 100.000%
In addition, at any time or from time to time, on or prior to
February 15, 2000, the Company may, at its option, redeem up to 40% of the
aggregate principal amount of Notes originally issued under the Indenture on the
Issuance Date at a Redemption Price equal to 109.5% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Redemption Date, with the net proceeds of one or more Equity Offerings; provided
that at least 60% of the aggregate principal amount of Notes originally issued
under the Indenture on the Issuance Date remains outstanding immediately after
the occurrence of such redemption; and provided further that such redemption
shall occur within 60 days of the date of the closing of any such Equity
Offering.
If less than all the Notes are to be redeemed pursuant to the
preceding two paragraphs, the Trustee shall select the Notes or portions thereof
to be redeemed in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes being redeemed are listed, or if
the Notes are not so listed, on a pro rata basis, by lot or by such other method
the Trustee shall deem fair and appropriate; provided that no such partial
redemption shall reduce the portion of the principal amount of a Note not
redeemed to less than $1,000.
In the case of any redemption of Notes, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Notes, or one or more Predecessor Notes, of record at the close
of business on the relevant Regular Record Date or Special Record Date, as the
case may be, referred to on the face hereof. Notes (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date.
In the event of redemption or repurchase of this Note in part only,
a new Note or Notes for the unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.
<PAGE>
43
Upon the occurrence of a Change of Control, the Company will be
required to make an offer to purchase on the Change of Control Payment Date all
outstanding Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of purchase, in accordance with the Indenture. Holders of Notes that
are subject to an offer to purchase will receive a Change of Control Offer from
the Company prior to any related Change of Control Payment Date.
Under certain circumstances, in the event the Net Proceeds received
by the Company from an Asset Sale, which proceeds are not used (i) to
permanently reduce Obligations under the Senior Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other Senior
Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce Obligations under the Notes if the Notes are then prepayable or, if the
Notes may not be then prepaid, the Company shall make an offer (in accordance
with the procedures set forth below for an Asset Sale Offer) to all Holders to
purchase 100% of the principal amount thereof the amount of Notes that would
otherwise be prepaid), (ii) to make an investment in any one or more businesses,
capital expenditures or acquisitions of other assets in each case, used or
useful in a Similar Business and/or (iii) to make an investment in properties or
assets that replace the properties and assets that are the subject of such Asset
Sale, equal or exceeds a specified amount, the Company will be required to make
an offer to all Holders to purchase the maximum principal amount of Notes, in an
integral multiple of $1,000, that may be purchased out of such amount at a
purchase price in cash equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase, in accordance with
the Indenture. Holders of Notes that are subject to any offer to purchase will
receive an Asset Sale Offer from the Company prior to any related Asset Sale
Purchase Date.
In the case of any redemption or repurchase of Notes, interest
installments whose Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Notes, or one or more Predecessor Notes, of
record at the close of business on the relevant Regular Record Date or Special
Record Date, as the case may be, referred to on the face hereof. Notes (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
If an Event of Default shall occur and be continuing, the principal
of all the Notes may be declared due and payable in the manner and with the
effect provided in the Indenture.
<PAGE>
44
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture and the Notes and the
Guarantees, if any, at any time by the Company and the Trustee with the consent
of the Holders of a specified percentage in aggregate principal amount of the
Notes at the time Outstanding. Additionally, the Indenture permits that, without
notice to or consent of any Holder, the Company, any Guarantor and the Trustee
together may amend or supplement the Indenture, any Guarantee or this Note (i)
to cure any ambiguity, defect or inconsistency, (ii) to provide for
uncertificated Notes in addition to or in place of certificated Notes, (iii) to
comply with the covenant relating to mergers, consolidations and sales of
assets, (iv) to provide for the assumption of the Company's obligations to
Holders of such Notes, (v) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, (vi) to add covenants
for the benefit of the Holders or to surrender any right or power conferred upon
the Company, (vii) to comply with the requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act, (viii) to evidence and provide for the acceptance of appointment under the
Indenture by a successor Trustee pursuant to the requirements of Section 610
thereof, (ix) to make any change that does not adversely affect the legal rights
of any Holder or (x) to add a Guarantor under the Indenture. The Indenture also
contains provisions permitting the Holders of specified percentages in aggregate
principal amount of the Notes at the time Outstanding, on behalf of the Holders
of all the Notes, to waive compliance by the Company with certain provisions of
the Indenture the Notes and the Guarantees, if any, and certain past Defaults
under the Indenture and the Notes and the Guarantees, if any, and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place, and rate,
<PAGE>
45
and in the coin or currency, herein prescribed, subject to the subordination
provisions of the Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registerable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to pay all documentary, stamp or similar issue or transfer taxes or
other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee nor any agent shall be affected by notice to the contrary.
<PAGE>
46
THIS NOTE AND THE INDENTURE SHALL BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY RULE
OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
Interest on this Note shall be computed on the basis of a 360-day
year of twelve 30-day months.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
FORM OF TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
________________________________________________________________________________
________________________________________________________________________________
please print or typewrite name and address including zip code of assignee
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
________________________________________________________________________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
<PAGE>
47
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES
EXCEPT PERMANENT OFFSHORE PHYSICAL
NOTES]
In connection with any transfer of this Note occurring prior to the
date that is the earlier of the date of an effective Registration Statement, as
defined in the Registration Rights Agreement dated as of February 13, 1997, or
February 15, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
|_|(a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder.
or
|_|(b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished that comply with the conditions of
transfer set forth in this Note and the Indenture.
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date: ____________________ _______________________________________________
NOTICE: The signature must correspond with
the name as written upon the face of
the within-mentioned instrument in
every particular, without alteration
or any change whatsoever.
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
<PAGE>
48
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:_______________________________ NOTICE: To be executed by
an executive officer.
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1016 of the Indenture, check the Box: |_|.
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1016 of the Indenture, state the amount (in original
principal amount) below:
$_____________________.
Date:_____________________________________
Your Signature:______________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:_________________________
<PAGE>
49
SECTION 206. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Notes referred to in the within-mentioned
Indenture.
MARINE MIDLAND BANK,
as Trustee
By__________________________________
Authorized Signatory
Dated: ____________________
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
The aggregate principal amount of Notes which may be authenticated
and delivered under this Indenture is limited to $300,000,000, except for Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 307, 310,
906, 1015, 1017 or 1108 or pursuant to an Exchange Offer.
The Initial Notes shall be known and designated as the "9-1/2%
Senior Subordinated Notes due 2009" and the Exchange Notes shall be known and
designated as the "9-1/2% Series B Senior Subordinated Notes due 2009", in each
case, of the Company. The Stated Maturity of the Notes shall be February 15,
2009, and they shall bear interest at the rate of 9-1/2% per annum from February
13, 1997, or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, payable on August 15, 1997 and semi-annually
thereafter on February 15 and August 15 in each
<PAGE>
50
year, until the principal thereof is paid in full and to the Person in whose
name the Note (or any predecessor Note) is registered at the close of business
on the February 1 or August 1 next preceding such interest payment date.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months, until the principal thereof is paid or duly provided for.
Interest on any overdue principal, interest (to the extent lawful) or premium,
if any, shall be payable on demand.
The principal of (and premium, if any) and interest on the Notes
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; provided, however, that, at the
option of the Company, interest may be paid (a) by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Note Register
or (ii) by transfer to an account maintained by the payee located in the United
States.
Holders shall have the right to require the Company to purchase
their Notes, in whole or in part, in the event of a Change of Control pursuant
to Section 1016.
The Notes shall be subject to repurchase by the Company pursuant to
an Asset Sale Offer as provided in Section 1017.
The Notes shall be redeemable as provided in Article Twelve and in
the Notes.
The Indebtedness evidenced by the Notes shall be subordinated in
right of payment to Senior Indebtedness as provided in Article Thirteen.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its Chief
Executive Officer or a Vice President, under its corporate seal reproduced
thereon and attested by its Corporate Secretary or an Assistant Secretary. The
signature of any of these officers on the Notes may be manual or facsimile
signatures of the present or any future such authorized officer and may be
imprinted or otherwise reproduced on the Notes.
<PAGE>
51
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Initial Notes executed by the Company
to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes, and the Trustee in accordance with
such Company Order shall authenticate and deliver such Initial Notes directing
the Trustee to authenticate the Notes and certifying that all conditions
precedent to the issuance of Notes contained herein have been fully complied
with, and the Trustee in accordance with such Company Order shall authenticate
and deliver such Initial Notes. On Company Order, the Trustee shall authenticate
for original issue Exchange Notes in an aggregate principal amount not to exceed
$300,000,000; provided that such Exchange Notes shall be issuable only upon the
valid surrender for cancellation of Initial Notes of a like aggregate principal
amount in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement. In each case, the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel of the Company that it may reasonably
request in connection with such authentication of Notes. Such order shall
specify the amount of Notes to be authenticated and the date on which the
original issue of Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company or any Guarantor, pursuant to Article Eight,
shall be consolidated or merged with or into any other Person or shall convey,
transfer, lease or otherwise dispose of its properties and assets substantially
as an entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company or such
Guarantor shall have been merged, or the Person which shall have received a
conveyance, transfer, lease or other disposition as aforesaid, shall have
executed an indenture supplemental hereto with the Trustee pursuant to Article
Eight, any of the Notes authenticated or delivered prior to such consolidation,
merger,
<PAGE>
52
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Notes executed in the
name of the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Notes surrendered
for such exchange and of like principal amount; and the Trustee, upon Company
Request of the successor Person, shall authenticate and deliver Notes as
specified in such request for the purpose of such exchange. If Notes shall at
any time be authenticated and delivered in any new name of a successor Person
pursuant to this Section 303 in exchange or substitution for or upon
registration of transfer of any Notes, such successor Person, at the option of
the Holders but without expense to them, shall provide for the exchange of all
Notes at the time Outstanding for Notes authenticated and delivered in such new
name.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes on behalf of the Trustee. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Note Registrar or Paying Agent
to deal with the Company and its Affiliates.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as conclusively evidenced by their
execution of such Notes.
If temporary Notes are issued, the Company will cause definitive
Notes to be prepared without unreasonable delay. After the preparation of
definitive Notes, the temporary Notes shall be exchangeable for definitive Notes
upon surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
<PAGE>
53
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. The Note Register shall be in written form
or any other form capable of being converted into written form within a
reasonable time. At all reasonable times, the Note Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as security
registrar (the Trustee in such capacity, together with any successor of the
Trustee in such capacity, the "Note Registrar") for the purpose of registering
Notes and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denomination or denominations of a like aggregate principal amount.
Furthermore, any Holder of a U.S. Global Note shall, by acceptance
of such Global Note, agree that transfers of beneficial interest in such Global
Note may be effected only through a book-entry system maintained by the Holder
of such Global Note (or its agent), and that ownership of a beneficial interest
in the Note shall be required to be reflected in a book entry.
At the option of the Holder, Notes may be exchanged for other Notes
of any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange (including an exchange of Initial Notes
for Exchange Notes), the Company shall execute, and the Trustee shall
authenticate and deliver, the Notes which the Holder making the exchange is
entitled to receive; provided that no exchange of Initial Notes for Exchange
Notes shall occur until an Exchange Offer Registration Statement shall have been
declared effective by the Commission, the Trustee shall have received an
Officers' Certificate confirming that the Exchange Offer Registration Statement
has been declared effective by the Commission and the Initial Notes to be
exchanged for the Exchange Notes shall be cancelled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to
<PAGE>
54
the same benefits under this Indenture, as the Notes surrendered upon such
registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Note Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Note Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 304, 906, 1016, 1017 or 1108, not involving any
transfer.
SECTION 306. Book-Entry Provisions for U.S. Global Note.
(a) Each U.S. Global Note initially shall (i) be registered in the
name of the Depositary for such global Note or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any U.S. Global Note
held on their behalf by the Depositary, or the Trustee as its custodian, or
under the U.S. Global Note, and the Depositary may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such U.S. Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any agent of
the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or shall impair, as
between the Depositary and its Agent Members, the operation of customary
practices governing the exercise of the rights of a Holder of any Note.
(b) Transfers of a U.S. Global Note shall be limited to transfers of
such U.S. Global Note in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
U.S. Global Note may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 307. If required to do so
pursuant to any applicable law or regulation, beneficial owners may obtain U.S.
Physical Notes in exchange for their beneficial interests in a U.S. Global Note
upon written request in accordance with the Depositary's and the Registrar's
procedures. In addition, U.S. Physical Notes shall be
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55
transferred to all beneficial owners in exchange for their beneficial interests
in a U.S. Global Note if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for such U.S. Global Note or the
Depositary ceases to be a clearing agency registered under the Exchange Act, at
a time when the Depositary is required to be so registered in order to act as
Depositary, and in each case a successor depositary is not appointed by the
Company within 90 days of such notice or, (ii) the Company executes and delivers
to the Trustee and Note Registrar an Officers' Certificate stating that such
U.S. Global Note shall be so exchangeable or (iii) an Event of Default has
occurred and is continuing and the Note Registrar has received a request from
the Depositary.
(c) In connection with any transfer of a portion of the beneficial
interest in a U.S. Global Note pursuant to subsection (b) of this Section to
beneficial owners who are required to hold U.S. Physical Notes, the Note
Registrar shall reflect on its books and records the date and a decrease in the
principal amount of such U.S. Global Note in an amount equal to the principal
amount of the beneficial interest in the U.S. Global Note to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more U.S. Physical Notes of like tenor and amount.
(d) In connection with the transfer of an entire U.S. Global Note to
beneficial owners pursuant to subsection (b) of this Section, such U.S. Global
Note shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in such U.S. Global Note, an equal aggregate principal amount of U.S.
Physical Notes of authorized denominations.
(e) Any U.S. Physical Note delivered in exchange for an interest in
a U.S. Global Note pursuant to subsection (c) or subsection (d) of this Section
shall, except as otherwise provided by paragraph (a)(i)(x) and paragraph (f) of
Section 307, bear the applicable legend regarding transfer restrictions
applicable to the U.S. Physical Note set forth in Section 202.
(f) The registered holder of a U.S. Global Note may grant proxies
and otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
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56
SECTION 307. Special Transfer Provisions.
Unless and until (i) an Initial Note is sold under an effective
Registration Statement, or (ii) an Initial Note is exchanged for an Exchange
Note in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, the following provisions shall
apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Note to any IAI which is not a QIB (excluding
Non-U.S. Persons):
(i) The Note Registrar shall register the transfer of any Initial
Note, whether or not such Initial Note bears the Private Placement Legend,
if (x) the requested transfer is at least three years after the original
issue date of the Initial Note or (y) the proposed transferee has
delivered to the Note Registrar a certificate substantially in the form
set forth in Section 308.
(ii) Unless the proposed transferee is entitled to receive a U.S.
Physical Note as provided in Section 306, the proposed transferee shall
obtain a beneficial interest in the U.S. Global Note representing Initial
Notes held by IAIs, in which case, upon receipt by the Note Registrar of
the documents, if any, required by paragraph (i), such transfer will be
made in accordance with the rules and procedures of the Depositary;
provided, however, that the Note Registrar shall incur no liability
hereunder as a result of the failure of any IAI to deliver to the Note
Registrar a certificate substantially in the form set forth in Section
308.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Note to a QIB
(excluding Non-U.S. Persons):
(i) If the Note to be transferred consists of U.S. Physical Notes,
Temporary Offshore Physical Notes or Permanent Offshore Physical Notes,
the Registrar shall register the transfer if such transfer is being made
by a proposed transferor who has checked the box provided for on the form
of Initial Note stating, or has otherwise advised the Company and the Note
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Initial Note stating, or has otherwise advised
the Company and the Note Registrar in writing, that it is purchasing the
Initial Note for its own account or an account with respect to which it
exercises sole investment discretion and that it, or the person on whose
behalf it is acting with respect to any such account, is a QIB
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57
within the meaning of Rule 144A, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that it is
aware that the transferor is relying upon its foregoing representations in
order to claim the exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and the Initial
Note to be transferred consists of U.S. Physical Notes, Temporary Offshore
Physical Notes or Permanent Offshore Physical Notes, or an interest in the
U.S. Global Note representing Initial Notes held by IAIs, upon receipt by
the Note Registrar of instructions given in accordance with the
Depositary's and the Note Registrar's procedures therefor, the Note
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the U.S. Global Note representing Initial Notes
held by QIBs in an amount equal to (x) the principal amount of the U.S.
Physical Notes, Temporary Offshore Physical Notes or Permanent Offshore
Physical Notes, as the case may be, to be transferred, and the Trustee
shall cancel the Physical Note so transferred or (y) the amount of
interest in the U.S. Global Note representing Initial Notes held by IAIs
to be so transferred (in which case the Note Registrar shall reflect on
its books and records the date and an appropriate decrease in the
principal amount of such U.S. Global Note).
(c) Transfers by Non-U.S. Persons Prior to March 25, 1997. The
following provisions shall apply with respect to registration of any proposed
transfer of an Initial Note by a Non-U.S. Person prior to March 25, 1997:
(i) The Note Registrar shall register the transfer of any Initial
Note (x) if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Note Registrar a certificate substantially
in the form set forth in Section 309 or (y) if the proposed transferee is
a QIB and the proposed transferor has checked the box provided for on the
form of Initial Note stating, or has otherwise advised the Company and the
Note Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Initial Note stating, or has
otherwise advised the Company and the Note Registrar in writing, that it
is purchasing the Initial Note for its own account or an account with
respect to which it exercises sole investment discretion and that it, or
the person on whose behalf it is acting with respect to any such account,
is a QIB within the meaning of Rule 144A, and is aware that the sale to it
is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to
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58
request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the exemption
from registration provided by Rule 144A. Unless clause (ii) below is
applicable, the Company shall execute, and the Trustee shall authenticate
and deliver, one or more Temporary Offshore Physical Notes of like tenor
and amount.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Note Registrar of instructions given in accordance with the
Depositary's and the Note Registrar's procedures therefor, the Note
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the appropriate U.S. Global Note in an amount
equal to the principal amount of the Temporary Offshore Physical Note to
be transferred, and the Note Registrar shall cancel the Temporary Offshore
Physical Notes so transferred.
(d) Transfers by Non-U.S. Persons on or After March 25, 1997. The
following provisions shall apply with respect to any transfer of an Initial Note
by a Non-U.S. Person on or after March 25, 1997:
(i) (x) If the Initial Note to be transferred is a Permanent
Offshore Physical Note, the Note Registrar shall register such transfer,
(y) if the Initial Note to be transferred is a Temporary Offshore Physical
Note, upon receipt of a certificate substantially in the form set forth in
Section 309 from the proposed transferor, the Note Registrar shall
register such transfer and (z) in the case of either clause (x) or (y),
unless clause (ii) below is applicable, the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Permanent Offshore
Physical Notes of like tenor and amount.
(ii) If the proposed transferee is an Agent Member, upon receipt by
the Note Registrar of instructions given in accordance with the
Depositary's and the Note Registrar's procedures therefor, the Note
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the appropriate U.S. Global Note in an amount
equal to the principal amount of the Temporary Offshore Physical Note or
of the Permanent Offshore Physical Note to be transferred, and the Trustee
shall cancel the Physical Note so transferred.
(e) Transfers to Non-U.S. Persons at Any Time. The following
provisions shall apply with respect to any transfer of an Initial Note to a
Non-U.S. Person:
(i) Prior to March 25, 1997, the Note Registrar shall register any
proposed transfer of an Initial Note to a Non-U.S. Person upon receipt of
a
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59
certificate substantially in the form set forth in Section 309 from the
proposed transferor and the Company shall execute, and the Trustee shall
authenticate and make available for delivery, one or more Temporary
Offshore Physical Notes.
(ii) On and after March 25, 1997, the Note Registrar shall register
any proposed transfer to any Non-U.S. Person (w) if the Initial Note to be
transferred is a Permanent Offshore Physical Note, (x) if the Initial Note
to be transferred is a Temporary Offshore Physical Note, upon receipt of a
certificate substantially in the form set forth in Section 309 from the
proposed transferor, (y) if the Initial Note to be transferred is a U.S.
Physical Note or an interest in a U.S. Global Note, upon receipt of a
certificate substantially in the form set forth in Section 309 from the
proposed transferor and (z) in the case of either clause (w), (x) or (y),
the Company shall execute, and the Trustee shall authenticate and deliver,
one or more Permanent Offshore Physical Notes of like tenor and amount.
(iii) If the proposed transferor is an Agent Member holding a
beneficial interest in a U.S. Global Note, upon receipt by the Note
Registrar of (x) the document, if any, required by paragraph (i), and (y)
instructions in accordance with the Depositary's and the Note Registrar's
procedures therefor, the Note Registrar shall reflect on its books and
records the date and a decrease in the principal amount of such U.S.
Global Note in an amount equal to the principal amount of the beneficial
interest in the U.S. Global Note to be transferred and the Company shall
execute, and the Trustee shall authenticate and deliver, one or more
Permanent Offshore Physical Notes of like tenor and amount.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Note
Registrar shall deliver Notes that do not bear the Private Placement Legend.
Upon the transfer, exchange or replacement of Notes bearing the Private
Placement Legend, the Note Registrar shall deliver only Notes that bear the
Private Placement Legend unless either (i) the circumstances contemplated by the
fourth paragraph of Section 201 (with respect to Permanent Offshore Physical
Notes) or paragraph (a)(i)(x), (d)(i) or (e)(ii) of this Section 307 exist or
(ii) there is delivered to the Note Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(g) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture.
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60
The Note Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 306 or this Section
307. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Note Registrar.
SECTION 308. Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors.
[date]
KINDERCARE LEARNING CENTERS, INC.
c/o Marine Midland Bank, as Trustee
140 Broadway, 12th Floor
New York, NY 10005
Attention: Corporate Trust Services - KinderCare
Dear Sirs:
In connection with our proposed purchase of $_______ of the 9-1/2%
Senior Subordinated Notes due 2009 (the "Notes") of KinderCare Learning Centers,
Inc., a Delaware corporation (the "Company"), we confirm that:
(1) We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act
of 1933, as amended (the "Securities Act")) purchasing for our own account
or for the account of such an institutional "accredited investor," and we
are acquiring the Notes for investment purposes and not with a view to, or
for offer or sale in connection with, any distribution in violation of the
Securities Act or other applicable securities law and we have such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or its investment.
(2) We understand and acknowledge that the Notes have not been
registered under the Securities Act, or any other applicable securities
law and may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act or any
other applicable securities law, or pursuant to an exemption therefrom,
and in each case in compliance with the conditions for transfer set forth
below. We agree on our own behalf and on
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61
behalf of any investor account for which we are purchasing Notes to offer,
sell or otherwise transfer such Notes prior to the date which is three
years after the later of the date of original issue and the last date on
which the Company or any affiliate of the Company was the owner of such
Notes (or any predecessor thereto) (the "Resale Restriction Termination
Date") only (a) to the Company, (b) pursuant to a registration statement
which has been declared effective under the Securities Act, (c) for so
long as the Notes are eligible for resale pursuant to Rule 144A under the
Securities Act, to a person we reasonably believe is a "Qualified
Institutional Buyer" within the meaning of Rule l44A (a "QIB") that
purchases for its own account or for the account of a QIB and to whom
notice is given that the transfer is being made in reliance on Rule 144A,
(d) pursuant to offers and sales to non-U.S. persons that occur outside
the United States within the meaning of Regulation S under the Securities
Act, (e) to an institutional "accredited investor" within the meaning of
subparagraphs (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the
Securities Act that is acquiring the Notes for its own account or for the
account of such an institutional "accredited investor" for investment
purposes and not with a view to, or for offer or sale in connection with,
any distribution in violation of the Securities Act or (f) pursuant to any
other available exemption from the registration requirements of the
Securities Act, subject in each of the foregoing cases to any requirement
of law that the disposition of our property or the property of such
investor account or accounts be at all times within our or their control
and to compliance with any applicable state securities laws. The foregoing
restrictions on resale will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the Notes is proposed
to be made pursuant to clause (e) above prior to the Resale Restriction
Termination Date, the transferor shall deliver to the trustee under the
Indenture pursuant to which the Notes are issued a letter from the
transferee substantially in the form of this letter, which shall provide,
among other things, that the transferee is a person or entity as defined
in paragraph 1 of this letter and that it is acquiring such Notes for
investment purposes and not for distribution in violation of the
Securities Act. We acknowledge that the Company and the Trustee reserve
the right prior to any offer, sale or other transfer of the Notes pursuant
to clauses (d), (e) and (f) above prior to the Resale Restriction
Termination Date to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the Company and
the Trustee.
(3) We are acquiring the Notes purchased by us for our own account
or for one or more accounts as to each of which we exercise sole
investment discretion.
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62
(4) You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
By: (Name of Purchaser)
Date:
Upon transfer the Notes would be registered in the name of the new beneficial
owner as follows:
Taxpayer ID
Name Address Number:
- ---- ------- -------
SECTION 309. Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S.
[date]
Marine Midland Bank, as Trustee
140 Broadway, 12th Floor
New York, NY 10005
Attention: Corporate Trust Services - KinderCare
Re: KINDERCARE LEARNING CENTERS, INC.
(the "Company") 9-1/2% Senior Subordinated
Notes due 2009 (the "Notes")
Ladies and Gentlemen:
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63
In connection with our proposed sale of $________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such sale has been made in accordance with the
applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:_______________________
Authorized Signature
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64
SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company,
any Guarantor and the Trustee such security or indemnity, in each case, as may
be required by them to save each of them harmless, then, in the absence of
notice to the Company any Guarantor or the Trustee that such Note has been
acquired by a bona fide purchaser, the Company shall execute and upon Company
Order the Trustee shall authenticate and deliver, in exchange for any such
mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note
of like tenor and principal amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) in connection
therewith.
Every new Note issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, any Guarantor and any other
obligor upon the Notes, whether or not the mutilated, destroyed, lost or stolen
Note shall be at any time enforceable by anyone, and shall be entitled to all
benefits of this Indenture equally and proportionately with any and all other
Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 311. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 1002;
provided, however, that each installment of interest may at the Company's option
be paid by (i) mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant
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65
to Section 312, to the address of such Person as it appears in the Note Register
or (ii) wire transfer to an account located in the United States maintained by
the payee.
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Notes (such defaulted interest
and interest thereon herein collectively called "Defaulted Interest") shall be
paid by the Company, at its election in each case, as provided in clause (1) or
(2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
(not less than 30 days after such notice) of the proposed payment (the
"Special Record Date"), and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted Interest
as in this clause provided. Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be not
more than 15 days and not less than 10 days prior to the Special Record
Date and not less than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date, and in the name and at the expense of
the Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be given in the manner
provided for in Section 106, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor having been so given, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or their
respective Predecessor Notes) are registered at the close of business on
such Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company
to the Trustee
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66
of the proposed payment pursuant to this clause, such manner of payment
shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 312. Persons Deemed Owners.
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company, any Guarantor or the
Trustee may treat the Person in whose name such Note is registered as the owner
of such Note for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 311) interest on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and none of the
Company, any Guarantor, the Trustee nor any agent of the Company, any Guarantor
or the Trustee shall be affected by notice to the contrary.
SECTION 313. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. If the
Company shall acquire any of the Notes other than as set forth in the preceding
sentence, the acquisition shall not operate as a redemption or satisfaction of
the Indebtedness represented by such Notes unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 313. No
Notes shall be authenticated in lieu of or in exchange for any Notes cancelled
as provided in this Section, except as expressly permitted by this Indenture.
All cancelled Notes held by the Trustee shall be disposed of by the Trustee in
accordance with its customary procedures unless by Company Order the Company
shall direct that cancelled Notes be returned to it.
SECTION 314. Computation of Interest.
Interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 315. CUSIP Numbers.
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67
The Company in issuing Notes may use "CUSIP" numbers (if then
generally in use) in addition to serial numbers; if so, the Trustee shall use
such "CUSIP" numbers in addition to serial numbers in notices of redemption and
repurchase as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness of such CUSIP numbers
either as printed on the Notes or as contained in any notice of a redemption or
repurchase and that reliance may be placed only on the serial or other
identification numbers printed on the Notes, and any such redemption or
repurchase shall not be affected by any defect in or omission of such CUSIP
numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes expressly provided for herein or pursuant hereto) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all such Notes theretofore authenticated and delivered
(other than (i) Notes which have been lost, stolen or destroyed and
which have been replaced or paid as provided in Section 310 and (ii)
Notes for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
(b) all such Notes not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable by reason of the making
of a notice of redemption or otherwise; or
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(ii) will become due and payable at their Stated
Maturity within one year; or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company or any Guarantor, in the case of (i), (ii) or (iii)
above, has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire indebtedness on such
Notes not theretofore delivered to the Trustee for cancellation, for
principal of (and premium, if any) and interest to the date of such
deposit (in the case of Notes which have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be;
(2) no Default or Event of Default with respect to this Indenture or
the Notes shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such deposit will
not result in a breach or violation of, or constitute a default under, any
other instrument or agreement to which the Company or any Guarantor is a
party or by which it is bound;
(3) the Company or any Guarantor has paid or caused to be paid all
sums payable hereunder by the Company or any Guarantor;
(4) the Company has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of such Notes at
maturity or the Redemption Date, as the case may be; and
(5) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 606 and, if money
shall have been deposited with the Trustee pursuant to subclause (b) of clause
(1) of this Section, the obligations of the Trustee under Section 402 and the
last paragraph of Section 1003 shall survive.
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SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 401 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and any Guarantor's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 401; provided that if the Company has made any payment of principal of,
premium, if any, or interest on any Notes because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money or Government Securities held
by the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Thirteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal or premium, if any, on the Notes
whether or not such payment shall be prohibited by Article Thirteen;
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(ii) default for 30 days or more in the payment when due of interest
with respect to the Notes whether or not such payment shall be prohibited
by Article Thirteen;
(iii) default in the performance, or breach, of any covenant,
warranty or other agreement of the Company or any Guarantor contained in
this Indenture or any Guarantee under this Indenture (other than a default
in the performance, or breach, of a covenant, warranty or agreement which
is specifically dealt with in clauses (i) or (ii) of this Section 501) and
continuance of such default or breach for a period of 30 days after
written notice shall have been given to the Company or such Guarantor by
the Trustee or to the Company or such Guarantor and the Trustee by the
Holders of at least 30% in aggregate principal amount of the Notes then
Outstanding;
(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by the Company or any of its Restricted Subsidiaries or
the payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries (other than Indebtedness owed to the Company or a Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is
created after the Issuance Date, if both (A) such default either (1)
results from the failure to pay any such Indebtedness at its stated final
maturity (after giving effect to any applicable grace periods) or (2)
relates to an obligation other than the obligation to pay principal of any
such Indebtedness at its stated final maturity and results in the holder
or holders of such Indebtedness causing such Indebtedness to become due
prior to its stated maturity and (B) the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at stated final
maturity (after giving effect to any applicable grace periods), or the
maturity of which has been so accelerated, aggregate $20 million or more
at any one time outstanding;
(v) failure by the Company or any of its Significant Subsidiaries to
pay final judgments aggregating in excess of $20 million, which final
judgments remain unpaid, undischarged and unstayed for a period of more
than 60 days after such judgment becomes final, and in the event such
judgment is covered by insurance, an enforcement proceeding has been
commenced by any creditor upon such judgment or decree which is not
promptly stayed;
(vi) the Company or any of its Significant Subsidiaries pursuant to
or within the meaning of Federal Bankruptcy Code: (A) commences a
voluntary case; (B) consents to the entry of an order for relief against
it in an involuntary
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case; (C) consents to the appointment of a Custodian of it or for all or
substantially all of its property; (D) makes a general assignment for the
benefit of its creditors, or (E) admits in writing that it is generally
not paying its debts (other than debts which are the subject of a bona
fide dispute) as they become due;
(vii) a court of competent jurisdiction enters an order or decree
under any Federal Bankruptcy Code that remains unstayed and in effect for
60 days and: (A) is for relief against the Company or any of its
Significant Subsidiaries in an involuntary case; (B) appoints a Custodian
of the Company or any of its Significant Subsidiaries or for all or
substantially all of the property of the Company or any of its Significant
Subsidiaries; or (C) orders the liquidation of the Company or any of its
Significant Subsidiaries; provided that clauses (A), (B) and (C) shall not
apply to an Unrestricted Subsidiary, unless such action or proceeding has
a material adverse effect on the interests of the Company or any
Restricted Subsidiary; or
(viii) any Guarantee shall for any reason cease to be in full force
and effect or is declared null and void or any Responsible Officer of the
Company or any Guarantor denies that it has any further liability under
any Guarantee or gives notice to such effect (other than by reason of the
termination of this Indenture or the release of any such Guarantee in
accordance with this Indenture).
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than by reason of an Event of Default
specified in Section 501(vi) or 501(vii)) occurs and is continuing, the Trustee
or the Holders of at least 30% in principal amount of the Notes Outstanding may
declare the principal (and premium, if any), interest and any other monetary
obligations on all the then outstanding Notes to be due and payable immediately,
by a notice in writing to the Company (and to the Trustee if given by Holders);
provided, however, that, so long as any Indebtedness permitted to be incurred
pursuant to the Senior Credit Facility shall be outstanding, such acceleration
shall not be effective until the earlier of (i) acceleration of any such
Indebtedness under the Senior Credit Facility or (ii) five Business Days after
the giving of written notice to the Company and the Bank Agent of such
acceleration. Upon the effectiveness of such declaration, such principal and
interest will be due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default specified in Section 501(vi) or 501(vii) occurs
and is continuing, then the principal amount of all the Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
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At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article, the Holders of a majority
in aggregate principal amount of the Notes Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Notes,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Notes which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal
and premium at the rate borne by the Notes (for purposes of this
clause (B) without duplication to amounts to be paid or deposited
under clause (A) above),
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Notes which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513;
(3) if the rescission would not conflict with any judgment or
decree; and
(4) in the event of the cure or waiver of an Event of Default
specified in clause (iv) of Section 501, the Trustee shall have received
an Officers' Certificate and, if appropriate, an Opinion of Counsel that
such Event of Default has been cured or waived.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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Upon a determination by the Company that the Senior Credit Facility
is no longer in effect, the Company shall promptly give to the Trustee written
notice thereof, which notice shall be countersigned by the Bank Agent. Unless
and until the Trustee shall have received such written notice with respect to
the Senior Credit Facility, the Trustee, subject to the TIA Sections 315(a)
through 315(d), shall be entitled in all respects to assume that the Senior
Credit Facility is in effect (unless a Responsible Officer of the Trustee shall
have knowledge to the contrary).
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
If an Event of Default specified in Section 501(i) or 501(ii) occurs
and is continuing, the Trustee, in its own name as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any Guarantor (in accordance with the
applicable Guarantee) or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company, any Guarantor or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture or any Guarantee by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect and enforce any
such rights, including, seeking recourse against any Guarantor pursuant to the
terms of any Guarantee, whether for the specific enforcement of any covenant or
agreement in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy including, without limitation,
seeking recourse against any Guarantor pursuant to the terms of a Guarantee, or
to enforce any other proper remedy, subject however to Section 513. No recovery
of any such judgment upon any property of the Company or any Guarantor shall
affect or impair any rights, powers or remedies of the Trustee or the Holders.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor,
including any Guarantor, upon the Notes or the property of the Company or of
such other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company for the payment of overdue principal,
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premium, if any, or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Notes, to
take such other actions (including participating as a member, voting or
otherwise, of any official committee of creditors appointed in such
matter) and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim
for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any Custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding; provided, however, that the
Trustee may, on behalf of such Holders, vote for the election of a trustee in
bankruptcy or other similar official.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture, the Notes or
the Guarantees may be prosecuted and enforced by the Trustee without the
possession of any of the Notes or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name and as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Notes in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
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Subject to Article Thirteen, any money collected by the Trustee
pursuant to this Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal (or premium, if any) or interest, upon presentation of the
Notes and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due
and payable on such Notes for principal (and premium, if any) and
interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company or any other obligor on the Notes, as their
interests may appear or as a court of competent jurisdiction may direct,
provided that all sums due and owing to the Holders and the Trustee have
been paid in full as required by this Indenture.
SECTION 507. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 30% in principal amount of the
Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
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(5) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a
majority or more in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Note or any Guarantee to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
any Note or any Guarantee, except in the manner herein provided and for the
equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Eleven) and in
such Note of the principal of (and premium, if any) and (subject to Section 311)
interest on such Note on the respective Stated Maturities expressed in such Note
(or, in the case of redemption or repurchase, on the Redemption Date or
repurchase) and to institute suit for the enforcement of any such payment, and
such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Guarantee and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, any
Guarantor, any other obligor on the Notes, the Trustee and the Holders shall be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 310, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy
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given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture or any Guarantee,
(2) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting; and
(3) subject to the provisions of Section 315 of the Trust Indenture
Act, the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
Subject to Sections 508 and 902, the Holders of a majority in
aggregate principal amount of the Outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes) may on behalf
of the Holders of all the Notes waive any existing Default or Event of Default
and its consequences under the Indenture or any Guarantee except a continuing
Default or Event of Default in the payment of interest on, premium, if any, or
the principal of, any such Note held by a nonconsenting Holder, or in respect of
a covenant or a provision which cannot be amended or modified without the
consent of all Holders.
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In the event that any Event of Default specified in Section 501(iv)
shall have occurred and be continuing, such Event of Default and all
consequences thereof (including without limitation any acceleration or resulting
payment default) shall be annulled, waived and rescinded, automatically and
without any action by the Trustee or the Holders of the Notes, if within 20 days
after such Event of Default arose (x) the Indebtedness or guarantee that is the
basis for such Event of Default has been discharged, or (y) the holders thereof
have rescinded or waived the acceleration, notice or action (as the case may be)
giving rise to such Event of Default, or (z) if the default that is the basis
for such Event of Default has been cured.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company, the Guarantors and any other obligors upon the Notes,
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which would prohibit or forgive the Company, any
Guarantor or any such obligor from paying all or any portion of the principal
of, premium, if any, or interest on the Notes contemplated herein or in the
Notes or which may affect the covenants or the performance of this Indenture;
and each of the Company, any Guarantor and any such obligor (to the extent that
it may lawfully do so) hereby expressly waives all benefit or advantage of any
such law and covenants that it will not hinder, delay or impede the execution of
any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 515. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit, having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
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the provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Notes, or to
any suit instituted by any Holder for the enforcement of the payment of the
principal of (or premium, if any) or interest on any Note on or after the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on or after the Redemption Date).
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) Except during the continuance of a Default or an Event of
Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith or willful misconduct on its part,
the Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; but in the case of any such certificates or opinions, the
Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture, but not to verify
the contents thereof.
(b) In case a Default or an Event of Default has occurred and is
continuing of which a Responsible Officer of the Trustee has actual knowledge or
of which written notice of such Default or Event of Default shall have been
given to the Trustee by the Company, any other obligor of the Notes or by any
Holder, the Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
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(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in aggregate principal amount of
the Outstanding Notes relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 602. Notice of Defaults.
Within 60 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of (or premium, if any) or
interest on any Note, the Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders;
and provided further that in the case of any Default of the character specified
in Section 501(iii) no such notice to Holders shall be given until at least 30
days after the occurrence thereof.
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SECTION 603. Certain Rights of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, request and rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel of its selection and any
written advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its
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discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(8) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture.
(c) The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance of
Notes.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall not
be accountable for the use or application by the Company of Notes or the
proceeds thereof.
SECTION 605. May Hold Notes.
The Trustee, any Paying Agent, any Note Registrar, any
Authenticating Agent or any other agent of the Company or of the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and,
subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with
the same rights it would have if it were not Trustee, Paying Agent, Note
Registrar, Authenticating Agent or such other agent.
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SECTION 606. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust hereunder for the purposes for which they were
received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed in writing with the
Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as
shall be agreed to in writing between the Company and the Trustee for all
services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel and costs and expenses of
collection), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee (and
their respective directors, officers, employees and agents) for, and to
hold it harmless against, any and all loss, damage, claim, liability or
expense, including taxes (other than taxes based on the income of the
Trustee) incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Company, the Trustee shall have a claim prior to the Holders of the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Notes.
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When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(vi) or (vii), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 608. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1), and which shall have an
office in The City of New York and shall have a combined capital and surplus of
at least $50,000,000. If the Trustee does not have an office in The City of New
York, the Trustee may appoint an agent in The City of New York reasonably
acceptable to the Company to conduct any activities which the Trustee may be
required under this Indenture to conduct in The City of New York. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section 608,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 608, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
SECTION 609. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of this Section.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor trustee by written instrument executed by
authority of the Board of Directors, a copy of which shall be delivered to the
resigning Trustee and a copy to the successor trustee. If an instrument of
acceptance required by this Section shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Notes, delivered
to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 608 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a Custodian of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in
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the manner provided for in Section 106. Each notice shall include the name of
the successor Trustee and the address of its Corporate Trust Office.
SECTION 610. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 611. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate
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Notes in the name of any predecessor Trustee shall apply only to its successor
or successors by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses.
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a list
of similar form and content to that in Subsection (a) hereof as of a date not
more than 15 days prior to the time such list is furnished;
provided, however that if and so long as the Trustee shall be the Note
Registrar, no such list need be furnished.
SECTION 702. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 703. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the first
May 15 after the first issuance of Notes, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).
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ARTICLE EIGHT
MERGER, CONSOLIDATION, OR SALE OF ASSETS
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
(a) The Company will not consolidate with or merge with or into or
wind up into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions (other than
pursuant to a Real Estate Financing Transaction), to any Person unless:
(i) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company)
or to which such sale, assignment, transfer, lease, conveyance or other
disposition will have been made is a corporation organized or existing
under the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof (the Company or such Person, as the
case may be, being herein called the "Successor Company");
(ii) the Successor Company (if other than the Company) expressly
assumes all the obligations of the Company under this Indenture and the
Notes pursuant to a supplemental indenture or other documents or
instruments in form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event of
Default exists;
(iv) immediately after giving pro forma effect to such transaction,
as if such transaction had occurred at the beginning of the applicable
four-quarter period, (A) the Successor Company would be permitted to incur
at least $1.00 of additional Indebtedness under paragraph (a) of Section
1010, or (B) the Fixed Charge Coverage Ratio for the Successor Company and
its Restricted Subsidiaries would be greater than such Ratio for the
Company and its Restricted Subsidiaries immediately prior to such
transaction;
(v) each Guarantor, if any, unless it is the other party to the
transactions described above, shall have by supplemental indenture
confirmed that its Guarantee will apply to such Person's obligations under
this Indenture and the Notes; and
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(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, or transfer and if a supplemental indenture is
required in connection with such transaction, such supplemental indenture,
comply with the requirements of this Indenture.
Notwithstanding the foregoing clause (iv), (a) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (b) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another State of the United States so long as the amount of Indebtedness of the
Company and its Restricted Subsidiaries is not thereby increased.
(b) Each Guarantor, if any, shall not, and the Company will not
permit a Guarantor to consolidate with or merge with or into or wind up into
(whether or not such Guarantor is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties and assets to any Person, unless at the time and after giving effect
thereto:
(i) either (1) such Guarantor is the surviving corporation or (2)
the Person formed by or surviving any such consolidation or merger (if
other than the Guarantor) or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made is a
corporation organized or existing under the laws of the United States, any
State thereof, the District of Columbia, or any territory thereof (such
Guarantor or such Person, as the case may be, being herein called the
"Successor Guarantor");
(ii) the Successor Guarantor (if other than such Guarantor)
expressly assumes all the obligations of such Guarantor hereunder and
under such Guarantor's Guarantee pursuant to a supplemental indenture or
other documents or instruments in form reasonably satisfactory to the
Trustee;
(iii) immediately after giving effect to such transaction, on a pro
forma basis (and treating any Indebtedness not previously an obligation of
the Guarantor, the Company or any of its Subsidiaries which becomes an
obligation of the Guarantor, the Company or any of its Subsidiaries in
connection with or as a result of such transaction as having been incurred
at the time of such transaction) no Default or Event of Default shall have
occurred and be continuing; and
(iv) the Guarantor shall have delivered, or caused to be delivered,
to the Trustee, an Officers' Certificate and an Opinion of Counsel, each
to the effect
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that such consolidation, merger or transfer and such supplemental
indenture (if any) in respect thereof comply with this Indenture.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with or merger of the Company
with or into or wind up into any other corporation or any sale, assignment,
conveyance, transfer, lease or other disposition of the properties and assets of
the Company substantially as an entirety to any Person in accordance with
Section 801, the successor Person formed by such consolidation or into which the
Company is merged or wound up or to which such sale, assignment, conveyance,
transfer, lease or other disposition is made will succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor Person had been named as the Company
therein, and thereafter (except in the case of a sale, assignment, transfer,
lease, conveyance or other disposition) the predecessor corporation will be
relieved of all further obligations and covenants under this Indenture and the
Notes; provided that, solely with respect to calculating amounts described in
clauses (A), (B) and (C) of paragraph (a) of Section 1009, any such surviving
entity to the Company shall only be deemed have succeeded to and be substituted
for the Company with respect to periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets.
ARTICLE NINE
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, the Guarantors, if
any (with respect to a Guarantee to which it is a party), when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect or inconsistency; or
(2) to provide for uncertificated Notes in addition to or in place
of certificated Notes; or
(3) to comply with Article Eight hereof; or
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(4) to provide for the assumption of the Company's or any
Guarantor's obligations to Holders of such Notes; or
(5) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any such Holder; or
(6) to add covenants for the benefit of the Holders or to surrender
any right or power conferred upon the Company; or
(7) to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture
Act; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
610; or
(9) to make any other change that does not adversely affect the
legal rights of any Holder; or
(10) to add a Guarantor hereunder.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of at least a majority in principal
amount of the Outstanding Notes (including consents obtained in connection with
a tender offer or exchange offer for the Notes), by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Note affected thereby (with respect to
any Notes held by a nonconsenting Holder of the Notes):
(1) reduce the principal amount of the Notes whose Holders must
consent to an amendment, supplement or waiver; or
(2) reduce the principal of or change or have the effect of changing
the Stated Maturity of any Note or alter or waive the provisions with
respect to the redemption of the Notes (other than Sections 1016 and 1017
and the defined terms used therein); or
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(3) reduce the rate of or change or have the effect of changing the
time for payment of interest on any Note; or
(4) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes Outstanding and a waiver of the
payment default that resulted from the acceleration), or in respect of a
covenant or provision contained in the Indenture or any Guarantee which
cannot be amended or modified without the consent of all Holders; or
(5) make any Note payable in money other than that stated in the
Notes; or
(6) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of the Holders of the Notes to
receive payments of principal of or premium, if any, or interest on the
Notes; or
(7) make any change in the foregoing amendment and waiver
provisions; or
(8) impair the right of any Holder of the Notes to receive payment
of principal of, or interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on
or with respect to such Holder's Notes; or
(9) make any change in the subordination provisions of this
Indenture that would adversely affect the Holders of the Notes.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustees own rights, duties or
immunities under this Indenture or otherwise.
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SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby (except as provided in Section 902).
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
SECTION 908. Effect on Senior Indebtedness.
No supplemental indenture shall adversely affect the rights of any
holders of Senior Indebtedness under Article Thirteen unless the requisite
holders of each issue of Senior Indebtedness affected thereby shall have
consented to such supplemental indenture.
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office or
agency where Notes may be presented or surrendered for payment, where Notes may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Corporate Trust Office of the Trustee shall be such office or agency
of the Company, unless the Company shall designate and maintain some other
office or agency for one or more of such purposes. The Company will give prompt
written notice to the Trustee of any change in the location of any such office
or agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes and may from time to
time rescind any such designation; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure to so act.
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Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of (or premium, if
any) or interest on any Notes, deposit with a Paying Agent a sum in same day
funds (or New York Clearing House funds if such deposit is made prior to the
date on which such deposit is required to be made) sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of such action or any failure to so act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any) or interest on Notes in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (or premium,
if any) or interest on any Note and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Note shall thereafter, as an unsecured
general creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such
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Paying Agent, before being required to make any such repayment to the Company,
may at the expense of the Company cause to be published once, in a newspaper
published in the English language, customarily published on each Business Day
and of general circulation in the Borough of Manhattan, The City of New York,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence and that of each Restricted Subsidiary and the corporate rights
(charter and statutory) licenses and franchises of the Company and each
Restricted Subsidiary; provided, however, that the Company shall not be required
to preserve any such existence (except the Company) right, license or franchise
if the Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
each of its Restricted Subsidiaries, taken as a whole, and that the loss thereof
is not, and will not be, disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a material liability or lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which appropriate reserves, if necessary (in
the good faith judgment of management of the Company) are being maintained in
accordance with GAAP.
SECTION 1006. Maintenance of Properties.
The Company will cause all material properties owned by the Company
or any Restricted Subsidiary or used or held for use in the conduct of its
business or the business of any Restricted Subsidiary to be maintained and kept
in normal condition, repair and working order and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly conducted at all times;
provided, however, that nothing in this Section shall prevent the Company or any
of its Restricted
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Subsidiaries from discontinuing the maintenance of any of such properties if
such discontinuance is, in the judgment of the Company, desirable in the conduct
of its business or the business of any Restricted Subsidiary and not adverse in
any material respect to the Holders.
SECTION 1007. Insurance.
To the extent available at commercially reasonable rates, the
Company will maintain, and will cause its Subsidiaries to maintain, insurance
with responsible carriers against such risks and in such amounts, and with such
deductibles, retentions, self-insured amounts and co-insurance provisions, as
are customarily carried by similar businesses, of similar size, including
professional and general liability, property and casualty loss, workers'
compensation and interruption of business insurance.
SECTION 1008. Compliance with Laws.
The Company shall comply, and shall cause each of its Subsidiaries
to comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental regulatory authority, in respect of the conduct
of their respective businesses and the ownership of their respective properties,
except for such noncompliances as would not in the aggregate have a material
adverse effect on the financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole.
SECTION 1009. Limitation on Restricted Payments.
(a) The Company will not, and will not permit any Restricted
Subsidiaries, directly or indirectly, to take any of the following actions:
(i) declare or pay any dividend or make any distribution on account
of the Company's or any of its Restricted Subsidiaries' Equity Interests,
including any dividend or distribution payable in connection with any
merger or consolidation (other than (A) dividends or distributions by the
Company payable in Equity Interests (other than Disqualified Stock) of the
Company or (B) dividends or distributions by a Restricted Subsidiary so
long as, in the case of any dividend or distribution payable on or in
respect of any class or series of securities issued by a Subsidiary other
than a Wholly Owned Subsidiary, the Company or a Restricted Subsidiary
receives at least its pro rata share of such dividend or distribution in
accordance with its Equity Interests in such class or series of
securities);
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(ii) purchase, redeem, defease or otherwise acquire or retire for
value any Equity Interests of the Company;
(iii) make any principal payment on, or redeem, repurchase, defease
or otherwise acquire or retire for value in each case, prior to any
scheduled repayment, or maturity, any Subordinated Indebtedness; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(2) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of
additional Indebtedness under paragraph (a) of Section 1010; and
(3) such Restricted Payment, together with the aggregate of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issuance Date (including Restricted Payments
permitted by clauses (i), (ii) (with respect to the payment of dividends
on Refunding Capital Stock pursuant to clause (b) thereof), (iv) (only to
the extent that amounts paid pursuant to such clause are greater than
amounts that would have been paid pursuant to such clause if $5 million
and $10 million were substituted in such clause for $10 million and $20
million, respectively), (v), (viii) and (ix) of the next succeeding
paragraph, but excluding all other Restricted Payments permitted by the
next succeeding paragraph), is less than the sum of:
(A) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the fiscal quarter that first
begins after the Issuance Date to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, in the case such Consolidated
Net Income for such period is a deficit, minus 100% of such deficit);
provided, however, that for the purposes of this clause (A), Consolidated
Net Income shall be deemed to include any increases during such period to
Consolidated Additional Paid-In Capital of the Company, which increases
are attributable to tax benefits from net operating losses incurred prior
to the Issuance Date and are not otherwise included in Consolidated Net
Income of the Company for such period, plus
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(B) 100% of the aggregate net cash proceeds and the fair market
value, as determined in good faith by the Board of Directors, of
marketable securities received by the Company since immediately after the
closing of the Merger and the Financings from the issue or sale of Equity
Interests (including Retired Capital Stock (as defined below), but
excluding cash proceeds and marketable securities received from the sale
of Equity Interests to members of management, directors or consultants of
the Company and its Subsidiaries after the Issuance Date to the extent
such amounts have been applied to Restricted Payments in accordance with
clause (iv) of the next succeeding paragraph) or debt securities of the
Company that have been converted into such Equity Interests of the Company
(other than Refunding Capital Stock (as defined below) or Equity Interests
or convertible debt securities of the Company sold to a Restricted
Subsidiary and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), plus
(C) 100% of the aggregate amount of cash and marketable securities
contributed to the capital of the Company following the Issuance Date,
plus
(D) 100% of the aggregate amount received in cash and the fair
market value of marketable securities (other than Restricted Investments)
received from (A) the sale or other disposition (other than to the Company
or a Restricted Subsidiary) of Restricted Investments made by the Company
and its Restricted Subsidiaries or (B) a dividend from, or the sale (other
than to the Company or a Restricted Subsidiary) of the stock of, an
Unrestricted Subsidiary (other than an Unrestricted Subsidiary the
Investment in which was made by the Company or a Restricted Subsidiary
pursuant to clauses (vi) or (x) below).
(b) The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) (A) the redemption, repurchase, retirement or other acquisition
of any Equity Interests (the "Retired Capital Stock") or Subordinated
Indebtedness of the Company in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary) of,
Equity Interests of the Company (other than any Disqualified Stock) (the
"Refunding Capital Stock"), and (B) if immediately prior to the retirement
of Retired Capital Stock, the declaration and payment of dividends thereon
was permitted under clause (v) of this paragraph, the declaration and
payment of dividends on the Refunding Capital Stock in an aggregate amount
per year no greater than the aggregate amount of dividends per annum that
was declarable and payable on such Retired
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Capital Stock immediately prior to such retirement; provided, however,
that at the time of the declaration of any such dividends, no Default or
Event of Default shall have occurred and be continuing or would occur as a
consequence thereof;
(iii) the redemption, repurchase or other acquisition or retirement
of Subordinated Indebtedness of the Company made by exchange for, or out
of the proceeds of the substantially concurrent sale of, new Indebtedness
of the Company so long as (A) the principal amount of such new
Indebtedness does not exceed the principal amount of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired for value
(plus the amount of any premium required to be paid under the terms of the
instrument governing the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired), (B) such Indebtedness is subordinated
to the Senior Indebtedness and the Notes at least to the same extent as
such Subordinated Indebtedness so purchased, exchanged, redeemed,
repurchased, acquired or retired for value, (C) such Indebtedness has a
final scheduled maturity date equal to or later than the final scheduled
maturity date of the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired and (D) such Indebtedness has a Weighted
Average Life to Maturity equal to or greater than the remaining Weighted
Average Life to Maturity of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired;
(iv) a Restricted Payment to pay for the repurchase, retirement or
other acquisition or retirement for value of common Equity Interests of
the Company held by any future, present or former employee, director or
consultant of the Company or any Subsidiary pursuant to any management
equity plan or stock option plan or any other management or employee
benefit plan or agreement; provided, however, that the aggregate
Restricted Payments made under this clause (iv) does not exceed in any
calendar year $10 million (with unused amounts in any calendar year being
carried over to succeeding calendar years subject to a maximum (without
giving effect to the following proviso) of $20 million in any calendar
year); provided further that such amount in any calendar year may be
increased by an amount not to exceed (A) the cash proceeds from the sale
of Equity Interests of the Company to members of management, directors or
consultants of the Company and its Subsidiaries that occurs after the
Issuance Date (to the extent the cash proceeds from the sale of such
Equity Interest have not otherwise been applied to the payment of
Restricted Payments by virtue of the preceding subclause (a)(3)) plus (B)
the cash proceeds of key man life insurance policies received by the
Company and its Restricted Subsidiaries after the Issuance Date less (C)
the amount of any Restricted Payments previously made pursuant to clauses
(A) and (B) of this subparagraph (iv); and provided further that
cancellation of Indebtedness owing to the Company from members of
management of the Company or any of its Restricted Subsidiaries in
connection with a repurchase of Equity Interests of the Company will not
be deemed to
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constitute a Restricted Payment for purposes of this Section 1009 or any
other provision hereof;
(v) the declaration and payment of dividends to holders of any class
or series of Designated Preferred Stock (other than Disqualified Stock)
issued after the Issuance Date (including, without limitation, the
declaration and payment of dividends on Refunding Capital Stock in excess
of the dividends declarable and payable thereon pursuant to clause (ii));
provided, however, that for the most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date of issuance of such Designated Preferred Stock, after
giving effect to such issuance on a pro forma basis, the Company and its
Restricted Subsidiaries would have had a Fixed Charge Coverage Ratio of at
least 1.75 to 1.00;
(vi) Investments in Unrestricted Subsidiaries having an aggregate
fair market value, taken together with all other Investments made pursuant
to this clause (vi) that are at that time outstanding, not to exceed $20
million at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value);
(vii) repurchases of Equity Interests deemed to occur upon exercise
of stock options if such Equity Interests represent a portion of the
exercise price of such options;
(viii) the payment of dividends on the Company's Common Stock,
following the first public offering of the Company's Common Stock after
the Issuance Date, of up to 6% per annum of the net proceeds received by
the Company in such public offering, other than public offerings with
respect to the Company's Common Stock registered on Form S-8;
(ix) a Restricted Payment to pay for the repurchase, retirement or
other acquisition or retirement for value of Equity Interests of the
Company in existence on the Issuance Date and which are not held by KKR or
any of their Affiliates or the Management Group on the Issuance Date
(including any Equity Interests issued in respect of such Equity Interests
as a result of a stock split, recapitalization, merger, combination,
consolidation or otherwise, but excluding any management equity plan or
stock option plan or similar agreement), provided that the aggregate
Restricted Payments made under this clause (ix) shall not exceed $30
million, provided further that notwithstanding the foregoing proviso, the
Company shall be permitted to make Restricted Payments under this clause
(ix) only if after giving effect thereto, the Company would be permitted
to incur at least $1.00 of additional Indebtedness under paragraph (a) of
Section 1010; and
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(x) other Restricted Payments in an aggregate amount not to exceed
$20 million;
provided, however, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (iii), (iv), (v), (vi), (vii),
(viii), (ix) and (x), no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and provided further that
for purposes of determining the aggregate amount expended for Restricted
Payments in accordance with subclause (a)(3) of the immediately preceding
paragraph, only the amounts expended under clauses (i), (ii) (with respect to
the payment of dividends on Refunding Capital Stock pursuant to clause (b)
thereof), (iv) (only to the extent that amounts paid pursuant to such clause are
greater than amounts that would have been paid pursuant to such clause if $5
million and $10 million were substituted in such clause for $10 million and $20
million, respectively), (v), (viii) and (ix) shall be included.
(c) Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 1009 were computed, which calculations may
be based upon the Company's latest available financial statements. The Trustee
shall have no duty to recompute or recalculate or verify the accuracy of the
information set forth in such Officers' Certificate.
(d) As of the Issuance Date, all of the Company's Subsidiaries will
be Restricted Subsidiaries. The Company will not permit any Unrestricted
Subsidiary to become a Restricted Subsidiary except pursuant to the second to
last sentence of the definition of "Unrestricted Subsidiary." For purposes of
designating any Restricted Subsidiary as an Unrestricted Subsidiary, all
outstanding Investments by the Company and its Restricted Subsidiaries (except
to the extent repaid) in the Subsidiary so designated will be deemed to be
Restricted Payments in an amount determined as set forth in the last sentence of
the definition of "Investments." Such designation will only be permitted if a
Restricted Payment in such amount would be permitted at such time and if such
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in this Indenture.
SECTION 1010. Limitation on Incurrence of Indebtedness and Issuance
of Disqualified Stock.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to (collectively,
"incur" and collectively, an "incurrence" of) any Indebtedness (including
Acquired Indebtedness) or any shares of Disqualified Stock; provided,
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however, that the Company may incur Indebtedness or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company and its Restricted
Subsidiaries for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date of
such incurrence would have been at least 1.75 to 1.00 determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred or the Disqualified Stock had been
issued, as the case may be, and the application of proceeds had occurred at the
beginning of such four-quarter period.
(b) The foregoing limitations will not apply to:
(i) the incurrence by the Company of Indebtedness under the Senior
Credit Facility and the issuance and creation of letters of credit and
bankers' acceptances thereunder (with letters of credit and bankers'
acceptances being deemed to have a principal amount equal to the face
amount thereof) up to an aggregate principal amount of $550 million
outstanding at any one time;
(ii) any Real Estate Financing Transaction; provided, however, that
the amount of Indebtedness outstanding under clause (i) above and this
clause (ii) shall not in the aggregate exceed $550 million at any time
outstanding;
(iii) the incurrence by the Company of Indebtedness represented by
the Notes issued on the Issuance Date;
(iv) Existing Indebtedness (other than Indebtedness described in
clauses (i) and (iii));
(v) Indebtedness (including Capitalized Lease Obligations) incurred
by the Company or any of its Restricted Subsidiaries to finance the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets) in an aggregate principal amount which, when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (v) (together with any
Refinancing Indebtedness with respect thereto), does not exceed the
greater of (x) $50 million or (y) 10% of Total Assets;
(vi) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including
without limitation letters of credit in respect of workers' compensation
claims or self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims;
provided,
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however, that upon the drawing of such letters of credit or the incurrence
of such Indebtedness, such obligations are reimbursed within 30 days
following such drawing or incurrence;
(vii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; provided, however, that (A)
such Indebtedness is not reflected on the balance sheet of the Company or
any Restricted Subsidiary (contingent obligations referred to in a
footnote to financial statements and not otherwise reflected on the
balance sheet will not be deemed to be reflected on such balance sheet for
purposes of this clause (A)) and (B) the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross
proceeds including noncash proceeds (the fair market value of such noncash
proceeds being measured at the time received and without giving effect to
any subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(viii) Indebtedness of the Company to a Restricted Subsidiary;
provided that any such Indebtedness is made pursuant to an intercompany
note and is subordinated in right of payment to the Notes; provided
further that any subsequent issuance or transfer of any Capital Stock or
any other event which results in any such Restricted Subsidiary ceasing to
be a Restricted Subsidiary or any other subsequent transfer of any such
Indebtedness (except to the Company or another Restricted Subsidiary)
shall be deemed, in each case to be an incurrence of such Indebtedness;
(ix) Indebtedness of a Restricted Subsidiary to the Company or
another Restricted Subsidiary; provided that (A) any such Indebtedness is
made pursuant to an intercompany note and (B) if a Guarantor incurs such
Indebtedness from a Restricted Subsidiary that is not a Guarantor such
Indebtedness is subordinated in right of payment to the Guarantee of such
Guarantor; provided further that any subsequent transfer of any such
Indebtedness (except to the Company or another Restricted Subsidiary)
shall be deemed, in each case to be an incurrence of such Indebtedness;
(x) Hedging Obligations that are incurred in the ordinary course of
business (A) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the
Indenture to be outstanding or (B) for the purpose of fixing or hedging
currency exchange rate risk with respect to any currency exchanges;
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(xi) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(xii) Indebtedness of any Guarantor in respect of such Guarantor's
Guarantee;
(xiii) Indebtedness of the Company and any of its Foreign
Subsidiaries not otherwise permitted hereunder in an aggregate principal
amount, which when aggregated with the principal amount of all other
Indebtedness then outstanding and incurred pursuant to this clause (xiii),
does not exceed $150 million at any one time outstanding; provided,
however, that Indebtedness of Foreign Subsidiaries, which when aggregated
with the principal amount of all other Indebtedness of Foreign
Subsidiaries then outstanding and incurred pursuant to this clause (xiii),
does not exceed $75 million (or the equivalent thereof in any other
currency) at any one time outstanding;
(xiv) (A) any guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as the
incurrence of such Indebtedness incurred by such Restricted Subsidiary is
permitted under the terms of this Indenture and (B) any Excluded Guarantee
(as defined in paragraph (a) of Section 1014) of a Restricted Subsidiary;
(xv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness which serves to refund, refinance or
restructure any Indebtedness incurred as permitted under paragraph (a) and
clauses (iii) and (iv) above, or any Indebtedness issued to so refund,
refinance or restructure such Indebtedness including additional
Indebtedness incurred to pay premiums and fees in connection therewith
(the "Refinancing Indebtedness") prior to its respective maturity;
provided, however, that such Refinancing Indebtedness (A) has a Weighted
Average Life to Maturity at the time such Refinancing Indebtedness is
incurred which is not less than the remaining Weighted Average Life to
Maturity of Indebtedness being refunded or refinanced, (B) to the extent
such Refinancing Indebtedness refinances Indebtedness subordinated or pari
passu to the Notes, such Refinancing Indebtedness is subordinated or pari
passu to the Notes at least to the same extent as the Indebtedness being
refinanced or refunded and (C) shall not include (x) Indebtedness of a
Subsidiary that refinances Indebtedness of the Company or (y) Indebtedness
of the Company or a Restricted Subsidiary that refinances Indebtedness of
an Unrestricted Subsidiary; and provided further that subclauses (A) and
(B) of this clause (xv) will not apply to any refunding or refinancing of
any Senior Indebtedness; and
(xvi) Indebtedness or Disqualified Stock of Persons that are
acquired by the Company or any of its Restricted Subsidiaries or merged
into a Restricted Subsidiary in accordance with the terms of this
Indenture; provided that such Indebtedness or
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Disqualified Stock is not incurred in contemplation of such acquisition or
merger; and provided further that after giving effect to such acquisition,
either (A) the Company would be permitted to incur at least $1.00 of
additional Indebtedness under paragraph (a) or (B) the Fixed Charge
Coverage Ratio is greater than immediately prior to such acquisition.
SECTION 1011. Limitation on Liens.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist
any Lien that secures obligations under any Pari Passu Indebtedness or
Subordinated Indebtedness on any asset or property of the Company or such
Restricted Subsidiary, or any income or profits therefrom, or assign or convey
any right to receive income therefrom, unless the Notes are equally and ratably
secured with the obligations so secured or until such time as such obligations
are no longer secured by a Lien.
No Guarantor will directly or indirectly create, incur, assume or
suffer to exist any Lien that secures obligations under any Pari Passu
Indebtedness or Subordinated Indebtedness of such Guarantor on any asset or
property of such Guarantor or any income or profits therefrom, or assign or
convey any right to receive income therefrom, unless the Guarantee of such
Guarantor is equally and ratably secured with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
Notwithstanding the foregoing, no such equal and ratable security
need be provided if the Indebtedness secured is incurred pursuant to a Real
Estate Financing Transaction.
SECTION 1012. Limitation on Transactions with Affiliates.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction") involving aggregate consideration in excess of $5 million, unless:
(i) such Affiliate Transaction is on terms that are not materially
less favorable to the Company or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person; and
(ii) the Company delivers to the Trustee with respect to any
Affiliate Transaction involving aggregate payments in excess of $10
million, a resolution adopted by a majority of the Board of Directors of
the Company approving such Affiliate
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Transaction and set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above.
(b) The foregoing provisions will not apply to the following: (i)
transactions between or among the Company and/or any of its Restricted
Subsidiaries; (ii) Restricted Payments permitted by Section 1009; (iii) the
payment of customary annual management, consulting and advisory fees and related
expenses to KKR and its Affiliates; (iv) the payment of reasonable and customary
fees paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Restricted Subsidiary; (v)
payments by the Company or any of its Restricted Subsidiaries to KKR and its
Affiliates made for any financial advisory, financing, underwriting or placement
services or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions or divestitures which
payments are approved by a majority of the Board of Directors of the Company in
good faith; (vi) transactions in which the Company or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a letter from an
Independent Financial Advisor stating that such transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view or meets
the requirements of clause (i) of paragraph (a); (vii) payments or loans to
employees or consultants which are approved by a majority of the Board of
Directors of the Company in good faith; (viii) any agreement as in effect as of
the Issuance Date or any amendment thereto (so long as any such amendment is not
disadvantageous to the Holders in any material respect) or any transaction
contemplated thereby; (ix) the existence of, or the performance by the Company
or any of its Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement or purchase
agreement related thereto) to which it is a party as of the Issuance Date and
any similar agreements which it may enter into thereafter; provided, however,
that the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of obligations under any future amendment to any such
existing agreement or under any similar agreement entered into after the
Issuance Date shall only be permitted by this clause (ix) to the extent that the
terms of any such amendment or new agreement are not otherwise disadvantageous
to the holders of the Notes in any material respect; (x) the payment of all fees
and expenses related to the Merger and the Financings; and (xi) transactions
with customers, clients, suppliers, or purchasers or sellers of goods or
services, in each case in the ordinary course of business and otherwise in
compliance with the terms of the Indenture which are fair to the Company or its
Restricted Subsidiaries, in the reasonable determination of the Board of
Directors of the Company or the senior management thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
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The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or consensual restriction on the ability of
any such Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries on its Capital Stock or any other
interest or participation in, or measured by, its profits or (ii) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease, or transfer any of its properties or assets to the
Company, or any of its Restricted Subsidiaries;
except (in each case) for such encumbrances or restrictions existing under or by
reason of:
(1) contractual encumbrances or restrictions in effect on the
Issuance Date, including pursuant to the Senior Credit Facility and its
related documentation;
(2) this Indenture and the Notes;
(3) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(4) applicable law or any applicable rule, regulation or order;
(5) any agreement or other instrument of a Person acquired by the
Company or any Restricted Subsidiary in existence at the time of such
acquisition (but not created in contemplation thereof), which encumbrance
or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of
the Person, so acquired;
(6) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;
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(7) secured Indebtedness otherwise permitted to be incurred pursuant
to Sections 1010 and 1011 that limit the right of the debtor to dispose of
the assets securing such Indebtedness;
(8) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(9) other Indebtedness of Foreign Subsidiaries permitted to be
incurred subsequent to the Issuance Date pursuant to Section 1010;
(10) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business;
(11) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
(12) restrictions created in connection with any Real Estate
Financing Transaction that, in the good faith determination of the Board
of Directors of the Company, are necessary or advisable to effect such
Real Estate Financing Transaction; and
(13) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings of the contracts, instruments or obligations referred to
in clauses (c)(1) through (c)(12) above, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of the
Company's Board of Directors, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the
dividend or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
SECTION 1014. Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries.
(a) The Company will not permit any Restricted Subsidiary to
guarantee the payment of any Indebtedness of the Company or any Indebtedness of
any other Restricted Subsidiary unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee of payment of the Notes by such Restricted Subsidiary
except that (A) if the Notes are subordinated in right of payment to such
Indebtedness, the Guarantee under the supplemental indenture shall be
subordinated to such
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Restricted Subsidiary's guarantee with respect to such Indebtedness
substantially to the same extent as the Notes are subordinated to such
Indebtedness under the Indenture and (B) if such Indebtedness is by its express
terms subordinated in right of payment to the Notes, any such guarantee of such
Restricted Subsidiary with respect to such Indebtedness shall be subordinated in
right of payment to such Restricted Subsidiary's Guarantee with respect to the
Notes substantially to the same extent as such Indebtedness is subordinated to
the Notes; (ii) such Restricted Subsidiary waives and will not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity or subrogation or any other rights against the Company
or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Guarantee; and (iii) such Restricted Subsidiary shall
deliver to the Trustee an Opinion of Counsel to the effect that (A) such
Guarantee of the Notes has been duly executed and authorized and (B) such
Guarantee of the Notes constitutes a valid, binding and enforceable obligation
of such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; provided that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary (x) that (A) existed at the time such Person became a Restricted
Subsidiary of the Company and (B) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of the Company or
(y) that guarantees the payment of Obligations of the Company or any Restricted
Subsidiary under the Senior Credit Facility or any other bank facility which is
designated as Senior Indebtedness and any refunding, refinancing or replacement
thereof, in whole or in part, provided that such refunding, refinancing or
replacement thereof constitutes Senior Indebtedness and is not incurred pursuant
to a registered offering of securities under the Securities Act or a private
placement of securities (including under Rule 144A) pursuant to an exemption
from the registration requirements of the Securities Act, which private
placement provides for registration rights under the Securities Act (any
guarantee excluded by operations of this clause (y) being an "Excluded
Guarantee").
(b) Notwithstanding the foregoing and the other provisions of this
Indenture, any Guarantee by a Restricted Subsidiary of the Notes shall provide
by its terms that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited hereunder) or (ii) the release or
discharge of the guarantee which resulted in the creation of such Guarantee,
except a discharge or release by or as a result of payment under such guarantee.
SECTION 1015. Limitation on Other Senior Subordinated Indebtedness.
The Company will not, and will not permit any Guarantor to, directly
or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is
subordinate in right of payment
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to any Indebtedness of the Company or any Indebtedness of any Guarantor, as the
case may be, unless such Indebtedness is either (a) pari passu in right of
payment with the Notes or such Guarantor's Guarantee, as the case may be or (b)
subordinate in right of payment to the Notes, or such Guarantor's Guarantee, as
the case may be, in the same manner and at least to the same extent as the Notes
are subordinate to Senior Indebtedness or such Guarantor's Guarantee is
subordinate to such Guarantor's Senior Indebtedness, as the case may be.
SECTION 1016. Purchase of Notes upon a Change of Control.
(a) Upon the occurrence of a Change of Control, the Company will
make an offer to purchase all or any part (equal to $1,000 or an integral
multiple thereof) of the Notes pursuant to the offer described below (the
"Change of Control Offer") at a price in cash (the "Change of Control Payment")
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase.
(b) Within 30 days following any Change of Control, the Company
shall give to each Holder of the Notes, with a copy to the Trustee, in the
manner provided in Section 106 a notice stating:
(1) a Change of Control Offer is being made pursuant to the covenant
entitled "Purchase of Notes upon Change of Control," and that all Notes
properly tendered pursuant to such Change of Control Offer will be
accepted for payment;
(2) the purchase price and the purchase date, which will be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed, except as may be otherwise required by applicable law (the "Change
of Control Payment Date");
(3) any Note not properly tendered will remain outstanding and
continue to accrue interest;
(4) unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest on the Change of Control
Payment Date;
(5) Holders electing to have any Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes completed, to the Paying Agent and at the address specified in the
notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date;
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(6) Holders will be entitled to withdraw their tendered Notes and
their election to require the Company to purchase such Notes, provided
that the Paying Agent receives, not later than the close of business on
the last day of the offer period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of Notes tendered for purchase, and a statement that such Holder is
withdrawing such Holder's tendered Notes and his election to have such
Notes purchased;
(7) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof; and
(8) any additional instructions a Holder must follow in order to
have its Notes repurchased in accordance with this Section 1016.
(c) Prior to complying with the provisions of this Section 1016, but
in any event within 30 days following a Change of Control, the Company will
either repay all outstanding amounts under the Senior Credit Facility or offer
to repay in full all outstanding amounts under the Senior Credit Facility and
repay the Obligations held by each lender who has accepted such offer or obtain
the requisite consents, if any, under the Senior Credit Facility to permit the
repurchase of the Notes required by this Section 1016. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws or
regulations are applicable in connection with the repurchase of the Notes
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions hereunder, the
Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described hereunder by
virtue thereof.
(d) On the Change of Control Payment Date, the Company shall, to the
extent permitted by law,
(i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent an amount equal to the aggregate
Change of Control Payment in respect of all Notes or portions thereof so
tendered and
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation the Notes so accepted together with an Officers' Certificate
stating that such Notes or portions thereof have been tendered to and
purchased by the Company.
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(e) The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
(f) The Paying Agent shall promptly mail to each Holder of Notes the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any, provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof.
SECTION 1017. Limitation on Sales of Assets.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, cause, make or suffer to exist an Asset Sale, unless (x) the
Company, or its Restricted Subsidiaries, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the Company) of the assets sold or
otherwise disposed of and (y) at least 75% of the proceeds from such Asset Sale
when received consists of cash or Cash Equivalents; provided that the amount of
(a) any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet) of the Company or any Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the Notes) that are
assumed by the transferee of any such assets, (b) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are converted by the Company or such Restricted Subsidiary into cash within
180 days after such Asset Sale (to the extent of the cash received) and (c) any
Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Sale having an aggregate fair market
value, taken together with all other Designated Noncash Consideration received
pursuant to this clause (c) that is at that time outstanding, not to exceed the
greater of (x) $100.0 million or (y) 20% of Total Assets at the time of the
receipt of such Designated Noncash Consideration (with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall be
deemed to be cash for the purposes of this provision.
Within 30 months after the Company's or any Restricted Subsidiary's
receipt of the Net Proceeds of any Asset Sale, the Company or such Restricted
Subsidiary may apply the Net Proceeds from such Asset Sale, at its option, (i)
to permanently reduce Obligations under the Senior Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other Senior
Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce Obligations under the Notes if the Notes are then prepayable or, if the
Notes may not be then prepaid, the Company shall make an offer (in accordance
with the procedures set forth below for an Asset Sale Offer) to all Holders to
purchase at 100% of the principal amount thereof the amount of Notes that would
otherwise be prepaid), (ii) to an investment in any one or more businesses,
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capital expenditures or acquisitions of other assets in each case, used or
useful in a Similar Business and/or (iii) to an investment in properties or
assets that replace the properties and assets that are the subject of such Asset
Sale. Pending the final application of any such Net Proceeds, the Company or
such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving
credit facility, if any, or otherwise invest such Net Proceeds in Cash
Equivalents or Investment Grade Securities. The Indenture will provide that any
Net Proceeds from the Asset Sale that are not invested as provided and within
the time period set forth in the first sentence of this paragraph will be deemed
to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $15 million,
the Company shall make an offer to all Holders of Notes (an "Asset Sale Offer")
to purchase the maximum principal amount of Notes, that is an integral multiple
of $1,000, that may be purchased out of the Excess Proceeds at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date fixed for the closing of such offer
(the "Offered Price"). Within 10 Business Days after the date on which the
aggregate amount of Excess Proceeds exceeds $15 million, the Company shall give
to each Holder of the Notes, with a copy to the Trustee, in the manner provided
in Section 106 a notice stating:
(i) that the Holder has the right to require the Company to
repurchase such Holder's Notes at the Offered Price, subject to proration
in the event the Excess Proceeds are less than the aggregate Offered Price
of all Notes tendered;
(ii) the date of purchase of Notes pursuant to the Asset Sale Offer
(the "Asset Sale Purchase Date"), which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed;
(iii) that the Offered Price will be paid to Holders electing to
have Notes purchased on the Asset Sale Purchase Date, provided that a
Holder must surrender its Note to the Paying Agent at the address
specified in the notice prior to the close of business at least five
Business Days prior to the Asset Sale Purchase Date;
(iv) any Note not tendered will continue to accrue interest pursuant
to its terms;
(v) that unless the Company defaults in the payment of the Offered
Price, any Note accepted for payment pursuant to the Asset Sale Offer
shall cease to accrue interest on and after the Asset Sale Purchase Date;
(vi) that Holders will be entitled to withdraw their tendered Notes
and their election to require the Company to purchase such Notes, provided
that the Company receives, not later than the close of business on the
third Business Day preceding the Asset Sale Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth the
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name of the Holder, the principal amount of the Notes tendered for
purchase, and a statement that such Holder is withdrawing its election to
have such Notes purchased;
(vii) that the Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; which unpurchased portion must be equal
to $1,000 in principal amount or an integral multiple thereof; and
(viii) the instructions a Holder must follow in order to have his
Notes purchased in accordance with this Section 1017.
To the extent that the aggregate amount of Notes tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased in the
manner described in Section 1104. Upon completion of any such Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Section 1017, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
this Indenture.
SECTION 1018. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing officers with a view to
determining whether it has kept, observed, performed and fulfilled, and has
caused each of its Subsidiaries to keep, observe, perform and fulfill its
obligations under this Indenture and further stating, as to each such officer
signing such certificate, that, to the best of his or her knowledge, the Company
during such preceding fiscal year has kept, observed, performed and fulfilled,
and has caused each of its Subsidiaries to keep, observe, perform and fulfill
each and every such covenant contained in this Indenture and no Default or Event
of Default occurred during such year and at the date of such certificate there
is no Default or Event of Default which has occurred and is continuing or, if
such signers do know of such Default or Event of Default, the certificate shall
describe its status, with particularity and that, to the best of his or her
knowledge, no event has occurred and remains by reason of which payments on the
account of the principal of or interest, if any, on the Notes
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is prohibited or if such event has occurred, a description of the event and what
action each is taking or proposes to take with respect thereto. The Officers'
Certificate shall also notify the Trustee should the Company elect to change the
manner in which it fixes its fiscal year end. For purposes of this Section
1018(a), such compliance shall be determined without regard to any period of
grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $10 million), the Company
shall deliver to the Trustee by registered or certified mail or facsimile
transmission an Officers' Certificate specifying such event, notice or other
action within five Business Days of its occurrence.
SECTION 1019. Commission Reports and Reports to Holders.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Commission, the
Company will file with the Commission (and provide the Trustee and Holders with
copies thereof, without cost to each Holder, within 15 days after it files them
with the Commission), (a) within 90 days after the end of each fiscal year,
annual reports on Form 10-K (or any successor or comparable form) containing the
information required to be contained therein (or required in such successor or
comparable form); (b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor or
comparable form); (c) promptly from time to time after the occurrence of an
event required to be therein reported, such other reports on Form 8-K (or any
successor or comparable form); and (d) any other information, documents and
other reports which the Company would be required to file with the Commission if
it were subject to Section 13 or 15(d) of the Exchange Act; provided, however,
the Company shall not be so obligated to file such reports with the Commission
if the Commission does not permit such filing, in which event the Company will
make available such information to prospective purchasers of Notes, in addition
to providing such information to the Trustee and the Holders, in each case
within 15 days after the time the Company would be required to file such
information with the Commission, if it were subject to Sections 13 or 15(d) of
the Exchange Act.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Redemption.
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The Notes may or shall, as the case may be, be redeemed, as a whole
or from time to time in part, subject to the conditions and at the Redemption
Prices specified in the form of Note, together with accrued interest to the
Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular Notes
to be redeemed shall be selected not more than 60 days prior to the Redemption
Date by the Trustee, from the Outstanding Notes not previously called for
redemption, in compliance with the requirements of the principal national
securities exchange, if any, on which such Notes are listed, or, if such Notes
are not so listed, on a pro rata basis, by lot or by such other method as the
Trustee shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements) and which may provide for the selection for
redemption of portions of the principal of Notes; provided, however, that no
such partial redemption shall reduce the portion of the principal amount of a
Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
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SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed. The Trustee shall give notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall deliver to the Trustee, at least 45 days prior
to the Redemption Date, an Officers' Certificate requesting that the Trustee
give such notice and setting forth the information to be stated in such notice
as provided in the following items.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification of the particular Notes (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Notes to be
redeemed and the aggregate principal amount of Notes to be outstanding
after such partial redemption,
(4) in case any Note is to be redeemed in part only, the notice
which relates to such Note shall state that on and after the Redemption
Date, upon surrender of such Note, the holder will receive, without
charge, a new Note or Notes of authorized denominations for the principal
amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) will become due and payable upon each such Note, or the portion
thereof, to be redeemed, and, unless the Company defaults in making the
redemption payment, that interest on Notes called for redemption (or the
portion thereof) will cease to accrue on and after said date,
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest, if any,
(7) the name and address of the Paying Agent,
(8) that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price,
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(9) the CUSIP number, and that no representation is made as to the
accuracy or correctness of the CUSIP number, if any, listed in such notice
or printed on the Notes, and
(10) the paragraph of the Notes pursuant to which the Notes are to
be redeemed.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Regular Record Date or Special Record Date, as the case
may be, according to their terms and the provisions of Section 311.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1108. Notes Redeemed in Part.
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holders attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unredeemed
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portion of the principal of the Note so surrendered, provided, that each such
new Note will be in a principal amount of $1,000 or integral multiple thereof.
ARTICLE TWELVE
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Legal Defeasance or
Covenant Defeasance.
The Company and the Guarantors may, at their option by Board
Resolution, at any time, with respect to the Notes, elect to have either Section
1202 or Section 1203 be applied to all Outstanding Notes upon compliance with
the conditions set forth below in this Article Twelve.
SECTION 1202. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1202, the Company and any Guarantor shall be deemed
to have been discharged from its obligations with respect to all Outstanding
Notes on the date the conditions set forth in Section 1204 are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Company and any such Guarantor shall be deemed to have paid and
discharged the entire Indebtedness represented by the Outstanding Notes, which
shall thereafter be deemed to be "Outstanding" only for the purposes of Section
1205 and the other Sections of this Indenture referred to in (A) and (B) below,
and to have satisfied all its other obligations under such Notes and this
Indenture insofar as such Notes are concerned (and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of Outstanding Notes to receive, solely
from the trust fund described in Section 1204 and as more fully set forth in
such Section, payments in respect of the principal of (and premium, if any, on)
and interest on such Notes when such payments are due, (B) the Company's
obligations with respect to such Notes under Sections 304, 305, 310, 1002 and
1003, (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, and the Company's obligations in connection therewith and (D) this
Article Twelve.
Subject to compliance with this Article Twelve, the Company may
exercise its option under this Section 1202 notwithstanding the prior exercise
of its option under Section 1203 with respect to the Notes.
SECTION 1203. Covenant Defeasance.
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Upon the Company's exercise under Section 1201 of the option
applicable to this Section 1203, the Company shall be released from its
obligations under any covenant contained in Section 801 and in Sections 1009
through 1019 with respect to the Outstanding Notes on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Notes shall thereafter be deemed not to be "Outstanding" for the
purposes of any direction, waiver, consent or declaration or Act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder (it being
understood that such Notes will not be outstanding for accounting purposes). For
this purpose, such Covenant Defeasance means that, with respect to the
Outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
501(iii), but, except as specified above, the remainder of this Indenture and
such Notes shall be unaffected thereby.
SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 1202 or Section 1203 to the Outstanding Notes:
(i) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of the Indenture who shall agree to comply with the provisions of this
Article Twelve applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of such Notes, cash in
U.S. dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants selected by
the Company, to pay the principal of, premium, if any, and interest due on
the Outstanding Notes on the Stated Maturity or on the applicable
Redemption Date as the case may be, of such principal, premium, if any, or
interest on the Outstanding Notes;
(ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee (which opinion may be subject to
customary assumptions and exclusions) confirming that (A) the Company has
received from, or there has been published by, the United States Internal
Revenue Service a ruling or (B) since the Issuance Date, there has been a
change in the applicable U.S. federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel in the United
States (which opinion may be subject to customary assumptions and
exclusions) shall confirm that the Holders of the Outstanding
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Notes will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such Legal Defeasance and will be subject to U.S.
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
(iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, the Holders of the Outstanding Notes will not
recognize income, gain or loss for U.S. federal income tax purposes as a
result of such Covenant Defeasance and will be subject to such tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default
from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company
or any Guarantor is a party or by which the Company or any Guarantor is
bound;
(vi) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally under any applicable U.S. federal or state law, and that the
Trustee has a perfected security interest in such trust funds for the
ratable benefit of the Holders;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of defeating, hindering, delaying or defrauding any creditors of
the Company or any Guarantor or others; and
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States (which Opinion
of Counsel may be subject to customary assumptions and exclusions) each
stating that all conditions precedent provided for or relating to the
Legal Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
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SECTION 1205. Deposited Money and U.S. Government Securities to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and Government Securities (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal (and premium, if
any) and interest, but such money need not be segregated from other funds except
to the extent required by law. Money and Government Securities so held in trust
are not subject to Article Thirteen.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Government Securities
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Securities held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent legal defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1206. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money or
Government Securities in accordance with Section 1205 by reason of any legal
proceeding or by any reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1202 or 1203, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1205; provided, however, that if the Company makes any payment of principal of
(or premium, if any) or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money and Government Securities held
by the Trustee or Paying Agent.
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ARTICLE THIRTEEN
SUBORDINATION OF NOTES
SECTION 1301. Notes Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Note, by his
acceptance thereof, likewise covenants and agrees, for the benefit of the
holders, from time to time, of Senior Indebtedness that, to the extent and in
the manner hereinafter set forth in this Article, the Indebtedness represented
by the Notes and the payment of the principal of (and premium, if any) and
interest on each and all of the Notes and all other Subordinated Note
Obligations are hereby expressly made subordinate and subject in right of
payment as provided in this Article to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness, whether outstanding on the Issuance Date
or thereafter incurred, created, assumed or, except as set forth in Section
1014, guaranteed.
SECTION 1302. Payment over of Proceeds upon Dissolution, Etc.
Upon any distribution to creditors of the Company in a liquidation
or dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities:
(1) the holders of Senior Indebtedness shall be entitled to receive
payment in full in cash or cash equivalents of all Obligations due in
respect of such Senior Indebtedness before the Holders are entitled to
receive any payment with respect to the Subordinated Note Obligations
(except that Holders may receive (i) shares of stock and any debt
securities that are subordinated at least to the same extent as the Notes
to (a) Senior Indebtedness and (b) any securities issued in exchange for
Senior Indebtedness and (ii) payments and other distributions made from
the trusts described in Article Twelve); and
(2) until all Obligations with respect to Senior Indebtedness (as
provided in subsection (1) above) are paid in full in cash or cash
equivalents, any distribution to which Holders would be entitled but for
this Article shall be made to holders of Senior Indebtedness (except that
Holders may receive (i) shares of stock and any debt securities that are
subordinated to at least the same extent as the Notes to (a) Senior
Indebtedness and (b) any securities issued in exchange for Senior
Indebtedness and (ii) payments and other distributions made from the
trusts described in Article Twelve) as their interests may appear.
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SECTION 1303. Suspension of Payment When Senior Indebtedness in
Default.
The Company may not make any payment or distribution to the Trustee
or any Holder in respect of Subordinated Note Obligations and may not acquire
from the Trustee or any Holder any Notes for cash or property (other than (i)
securities that are subordinated to at least the same extent as the Notes to (a)
Senior Indebtedness and (b) any securities issued in exchange for Senior
Indebtedness and (ii) payments and other distributions made from the trusts
described in Article Twelve) until all Senior Indebtedness has been paid in full
in cash or cash equivalents if:
(i) a default in the payment of any principal of, premium, if any,
or interest on, or of unreimbursed amounts under drawn letters of credit
or in respect of banker's acceptances or fees relating to letters of
credit or banker's acceptances constituting, Designated Senior
Indebtedness occurs and is continuing beyond any applicable grace period
in the agreement, indenture or other document governing such Designated
Senior Indebtedness (a "payment default"); or
(ii) a default, other than a payment default, on Designated Senior
Indebtedness occurs and is continuing that then permits holders of the
Designated Senior Indebtedness to accelerate its maturity (a "non-payment
default") and the Trustee receives a notice of the default (a "Payment
Blockage Notice") from a Person who may give it pursuant to Section 1313
hereof. No new period of payment blockage may be commenced unless and
until 365 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice. However, if any Payment Blockage Notice
within such 365-day period is given by or on behalf of any holders of
Designated Senior Indebtedness (other than the Bank Agent under the Senior
Credit Facility), the Bank Agent may give another Payment Blockage Notice
within such period. In no event, however, may the total number of days
during which any Payment Blockage Period or Periods is in effect exceed
179 days in the aggregate during any 365 consecutive day period. No
nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 90 days.
The Company may and shall resume payments on and distributions in
respect of the Notes and may acquire them upon the earlier of:
(1) in the case of a payment default, upon the date on which such
default is cured or waived or shall have ceased to exist or such
Designated Senior Indebtedness shall have been discharged or paid in full
in cash or cash equivalents, or
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(2) in case of a nonpayment default, the earlier of (x) the date on
which such nonpayment default is cured or waived, (y) 179 days after the
date on which the applicable Payment Blockage Notice is received (the
"Payment Blockage Period") or (z) the date such Payment Blockage Period
shall be terminated by written notice to the Trustee from the requisite
holders of such Designated Senior Indebtedness necessary to terminate such
period or from their Representative, after which the Company shall resume
making any and all required payments in respect of the Notes, including
any missed payments,
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 1304. Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.
SECTION 1305. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment of
any Subordinated Note Obligations at a time when such payment is prohibited by
Sections 1302 or 1303, such payment shall be held by the Trustee or such Holder,
for the benefit of, and shall be paid forthwith over and delivered, upon written
request, to, the holders of Senior Indebtedness as their interests may appear or
to their Representative under the indenture or other agreement (if any) pursuant
to which such Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay such Senior Indebtedness in full
in cash or cash equivalents in accordance with their terms, after giving effect
to any concurrent payment or distribution to or for the benefit of holders of
Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article Thirteen, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into the Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders or the Company or any other Person money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
Thirteen, except if such payment is made as a result of the willful misconduct
or gross negligence of the Trustee.
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SECTION 1306. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent
of any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes that violate this Article, but failure to give such
notice shall not affect the subordination of the Notes to the Senior
Indebtedness as provided in this Article Thirteen.
SECTION 1307. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or
in any of the Notes shall prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding up,
assignment for the benefit of creditors or other marshalling of assets and
liabilities of the Company referred to in Section 1302 or under the conditions
described in Section 1303, from making payments at any time of principal of (and
premium, if any, on) or interest on the Notes.
SECTION 1308. Subrogation to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness in cash or
cash equivalents, the Holders shall be subrogated (equally and ratably with the
holders of all Pari Passu Indebtedness of the Company) to the rights of the
holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
Subordinated Note Obligations shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of Senior Indebtedness
of any cash, property or securities to which the Holders of the Notes or the
Trustee would be entitled except for the provisions of this Article, and no
payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Holders of the Notes or on their behalf or by the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Notes, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness; it
being understood that the provisions of this Article are intended solely for the
purpose of determining the relative rights of the Holders of the Notes, on the
one hand, and the holders of Senior Indebtedness, on the other hand.
SECTION 1309. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Indebtedness on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Notes is intended to or shall
(a) impair, as between the Company and the Holders, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders the
principal of (and premium, if any) and interest on the Notes as and when the
same shall become due and payable
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128
in accordance with their terms; or (b) affect the relative rights against the
Company of the Holders and creditors of the Company other than their rights in
relation to holders of Senior Indebtedness; or (c) prevent the Trustee or any
Holder from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
of the holders of Senior Indebtedness. If the Company fails because of this
Article to pay principal (or premium, if any) or interest on a Note on the due
date, the failure is still a Default or Event of Default.
SECTION 1310. Trustee to Effectuate Subordination.
Each Holder of a Note by his acceptance thereof authorizes and
directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article and appoints the Trustee his attorney-in-fact for any and all such
purposes. If the Trustee does not file a proper proof of claim or proof of debt
in the form required in any proceeding referred to in Section 504 hereof at
least 30 days before the expiration of the time to file such claim, the Bank
Agent (if the Senior Credit Facility is still outstanding) is hereby authorized
to file an appropriate claim for and on behalf of the Holders of the Notes.
SECTION 1311. Subordination May Not Be Impaired by Company.
No right of any present or future holder of any Senior Indebtedness
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
non-compliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
SECTION 1312. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders
of Senior Indebtedness, the distribution may be made and the notice given to
their Representative.
Upon any payment or distribution of assets of the Company referred
to in this Article Thirteen, the Trustee and the Holders shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other acts pertinent thereto or to this Article
Thirteen.
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129
SECTION 1313. Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Notes. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company,
the Bank Agent or a holder of Senior Indebtedness or from any trustee, fiduciary
or agent therefor; and, prior to the receipt of any such written notice, the
Trustee, subject to TIA Sections 315(a) through 315(d), shall be entitled in all
respects to assume that no such facts exist; provided, however, that, if the
Trustee shall not have received the notice provided for in this Section at least
three Business Days prior to the date upon which by the terms hereof any money
may become payable for any purpose (including, without limitation, the payment
of the principal of (and premium, if any) or interest on any Note), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within three Business Days
prior to such date.
(b) Subject to TIA Sections 315(a) through 315(d), the Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In
the event that the Trustee determines in good faith that further evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness to participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article and, if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
SECTION 1314. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the Company referred
to in this Article, the Trustee, subject to TIA Sections 315(a) through 315(d),
and the Holders of the Notes shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person
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130
making such payment or distribution, delivered to the Trustee or to the Holders
of Notes, for the purpose of ascertaining the Persons entitled to participate in
such payment or distribution, the holders of Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article; provided that such court, trustee, receiver, custodian,
assignee, agent or other Person has been apprised of, or the order, decree or
certificate makes reference to, the provisions of this Article.
SECTION 1315. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustees' Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607.
SECTION 1316. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1315 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
SECTION 1317. No Suspension of Remedies.
Nothing contained in this Article shall limit the right of the
Trustee or the Holders of Notes to take any action to accelerate the maturity of
the Notes pursuant to Article Five or to pursue any rights or remedies hereunder
or under applicable law, except as provided in Article Five.
SECTION 1318. Modification of Terms of Senior Indebtedness.
Any renewal or extension of the time of payment of any Senior
Indebtedness or the exercise by the holders of Senior Indebtedness of any of
their rights under any instrument creating or evidencing Senior Indebtedness,
including, without limitation, the waiver of default thereunder, may be made or
done all without notice to or assent from the Holders or the Trustee.
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131
No compromise, alteration, amendment, modification, extension,
renewal or other change of, or waiver, consent or other action in respect of,
any liability or obligation under or in respect of, or of any of the terms,
covenants or conditions of any indenture or other instrument under which any
Senior Indebtedness is outstanding or of such Senior Indebtedness, whether or
not such release is in accordance with the provisions of any applicable
document, shall in any way alter or affect any of the provisions of this Article
Thirteen or of the Notes relating to the subordination thereof.
SECTION 1319. Certain Terms.
For purposes of this Article Thirteen, (i) "cash equivalents" means
Government Securities with maturities of nine months or less and (ii) unless the
context clearly indicates otherwise, any payment or distribution to the Trustee
or any Holder in respect of any Subordinated Note Obligation shall include any
payment or distribution of any kind or character from any source, whether in
cash, property or securities, by set-off or otherwise, including any repurchase,
redemption or acquisition of the Notes and any direct or indirect payment
payable by reason of any other Indebtedness or Obligation being subordinated to
the Notes.
SECTION 1320. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary, payments
from cash or the proceeds of Government Securities held in trust under Article
Twelve hereof by the Trustee (or other qualifying trustee) and which were
deposited in accordance with the terms of Article Twelve hereof and not in
violation of Section 1303 hereof for the payment of principal of (and premium,
if any) and interest on the Notes shall not be subordinated to the prior payment
of any Senior Indebtedness or subject to the restrictions set forth in this
Article Thirteen, and none of the Holders shall be obligated to pay over any
such amount to the Company or any holder of Senior Indebtedness or any other
creditor of the Company.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
KINDERCARE LEARNING CENTERS,
INC.,
a Delaware corporation
By /s/ Philip L. Maslowe
--------------------------------------
Name: Philip L. Maslowe
Title: Executive Vice President
and Chief Financial Officer
MARINE MIDLAND BANK,
as Trustee
By /s/ Eileen M. Hughes
--------------------------------------
Name: Eileen M. Hughes
Title: Assistant Vice President
<PAGE>
Exhibit 4.2
FACE OF INITIAL SECURITY
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SECURITY PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING
OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS
SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
"ACCREDITED INVESTOR", FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR
FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT
<PAGE>
2
(AND IF ACQUIRING THE SECURITIES FROM SUCH AN INSTITUTIONAL "ACCREDITED
INVESTOR", IS ACQUIRING SECURITIES HAVING AN AGGREGATE PRINCIPAL AMOUNT OF
NOT LESS THAN $250,000), OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; PROVIDED THAT
THE COMPANY AND THE TRUSTEE SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER
SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY ("DTC") TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER REPRESENTATIVE OF
DTC AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
<PAGE>
3
<PAGE>
4
KINDERCARE LEARNING CENTERS, INC.
9-1/2% Senior Subordinated Note due 2009
No. CUSIP No.
$
KINDERCARE LEARNING CENTERS, INC., a Delaware corporation (herein
called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to Cede & Co. or registered assigns, the principal sum of $ Dollars on
February 15, 2009, at the office or agency of the Company referred to below, and
to pay interest thereon on August 15, 1997 and semi-annually thereafter, on
February 15 and August 15 in each year, from February 13, 1997, or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, at the rate of 9-1/2% per annum, until the principal hereof is paid or duly
provided for, and (to the extent lawful) to pay on demand interest on any
overdue interest at the rate borne by the Notes from the date on which such
overdue interest becomes payable to the date payment of such interest has been
made or duly provided for. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Note (or one or more Predecessor Notes)
is registered at the close of business on the Regular Record Date for such
interest, which shall be the February 1 or August 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date, and such defaulted interest,
and (to the extent lawful) interest on such defaulted interest at the rate borne
by the Notes, may be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest to be fixed by the Trustee,
notice
<PAGE>
5
whereof shall be given to Holders of Notes not less than 10 days prior to
such Special Record Date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Notes may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.
The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of February 13, 1997 (the
"Registration Rights Agreement"), between the Company and the Initial
Purchasers named therein. In the event that either (a) an Exchange Offer
Registration Statement (as such term is defined in the Registration Rights
Agreement) is not filed with the Commission on or prior to the 45th day
following the date of original issue of the Notes, (b) such Exchange
Offer Registration Statement has not been declared effective on or prior to
the 150th day following the date of original issue of the Notes or (c) the
Exchange Offer (as such term is defined in the Registration Rights Agreement)
is not consummated on or prior to the 180th day following the date of
original issue of the Notes or a Shelf Registration Statement (as such term
is defined in the Registration Rights Agreement) with respect to the Notes is
not declared effective on or prior to the 180th day following the date of
original issue of the Notes, the interest rate borne by this Note shall be
increased by one-quarter of one percent per annum following such 45-day period
in the case of clause (a) above, such 150-day period in the case of clause
(b) above or such 180-day period in the case of clause (c) above, which rate
will be increased by an additional one-quarter of one percent per annum for
each 90-day period that any such additional interest continues to accrue;
proviced that the aggregate increase in such annual interest rate will in no
event exceed one percent. Upon (x) the filing of the Exchange Offer
Registration Statement after the 45-day period described in clause (a) above,
(y) the effectiveness of the Exchange Offer Registration Statement after the
150-day period described in clause (b) above or (z) the consummation of the
Exchange Offer or the effectiveness of a
<PAGE>
6
Shelf Registration Statement, as the case may be, after the 180-day period
described in clause (c) above, the interest rate borne by the Note from the
date of such filing, effectiveness or consummation, as the case may be, will
be reduced to the original interest rate set forth above if the Company is
otherwise in compliance with this paragraph; provided, however, that, if
after such reduction in interest rate, a different event specified in clause
(a), (b) or (c) above occurs, the interest rate may again be increased and
thereafter reduced pursuant to the foregoing provisions. If the Company
issues a notice that the Shelf Registration Statement is unusable pending the
announcement of a material corporate transaction or otherwise pursuant to
Section 3(k) of the Registration Rights Agreement, or such a notice is
required under applicable securities laws to be issued by the Company, and
the aggregate number of days in any consecutive twelve-month period for which
all such notices are issued or required to be issued exceeds 30 days in the
aggregate, then the interest rate borne by the Notes will be increased by
one-quarter of one percent per annum following the date that such Shelf
Registration Statement ceases to be usable beyond the period permitted above,
which rate shall be increased by an additional one-quarter of one percent per
annum for each 90-day period that such additional interest continues to
accrue; provided that the aggregate increase in such annual interest rate may
in no event exceed one percent. Upon the Company declaring that the Shelf
Registration Statement is usable after the interest rate has been increased
pursuant to the preceding sentence, the interest rate borne by the Notes will
be reduced to the original interest rate if the Company is otherwise in
compliance with this paragraph; provided, however, that if after any such
reduction in interest rate the Shelf Registration Statement again ceases to
be usable beyond the period permitted above, the interest rate will again be
increased and thereafter reduced pursuant to the foregoing provisions.
Payment of the principal of (and premium, if any, on) and interest
on this Note will be made at the office or agency of the Company maintained for
that purpose in The
<PAGE>
7
City of New York, or at such other office or agency of the Company as may be
maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company (i) by check mailed to the address of the Person entitled
thereto as such address shall appear on the Note Register or (ii) by wire
transfer to an account maintained by the payee located in the United States.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee or the AuthenticatingAgent referred to on the reverse
hereof by manual signature, this Note shall not be entitled to any benefit under
the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
KINDERCARE LEARNING CENTERS,
INC.
By:
----------------------------
Name: Philip L. Maslowe
Title: Senior Vice President
and Chief Financial Officer
Attest: [SEAL]
- ----------------------
Authorized Officer
<PAGE>
8
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned
Indenture.
MARINE MIDLAND BANK,
as Trustee
By:
------------------------
Authorized Signatory
Dated:
-------------------
<PAGE>
9
REVERSE SIDE OF INITIAL SECURITY
This Note is one of a duly authorized issue of securities of the
Company designated as its 9-1/2% Senior Subordinated Notes due 2009
(the "Notes"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount to $300,000,000, which may
be issued under an indenture (the "Indenture") dated as of February 13, 1997
between the Company and Marine Midland Bank, as trustee (the "Trustee", which
term includes any successor trustee under the Indenture), to which Indenture
and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to
be, authenticated and delivered.
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all Senior Indebtedness as defined in the
Indenture, and this Note is issued subject to such provisions. Each Holder of
this Note, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordination as
provided in the Indenture and (c) appoints the Trustee his attorney-in-fact for
such purpose.
On or before each payment date, the Company shall deliver or cause
to be delivered to the Trustee or the Paying Agent an amount in dollars
sufficient to pay the amount due on such payment date.
The Notes are subject to redemption upon not less than 30 nor more
than 60 days', written notice, at any time on and after February 15, 2002, as a
whole or in part, at the election of the Company, at a Redemption Price equal to
the percentage of the principal amount set forth below,
<PAGE>
10
plus, in each case, accrued and unpaid interest, if any, to the applicable
Redemption Date, if redeemed during the twelve month period beginning February
15, of the years indicated below:
Redemption
Year Price
---- ----------
2002.......................................... 104.750%
2003......................................... 103.167%
2004.......................................... 101.583%
2005 and thereafter........................... 100.000%
In addition, at any time or from time to time, on or prior to
February 15, 2000, the Company may, at its option, redeem up to 40% of the
aggregate principal amount of Notes originally issued under the Indenture on the
Issuance Date at a Redemption Price equal to 109.5% of the aggregate principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Redemption Date, with the net proceeds of one or more Equity Offerings; provided
that at least 60% of the aggregate principal amount of Notes originally issued
under the Indenture on the Issuance Date remains outstanding immediately after
the occurrence of such redemption; and provided further that such redemption
shall occur within 60 days of the date of the closing of any such Equity
Offering.
If less than all the Notes are to be redeemed pursuant to the
preceding two paragraphs, the Trustee shall select the Notes or portions thereof
to be redeemed in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes being redeemed are listed, or if
the Notes are not so listed, on a pro rata basis, by lot or by such other method
the Trustee shall deem fair and appropriate; provided that no such partial
redemption shall reduce the portion of the principal amount of a Note not
redeemed to less than $1,000.
<PAGE>
11
In the case of any redemption of Notes, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be payable to the
Holders of such Notes, or one or more Predecessor Notes, of record at the close
of business on the relevant Regular Record Date or Special Record Date, as the
case may be, referred to on the face hereof. Notes (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date.
In the event of redemption or repurchase of this Note in part only,
a new Note or Notes for the unredeemed portion hereof shall be issued in the
name of the Holder hereof upon the cancellation hereof.
Upon the occurrence of a Change of Control, the Company will be
required to make an offer to purchase on the Change of Control Payment Date all
outstanding Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of purchase, in accordance with the Indenture. Holders of Notes that
are subject to an offer to purchase will receive a Change of Control Offer from
the Company prior to any related Change of Control Payment Date.
Under certain circumstances, in the event the Net Proceeds received
by the Company from an Asset Sale, which proceeds are not used (i) to
permanently reduce Obligations under the Senior Credit Facility (and to
correspondingly reduce commitments with respect thereto) or other Senior
Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so
reduce Obligations under Pari Passu Indebtedness, it will equally and ratably
reduce Obligations under the Notes if the Notes are then prepayable or, if the
Notes may not be then prepaid, the Company shall make an offer (in accordance
with the procedures set forth below for an Asset Sale Offer) to all Holders to
purchase 100% of the principal amount thereof the amount of Notes that would
otherwise be prepaid), (ii) to make an investment in any one
<PAGE>
12
or more businesses, capital expenditures or acquisitions of other assets in each
case, used or useful in a Similar Business and/or (iii) to make an investment in
properties or assets that replace the properties and assets that are the subject
of such Asset Sale, equal or exceeds a specified amount, the Company will be
required to make an offer to all Holders to purchase the maximum principal
amount of Notes, in an integral multiple of $1,000, that may be purchased out of
such amount at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase, in
accordance with the Indenture. Holders of Notes that are subject toany offer to
purchase will receive an Asset Sale Offer from the Company prior to any related
Asset Sale Purchase Date.
In the case of any redemption or repurchase of Notes, interest
installments whose Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Notes, or one or more Predecessor Notes, of
record at the close of business on the relevant Regular Record Date or Special
Record Date, as the case may be, referred to on the face hereof. Notes (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
If an Event of Default shall occur and be continuing, the principal
of all the Notes may be declared due and payable in the manner and with the
effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights
<PAGE>
13
of the Holders under the Indenture and the Notes and the Guarantees, if any, at
any time by the Company and the Trustee with the consent of the Holders of a
specified percentage in aggregate principal amount of the Notes at the time
Outstanding. Additionally, the Indenture permits that, without notice to or
consent of any Holder, the Company, any Guarantor and the Trustee together may
amend or supplement the Indenture, any Guarantee or this Note (i) to cure any
ambiguity, defect or inconsistency, (ii) to provide for uncertificated Notes in
addition to or in place of certificated Notes, (iii) to comply with the covenant
relating to mergers, consolidations and sales of assets, (iv) to provide for the
assumption of the Company's obligations to Holders of such Notes, (v) to make
any change that would provide any additional rights or benefits to the Holders
of the Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, (vi) to add covenants for the benefit of the
Holders or to surrender any right or power conferred upon the Company, (vii) to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act, (viii) to
evidence and provide for the acceptance of appointment under the Indenture by a
successor Trustee pursuant to the requirements of Section 610 thereof, (ix) to
make any change that does not adversely affect the legal rights of any Holder or
(x) to add a Guarantor under the Indenture. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Notes at the time Outstanding, on behalf of the Holders
of all the Notes, to waive compliance by the Company with certain provisions of
the Indenture the Notes and the Guarantees, if any, and certain past Defaults
under the Indenture and the Notes and the Guarantees, if any, and their
consequences. Any such consent or waiver by or on behalf of the Holder of this
Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
<PAGE>
14
No reference herein to the Indenture and no provision of this Note
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Notes (in the event such Guarantor or
other obligor is obligated to make payments in respect of the Notes), which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed, subject to the subordination provisions of the
Indenture.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registerable on the Note
Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to pay all documentary, stamp or similar issue or transfer taxes or
other governmental charge payable in connection therewith.
<PAGE>
15
Prior to the time of due presentment of this Note for registration
of transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Company, the Trustee nor any agent shall be affected by notice to the contrary.
THIS NOTE AND THE INDENTURE SHALL BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK EXCLUDING (TO THE GREATEST EXTENT PERMISSIBLE BY LAW) ANY RULE
OF LAW THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
Interest on this Note shall be computed on the basis of a 360-day
year of twelve 30-day months.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
<PAGE>
16
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
____________________________________
(insert Taxpayer Identification No.)
___________________________________________________________________________
___________________________________________________________________________
(please print or typewrite name and address including zip code of assignee)
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
___________________________________________________________________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
<PAGE>
17
In connection with any transfer of this Note occurring prior to the
date that is the earlier of the date of an effective Registration Statement, as
defined in the Registration Rights Agreement dated as of February 13, 1997, or
February 15, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided
by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished that comply with the
conditions of transfer set forth in this Note and the Indenture.
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date: _______________ ___________________________________
NOTICE: The signature must
correspond with the name as written
upon the face of the within-mentioned
instrument in every particular,
without alteration or any change
whatsoever.
<PAGE>
18
Signature Guarantee: ___________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: _____________________________ NOTICE: To be executed
by an executive officer.
<PAGE>
19
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1016 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 1016 of the Indenture, state the amount (in original
principal amount) below:
$_____________________
Date: _____________________________
Your Signature: _________________________________________
(Sign exactly as your name appears on the
other side of this Note)
Signature Guarantee: _________________________________
<PAGE>
Exhibit 4.4
Conformed Copy
Registration Rights Agreement
Dated as of February 13, 1997
by and among
KinderCare Learning Centers, Inc.,
as Issuer,
and
Chase Securities Inc.,
BT Securities Corporation,
Salomon Brothers Inc
and
Smith Barney Inc.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of February 13, 1997, by and among KinderCare Learning Centers,
Inc., a Delaware corporation (the "Company"), as issuer, and Chase Securities
Inc., BT Securities Corporation, Salomon Brothers Inc and Smith Barney Inc.
(collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated
February 10, 1997, among the Company and the Initial Purchasers (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchasers of $300,000,000 aggregate principal amount of the Company's 9-1/2%
Senior Subordinated Notes due 2009 (the "Notes"). In order to induce the Initial
Purchasers to enter into the Purchase Agreement, the Company has agreed to
provide to the Initial Purchasers and their direct and indirect transferees and
assigns the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the closing under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations of the SEC promulgated
thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the SEC
promulgated thereunder.
"Company" shall have the meaning set forth in the preamble of this
Agreement and also includes the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company, provided, however, that any such
depositary must have an address in the Borough of Manhattan, in the City
of New York.
<PAGE>
2
"Exchange Notes" shall mean 9-1/2% Series B Senior Subordinated
Notes due 2009 to be issued by the Company under the Indenture containing
terms identical to the Notes (except that (i) interest thereon shall
accrue from the last date on which interest was paid on the Notes or, if
no such interest has been paid, from February 13, 1997, (ii) the transfer
restrictions thereon shall be eliminated and (iii) certain provisions
relating to an increase in the stated rate of interest thereon shall be
eliminated) to be offered to Holders of Notes in exchange for Notes
pursuant to the Exchange Offer.
"Exchange Offer" shall mean the exchange offer by the Company of
Registrable Notes for Exchange Notes pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Holders" shall mean the Initial Purchasers, for so long as they own
any Registrable Notes, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable Notes
under the Indenture.
"Indenture" shall mean the Indenture relating to the Notes dated as
of February 13, 1997, between the Company and Marine Midland Bank, a New
York banking corporation and trust company, as trustee, as the same may be
amended from time to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
preamble of this Agreement.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; provided that
whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the
Company or any of its affiliates (as such term is defined in Rule 405
under the 1933 Act) (other than the Initial Purchasers or subsequent
holders of Registrable Notes if such subsequent holders are deemed to be
such affiliates solely by reason of their holding of such
<PAGE>
3
Registrable Notes) shall be disregarded in determining whether such
consent or approval was given by the Holders of such required percentage
or amount.
"Person" shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a
government or agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Notes covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble of this Agreement.
"Registrable Notes" shall mean the Notes; provided, however, that
the Notes shall cease to be Registrable Notes when (i) a Registration
Statement with respect to such Notes shall have been declared effective
under the 1933 Act and such Notes shall have been disposed of pursuant to
such Registration Statement, (ii) such Notes shall have been sold to the
public pursuant to Rule 144 (or any similar provision then in force, but
not Rule 144A) under the 1933 Act, (iii) such Notes shall have ceased to
be outstanding or (iv) such Notes have been exchanged for Exchange Notes
upon consummation of the Exchange Offer.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC or National Association of Securities
Dealers, Inc. ("NASD") registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state or other
securities or blue sky laws (including reasonable fees and disbursements
of counsel for any underwriters or Holders in connection with state or
other securities or blue sky qualification of any of the Exchange Notes or
Registrable Notes), (iii) all expenses of any Persons in preparing or
assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements
thereto, certificates representing the Exchange Notes and other documents
relating to the performance of and compliance with this Agreement, (iv)
all rating agency fees, if any, (v) the reasonable fees and disbursements
of counsel for the Company and, in
<PAGE>
4
the case of a Shelf Registration Statement, the reasonable fees and
disbursements (including the expenses of preparing and distributing any
underwriting or securities sales agreement) of one counsel (in addition to
appropriate local counsel) for the Holders (which counsel shall be
selected in writing by the Majority Holders), (vi) the reasonable fees and
expenses of the independent public accountants of the Company, including
the expenses of any special audits or "cold comfort" letters required by
or incident to such performance and compliance, and (vii) the reasonable
fees and expenses of the trustee, including its counsel, and any escrow
agent or custodian, but excluding underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of
Registrable Notes by a Holder.
"Registration Statement" shall mean any registration statement of
the Company which covers any of the Exchange Notes or Registrable Notes
pursuant to the provisions of this Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2(b) of
this Agreement which covers all of the then Registrable Notes on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Notes under the
Indenture.
2. Registration Under the 1933 Act. (a) Exchange Offer Registration.
To the extent not prohibited by any applicable law or applicable interpretation
of the Staff of the SEC, the Company shall (A) file within 45 days after the
date hereof an Exchange Offer Registration Statement covering the offer by the
Company to the Holders to exchange all of the Registrable Notes for Exchange
Notes, (B) use its best efforts to cause such Exchange Offer Registration
Statement to be declared effective
<PAGE>
5
by the SEC within 150 days after the date hereof, (C) use its best efforts to
cause such Exchange Offer Registration Statement to remain effective until the
closing of the Exchange Offer and (D) use its best efforts to consummate the
Exchange Offer within 180 days following the date hereof. The Exchange Notes
will be issued under the Indenture. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company shall promptly commence the Exchange Offer,
it being the objective of such Exchange Offer to enable each Holder (other than
Participating Broker-Dealers (as defined in Section 3(f)) eligible and electing
to exchange Registrable Notes for Exchange Notes (assuming that such Holder is
not an affiliate of the Company within the meaning of Rule 405 under the 1933
Act, acquires the Exchange Notes in the ordinary course of such Holder's
business and has no arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes) to trade such Exchange Notes from and after their receipt without any
limitations or restrictions under the 1933 Act and without material restrictions
under the securities laws of a substantial proportion of the several states of
the United States.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 20 business days
after the date notice thereof is mailed to the Holders (or longer if
required by applicable law);
(iii) use the services of the Depositary for the Exchange Offer with
respect to Notes evidenced by global certificates;
(iv) permit Holders to withdraw tendered Registrable Notes at any
time prior to the close of business, New York City time, on the last
business day on which the Exchange Offer shall remain open, by sending to
the institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the
principal amount of Registrable Notes delivered for exchange, and a
statement that such Holder is withdrawing his election to have such Notes
exchanged; and
(v) otherwise comply in all material respects with all applicable
laws relating to the Exchange Offer.
<PAGE>
6
As soon as practicable after the close of the Exchange Offer, the
Company shall:
(i) accept for exchange Registrable Notes duly tendered and not
validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement and the letter of
transmittal which is an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes so accepted for exchange by the
Company; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Notes to each Holder of Registrable Notes equal in amount to the
Registrable Notes of such Holder so accepted for exchange.
Interest on each Exchange Note will accrue from the last date on
which interest was paid on the Registrable Notes surrendered in exchange
therefor or, if no interest has been paid on the Registrable Notes, from
February 13, 1997. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer, or the making of any exchange by a Holder,
does not violate applicable law or any applicable interpretation of the Staff of
the SEC. Each Holder of Registrable Notes (other than Participating
Broker-Dealers) who wishes to exchange such Registrable Notes for Exchange Notes
in the Exchange Offer shall have represented that (i) it is not an affiliate (as
defined in Rule 405 under the 1933 Act) of the Company, (ii) any Exchange Notes
to be received by it were acquired in the ordinary course of business, (iii) at
the time of the commencement of the Exchange Offer it has no arrangement with
any person to participate in the distribution (within the meaning of the 1933
Act) of the Exchange Notes and (iv) it is not acting on behalf of any person who
could not make the representations in clauses (i) through (iii). The Company
shall inform the Initial Purchasers of the names and addresses of the Holders to
whom the Exchange Offer is made, and the Initial Purchasers shall have the right
to contact such Holders and otherwise facilitate the tender of Registrable Notes
in the Exchange Offer.
(b) Shelf Registration. (i) If, because of any change in law or
applicable interpretations thereof by the Staff of the SEC, the Company is not
permitted to effect the Exchange Offer as contemplated by Section 2(a) hereof,
or (ii) if for any other reason the Exchange Offer cannot be consummated within
180 days following the date hereof, or (iii) if any Holder (other than an
Initial Purchaser) is not eligible to participate in the Exchange Offer or (iv)
upon the request of any Initial Purchaser within 90 days (with respect to any
Registrable Notes which it acquired directly from the Company) following the
consummation of the Exchange Offer if any such Initial Purchaser shall hold
<PAGE>
7
Registrable Notes which it acquired directly from the Company and if such
Initial Purchaser is not permitted, in the opinion of counsel to such Initial
Purchaser, pursuant to applicable law or applicable interpretation of the Staff
of the SEC to participate in the Exchange Offer, the Company shall, at its cost:
(A) as promptly as practicable, file with the SEC a Shelf
Registration Statement relating to the offer and sale of the then
outstanding Registrable Notes by the Holders from time to time in
accordance with the methods of distribution elected by the Majority
Holders of such Registrable Notes and set forth in such Shelf Registration
Statement, and use its best efforts to cause such Shelf Registration
Statement to be declared effective by the SEC by the 180th day after the
date hereof (or promptly in the event of a request by any Initial
Purchaser pursuant to clause (iv) above). In the event that the Company is
required to file a Shelf Registration Statement upon the request of any
Holder (other than an Initial Purchaser) not eligible to participate in
the Exchange Offer pursuant to clause (iii) above or upon the request of
any Initial Purchaser pursuant to clause (iv) above, the Company shall
file and have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2(a) with respect to all
Registrable Notes and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration
Statement) with respect to offers and sales of Registrable Notes held by
such Holder or such Initial Purchaser after completion of the Exchange
Offer;
(B) use its best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming part
thereof to be usable by Holders for a period of three years from the
Issuance Date (or one year from the date the Shelf Registration Statement
is declared effective if such Shelf Registration Statement is filed upon
the request of any Initial Purchaser pursuant to clause (iv) above) or
such shorter period which will terminate when all of the Registrable Notes
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement or all of the Registrable Notes become
eligible for resale pursuant to Rule 144 under the 1933 Act without volume
restrictions; and
(C) notwithstanding any other provisions hereof, use its best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the 1933 Act and
the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
<PAGE>
8
therein not misleading and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any supplement to such Prospectus (as amended
or supplemented from time to time), does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements, in light of the circumstances under which they were
made, not misleading.
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement if reasonably requested by the Majority Holders
with respect to information relating to the Holders and otherwise as required by
Section 3(b) below, to use all reasonable efforts to cause any such amendment to
become effective and such Shelf Registration to become usable as soon as
practicable thereafter and to furnish to the Holders of Registrable Notes copies
of any such supplement or amendment promptly after its being used or filed with
the SEC.
(c) Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) and 2(b). Each Holder
shall pay all expenses of its counsel other than as set forth in the preceding
sentence, underwriting discounts and commissions (prior to the reduction thereof
with respect to selling concessions, if any) and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Notes pursuant
to the Shelf Registration Statement.
(d) Effective Registration Statement. (i) The Company will be deemed
not to have used its best efforts to cause a Registration Statement to become,
or to remain, effective during the requisite period if the Company voluntarily
takes any action that would result in any such Registration Statement not being
declared effective or in the Holders of Registrable Notes covered thereby not
being able to exchange or offer and sell such Registrable Notes during that
period unless (A) such action is required by applicable law or (B) such action
is taken by the Company in good faith and for valid business reasons (but not
including avoidance of the Company's obligations hereunder), including a
material corporate transaction, so long as the Company promptly complies with
the requirements of Section 3(k) hereof, if applicable.
(ii) An Exchange Offer Registration Statement pursuant to Section
2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof
will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Notes pursuant to a Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have been effective during the
period of
<PAGE>
9
such interference, until the offering of Registrable Notes pursuant to such
Registration Statement may legally resume.
(e) Increase in Interest Rate. In the event that either (i) the
Exchange Offer Registration Statement is not filed with the Commission on or
prior to the 45th day following the date hereof, (ii) the Exchange Offer
Registration Statement is not declared effective on or prior to the 150th day
following the date hereof or (iii) the Exchange Offer is not consummated on or
prior to the 180th day following the date hereof or a Shelf Registration
Statement with respect to the Registrable Notes is not declared effective on or
prior to the 180th day following the date hereof, the interest rate borne by the
Notes shall be increased by one-quarter of one percent per annum following such
45-day period in the case of clause (i) above, following such 150-day period in
the case of clause (ii) above or following such 180-day period in the case of
clause (iii) above, which rate will be increased by an additional one-quarter of
one percent per annum for each 90-day period that any such additional interest
continues to accrue, provided that the aggregate increase in such interest rate
will in no event exceed one-percent. Upon (x) the filing of the Exchange Offer
Registration Statement after the 45-day period described in clause (i) above,
(y) the effectiveness of the Exchange Offer Registration Statement after the
150-day period described in clause (ii) above, or (z) consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 180-day period described in clause (iii) above, the
interest rate borne by the Notes from the date of such filing, effectiveness or
consummation, as the case may be, will be reduced to the original interest rate
if the Company is otherwise in compliance with this paragraph; provided,
however, that, if after any such reduction in interest rate, a different event
specified in clauses (i), (ii) or (iii) above occurs, the interest rate will
again be increased and thereafter reduced pursuant to the foregoing conditions.
If the Company issues a notice that the Shelf Registration Statement is unusable
pending the announcement of a material corporate transaction or otherwise
pursuant to Section 3(k) hereof, or such a notice is required under applicable
securities laws to be issued by the Company, and the aggregate number of days in
any consecutive twelve-month period for which all such notices are issued or
required to be issued exceeds 30 days in the aggregate, then the interest rate
borne by the Notes will be increased by one-quarter of one percent per annum
following the date that such Shelf Registration Statement ceases to be usable
beyond the 30-day period permitted above, which rate shall be increased by an
additional one-quarter of one percent per annum for each 90-day period that such
additional interest continues to accrue; provided that the aggregate increase in
such annual interest rate may in no event exceed one percent. Upon the Company
declaring that the Shelf Registration Statement is usable after the interest
rate has been increased pursuant to the preceding sentence, the interest rate
borne by the Notes will be reduced to the original interest rate if the Company
is otherwise in compliance with this paragraph; provided, however, that if after
any such reduction in interest rate the Shelf Registration Statement again
ceases to be usable
<PAGE>
10
beyond the period permitted above, the interest rate will again be increased and
thereafter reduced pursuant to the foregoing provisions.
(f) Specific Enforcement. Without limiting the remedies available to
the Initial Purchasers and the Holders, the Company acknowledges that any
failure by the Company to comply with its respective obligations under Sections
2(a) and 2(b) hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
will not be possible to measure damages for such injuries precisely and that, in
the event of any such failure, the Initial Purchasers or any Holder may obtain
such relief as may be required to specifically enforce the Company's obligations
under Sections 2(a) and 2(b) hereof.
3. Registration Procedures. In connection with the obligations of
the Company with respect to the Registration Statements pursuant to Sections
2(a) and 2(b) hereof, the Company shall:
(a) prepare and file with the SEC a Registration Statement, within
the time period specified in Section 2, on the appropriate form under the
1933 Act, which form (i) shall be selected by the Company, (ii) shall, in
the case of a Shelf Registration, be available for the sale of the
Registrable Notes by the selling Holders thereof and (iii) shall comply as
to form in all material respects with the requirements of the applicable
form and include or incorporate by reference all financial statements
required by the SEC to be filed therewith, and use its best efforts to
cause such Registration Statement to become effective and remain effective
in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to (i) the Exchange Offer Registration Statement as may be
necessary under applicable law to keep such Exchange Offer Registration
Statement effective for the period required to comply with Section 2(a)
(except to the extent the Company is unable to consummate the Exchange
Offer and the Company complies with Section 2(b), subject in all respects
to Section 3(f) hereof), and (ii) the Shelf Registration Statement as may
be necessary under applicable law to keep such Shelf Registration
Statement effective for the period required pursuant to Section 2(b)
hereof; cause each Prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed pursuant to Rule
424 under the 1933 Act; and comply with the provisions of the 1933 Act
with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the selling Holders thereof;
<PAGE>
11
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Notes, at least ten days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Notes is being
filed and advising such Holders that the distribution of Registrable Notes
will be made in accordance with the method elected by the Majority
Holders; and (ii) furnish to each Holder of Registrable Notes, to counsel
for the Initial Purchasers, to counsel for the Holders and to each
underwriter of an underwritten offering of Registrable Notes, if any,
without charge, as many copies of each Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and such
other documents as such Holder or underwriter may reasonably request,
including financial statements and schedules and, if the Holder
specifically so requests in writing, all exhibits (including those
incorporated by reference) in order to facilitate the public sale or other
disposition of the Registrable Notes; and (iii) subject to the last
paragraph of Section 3, hereby consent to the use of the Prospectus,
including each preliminary Prospectus, or any amendment or supplement
thereto by each of the selling Holders of Registrable Notes in connection
with the offering and sale of the Registrable Notes covered by the
Prospectus or any amendment or supplement thereto;
(d) use its best efforts to register or qualify the Registrable
Notes under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Notes covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Notes shall reasonably request by the time the applicable Registration
Statement is declared effective by the SEC, to cooperate with the Holders
in connection with any filings required to be made with the NASD, keep
each such registration or qualification effective during the period such
Registration Statement is required to be effective and do any and all
other acts and things which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in each such jurisdiction
of such Registrable Notes owned by such Holder; provided, however, that
the Company shall not be required to (i) qualify as a foreign corporation
or as a dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d) or (ii) take
any action which would subject it to general service of process or
taxation in any such jurisdiction if it is not then so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes and counsel for such Holders promptly and, if requested
by such Holder or counsel, confirm such advice in writing promptly (i)
when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective, (ii)
of any request by the SEC or any state securities authority for
post-effective amendments and supplements to a
<PAGE>
12
Registration Statement and Prospectus or for additional information after
the Registration Statement has become effective, (iii) of the issuance by
the SEC or any state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Notes
covered thereby, the representations and warranties of the Company
contained in any underwriting agreement, securities sales agreement or
other similar agreement, if any, relating to such offering cease to be
true and correct in all material respects, (v) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Registrable Notes for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (vi) of the
happening of any event or the discovery of any facts during the period a
Shelf Registration Statement is effective which makes any statement made
in such Shelf Registration Statement or the related Prospectus untrue in
any material respect or which requires the making of any changes in such
Shelf Registration Statement or Prospectus in order to make the statements
therein not misleading and (vii) of any determination by the Company that
a post-effective amendment to a Registration Statement would be
appropriate;
(f) (A) in the case of the Exchange Offer, (i) include in the
Exchange Offer Registration Statement a "Plan of Distribution" section
covering the use of the Prospectus included in the Exchange Offer
Registration Statement by broker-dealers who have exchanged their
Registrable Notes for Exchange Notes for the resale of such Exchange
Notes, (ii) furnish to each broker-dealer who desires to participate in
the Exchange Offer, without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any
preliminary prospectus, and any amendment or supplement thereto, as such
broker-dealer may reasonably request, (iii) include in the Exchange Offer
Registration Statement a statement that any broker-dealer who holds
Registrable Notes acquired for its own account as a result of
market-making activities or other trading activities (a "Participating
Broker-Dealer"), and who receives Exchange Notes for Registrable Notes
pursuant to the Exchange Offer, may be a statutory underwriter and must
deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Notes, (iv) subject to the
last paragraph of Section 3, hereby consent to the use of the Prospectus
forming part of the Exchange Offer Registration Statement or any amendment
or supplement thereto, by any broker-dealer in connection with the sale or
transfer of the Exchange Notes covered by the Prospectus or any amendment
or supplement thereto, and (v) include in the transmittal letter or
similar documentation to be executed by an exchange offeree in order to
participate in the Exchange Offer (x) the following provision:
<PAGE>
13
"If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account
in exchange for Registrable Notes, it represents that the
Registrable Notes to be exchanged for Exchange Notes were acquired
by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus
meeting the requirements of the 1933 Act in connection with any
resale of such Exchange Notes acquired pursuant to the Exchange
Offer; however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the 1933 Act"; and
(y) a statement to the effect that by a broker-dealer making the
acknowledgment described in subclause (x) and by delivering a Prospectus
in connection with the sale of Exchange Notes received in exchange for
Registrable Securities, the broker-dealer will not be deemed to admit that
it is an underwriter within the meaning of the 1933 Act; and
(B) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to cause to be
delivered at the request of an entity representing the Participating
Broker-Dealers (which entity shall be one of the Initial Purchasers,
unless it elects not to act as such representative) only one, if any,
"cold comfort" letter with respect to the Prospectus in the form existing
on the last date for which exchanges are accepted pursuant to the Exchange
Offer and with respect to each subsequent amendment or supplement, if any,
effected during the period specified in clause (C) below; and
(C) to the extent any Participating Broker-Dealer participates in
the Exchange Offer, the Company shall use its best efforts to maintain the
effectiveness of the Exchange Offer Registration Statement for a period of
no more than 120 days following the closing of the Exchange Offer; and
(D) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement as would
otherwise be contemplated by Section 3(b), or take any other action as a
result of this Section 3(f), for a period exceeding 120 days after the
last date for which exchanges are accepted pursuant to the Exchange Offer
(as such period may be extended by the Company) and Participating
Broker-Dealers shall not be authorized by the Company to, and shall not,
deliver such Prospectus after such period in connection with resales
contemplated by this Section 3.
<PAGE>
14
(g) (A) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (B) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Notes copies of any request by the
SEC or any state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement as soon as
practicable and provide immediate notice to each Holder of the withdrawal
of any such order;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Notes, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Notes to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold and not
bearing any restrictive legends; and cause such Registrable Notes to be in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if
any, may reasonably request at least one business day prior to the closing
of any sale of Registrable Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Section
3(e)(vi) hereof, use its best efforts to prepare a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers
of the Registrable Notes, such Prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify each Holder to suspend use of the Prospectus as promptly
as practicable after the occurrence of such an event, and each Holder
hereby agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission. At such time as such public disclosure is otherwise made or the
Company determines that such disclosure is not necessary, in each case to
correct any misstatement of a material fact or to include any omitted
material fact, the Company agrees promptly to notify each Holder of such
determination and to furnish each Holder such numbers of copies
<PAGE>
15
of the Prospectus, as amended or supplemented, as such Holder may
reasonably request;
(l) obtain a CUSIP number for all Exchange Notes, or Registrable
Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates
for the Exchange Notes or the Registrable Notes, as the case may be, in a
form eligible for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Notes, or Registrable Notes, as the case may
be, (ii) cooperate with the Trustee and the Holders to effect such changes
to the Indenture as may be required for the Indenture to be so qualified
in accordance with the terms of the TIA and (iii) execute, and use its
best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and
appropriate actions (including those reasonably requested by the Majority
Holders) in order to expedite or facilitate the disposition of such
Registrable Notes and in such connection whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration:
(i) make such representations and warranties to the Holders of
such Registrable Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if
any, and the holders of a majority in principal amount of the
Registrable Notes being sold) addressed to each selling Holder and
the underwriters, if any, covering the matters customarily covered
in opinions requested in sales of securities or underwritten
offerings;
<PAGE>
16
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to
the underwriters, if any, and use best efforts to have such letters
addressed to the selling Holders of Registrable Notes, such letters
to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters to underwriters in connection with
similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Notes, which agreement shall be
in form, substance and scope customary for similar offerings; and
(v) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings.
The above shall be done at (i) the effectiveness of such Shelf
Registration Statement (and, if appropriate, each post-effective amendment
thereto) and (ii) each closing under any underwriting or similar agreement
as and to the extent required thereunder. In the case of any underwritten
offering, the Company shall provide written notice to the Holders of all
Registrable Notes of such underwritten offering at least 30 days prior to
the filing of a prospectus supplement for such underwritten offering. Such
notice shall (x) offer each such Holder the right to participate in such
underwritten offering, (y) specify a date, which shall be no earlier than
10 days following the date of such notice, by which such Holder must
inform the Company of its intent to participate in such underwritten
offering and (z) include the instructions such Holder must follow in order
to participate in such underwritten offering;
(o) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable Notes and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any counsel or accountant retained by such
Holders or underwriters, at reasonable times and in a reasonable manner,
all financial and other records, pertinent corporate documents and
properties of the Company reasonably requested by any such persons, and
cause the respective officers, directors, employees, and any other agents
of the Company to supply all information reasonably requested by any such
representative, underwriter, special counsel or accountant in connection
with such Shelf Registration Statement, provided, however, that such
Persons shall first
<PAGE>
17
agree in writing with the Company that any information that is reasonably
and in good faith designated by the Company in writing as confidential at
the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by
court or administrative order or is necessary to respond to inquiries of
regulatory authorities, (ii) disclosure of such information is required by
law (including any disclosure requirements pursuant to Federal securities
laws in connection with the filing of such Shelf Registration Statement or
the use of any Prospectus), (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure
to safeguard such information by such Person or (iv) such information
becomes available to such Person from a source other than the Company and
its subsidiaries and such source is not bound by a confidentiality
agreement; provided further that the foregoing investigation shall be
coordinated on behalf of the Holders by one representative designated by
and on behalf of such Holders and any such confidential information shall
be available from such representative to such Holders so long as any
Holder agrees to be bound by such confidentiality agreement;
(p) (i) a reasonable time prior to the filing of any Exchange Offer
Registration Statement, any Prospectus forming a part thereof, any
amendment to an Exchange Offer Registration Statement or amendment or
supplement to a Prospectus, provide copies of such document to the Initial
Purchasers, and make such changes in any such document prior to the filing
thereof as any of the Initial Purchasers or their counsel may reasonably
request; (ii) in the case of a Shelf Registration, a reasonable time prior
to filing any Shelf Registration Statement, any Prospectus forming a part
thereof, any amendment to such Shelf Registration Statement or amendment
or supplement to such Prospectus, provide copies of such document to the
Holders of Registrable Notes, to the Initial Purchasers, to counsel on
behalf of the Holders and to the underwriter or underwriters of an
underwritten offering of Registrable Notes, if any, and make such changes
in any such document prior to the filing thereof as the Holders of
Registrable Notes, the Initial Purchasers on behalf of such Holders, their
counsel and any underwriter may reasonably request; and (iii) cause the
representatives of the Company to be available for discussion of such
document as shall be reasonably requested by the Holders of Registrable
Notes, the Initial Purchasers on behalf of such Holders or any underwriter
and shall not at any time make any filing of any such document of which
such Holders, the Initial Purchasers on behalf of such Holders, their
counsel or any underwriter shall not have previously been advised and
furnished a copy or to which such Holders, the Initial Purchasers on
behalf of such Holders, their counsel or any underwriter shall reasonably
object, each of which actions in this clause (iii) by the Holders shall be
coordinated by one representative for all the Holders at reasonable times
and in a reasonable manner;
<PAGE>
18
(q) in the case of a Shelf Registration, use their best efforts to
cause all Registrable Securities to be listed on any securities exchange,
if any, on which similar debt securities issued by the Company are then
listed if requested by the Majority Holders or by the underwriter or
underwriters of an underwritten offering of Registrable Securities, if
any;
(r) in the case of a Shelf Registration, unless the rating in effect
for the Notes applies to the Exchange Notes and the Notes to be sold
pursuant to a Shelf Registration, use its best efforts to cause the
Registrable Notes to be rated with the appropriate rating agencies, if so
requested by the Majority Holders or by the underwriter or underwriters of
an underwritten offering of Registrable Notes, if any, unless the
Registrable Notes are already so rated;
(s) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earning statement covering
at least 12 months which shall satisfy the provisions of Section 11(a) of
the 1933 Act and Rule 158 thereunder; and
(t) cooperate and assist in any filings required to be made with the
NASD.
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Notes to furnish to the Company such information regarding
such Holder and the proposed distribution by such Holder of such Registrable
Notes and make such representations, in each case, as the Company may from time
to time reasonably request in writing. The Company may exclude from such
registration the Registrable Notes of any Holder who unreasonably fails to
furnish such information or make such representations within a reasonable time
after receiving such request. Each Holder as to which any Shelf Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
or the discovery of any facts, each of the kind described in Section
3(e)(ii)-(vi) hereof, such Holder will forthwith discontinue disposition of
Registrable Notes pursuant to a Registration Statement until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3(k) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at its expense) all copies in its
<PAGE>
19
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Notes current at the time of receipt
of such notice. If the Company shall give any such notice to suspend the
disposition of Registrable Notes pursuant to a Shelf Registration Statement as a
result of the happening of any event or the discovery of any facts, each of the
kind described in Section 3(e)(vi) hereof, the last sentence of Section 2(e)
hereof shall remain in effect, but the Company shall be deemed to have used its
best efforts to keep the Shelf Registration Statement effective during such
period of suspension provided that the Company shall use its best efforts to
file and have declared effective (if an amendment) as soon as practicable an
amendment or supplement to the Shelf Registration Statement and shall extend the
period during which the Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days during the period from and
including the date of the giving of such notice to and including the date when
the Holders shall have received copies of the supplemented or amended Prospectus
necessary to resume such dispositions.
4. Underwritten Registrations. If any of the Registrable Notes
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
5. Indemnification and Contribution. (a) The Company shall indemnify
and hold harmless each Initial Purchaser, each Holder (in its capacity as a
Holder), including Participating Broker-Dealers, their respective affiliates,
and their respective directors, officers, employees, agents and each Person, if
any, who controls any of such parties within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever (which, in the case of legal fees, will be reasonable), as
incurred, arising out of any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Exchange Notes or Registrable Notes
were registered under the 1933 Act, including all documents incorporated
therein by reference, or the omission or
<PAGE>
20
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever (which, in the case of legal fees, will be reasonable), as
incurred, to the extent of the aggregate amount paid in settlement of any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 5(d) below) any
such settlement is effected with the written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by any
indemnified party), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding by
any court or governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) of this Section 5(a);
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Initial Purchasers, any Holder (in its capacity as a Holder), including
Participating Broker-Dealers, expressly for use in the Registration Statement
(or any amendment or supplement thereto) or the Prospectus (or any amendment or
supplement thereto). The foregoing indemnity with respect to any untrue
statement contained in or any omission from a Prospectus shall not inure to the
benefit of any Initial Purchaser, any Holder (in its capacity as a Holder),
including Participating Broker-Dealers (or any person who controls such party
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act)
from whom the person asserting any such loss, liability, claim, damage or
expense purchased any of the Notes that are the subject thereof, was not sent or
given a copy of such Prospectus (as amended or supplemented) by such Initial
Purchaser or such selling Holder (in its capacity as a Holder) to the extent
such Initial Purchaser or such selling Holder (in its capacity as a Holder) was
required by
<PAGE>
21
law to deliver such Prospectus as amended or supplemented, at or prior to the
written confirmation of the sale of such Notes and the untrue statement
contained in or the omission from such Prospectus was corrected in such amended
or supplemented Prospectus, unless such failure resulted from noncompliance by
the Company with its obligations hereunder to furnish Initial Purchaser or such
Holder (in its capacity as a Holder), as the case may be, with copies of such
Prospectus as amended or supplemented.
(b) In the case of a Shelf Registration, each Holder (in its
capacity as a Holder) agrees, severally and not jointly, to indemnify and hold
harmless the Company, each Initial Purchaser and the other selling Holders (in
their capacity as Holders) and each of their respective directors and officers
(including each officer of the Company who signed the Registration Statement)
and each Person, if any, who controls the Company, any Initial Purchaser or any
other selling Holder (in their capacity as Holders) within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all
loss, liability, claim, damage and expense whatsoever described in the indemnity
contained in Section 5(a) hereof, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Holder (in its capacity as a
Holder), as the case may be, expressly for use in the Registration Statement (or
any amendment thereto), or the Prospectus (or any amendment or supplement
thereto); provided, however, that no such Holder (in its capacity as a Holder)
shall be liable for any claims hereunder in excess of the amount of net proceeds
received by such Holder (in its capacity as a Holder) from the sale of
Registrable Notes pursuant to such Shelf Registration Statement.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to either paragraph (a) or
paragraph (b) above, such person (the "indemnified party") shall give notice as
promptly as reasonably practicable to each person against whom such indemnity
may be sought (the "indemnifying party"), but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of such action; and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 5 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of
<PAGE>
22
investigation; provided, however, that an indemnified party will have the right
to employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(1) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel (in addition to any local counsel) for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 5 hereof (whether or not the indemnified parties are actual
or potential parties thereof), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 5(a)(ii) hereof effected
without its written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid request, (ii)
such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request with such request prior to the date of such
settlement.
(e) If the indemnification provided for in any of the indemnity
provisions set forth in this Section 5 is for any reason unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
liabilities, claims, damages or
<PAGE>
23
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by such indemnifying party
or parties on the one hand, and such indemnified party or parties on the other
hand, from the offering of the Exchange Notes or Registrable Notes included in
such offering or (ii) if the allocation provided by clause (i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
such indemnifying party or parties on the one hand, and such indemnified party
or parties on the other hand, in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party or parties on the one hand, and such indemnified party or
parties, on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by such indemnifying party or parties or such indemnified party or
parties and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Initial Purchasers and the Holders (in their capacity as Holders) of the
Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
(even if the Initial Purchasers were treated as one entity, and the Holders (in
their capacity as Holders) were treated as one entity, for such purpose) or by
another method of allocation which does not take account of the equitable
considerations referred to above in Section 5. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above in this Section 5 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by an governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1993 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 5, each person, if any, who
controls an Initial Purchaser or Holder within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as such Initial Purchaser or Holder (in its capacity as a Holder),
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. Notwithstanding any other
provision of this paragraph (e), an Initial Purchaser shall not be obligated to
make contributions hereunder that in the aggregate exceed the total underwriting
discount received by such Initial Purchaser under
<PAGE>
24
the Purchase Agreement, less the aggregate amount of any damages that such
Initial Purchaser has otherwise been required to pay by reason of the untrue or
alleged untrue statements or the omissions or alleged omissions to state a
material fact.
(f) In connection with any underwritten Offering of Registrable
Notes permitted by this Agreement, the Company will also indemnify the
underwriters, if any, and each Person, if any, who also controls any of them
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
to the same extent as provided in this Section 5 with respect to the
indemnification of the Holders, if requested in connection with any Registration
Statement.
6. Miscellaneous. (a) Rule 144 and Rule 144A. For so long as the
Company is subject to the reporting requirements of Section 13 or 15 of the 1934
Act, the Company covenants that it will file the reports required to be filed by
it under Section 13(a) or 15(d) of the 1934 Act and the rules and regulations
adopted by the SEC thereunder, that if it ceases to be so required to file such
reports, it will upon the request of any Holder of Registrable Notes (i) make
publicly available such information as is necessary to permit sales pursuant to
Rule 144 under the 1933 Act, (ii) deliver such information to a prospective
purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933
Act and it will take such further action as any Holder of Registrable Notes may
reasonably request, and (iii) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to sell its Registrable Notes without registration under the 1933
Act within the limitation of the exemptions provided by (x) Rule 144 under the
1933 Act, as such Rule may be amended from time to time, (y) Rule 144A under the
1933 Act, as such Rule may be amended from time to time, or (z) any similar
rules or regulations hereafter adopted by the SEC. Upon the request of any
Holder of Registrable Notes, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
(b) No Inconsistent Agreements. The Company represents and agrees
that (i) it has not entered into nor will the Company on or after the date of
this Agreement enter into any agreement which is inconsistent with the rights
granted to the Holders of Registrable Notes in this Agreement or otherwise
conflicts with the provisions hereof and (ii) the rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's other issued and outstanding
securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in
<PAGE>
25
aggregate principal amount of the outstanding Registrable Notes affected by such
amendment, modification, supplement, waiver or departure; provided, however,
that no amendment, modification, supplement or waiver or consent to any
departure from the provisions of Section 5 hereof shall be effective as against
any Holder of Registrable Notes unless consented to in writing by such Holder.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telecopier, or any courier guaranteeing overnight delivery (i)
if to a Holder (other than an Initial Purchaser), at the most current address
set forth on the records of the Registrar under the Indenture, (ii) if to an
Initial Purchaser, at the most current address given by such Initial Purchaser
to the Company by means of a notice given in accordance with the provisions of
this Section 6(d), which address initially is the address set forth in the
Purchase Agreement; and (iii) if to the Company, initially at the Company's
address set forth in the Purchase Agreement and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Section 6(d).
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt is acknowledged, if telecopied; and on the next business day if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Registrable Notes, in
any manner, whether by operation of law or otherwise, such Registrable Notes
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Notes, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.
<PAGE>
26
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company on the one
hand, and the Initial Purchasers, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(j) 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.
<PAGE>
27
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
KINDERCARE LEARNING CENTERS, INC.,
a Delaware corporation,
by: \s\ Philip L. Maslowe
-----------------------------------------
Name: Philip L. Maslowe
Title: Executive Vice President and
Chief Financial Officer
Confirmed and accepted as of
the date first above written:
CHASE SECURITIES INC.
BT SECURITIES CORPORATION
SALOMON BROTHERS INC
SMITH BARNEY INC.
By: CHASE SECURITIES INC.,
by: \s\ Gerard J. Murray
--------------------------------------
Name: Gerard J. Murray
Title: Managing Director
By: BT SECURITIES CORPORATION,
by: \s\ Michael R. Duckworth
--------------------------------------
Name: Michael R. Duckworth
Title: Vice President
<PAGE>
28
By: SALOMON INC,
by: \s\ Edward R. Biggins
--------------------------------------
Name: Edward R. Biggins
Title: Vice President
By: SMITH BARNEY INC.,
by: \s\ Michael S. Klein
--------------------------------------
Name: Michael S. Klein
Title: Managing Director
<PAGE>
Exhibit 10.1
- --------------------------------------------------------------------------------
CONFORMED COPY
KINDERCARE LEARNING
CENTERS, INC.
$390,000,000
Credit Agreement
February 13, 1997
The Several Lenders
from Time to Time Parties thereto
Wells Fargo Bank, N.A.
as Documentation
Bankers Trust Company
as Syndication Agent
Chase Securities Inc.
as Arranger
The chase Manhattan Bank
as Administrative Agent
[Logo] CHASE
================================================================================
<PAGE>
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
among
KINDERCARE LEARNING CENTERS, INC.
The Several Lenders
from Time to Time Parties Hereto
THE CHASE MANHATTAN BANK,
as Administrative Agent
BANKERS TRUST COMPANY,
as Syndication Agent
and
WELLS FARGO BANK, N.A.,
as Documentation Agent
Dated as of February 13, 1997
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TABLE OF CONTENTS
Page
SECTION 1. Definitions................................................ 2
SECTION 2. Amount and Terms of Credit................................. 32
2.1 Commitments................................................... 32
2.2 Minimum Amount of Each Borrowing; Maximum Number of
Borrowings.................................................... 33
2.3 Notice of Borrowing........................................... 33
2.4 Disbursement of Funds......................................... 35
2.5 Repayment of Loans; Evidence of Debt.......................... 35
2.6 Conversions and Continuations................................. 36
2.7 Pro Rata Borrowings........................................... 37
2.8 Interest...................................................... 37
2.9 Interest Periods.............................................. 38
2.10 Increased Costs, Illegality, etc.............................. 39
2.11 Compensation.................................................. 41
2.12 Change of Lending Office...................................... 41
2.13 Notice of Certain Costs....................................... 42
SECTION 3. Letters of Credit.......................................... 42
3.1 Letters of Credit............................................. 42
3.2 Letter of Credit Requests..................................... 42
3.3 Letter of Credit Participations............................... 43
3.4 Agreement to Repay Letter of Credit Drawings.................. 45
3.5 Increased Costs............................................... 46
3.6 Successor Letter of Credit Issuer............................. 46
SECTION 4. Fees; Commitments.......................................... 47
4.1 Fees.......................................................... 47
4.2 Voluntary Reduction of Revolving Credit Commitments........... 48
4.3 Mandatory Termination of Commitments.......................... 48
SECTION 5. Payments................................................... 49
5.1 Voluntary Prepayments......................................... 49
5.2 Mandatory Prepayments......................................... 49
5.3 Method and Place of Payment................................... 52
5.4 Net Payments.................................................. 52
5.5 Computations of Interest and Fees............................. 54
SECTION 6. Conditions Precedent to Initial Borrowing.................. 55
6.1 Credit Documents.............................................. 55
6.2 Closing Certificate........................................... 55
6.3 Corporate Proceedings of Each Credit Party.................... 55
6.4 Corporate Documents........................................... 55
6.5 No Material Adverse Change.................................... 55
6.6 Fees.......................................................... 55
6.7 Equity Contribution........................................... 55
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6.8 Merger........................................................ 55
6.9 Other Indebtedness............................................ 56
6.10 Closing Date Balance Sheet.................................... 56
6.11 Solvency Letter............................................... 56
6.12 Required Approvals............................................ 56
6.13 Existing Credit Agreement..................................... 56
6.14 Legal Opinion................................................. 56
6.15 Subordinated Notes............................................ 56
SECTION 7. Conditions Precedent to All Credit Events.................. 57
7.1 No Default; Representations and Warranties.................... 57
7.2 Notice of Borrowing; Letter of Credit Request................. 57
SECTION 8. Representations, Warranties and Agreements................. 57
8.1 Corporate Status.............................................. 57
8.2 Corporate Power and Authority................................. 57
8.3 No Violation.................................................. 58
8.4 Litigation.................................................... 58
8.5 Margin Regulations............................................ 58
8.6 Governmental Approvals........................................ 58
8.7 Investment Company Act........................................ 58
8.8 True and Complete Disclosure.................................. 58
8.9 Financial Condition; Financial Statements..................... 59
8.10 Tax Returns and Payments...................................... 59
8.11 Compliance with ERISA......................................... 59
8.12 Subsidiaries.................................................. 60
8.13 Patents, etc.................................................. 60
8.14 Environmental Laws............................................ 60
8.15 Properties.................................................... 60
SECTION 9. Affirmative Covenants...................................... 61
9.1 Information Covenants......................................... 61
9.2 Books, Records and Inspections................................ 63
9.3 Maintenance of Insurance...................................... 63
9.4 Payment of Taxes.............................................. 63
9.5 Consolidated Corporate Franchises............................. 64
9.6 Compliance with Statutes, Obligations, etc.................... 64
9.7 ERISA......................................................... 64
9.8 Good Repair................................................... 64
9.9 Transactions with Affiliates.................................. 65
9.10 End of Fiscal Years; Fiscal Quarters.......................... 65
9.11 Additional Guarantors......................................... 65
9.12 Pledges of Additional Stock and Evidence of Indebtedness...... 65
9.13 Use of Proceeds............................................... 66
9.14 Changes in Business........................................... 66
SECTION 10. Negative Covenants......................................... 66
10.1 Limitation on Indebtedness.................................... 66
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10.2 Limitation on Liens........................................... 69
10.3 Limitation on Fundamental Changes............................. 69
10.4 Limitation on Sale of Assets.................................. 70
10.5 Limitation on Investments..................................... 71
10.6 Limitation on Dividends....................................... 73
10.7 Limitation on Debt Payments and Amendments.................... 73
10.8 Limitation on Sale Leasebacks................................. 73
10.9 Consolidated Lease Expense.................................... 74
10.10 Consolidated Senior Debt to Consolidated EBITDA Ratio......... 74
10.11 Consolidated EBITDA to Consolidated Interest Expense Ratio.... 74
10.12 Capital Expenditures.......................................... 75
SECTION 11. Events of Default.......................................... 76
11.1 Payments...................................................... 76
11.2 Representations, etc.......................................... 76
11.3 Covenants..................................................... 76
11.4 Default Under Other Agreements................................ 76
11.5 Bankruptcy, etc............................................... 76
11.6 ERISA......................................................... 77
11.7 Guarantee..................................................... 77
11.8 Pledge Agreement.............................................. 77
11.9 Judgments..................................................... 77
11.10 Change of Control............................................. 78
SECTION 12. The Administrative Agent................................... 78
12.1 Appointment................................................... 78
12.2 Delegation of Duties.......................................... 78
12.3 Exculpatory Provisions........................................ 79
12.4 Reliance by Administrative Agent.............................. 79
12.5 Notice of Default............................................. 79
12.6 Non-Reliance on Administrative Agent and Other Lenders........ 80
12.7 Indemnification............................................... 80
12.8 Administrative Agent in Its Individual Capacity............... 80
12.9 Successor Agent............................................... 81
SECTION 13. Miscellaneous.............................................. 81
13.1 Amendments and Waivers........................................ 81
13.2 Notices....................................................... 82
13.3 No Waiver; Cumulative Remedies................................ 83
13.4 Survival of Representations and Warranties.................... 83
13.5 Payment of Expenses and Taxes................................. 83
13.6 Successors and Assigns; Participations and Assignments........ 84
13.7 Replacements of Lenders under Certain Circumstances........... 86
13.8 Adjustments; Set-off.......................................... 87
13.9 Counterparts.................................................. 87
13.10 Severability.................................................. 87
13.11 Integration................................................... 87
13.12 GOVERNING LAW................................................. 87
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13.13 Submission to Jurisdiction; Waivers........................... 88
13.14 Acknowledgements.............................................. 88
13.15 WAIVERS OF JURY TRIAL......................................... 89
13.16 Confidentiality............................................... 89
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SCHEDULES
Schedule 1.1 Commitments and Addresses of Lenders
Schedule 8.12 Subsidiaries
Schedule 10.1 Other Indebtedness
EXHIBITS
Exhibit A Form of Guarantee
Exhibit B Form of Pledge Agreement
Exhibit C-1 Form of Promissory Note (Term Loans)
Exhibit C-2 Form of Promissory Note (Revolving Credit and Swingline Loans)
Exhibit D Form of Letter of Credit Request
Exhibit E-1 Form of Legal Opinion of Simpson Thacher & Bartlett
Exhibit E-2 Form of Legal Opinion of Alston & Bird
Exhibit E-3 Form of Legal Opinion of Rebecca S. Bryan
Exhibit F Form of Assignment and Acceptance
Exhibit G Form of Closing Certificate
Exhibit H Form of Confidentiality Agreement
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CREDIT AGREEMENT dated as of February 13, 1997, among KINDERCARE
LEARNING CENTERS, INC., a Delaware corporation (the "Borrower"), the lending
institutions from time to time parties hereto (each a "Lender" and,
collectively, the "Lenders"), THE CHASE MANHATTAN BANK, as Administrative Agent
(such term and each other capitalized term used but not defined in this
introductory statement having the meaning provided in Section 1), BANKERS TRUST
COMPANY, as Syndication Agent, and WELLS FARGO BANK, N.A., as Documentation
Agent.
The Borrower has entered into an Agreement and Plan of Merger dated
as of October 3, 1996, and amended as of December 27, 1996 (such Agreement and
Plan of Merger, as the same may be further amended, supplemented or otherwise
modified from time to time, being referred to herein as the "Merger Agreement"),
with KCLC Acquisition Corp., a Delaware corporation ("KCLC") and a wholly owned
subsidiary of the Partnership and other Affiliates of KKR, pursuant to which
KCLC will merge with and into the Borrower in a transaction (the "Merger") in
which (a) each pre-Merger shareholder of the Borrower will be entitled to elect
either to receive $19.00 per share in cash (the "Cash Merger Price") or to
retain such shares, provided that the aggregate amount of any such retained
shares will not exceed approximately 15% of the Borrower Common Stock; (b) the
Partnership will receive all the Borrower Common Stock, other than any Borrower
Common Stock so retained by pre-Merger shareholders, in exchange for the Equity
Contribution; and (c) the Borrower will be the surviving corporation in the
Merger.
The Borrower has requested the Lenders to extend credit in the form
of (a) Term Loans during the Term Loan Availability Period, in an aggregate
principal amount not in excess of $90,000,000, and (b) Revolving Credit Loans at
any time and from time to time prior to the Revolving Credit Maturity Date, in
an aggregate principal amount at any time outstanding not in excess of
$300,000,000 less the sum of (i) the aggregate Letter of Credit Outstandings at
such time and (ii) the aggregate principal amount of all Swingline Loans then
outstanding. The Borrower has requested the Letter of Credit Issuer to issue
Letters of Credit at any time and from time to time prior to the L/C Maturity
Date, in an aggregate face amount at any time outstanding not in excess of
$75,000,000. The Borrower has requested Chase to extend credit in the form of
Swingline Loans at any time and from time to time prior to the Swingline
Maturity Date, in an aggregate principal amount at any time outstanding not in
excess of $25,000,000.
The proceeds of the Term Loans borrowed on the Closing Date will be
used by the Borrower, together with (a) the net proceeds from the issuance of
the Subordinated Notes and (b) the proceeds of the Equity Contribution, solely
(i) to pay the cash consideration payable in connection with the Merger, (ii) to
repay all principal, interest, fees and other amounts outstanding under the
Existing Credit Agreement, including the amounts borrowed thereunder to finance
the repurchase of Senior Notes pursuant to the Debt Tender Offer, (iii) to
refinance certain other indebtedness of the Borrower, (iv) to pay fees and
expenses incurred in connection with the Merger, the financing therefor and the
other transactions contemplated hereby and thereby and (v) for general corporate
purposes. Proceeds of Term Loans borrowed after the Closing Date, letters of
credit and the proceeds of Revolving Credit Loans and Swingline Loans will be
used by the Borrower for general corporate purposes (including Permitted
Acquisitions).
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2
The parties hereto hereby agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall
have the meanings specified in this Section 1 unless the context otherwise
requires (it being understood that defined terms in this Agreement shall include
in the singular number the plural and in the plural the singular):
"ABR" shall mean, for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime
Rate in effect on such day, (b) the Base CD Rate in effect on such day
plus 1% and (c) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. Any change in the ABR due to a change in the Prime Rate,
the Three-Month Secondary CD Rate or the Federal Funds Effective Rate
shall be effective as of the opening of business on the effective day of
such change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loan" shall mean each Loan bearing interest at the rate
provided in Section 2.8(a) and, in any event, shall include all Swingline
Loans.
"ABR Revolving Credit Loan" shall mean any Revolving Credit Loan
bearing interest at a rate determined by reference to the ABR.
"Acquired EBITDA" shall mean, with respect to any Acquired Entity or
Business, any Converted Restricted Subsidiary, any Sold Entity or Business
or any Converted Unrestricted Subsidiary (any of the foregoing, a "Pro
Forma Entity") for any period, the sum of the amounts for such period of
(a) income from continuing operations before income taxes and
extraordinary items, (b) interest expense, (c) depreciation expense, (d)
amortization expense, including amortization of deferred financing fees,
(e) non-recurring charges, (f) non-cash charges, (g) losses on asset sales
and (h) restructuring charges or reserves less the sum of the amounts for
such period of (i) non-recurring gains, (j) non-cash gains and (k) gains
on asset sales, all as determined on a consolidated basis for such Pro
Forma Entity in accordance with GAAP.
"Acquired Entity or Business" shall have the meaning provided in the
definition of the term "Consolidated EBITDA".
"Acquisition Subsidiary" shall mean (a) any Subsidiary of the
Borrower that is formed or acquired after the Closing Date in connection
with Permitted Acquisitions, provided that at such time (or promptly
thereafter) the Borrower designates such Subsidiary an Acquisition
Subsidiary in a written notice to the Administrative Agent, (b) any
Restricted Subsidiary on the Closing Date subsequently re-designated as an
Acquisition Subsidiary by the Borrower in a written notice to the
Administrative Agent, provided that such re-designation shall be deemed to
be an investment on the date of such re-designation in an Acquisition
Subsidiary in an amount equal to the sum of (i) the net worth of such
re-designated Restricted Subsidiary immediately prior to such
re-designation (such net worth to be calculated without regard to any
Guarantee provided by such re-designated Restricted Subsidiary) and (ii)
the aggregate principal amount of any Indebtedness owed by such
re-designated Restricted Subsidiary to the
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3
Borrower or any other Restricted Subsidiary immediately prior to such
re-designation, all calculated, except as set forth in the parenthetical
to clause (i), on a consolidated basis in accordance with GAAP, and (c)
each Subsidiary of an Acquisition Subsidiary; provided, however, that (i)
at the time of any written re-designation by the Borrower to the
Administrative Agent of any Acquisition Subsidiary as a Restricted
Subsidiary, the Acquisition Subsidiary so re-designated shall no longer
constitute an Acquisition Subsidiary, (ii) no Acquisition Subsidiary may
be re-designated as a Restricted Subsidiary if a Default or Event of
Default would result from such re-designation and (iii) no Restricted
Subsidiary may be re-designated as an Acquisition Subsidiary if a Default
or Event of Default would result from such re-designation. On or promptly
after the date of its formation, acquisition or re-designation, as
applicable, each Acquisition Subsidiary (other than an Acquisition
Subsidiary that is a Foreign Subsidiary) shall have entered into a tax
sharing agreement containing terms that, in the reasonable judgment of the
Administrative Agent, provide for an appropriate allocation of tax
liabilities and benefits.
"Adjusted Total Revolving Credit Commitment" shall mean at any time
the Total Revolving Credit Commitment less the aggregate Revolving Credit
Commitments of all Defaulting Lenders.
"Adjusted Total Term Loan Commitment" shall mean at any time the
Total Term Loan Commitment less the Term Loan Commitments of all
Defaulting Lenders.
"Administrative Agent" shall mean Chase, together with its
affiliates, as the arranger of the Commitments and as the administrative
agent for the Lenders under this Agreement and the other Credit Documents.
"Administrative Agent's Office" shall mean the office of the
Administrative Agent located at 270 Park Avenue, New York, New York 10017,
or such other office in New York City as the Administrative Agent may
hereafter designate in writing as such to the other parties hereto.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly,
the power (a) to vote 10% or more of the securities having ordinary voting
power for the election of directors of such corporation or (b) to direct
or cause the direction of the management and policies of such corporation,
whether through the ownership of voting securities, by contract or
otherwise.
"Aggregate Revolving Credit Outstandings" shall have the meaning
provided in Section 5.2(b).
"Agreement" shall mean this Credit Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
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4
"Applicable ABR Margin" shall mean, with respect to each ABR Loan at
any date, the applicable percentage per annum set forth below based upon
(a) whether such loan is a Revolving Credit Loan, a Swingline Loan or a
Term Loan and (b) the Status in effect on such date:
Applicable ABR
Loan Status Margin
---- ------ --------------
Revolving Credit Loans and Level I Status 1.250%
Swingline Loans Level II Status 1.000%
Level III Status 0.500%
Level IV Status 0.250%
Level V Status 0.000%
Term Loans Level I Status 1.750%
Level II Status 1.500%
Level III Status 1.250%
"Applicable Eurodollar Margin" shall mean, with respect to each
Eurodollar Term Loan and Eurodollar Revolving Credit Loan at any date, the
applicable percentage per annum set forth below based upon (a) whether
such loan is a Revolving Credit Loan or a Term Loan and (b) the Status in
effect on such date:
Applicable Eurodollar
Loan Status Margin
---- ------ ---------------------
Revolving Credit Loans Level I Status 2.500%
Level II Status 2.250%
Level III Status 1.750%
Level IV Status 1.500%
Level V Status 1.250%
Term Loans Level I Status 3.000%
Level II Status 2.750%
Level III Status 2.500%
"Asset Sale Prepayment Event" shall mean any sale, transfer or other
disposition of any business units, assets or other properties of the
Borrower or any of the Restricted Subsidiaries not in the ordinary course
of business. Notwithstanding the foregoing, the term "Asset Sale
Prepayment Event" shall not include any transaction permitted by Section
10.4 (other than Section 10.4(b)).
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5
"Authorized Officer" shall mean the Chairman of the Board, the
President, the Chief Financial Officer, the Treasurer or any other senior
officer of the Borrower designated as such in writing to the
Administrative Agent by the Borrower.
"Available Amount" shall mean, on any date (the "Reference Date"),
an amount equal to (a) the sum of (i) for the purposes of Sections 10.5(l)
and 10.5(n), $100,000,000, (ii) the aggregate amount of Net Cash Proceeds
from Prepayment Events refused by Term Loan Lenders and retained by the
Borrower in accordance with Section 5.2(c)(iv) on or prior to the
Reference Date, (iii) an amount equal to (x) the cumulative amount of
Excess Cash Flow for all fiscal years completed prior to the Reference
Date minus (y) the portion of such Excess Cash Flow that has been on or
prior to the Reference Date (or will be) applied to the prepayment of
Loans in accordance with Section 5.2(a)(ii), (iv) the amount of any
capital contributions (other than the Equity Contribution and any equity
contribution made in accordance with Section 10.5(c)(i)) made in cash to
the Borrower from and including the Business Day immediately following the
Closing Date through and including the Reference Date, (v) an amount equal
to the Net Cash Proceeds received by the Borrower on or prior to the
Reference Date from any issuance of equity securities by the Borrower,
(vi) the aggregate amount of all cash dividends and other cash
distributions received by the Borrower or any Guarantor from any
Acquisition Subsidiaries, Minority Investments or Unrestricted
Subsidiaries on or prior to the Reference Date (other than the portion of
any such dividends and other distributions that is used by the Borrower or
any Guarantor to pay taxes), (vii) the aggregate amount of all cash
repayments of principal received by the Borrower or any Guarantor from any
Acquisition Subsidiaries, Minority Investments or Unrestricted
Subsidiaries on or prior to the Reference Date in respect of loans made by
the Borrower or any Guarantor to such Acquisition Subsidiaries, Minority
Investments or Unrestricted Subsidiaries and (viii) the aggregate amount
of all net cash proceeds received by the Borrower or any Guarantor in
connection with the sale, transfer or other disposition of its ownership
interest in any Acquisition Subsidiary, Minority Investment or
Unrestricted Subsidiary on or prior to the Reference Date minus (b) the
sum of (i) the aggregate amount of any investments (including loans) made
by the Borrower or any Restricted Subsidiary (other than any Acquisition
Subsidiary) in or to Acquisition Subsidiaries pursuant to Section 10.5(j)
on or prior to the Reference Date, (ii) the aggregate amount of any
investments (including loans) made by the Borrower or any Restricted
Subsidiary (other than any Acquisition Subsidiary) pursuant to Section
10.5(n) on or prior to the Reference Date, (iii) the aggregate amount of
any investments made by the Borrower or any Restricted Subsidiary to
acquire the Remaining Public Equity pursuant to Section 10.5(l) on or
prior to the Reference Date and (iv) the aggregate price paid by the
Borrower in connection with any prepayment, repurchase or redemption of
Subordinated Notes pursuant to Section 10.7(a) on or prior to the
Reference Date.
"Available Commitment" shall mean an amount equal to the excess, if
any, of (a) the sum of (i) the amount of the Total Revolving Credit
Commitment and (ii) the amount of the Total Term Loan Commitment over (b)
the sum of (i) the aggregate principal amount of all Revolving Credit
Loans (but not Swingline Loans) then outstanding and (ii) the aggregate
Letter of Credit Outstandings at such time.
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6
"Available Foreign Investment Amount" shall mean, on any date (the
"Investment Date"), an amount equal to (a) the sum of (i) $150,000,000,
(ii) the aggregate amount of all cash dividends and other cash
distributions received by the Borrower or any Guarantor from any
Restricted Foreign Subsidiaries on or prior to the Investment Date (other
than the portion of any such dividends and other distributions that is
used by the Borrower or any Guarantor to pay taxes), (iii) the aggregate
amount of all cash repayments of principal received by the Borrower or any
Guarantor from any Restricted Foreign Subsidiaries on or prior to the
Investment Date in respect of loans made by the Borrower or any Guarantor
to such Restricted Foreign Subsidiaries and (iv) the aggregate amount of
all net cash proceeds received by the Borrower or any Guarantor in
connection with the sale, transfer or other disposition of its ownership
interest in any Restricted Foreign Subsidiary on or prior to the
Investment Date minus (b) the aggregate amount of any investments
(including loans) made by the Borrower or any Restricted Subsidiary (other
than any Restricted Foreign Subsidiary) in or to Restricted Foreign
Subsidiaries pursuant to Section 10.5(j) or 10.5(k) on or prior to the
Investment Date.
"Bankruptcy Code" shall have the meaning provided in Section 11.5.
"Base CD Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States (or any successor).
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrower Common Stock" shall mean any class of outstanding common
stock of the Borrower after the Merger.
"Borrowing" shall mean and include (a) the incurrence of Swingline
Loans from Chase on a given date, (b) the incurrence of one Type of Term
Loan on the Closing Date (or resulting from conversions on a given date
after the Closing Date) having, in the case of Eurodollar Term Loans, the
same Interest Period (provided that ABR Loans incurred pursuant to Section
2.10(b) shall be considered part of any related Borrowing of Eurodollar
Term Loans) and (c) the incurrence of one Type of Revolving Credit Loan on
a given date (or resulting from conversions on a given date) having, in
the case of Eurodollar Revolving Credit Loans, the same Interest Period
(provided that ABR Loans incurred pursuant to Section 2.10(b) shall be
considered part of any related Borrowing of Eurodollar Revolving Credit
Loans).
"Business Day" shall mean (a) for all purposes other than as covered
by clause (b) below, any day excluding Saturday, Sunday and any day that
shall be in The City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close
and (b) with respect to all notices and determinations in
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7
connection with, and payments of principal and interest on, Eurodollar
Loans, any day that is a Business Day described in clause (a) and which is
also a day for trading by and between banks in Dollar deposits in the
relevant interbank Eurodollar market.
"Capital Expenditures" shall mean, for any period, the aggregate of
all expenditures (whether paid in cash or accrued as liabilities and
including in all events all amounts expended or capitalized under Capital
Leases, but excluding any amount representing capitalized interest) by the
Borrower and the Restricted Subsidiaries during such period that, in
conformity with GAAP, are or are required to be included as additions
during such period to property, plant or equipment reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries, provided
that the term "Capital Expenditures" shall not include (a) expenditures
made in connection with the replacement, substitution or restoration of
assets (i) to the extent financed from insurance proceeds paid on account
of the loss of or damage to the assets being replaced or restored or (ii)
with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced, (b) the purchase price of
equipment that is purchased simultaneously with the trade-in of existing
equipment to the extent that the gross amount of such purchase price is
reduced by the credit granted by the seller of such equipment for the
equipment being traded in at such time, (c) the purchase of plant,
property or equipment made within one year of the sale of any asset to the
extent purchased with the proceeds of such sale or (d) expenditures that
constitute any part of Consolidated Lease Expense.
"Capitalized Lease Obligations" shall mean, as applied to any
Person, all obligations under Capital Leases of such Person or any of its
Subsidiaries, in each case taken at the amount thereof accounted for as
liabilities in accordance with GAAP.
"Capital Lease", as applied to any Person, shall mean any lease of
any property (whether real, personal or mixed) by that Person as lessee
that, in conformity with GAAP, is, or is required to be, accounted for as
a capital lease on the balance sheet of that Person.
"Cash Merger Price" shall have the meaning provided in the first
paragraph of this Agreement.
"C/D Assessment Rate" shall mean for any day as applied to any ABR
Loan, the annual assessment rate in effect on such day that is payable by
a member of the Bank Insurance Fund maintained by the Federal Deposit
Insurance Corporation or any successor thereto (the "FDIC") classified as
well-capitalized and within supervisory subgroup "B" (or a comparable
successor assessment risk classification) within the meaning of 12 C.F.R.
ss. 327.3(d) (or any successor provision) to the FDIC for the FDIC's
insuring time deposits at offices of such institution in the United
States.
"C/D Reserve Percentage" shall mean for any day as applied to any
ABR Loan, the percentage (expressed as a decimal) that is in effect on
such day, as prescribed by the Board, for determining the reserve
requirement for a Depositary Institution (as defined in Regulation D of
the Board) in respect of new non-personal time deposits in Dollars having
a maturity that is 30 days or more.
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8
"Center" shall mean any facility primarily providing for the care,
education or development of infants or other children, or part of such
facility (including, without limitation, related office buildings, parking
lots or other related real property), now or hereafter owned, leased or
operated by the Borrower or any of its Subsidiaries, in each case
including, without limitation, the land on which such facility is located,
all buildings and other improvements thereon, including leasehold
improvements, all fixtures, furniture, equipment, inventory and other
tangible personal property located in or used in connection with such
facility and all accounts receivable and other intangible personal
property (other than motor vehicles) related to the ownership, lease or
operation of such facility, all whether now existing or hereafter
acquired.
"Change of Control" shall mean and be deemed to have occurred if (a)
(i) KKR, its Affiliates and the Management Group shall at any time not
own, in the aggregate, directly or indirectly, beneficially and of record,
at least 35% of the outstanding Voting Stock of the Borrower (other than
as the result of one or more widely distributed offerings of Borrower
Common Stock, in each case whether by the Borrower or by KKR, its
Affiliates or the Management Group) and/or (ii) any person, entity or
"group" (within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended) shall at any time have acquired direct
or indirect beneficial ownership of a percentage of the outstanding Voting
Stock of the Borrower that exceeds the percentage of such Voting Stock
then beneficially owned, in the aggregate, by KKR, its Affiliates and the
Management Group, unless, in the case of either clause (i) or (ii) above,
KKR, its Affiliates and the Management Group have, at such time, the right
or the ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the
Borrower; and/or (b) at any time Continuing Directors shall not constitute
a majority of the Board of Directors of the Borrower.
"Chase" shall mean The Chase Manhattan Bank, a New York banking
corporation, and any successor thereto by merger, consolidation or
otherwise.
"Closing Date" shall mean the date of the initial Borrowing
hereunder.
"Closing Date Center" shall mean any Center owned, leased or
operated by the Borrower or any of the Restricted Subsidiaries on the
Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect
at the date of this Agreement, and any subsequent provisions of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
"Collateral" shall have the meaning provided in the Pledge
Agreement.
<PAGE>
9
"Commitment Fee Rate" shall mean, with respect to the Available
Commitment on any day, the rate per annum set forth below opposite the
Status in effect on such day:
Commitment
Status Fee Rate
------ --------
Level I Status 0.500%
Level II Status 0.375%
Level III Status 0.350%
Level IV Status 0.300%
Level V Status 0.250%
"Commitments" shall mean, with respect to each Lender, such Lender's
Term Loan Commitment and Revolving Credit Commitment.
"Confidential Information" shall have the meaning provided in
Section 13.16.
"Confidential Information Memorandum" shall mean the Confidential
Information Memorandum of the Borrower dated December 1996 delivered to
the Lenders in connection with this Agreement.
"Consolidated Earnings" shall mean, for any period, "income from
continuing operations before income taxes and extraordinary items" of the
Borrower and the Restricted Subsidiaries for such period, determined in a
manner consistent with the manner in which such amount was determined in
accordance with the audited financial statements referred to in Section
9.1(a).
"Consolidated EBITDA" shall mean, for any period, the sum, without
duplication, of the amounts for such period of (a) Consolidated Earnings,
(b) Consolidated Interest Expense, (c) depreciation expense, (d)
amortization expense, including amortization of deferred financing fees,
(e) non-recurring charges, (f) non-cash charges, (g) losses on asset
sales, (h) restructuring charges or reserves and (i) in the case of any
period ending during the fiscal year ending May 30, 1997, Transaction
Expenses less the sum of the amounts for such period of (j) non-recurring
gains, (k) non-cash gains and (l) gains on asset sales, all as determined
on a consolidated basis for the Borrower and the Restricted Subsidiaries
in accordance with GAAP, provided that (i) except as provided in clause
(ii) below, there shall be excluded from Consolidated Earnings for any
period the income from continuing operations before income taxes and
extraordinary items of all Unrestricted Subsidiaries for such period to
the extent otherwise included in Consolidated Earnings and (ii) for
purposes of the definition of the term "Permitted Acquisition" and
Sections 10.3, 10.10 and 10.11, (x) there shall be included in determining
Consolidated EBITDA for any period (A) the Acquired EBITDA of any Person,
property, business or asset (other than an Unrestricted Subsidiary)
acquired and not subsequently sold, transferred or otherwise disposed of
(but not including the Acquired EBITDA of any related Person, property,
business or assets to the extent not so acquired) by the Borrower or any
Restricted Subsidiary during such period (each such Person, property,
business or asset acquired and not subsequently so disposed of, an
"Acquired Entity or
<PAGE>
10
Business"), and the Acquired EBITDA of any Unrestricted Subsidiary that is
converted into a Restricted Subsidiary during such period (each, a
"Converted Restricted Subsidiary"), in each case based on the actual
Acquired EBITDA of such Acquired Entity or Business or Converted
Restricted Subsidiary for such period (including the portion thereof
occurring prior to such acquisition or conversion) and (B) an adjustment
in respect of each Acquired Entity or Business acquired during such period
equal to the amount of the Pro Forma Adjustment with respect to such
Acquired Entity or Business for such period (including the portion thereof
occurring prior to such acquisition or conversion) as specified in the Pro
Forma Adjustment Certificate delivered to the Lenders and the
Administrative Agent and (y) there shall be excluded in determining
Consolidated EBITDA for any period the Acquired EBITDA of any Person,
property, business or asset (other than an Unrestricted Subsidiary) sold,
transferred or otherwise disposed of by the Borrower or any Restricted
Subsidiary during such period (each such Person, property, business or
asset so sold or disposed of, a "Sold Entity or Business"), and the
Acquired EBITDA of any Restricted Subsidiary that is converted into an
Unrestricted Subsidiary during such period (each, a "Converted
Unrestricted Subsidiary"), in each case based on the actual Acquired
EBITDA of such Sold Entity or Business or Converted Unrestricted
Subsidiary for such period (including the portion thereof occurring prior
to such sale, transfer, disposition or conversion).
"Consolidated EBITDA to Consolidated Interest Expense Ratio" shall
mean, as of any date of determination, the ratio of (a) Consolidated
EBITDA for the relevant Test Period to (b) Consolidated Interest Expense
for such Test Period.
"Consolidated Interest Expense" shall mean, for any period, cash
interest expense (including that attributable to Capital Leases in
accordance with GAAP), net of cash interest income, of the Borrower and
the Restricted Subsidiaries on a consolidated basis with respect to all
outstanding Indebtedness of the Borrower and the Restricted Subsidiaries,
including, without limitation, all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing and net costs under Hedge Agreements (other than currency swap
agreements, currency future or option contracts and other similar
agreements), but excluding, however, amortization of deferred financing
costs and any other amounts of non-cash interest, all as calculated on a
consolidated basis in accordance with GAAP, provided that (a) except as
provided in clause (b) below, there shall be excluded from Consolidated
Interest Expense for any period the cash interest expense (or income) of
all Unrestricted Subsidiaries for such period to the extent otherwise
included in Consolidated Interest Expense and (b) for purposes of the
definition of the term "Permitted Acquisition" and Sections 10.3, 10.10
and 10.11, (i) there shall be included in determining Consolidated
Interest Expense for any period the cash interest expense (or income) of
any Acquired Entity or Business acquired during such period and of any
Converted Restricted Subsidiary converted during such period, in each case
based on the cash interest expense (or income) of such Acquired Entity or
Business or Converted Restricted Subsidiary for such period (including the
portion thereof occurring prior to such acquisition or conversion)
assuming any Indebtedness incurred or repaid in connection with any such
acquisition or conversion had been incurred or prepaid on the first day of
such period and (ii) there shall be excluded in determining Consolidated
Interest Expense for any period the cash interest expense (or income) of
any Sold Entity or Business sold, transferred or otherwise disposed of
during such period and of
<PAGE>
11
any Converted Unrestricted Subsidiary converted during such period, in
each case based on the actual cash interest expense (or income) of such
Sold Entity or Business or Converted Unrestricted Subsidiary for such
period (including the portion thereof occurring prior to such sale,
transfer, disposition or conversion); provided further, however, that
Consolidated Interest Expense for the Test Periods ending on May 30, 1997,
September 19, 1997, and December 12, 1997, shall be determined by (a) in
the case of the Test Period ending on May 30, 1997, multiplying
Consolidated Interest Expense for the period commencing on March 8, 1997,
and ending on May 30, 1997, by 13/3, (b) in the case of the Test Period
ending on September 19, 1997, multiplying Consolidated Interest Expense
for the period commencing on March 8, 1997, and ending on September 19,
1997, by 13/7, and (c) in the case of the Test Period ending on December
12, 1997, multiplying Consolidated Interest Expense for the period
commencing on March 8, 1997, and ending on December 12, 1997, by 13/10.
"Consolidated Lease Expense" shall mean, for any period, all rental
expenses of the Borrower and the Restricted Subsidiaries during such
period under operating leases for real or personal property (including in
connection with Real Estate Financings), excluding real estate taxes,
insurance costs and common area maintenance charges and net of sublease
income, other than (a) obligations under vehicle leases entered into in
the ordinary course of business and (b) Capitalized Lease Obligations, all
as determined on a consolidated basis in accordance with GAAP, provided
that (i) except as provided in clause (ii) below, there shall be excluded
from Consolidated Lease Expense for any period the rental expenses of all
Unrestricted Subsidiaries for such period to the extent otherwise included
in Consolidated Lease Expense and (ii) for purposes of the definition of
the term "Permitted Acquisition" and Sections 10.3 and 10.9, (x) there
shall be included in determining Consolidated Lease Expense for any period
the rental expenses of any Acquired Entity or Business acquired during
such period and of any Converted Restricted Subsidiary converted during
such period, in each case based on the rental expenses of such Acquired
Entity or Business or Converted Restricted Subsidiary for such period
(including the portion thereof occurring prior to such acquisition or
conversion) and (y) there shall be excluded in determining Consolidated
Lease Expense for any period the rental expenses of any Sold Entity or
Business sold, transferred or otherwise disposed of during such period and
of any Converted Unrestricted Subsidiary converted during such period, in
each case based on the actual rental expenses of such Sold Entity or
Business or Converted Unrestricted Subsidiary for such period (including
the portion thereof occurring prior to such sale, transfer, disposition or
conversion).
"Consolidated Net Income" shall mean, for any period, the
consolidated net income (or loss) of the Borrower and the Restricted
Subsidiaries, determined on a consolidated basis in accordance with GAAP;
provided, however, that the term "Consolidated Net Income" shall be deemed
to include any increases during such period to consolidated additional
paid-in capital of the Borrower and the Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, to the extent
such increases are attributable to tax benefits from net operating losses
incurred prior to the Closing Date that are not otherwise included in
Consolidated Net Income for such period.
<PAGE>
12
"Consolidated Senior Debt" shall mean, as of any date of
determination, Consolidated Total Debt as of such date minus Consolidated
Subordinated Debt as of such date.
"Consolidated Senior Debt to Consolidated EBITDA Ratio" shall mean,
as of any date of determination, the ratio of (a) Consolidated Senior Debt
as of the last day of the relevant Test Period to (b) Consolidated EBITDA
for such Test Period.
"Consolidated Subordinated Debt" shall mean, as of any date of
determination, all Indebtedness of the Borrower and the Restricted
Subsidiaries for borrowed money that is (a) outstanding on such date and
(b) subordinated in right of payment to the Obligations, all calculated on
a consolidated basis in accordance with GAAP.
"Consolidated Total Debt" shall mean, as of any date of
determination, the sum of (a) all Indebtedness of the Borrower and the
Restricted Subsidiaries for borrowed money outstanding on such date (other
than, for purposes of Section 10.10, any such Indebtedness of the Borrower
in an aggregate amount at any time outstanding not to exceed $30,000,000
incurred to fund any payment of the non-current liabilities of the
Borrower reflected on the Borrower's consolidated financial statements for
its fiscal year ended May 31, 1996) and (b) all Capitalized Lease
Obligations of the Borrower and the Restricted Subsidiaries outstanding on
such date, all calculated on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital" shall mean, at any date, the excess
of (a) the sum of all amounts (other than cash, cash equivalents and bank
overdrafts) that would, in conformity with GAAP, be set forth opposite the
caption "total current assets" (or any like caption) on a consolidated
balance sheet of the Borrower and the Restricted Subsidiaries at such date
over (b) the sum of all amounts that would, in conformity with GAAP, be
set forth opposite the caption "total current liabilities" (or any like
caption) on a consolidated balance sheet of the Borrower and the
Restricted Subsidiaries on such date, but excluding (i) the current
portion of any Funded Debt, (ii) without duplication of clause (i) above,
all Indebtedness consisting of Loans and Letter of Credit Exposure to the
extent otherwise included therein and (iii) the current portion of
deferred income taxes.
"Continuing Director" shall mean, at any date, an individual (a) who
is a member of the Board of Directors of the Borrower on the date hereof,
(b) who, as at such date, has been a member of such Board of Directors for
at least the 12 preceding months, (c) who has been nominated to be a
member of such Board of Directors, directly or indirectly, by KKR or
Persons nominated by KKR or (d) who has been nominated to be a member of
such Board of Directors by a majority of the other Continuing Directors
then in office.
"Converted Restricted Subsidiary" shall have the meaning provided in
the definition of the term "Consolidated EBITDA".
"Converted Unrestricted Subsidiary" shall have the meaning provided
in the definition of the term "Consolidated EBITDA".
<PAGE>
13
"Credit Documents" shall mean this Agreement, the Guarantee, the
Pledge Agreement and any promissory notes issued by the Borrower
hereunder.
"Credit Event" shall mean and include the making (but not the
conversion or continuation) of a Loan and the issuance of a Letter of
Credit.
"Credit Party" shall mean each of the Borrower and the Guarantors.
"Cumulative Consolidated Net Income Available to Common
Stockholders" means, as of any date of determination, Consolidated Net
Income less cash dividends paid with respect to preferred stock for the
period (taken as one accounting period) commencing on the Closing Date and
ending on the last day of the most recent fiscal quarter for which Section
9.1 Financials have been delivered to the Lenders under Section 9.1.
"Debt Incurrence Prepayment Event" shall mean any issuance or
incurrence by the Borrower or any of the Restricted Subsidiaries of any
Indebtedness (excluding any Indebtedness permitted to be issued or
incurred under Section 10.1).
"Debt Tender Offer" shall mean the tender offer and consent
solicitation for outstanding Senior Notes consummated by the Borrower on
November 14, 1996, pursuant to the Offer to Purchase and Consent
Solicitation Statement dated October 16, 1996.
"Default" shall mean any event, act or condition that with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a
Lender Default is in effect.
"Dividends" shall have the meaning provided in Section 10.6.
"Documentation Agent" shall mean Wells Fargo Bank, N.A., together
with its affiliates, as the documentation agent for the Lenders under this
Agreement and the other Credit Documents.
"Dollars" and "$" shall mean dollars in lawful currency of the
United States of America.
"Domestic Subsidiary" shall mean each Subsidiary of the Borrower
that is organized under the laws of the United States, any state thereof,
the District of Columbia or any territory thereof.
"Drawing" shall have the meaning provided in Section 3.4(b).
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigations (other than
internal reports prepared by the Borrower or any of its Subsidiaries
<PAGE>
14
(a) in the ordinary course of such Person's business or (b) as required in
connection with a financing transaction or an acquisition or disposition
of real estate) or proceedings relating in any way to any Environmental
Law or any permit issued, or any approval given, under any such
Environmental Law (hereafter, "Claims"), including, without limitation,
(i) any and all Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or
damages pursuant to any applicable Environmental Law and (ii) any and all
Claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from Hazardous
Materials or arising from alleged injury or threat of injury to health,
safety or the environment.
"Environmental Law" shall mean any applicable Federal, state,
foreign or local statute, law, rule, regulation, ordinance, code and rule
of common law now or hereafter in effect and in each case as amended, and
any binding judicial or administrative interpretation thereof, including
any binding judicial or administrative order, consent decree or judgment,
relating to the environment, human health or safety or Hazardous
Materials.
"Equity Contribution" shall mean the equity contribution to the
Borrower by the Partnership of an aggregate cash amount of not less than
$148,750,000.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. Section references to ERISA are to
ERISA as in effect at the date of this Agreement and any subsequent
provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) that together with the Borrower or a Subsidiary would be deemed
to be a "single employer" within the meaning of Section 414(b) or (c) of
the Code or, solely for purposes of Section 302 of ERISA and Section 412
of the Code, is treated as a single employer under Section 414 of the
Code.
"Eurodollar Loan" shall mean any Eurodollar Term Loan or Eurodollar
Revolving Credit Loan.
"Eurodollar Rate" shall mean, in the case of any Eurodollar Term
Loan or Eurodollar Revolving Credit Loan, with respect to each day during
each Interest Period pertaining to such Eurodollar Loan, the rate of
interest determined on the basis of the rate for deposits in Dollars for a
period equal to such Interest Period commencing on the first day of such
Interest Period appearing on Page 3750 of the Telerate screen as of 11:00
A.M., London time, two Business Days prior to the beginning of such
Interest Period. In the event that such rate does not appear on Page 3750
of the Telerate Service (or otherwise on such service), the "Eurodollar
Rate" for the purposes of this paragraph shall be determined by reference
to such other publicly available service for displaying eurodollar rates
as may be agreed upon by the Administrative Agent and the Borrower or, in
the absence of such agreement, the "Eurodollar Rate" for the purposes of
this paragraph shall instead be the rate per annum notified to the
Administrative Agent by the Reference Lender as the rate at which the
Reference Lender is offered Dollar deposits at or about 10:00 A.M., New
York time, two Business Days prior to
<PAGE>
15
the beginning of such Interest Period, in the interbank eurodollar market
where the eurodollar and foreign currency and exchange operations in
respect of its Eurodollar Loans are then being conducted for delivery on
the first day of such Interest Period for the number of days comprised
therein and in an amount comparable to the amount of its Eurodollar Term
Loan or Eurodollar Revolving Credit Loan, as the case may be, to be
outstanding during such Interest Period.
"Eurodollar Revolving Credit Loan" shall mean any Revolving Credit
Loan bearing interest at a rate determined by reference to the Eurodollar
Rate.
"Eurodollar Term Loan" shall mean any Term Loan bearing interest at
a rate determined by reference to the Eurodollar Rate.
"Event of Default" shall have the meaning provided in Section 11.
"Excess Cash Flow" shall mean, for any period, an amount equal to
the excess of (a) the sum, without duplication, of (i) Consolidated Net
Income for such period, (ii) an amount equal to the amount of all non-cash
charges to the extent deducted in arriving at such Consolidated Net
Income, (iii) decreases in Consolidated Working Capital for such period
and (iv) an amount equal to the aggregate net non-cash loss on the sale,
lease, transfer or other disposition of assets by the Borrower and the
Restricted Subsidiaries during such period (other than sales in the
ordinary course of business) to the extent deducted in arriving at such
Consolidated Net Income over (b) the sum, without duplication, of (i) an
amount equal to the amount of all non-cash credits included in arriving at
such Consolidated Net Income, (ii) the aggregate amount actually paid by
the Borrower and the Restricted Subsidiaries in cash during such period on
account of Capital Expenditures (excluding the principal amount of
Indebtedness incurred in connection with such Capital Expenditures,
whether incurred in such period or in a subsequent period), (iii) the
aggregate amount of all prepayments of Revolving Credit Loans and
Swingline Loans made during such period to the extent accompanying
reductions of the Total Revolving Credit Commitments, (iv) the aggregate
amount of all principal payments of Indebtedness of the Borrower or the
Restricted Subsidiaries (including, without limitation, any Term Loans and
the principal component of payments in respect of Capitalized Lease
Obligations but excluding Revolving Credit Loans and Swingline Loans) made
during such period (other than in respect of any revolving credit facility
to the extent there is not an equivalent permanent reduction in
commitments thereunder), (v) an amount equal to the aggregate net non-cash
gain on the sale, lease, transfer or other disposition of assets by the
Borrower and the Restricted Subsidiaries during such period (other than
sales in the ordinary course of business) to the extent included in
arriving at such Consolidated Net Income, (vi) increases in Consolidated
Working Capital for such period, (vii) payments by the Borrower and the
Restricted Subsidiaries during such period in respect of long-term
liabilities of the Borrower and the Restricted Subsidiaries other than
Indebtedness, (viii) the amount of Investments made during such period
pursuant to Section 10.5 to the extent that such Investments were financed
with internally generated cash flow of the Borrower and the Restricted
Subsidiaries, (ix) the amount of dividends paid during such period
pursuant to clause (c) of the proviso to Section 10.5 and (x) the
aggregate amount of expenditures actually made by the Borrower and the
Restricted Subsidiaries in cash during such period (including,
<PAGE>
16
without limitation, expenditures for the payment of financing fees) to the
extent that such expenditures are not expensed during such period.
"Existing Credit Agreement" shall mean the Credit Agreement dated
June 2, 1994, by and among the Borrower, the lenders listed therein, The
Toronto-Dominion Bank, as Facing Bank, and Toronto Dominion (Texas), Inc.,
as Agent, as the same may be amended, supplemented or otherwise modified
from time to time.
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the per annum rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds
brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
that is a Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by it.
"Fees" shall mean all amounts payable pursuant to, or referred to
in, Section 4.1.
"Final Date" shall mean the date on which the Revolving Credit
Commitments shall have terminated, no Revolving Credit Loans shall be
outstanding and the Letter of Credit Outstandings shall have been reduced
to zero.
"Foreign Subsidiary" shall mean each Subsidiary of the Borrower that
is not a Domestic Subsidiary.
"Fronting Fee" shall have the meaning provided in Section 4.1(c).
"Funded Debt" shall mean all Indebtedness of the Borrower and the
Restricted Subsidiaries for borrowed money that matures more than one year
from the date of its creation or matures within one year from such date
that is renewable or extendable, at the option of the Borrower or one of
the Restricted Subsidiaries, to a date more than one year from such date
or arises under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one year
from such date, including, without limitation, all amounts of Funded Debt
required to be paid or prepaid within one year from the date of its
creation and, in the case of the Borrower, Indebtedness in respect of the
Loans.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time; provided,
however, that if there occurs after the date hereof any change in GAAP
that affects in any respect the calculation of any covenant contained in
Section 10, the Lenders and the Borrower shall negotiate in good faith
amendments to the provisions of this Agreement that relate to the
calculation of such covenant with the intent of having the respective
positions of the Lenders and the Borrower after such change in GAAP
conform as nearly as possible to their respective positions as of the date
of this Agreement and, until any such amendments have been agreed upon,
the covenants in Section 10 shall be calculated as if no such change in
GAAP has occurred.
<PAGE>
17
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government.
"Guarantee" shall mean and include the Guarantee, made by each
Guarantor in favor of the Administrative Agent for the benefit of the
Lenders, substantially in the form of Exhibit A, as the same may be
amended, supplemented or otherwise modified from time to time.
"Guarantee Obligations" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness of
any other Person (the "primary obligor") in any manner, whether directly
or indirectly, including, without limitation, any obligation of such
Person, whether or not contingent, (a) to purchase any such Indebtedness
or any property constituting direct or indirect security therefor, (b) to
advance or supply funds (i) for the purchase or payment of any such
Indebtedness or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such Indebtedness
of the ability of the primary obligor to make payment of such Indebtedness
or (d) otherwise to assure or hold harmless the owner of such Indebtedness
against loss in respect thereof; provided, however, that the term
"Guarantee Obligations" shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of
any Guarantee Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the Indebtedness in respect of which such
Guarantee Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as determined by such Person in
good faith.
"Guarantor" shall mean each Domestic Subsidiary of the Borrower that
is a Restricted Subsidiary and is or becomes a party to the Guarantee.
"Hazardous Materials" shall mean (a) any petroleum or petroleum
products, radioactive materials, friable asbestos, urea formaldehyde foam
insulation, transformers or other equipment that contain dielectric fluid
containing regulated levels of polychlorinated biphenyls, and radon gas;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances", "hazardous waste", "hazardous
materials", "extremely hazardous waste", "restricted hazardous waste",
"toxic substances", "toxic pollutants", "contaminants", or "pollutants",
or words of similar import, under any applicable Environmental Law; and
(c) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any Governmental Authority.
"Hedge Agreements" shall mean interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements entered into by the Borrower in order to protect the Borrower
or any of the Restricted Subsidiaries against fluctuations in interest
rates or currency exchange rates.
<PAGE>
18
"Indebtedness" of any Person shall mean (a) all indebtedness of such
Person for borrowed money, (b) the deferred purchase price of assets or
services that in accordance with GAAP would be shown on the liability side
of the balance sheet of such Person, (c) the face amount of all letters of
credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder, (d) all Indebtedness of a second Person secured
by any Lien on any property owned by such first Person, whether or not
such Indebtedness has been assumed, (e) all Capitalized Lease Obligations
of such Person, (f) all obligations of such Person under interest rate
swap, cap or collar agreements, interest rate future or option contracts,
currency swap agreements, currency future or option contracts and other
similar agreements and (g) without duplication, all Guarantee Obligations
of such Person, provided that Indebtedness shall not include trade
payables and accrued expenses, in each case arising in the ordinary course
of business.
"Interest Period" shall mean, with respect to any Term Loan or
Revolving Credit Loan, the interest period applicable thereto, as
determined pursuant to Section 2.9.
"KCLC" shall have the meaning provided in the first paragraph of
this Agreement.
"KKR" shall mean each of Kohlberg Kravis Roberts & Co., L.P. and KKR
Associates, L.P.
"L/C Maturity Date" shall mean the date that is five Business Days
prior to the Revolving Credit Maturity Date.
"L/C Participant" shall have the meaning provided in Section 3.3(a).
"L/C Participation" shall have the meaning provided in Section
3.3(a).
"Lender" shall have the meaning provided in the preamble to this
Agreement.
"Lender Default" shall mean (a) the failure (which has not been
cured) of a Lender to make available its portion of any Borrowing or to
fund its portion of any unreimbursed payment under Section 3.3 or (b) a
Lender having notified the Administrative Agent and/or the Borrower that
it does not intend to comply with the obligations under Section 2.1(b),
2.1(d) or 3.3, in the case of either clause (a) or clause (b) above, as a
result of the appointment of a receiver or conservator with respect to
such Lender at the direction or request of any regulatory agency or
authority.
"Letter of Credit" shall mean each standby letter of credit issued
pursuant to Section 3.1.
"Letter of Credit Commitment" shall mean $75,000,000, as the same
may be reduced from time to time pursuant to Section 3.1.
"Letter of Credit Exposure" shall mean, with respect to any Lender,
such Lender's Revolving Credit Commitment Percentage of the Letter of
Credit Outstandings.
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19
"Letter of Credit Fee" shall have the meaning provided in Section
4.1(b).
"Letter of Credit Issuer" shall mean Chase or any successor to Chase
pursuant to Section 3.6.
"Letter of Credit Outstandings" shall mean, at any time, the sum of,
without duplication, (a) the aggregate Stated Amount of all outstanding
Letters of Credit and (b) the aggregate amount of all Unpaid Drawings in
respect of all Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in
Section 3.2.
"Level I Status" shall mean, on any date, (a) in the case of
Revolving Credit Loans and Swingline Loans, the Consolidated Senior Debt
to Consolidated EBITDA Ratio is greater than or equal to 3.50:1.00 as of
such date and (b) in the case of Term Loans, the Consolidated Senior Debt
to Consolidated EBITDA Ratio is greater than or equal to 3.00:1.00 as of
such date.
"Level II Status" shall mean, on any date, the circumstance that
Level I Status does not exist and (a) in the case of Revolving Credit
Loans and Swingline Loans, the Consolidated Senior Debt to Consolidated
EBITDA Ratio is greater than or equal to 3.00:1.00 as of such date and (b)
in the case of Term Loans, the Consolidated Senior Debt to Consolidated
EBITDA Ratio is greater than or equal to 2.50:1.00 as of such date.
"Level III Status" shall mean, on any date, the circumstance that
neither Level I Status nor Level II Status exists and (a) in the case of
Revolving Credit Loans and Swingline Loans, the Consolidated Senior Debt
to Consolidated EBITDA Ratio is greater than or equal to 2.25:1.00 as of
such date and (b) in the case of Term Loans, the Consolidated Senior Debt
to Consolidated EBITDA Ratio is less than 2.50:1.00 as of such date.
"Level IV Status" shall mean, on any date, in the case of Revolving
Credit Loans and Swingline Loans, the circumstance that none of Level I
Status, Level II Status or Level III Status exists and the Consolidated
Senior Debt to Consolidated EBITDA Ratio is greater than or equal to
1.75:1.00 as of such date.
"Level V Status" shall mean, on any date, in the case of Revolving
Credit Loans and Swingline Loans, the circumstance that none of Level I
Status, Level II Status, Level III Status or Level IV Status exists and
the Consolidated EBITDA to Consolidated Interest Expense Ratio is greater
than or equal to 2.50:1.00 as of such date.
"Lien" shall mean any mortgage, pledge, security interest,
hypothecation, assignment, lien (statutory or other) or similar
encumbrance (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement or any lease in the
nature thereof).
"Loan" shall mean any Revolving Credit Loan, Swingline Loan or Term
Loan made by any Lender hereunder.
<PAGE>
20
"Management Group" shall mean, at any time, the Chairman of the
Board, the President, any Executive Vice President or Vice President, the
Treasurer and the Secretary of the Borrower at such time.
"Mandatory Borrowing" shall have the meaning provided in Section
2.1(d).
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Change" shall mean any change in the business,
assets, operations, properties or financial condition of the Borrower and
its Subsidiaries taken as a whole that would materially adversely affect
the ability of the Borrower and the other Credit Parties taken as a whole
to perform their obligations under this Agreement and the other Credit
Documents taken as a whole.
"Material Adverse Effect" shall mean a circumstance or condition
affecting the business, assets, operations, properties or financial
condition of the Borrower and its Subsidiaries taken as a whole that would
materially adversely affect (a) the ability of the Borrower and the other
Credit Parties taken as a whole to perform their obligations under this
Agreement and the other Credit Documents taken as a whole or (b) the
rights and remedies of the Administrative Agent and the Lenders under this
Agreement and the other Credit Documents taken as a whole.
"Material Subsidiary" shall mean, at any date of determination, any
Restricted Subsidiary of the Borrower (a) whose total assets at the last
day of the Test Period ending on the last day of the most recent fiscal
period for which Section 9.1 Financials have been delivered were equal to
or greater than 5% of the consolidated total assets of the Borrower and
the Restricted Subsidiaries at such date or (b) whose gross revenues for
such Test Period were equal to or greater than 5% of the consolidated
gross revenues of the Borrower and the Restricted Subsidiaries for such
period, in each case determined in accordance with GAAP.
"Maturity Date" shall mean the Term Loan Maturity Date or the
Revolving Credit Maturity Date.
"Merger" shall have the meaning provided in the first paragraph of
this Agreement.
"Merger Agreement" shall have the meaning provided in the first
paragraph of this Agreement.
"Minimum Borrowing Amount" shall mean (a) with respect to a
Borrowing of Term Loans or Revolving Credit Loans, $1,000,000 and (b) with
respect to a Borrowing of Swingline Loans, $100,000.
"Minority Investment" shall mean any Person (other than a
Subsidiary) in which the Borrower or any Restricted Subsidiary owns
capital stock or other equity interests.
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21
"Moody's" shall mean Moody's Investors Service, Inc. or any
successor by merger or consolidation to its business.
"Net Cash Proceeds" shall mean, with respect to any Prepayment Event
or any issuance by the Borrower of equity securities, (a) the gross cash
proceeds (including payments from time to time in respect of installment
obligations, if applicable) received by or on behalf of the Borrower or
any of the Restricted Subsidiaries in respect of such Prepayment Event or
issuance, as the case may be, less (b) the sum of:
(i) in the case of any Prepayment Event, the amount, if any,
of all taxes paid or estimated to be payable by the Borrower or any
of the Restricted Subsidiaries in connection with such Prepayment
Event,
(ii) in the case of any Prepayment Event, the amount of any
reasonable reserve established in accordance with GAAP against any
liabilities (other than any taxes deducted pursuant to clause (i)
above) (A) associated with the assets that are the subject of such
Prepayment Event and (B) retained by the Borrower or any of the
Restricted Subsidiaries, provided that the amount of any subsequent
reduction of such reserve (other than in connection with a payment
in respect of any such liability) shall be deemed to be Net Cash
Proceeds of such a Prepayment Event occurring on the date of such
reduction,
(iii) in the case of any Prepayment Event, the amount of any
Indebtedness secured by a Lien on the assets that are the subject of
such Prepayment Event to the extent that the instrument creating or
evidencing such Indebtedness requires that such Indebtedness be
repaid upon consummation of such Prepayment Event,
(iv) in the case of any Asset Sale Prepayment Event, the amount
of any proceeds of such Asset Sale Prepayment Event that the
Borrower has reinvested (or intends to reinvest within one year of
the date of such Asset Sale Prepayment Event) in the business of the
Borrower or any of the Restricted Subsidiaries (subject to Section
9.14), provided that any portion of such proceeds that has not been
so reinvested within such one-year period shall (x) be deemed to be
Net Cash Proceeds of an Asset Sale Prepayment Event occurring on the
last day of such one-year period and (y) be applied to the repayment
of Term Loans in accordance with Section 5.2(a)(i), provided further
that, for purposes of the preceding proviso, such one-year period
shall be extended by up to eighteen months from the last day of such
one-year period so long as (A) such proceeds are to be reinvested
within such additional eighteen-month period under the Borrower's
business plan as most recently adopted in good faith by its Board of
Directors and (B) the Borrower believes in good faith that such
proceeds will be so reinvested within such additional eighteen-month
period, and
(v) in the case of any Prepayment Event or any issuance by the
Borrower of equity securities, reasonable and customary fees,
commissions, expenses, issuance costs, discounts and other costs
paid by the Borrower or any of the Restricted Subsidiaries in
connection with such Prepayment Event or issuance, as the case may
<PAGE>
22
be (other than those payable to the Borrower or any Subsidiary of
the Borrower), in each case only to the extent not already deducted
in arriving at the amount referred to in clause (a) above.
"Non-Defaulting Lender" shall mean and include each Lender other
than a Defaulting Lender.
"Non-Excluded Taxes" shall have the meaning provided in Section
5.4(a).
"Notice of Borrowing" shall have the meaning provided in Section
2.3.
"Notice of Conversion or Continuation" shall have the meaning
provided in Section 2.6.
"Obligations" shall mean all monetary amounts of every type or
description at any time owing to the Administrative Agent, any Lender or,
in the case of Hedge Agreements, any affiliate of a Lender pursuant to the
terms of this Agreement, any other Credit Document or any Hedge Agreement.
"Participant" shall have the meaning provided in Section
13.6(a)(ii).
"Partnership" shall mean KLC Associates, L.P., a Delaware limited
partnership, all the general and limited partners of which are Affiliates
of KKR.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" shall mean the acquisition, by merger or
otherwise, by the Borrower or any of the Restricted Subsidiaries of assets
or capital stock or other equity interests, so long as (a) such
acquisition and all transactions related thereto shall be consummated in
accordance with applicable law; (b) such acquisition shall, in the case of
the acquisition of capital stock or other equity interests by the Borrower
or any Restricted Domestic Subsidiary, result in the issuer of such
capital stock or other equity interests becoming a Restricted Domestic
Subsidiary and a direct Restricted Domestic Subsidiary in the case of such
an acquisition by the Borrower; (c) after giving effect to such
acquisition, no Default or Event of Default shall have occurred and be
continuing; and (d) the Borrower shall be in compliance, on a pro forma
basis after giving effect to such acquisition (including any Indebtedness
assumed or permitted to exist or incurred pursuant to Sections 10.1(j) and
10.1(k), respectively, and any related Pro Forma Adjustment), with the
covenants set forth in Sections 10.9, 10.10 and 10.11, as such covenants
are recomputed as at the last day of the most recently ended Test Period
under such Sections as if such acquisition had occurred on the first day
of such Test Period.
"Permitted Investments" shall mean (a) securities issued or
unconditionally guaranteed by the United States government or any agency
or instrumentality thereof, in each case having maturities of not more
than 24 months from the date of acquisition thereof; (b) securities
<PAGE>
23
issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof or any
political subdivision of any such state or any public instrumentality
thereof having maturities of not more than 24 months from the date of
acquisition thereof and, at the time of acquisition, having an investment
grade rating generally obtainable from either S&P or Moody's (or, if at
any time neither S&P nor Moody's shall be rating such obligations, then
from another nationally recognized rating service); (c) commercial paper
issued by any Lender or any bank holding company owning any Lender; (d)
commercial paper maturing no more than 12 months after the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-2 or P-2 from either S&P or Moody's (or, if at any time neither
S&P nor Moody's shall be rating such obligations, an equivalent rating
from another nationally recognized rating service); (e) domestic and
eurodollar certificates of deposit or bankers' acceptances maturing no
more than two years after the date of acquisition thereof issued by any
Lender or any other bank having combined capital and surplus of not less
than $250,000,000 in the case of domestic banks and $100,000,000 (or the
dollar equivalent thereof) in the case of foreign banks; (f) repurchase
agreements with a term of not more than 30 days for underlying securities
of the type described in clauses (a), (b) and (e) above entered into with
any bank meeting the qualifications specified in clause (e) above or
securities dealers of recognized national standing; (g) shares of
investment companies that are registered under the Investment Company Act
of 1940 and invest solely in one or more of the types of securities
described in clauses (a) through (f) above; and (h) in the case of
investments by any Restricted Foreign Subsidiary, other customarily
utilized high-quality investments in the country where such Restricted
Foreign Subsidiary is located.
"Permitted Liens" shall mean (a) Liens for taxes, assessments or
governmental charges or claims not yet due or which are being contested in
good faith and by appropriate proceedings for which appropriate reserves
have been established in accordance with GAAP; (b) Liens in respect of
property or assets of the Borrower or any of its Subsidiaries imposed by
law, such as carriers', warehousemen's and mechanics' Liens and other
similar Liens arising in the ordinary course of business, in each case so
long as such Liens arise in the ordinary course of business and do not
individually or in the aggregate have a Material Adverse Effect; (c) Liens
arising from judgments or decrees in circumstances not constituting an
Event of Default under Section 11.9; (d) Liens incurred or deposits made
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of business; (e) ground leases
in respect of real property on which facilities owned or leased by the
Borrower or any of its Subsidiaries are located; (f) easements,
rights-of-way, restrictions, minor defects or irregularities in title and
other similar charges or encumbrances not interfering in any material
respect with the business of the Borrower and its Subsidiaries taken as a
whole; (g) any interest or title of a lessor or secured by a lessor's
interest under any lease permitted by this Agreement; (h) Liens in favor
of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (i)
Liens on goods the purchase price of which is financed by a documentary
letter of credit issued for the account of the Borrower or any of its
Subsidiaries, provided that such Lien secures only the obligations of the
Borrower or such Subsidiaries in respect of such letter of credit to the
extent permitted
<PAGE>
24
under Section 10.1; and (j) leases or subleases granted to others not
interfering in any material respect with the business of the Borrower and
its Subsidiaries, taken as a whole.
"Permitted Mortgage Financing" shall mean any financing (or series
of related financings) by the Borrower or any of the Restricted
Subsidiaries after the Closing Date that is secured by a mortgage on one
or more Centers, provided that (a) the recourse of the lenders with
respect to such financing is limited solely to such mortgaged Centers, (b)
such financing is consummated for fair value as determined at the time of
consummation in good faith by the Board of Directors of the Borrower
(which such determination may take into account any investment of the
Borrower or such Restricted Subsidiary in connection with, and any other
material economic terms of, such financing) and (c) to the extent such
Centers are Closing Date Centers, the proceeds of such financing are
applied to the prepayment of Term Loans as provided in Section 5.2(a)(i).
"Permitted Sale Leaseback" shall mean any Sale Leaseback consummated
by the Borrower or any of the Restricted Subsidiaries after the Closing
Date with respect to one or more Centers, provided that (a) such Sale
Leaseback is consummated for fair value as determined at the time of
consummation in good faith by the Board of Directors of the Borrower
(which such determination may take into account any retained interest or
other investment of the Borrower or such Restricted Subsidiary in
connection with, and any other material economic terms of, such Sale
Leaseback) and (b) to the extent such Centers are Closing Date Centers,
the proceeds of such Sale Leaseback are applied to the prepayment of Term
Loans as provided in Section 5.2(a)(i).
"Permitted Securitization" shall mean any structured financing (or
series of related structured financings) by the Borrower or any of the
Restricted Subsidiaries after the Closing Date that involves the sale,
transfer or other disposition of one or more Centers to a Real Estate
Financing Subsidiary and the issuance by such Real Estate Financing
Subsidiary of commercial paper, medium-term notes or any other forms of
financing, provided that (a) such structured financing is consummated for
fair value as determined at the time of consummation in good faith by the
Board of Directors of the Borrower (which such determination may take into
account any retained interest or other investment of the Borrower or such
Restricted Subsidiary in connection with, and any other material economic
terms of, such structured financing) and (b) to the extent such Centers
are Closing Date Centers, the proceeds of such structured financing are
applied to the prepayment of Term Loans as provided in Section 5.2(a)(i).
"Person" shall mean any individual, partnership, joint venture,
firm, corporation, limited liability company, association, trust or other
enterprise or any Governmental Authority.
"Plan" shall mean any multiemployer or single-employer plan, as
defined in Section 4001 of ERISA and subject to Title IV of ERISA, that is
or was within any of the preceding five plan years maintained or
contributed to by (or to which there is or was an obligation to contribute
or to make payments of) the Borrower, a Subsidiary or an ERISA Affiliate.
<PAGE>
25
"Pledge Agreement" shall mean and include the Pledge Agreement
entered into by the Borrower, the other pledgors party thereto and the
Administrative Agent for the benefit of the Lenders, substantially in the
form of Exhibit B, as the same may be amended, supplemented or otherwise
modified from time to time.
"Prepayment Event" shall mean any Asset Sale Prepayment Event, Debt
Incurrence Prepayment Event or Real Estate Financing Prepayment Event.
"Prime Rate" shall mean the rate of interest per annum publicly
announced from time to time by the Administrative Agent as its reference
rate in effect at its principal office in New York City (the Prime Rate
not being intended to be the lowest rate of interest charged by Chase in
connection with extensions of credit to debtors).
"Pro Forma Adjustment" shall mean, for any period, with respect to
the Acquired EBITDA of any Acquired Entity or Business, the pro forma
increase or decrease in such Acquired EBITDA projected by the Borrower in
good faith as a result of reasonably identifiable and supportable net cost
savings or additional net costs, as the case may be, realizable during
such period by combining the operations of such Acquired Entity or
Business with the operations of the Borrower and its Subsidiaries,
provided that so long as such net cost savings or additional net costs
will be realizable at any time during such period, it may be assumed, for
purposes of projecting such pro forma increase or decrease to such
Acquired EBITDA, that such net cost savings or additional net costs will
be realizable during the entire such period, provided further that any
such pro forma increase or decrease to such Acquired EBITDA shall be
without duplication for net cost savings or additional net costs actually
realized during such period and already included in such Acquired EBITDA.
"Pro Forma Adjustment Certificate" shall mean any certificate of an
Authorized Officer of the Borrower delivered pursuant to Section 9.1(h) or
setting forth the information described in clause (iv) to Section 9.1(d).
"Real Estate Financing" shall mean any Permitted Mortgage Financing,
Permitted Sale Leaseback or Permitted Securitization.
"Real Estate Financing Prepayment Event" shall mean any Real Estate
Financing, in either case with respect to Closing Date Centers.
"Real Estate Financing Subsidiary" shall mean any special purpose
entity of the Borrower or any Restricted Subsidiary formed in connection
with Real Estate Financings.
"Reference Lender" shall mean Chase.
"Register" shall have the meaning provided in Section 13.6(c).
"Regulation D" shall mean Regulation D of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
reserve requirements.
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26
"Regulation G" shall mean Regulation G of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
margin requirements.
"Regulation T" shall mean Regulation T of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
margin requirements.
"Regulation U" shall mean Regulation U of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
margin requirements.
"Regulation X" shall mean Regulation X of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
margin requirements.
"Remaining Public Equity" shall mean all the Borrower Common Stock
in existence on the Closing Date and which is not beneficially owned,
directly or indirectly, by KKR, its Affiliates or the Management Group on
the Closing Date, including any additional Borrower Common Stock or other
capital stock or equity interests in the Borrower issued in respect of
such Borrower Common Stock in existence on the Closing Date as a result of
a stock split, recapitalization, merger, combination, consolidation or
otherwise, but excluding any management equity plan or stock option plan
or similar agreement.
"Repayment Amount" shall have the meaning provided in Section
2.5(b).
"Repayment Date" shall have the meaning provided in Section 2.5(b).
"Reportable Event" shall mean an event described in Section 4043 of
ERISA and the regulations thereunder.
"Required Lenders" shall mean, at any date, (a) Non-Defaulting
Lenders having or holding a majority of the sum of (i) the Adjusted Total
Revolving Credit Commitment at such date, (ii) the Adjusted Total Term
Loan Commitment at such date and (iii) the outstanding principal amount of
the Term Loans (excluding the Term Loans held by Defaulting Lenders) at
such date or (b) if the Total Revolving Credit Commitment and the Total
Term Loan Commitment have been terminated or for the purposes of
acceleration pursuant to Section 11, the holders (excluding Defaulting
Lenders) of a majority of the outstanding principal amount of the Loans
and Letter of Credit Exposures (excluding the Loans and Letter of Credit
Exposures of Defaulting Lenders) in the aggregate at such date.
"Required Revolving Credit Lenders" shall mean, at any date, (a)
Non-Defaulting Lenders having or holding a majority of the Adjusted Total
Revolving Credit Commitment at such date or (b) if the Total Revolving
Credit Commitment has been terminated, the holders (excluding Defaulting
Lenders) of a majority of the outstanding principal amount of the
Revolving Credit Loans and Letter of Credit Exposures (excluding the Loans
and Letter of Credit Exposures of Defaulting Lenders) in the aggregate at
such date.
"Required Term Loan Lenders" shall mean, at any date, (a)
Non-Defaulting Lenders having or holding a majority of the sum of (i) the
Adjusted Total Term Loan Commitment at
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27
such date and (ii) the outstanding principal amount of the Term Loans
(excluding the Term Loans held by Defaulting Lenders) in the aggregate at
such date or (b) if the Total Term Loan Commitment has been terminated or
for the purposes of acceleration pursuant to Section 11 , the holders
(excluding Defaulting Lenders) of a majority of the outstanding principal
amount of the Term Loans (excluding the Term Loans of Defaulting Lenders)
in the aggregate at such date.
"Requirement of Law" shall mean, as to any Person, the Certificate
of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority,
in each case applicable to or binding upon such Person or any of its
property or assets or to which such Person or any of its property or
assets is subject.
"Restricted Domestic Subsidiary" shall mean each Restricted
Subsidiary that is also a Domestic Subsidiary.
"Restricted Foreign Subsidiary" shall mean any Foreign Subsidiary
that is also a Restricted Subsidiary.
"Restricted Subsidiary" shall mean any Subsidiary of the Borrower
other than an Unrestricted Subsidiary.
"Revolving Credit Commitment" shall mean, (a) with respect to each
Lender that is a Lender on the date hereof, the amount set forth opposite
such Lender's name on Schedule 1.1 as such Lender's "Revolving Credit
Commitment" and (b) in the case of any Lender that becomes a Lender after
the date hereof, the amount specified as such Lender's "Revolving Credit
Commitment" in the Assignment and Acceptance pursuant to which such Lender
assumed a portion of the Total Revolving Credit Commitment, in each case
as the same may be changed from time to time pursuant to the terms hereof.
"Revolving Credit Commitment Percentage" shall mean at any time, for
each Lender, the percentage obtained by dividing such Lender's Revolving
Credit Commitment by the Total Revolving Credit Commitment, provided that
at any time when the Total Revolving Credit Commitment shall have been
terminated, each Lender's Revolving Credit Commitment Percentage shall be
its Revolving Credit Commitment Percentage as in effect immediately prior
to such termination.
"Revolving Credit Loan" shall have the meaning provided in Section
2.1.
"Revolving Credit Maturity Date" shall mean the date that is seven
years after the Closing Date, or, if such date is not a Business Day, the
next preceding Business Day.
"Sale Leaseback" shall mean any transaction or series of related
transactions pursuant to which the Borrower or any of the Restricted
Subsidiaries sells, transfers or otherwise disposes of any property, real
or personal, whether now owned or hereafter acquired, and
<PAGE>
28
thereafter rents or leases such property or other property which it
intends to use for substantially the same purpose or purposes as the
property being sold, transferred or disposed.
"S&P" shall mean Standard & Poor's Ratings Service or any successor
by merger or consolidation to its business.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Section 9.1 Financials" shall mean the financial statements
delivered, or required to be delivered, pursuant to Section 9.1(a) or (b)
together with the accompanying officer's certificate delivered, or
required to be delivered, pursuant to Section 9.1(e).
"Senior Note Indenture" shall mean the Indenture dated as of June 2,
1994, and supplemented, in connection with the Debt Tender Offer, as of
November 7, 1996, as the same may be further amended, supplemented or
otherwise modified from time to time, between the Borrower and AmSouth
Bank N.A., as trustee, pursuant to which the Senior Notes were issued.
"Senior Notes" shall mean the 10-3/8% Senior Notes of the Borrower
due June 1, 2001 in an initial aggregate principal amount of $100,000,000.
"Sold Entity or Business" shall have the meaning provided in the
definition of the term "Consolidated EBITDA".
"Specified Subsidiary" shall mean, at any date of determination, (a)
any Material Subsidiary or (b) any Unrestricted Subsidiary (i) whose total
assets at the last day of the Test Period ending on the last day of the
most recent fiscal period for which Section 9.1 Financials have been
delivered were equal to or greater than 15% of the consolidated total
assets of the Borrower and its Subsidiaries at such date or (ii) whose
gross revenues for such Test Period were equal to or greater than 15% of
the consolidated gross revenues of the Borrower and its Subsidiaries for
such period, in each case determined in accordance with GAAP.
"Stated Amount" of any Letter of Credit shall mean the maximum
amount from time to time available to be drawn thereunder, determined
without regard to whether any conditions to drawing could then be met.
"Status" shall mean, as to the Borrower as of any date, the
existence of Level I Status, Level II Status, Level III Status, Level IV
Status or Level V Status, as the case may be, on such date. Changes in
Status resulting from changes in the Consolidated Senior Debt to
Consolidated EBITDA Ratio (and, in the case of Level V, in the
Consolidated EBITDA to Consolidated Interest Expense Ratio) shall become
effective (the date of such effectiveness, the "Effective Date") as of the
first day following the most recent fiscal year or period for which (a)
Section 9.1 Financials are delivered to the Lenders under Section 9.1 and
(b) an officer's certificate is delivered by the Borrower to the Lenders
setting forth, with respect to such Section 9.1 Financials, the
then-applicable Status, and shall remain in effect until the next change
to be effected pursuant to this definition, provided that (i) if the
Borrower shall
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29
have made any payments in respect of interest or commitment fees during
the period (the "Interim Period") from and including the Effective Date to
but excluding the day any change in Status is determined as provided
above, then the amount of the next such payment due on or after such day
shall be increased or decreased by an amount equal to any underpayment or
overpayment so made by the Borrower during such Interim Period, (ii)
notwithstanding the foregoing, for the period from and including the
Closing Date to but excluding the day that is 180 days following the
Closing Date, the Status of the Borrower for the purposes of this
Agreement shall be deemed to be Level I and (iii) each determination of
the Consolidated Senior Debt to Consolidated EBITDA Ratio (and, in the
case of Level V, in the Consolidated EBITDA to Consolidated Interest
Expense Ratio) pursuant to this definition shall be made with respect to
the Test Period ending at the end of the fiscal period covered by the
relevant financial statements.
"Subordinated Note Indenture" shall mean the Indenture dated as of
the date hereof, as the same may be amended, supplemented or otherwise
modified from time to time, between the Borrower and Marine Midland Bank,
as trustee, pursuant to which the Subordinated Notes were issued.
"Subordinated Notes" shall mean the $300,000,000 aggregate principal
amount of Senior Subordinated Notes of the Borrower due 2009 issued on or
about the Closing Date pursuant to the Subordinated Note Indenture.
"Subsidiary" of any Person shall mean and include (a) any
corporation more than 50% of whose stock of any class or classes having by
the terms thereof ordinary voting power to elect a majority of the
directors of such corporation (irrespective of whether or not at the time
stock of any class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time
owned by such Person directly or indirectly through Subsidiaries and (b)
any partnership, association, joint venture or other entity in which such
Person directly or indirectly through Subsidiaries has more than a 50%
equity interest at the time. Unless otherwise expressly provided, all
references herein to a "Subsidiary" shall mean a Subsidiary of the
Borrower.
"Swingline Commitment" shall mean $25,000,000.
"Swingline Loans" shall have the meaning provided in Section 2.1(c).
"Swingline Maturity Date" shall mean, with respect to any Swingline
Loan, the date that is five Business Days prior to the Revolving Credit
Maturity Date.
"Syndication Agent" shall mean Bankers Trust Company, together with
its affiliates, as the syndication agent for the Lenders under this
Agreement and the other Credit Documents.
"Term Loan" shall have the meaning provided in Section 2.1.
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30
"Term Loan Availability Period" shall mean the period from and
including the Closing Date to but excluding the day that is 180 days
following the Closing Date.
"Term Loan Commitment" shall mean, (a) in the case of each Lender
that is a Lender on the date hereof, the amount set forth opposite such
Lender's name on Schedule 1.1 as such Lender's "Term Loan Commitment" and
(b) in the case of any Lender that becomes a Lender after the date hereof,
the amount specified as such Lender's "Term Loan Commitment" in the
Assignment and Acceptance pursuant to which such Lender assumed a portion
of the Total Term Loan Commitment, in each case as the same may be changed
from time to time pursuant to the terms hereof.
"Term Loan Maturity Date" shall mean the date that is nine years
after the Closing Date, or, if such Date is not a Business Day, the next
preceding Business Day.
"Test Period" shall mean, for any determination under this
Agreement, the four consecutive fiscal quarters of the Borrower then last
ended.
"Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate, expressed as a per annum rate, for three-month
certificates of deposit reported as being in effect on such day (or, if
such day shall not be a Business Day, the next preceding Business Day) by
the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of
the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of
the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately 10:00
A.M., New York time, on such day (or, if such day shall not be a Business
Day, on the next preceding Business Day) by the Administrative Agent from
three New York City negotiable certificate of deposit dealers of
recognized standing selected by it.
"Total Commitment" shall mean the sum of the Total Term Loan
Commitment and the Total Revolving Credit Commitment.
"Total Credit Exposure" shall mean, at any date, the sum of (a) the
Total Revolving Credit Commitment at such date, (b) the Total Term Loan
Commitment at such date and (c) the outstanding principal amount of all
Term Loans at such date.
"Total Revolving Credit Commitment" shall mean the sum of the
Revolving Credit Commitments of all the Lenders.
"Total Term Loan Commitment" shall mean the sum of the Term Loan
Commitments of all the Lenders.
"Transaction Expenses" shall mean any fees or expenses incurred or
paid by the Borrower or any of its Subsidiaries in connection with the
Merger, the financing therefor and
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31
the other transactions contemplated hereby and thereby (including any
premium over par or similar amount paid to holders of Senior Notes in
connection with the Debt Tender Offer).
"Transferee" shall have the meaning provided in Section 13.6(e).
"Type" shall mean (a) as to any Term Loan, its nature as an ABR Loan
or a Eurodollar Term Loan and (b) as to any Revolving Credit Loan, its
nature as an ABR Loan or a Eurodollar Revolving Credit Loan.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the present value of the accrued benefits under the Plan as
of the close of its most recent plan year, determined in accordance with
Statement of Financial Accounting Standards No. 87 as in effect on the
date hereof, based upon the actuarial assumptions that would be used by
the Plan's actuary in a termination of the Plan, exceeds the fair market
value of the assets allocable thereto.
"Unpaid Drawing" shall have the meaning provided in Section 3.4(a).
"Unrestricted Subsidiary" shall mean (a) any Subsidiary of the
Borrower that is formed or acquired after the Closing Date, provided that
at such time (or promptly thereafter) the Borrower designates such
Subsidiary an Unrestricted Subsidiary in a written notice to the
Administrative Agent, (b) any Restricted Subsidiary on the Closing Date
subsequently re-designated as an Unrestricted Subsidiary by the Borrower
in a written notice to the Administrative Agent, provided that such
re-designation shall be deemed to be an investment on the date of such
re-designation in an Unrestricted Subsidiary in an amount equal to the sum
of (i) the net worth of such re-designated Restricted Subsidiary
immediately prior to such re-designation (such net worth to be calculated
without regard to any Guarantee provided by such re-designated Restricted
Subsidiary) and (ii) the aggregate principal amount of any Indebtedness
owed by such re-designated Restricted Subsidiary to the Borrower or any
other Restricted Subsidiary immediately prior to such re-designation, all
calculated, except as set forth in the parenthetical to clause (i), on a
consolidated basis in accordance with GAAP, and (c) each Subsidiary of an
Unrestricted Subsidiary; provided, however, that (i) at the time of any
written re-designation by the Borrower to the Administrative Agent of any
Unrestricted Subsidiary as a Restricted Subsidiary, the Unrestricted
Subsidiary so re-designated shall no longer constitute an Unrestricted
Subsidiary, (ii) no Unrestricted Subsidiary may be re-designated as a
Restricted Subsidiary if a Default or Event of Default would result from
such re-designation and (iii) no Restricted Subsidiary may be
re-designated as an Unrestricted Subsidiary if a Default or Event of
Default would result from such re-designation. On or promptly after the
date of its formation, acquisition or re-designation, as applicable, each
Unrestricted Subsidiary (other than an Unrestricted Subsidiary that is a
Foreign Subsidiary) shall have entered into a tax sharing agreement
containing terms that, in the reasonable judgment of the Administrative
Agent, provide for an appropriate allocation of tax liabilities and
benefits.
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32
"Voting Stock" shall mean, with respect to any Person, shares of
such Person's capital stock having the right to vote for the election of
directors of such Person under ordinary circumstances.
SECTION 2. Amount and Terms of Credit.
2.1 Commitments. (a) Subject to and upon the terms and conditions
herein set forth, each Lender having a Term Loan Commitment severally agrees to
make a loan or loans (each a "Term Loan" and, collectively, the "Term Loans") to
the Borrower, which Term Loans (i) shall be made on the Closing Date and on any
other single date during the Term Loan Availability Period, (ii) may, at the
option of the Borrower, be incurred and maintained as, and/or converted into,
ABR Loans or Eurodollar Term Loans, provided that all Term Loans made by each of
the Lenders pursuant to the same Borrowing shall, unless otherwise specifically
provided herein, consist entirely of Term Loans of the same Type, (iii) may be
repaid in accordance with the provisions hereof, but once repaid, may not be
reborrowed, (iv) shall not exceed for any such Lender the Term Loan Commitment
of such Lender and (v) shall not exceed in the aggregate the Total Term Loan
Commitment. On the Term Loan Maturity Date, all Term Loans shall be repaid in
full.
(b) Subject to and upon the terms and conditions herein set forth,
each Lender having a Revolving Credit Commitment severally agrees to make a loan
or loans (each a "Revolving Credit Loan" and, collectively, the "Revolving
Credit Loans") to the Borrower, which Revolving Credit Loans (i) shall be made
at any time and from time to time on and after the Closing Date and prior to the
Revolving Credit Maturity Date, (ii) may, at the option of the Borrower, be
incurred and maintained as, and/or converted into, ABR Loans or Eurodollar
Revolving Credit Loans, provided that all Revolving Credit Loans made by each of
the Lenders pursuant to the same Borrowing shall, unless otherwise specifically
provided herein, consist entirely of Revolving Credit Loans of the same Type,
(iii) may be repaid and reborrowed in accordance with the provisions hereof,
(iv) shall not exceed for any such Lender at any time outstanding that aggregate
principal amount which, when added to the product of (x) such Lender's Revolving
Credit Commitment Percentage and (y) the sum of (I) the aggregate Letter of
Credit Outstandings at such time and (II) the aggregate principal amount of all
Swingline Loans then outstanding, equals the Revolving Credit Commitment of such
Lender at such time and (v) shall not, after giving effect thereto and to the
application of the proceeds thereof, exceed for all Lenders at any time
outstanding the aggregate principal amount that, when added to the sum of (x)
the Letter of Credit Outstandings at such time and (y) the aggregate principal
amount of all Swingline Loans then outstanding, equals the Total Revolving
Credit Commitment then in effect. On the Revolving Credit Maturity Date, all
Revolving Credit Loans shall be repaid in full.
(c) Subject to and upon the terms and conditions herein set forth,
Chase in its individual capacity agrees, at any time and from time to time on
and after the Closing Date and prior to the Swingline Maturity Date, to make a
loan or loans (each a "Swingline Loan" and, collectively, the "Swingline Loans")
to the Borrower, which Swingline Loans (i) shall be ABR Loans, (ii) shall have
the benefit of the provisions of Section 2.1(d), (iii) shall not exceed at any
time outstanding the Swingline Commitment, (iv) shall not, after giving effect
thereto and to the application of the proceeds thereof, exceed in the aggregate
at any time outstanding the principal amount that, when added to the aggregate
principal amount of all Revolving Credit Loans then outstanding and all Letter
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33
of Credit Outstandings at such time, equals the Total Revolving Credit
Commitment then in effect and (v) may be repaid and reborrowed in accordance
with the provisions hereof. On the Swingline Maturity Date, each outstanding
Swingline Loan shall be repaid in full. Chase shall not make any Swingline Loan
after receiving a written notice from the Borrower or any Lender stating that a
Default or Event of Default exists and is continuing until such time as Chase
shall have received written notice of (i) rescission of all such notices from
the party or parties originally delivering such notice or (ii) the waiver of
such Default or Event of Default in accordance with the provisions of Section
13.1.
(d) On any Business Day, Chase may, in its sole discretion, give
notice to the Lenders that all then-outstanding Swingline Loans shall be funded
with a Borrowing of Revolving Credit Loans, in which case a Borrowing of
Revolving Credit Loans constituting ABR Loans (each such Borrowing, a "Mandatory
Borrowing") shall be made on the immediately succeeding Business Day by all
Lenders pro rata based on each Lender's Revolving Credit Commitment Percentage,
and the proceeds thereof shall be applied directly to Chase to repay Chase for
such outstanding Swingline Loans. Each Lender hereby irrevocably agrees to make
such Revolving Credit Loans upon one Business Day's notice pursuant to each
Mandatory Borrowing in the amount and in the manner specified in the preceding
sentence and on the date specified to it in writing by Chase notwithstanding (i)
that the amount of the Mandatory Borrowing may not comply with the minimum
amount for each Borrowing specified in Section 2.2, (ii) whether any conditions
specified in Section 7 are then satisfied, (iii) whether a Default or an Event
of Default has occurred and is continuing, (iv) the date of such Mandatory
Borrowing or (v) any reduction in the Total Commitment after any such Swingline
Loans were made. In the event that, in the sole judgment of Chase, any Mandatory
Borrowing cannot for any reason be made on the date otherwise required above
(including, without limitation, as a result of the commencement of a proceeding
under the Bankruptcy Code in respect of the Borrower), each Lender hereby agrees
that it shall forthwith purchase from Chase (without recourse or warranty) such
participation of the outstanding Swingline Loans as shall be necessary to cause
the Lenders to share in such Swingline Loans ratably based upon their respective
Revolving Credit Commitment Percentages, provided that all principal and
interest payable on such Swingline Loans shall be for the account of Chase until
the date the respective participation is purchased and, to the extent
attributable to the purchased participation, shall be payable to the Lender
purchasing same from and after such date of purchase.
2.2 Minimum Amount of Each Borrowing; Maximum Number of Borrowings.
The aggregate principal amount of each Borrowing of Term Loans, Revolving Credit
Loans or Swingline Loans shall be in a multiple of $100,000 and shall not be
less than the Minimum Borrowing Amount with respect thereto (except that
Mandatory Borrowings shall be made in the amounts required by Section 2.1(d)).
More than one Borrowing may be incurred on any date, provided that at no time
shall there be outstanding more than 20 Borrowings of Eurodollar Loans under
this Agreement.
2.3 Notice of Borrowing. (a) The Borrower shall give the
Administrative Agent at the Administrative Agent's Office (i) prior to 12:00
Noon (New York time) at least three Business Days' prior written notice (or
telephonic notice promptly confirmed in writing) of the Borrowing of the Term
Loans if all or any of the Term Loans are to be initially Eurodollar Loans and
(ii) prior written notice (or telephonic notice promptly confirmed in writing)
prior to 10:00 A.M. (New York time) on the date of the Borrowing of the Term
Loans if all the Term Loans are to be ABR Loans.
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34
Such notice (together with each notice of a Borrowing of Revolving Credit Loans
pursuant to Section 2.3(b) and each notice of a Borrowing of Swingline Loans
pursuant to Section 2.3(c), a "Notice of Borrowing") shall be irrevocable and
shall specify (i) the aggregate principal amount of the Term Loans to be made,
(ii) the date of the borrowing (which shall be a Business Day and, in the case
of the initial borrowing, shall be the Closing Date) and (iii) whether the Term
Loans shall consist of ABR Loans and/or Eurodollar Term Loans and, if the Term
Loans are to include Eurodollar Term Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall promptly give each Lender
written notice (or telephonic notice promptly confirmed in writing) of the
proposed Borrowing of Term Loans, of such Lender's proportionate share thereof
and of the other matters covered by the related Notice of Borrowing.
(b) Whenever the Borrower desires to incur Revolving Credit Loans
hereunder (other than Mandatory Borrowings or borrowings to repay Unpaid
Drawings), it shall give the Administrative Agent at the Administrative Agent's
Office (i) prior to 12:00 Noon (New York time) at least three Business Days'
prior written notice (or telephonic notice promptly confirmed in writing) of
each Borrowing of Eurodollar Revolving Credit Loans and (ii) prior to 12:00 Noon
(New York time) at least one Business Day's prior written notice (or telephonic
notice promptly confirmed in writing) of each Borrowing of ABR Loans. Each such
Notice of Borrowing, except as otherwise expressly provided in Section 2.10,
shall be irrevocable and shall specify (i) the aggregate principal amount of the
Revolving Credit Loans to be made pursuant to such Borrowing, (ii) the date of
Borrowing (which shall be a Business Day) and (iii) whether the respective
Borrowing shall consist of ABR Loans or Eurodollar Revolving Credit Loans and,
if Eurodollar Revolving Credit Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall promptly give each Lender
written notice (or telephonic notice promptly confirmed in writing) of each
proposed Borrowing of Revolving Credit Loans, of such Lender's proportionate
share thereof and of the other matters covered by the related Notice of
Borrowing.
(c) Whenever the Borrower desires to incur Swingline Loans
hereunder, it shall give the Administrative Agent written notice (or telephonic
notice promptly confirmed in writing) of each Borrowing of Swingline Loans prior
to 1:00 P.M. (New York time) on the date of such Borrowing. Each such notice
shall be irrevocable and shall specify (i) the aggregate principal amount of the
Swingline Loans to be made pursuant to such Borrowing and (ii) the date of
Borrowing (which shall be a Business Day). The Administrative Agent shall
promptly give Chase written notice (or telephonic notice promptly confirmed in
writing) of each proposed Borrowing of Swingline Loans and of the other matters
covered by the related Notice of Borrowing.
(d) Mandatory Borrowings shall be made upon the notice specified in
Section 2.1(d), with the Borrower irrevocably agreeing, by its incurrence of any
Swingline Loan, to the making of Mandatory Borrowings as set forth in such
Section.
(e) Borrowings to reimburse Unpaid Drawings shall be made upon the
notice specified in Section 3.4(c).
(f) Without in any way limiting the obligation of the Borrower to
confirm in writing any notice it may give hereunder by telephone, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice believed by the
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35
Administrative Agent in good faith to be from an Authorized Officer of the
Borrower. In each such case the Borrower hereby waives the right to dispute the
Administrative Agent's record of the terms of any such telephonic notice.
2.4 Disbursement of Funds. (a) No later than 12:00 Noon (New York
time) on the date specified in each Notice of Borrowing (including Mandatory
Borrowings), each Lender will make available its pro rata portion, if any, of
each Borrowing requested to be made on such date in the manner provided below,
provided that all Swingline Loans shall be made available in the full amount
thereof by Chase no later than 2:00 P.M. (New York time) on the date requested.
(b) Each Lender shall make available all amounts it is to fund under
any Borrowing in Dollars and immediately available funds to the Administrative
Agent at the Administrative Agent's Office and the Administrative Agent will
(except in the case of Mandatory Borrowings and Borrowings to repay Unpaid
Drawings) make available to the Borrower by depositing to the Borrower's account
at the Administrative Agent's Office the aggregate of the amounts so made
available in Dollars and the type of funds received. Unless the Administrative
Agent shall have been notified by any Lender prior to the date of any such
Borrowing that such Lender does not intend to make available to the
Administrative Agent its portion of the Borrowing or Borrowings to be made on
such date, the Administrative Agent may assume that such Lender has made such
amount available to the Administrative Agent on such date of Borrowing, and the
Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to the Administrative Agent by such Lender and the Administrative Agent has made
available same to the Borrower, the Administrative Agent shall be entitled to
recover such corresponding amount from such Lender. If such Lender does not pay
such corresponding amount forthwith upon the Administrative Agent's demand
therefor, the Administrative Agent shall promptly notify the Borrower, and the
Borrower shall immediately pay such corresponding amount to the Administrative
Agent. The Administrative Agent shall also be entitled to recover from such
Lender or the Borrower, as the case may be, interest on such corresponding
amount in respect of each day from the date such corresponding amount was made
available by the Administrative Agent to the Borrower to the date such
corresponding amount is recovered by the Administrative Agent, at a rate per
annum equal to (i) if paid by such Lender, the Federal Funds Effective Rate or
(ii) if paid by the Borrower, the then-applicable rate of interest, calculated
in accordance with Section 2.8, for the respective Loans.
(c) Nothing in this Section 2.4 shall be deemed to relieve any
Lender from its obligation to fulfill its commitments hereunder or to prejudice
any rights that the Borrower may have against any Lender as a result of any
default by such Lender hereunder (it being understood, however, that no Lender
shall be responsible for the failure of any other Lender to fulfill its
commitments hereunder).
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower shall
repay to the Administrative Agent, for the benefit of the Lenders, (i) on the
Term Loan Maturity Date, the then-unpaid Term Loans, and (ii) on the Revolving
Credit Maturity Date, the then-unpaid Revolving Credit Loans. The Borrower shall
repay to the Administrative Agent, for the account of Chase, on the Swingline
Maturity Date, the then-unpaid Swingline Loans.
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36
(b) The Borrower shall repay to the Administrative Agent, for the
benefit of the Lenders of Term Loans, on each date set forth below (each a
"Repayment Date"), the principal amount of the Term Loans set forth below
opposite such Repayment Date (each a "Repayment Amount"):
Number of Months From Closing Date Repayment Amount
- ---------------------------------- ----------------
12 $ 500,000
24 500,000
36 500,000
48 500,000
60 500,000
72 500,000
84 500,000
96 500,000
108 86,000,000
To the extent that the aggregate principal amount of Term Loans outstanding on
the last day of the Term Loan Availability Period is less than $90,000,000, the
Repayment Amounts shall automatically be decreased, in the inverse order of
maturity, by the amount of such difference.
(c) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to the
appropriate lending office of such Lender resulting from each Loan made by such
lending office of such Lender from time to time, including the amounts of
principal and interest payable and paid to such lending office of such Lender
from time to time under this Agreement.
(d) The Administrative Agent shall maintain the Register pursuant to
Section 13.6, and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount of each Loan made
hereunder, whether such Loan is a Term Loan, a Revolving Credit Loan or a
Swingline Loan, the Type of each Loan made and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or to
become due and payable from the Borrower to each Lender or Chase hereunder and
(iii) the amount of any sum received by the Agent hereunder from the Borrower
and each Lender's share thereof.
(e) The entries made in the Register and accounts and subaccounts
maintained pursuant to paragraphs (c) and (d) of this Section 2.5 shall, to the
extent permitted by applicable law, be prima facie evidence of the existence and
amounts of the obligations of the Borrower therein recorded; provided, however,
that the failure of any Lender or the Administrative Agent to maintain such
account, such Register or such subaccount, as applicable, or any error therein,
shall not in any manner affect the obligation of the Borrower to repay (with
applicable interest) the Loans made to the Borrower by such Lender in accordance
with the terms of this Agreement.
2.6 Conversions and Continuations. (a) The Borrower shall have the
option on any Business Day to convert all or a portion equal to at least the
Minimum Borrowing Amount of the outstanding principal amount of Term Loans or
Revolving Credit Loans of one Type into a Borrowing or
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37
Borrowings of another Type or to continue the outstanding principal amount of
any Eurodollar Term Loans or Eurodollar Revolving Credit Loans as Eurodollar
Term Loans or Eurodollar Revolving Credit Loans, as the case may be, for an
additional Interest Period, provided that (i) no partial conversion of
Eurodollar Term Loans or Eurodollar Revolving Credit Loans shall reduce the
outstanding principal amount of Eurodollar Term Loans or Eurodollar Revolving
Credit Loans made pursuant to a single Borrowing to less than the Minimum
Borrowing Amount, (ii) ABR Loans may not be converted into Eurodollar Term Loans
or Eurodollar Revolving Credit Loans if a Default or Event of Default is in
existence on the date of the conversion and the Administrative Agent has or the
Required Lenders have determined in its or their sole discretion not to permit
such conversion, (iii) Eurodollar Loans may not be continued as Eurodollar Term
Loans or Eurodollar Revolving Credit Loans for an additional Interest Period if
a Default or Event of Default is in existence on the date of the proposed
continuation and the Administrative Agent has or the Required Lenders have
determined in its or their sole discretion not to permit such continuation and
(iv) Borrowings resulting from conversions pursuant to this Section 2.6 shall be
limited in number as provided in Section 2.2. Each such conversion or
continuation shall be effected by the Borrower by giving the Administrative
Agent at the Administrative Agent's Office prior to 12:00 Noon (New York time)
at least three Business Days' (or one Business Day's notice in the case of a
conversion into ABR Loans) prior written notice (or telephonic notice promptly
confirmed in writing) (each a "Notice of Conversion or Continuation") specifying
the Term Loans or Revolving Credit Loans to be so converted or continued, the
Type of Term Loans or Revolving Credit Loans to be converted or continued into
and, if such Term Loans or Revolving Credit Loans are to be converted into or
continued as Eurodollar Term Loans or Eurodollar Revolving Credit Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent
shall give each Lender notice as promptly as practicable of any such proposed
conversion or continuation affecting any of its Term Loans or Revolving Credit
Loans.
(b) If any Default or Event of Default is in existence at the time of any
proposed continuation of any Eurodollar Term Loans or Eurodollar Revolving
Credit Loans and the Administrative Agent has or the Required Lenders have
determined in its or their sole discretion not to permit such continuation, such
Eurodollar Term Loans or Eurodollar Revolving Credit Loans shall be
automatically converted on the last day of the current Interest Period into ABR
Loans. If upon the expiration of any Interest Period in respect of Eurodollar
Term Loans or Eurodollar Revolving Credit Loans, the Borrower has failed to
elect a new Interest Period to be applicable thereto as provided in paragraph
(a) above, the Borrower shall be deemed to have elected to convert such
Borrowing of Eurodollar Term Loans or Eurodollar Revolving Credit Loans, as the
case may be, into a Borrowing of ABR Loans effective as of the expiration date
of such current Interest Period.
2.7 Pro Rata Borrowings. Each Borrowing of Term Loans or Revolving
Credit Loans under this Agreement shall be granted by the Lenders pro rata on
the basis of their then-applicable Commitments. It is understood that no Lender
shall be responsible for any default by any other Lender in its obligation to
make Loans hereunder and that each Lender shall be obligated to make the Loans
provided to be made by it hereunder, regardless of the failure of any other
Lender to fulfill its commitments hereunder.
2.8 Interest. (a) The unpaid principal amount of each ABR Loan shall
bear interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate
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38
per annum that shall at all times be the Applicable ABR Margin plus the ABR in
effect from time to time.
(b) The unpaid principal amount of each Eurodollar Term Loan or Eurodollar
Revolving Credit Loan shall bear interest from the date of the Borrowing thereof
until maturity thereof (whether by acceleration or otherwise) at a rate per
annum that shall at all times be the Applicable Eurodollar Margin in effect from
time to time plus the relevant Eurodollar Rate.
(c) If all or a portion of (i) the principal amount of any Loan or (ii)
any interest payable thereon shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum that is (x) in the case of overdue principal, the rate that
would otherwise be applicable thereto plus 2% or (y) in the case of any overdue
interest, to the extent permitted by applicable law, the rate described in
Section 2.8(a) plus 2% from and including the date of such non-payment to but
excluding the date on which such amount is paid in full (after as well as before
judgment).
(d) Interest on each Loan shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each ABR Loan, quarterly in arrears on the last day of
each March, June, September and December, (ii) in respect of each Eurodollar
Term Loan or Eurodollar Revolving Credit Loan, on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess of
three months, on each date occurring at three-month intervals after the first
day of such Interest Period, (iii) in respect of each Loan (except, in the case
of prepayments, any ABR Loan), on any prepayment (on the amount prepaid), at
maturity (whether by acceleration or otherwise) and, after such maturity, on
demand.
(e) All computations of interest hereunder shall be made in accordance
with Section 5.5.
(f) The Administrative Agent, upon determining the interest rate for any
Borrowing of Eurodollar Loans, shall promptly notify the Borrower and the
relevant Lenders thereof. Each such determination shall, absent clearly
demonstrable error, be final and conclusive and binding on all parties hereto.
2.9 Interest Periods. At the time the Borrower gives a Notice of
Borrowing or Notice of Conversion or Continuation in respect of the making of,
or conversion into or continuation as, a Borrowing of Eurodollar Term Loans or
Eurodollar Revolving Credit Loans (in the case of the initial Interest Period
applicable thereto) or prior to 10:00 A.M. (New York time) on the third Business
Day prior to the expiration of an Interest Period applicable to a Borrowing of
Eurodollar Term Loans or Eurodollar Revolving Credit Loans, the Borrower shall
have the right to elect by giving the Administrative Agent written notice (or
telephonic notice promptly confirmed in writing) the Interest Period applicable
to such Borrowing, which Interest Period shall, at the option of the Borrower,
be a one, two, three, six or (in the case of Revolving Credit Loans, if
available to all the
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39
Lenders making such loans as determined by such Lenders in good faith based on
prevailing market conditions) a nine or twelve month period. Notwithstanding
anything to the contrary contained above:
(a) the initial Interest Period for any Borrowing of Eurodollar Term
Loans or Eurodollar Revolving Credit Loans shall commence on the date of
such Borrowing (including the date of any conversion from a Borrowing of
ABR Loans) and each Interest Period occurring thereafter in respect of
such Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(b) if any Interest Period relating to a Borrowing of Eurodollar
Term Loans or Eurodollar Revolving Credit Loans begins on the last
Business Day of a calendar month or begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day
of the calendar month at the end of such Interest Period;
(c) if any Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period in respect
of a Eurodollar Term Loan or Eurodollar Revolving Credit Loan would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day; and
(d) the Borrower shall not be entitled to elect any Interest Period
in respect of any Eurodollar Term Loan or Eurodollar Revolving Credit Loan
if such Interest Period would extend beyond the applicable Maturity Date
of such Loan.
2.10 Increased Costs, Illegality, etc. (a) In the event that (x) in the
case of clause (i) below, the Administrative Agent or (y) in the case of clauses
(ii) and (iii) below, any Lender shall have reasonably determined (which
determination shall, absent clearly demonstrable error, be final and conclusive
and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any Interest
Period that, by reason of any changes arising on or after the Closing Date
affecting the interbank Eurodollar market, adequate and fair means do not
exist for ascertaining the applicable interest rate on the basis provided
for in the definition of Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loans (other than any such increase or reduction
attributable to taxes) because of (x) any change since the date hereof in
any applicable law, governmental rule, regulation, guideline or order (or
in the interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation, guideline or
order), such as, for example, but not limited to, a change in official
reserve requirements, and/or (y) other circumstances affecting the
interbank Eurodollar market or the position of such Lender in such market;
or
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40
(iii) at any time, that the making or continuance of any Eurodollar
Loan has become unlawful by compliance by such Lender in good faith with
any law, governmental rule, regulation, guideline or order (or would
conflict with any such governmental rule, regulation, guideline or order
not having the force of law even though the failure to comply therewith
would not be unlawful), or has become impracticable as a result of a
contingency occurring after the date hereof that materially and adversely
affects the interbank Eurodollar market;
then, and in any such event, such Lender (or the Administrative Agent, in the
case of clause (i) above) shall within a reasonable time thereafter give notice
(if by telephone confirmed in writing) to the Borrower and to the Administrative
Agent of such determination (which notice the Administrative Agent shall
promptly transmit to each of the other Lenders). Thereafter (x) in the case of
clause (i) above, Eurodollar Term Loans and Eurodollar Revolving Credit Loans
shall no longer be available until such time as the Administrative Agent
notifies the Borrower and the Lenders that the circumstances giving rise to such
notice by the Administrative Agent no longer exist (which notice the
Administrative Agent agrees to give at such time when such circumstances no
longer exist), and any Notice of Borrowing or Notice of Conversion given by the
Borrower with respect to Eurodollar Term Loans or Eurodollar Revolving Credit
Loans that have not yet been incurred shall be deemed rescinded by the Borrower,
(y) in the case of clause (ii) above, the Borrower shall pay to such Lender,
promptly after receipt of written demand therefor, such additional amounts (in
the form of an increased rate of, or a different method of calculating, interest
or otherwise as such Lender in its reasonable discretion shall determine) as
shall be required to compensate such Lender for such increased costs or
reductions in amounts receivable hereunder (it being agreed that a written
notice as to the additional amounts owed to such Lender, showing in reasonable
detail the basis for the calculation thereof, submitted to the Borrower by such
Lender shall, absent clearly demonstrable error, be final and conclusive and
binding upon all parties hereto) and (z) in the case of clause (iii) above, the
Borrower shall take one of the actions specified in Section 2.10(b) as promptly
as possible and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the circumstances
described in Section 2.10(a)(ii) or (iii), the Borrower may (and in the case of
a Eurodollar Loan affected pursuant to Section 2.10(a)(iii) shall) either (i) if
the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel
said Borrowing by giving the Administrative Agent telephonic notice (confirmed
promptly in writing) thereof on the same date that the Borrower was notified by
a Lender pursuant to Section 2.10(a)(ii) or (iii) or (ii) if the affected
Eurodollar Loan is then outstanding, upon at least three Business Days' notice
to the Administrative Agent, require the affected Lender to convert each such
Eurodollar Revolving Credit Loan and Eurodollar Term Loan into an ABR Loan,
provided that if more than one Lender is affected at any time, then all affected
Lenders must be treated in the same manner pursuant to this Section 2.10(b).
(c) If, after the date hereof, the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority, the
National Association of Insurance Commissioners, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by a Lender or its parent with any request or directive made or adopted after
the date hereof regarding capital adequacy (whether or not having the force of
law) of any such authority, association, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such
<PAGE>
41
Lender's or its parent's capital or assets as a consequence of such Lender's
commitments or obligations hereunder to a level below that which such Lender or
its parent could have achieved but for such adoption, effectiveness, change or
compliance (taking into consideration such Lender's or its parent's policies
with respect to capital adequacy), then from time to time, promptly after demand
by such Lender (with a copy to the Administrative Agent), the Borrower shall pay
to such Lender such additional amount or amounts as will compensate such Lender
or its parent for such reduction, it being understood and agreed, however, that
a Lender shall not be entitled to such compensation as a result of such Lender's
compliance with, or pursuant to any request or directive to comply with, any
such law, rule or regulation as in effect on the date hereof. Each Lender, upon
determining in good faith that any additional amounts will be payable pursuant
to this Section 2.10(c), will give prompt written notice thereof to the
Borrower, which notice shall set forth in reasonable detail the basis of the
calculation of such additional amounts, although the failure to give any such
notice shall not, subject to Section 2.13, release or diminish any of the
Borrower's obligations to pay additional amounts pursuant to this Section
2.10(c) upon receipt of such notice.
2.11 Compensation. If (a) any payment of principal of any Eurodollar
Term Loan or Eurodollar Revolving Credit Loan is made by the Borrower to or for
the account of a Lender other than on the last day of the Interest Period for
such Eurodollar Loan as a result of a payment or conversion pursuant to Section
2.5, 2.6, 2.10, 5.1, 5.2 or 13.7, as a result of acceleration of the maturity of
the Loans pursuant to Section 11 or for any other reason, (b) if any Borrowing
of Eurodollar Term Loans or Eurodollar Revolving Credit Loans is not made as a
result of a withdrawn Notice of Borrowing, (c) if any ABR Loan is not converted
into a Eurodollar Term Loan or Eurodollar Revolving Credit Loan as a result of a
withdrawn Notice of Conversion or Continuation, (d) if any Eurodollar Loan is
not continued as a Eurodollar Term Loan or Eurodollar Revolving Credit Loan as a
result of a withdrawn Notice of Conversion or Continuation or (e) if any
prepayment of principal of any Eurodollar Term Loan or Eurodollar Revolving
Credit Loan is not made as a result of a withdrawn notice of prepayment pursuant
to Section 5.1 or 5.2, the Borrower shall, after receipt of a written request by
such Lender (which request shall set forth in reasonable detail the basis for
requesting such amount), pay to the Administrative Agent for the account of such
Lender any amounts required to compensate such Lender for any additional losses,
costs or expenses that such Lender may reasonably incur as a result of such
payment, failure to convert, failure to continue or failure to prepay,
including, without limitation, any loss, cost or expense (excluding loss of
anticipated profits) actually incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender to fund or
maintain such Eurodollar Loan.
2.12 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.10(a)(ii),
2.10(a)(iii), 2.10(b), 3.5 or 5.4 with respect to such Lender, it will, if
requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender) to designate another lending office for any Loans
affected by such event, provided that such designation is made on such terms
that such Lender and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of any such Section. Nothing in this Section 2.12 shall
affect or postpone any of the obligations of the Borrower or the right of any
Lender provided in Section 2.10, 3.5 or 5.4.
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42
2.13 Notice of Certain Costs. Notwithstanding anything in this
Agreement to the contrary, to the extent any notice required by Section 2.10,
2.11, 3.5 or 5.4 is given by any Lender more than 180 days after such Lender has
knowledge (or should have had knowledge) of the occurrence of the event giving
rise to the additional cost, reduction in amounts, loss, tax or other additional
amounts described in such Sections, such Lender shall not be entitled to
compensation under Section 2.10, 2.11, 3.5 or 5.4, as the case may be, for any
such amounts incurred or accruing prior to the giving of such notice to the
Borrower.
SECTION 3. Letters of Credit.
3.1 Letters of Credit. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower, at any time and from time to time on
or after the Closing Date and prior to the L/C Maturity Date, may request that
the Letter of Credit Issuer issue, for the account of the Borrower, a standby
letter of credit or letters of credit in such form as may be approved by the
Letter of Credit Issuer in its reasonable discretion.
(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued
the Stated Amount of which, when added to the Letter of Credit Outstandings at
such time, would exceed the Letter of Credit Commitment then in effect; (ii) no
Letter of Credit shall be issued the Stated Amount of which, when added to the
sum of (x) the Letter of Credit Outstandings at such time and (y) the aggregate
principal of all Revolving Credit Loans and Swingline Loans then outstanding,
would exceed the Total Revolving Credit Commitment then in effect; (iii) each
Letter of Credit shall have an expiry date occurring no later than one year
after the date of issuance thereof, unless otherwise agreed upon by the
Administrative Agent and the Letter of Credit Issuer, provided that in no event
shall such expiry date occur later than the L/C Maturity Date; (iv) each Letter
of Credit shall be denominated in Dollars; and (v) no Letter of Credit shall be
issued by the Letter of Credit Issuer after it has received a written notice
from the Borrower or any Lender stating that a Default or Event of Default has
occurred and is continuing until such time as the Letter of Credit Issuer shall
have received a written notice of (x) rescission of such notice from the party
or parties originally delivering such notice or (y) the waiver of such Default
or Event of Default in accordance with the provisions of Section 13.1.
(c) Upon at least one Business Day's prior written notice (or telephonic
notice promptly confirmed in writing) to the Administrative Agent and the Letter
of Credit Issuer (which notice the Administrative Agent shall promptly transmit
to each of the Lenders), the Borrower shall have the right, on any day,
permanently to terminate or reduce the Letter of Credit Commitment in whole or
in part, provided that, after giving effect to such termination or reduction,
the Letter of Credit Outstandings shall not exceed the Letter of Credit
Commitment.
3.2 Letter of Credit Requests. (a) Whenever the Borrower desires
that a Letter of Credit be issued for its account, it shall give the
Administrative Agent and the Letter of Credit Issuer at least five (or such
lesser number as may be agreed upon by the Administrative Agent and the Letter
of Credit Issuer) Business Days' written notice thereof. Each notice shall be
executed by the Borrower and shall be in the form of Exhibit D (each a "Letter
of Credit Request"). The Administrative Agent shall promptly transmit copies of
each Letter of Credit Request to each Lender.
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43
(b) The making of each Letter of Credit Request shall be deemed to be a
representation and warranty by the Borrower that the Letter of Credit may be
issued in accordance with, and will not violate the requirements of, Section
3.1(b).
3.3 Letter of Credit Participations. (a) Immediately upon the
issuance by the Letter of Credit Issuer of any Letter of Credit, the Letter of
Credit Issuer shall be deemed to have sold and transferred to each other Lender
(each such other Lender, in its capacity under this Section 3.3, an "L/C
Participant"), and each such L/C Participant shall be deemed irrevocably and
unconditionally to have purchased and received from the Letter of Credit Issuer,
without recourse or warranty, an undivided interest and participation (each an
"L/C Participation"), to the extent of such L/C Participant's Revolving Credit
Commitment Percentage, in such Letter of Credit, each substitute letter of
credit, each drawing made thereunder and the obligations of the Borrower under
this Agreement with respect thereto, and any security therefor or guaranty
pertaining thereto (although Letter of Credit Fees will be paid directly to the
Administrative Agent for the ratable account of the L/C Participants as provided
in Section 4.1(b) and the L/C Participants shall have no right to receive any
portion of any Fronting Fees).
(b) In determining whether to pay under any Letter of Credit, the Letter
of Credit Issuer shall have no obligation relative to the L/C Participants other
than to confirm that any documents required to be delivered under such Letter of
Credit have been delivered and that they appear to comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken
by the Letter of Credit Issuer under or in connection with any Letter of Credit
issued by it, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for the Letter of Credit Issuer any resulting
liability.
(c) In the event that the Letter of Credit Issuer makes any payment under
any Letter of Credit issued by it and the Borrower shall not have repaid such
amount in full to the Letter of Credit Issuer pursuant to Section 3.4(a), the
Letter of Credit Issuer shall promptly notify the Administrative Agent and each
L/C Participant of such failure, and each L/C Participant shall promptly and
unconditionally pay to the Administrative Agent, for the account of the Letter
of Credit Issuer, the amount of such L/C Participant's Revolving Credit
Commitment Percentage of such unreimbursed payment in Dollars and in same day
funds; provided, however, that no L/C Participant shall be obligated to pay to
the Administrative Agent for the account of the Letter of Credit Issuer its
Revolving Credit Commitment Percentage of such unreimbursed amount arising from
any wrongful payment made by the Letter of Credit Issuer under a Letter of
Credit as a result of acts or omissions constituting willful misconduct or gross
negligence on the part of the Letter of Credit Issuer. If the Letter of Credit
Issuer so notifies, prior to 11:00 A.M. (New York time) on any Business Day, any
L/C Participant required to fund a payment under a Letter of Credit, such L/C
Participant shall make available to the Administrative Agent for the account of
the Letter of Credit Issuer such L/C Participant's Revolving Credit Commitment
Percentage of the amount of such payment on such Business Day in same day funds.
If and to the extent such L/C Participant shall not have so made its Revolving
Credit Commitment Percentage of the amount of such payment available to the
Administrative Agent for the account of the Letter of Credit Issuer, such L/C
Participant agrees to pay to the Administrative Agent for the account of the
Letter of Credit Issuer, forthwith on demand, such amount, together with
interest thereon for each day from such date until the date such amount is paid
to the Administrative Agent for the account of the Letter of Credit Issuer at
the Federal Funds
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44
Effective Rate. The failure of any L/C Participant to make available to the
Administrative Agent for the account of the Letter of Credit Issuer its
Revolving Credit Commitment Percentage of any payment under any Letter of Credit
shall not relieve any other L/C Participant of its obligation hereunder to make
available to the Administrative Agent for the account of the Letter of Credit
Issuer its Revolving Credit Commitment Percentage of any payment under such
Letter of Credit on the date required, as specified above, but no L/C
Participant shall be responsible for the failure of any other L/C Participant to
make available to the Administrative Agent such other L/C Participant's
Revolving Credit Commitment Percentage of any such payment.
(d) Whenever the Letter of Credit Issuer receives a payment in respect of
an unpaid reimbursement obligation as to which the Administrative Agent has
received for the account of the Letter of Credit Issuer any payments from the
L/C Participants pursuant to the preceding clause (c) above, the Letter of
Credit Issuer shall pay to the Administrative Agent and the Administrative Agent
shall promptly pay to each L/C Participant that has paid its Revolving Credit
Commitment Percentage of such reimbursement obligation, in Dollars and in same
day funds, an amount equal to such L/C Participant's share (based upon the
proportionate aggregate amount originally funded by such L/C Participant to the
aggregate amount funded by all L/C Participants) of the principal amount of such
reimbursement obligation and interest thereon accruing after the purchase of the
respective L/C Participations.
(e) The obligations of the L/C Participants to make payments to the
Administrative Agent for the account of the Letter of Credit Issuer with respect
to Letters of Credit shall be irrevocable and not subject to counterclaim,
set-off or other defense or any other qualification or exception whatsoever and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or any
of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right
that the Borrower may have at any time against a beneficiary named in a
Letter of Credit, any transferee of any Letter of Credit (or any Person
for whom any such transferee may be acting), the Administrative Agent, the
Letter of Credit Issuer, any Lender or other Person, whether in connection
with this Agreement, any Letter of Credit, the transactions contemplated
herein or any unrelated transactions (including any underlying transaction
between the Borrower and the beneficiary named in any such Letter of
Credit);
(iii) any draft, certificate or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default;
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45
provided, however, that no L/C Participant shall be obligated to pay to the
Administrative Agent for the account of the Letter of Credit Issuer its
Revolving Credit Commitment Percentage of any unreimbursed amount arising from
any wrongful payment made by the Letter of Credit Issuer under a Letter of
Credit as a result of acts or omissions constituting willful misconduct or gross
negligence on the part of the Letter of Credit Issuer.
3.4 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
hereby agrees to reimburse the Letter of Credit Issuer, by making payment to the
Administrative Agent in Dollars in immediately available funds at the
Administrative Agent's Office, for any payment or disbursement made by the
Letter of Credit Issuer under any Letter of Credit (each such amount so paid
until reimbursed, an "Unpaid Drawing") immediately after, and in any event on
the date of, such payment, with interest on the amount so paid or disbursed by
the Letter of Credit Issuer, to the extent not reimbursed prior to 5:00 P.M.
(New York time) on the date of such payment or disbursement, from and including
the date paid or disbursed to but excluding the date the Letter of Credit Issuer
is reimbursed therefor, at a rate per annum that shall at all times be the
Applicable ABR Margin plus the ABR as in effect from time to time, provided
that, notwithstanding anything contained in this Agreement to the contrary, (i)
unless the Borrower shall have notified the Administrative Agent and the Letter
of Credit Issuer prior to 10:00 A.M. on the date of such drawing that the
Borrower intends to reimburse the Letter of Credit Issuer for the amount of such
drawing with funds other than the proceeds of Loans, the Borrower shall be
deemed to have given a Notice of Borrowing to the Administrative Agent
requesting that the Lenders make Revolving Credit Loans (which shall initially
be ABR Loans) on the date on which such drawing is honored in an amount equal to
the amount of such drawing and (ii) each Lender shall, on such date, make
Revolving Credit Loans in an amount equal to such Lender's pro rata portion of
such Borrowing in accordance with the provisions of Section 2.4.
(b) The Borrower's obligations under this Section 3.4 to reimburse the
Letter of Credit Issuer with respect to Unpaid Drawings (including, in each
case, interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
that the Borrower or any other Person may have or have had against the Letter of
Credit Issuer, the Administrative Agent or any Lender (including in its capacity
as an L/C Participant), including, without limitation, any defense based upon
the failure of any drawing under a Letter of Credit (each a "Drawing") to
conform to the terms of the Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of such Drawing, provided that
the Borrower shall not be obligated to reimburse the Letter of Credit Issuer for
any wrongful payment made by the Letter of Credit Issuer under the Letter of
Credit issued by it as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Letter of Credit Issuer.
(c) Each payment by the Letter of Credit Issuer under any Letter of Credit
shall constitute a request by the Borrower for an ABR Revolving Credit Loan in
the amount of the Unpaid Drawing in respect of such Letter of Credit. The Letter
of Credit Issuer shall notify the Borrower and the Administrative Agent, by
10:00 A.M. (New York time) on any Business Day on which the Letter of Credit
Issuer intends to honor a drawing under a Letter of Credit, of (i) the Letter of
Credit Issuer's intention to honor such drawing and (ii) the amount of such
drawing. Unless otherwise instructed by the Borrower by 10:30 A.M. (New York
time) on such Business Day, the Administrative Agent shall notify each Lender of
such drawing and the amount of its Revolving Credit Loan to be made in
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46
respect thereof, and each Lender shall be irrevocably obligated to make an ABR
Revolving Credit Loan to the Borrower in the amount of its Revolving Credit
Commitment Percentage of the applicable Unpaid Drawing by 12:00 noon (New York
time) on such Business Day by making the amount of such Revolving Credit Loan
available to the Administrative Agent at the Administrative Agent's Office. Such
Revolving Credit Loans shall be made without regard to the Minimum Borrowing
Amount. The Administrative Agent shall use the proceeds of such Revolving Credit
Loans solely for purpose of reimbursing the Letter of Credit Issuer for the
related Unpaid Drawing.
3.5 Increased Costs. If after the date hereof, the adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or actual compliance by the Letter of Credit Issuer or any L/C
Participant with any request or directive made or adopted after the date hereof
(whether or not having the force of law), by any such authority, central bank or
comparable agency shall either (a) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against letters of
credit issued by the Letter of Credit Issuer, or any L/C Participant's L/C
Participation therein, or (b) impose on the Letter of Credit Issuer or any L/C
Participant any other conditions affecting its obligations under this Agreement
in respect of Letters of Credit or L/C Participations therein or any Letter of
Credit or such L/C Participant's L/C Participation therein; and the result of
any of the foregoing is to increase the cost to the Letter of Credit Issuer or
such L/C Participant of issuing, maintaining or participating in any Letter of
Credit, or to reduce the amount of any sum received or receivable by the Letter
of Credit Issuer or such L/C Participant hereunder (other than any such increase
or reduction attributable to taxes) in respect of Letters of Credit or L/C
Participations therein, then, promptly after receipt of written demand to the
Borrower by the Letter of Credit Issuer or such L/C Participant, as the case may
be (a copy of which notice shall be sent by the Letter of Credit Issuer or such
L/C Participant to the Administrative Agent), the Borrower shall pay to the
Letter of Credit Issuer or such L/C Participant such additional amount or
amounts as will compensate the Letter of Credit Issuer or such L/C Participant
for such increased cost or reduction, it being understood and agreed, however,
that the Letter of Credit Issuer or a L/C Participant shall not be entitled to
such compensation as a result of such Person's compliance with, or pursuant to
any request or directive to comply with, any such law, rule or regulation as in
effect on the date hereof. A certificate submitted to the Borrower by the Letter
of Credit Issuer or a L/C Participant, as the case may be (a copy of which
certificate shall be sent by the Letter of Credit Issuer or such L/C Participant
to the Administrative Agent), setting forth in reasonable detail the basis for
the determination of such additional amount or amounts necessary to compensate
the Letter of Credit Issuer or such L/C Participant as aforesaid shall be
conclusive and binding on the Borrower absent clearly demonstrable error.
3.6 Successor Letter of Credit Issuer. The Letter of Credit Issuer
may resign as Letter of Credit Issuer upon 60 days' prior written notice to the
Administrative Agent, the Lenders and the Borrower. If the Letter of Credit
Issuer shall resign as Letter of Credit Issuer under this Agreement, then the
Borrower shall appoint from among the Lenders with Revolving Credit Commitments
a successor issuer of Letters of Credit, whereupon such successor issuer shall
succeed to the rights, powers and duties of the Letter of Credit Issuer, and the
term "Letter of Credit Issuer" shall mean such successor issuer effective upon
such appointment. At the time such resignation shall become effective, the
Borrower shall pay to the resigning Letter of Credit Issuer all accrued and
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47
unpaid fees pursuant to Sections 4.1(c) and (d). The acceptance of any
appointment as the Letter of Credit Issuer hereunder by a successor Lender shall
be evidenced by an agreement entered into by such successor, in a form
satisfactory to the Borrower and the Administrative Agent and, from and after
the effective date of such agreement, such successor Lender shall have all the
rights and obligations of the previous Letter of Credit Issuer under this
Agreement and the other Credit Documents. After the resignation of the Letter of
Credit Issuer hereunder, the resigning Letter of Credit Issuer shall remain a
party hereto and shall continue to have all the rights and obligations of a
Letter of Credit Issuer under this Agreement and the other Loan Documents with
respect to Letters of Credit issued by it prior to such resignation, but shall
not be required to issue additional Letters of Credit. After any retiring Letter
of Credit Issuer's resignation as Letter of Credit Issuer, the provisions of
this Agreement relating to the Letter of Credit Issuer shall inure to its
benefit as to any actions taken or omitted to be taken by it (a) while it was
Letter of Credit Issuer under this Agreement or (b) at any time with respect to
Letters of Credit issued by such Letter of Credit Issuer.
SECTION 4. Fees; Commitments.
4.1 Fees. (a) The Borrower agrees to pay to the Administrative
Agent, for the account of each Lender having a Term Loan Commitment or a
Revolving Credit Commitment (in each case pro rata according to the respective
Commitments of all such Lenders), a commitment fee for each day (i) in the case
of the Term Loan Commitments, from and including the Closing Date to but
excluding the last day of the Term Loan Availability Period and (ii) in the case
of the Revolving Credit Commitments, from and including the Closing Date to but
excluding the Final Date. Such commitment fee shall be payable (i) in the case
of the Term Loan Commitments, in arrears (x) on the last day of March 1997 (for
the period ended on such day) and (y) on the last day of the Term Loan
Availability Period (for the period ended on such day for which no payment has
been received pursuant to clause (i)(x) above) and (ii) in the case of the
Revolving Credit Commitments, in arrears (x) on the last day of each March,
June, September and December (for the three-month period (or portion thereof)
ended on the such day) and (y) on the Final Date (for the period ended on such
date for which no payment has been received pursuant to clause (ii)(x) above),
and shall be computed for each day during such period at a rate per annum equal
to the Commitment Fee Rate in effect on such day on the Available Commitments in
effect on such day. Notwithstanding the foregoing, the Borrower shall not be
obligated to pay any amounts to any Defaulting Lender pursuant to this Section
4.1.
(b) The Borrower agrees to pay to the Administrative Agent for the account
of the Lenders pro rata on the basis of their respective Letter of Credit
Exposure, a fee in respect of each Letter of Credit (the "Letter of Credit
Fee"), for the period from and including the date of issuance of such Letter of
Credit to but not including the termination date of such Letter of Credit
computed at the per annum rate for each day equal to the Applicable Eurodollar
Margin for Revolving Credit Loans minus 0.125% per annum on the average daily
Stated Amount of such Letter of Credit. Such Letter of Credit Fees shall be due
and payable quarterly in arrears on the last day of each March, June, September
and December and on the date upon which the Total Revolving Credit Commitment
terminates and the Letter of Credit Outstandings shall have been reduced to
zero.
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48
(c) The Borrower agrees to pay to the Administrative Agent for the account
of the Letter of Credit Issuer a fee in respect of each Letter of Credit issued
by it (the "Fronting Fee"), for the period from and including the date of
issuance of such Letter of Credit to but not including the termination date of
such Letter of Credit, computed at the rate for each day equal to 0.125% per
annum on the average daily Stated Amount of such Letter of Credit. Such Fronting
Fees shall be due and payable quarterly in arrears on the last day of each
March, June, September and December and on the date upon which the Total
Revolving Credit Commitment terminates and the Letter of Credit Outstandings
shall have been reduced to zero.
(d) The Borrower agrees to pay directly to the Letter of Credit Issuer
upon each issuance of, drawing under, and/or amendment of, a Letter of Credit
issued by it such amount as the Letter of Credit Issuer and the Borrower shall
have agreed upon for issuances of, drawings under or amendments of, letters of
credit issued by it.
(e) The Borrower agrees to pay to the Administrative Agent, on the Closing
Date, the fees in the amounts and on the dates previously agreed to in writing
by the Borrower and the Administrative Agent. The Administrative Agent agrees to
pay to each Lender, for its own account on the Closing Date, the fees in the
amounts and on the dates previously agreed to in writing by the Administrative
Agent and such Lender.
4.2 Voluntary Reduction of Revolving Credit Commitments. Upon at
least one Business Day's prior written notice (or telephonic notice promptly
confirmed in writing) to the Administrative Agent at the Administrative Agent's
Office (which notice the Administrative Agent shall promptly transmit to each of
the Lenders), the Borrower shall have the right, without premium or penalty, on
any day, permanently to terminate or reduce the Revolving Credit Commitments in
whole or in part, provided that (a) any such reduction shall apply
proportionately and permanently to reduce the Revolving Credit Commitment of
each of the Lenders, (b) any partial reduction pursuant to this Section 4.2
shall be in the amount of at least $1,000,000 and (c) after giving effect to
such termination or reduction and to any prepayments of the Loans made on the
date thereof in accordance with this Agreement, the sum of (i) the aggregate
outstanding principal amount of the Revolving Credit Loans and the Swingline
Loans and (ii) the Letter of Credit Outstandings shall not exceed the Total
Revolving Credit Commitment.
4.3 Mandatory Termination of Commitments. (a) The Total Term Loan
Commitment shall be reduced at 5:00 P.M. (New York time) on the Closing Date by
an amount equal to the aggregate principal amount of Term Loans borrowed on the
Closing Date. The Total Term Loan Commitment shall terminate upon the earlier of
(i) any borrowing of Term Loans following the Closing Date and (ii) at 5:00 P.M.
(New York time) on the last day of the Term Loan Availability Period.
(b) The Total Revolving Credit Commitment shall terminate at 5:00 P.M.
(New York time) on the Revolving Credit Maturity Date.
(c) The Swingline Commitment shall terminate at 5:00 P.M. (New York time)
on the Swingline Maturity Date.
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49
SECTION 5. Payments.
5.1 Voluntary Prepayments. The Borrower shall have the right to
prepay Term Loans, Revolving Credit Loans and Swingline Loans, without premium
or penalty, in whole or in part from time to time on the following terms and
conditions: (a) the Borrower shall give the Administrative Agent at the
Administrative Agent's Office written notice (or telephonic notice promptly
confirmed in writing) of its intent to make such prepayment, the amount of such
prepayment and (in the case of Eurodollar Term Loans and Eurodollar Revolving
Credit Loans) the specific Borrowing(s) pursuant to which made, which notice
shall be given by the Borrower no later than (i) in the case of Term Loans or
Revolving Credit Loans, 10:00 A.M. (New York time) one Business Day prior to, or
(ii) in the case of Swingline Loans, 10:00 A.M. (New York time) on, the date of
such prepayment and shall promptly be transmitted by the Administrative Agent to
each of the Lenders or Chase, as the case may be; (b) each partial prepayment of
any Borrowing of Term Loans or Revolving Credit Loans shall be in a multiple of
$100,000 and in an aggregate principal amount of at least $1,000,000 and each
partial prepayment of Swingline Loans shall be in a multiple of $100,000 and in
an aggregate principal amount of at least $100,000, provided that no partial
prepayment of Eurodollar Term Loans or Eurodollar Revolving Credit Loans made
pursuant to a single Borrowing shall reduce the outstanding Eurodollar Term
Loans or Eurodollar Revolving Credit Loans made pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount for Eurodollar Term Loans or
Eurodollar Revolving Credit Loans; and (c) any prepayment of Eurodollar Term
Loans or Eurodollar Revolving Credit Loans pursuant to this Section 5.1 on any
day other than the last day of an Interest Period applicable thereto shall be
subject to compliance by the Borrower with the applicable provisions of Section
2.11. Each prepayment of Term Loans pursuant to this Section 5.1 shall be
applied to reduce the Repayment Amounts in such order as the Borrower may
determine. At the Borrower's election in connection with any prepayment pursuant
to this Section 5.1, such prepayment shall not be applied to any Term Loan or
Revolving Credit Loan of a Defaulting Lender.
5.2 Mandatory Prepayments. (a) Term Loan Prepayments. (i) On each
occasion that a Prepayment Event occurs, the Borrower shall, within five
Business Days after the occurrence of such Prepayment Event, offer to prepay, in
accordance with paragraph (c) below, the principal amount of Term Loans in an
amount equal to 100% of the Net Cash Proceeds from such Prepayment Event;
provided, however, that the Borrower may elect to not so apply to the prepayment
of Term Loans up to $50,000,000 of Net Cash Proceeds from Real Estate Financing
Prepayment Events in the aggregate during the term of this Agreement.
(ii) Not later than the date that is six months after the last day of any
fiscal year (commencing with the fiscal year ending May 30, 1997), the Borrower
shall offer to prepay, in accordance with paragraph (c) below, the principal of
Term Loans in an amount equal to (x) 50% of Excess Cash Flow for such fiscal
year (or, in the case of the fiscal year ending May 30, 1997, for the period
from and including the Closing Date to and including May 30, 1997) minus (y) the
amount of any such Excess Cash Flow that the Borrower has, prior to such date,
reinvested in the business of the Borrower or any of its Subsidiaries (subject
to Section 9.14).
(b) Aggregate Revolving Credit Outstandings. If on any date the sum of the
outstanding principal amount of the Revolving Credit Loans and Swingline Loans
and the aggregate amount of
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50
Letter of Credit Outstandings (all the foregoing, collectively, the "Aggregate
Revolving Credit Outstandings") exceeds the Total Revolving Credit Commitment as
then in effect, the Borrower shall forthwith repay on such date the principal
amount of Swingline Loans and, after all Swingline Loans have been paid in full,
Revolving Credit Loans, in an amount equal to such excess. If, after giving
effect to the prepayment of all outstanding Swingline Loans and Revolving Credit
Loans, the Aggregate Revolving Credit Outstandings exceed the Total Revolving
Credit Commitment then in effect, the Borrower shall pay to the Administrative
Agent an amount in cash equal to such excess and the Administrative Agent shall
hold such payment for the benefit of the Lenders as security for the obligations
of the Borrower hereunder (including, without limitation, obligations in respect
of Letter of Credit Outstandings) pursuant to a cash collateral agreement to be
entered into in form and substance satisfactory to the Administrative Agent
(which shall permit certain investments in Permitted Investments satisfactory to
the Administrative Agent, until the proceeds are applied to the secured
obligations).
(c) Application to Repayment Amounts. Each prepayment of Term Loans
required by Section 5.2(a) shall be applied to reduce the Repayment Amounts in
such order as the Borrower may determine. With respect to each such prepayment,
(i) the Borrower will, not later than the date specified in Section 5.2(a) for
offering to make such prepayment, give the Administrative Agent telephonic
notice (promptly confirmed in writing) requesting that the Administrative Agent
provide notice of such prepayment to each Term Loan Lender, (ii) each Term Loan
Lender will have the right to refuse any such prepayment by giving written
notice of such refusal to the Borrower within fifteen Business Days after such
Lender's receipt of notice from the Administrative Agent of such prepayment (and
the Borrower shall not prepay any such Term Loans until the date that is
specified in the immediately following clause), (iii) the Borrower will make all
such prepayments not so refused upon the earlier of (x) such fifteenth Business
Day and (y) such time as the Borrower has received notice from each Lender that
it consents to or refuses such prepayment and (iv) any prepayment so refused may
be retained by the Borrower.
(d) Application to Term Loans. With respect to each prepayment of Term
Loans required by Section 5.2(a), the Borrower may designate the Types of Loans
that are to be prepaid and the specific Borrowing(s) pursuant to which made,
provided that (i) Eurodollar Term Loans may be designated for prepayment
pursuant to this Section 5.2 only on the last day of an Interest Period
applicable thereto unless all Eurodollar Term Loans with Interest Periods ending
on such date of required prepayment and all ABR Term Loans have been paid in
full; and (ii) if any prepayment of Eurodollar Term Loans made pursuant to a
single Borrowing shall reduce the outstanding Term Loans made pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount for Eurodollar
Term Loans, such Borrowing shall immediately be converted into ABR Loans. In the
absence of a designation by the Borrower as described in the preceding sentence,
the Administrative Agent shall, subject to the above, make such designation in
its reasonable discretion with a view, but no obligation, to minimize breakage
costs owing under Section 2.11.
(e) Application to Revolving Credit Loans. With respect to each prepayment
of Revolving Credit Loans required by Section 5.2(b), the Borrower may designate
the Types of Loans that are to be prepaid and the specific Borrowing(s) pursuant
to which made, provided that (i) Eurodollar Revolving Credit Loans may be
designated for prepayment pursuant to this Section 5.2 only on the last day of
an Interest Period applicable thereto unless all Eurodollar Revolving Credit
Loans with
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Interest Periods ending on such date of required prepayment and all ABR Loans
have been paid in full; (ii) if any prepayment of Eurodollar Revolving Credit
Loans made pursuant to a single Borrowing shall reduce the outstanding Revolving
Credit Loans made pursuant to such Borrowing to an amount less than the Minimum
Borrowing Amount for Eurodollar Revolving Credit Loans, such Borrowing shall
immediately be converted into ABR Loans; (iii) each prepayment of any Loans made
pursuant to a Borrowing shall be applied pro rata among such Loans; and (iv)
notwithstanding the provisions of the preceding clause (iii), no prepayment made
pursuant to Section 5.2(b) of Revolving Credit Loans shall be applied to the
Revolving Credit Loans of any Defaulting Lender. In the absence of a designation
by the Borrower as described in the preceding sentence, the Administrative Agent
shall, subject to the above, make such designation in its reasonable discretion
with a view, but no obligation, to minimize breakage costs owing under Section
2.11.
(f) Eurodollar Interest Periods. In lieu of making any payment pursuant to
this Section 5.2 in respect of any Eurodollar Loan other than on the last day of
the Interest Period therefor, so long as no Default or Event of Default shall
have occurred and be continuing, the Borrower at its option may deposit with the
Administrative Agent an amount equal to the amount of the Eurodollar Loan to be
prepaid and such Eurodollar Loan shall be repaid on the last day of the Interest
Period therefor in the required amount. Such deposit shall be held by the
Administrative Agent in a corporate time deposit account established on terms
reasonably satisfactory to the Administrative Agent, earning interest at the
then-customary rate for accounts of such type. Such deposit shall constitute
cash collateral for the Obligations, provided that the Borrower may at any time
direct that such deposit be applied to make the applicable payment required
pursuant to this Section 5.2.
(g) Minimum Amount. No prepayment shall be required pursuant to Section
5.2(a)(i) unless and until the amount at any time of Net Cash Proceeds from
Prepayment Events required to be applied at or prior to such time pursuant to
such Section and not yet applied at or prior to such time to prepay Term Loans
pursuant to such Section exceeds $15,000,000 in the aggregate.
(h) Foreign Asset Sales. Notwithstanding any other provisions of this
Section 5.2, (i) to the extent that any of or all the Net Cash Proceeds of any
asset sale by a Restricted Foreign Subsidiary giving rise to an Asset Sale
Prepayment Event (a "Foreign Asset Sale") are prohibited or delayed by
applicable local law from being repatriated to the United States, the portion of
such Net Cash Proceeds so affected will not be required to be applied to repay
Term Loans at the times provided in this Section 5.2 but may be retained by the
applicable Restricted Foreign Subsidiary so long, but only so long, as the
applicable local law will not permit repatriation to the United States (the
Borrower hereby agreeing to cause the applicable Restricted Foreign Subsidiary
to promptly take all actions required by the applicable local law to permit such
repatriation), and once such repatriation of any of such affected Net Cash
Proceeds is permitted under the applicable local law, such repatriation will be
immediately effected and such repatriated Net Cash Proceeds will be promptly
(and in any event not later than two Business Days after such repatriation)
applied to the repayment of the Term Loans pursuant to this Section 5.2 and (ii)
to the extent that the Borrower has determined in good faith that repatriation
of any of or all the Net Cash Proceeds of any Foreign Asset Sale would have a
material adverse tax cost consequence with respect to such Net Cash Proceeds,
the Net Cash Proceeds so affected may be retained by the applicable Restricted
Foreign Subsidiary, provided that, in the case of this clause (ii), on or before
the date on which any Net Cash Proceeds so retained would otherwise have been
required to be applied to reinvestments or prepayments pursuant to Section
5.2(a), (x) the
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Borrower applies an amount equal to such Net Cash Proceeds to such reinvestments
or prepayments as if such Net Cash Proceeds had been received by the Borrower
rather than such Restricted Foreign Subsidiary or (y) such Net Cash Proceeds are
applied to the repayment of Indebtedness of a Restricted Foreign Subsidiary.
5.3 Method and Place of Payment. (a) Except as otherwise
specifically provided herein, all payments under this Agreement shall be made,
without set-off, counterclaim or deduction of any kind, to the Administrative
Agent for the ratable account of the Lenders entitled thereto, the Letter of
Credit Issuer or Chase, as the case may be, not later than 12:00 Noon (New York
time) on the date when due and shall be made in immediately available funds and
in lawful money of the United States of America at the Administrative Agent's
Office, it being understood that written or facsimile notice by the Borrower to
the Administrative Agent to make a payment from the funds in the Borrower's
account at the Administrative Agent's Office shall constitute the making of such
payment to the extent of such funds held in such account. The Administrative
Agent will thereafter cause to be distributed on the same day (if payment was
actually received by the Administrative Agent prior to 2:00 P.M. (New York time)
on such day) like funds relating to the payment of principal or interest or Fees
ratably to the Lenders entitled thereto.
(b) Any payments under this Agreement that are made later than 2:00 P.M.
(New York time) shall be deemed to have been made on the next succeeding
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day that is not a Business Day, the due date thereof shall be extended
to the next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect
immediately prior to such extension.
5.4 Net Payments. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any current or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding (i) net income taxes and franchise taxes (imposed in lieu
of net income taxes) imposed on the Administrative Agent or any Lender and (ii)
any taxes imposed on the Administrative Agent or any Lender as a result of a
current or former connection between the Administrative Agent or such Lender and
the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement). If any such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded
Taxes") are required to be withheld from any amounts payable to the
Administrative Agent or any Lender hereunder, the amounts so payable to the
Administrative Agent or such Lender shall be increased to the extent necessary
to yield to the Administrative Agent or such Lender (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Agreement; provided, however, that the
Borrower shall not be required to increase any such amounts payable to any
Lender that is not organized under the laws of the United States of America or a
state thereof if such Lender fails to comply with the requirements of paragraph
(b) of this Section 5.4. Whenever any Non-Excluded Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account
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53
of such Lender, as the case may be, a certified copy of an original official
receipt received by the Borrower showing payment thereof. If the Borrower fails
to pay any Non-Excluded Taxes when due to the appropriate taxing authority or
fails to remit to the Administrative Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify the Administrative
Agent and the Lenders for any incremental taxes, interest, costs or penalties
that may become payable by the Administrative Agent or any Lender as a result of
any such failure. The agreements in this Section 5.4(a) shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated or organized under the laws of
the United States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative Agent two copies
of either United States Internal Revenue Service Form 1001 or Form 4224
or, in the case of Non-U.S. Lender claiming exemption from U.S. Federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a Form W-8, or any subsequent versions
thereof or successors thereto (and, if such Non-U.S. Lender delivers a
Form W-8, a certificate representing that such Non-U.S. Lender is not a
bank for purposes of Section 881(c) of the Code, is not a 10-percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of
the Borrower and is not a controlled foreign corporation related to the
Borrower (within the meaning of Section 864(d)(4) of the Code)), properly
completed and duly executed by such Non-U.S. Lender claiming complete
exemption from, or reduced rate of, U.S. Federal withholding tax on
payments by the Borrower under this Agreement;
(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form or certification on or before the date
that any such form or certification expires or becomes obsolete and after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Administrative Agent;
unless in any such case any change in treaty, law or regulation has occurred
prior to the date on which any such delivery would otherwise be required that
renders any such form inapplicable or would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender so
advises the Borrower and the Administrative Agent. Each Person that shall become
a Participant pursuant to Section 13.6 or a Lender pursuant to Section 13.6
shall, upon the effectiveness of the related transfer, be required to provide
all the forms and statements required pursuant to this Section 5.4(b), provided
that in the case of a Participant such Participant shall furnish all such
required forms and statements to the Lender from which the related participation
shall have been purchased.
(c) The Borrower shall not be required to indemnify any Non-U.S. Lender,
or to pay any additional amounts to any Non-U.S. Lender, in respect of U.S.
Federal withholding tax pursuant to paragraph (a) above to the extent that (i)
the obligation to withhold amounts with respect to U.S. Federal withholding tax
existed on the date such Non-U.S. Lender became a party to this Agreement
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54
(or, in the case of a Non-U.S. Participant, on the date such Participant became
a Participant hereunder); provided, however, that this clause (i) shall not
apply to the extent that (x) the indemnity payments or additional amounts any
Lender (or Participant) would be entitled to receive (without regard to this
clause (i)) do not exceed the indemnity payment or additional amounts that the
person making the assignment, participation or transfer to such Lender (or
Participant) would have been entitled to receive in the absence of such
assignment, participation or transfer, or (y) such assignment, participation or
transfer had been requested by the Borrower, (ii) the obligation to pay such
additional amounts would not have arisen but for a failure by such Non-U.S.
Lender or Non-U.S. Participant to comply with the provisions of paragraph (b)
above or (iii) any of the representations or certifications made by a Non-U.S.
Lender or Non-U.S. Participant pursuant to paragraph (b) above are incorrect at
the time a payment hereunder is made, other than by reason of any change in
treaty, law or regulation having effect after the date such representations or
certifications were made.
(d) If the Borrower determines in good faith that a reasonable basis
exists for contesting any taxes for which indemnification has been demanded
hereunder, the relevant Lender or the Administrative Agent, as applicable, shall
cooperate with the Borrower in challenging such taxes at the Borrower's expense
if so requested by the Borrower. If any Lender or the Administrative Agent, as
applicable, receives a refund of a tax for which a payment has been made by the
Borrower pursuant to this Agreement, which refund in the good faith judgment of
such Lender or Administrative Agent, as the case may be, is attributable to such
payment made by the Borrower, then the Lender or the Administrative Agent, as
the case may be, shall reimburse the Borrower for such amount as the Lender or
Administrative Agent, as the case may be, determines to be the proportion of the
refund as will leave it, after such reimbursement, in no better or worse
position than it would have been in if the payment had not been required. A
Lender or Administrative Agent shall claim any refund that it determines is
available to it, unless it concludes in its reasonable discretion that it would
be adversely affected by making such a claim. Neither the Lender nor the
Administrative Agent shall be obliged to disclose any information regarding its
tax affairs or computations to the Borrower in connection with this paragraph
(d) or any other provision of this Section 5.4.
(e) Each Lender represents and agrees that, on the date hereof and at all
times during the term of this Agreement, it is not and will not be a conduit
entity participating in a conduit financing arrangement (as defined in Section
7701(1) of the Code and the regulations thereunder) with respect to the
Borrowings hereunder unless the Borrower has consented to such arrangement prior
thereto.
5.5 Computations of Interest and Fees. (a) Interest on Eurodollar
Loans and, except as provided in the next succeeding sentence, ABR Loans shall
be calculated on the basis of a 360-day year for the actual days elapsed.
Interest on ABR Loans in respect of which the rate of interest is calculated on
the basis of the Prime Rate and interest on overdue interest shall be calculated
on the basis of a 365- (or 366-, as the case may be) day year for the actual
days elapsed.
(b) Fees and Letter of Credit Outstandings shall be calculated on the
basis of a 365- (or 366-, as the case may be) day year for the actual days
elapsed.
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55
SECTION 6. Conditions Precedent to Initial Borrowing.
The initial Borrowing under this Agreement is subject to the satisfaction
of the following conditions precedent:
6.1 Credit Documents. The Administrative Agent shall have received
(a) this Agreement, executed and delivered by a duly authorized officer of the
Borrower and each Lender, (b) the Guarantee, executed and delivered by a duly
authorized officer of each Guarantor, (c) the Pledge Agreement, executed and
delivered by each pledgor party thereto and (d) all certificates representing
securities pledged under the Pledge Agreement, accompanied by instruments of
transfer and undated stock powers endorsed in blank.
6.2 Closing Certificate. The Administrative Agent shall have
received a certificate of each Credit Party, dated the Closing Date,
substantially in the form of Exhibit G, with appropriate insertions, executed by
the President or any Vice President and the Secretary or any Assistant Secretary
of such Credit Party, and attaching the documents referred to in Sections 6.3
and 6.4.
6.3 Corporate Proceedings of Each Credit Party. The Administrative
Agent shall have received a copy of the resolutions, in form and substance
satisfactory to the Administrative Agent, of the Board of Directors of each
Credit Party (or a duly authorized committee thereof) authorizing (a) the
execution, delivery and performance of the Credit Documents and the Merger
Agreement (and any agreements relating thereto) to which it is a party and (b)
in the case of the Borrower, the extensions of credit contemplated hereunder.
6.4 Corporate Documents. The Administrative Agent shall have
received true and complete copies of the certificate of incorporation and
by-laws of each Credit Party.
6.5 No Material Adverse Change. There shall have been no material
adverse change in the business, assets, operations, properties, financial
condition or prospects of the Borrower and its Subsidiaries taken as a whole
since May 31, 1996.
6.6 Fees. The Administrative Agent shall have received the fees
referred to in Section 4.1(e) to be received on the Closing Date.
6.7 Equity Contribution. The Equity Contribution shall have been
made or shall be made simultaneously with the making of the initial Loans.
6.8 Merger. (a) The Merger shall have been consummated, or shall be
consummated simultaneously with the making of the initial Loans, in accordance
with applicable law and the Merger Agreement, (b) the Partnership and other
Affiliates of KKR shall have received shares representing approximately 85% of
the shares of Borrower Common Stock expected to be outstanding immediately after
the Merger, (c) all the warrants and options of the Borrower outstanding
immediately prior to the Merger shall have been converted into the right to
receive not more than approximately $26,500,000 in cash in the aggregate and (d)
the Administrative Agent shall be reasonably satisfied with the capitalization,
structure and equity ownership of the Borrower and its Subsidiaries (it being
agreed that such capitalization, structure and ownership on the date hereof are
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56
satisfactory). The Merger Agreement shall not have been amended since December
27, 1996, in any material respect that is, in the reasonable judgment of the
Administrative Agent, adverse to the interests of the Lenders.
6.9 Other Indebtedness. After giving effect to the Merger and the
other transactions contemplated hereby, the Borrower and its Subsidiaries shall
have outstanding no Indebtedness or preferred stock other than (a) the
extensions of credit under this Agreement, (b) the Subordinated Notes, (c) the
$211,000 in aggregate principal amount of Senior Notes that remained outstanding
following consummation of the Debt Tender Offer and (d) Indebtedness permitted
under Section 10.1, other than under clauses (j), (k) and (n) thereof.
6.10 Closing Date Balance Sheet. The Lenders shall have received a
pro forma consolidated closing balance sheet of the Borrower giving effect to
the Merger, the financing therefor and the other transactions contemplated
hereby and thereby, dated the Closing Date and reasonably satisfactory to the
Lenders.
6.11 Solvency Letter. The Lenders shall have received a solvency
letter from Valuation Research, Inc., in form and substance reasonably
satisfactory to the Administrative Agent, as to the solvency of the Borrower and
its Subsidiaries on a consolidated basis after giving effect to the Merger, the
making of the initial Loans and the consummation of the other transactions
contemplated hereby, together with such other evidence of solvency reasonably
requested by the Administrative Agent.
6.12 Required Approvals. All requisite material Governmental
Authorities and third parties shall have approved or consented to the Merger and
the other transactions contemplated hereby to the extent required, all
applicable appeal periods shall have expired and there shall be no governmental
or judicial action, actual or threatened, that has or could have a reasonable
likelihood of restraining, preventing or imposing burdensome conditions on the
Merger, the financing therefor or the other transactions contemplated hereby or
thereby.
6.13 Existing Credit Agreement. All loans outstanding under, and all
other amounts due in respect of, the Existing Credit Agreement shall have been
repaid in full; the commitments under the Existing Credit Agreement shall have
been permanently terminated; all obligations under the Existing Credit Agreement
and security interests relating thereto shall have been discharged; and the
Administrative Agent shall have received reasonably satisfactory evidence of
such repayment, termination and discharge.
6.14 Legal Opinions. The Administrative Agent shall have received,
with a counterpart for each Lender, the executed legal opinions of (a) Simpson
Thacher & Bartlett, special New York counsel to the Borrower, substantially in
the form of Exhibit E-1, (b) Alston & Bird, counsel to the Borrower,
substantially in the form of Exhibit E-2, and (c) Rebecca S. Bryan, General
Counsel of the Borrower, substantially in the form of Exhibit E-3, and the
Borrower hereby instructs such counsel to deliver such legal opinions.
6.15 Subordinated Notes. The Borrower shall have received gross
proceeds of not less than $300,000,000 from the sale at par of the Subordinated
Notes.
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57
SECTION 7. Conditions Precedent to All Credit Events. The agreement of
each Lender to make any Loan requested to be made by it on any date (including,
without limitation, its initial Loan, but excluding Mandatory Borrowings) and
the obligation of the Letter of Credit Issuer to issue Letters of Credit on any
date is subject to the satisfaction of the following conditions precedent:
7.1 No Default; Representations and Warranties. At the time of each
Credit Event and also after giving effect thereto (a) there shall exist no
Default or Event of Default and (b) all representations and warranties made by
any Credit Party contained herein or in the other Credit Documents shall be true
and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Credit Event (except where such representations and warranties expressly relate
to an earlier date, in which case such representations and warranties shall have
been true and correct in all material respects as of such earlier date).
7.2 Notice of Borrowing; Letter of Credit Request. (a) Prior to the
making of each Term Loan, each Revolving Credit Loan (other than any Revolving
Credit Loan made pursuant to Section 3.4(a)) and each Swingline Loan, the
Administrative Agent shall have received a Notice of Borrowing (whether in
writing or by telephone) meeting the requirements of Section 2.3.
(b) Prior to the issuance of each Letter of Credit, the Administrative Agent
and the Letter of Credit Issuer shall have received a Letter of Credit Request
meeting the requirements of Section 3.2(a).
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by each Credit Party to each of the Lenders that all
the applicable conditions specified above exist as of that time.
SECTION 8. Representations, Warranties and Agreements. In order to induce
the Lenders to enter into this Agreement, to make the Loans and issue or
participate in Letters of Credit as provided for herein, the Borrower makes the
following representations and warranties to, and agreements with, the Lenders,
all of which shall survive the execution and delivery of this Agreement and the
making of the Loans and the issuance of the Letters of Credit:
8.1 Corporate Status. The Borrower and each Material Subsidiary (a)
is a duly organized and validly existing corporation or other entity in good
standing under the laws of the jurisdiction of its organization and has the
corporate or other organizational power and authority to own its property and
assets and to transact the business in which it is engaged and (b) has duly
qualified and is authorized to do business and is in good standing in all
jurisdictions where it is required to be so qualified, except where the failure
to be so qualified could not reasonably be expected to result in a Material
Adverse Effect.
8.2 Corporate Power and Authority. Each Credit Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is a party and has taken all
necessary corporate action to authorize the execution, delivery and
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58
performance of the Credit Documents to which it is a party. Each Credit Party
has duly executed and delivered each Credit Document to which it is a party and
each such Credit Document constitutes the legal, valid and binding obligation of
such Credit Party enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and subject to general principles of
equity.
8.3 No Violation. Neither the execution, delivery and performance by
any Credit Party of the Credit Documents to which it is a party nor compliance
with the terms and provisions thereof nor the consummation of the Merger and the
other transactions contemplated therein will (a) contravene any applicable
provision of any material law, statute, rule, regulation, order, writ,
injunction or decree of any court or governmental instrumentality, (b) result in
any breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
the Borrower or any of the Restricted Subsidiaries pursuant to, the terms of any
material indenture (including the Senior Note Indenture), loan agreement, lease
agreement, mortgage, deed of trust, agreement or other material instrument to
which the Borrower or any of the Restricted Subsidiaries is a party or by which
it or any of its property or assets is bound or (c) violate any provision of the
certificate of incorporation or By-Laws of the Borrower or any of the Restricted
Subsidiaries.
8.4 Litigation. Except as set forth in the Borrower's Form 10-K for
the fiscal year ended May 31, 1996, or in the Borrower's Form 10-Q for the
fiscal quarter ended September 20, 1996, or for the fiscal quarter ended
December 13, 1996, in each case as filed with the SEC, there are no actions,
suits or proceedings (including, without limitation, Environmental Claims)
pending or, to the knowledge of the Borrower, threatened with respect to the
Borrower or any of its Subsidiaries that could reasonably be expected to result
in a Material Adverse Effect.
8.5 Margin Regulations. Neither the making of any Loan hereunder nor
the use of the proceeds thereof will violate the provisions of Regulation G, T,
U or X of the Board.
8.6 Governmental Approvals. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any Governmental Authority is required to authorize or is required
in connection with (a) the execution, delivery and performance of any Credit
Document or (b) the legality, validity, binding effect or enforceability of any
Credit Document, except any of the foregoing the failure to obtain or make could
not reasonably be expected to have a Material Adverse Effect.
8.7 Investment Company Act. The Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
8.8 True and Complete Disclosure. (a) All factual information and
data (taken as a whole) heretofore or contemporaneously furnished by the
Borrower, any of its Subsidiaries or any of their respective authorized
representatives in writing to the Administrative Agent and/or any Lender on or
before the Closing Date (including, without limitation, (i) the Confidential
Information Memorandum and (ii) all information contained in the Credit
Documents) for purposes of or in connection with this Agreement or any
transaction contemplated herein was true and complete in all
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59
material respects on the date as of which such information or data is dated or
certified and was not incomplete by omitting to state any material fact
necessary to make such information and data (taken as a whole) not misleading at
such time in light of the circumstances under which such information or data was
furnished, it being understood and agreed that for purposes of this Section
8.8(a), such factual information and data shall not include projections and pro
forma financial information.
(b) The projections and pro forma financial information contained in the
information and data referred to in paragraph (a) above were based on good faith
estimates and assumptions believed by such Persons to be reasonable at the time
made, it being recognized by the Lenders that such projections as to future
events are not to be viewed as facts and that actual results during the period
or periods covered by any such projections may differ from the projected
results.
8.9 Financial Condition; Financial Statements. (a) The consolidated
balance sheet of the Borrower and its Subsidiaries at May 31, 1996, and the
related consolidated statements of income and cash flows for the fiscal year
ended as of such date, which statements have been audited by KPMG Peat Marwick
LLP, independent certified public accountants, who delivered an unqualified
opinion with respect thereto, and (b) the unaudited consolidated balance sheet
of the Borrower and its Subsidiaries at September 20, 1996, and at December 13,
1996, and the related consolidated statements of income and cash flows for the
respective fiscal quarters and portions of the fiscal year ended as of such
dates, in each case present fairly in all material respects the consolidated
financial position of the Borrower and its Subsidiaries at the respective dates
of said statements and the results of operations for the respective periods
covered thereby. All such financial statements have been prepared in accordance
with GAAP consistently applied except to the extent provided in the notes to
said financial statements and, in the case of said financial statements referred
to in clause (b), subject to normal year-end audit adjustments. There has been
no Material Adverse Change since May 31, 1996, other than solely as a result of
changes in general economic conditions.
8.10 Tax Returns and Payments. Each of the Borrower and its
Subsidiaries has filed all federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it that have become due, other than
those not yet delinquent or contested in good faith. The Borrower and each of
its Subsidiaries have paid, or have provided adequate reserves (in the good
faith judgment of the management of the Borrower) in accordance with GAAP for
the payment of, all material federal, state and foreign income taxes applicable
for all prior fiscal years and for the current fiscal year to the Closing Date.
8.11 Compliance with ERISA. Each Plan is in compliance with ERISA,
the Code and any applicable Requirement of Law; no Reportable Event has occurred
(or is reasonably likely to occur) with respect to any Plan; no Plan is
insolvent or in reorganization (or is reasonably likely to be insolvent or in
reorganization), and no written notice of any such insolvency or reorganization
has been given to the Borrower, any Subsidiary or any ERISA Affiliate; no Plan
(other than a multiemployer plan) has an accumulated or waived funding
deficiency (or is reasonably likely to have such a deficiency); neither the
Borrower nor any Subsidiary nor any ERISA Affiliate has incurred (or is
reasonably likely expected to incur) any liability to or on account of a Plan
pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201 or
4204 of ERISA or Section 4971 or 4975 of the Code or has been notified in
writing that it will incur any liability under any of the foregoing Sections
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60
with respect to any Plan; no proceedings have been instituted (or are reasonably
likely to be instituted) to terminate or to reorganize any Plan or to appoint a
trustee to administer any Plan, and no written notice of any such proceedings
has been given to the Borrower, any Subsidiary or any ERISA Affiliate; and no
lien imposed under the Code or ERISA on the assets of the Borrower or any
Subsidiary or any ERISA Affiliate exists (or is reasonably likely to exist) nor
has the Borrower, any Subsidiary or any ERISA Affiliate been notified in writing
that such a lien will be imposed on the assets of the Borrower, any Subsidiary
or any ERISA Affiliate on account of any Plan, except to the extent that a
breach of any of the foregoing representations, warranties or agreements in this
Section 8.11 would not result, individually or in the aggregate, in an amount of
liability that would be reasonably likely to have a Material Adverse Effect. No
Plan (other than a multiemployer plan) has an Unfunded Current Liability that
would, individually or when taken together with any other liabilities referenced
in this Section 8.11, be reasonably likely to have a Material Adverse Effect.
With respect to Plans that are multiemployer plans (as defined in Section 3(37)
of ERISA), the representations and warranties in this Section 8.11, other than
any made with respect to (a) liability under Section 4201 or 4204 of ERISA or
(b) liability for termination or reorganization of such Plans under ERISA, are
made to the best knowledge of the Borrower.
8.12 Subsidiaries. Schedule 8.12 lists each Subsidiary of the
Borrower (and the direct and indirect ownership interest of the Borrower
therein), in each case existing on the Closing Date. To the knowledge of the
Borrower, each Material Subsidiary as of the Closing Date has been so designated
on Schedule 8.12.
8.13 Patents, etc.. The Borrower and each of the Restricted
Subsidiaries have obtained all patents, trademarks, servicemarks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary for the operation of their respective businesses as currently
conducted and as proposed to be conducted, except where the failure to obtain
any such rights could not reasonably be expected to have a Material Adverse
Effect.
8.14 Environmental Laws. (a) Other than instances of noncompliance
that could not reasonably be expected to have a Material Adverse Effect: (i) the
Borrower and each of its Subsidiaries are in compliance with all Environmental
Laws in all jurisdictions in which the Borrower and each of its Subsidiaries are
currently doing business (including, without limitation, having obtained all
material permits required under Environmental Laws); and (ii) the Borrower will
comply and cause each of its Subsidiaries to comply with all such Environmental
Laws (including, without limitation, all permits required under Environmental
Laws).
(b) Neither the Borrower nor any of its Subsidiaries has treated, stored,
transported or disposed of Hazardous Materials at or from any currently or
formerly owned Real Estate (as defined in Section 9.1(f)) or facility relating
to its business in a manner that could reasonably be expected to have a Material
Adverse Effect.
8.15 Properties. The Borrower and each of the Restricted
Subsidiaries have good title to or leasehold interest in all properties that are
necessary for the operation of their respective businesses as currently
conducted and as proposed to be conducted, free and clear of all Liens (other
than any Liens permitted by this Agreement) and except where the failure to have
such good title could not reasonably be expected to have a Material Adverse
Effect.
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61
SECTION 9. Affirmative Covenants. The Borrower hereby covenants and agrees
that on the Closing Date and thereafter, for so long as this Agreement is in
effect and until the Commitments, the Swingline Commitment and each Letter of
Credit have terminated and the Loans and Unpaid Drawings, together with
interest, Fees and all other Obligations incurred hereunder, are paid in full:
9.1 Information Covenants. The Borrower will furnish to each Lender
and the Administrative Agent:
(a) Annual Financial Statements. On or before the date on which such
financial statements are required to be filed with the SEC, the
consolidated balance sheet of (i) the Borrower and the Restricted
Subsidiaries and (ii) the Borrower and its Subsidiaries, in each case as
at the end of such fiscal year and the related consolidated statement of
income and retained earnings and of cash flows for such fiscal year,
setting forth comparative consolidated figures for the preceding fiscal
year, and certified by independent certified public accountants of
recognized national standing whose opinion shall not be qualified as to
the scope of audit or as to the status of the Borrower or any of the
Material Subsidiaries as a going concern, together in any event with a
certificate of such accounting firm stating that in the course of its
regular audit of the business of the Borrower and the Material
Subsidiaries, which audit was conducted in accordance with generally
accepted auditing standards, such accounting firm has obtained no
knowledge of any Default or Event of Default relating to Section 10.9,
10.10 and 10.11 that has occurred and is continuing or, if in the opinion
of such accounting firm such a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof.
(b) Quarterly Financial Statements. As soon as available and in any
event on or before the date on which such financial statements are
required to be filed with the SEC with respect to each of the first three
quarterly accounting periods in each fiscal year of the Borrower, the
consolidated balance sheet of (i) the Borrower and the Restricted
Subsidiaries and (ii) the Borrower and its Subsidiaries, in each case as
at the end of such quarterly period and the related consolidated statement
of income for such quarterly accounting period and for the elapsed portion
of the fiscal year ended with the last day of such quarterly period, and
the related consolidated statement of cash flows for the elapsed portion
of the fiscal year ended with the last day of such quarterly period, and
setting forth comparative consolidated figures for the related periods in
the prior fiscal year or, in the case of such consolidated balance sheet,
for the last day of the prior fiscal year, all of which shall be certified
by an Authorized Officer of the Borrower, subject to changes resulting
from audit and normal year-end audit adjustments.
(c) Budgets. Within 60 days after the commencement of each fiscal
year of the Borrower, budgets of the Borrower in reasonable detail for the
fiscal year as customarily prepared by management of the Borrower for its
internal use, setting forth the principal assumptions upon which such
budgets are based.
(d) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Sections 9.1(a) and (b), a
certificate of an Authorized Officer of the Borrower to the effect that no
Default or Event of Default exists or, if any Default or Event of Default
does exist, specifying the nature and extent thereof, which certificate
shall set forth (i) the calculations required to
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62
establish whether the Borrower and its Subsidiaries were in compliance
with the provisions of Sections 10.9, 10.10 and 10.11 as at the end of
such fiscal year or period, as the case may be, (ii) a specification of
any change in the identity of the Restricted Subsidiaries, Unrestricted
Subsidiaries, Acquisition Subsidiaries, Real Estate Financing Subsidiaries
and Foreign Subsidiaries as at the end of such fiscal year or period, as
the case may be, from the Restricted Subsidiaries, Unrestricted
Subsidiaries, Acquisition Subsidiaries, Real Estate Financing Subsidiaries
and Foreign Subsidiaries, respectively, provided to the Lenders on the
Closing Date or the most recent fiscal year or period, as the case may be,
(iii) the then applicable Status and (iv) the amount of any Pro Forma
Adjustment not previously set forth in a Pro Forma Adjustment Certificate
or any change in the amount of a Pro Forma Adjustment set forth in any Pro
Forma Adjustment Certificate previously provided and, in either case, in
reasonable detail, the calculations and basis therefor; and at the time of
the delivery of the financial statements provided for in Section 9.1(a), a
certificate of an Authorized Officer of the Borrower setting forth in
reasonable detail the Available Amount as at the end of the fiscal year to
which such financial statements relate.
(e) Notice of Default or Litigation. Promptly after an Authorized
Officer of the Borrower or any of its Subsidiaries obtains knowledge
thereof, notice of (i) the occurrence of any event that constitutes a
Default or Event of Default, which notice shall specify the nature
thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto, and (ii) any litigation or
governmental proceeding pending against the Borrower or any of its
Subsidiaries that could reasonably be expected to result in a Material
Adverse Effect.
(f) Environmental Matters. The Borrower will promptly advise the
Lenders in writing after obtaining knowledge of any one or more of the
following environmental matters, unless such environmental matters would
not, individually or when aggregated with all other such matters, be
reasonably expected to result in a Material Adverse Effect:
(i) Any pending or threatened Environmental Claim against the
Borrower or any of its Subsidiaries or any Real Estate (as defined
below);
(ii) Any condition or occurrence on any Real Estate that (x)
results in noncompliance by the Borrower or any of its Subsidiaries
with any applicable Environmental Law or (y) could reasonably be
anticipated to form the basis of an Environmental Claim against the
Borrower or any of its Subsidiaries or any Real Estate;
(iii) Any condition or occurrence on any Real Estate that
could reasonably be anticipated to cause such Real Estate to be
subject to any restrictions on the ownership, occupancy, use or
transferability of such Real Estate under any Environmental Law; and
(iv) The taking of any removal or remedial action in response
to the actual or alleged presence of any Hazardous Material on any
Real Estate.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action
and the Borrower's response thereto. The term "Real Estate" shall mean
land, buildings and improvements owned or leased by the Borrower or any of
its
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63
Subsidiaries, but excluding all operating fixtures and equipment, whether
or not incorporated into improvements.
(g) Other Information. Promptly upon filing thereof, copies of any
filings on Form 10-K, 10-Q or 8-K or registration statements with, and
reports to, the SEC by the Borrower or any of its Subsidiaries (other than
amendments to any registration statement (to the extent such registration
statement, in the form it becomes effective, is delivered to the Lenders),
exhibits to any registration statement and any registration statements on
Form S-8) and copies of all financial statements, proxy statements,
notices and reports that the Borrower or any of its Subsidiaries shall
send to the holders of any publicly issued debt of the Borrower and/or any
of its Subsidiaries (including the Subordinated Notes) in their capacity
as such holders (in each case to the extent not theretofore delivered to
the Lenders pursuant to this Agreement) and, with reasonable promptness,
such other information (financial or otherwise) as the Administrative
Agent on its own behalf or on behalf of any Lender may reasonably request
in writing from time to time.
(h) Pro Forma Adjustment Certificate. Not later than the
consummation of the acquisition of any Acquired Entity or Business by the
Borrower or any Restricted Subsidiary for which there shall be a Pro Forma
Adjustment, a certificate of an Authorized Officer of the Borrower setting
forth the amount of such Pro Forma Adjustment and, in reasonable detail,
the calculations and basis therefor.
9.2 Books, Records and Inspections. The Borrower will, and will
cause each of the Specified Subsidiaries to, permit officers and designated
representatives of the Administrative Agent or the Required Lenders to visit and
inspect any of the properties or assets of the Borrower and any such Specified
Subsidiary in whomsoever's possession to the extent that it is within the
Borrower's or such Specified Subsidiary's control to permit such inspection, and
to examine the books of account of the Borrower and any such Specified
Subsidiary and discuss the affairs, finances and accounts of the Borrower and of
any such Specified Subsidiary with, and be advised as to the same by, its and
their officers and independent accountants, all at such reasonable times and
intervals and to such reasonable extent as the Administrative Agent or the
Required Lenders may desire.
9.3 Maintenance of Insurance. The Borrower will, and will cause each
of the Material Subsidiaries to, at all times maintain in full force and effect,
with insurance companies which the Borrower believes (in the good faith judgment
of the management of the Borrower) are financially sound and responsible at the
time the relevant coverage is placed or renewed, insurance in at least such
amounts and against at least such risks (and with such risk retentions) as are
usually insured against in the same general area by companies engaged in the
same or a similar business; and will furnish to the Lenders, upon written
request from the Administrative Agent, information presented in reasonable
detail as to the insurance so carried.
9.4 Payment of Taxes. The Borrower will pay and discharge, and will
cause each of its Subsidiaries to pay and discharge, all material taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which material penalties attach thereto, and all lawful material claims that, if
unpaid, could reasonably be expected to become a material Lien upon any
properties of the Borrower or any of the Restricted Subsidiaries, provided that
neither the Borrower nor any of its Subsidiaries shall be required to pay any
such tax, assessment, charge, levy or claim that is being contested in good
faith
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64
and by proper proceedings if it has maintained adequate reserves (in the good
faith judgment of the management of the Borrower) with respect thereto in
accordance with GAAP.
9.5 Consolidated Corporate Franchises. The Borrower will do, and
will cause each Material Subsidiary to do, or cause to be done, all things
necessary to preserve and keep in full force and effect its existence, corporate
rights and authority, except to the extent that the failure to do so could not
reasonably be expected to have a Material Adverse Effect; provided, however,
that the Borrower and its Subsidiaries may consummate any transaction permitted
under Section 10.3 or 10.4.
9.6 Compliance with Statutes, Obligations, etc. The Borrower will,
and will cause each Subsidiary to, comply with all applicable laws, rules,
regulations and orders, except to the extent the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
9.7 ERISA. Promptly after the Borrower or any Subsidiary or any
ERISA Affiliate knows or has reason to know of the occurrence of any of the
following events that, individually or in the aggregate (including in the
aggregate such events previously disclosed or exempt from disclosure hereunder,
to the extent the liability therefor remains outstanding), would be reasonably
likely to have a Material Adverse Effect, the Borrower will deliver to each of
the Lenders a certificate of an Authorized Officer or any other senior officer
of the Borrower setting forth details as to such occurrence and the action, if
any, that the Borrower, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices (required, proposed or otherwise)
given to or filed with or by the Borrower, such Subsidiary, such ERISA
Affiliate, the PBGC, a Plan participant (other than notices relating to an
individual participant's benefits) or the Plan administrator with respect
thereto: that a Reportable Event has occurred; that an accumulated funding
deficiency has been incurred or an application is to be made to the Secretary of
the Treasury for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code with respect to a Plan; that a
Plan having an Unfunded Current Liability has been or is to be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA
(including the giving of written notice thereof); that a Plan has an Unfunded
Current Liability that has or will result in a lien under ERISA or the Code;
that proceedings will be or have been instituted to terminate a Plan having an
Unfunded Current Liability (including the giving of written notice thereof);
that a proceeding has been instituted against the Borrower, a Subsidiary or an
ERISA Affiliate pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Plan; that the PBGC has notified the Borrower, any Subsidiary
or any ERISA Affiliate of its intention to appoint a trustee to administer any
Plan; that the Borrower, any Subsidiary or any ERISA Affiliate has failed to
make a required installment or other payment pursuant to Section 412 of the Code
with respect to a Plan; or that the Borrower, any Subsidiary or any ERISA
Affiliate has incurred or will incur (or has been notified in writing that it
will incur) any liability (including any contingent or secondary liability) to
or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code.
9.8 Good Repair. The Borrower will, and will cause each of the
Restricted Subsidiaries to, ensure that its properties and equipment used or
useful in its business in whomsoever's possession they may be to the extent that
it is within the Borrower's or such Restricted Subsidiary's control to cause
same, are kept in good repair, working order and condition, normal
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65
wear and tear excepted, and that from time to time there are made in such
properties and equipment all needful and proper repairs, renewals, replacements,
extensions, additions, betterments and improvements thereto, to the extent and
in the manner customary for companies in similar businesses and consistent with
third party leases, except in each case to the extent the failure to do so could
be reasonably expected to have a Material Adverse Effect.
9.9 Transactions with Affiliates. The Borrower will conduct, and
cause each of the Restricted Subsidiaries to conduct, all transactions with any
of its Affiliates on terms that are substantially as favorable to the Borrower
or such Restricted Subsidiary as it would obtain in a comparable arm's-length
transaction with a Person that is not an Affiliate, provided that the foregoing
restrictions shall not apply to (a) the payment of customary annual fees to KKR
and its Affiliates for management, consulting and financial services rendered to
the Borrower and its Subsidiaries, and investment banking fees paid to KKR and
its Affiliates for services rendered to the Borrower and its Subsidiaries in
connection with divestitures, acquisitions, financings and other transactions,
(b) customary fees paid to members of the Board of Directors of the Borrower and
its Subsidiaries and (c) transactions permitted by Section 10.6.
9.10 End of Fiscal Years; Fiscal Quarters. The Borrower will, for
financial reporting purposes, cause (a) each of its, and each of its
Subsidiaries', fiscal years to end on the Friday nearest May 31 of each year and
(b) each of its, and each of its Subsidiaries', fiscal quarters to end on (i)
the Friday 16 weeks after, (ii) the Friday 28 weeks after and (iii) the Friday
40 weeks after, the Friday nearest May 31 of each year; provided, however, that
the Borrower may, upon written notice to the Administrative Agent, change the
financial reporting convention specified above to any other financial reporting
convention reasonably acceptable to the Administrative Agent, in which case the
Borrower and the Administrative Agent will, and are hereby authorized by the
Lenders to, make any adjustments to this Agreement that are necessary in order
to reflect such change in financial reporting.
9.11 Additional Guarantors. The Borrower will cause (a) any direct
or indirect Domestic Subsidiary (other than any Unrestricted Subsidiary,
Acquisition Subsidiary or Real Estate Financing Subsidiary) formed or otherwise
purchased or acquired after the date hereof and (b) any Subsidiary (other than
any Unrestricted Subsidiary or Acquisition Subsidiary) that is not a Domestic
Subsidiary on the date hereof but subsequently becomes a Domestic Subsidiary
(other than any Unrestricted Subsidiary or Acquisition Subsidiary), in each case
to execute a supplement to the Guarantee, in form and substance reasonably
satisfactory to the Administrative Agent, in order to become a Guarantor.
9.12 Pledges of Additional Stock and Evidence of Indebtedness. The
Borrower will pledge, and, in the case of clause (c), will cause each direct
Domestic Subsidiary to pledge, to the Administrative Agent, for the benefit of
the Lenders, (a) all the capital stock of each direct Domestic Subsidiary (other
than any Unrestricted Subsidiary, Acquisition Subsidiary or Real Estate
Financing Subsidiary) and 65% of all the capital stock of each direct Foreign
Subsidiary (other than any Unrestricted Subsidiary, Acquisition Subsidiary or
Real Estate Financing Subsidiary), in each case, formed or otherwise purchased
or acquired after the date hereof, in each case pursuant to a supplement to the
Pledge Agreement in form and substance reasonably satisfactory to the
Administrative Agent, (b) all the capital stock of any direct Domestic
Subsidiary (other than any
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66
Unrestricted Subsidiary or Acquisition Subsidiary) and 65% of all the capital
stock of each direct Foreign Subsidiary (other than any Unrestricted Subsidiary
or Acquisition Subsidiary), in each case that is not a direct Subsidiary on the
date hereof but subsequently becomes a direct Subsidiary (other than an
Unrestricted Subsidiary or Acquisition Subsidiary), in each case pursuant to a
supplement to the Pledge Agreement in form and substance reasonably satisfactory
to the Administrative Agent, and (c) all evidences of Indebtedness in excess of
$5,000,000 received by the Borrower or any of the direct Domestic Subsidiaries
(other than any Unrestricted Subsidiary, Acquisition Subsidiary or Real Estate
Financing Subsidiary) in connection with any disposition of assets pursuant to
Section 10.4(b), in each case pursuant to a supplement to the Pledge Agreement
in form and substance reasonably satisfactory to the Administrative Agent.
9.13 Use of Proceeds. The Borrower will use the Letters of Credit
and the proceeds of all Loans for the purposes set forth in the introductory
statement to this Agreement.
9.14 Changes in Business. The Borrower and its Subsidiaries taken as
a whole will not fundamentally and substantively alter the character of their
business taken as a whole from the business conducted by the Borrower and its
Subsidiaries taken as a whole on the date hereof, educational activities and
other business activities incidental or related to any of the foregoing.
SECTION 10. Negative Covenants. The Borrower hereby covenants and agrees
that on the Closing Date and thereafter, for so long as this Agreement is in
effect and until the Commitments, the Swingline Commitment and each Letter of
Credit have terminated and the Loans and Unpaid Drawings, together with
interest, Fees and all other Obligations incurred hereunder, are paid in full:
10.1 Limitation on Indebtedness. The Borrower will not, and will not
permit any of the Restricted Subsidiaries to, create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness arising under the Credit Documents;
(b) Indebtedness of (i) the Borrower to any Subsidiary of the
Borrower and (ii) Indebtedness of any Restricted Subsidiary to the
Borrower or any other Subsidiary of the Borrower;
(c) Indebtedness in respect of any bankers' acceptance, letter of
credit, warehouse receipt or similar facilities entered into in the
ordinary course of business;
(d) except as provided in clauses (j) and (k) below, Guarantee
Obligations incurred by (i) Restricted Subsidiaries in respect of
Indebtedness of the Borrower or other Restricted Subsidiaries that is
permitted to be incurred under this Agreement and (ii) the Borrower in
respect of Indebtedness of the Restricted Subsidiaries that is permitted
to be incurred under this Agreement;
(e) Guarantee Obligations incurred in the ordinary course of
business in respect of obligations of suppliers, customers, franchisees,
lessors and licensees;
(f) (i) Indebtedness (including Indebtedness arising under Capital
Leases) incurred within 270 days of the acquisition, construction or
improvement of fixed or capital assets to finance the
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67
acquisition, construction or improvement of such fixed or capital assets
or otherwise incurred in respect of Capital Expenditures permitted by
Section 10.12 , (ii) Indebtedness arising under Capital Leases entered
into in connection with Real Estate Financings and (iii) Indebtedness
arising under Capital Leases, other than Capital Leases entered into
pursuant to subclauses (i) and (ii) above, provided that the aggregate
amount of Indebtedness incurred pursuant to this subclause (iii) shall not
exceed $100,000,000 at any time outstanding, and (iv) any refinancing,
refunding, renewal or extension of any Indebtedness specified in subclause
(i), (ii) or (iii) above, provided that the principal amount thereof is
not increased above the principal amount thereof outstanding immediately
prior to such refinancing, refunding, renewal or extension;
(g) Indebtedness outstanding on the date hereof and listed on
Schedule 10.1 and any refinancing, refunding, renewal or extension
thereof, provided that (i) the principal amount thereof is not increased
above the principal amount thereof outstanding immediately prior to such
refinancing, refunding, renewal or extension and (ii) the direct and
contingent obligors with respect to such Indebtedness are not changed;
(h) Indebtedness in respect of Hedge Agreements;
(i) Indebtedness in respect of the Subordinated Notes;
(j) (i) Indebtedness of a Person or Indebtedness attaching to assets
of a Person that, in either case, becomes a Restricted Subsidiary
(including a Restricted Subsidiary that is also an Acquisition Subsidiary)
or Indebtedness attaching to assets that are acquired by the Borrower or
any Restricted Subsidiary (including any Acquisition Subsidiary), in each
case after the Closing Date as the result of a Permitted Acquisition,
provided that (w) such Indebtedness existed at the time such Person became
a Restricted Subsidiary or at the time such assets were acquired and, in
each case, was not created in anticipation thereof, (x) such Indebtedness
is not guaranteed in any respect by the Borrower or any Restricted
Subsidiary (other than any such person that so becomes a Restricted
Subsidiary), (y)(A) the Borrower pledges the capital stock of such Person
to the Administrative Agent to the extent required under Section 9.12, (B)
such Person executes a supplement to the Guarantee to the extent required
under Section 9.11 and (C) if any such Indebtedness is secured, (1) the
Guarantee referred to in the preceding subclause (B) is equally and
ratably secured or (2) in the case of assets acquired by the Borrower or
any Restricted Subsidiary (other than any Acquisition Subsidiary), the
Borrower's obligations hereunder or such Restricted Subsidiary's
Guarantee, as the case may be, are equally and ratably secured, provided
that the requirements of this subclause (y) shall not apply to an
aggregate amount at any time outstanding of up to (and including)
$75,000,000 of the aggregate of (1) such Indebtedness and (2) all
Indebtedness as to which the proviso to clause (k)(i)(y) below then
applies, and (z) the aggregate amount of such Indebtedness and all
Indebtedness incurred under clause (k) below, when taken together, does
not exceed $300,000,000 in the aggregate at any time outstanding, provided
that, when calculating the outstanding amount of Indebtedness for purposes
of this subclause (z), Indebtedness of any Acquisition Subsidiary,
Indebtedness attaching to assets of any Acquisition Subsidiary and
Indebtedness attaching to assets acquired by any Acquisition Subsidiary
shall be excluded, and (ii) any refinancing, refunding, renewal or
extension of any Indebtedness specified in subclause (i) above, provided
that (x) the principal amount of any such Indebtedness is not increased
above the principal amount thereof
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68
outstanding immediately prior to such refinancing, refunding, renewal or
extension and (y) the direct and contingent obligors with respect to such
Indebtedness are not changed;
(k) (i) Indebtedness of the Borrower or any Restricted Subsidiary
(including any Acquisition Subsidiary) incurred to finance a Permitted
Acquisition, provided that (x) such Indebtedness is not guaranteed in any
respect by any Restricted Subsidiary (other than any Person acquired (the
"acquired Person") as a result of such Permitted Acquisition or the
Restricted Subsidiary so incurring such Indebtedness) or, in the case of
Indebtedness of any Restricted Subsidiary, by the Borrower, (y)(A) the
Borrower pledges the capital stock of such acquired Person to the
Administrative Agent to the extent required under Section 9.12, (B) such
acquired Person executes a supplement to the Guarantee to the extent
required under Section 9.11 and (C) if a guarantee by such acquired Person
of any such Indebtedness is secured by assets of such acquired Person, the
Guarantee referred to in the preceding subclause (B) is equally and
ratably secured, provided that the requirements of this subclause (y)
shall not apply to an aggregate amount at any time outstanding of up to
(and including) $75,000,000 of the aggregate of (1) such Indebtedness and
(2) all Indebtedness as to which the proviso to clause (j)(i)(y) above
then applies, and (z) the aggregate amount of such Indebtedness and all
Indebtedness assumed or permitted to exist under clause (j) above, when
taken together, does not exceed $300,000,000 in the aggregate at any time
outstanding, provided that, when calculating the outstanding amount of
Indebtedness for purposes of this subclause (z), Indebtedness of any
Acquisition Subsidiary shall be excluded, and (ii) any refinancing,
refunding, renewal or extension of any Indebtedness specified in subclause
(i) above, provided that (x) the principal amount of any such Indebtedness
is not increased above the principal amount thereof outstanding
immediately prior to such refinancing, refunding, renewal or extension and
(y) the direct and contingent obligors with respect to such Indebtedness
are not changed;
(l) Indebtedness of Restricted Foreign Subsidiaries in an aggregate
amount at any time outstanding not to exceed (i) $75,000,000 minus (ii)
the amount equal to (x) the aggregate amount of Indebtedness incurred and
outstanding at such time pursuant to clause (n) below minus (y)
$100,000,000;
(m) (i) Indebtedness incurred in connection with any Real Estate
Financing and (ii) any refinancing, refunding, renewal or extension of any
Indebtedness specified in subclause (i) above, provided that (x) the
principal amount of any such Indebtedness is not increased above the
principal amount thereof outstanding immediately prior to such
refinancing, refunding, renewal or extension and (y) the direct and
contingent obligors with respect to such Indebtedness are not changed; and
(n) (i) additional Indebtedness, provided that the aggregate amount
of Indebtedness incurred and remaining outstanding pursuant to this clause
(n) shall not at any time exceed the sum of (x) $100,000,000 and (y) the
amount equal to (A) $75,000,000 minus (B) the aggregate amount of
Indebtedness then outstanding under clause (l) above, and (ii) any
refinancing, refunding, renewal or extension of any Indebtedness specified
in subclause (i) above.
<PAGE>
69
10.2 Limitation on Liens. The Borrower will not, and will not permit
any of the Restricted Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any property or assets of any kind (real or personal, tangible or
intangible) of the Borrower or any Restricted Subsidiary, whether now owned or
hereafter acquired, except:
(a) Liens arising under the Credit Documents;
(b) Permitted Liens;
(c) Liens securing Indebtedness permitted pursuant to Section
10.1(f), provided that such Liens attach at all times only to the assets
so financed;
(d) Liens existing on the date hereof;
(e) (i) Liens incurred by any Real Estate Financing Subsidiary in
connection with a Real Estate Financing and (ii) Liens incurred by the
Borrower or any Restricted Subsidiary on Centers in connection with a
Permitted Mortgage Financing of such Centers;
(f) Liens existing on the assets of any Person that becomes a
Restricted Subsidiary, or existing on assets acquired, pursuant to a
Permitted Acquisition to the extent the Liens on such assets secure
Indebtedness permitted by Section 10.1(j), provided that such Liens attach
at all times only to the same assets that such Liens attached to, and
secure only the same Indebtedness that such Liens secured, immediately
prior to such Permitted Acquisition;
(g) (i) Liens placed upon the capital stock of any Restricted
Subsidiary acquired pursuant to a Permitted Acquisition to secure
Indebtedness of the Borrower or any other Restricted Subsidiary incurred
pursuant to Section 10.1(k) in connection with such Permitted Acquisition,
(ii) Liens placed upon the assets of such Restricted Subsidiary to secure
a guarantee by such Restricted Subsidiary of any such Indebtedness of the
Borrower or any other Restricted Subsidiary and (iii) Liens placed upon
the capital stock or assets of any Acquisition Subsidiary to secure
Indebtedness of such Acquisition Subsidiary incurred pursuant to Section
10.1(k) in connection with any Permitted Acquisition;
(h) the replacement, extension or renewal of any Lien permitted by
clauses (a) through (g) above upon or in the same assets theretofore
subject to such Lien or the replacement, extension or renewal (without
increase in the amount or change in any direct or contingent obligor) of
the Indebtedness secured thereby; and
(i) additional Liens so long as the aggregate principal amount of
the obligations so secured does not exceed $25,000,000 at any time
outstanding.
10.3 Limitation on Fundamental Changes. The Borrower will not, and
will not permit any of the Restricted Subsidiaries to, enter into any merger,
consolidation or amalgamation, or
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70
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of,
all or substantially all its business units, assets or other properties, except
that:
(a) the Borrower may effect the Merger;
(b) any Subsidiary of the Borrower or any other Person may be merged
or consolidated with or into the Borrower, provided that (i) the Borrower
shall be the continuing or surviving corporation or the Person formed by
or surviving any such merger or consolidation (if other than the Borrower)
shall be a corporation organized or existing under the laws of the United
States, any state thereof, the District of Columbia or any territory
thereof (the Borrower or such Person, as the case may be, being herein
referred to as the "Successor Borrower"), (ii) the Successor Borrower (if
other than the Borrower) shall expressly assume all the obligations of the
Borrower under this Agreement and the other Credit Documents pursuant to a
supplement hereto or thereto in form reasonably satisfactory to the
Administrative Agent, (iii) no Default or Event of Default would result
from the consummation of such merger or consolidation, (iv) the Successor
Borrower shall be in compliance, on a pro forma basis after giving effect
to such merger or consolidation, with the covenants set forth in Sections
10.9, 10.10 and 10.11, as such covenants are recomputed as at the last day
of the most recently ended Test Period under such Section as if such
merger or consolidation had occurred on the first day of such Test Period,
(v) each Guarantor, unless it is the other party to such merger or
consolidation, shall have by a supplement to the Guarantee confirmed that
its Guarantee shall apply to the Successor Borrower's obligations under
this Agreement and (vi) the Borrower shall have delivered to the
Administrative Agent an officer's certificate and an opinion of counsel,
each stating that such merger or consolidation and such supplement to this
Agreement or any Guarantee comply with this Agreement, provided further
that if the foregoing are satisfied, the Successor Borrower (if other than
the Borrower) will succeed to, and be substituted for, the Borrower under
this Agreement;
(c) any Subsidiary of the Borrower or any other Person may be merged
or consolidated with any one or more other Subsidiaries of the Borrower,
provided that (i) no Default or Event of Default would result from such
merger or consolidation, (ii) in the case of any merger or consolidation
involving one or more Restricted Subsidiaries, a Restricted Subsidiary
shall be the continuing or surviving corporation and (iii) in the case of
any merger or consolidation involving one or more Guarantors, a Guarantor
shall be the continuing or surviving corporation;
(d) any Restricted Subsidiary that is not a Guarantor may sell,
lease, transfer or otherwise dispose of any or all of its assets (upon
voluntary liquidation or otherwise) to the Borrower, a Guarantor or any
other Restricted Subsidiary of the Borrower; and
(e) any Guarantor may sell, lease, transfer or otherwise dispose of
any or all of its assets (upon voluntary liquidation or otherwise) to the
Borrower or any other Guarantor.
10.4 Limitation on Sale of Assets. The Borrower will not, and will
not permit any of the Restricted Subsidiaries to, (i) convey, sell, lease,
assign, transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired (other than any such sale, transfer, assignment
or other
<PAGE>
71
disposition resulting from any casualty or condemnation, of any assets of the
Borrower or the Restricted Subsidiaries) or (ii) sell any shares owned by it of
any Restricted Subsidiary's capital stock to any Person other than the Borrower,
a Guarantor or a Restricted Foreign Subsidiary, except that:
(a) the Borrower and the Restricted Subsidiaries may sell, transfer
or otherwise dispose of used or surplus equipment, vehicles, inventory and
other assets in the ordinary course of business;
(b) the Borrower and the Restricted Subsidiaries may sell, transfer
or otherwise dispose of other assets for fair value, provided that (i) the
aggregate amount of such sales, transfers and disposals by the Borrower
and the Restricted Subsidiaries taken as a whole pursuant to this clause
(b) shall not exceed in the aggregate $250,000,000 during the term of this
Agreement, (ii) any consideration in excess of $5,000,000 received by the
Borrower or any Guarantor in connection with such sales, transfers and
other dispositions of assets pursuant to this clause (b) that is in the
form of Indebtedness shall be pledged to the Administrative Agent pursuant
to Section 9.12, (iii) with respect to any such sale, transfer or
disposition (or series of related sales, transfers or dispositions) in an
aggregate amount in excess of $10,000,000, the Borrower shall be in
compliance, on a pro forma basis after giving effect to such sale,
transfer or disposition, with the covenants set forth in Sections 10.9,
10.10 and 10.11, as such covenants are recomputed as at the last day of
the most recently ended Test Period under such Sections as if such sale,
transfer or disposition had occurred on the first day of such Test Period,
and (iv) after giving effect to any such sale, transfer or disposition, no
Default or Event of Default shall have occurred and be continuing;
(c) the Borrower and the Restricted Subsidiaries may make sales of
assets for fair value to the Borrower or to any Restricted Subsidiary;
(d) any Restricted Subsidiary may effect any transaction permitted
by Section 10.3;
(e) the Borrower and the Restricted Subsidiaries may sell or
discount without recourse accounts receivable arising in the ordinary
course of business in connection with the compromise or collection
thereof; and
(f) the Borrower and the Restricted Subsidiaries may sell, transfer
or otherwise dispose of Centers in connection with Real Estate Financings.
10.5 Limitation on Investments. The Borrower will not, and will not
permit any of the Restricted Subsidiaries to, make any advance, loan, extensions
of credit or capital contribution to, or purchase any stock, bonds, notes,
debentures or other securities of or any assets of, or make any other investment
in, any Person, except:
(a) extensions of trade credit and asset purchases in the ordinary
course of business;
(b) Permitted Investments;
(c) loans and advances to officers, directors and employees of the
Borrower or any of its Subsidiaries (i) to finance the purchase of capital
stock of the Borrower and (ii) for additional
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72
purposes not contemplated by subclause (i) above in an aggregate principal
amount at any time outstanding with respect to this clause (ii) not
exceeding $10,000,000;
(d) investments existing on the date hereof and any extensions,
renewals or reinvestments thereof, so long as the aggregate amount of all
investments pursuant to this clause (d) is not increased at any time above
the amount of such investments existing on the date hereof;
(e) investments in Hedge Agreements permitted by Section 10.1(h);
(f) investments received in connection with the bankruptcy or
reorganization of suppliers or customers and in settlement of delinquent
obligations of, and other disputes with, customers arising in the ordinary
course of business;
(g) investments payment for which is made solely with capital stock
of the Borrower;
(h) investments constituting non-cash proceeds of sales, transfers
and other dispositions of assets to the extent permitted by Section 10.4;
(i) investments in any Guarantor;
(j) investments constituting Permitted Acquisitions, provided that
the aggregate amount of any such investment made by the Borrower or any
Restricted Subsidiary (other than any Acquisition Subsidiary) in any
Acquisition Subsidiary shall not exceed the Available Amount at the time
of such investment, provided further that the aggregate amount of any such
investment made by the Borrower or any Restricted Subsidiary (other than
any Restricted Foreign Subsidiary) in any Restricted Foreign Subsidiary
shall not exceed (i) the Available Foreign Investment Amount at the time
of such investment minus (ii) the portion of the Available Foreign
Investment Amount being used at such time for investments made pursuant to
clause (n) below;
(k) investments in any Restricted Foreign Subsidiary, provided that
the aggregate amount of any such investment made by the Borrower or any
Restricted Subsidiary (other than any Restricted Foreign Subsidiary) shall
not exceed (i) the Available Foreign Investment Amount at the time of such
investment minus (ii) the portion of the Available Foreign Investment
Amount being used at such time for investments made pursuant to clause (n)
below;
(l) investments made to pay for the repurchase, retirement or other
acquisition of the Remaining Public Equity in an aggregate amount at the
time of such investment not in excess of the lesser of (i) the Available
Amount at such time and (ii) the aggregate amount of such investments then
permitted to be made under the Subordinated Note Indenture;
(m) investments made in any Real Estate Financing Subsidiary in
connection with Real Estate Financings; and
(n) additional investments (including investments in Minority
Investments, Unrestricted Subsidiaries and Acquisition Subsidiaries) in an
aggregate amount at the time of such investment not in excess of the sum
of (i) the Available Amount at such time and (ii) the amount equal to (x)
one-
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73
half of the Available Foreign Investment Amount at such time minus (y) the
amount at such time by which the sum of the amounts referrred to in clause
(b) of the definition of the term "Available Amount" exceeds the sum of
the amounts referred to in clause (a) of such definition.
10.6 Limitation on Dividends. The Borrower will not declare or pay
any dividends (other than dividends payable solely in its capital stock or
rights, warrants or options to purchase its capital stock) or return any capital
to its stockholders or make any other distribution, payment or delivery of
property or cash to its stockholders as such, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for consideration, any shares of any
class of its capital stock now or hereafter outstanding (or any warrants for or
options or stock appreciation rights in respect of any of such shares), or set
aside any funds for any of the foregoing purposes, or permit any of the
Restricted Subsidiaries to purchase or otherwise acquire for consideration
(other than in connection with an investment permitted by Section 10.5) any
shares of any class of the capital stock of the Borrower, now or hereafter
outstanding (or any options or warrants or stock appreciation rights issued by
such Person with respect to its capital stock) (all of the foregoing
"Dividends"), provided that, so long as no Default or Event of Default exists or
would exist after giving effect thereto, (a) the Borrower may redeem in whole or
in part any capital stock of the Borrower for another class of capital stock or
rights to acquire capital stock of the Borrower, provided that such other class
of capital stock contains terms and provisions at least as advantageous to the
Lenders as those contained in the capital stock redeemed thereby, (b) the
Borrower may repurchase shares of its capital stock (and/or options or warrants
in respect thereof) held by its officers, directors and employees so long as
such repurchase is pursuant to, and in accordance with the terms of, management
and/or employee stock plans, stock subscription agreements or shareholder
agreements and (c) the Borrower may declare and pay dividends on its capital
stock, provided that (i) the aggregate amount of dividends paid pursuant to this
clause (c) shall not at any time exceed 50% of Cumulative Consolidated Net
Income Available to Common Stockholders at such time and (ii) at the time of the
payment of any such dividends and after giving effect thereto, the Consolidated
Senior Debt to Consolidated EBITDA Ratio on the date of such payment of such
dividends shall be less than 2.50:1.00.
10.7 Limitation on Debt Payments and Amendments. (a) The Borrower
will not optionally prepay, repurchase or redeem or otherwise defease any
Subordinated Notes; provided, however, that so long as no Default or Event of
Default has occurred and is continuing, the Borrower may optionally prepay,
repurchase or redeem Subordinated Notes for an aggregate price not in excess of
the Available Amount at the time of such prepayment, repurchase or redemption.
(b) The Borrower will not waive, amend, modify, terminate or release
the Subordinated Note Indenture, to the extent that any such waiver, amendment,
supplement, modification, termination or release would be adverse to the Lenders
in any material respect.
10.8 Limitation on Sale Leasebacks. The Borrower will not, and will
not permit any of the Restricted Subsidiaries to, enter into or effect any Sale
Leasebacks of Centers, other than Permitted Sale Leasebacks.
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74
10.9 Consolidated Lease Expense. The Borrower will not permit
Consolidated Lease Expense for any fiscal year of the Borrower set forth below
to exceed the amount set forth below opposite such fiscal year:
Fiscal Year Amount
----------- ------
1997 $ 75,000,000
1998 80,000,000
1999 85,000,000
2000 90,000,000
2001 95,000,000
2002 100,000,000
2003 105,000,000
2004 110,000,000
2005 115,000,000
2006 120,000,000
10.10 Consolidated Senior Debt to Consolidated EBITDA Ratio. The
Borrower will not permit the Consolidated Senior Debt to Consolidated EBITDA
Ratio for any Test Period ending during any period set forth below to be greater
than the ratio set forth below opposite such period:
Period Ratio
------ -----
Closing Date through fourth quarter of 3.80:1.00
fiscal year 1997
First two quarters of fiscal year 1998 4.10:1.00
Last two quarters of fiscal year 1998 4.00:1.00
First two quarters of fiscal year 1999 4.50:1.00
Last two quarters of fiscal year 1999 4.30:1.00
First quarter of fiscal year 2000 4.75:1.00
Second quarter of fiscal year 2000 4.50:1.00
Last two quarters of fiscal year 2000 4.30:1.00
First two quarters of fiscal year 2001 4.50:1.00
Last two quarters of fiscal year 2001 4.25:1.00
First two quarters of fiscal year 2002 3.75:1.00
Last two quarters of fiscal year 2002 3.50:1.00
First two quarters of fiscal year 2003 3.25:1.00
Last two quarters of fiscal year 2003 3.00:1.00
First two quarters of fiscal year 2004 2.75:1.00
Third quarter of fiscal year 2004 through Term 2.50:1.00
Loan Maturity Date
10.11 Consolidated EBITDA to Consolidated Interest Expense Ratio.
The Borrower will not permit the Consolidated EBITDA to Consolidated Interest
Expense Ratio for any Test Period
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75
ending during any period set forth below to be less than the ratio set forth
below opposite such period:
Period Ratio
------ -----
Closing Date through second quarter of fiscal year 1998 1.50:1.00
Last two quarters of fiscal year 1998 1.40:1.00
Fiscal year 1999 1.45:1.00
Fiscal year 2000 1.60:1.00
Fiscal year 2001 1.70:1.00
Fiscal year 2002 1.90:1.00
Fiscal year 2003 2.10:1.00
Fiscal year 2004 2.25:1.00
Fiscal year 2005 through Term Loan Maturity Date 2.50:1.00
10.12 Capital Expenditures. The Borrower will not, and will not
permit any of the Restricted Subsidiaries, to make any Capital Expenditures
(other than Permitted Acquisitions that constitute Capital Expenditures) that
would cause the aggregate amount of all Capital Expenditures made by the
Borrower and the Restricted Subsidiaries in any fiscal year of the Borrower set
forth below to exceed the amount set forth below opposite such fiscal year:
Fiscal Year Amount
----------- ------
1997 $ 95,000,000
1998 100,000,000
1999 155,000,000
2000 185,000,000
2001 190,000,000
2002 190,000,000
2003 190,000,000
2004 190,000,000
2005 190,000,000
2006 190,000,000
To the extent that Capital Expenditures made by the Borrower and the Restricted
Subsidiaries during any fiscal year are less than the maximum amount permitted
to be made for such fiscal year, 75% of such unused amount (each such amount, a
"carry-forward amount") may be carried forward to the immediately succeeding
fiscal year and utilized to make Capital Expenditures in such succeeding fiscal
year in the event the amount set forth above for such succeeding fiscal year has
been used (it being understood and agreed that (a) no carry-forward amount may
be carried forward beyond the first three fiscal years immediately succeeding
the fiscal year in which it arose, (b) no portion of the carry-forward amount
available for any fiscal year may be used until the entire amount of Capital
Expenditures permitted to be made in such fiscal year (without giving effect to
such carry-forward amount) shall be made and (c) if the carry-forward amount
available for any fiscal year is the sum of amounts carried forward from each of
the two or three immediately preceding fiscal years, no portion
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of such carry-forward amount from the earlier of the two or three immediately
preceding fiscal years may be used until the entire portion of such
carry-forward amount from the more recent immediately preceding fiscal year
shall have been used for Capital Expenditures made in such fiscal year).
SECTION 11. Events of Default. Upon the occurrence of any of the following
specified events (each an "Event of Default"):
11.1 Payments. The Borrower shall (a) default in the payment when
due of any principal of the Loans or (b) default, and such default shall
continue for five or more days, in the payment when due of any interest on the
Loans or any Fees or any Unpaid Drawings or of any other amounts owing hereunder
or under any other Credit Document; or
11.2 Representations, etc.. Any representation, warranty or
statement made or deemed made by any Credit Party herein or in the Guarantee,
the Pledge Agreement or any certificate delivered or required to be delivered
pursuant hereto or thereto shall prove to be untrue in any material respect on
the date as of which made or deemed made; or
11.3 Covenants. Any Credit Party shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 9.1(f) or Section 10 or (b) default in the due performance or observance
by it of any term, covenant or agreement (other than those referred to in
Section 11.1 or 11.2 or clause (a) of this Section 11.3) contained in this
Agreement, the Guarantee or the Pledge Agreement and such default shall continue
unremedied for a period of at least 30 days after receipt of written notice by
the Borrower from the Administrative Agent or the Required Lenders; or
11.4 Default Under Other Agreements. (a) The Borrower or any of the
Restricted Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations) in excess of $20,000,000 in the
aggregate, for the Borrower and such Subsidiaries, beyond the period of grace,
if any, provided in the instrument or agreement under which such Indebtedness
was created or (ii) default in the observance or performance of any agreement or
condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or (except in the case of
Indebtedness consisting of any Hedge Agreement) any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, any such Indebtedness to
become due prior to its stated maturity; or (b) without limiting the provisions
of clause (a) above, any such Indebtedness (other than Indebtedness consisting
of any Hedge Agreement) shall be declared to be due and payable, or required to
be prepaid other than by a regularly scheduled required prepayment or as a
mandatory prepayment, prior to the stated maturity thereof; or
11.5 Bankruptcy, etc.. The Borrower or any Specified Subsidiary
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Borrower or any Specified Subsidiary and the petition is not
controverted within 10 days after commencement of the case; or an involuntary
case is commenced against the
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77
Borrower or any Specified Subsidiary and the petition is not dismissed within 60
days after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially all
of the property of the Borrower or any Specified Subsidiary; or the Borrower or
any Specified Subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to the Borrower or any Specified Subsidiary; or
there is commenced against the Borrower or any Specified Subsidiary any such
proceeding that remains undismissed for a period of 60 days; or the Borrower or
any Specified Subsidiary is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; or the
Borrower or any Specified Subsidiary suffers any appointment of any custodian or
the like for it or any substantial part of its property to continue undischarged
or unstayed for a period of 60 days; or the Borrower or any Specified Subsidiary
makes a general assignment for the benefit of creditors; or any corporate action
is taken by the Borrower or any Specified Subsidiary for the purpose of
effecting any of the foregoing; or
11.6 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code; any Plan is or shall have been terminated or is the subject of
termination proceedings under ERISA (including the giving of written notice
thereof); an event shall have occurred or a condition shall exist in either case
entitling the PBGC to terminate any Plan or to appoint a trustee to administer
any Plan (including the giving of written notice thereof); any Plan shall have
an accumulated funding deficiency (whether or not waived); the Borrower or any
Subsidiary or any ERISA Affiliate has incurred or is likely to incur a liability
to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201 or 4204 of ERISA or Section 4971 or 4975 of the Code (including
the giving of written notice thereof); (b) there could result from any event or
events set forth in clause (a) of this Section 11.6 the imposition of a lien,
the granting of a security interest, or a liability, or the reasonable
likelihood of incurring a lien, security interest or liability; and (c) such
lien, security interest or liability will or would be reasonably likely to have
a Material Adverse Effect; or
11.7 Guarantee. The Guarantee or any material provision thereof
shall cease to be in full force or effect or any Guarantor thereunder or any
Credit Party shall deny or disaffirm in writing such Guarantor's obligations
under the Guarantee; or
11.8 Pledge Agreement. The Pledge Agreement or any material
provision thereof shall cease to be in full force or effect (other than pursuant
to the terms hereof or thereof or as a result of acts or omissions of the
Administrative Agent or any Lender) or any Pledgor thereunder or any Credit
Party shall deny or disaffirm in writing such Pledgor's obligations under the
Pledge Agreement; or
11.9 Judgments. One or more judgments or decrees shall be entered
against the Borrower or any of the Restricted Subsidiaries involving a liability
of $20,000,000 or more in the aggregate for all such judgments and decrees for
the Borrower and the Restricted Subsidiaries (to the extent not paid or fully
covered by insurance provided by a carrier not disputing coverage) and any such
judgments or decrees shall not have been vacated, discharged or stayed or bonded
pending appeal within 60 days from the entry thereof; or
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11.10 Change of Control. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Lenders, by written notice to the Borrower, take any or
all of the following actions, without prejudice to the rights of the
Administrative Agent or any Lender to enforce its claims against the Borrower,
except as otherwise specifically provided for in this Agreement (provided that,
if an Event of Default specified in Section 11.5 shall occur with respect to the
Borrower or any Specified Subsidiary, the result that would occur upon the
giving of written notice by the Administrative Agent as specified in clauses
(i), (ii) and (iv) below shall occur automatically without the giving of any
such notice): (i) declare the Total Term Loan Commitment and the Total Revolving
Commitment terminated, whereupon the Commitments and Swingline Commitment, if
any, of each Lender or Chase, as the case may be, shall forthwith terminate
immediately and any Fees theretofore accrued shall forthwith become due and
payable without any other notice of any kind; (ii) declare the principal of and
any accrued interest in respect of all Loans and all Obligations owing hereunder
and thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower; (iii) terminate any Letter of Credit that may
be terminated in accordance with its terms; and/or (iv) direct the Borrower to
pay (and the Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default specified in Section 11.5 with respect to the
Borrower or any Specified Subsidiary, it will pay) to the Administrative Agent
at the Administrative Agent's Office such additional amounts of cash, to be held
as security for the Borrower's reimbursement obligations for Drawings that may
subsequently occur thereunder, equal to the aggregate Stated Amount of all
Letters of Credit issued and then outstanding.
SECTION 12. The Administrative Agent.
12.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Credit Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Credit Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Credit Document or
otherwise exist against the Administrative Agent.
12.2 Delegation of Duties. The Administrative Agent may execute any
of its duties under this Agreement and the other Credit Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
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12.3 Exculpatory Provisions. Neither the Administrative Agent nor
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Credit Document (except for its or such Person's own gross negligence or
willful misconduct) or (b) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower or
any Guarantor or any officer thereof contained in this Agreement or any other
Credit Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent under or
in connection with, this Agreement or any other Credit Document or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Credit Document or for any failure of the Borrower
or any Guarantor to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Credit
Document, or to inspect the properties, books or records of the Borrower.
12.4 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent may deem and treat the Lender specified in the Register
with respect to any amount owing hereunder as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent. The Administrative Agent shall be
fully justified in failing or refusing to take any action under this Agreement
or any other Credit Document unless it shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense that may be incurred by it by reason of taking or continuing to take any
such action. The Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Lenders, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders and all future holders of the Loans.
12.5 Notice of Default. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders, provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
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12.6 Non-Reliance on Administrative Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of
the Borrower or any Guarantor, shall be deemed to constitute any representation
or warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent that it has, independently and without reliance upon
the Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and any Guarantor and made its
own decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Credit Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower and any
Guarantor. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, assets,
operations, properties, financial condition, prospects or creditworthiness of
the Borrower or any Guarantor that may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
12.7 Indemnification. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective portions of the Total Credit Exposure in
effect on the date on which indemnification is sought (or, if indemnification is
sought after the date upon which the Commitments shall have terminated and the
Loans shall have been paid in full, ratably in accordance with their respective
portions of the Total Credit Exposure in effect immediately prior to such date),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever that may at any time (including, without limitation, at any time
following the payment of the Loans) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Credit Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing, provided
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. The agreements in this Section 12.7 shall
survive the payment of the Loans and all other amounts payable hereunder.
12.8 Administrative Agent in Its Individual Capacity. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower and any Guarantor
as though the Administrative Agent were not the Administrative Agent hereunder
and under the other Credit Documents. With respect to the Loans made by it, the
Administrative Agent shall have the same rights and powers under this Agreement
and
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the other Credit Documents as any Lender and may exercise the same as though it
were not the Administrative Agent, and the terms "Lender" and "Lenders" shall
include the Administrative Agent in its individual capacity.
12.9 Successor Agent. The Administrative Agent may resign as
Administrative Agent upon 20 days' prior written notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent under
this Agreement and the other Credit Documents, then the Required Lenders shall
appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall be approved by the Borrower (which approval shall not be
unreasonably withheld), whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon such
appointment and approval, and the former Administrative Agent's rights, powers
and duties as Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this Section 12 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Agreement and the
other Credit Documents.
SECTION 13. Miscellaneous.
13.1 Amendments and Waivers. Neither this Agreement nor any other
Credit Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 13.1. The
Required Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (a) enter into with the relevant
Credit Party or Credit Parties written amendments, supplements or modifications
hereto and to the other Credit Documents for the purpose of adding any
provisions to this Agreement or the other Credit Documents or changing in any
manner the rights of the Lenders or of the Borrower hereunder or thereunder or
(b) waive, on such terms and conditions as the Required Lenders or the
Administrative Agent, as the case may be, may specify in such instrument, any of
the requirements of this Agreement or the other Credit Documents or any Default
or Event of Default and its consequences; provided, however, that no such waiver
and no such amendment, supplement or modification shall directly (i) forgive any
portion of any Loan or extend the final scheduled maturity date of any Loan or
reduce the stated rate, or forgive any portion, or extend the date for the
payment, of any interest or fee payable hereunder (other than as a result of
waiving the applicability of any post-default increase in interest rates) or
extend the final expiration date of any Lender's Commitment or extend the final
expiration date of any Letter of Credit beyond the L/C Maturity Date or increase
the aggregate amount of the Commitments of any Lender, in each case without the
written consent of each Lender directly and adversely affected thereby, or (ii)
amend, modify or waive any provision of this Section 13.1 or reduce the
percentages specified in the definitions of the terms "Required Lenders",
"Required Revolving Credit Lenders" and "Required Term Loan Lenders", or consent
to the assignment or transfer by the Borrower of its rights and obligations
under any Credit Document to which it is a party (except as permitted pursuant
to Section 10.3), in each case without the written consent of each Lender
directly and adversely affected thereby, or (iii) amend, modify or waive any
provision of Section 12 without the written consent of the then-current
Administrative Agent, or (iv) amend, modify or waive any provision of Section 3
without the written consent of the Letter of Credit
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Issuer, or (v) amend, modify or waive any provisions hereof relating to
Swingline Loans without the written consent of Chase, or (vi) change any
Revolving Credit Commitment to a Term Loan Commitment, or change any Term Loan
Commitment to a Revolving Credit Commitment, in each case without the prior
written consent of each Lender directly and adversely affected thereby, or (vii)
decrease any Repayment Amount or extend any scheduled Repayment Date, in each
case without the written consent of the Required Term Loan Lenders, or (viii)
except to the extent permitted under the applicable Credit Document, release all
or substantially all the Collateral under the Pledge Agreement or release all or
substantially all the Guarantors under the Guarantee, in each case without the
written consent of (x) the Required Revolving Credit Lenders and (y) the
Required Term Loan Lenders. Any such waiver and any such amendment, supplement
or modification shall apply equally to each of the affected Lenders and shall be
binding upon the Borrower, such Lenders, the Administrative Agent and all future
holders of the affected Loans. In the case of any waiver, the Borrower, the
Lenders and the Administrative Agent shall be restored to their former positions
and rights hereunder and under the other Credit Documents, and any Default or
Event of Default waived shall be deemed to be cured and not continuing, it being
understood that no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any right consequent thereon.
13.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when delivered, or three days after
being deposited in the mail, postage prepaid, or, in the case of telecopy
notice, when received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth on Schedule 1.1 in the case of the other
parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto:
The Borrower: KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, AL 36116
Attention: Chief Financial Officer
Fax: 334-260-2925
with a copy to:
KinderCare Learning Centers, Inc.
In care of Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10019
Attention: Nils P. Brous
Fax: 212-750-0003
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The Administrative Agent: The Chase Manhattan Bank
c/o Loan and Agency Services Group
One Chase Manhattan Plaza,
Eighth Floor
New York, NY 10081
Attention: Janet Belden
Fax: 212-552-5658
with a copy to:
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Attention: William J. Caggiano
Fax: 212-972-0009
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to Sections 2.3, 2.6, 2.9, 4.2 and 5.1 shall not be
effective until received.
13.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Credit Documents
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
13.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, in the other Credit Documents and in any
document, certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement and the
making of the Loans hereunder.
13.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay
or reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Credit Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees, disbursements and other charges of counsel to the
Administrative Agent, (b) to pay or reimburse each Lender and the Administrative
Agent for all its reasonable and documented costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, the other Credit Documents and any such other documents, including,
without limitation, the reasonable fees, disbursements and other charges of
counsel to each Lender and of counsel to the Administrative Agent, (c) to pay,
indemnify, and hold harmless each Lender and the Administrative Agent from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay
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in paying, stamp, excise and other similar taxes, if any, that may be payable or
determined to be payable in connection with the execution and delivery of, or
consummation or administration of any of the transactions contemplated by, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Agreement, the other Credit Documents and any such other
documents, and (d) to pay, indemnify, and hold harmless each Lender and the
Administrative Agent and their respective directors, officers, employees,
trustees and agents from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever, including, without limitation,
reasonable and documented fees, disbursements and other charges of counsel, with
respect to the execution, delivery, enforcement, performance and administration
of this Agreement, the other Credit Documents and any such other documents,
including, without limitation, any of the foregoing relating to the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Borrower, any of its Subsidiaries or any of the Properties
(all the foregoing in this clause (d), collectively, the "indemnified
liabilities"), provided that the Borrower shall have no obligation hereunder to
the Administrative Agent or any Lender nor any of their respective directors,
officers, employees and agents with respect to indemnified liabilities arising
from (i) the gross negligence or willful misconduct of the party to be
indemnified or (ii) disputes among the Administrative Agent, the Lenders and/or
their transferees. The agreements in this Section 13.5 shall survive repayment
of the Loans and all other amounts payable hereunder.
13.6 Successors and Assigns; Participations and Assignments. (a) (i)
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Administrative Agent and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each
Lender.
(ii) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("Participants") participating interests in any Loan owing to such
Lender, any Commitment of such Lender or any other interest of such Lender
hereunder and under the other Credit Documents. In the event of any such sale by
a Lender of a participating interest to a Participant, such Lender's obligations
under this Agreement to the other parties to this Agreement shall remain
unchanged, such Lender shall remain solely responsible for the performance
thereof, such Lender shall remain the holder of any such Loan for all purposes
under this Agreement and the other Credit Documents, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Agreement and
the other Credit Documents. In no event shall any Participant under any such
participation have any right to approve any amendment or waiver of any provision
of any Credit Document, or any consent to any departure by any Credit Party
therefrom, except to the extent that such amendment, waiver or consent would
directly forgive any principal of any Loan or reduce the stated rate, or forgive
any portion, or postpone the date for the payment, of any interest or fee
payable hereunder (other than as a result of waiving the applicability of any
post-default increase in interest rates), or increase the aggregate amount of
the Commitments of any Lender or postpone the date of the final scheduled
maturity of any Loan, in each case to the extent subject to such participation.
The Borrower agrees that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by
<PAGE>
85
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in Section 13.7 as fully as if it were
a Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of Sections 2.10 and 2.11 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it were a Lender, provided that no Participant shall be entitled to receive
any greater amount pursuant to any such Section than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(iii) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to any
Lender or any Affiliate (with the consent of the Borrower if any increased costs
would result therefrom) thereof or, with the consent of the Borrower and the
Administrative Agent (which in each case shall not be unreasonably withheld, it
being understood that, without limitation, the Borrower shall have the right to
withhold its consent to any assignment if, in order for such assignment to
comply with applicable law, the Borrower would be required to obtain the consent
of, or make any filing or registration with, any Governmental Authority), to an
additional bank, fund which is regularly engaged in making, purchasing or
investing in loans or securities or financial institution (an "Assignee") all or
any part of its rights and obligations under this Agreement and the other Credit
Documents pursuant to an Assignment and Acceptance, substantially in the form of
Exhibit F, executed by such Assignee, such assigning Lender (and, in the case of
an Assignee that is not then a Lender or an Affiliate thereof, by the Borrower
and the Administrative Agent) and delivered to the Administrative Agent for its
acceptance and recording in the Register, provided that, except in the case of
an assignment of all of a Lender's interests under this Agreement, unless
otherwise agreed to by the Borrower and the Administrative Agent, no such
assignment to an Assignee (other than any Lender or any Affiliate thereof) shall
be in an aggregate principal amount of less than $5,000,000. Upon such
execution, delivery, acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with a Commitment as set forth therein and (y) the assigning Lender thereunder
shall, to the extent provided in such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such assigning Lender shall cease to be a
party hereto). Notwithstanding any provision of this Agreement to the contrary,
the consent of the Borrower shall not be required for any assignment that occurs
at any time when any of the events described in Section 11.5 shall have occurred
and be continuing with respect to the Borrower.
(b) Nothing herein shall prohibit any Lender from pledging or assigning
all or any portion of its Loans to any Federal Reserve Bank in accordance with
applicable law. In order to facilitate such pledge or assignment, the Borrower
hereby agrees that, upon request of any Lender at any time and from time to time
after the Borrower has made its initial borrowing hereunder, the Borrower shall
provide to such Lender, at the Borrower's own expense, a promissory note,
substantially in the form
<PAGE>
86
of Exhibit C-1 or C-2, as the case may be, evidencing the Term Loans and
Revolving Credit Loans, respectively, owing to such Lender.
(c) The Administrative Agent, on behalf of the Borrower, shall maintain at
the address of the Administrative Agent referred to in Section 13.2 a copy of
each Assignment and Acceptance delivered to it and a register (the "Register")
for the recordation of the names and addresses of the Lenders and the Commitment
of, and principal amount of the Loans owing to, each Lender from time to time.
The entries in the Register shall be conclusive, in the absence of manifest
error, and the Borrower, the Administrative Agent and the Lenders shall treat
each Person whose name is recorded in the Register as the owner of a Loan or
other obligation hereunder as the owner thereof for all purposes of this
Agreement and the other Credit Documents, notwithstanding any notice to the
contrary. Any assignment of any Loan or other obligation hereunder shall be
effective only upon appropriate entries with respect thereto being made in the
Register. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(d) (i) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an Affiliate thereof, by the Borrower and the Administrative
Agent) together with payment to the Administrative Agent of a registration and
processing fee of $3,500, the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and the Borrower.
(e) Subject to Section 13.16, the Borrower authorizes each Lender to
disclose to any Participant or Assignee (each, a "Transferee") and any
prospective Transferee any and all financial information in such Lender's
possession concerning the Borrower and its Affiliates that has been delivered to
such Lender by or on behalf of the Borrower pursuant to this Agreement or which
has been delivered to such Lender by or on behalf of the Borrower in connection
with such Lender's credit evaluation of the Borrower and its Affiliates prior to
becoming a party to this Agreement, provided that neither the Administrative
Agent nor any Lender shall provide to any Transferee or prospective Transferee
any of the Confidential Information unless such person shall have previously
executed a Confidentiality Agreement in the form of Exhibit H.
13.7 Replacements of Lenders under Certain Circumstances. The
Borrower shall be permitted to replace any Lender that (a) requests
reimbursement for amounts owing pursuant to Section 2.10, 2.12, 3.5 or 5.4, (b)
is affected in the manner described in Section 2.10(a)(iii) and as a result
thereof any of the actions described in such Section is required to be taken or
(c) becomes a Defaulting Lender, with a replacement bank or other financial
institution, provided that (i) such replacement does not conflict with any
Requirement of Law, (ii) no Event of Default shall have occurred and be
continuing at the time of such replacement, (iii) the Borrower shall repay (or
the replacement bank or institution shall purchase, at par) all Loans and other
amounts (other than any disputed amounts), pursuant to Section 2.10, 2.11, 2.12,
3.5 or 5.4, as the case may be) owing to such replaced Lender prior to the date
of replacement, (iv) the replacement bank or institution, if not already a
Lender, and the terms and conditions of such replacement, shall be reasonably
satisfactory to the Administrative Agent, (v) the replaced Lender shall be
obligated to make such replacement in accordance with the provisions of Section
13.6 (provided that the Borrower shall be obligated to pay
<PAGE>
87
the registration and processing fee referred to therein) and (vi) any such
replacement shall not be deemed to be a waiver of any rights that the Borrower,
the Administrative Agent or any other Lender shall have against the replaced
Lender.
13.8 Adjustments; Set-off. (a) If any Lender (a "benefitted Lender")
shall at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 11.5, or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loan, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) After the occurrence and during the continuance of an Event of
Default, in addition to any rights and remedies of the Lenders provided by law,
each Lender shall have the right, without prior notice to the Borrower, any such
notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify the
Borrower and the Administrative Agent after any such set-off and application
made by such Lender, provided that the failure to give such notice shall not
affect the validity of such set-off and application.
13.9 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
13.10 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.11 Integration. This Agreement and the other Credit Documents
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the
<PAGE>
88
Administrative Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Credit Documents.
13.12 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
13.13 Submission to Jurisdiction; Waivers. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Credit Documents to
which it is a party, or for recognition and enforcement of any judgement
in respect thereof, to the non-exclusive general jurisdiction of the
courts of the State of New York, the courts of the United States of
America for the Southern District of New York and appellate courts from
any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in Section 13.2 or at such other address
of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this Section 13.13 any special, exemplary, punitive or consequential
damages.
13.14 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Credit Documents;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to the Borrower arising out of or in
connection with this Agreement or any of the other Credit Documents, and
the relationship between Administrative Agent and Lenders, on one hand,
and the Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor; and
<PAGE>
89
(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Borrower and the Lenders.
13.15 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
13.16 Confidentiality. The Administrative Agent and each Lender
shall hold all non-public information furnished by or on behalf of the Borrower
in connection with such Lender's evaluation of whether to become a Lender
hereunder or obtained by such Lender or the Administrative Agent pursuant to the
requirements of this Agreement ("Confidential Information"), in accordance with
its customary procedure for handling confidential information of this nature and
(in the case of a Lender that is a bank) in accordance with safe and sound
banking practices and in any event may make disclosure as required or requested
by any governmental agency or representative thereof or pursuant to legal
process or to such Lender's or the Administrative Agent's attorneys,
professional advisors or independent auditors, provided that unless specifically
prohibited by applicable law or court order, each Lender and the Administrative
Agent shall notify the Borrower of any request by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information, and provided further that in no event shall any Lender or the
Administrative Agent be obligated or required to return any materials furnished
by the Borrower or any Subsidiary of the Borrower. Each Lender and the
Administrative Agent agrees that it will not provide to prospective Transferees
or to prospective direct or indirect contractual counterparties in swap
agreements to be entered into in connection with Loans made hereunder any of the
Confidential Information unless such Person shall have previously executed a
Confidentiality Agreement in the form of Exhibit H.
<PAGE>
90
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.
KINDERCARE LEARNING CENTERS, INC.,
by /s/ Philip L. Maslowe
----------------------------------
Name: Philip L. Maslowe
Title: Executive Vice President/
Chief Financial Officer
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender,
by /s/ L. Palambo
----------------------------------
Name: L. Palambo
Title: Vice President
Attorney-in-fact
BANKERS TRUST COMPANY,
as Syndication Agent and as a Lender,
by___________________________________
Name:
Title:
WELLS FARGO BANK, N.A.,
as Documentation Agent and as a Lender,
by___________________________________
Name:
Title:
<PAGE>
90
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.
KINDERCARE LEARNING CENTERS, INC.,
by___________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender,
by___________________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Syndication Agent and as a Lender,
by /s/ Mary Jo Jolly
----------------------------------
Name: MARY JO JOLLY
Title: ASSISTANT VICE PRESIDENT
WELLS FARGO BANK, N.A.,
as Documentation Agent and as a Lender,
by___________________________________
Name:
Title:
<PAGE>
90
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.
KINDERCARE LEARNING CENTERS, INC.,
by___________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender,
by___________________________________
Name:
Title:
BANKERS TRUST COMPANY,
as Syndication Agent and as a Lender,
by___________________________________
Name:
Title:
WELLS FARGO BANK, N.A.,
as Documentation Agent and as a Lender,
by /s/ David A. Neumann
----------------------------------
Name: David A. Neumann
Title: Vice President
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY,
by
------------------------------
Name:
Title:
ALLSTATE INSURANCE COMPANY,
by
------------------------------
Name:
Title:
AMSOUTH BANK OF ALABAMA,
by /s/ Donald M. Sinclair
------------------------------
Name: Donald M. Sinclair
Title: Vice President
BANK OF AMERICA ILLINOIS,
by
------------------------------
Name:
Title:
THE BANK OF NEW YORK
by
------------------------------
Name:
Title:
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
AMSOUTH BANK OF ALABAMA,
by /s/
------------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS,
by /s/ Eugene F. Martin
------------------------------
Name: Eugene F. Martin
Title: Vice President
THE BANK OF NEW YORK
by
------------------------------
Name:
Title:
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY,
by
------------------------------
Name:
Title:
ALLSTATE INSURANCE COMPANY,
by
------------------------------
Name:
Title:
AMSOUTH BANK OF ALABAMA,
by
------------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS,
by
------------------------------
Name:
Title:
THE BANK OF NEW YORK
by /s/ Ann Marie Beeble
------------------------------
Name: Ann Marie Beeble
Title: Assistant Vice President
<PAGE>
THE BANK OF NOVA SCOTIA,
by /s/ R.M. Brown
------------------------------
Name: R.M. Brown
Title: Relationship Manager
CIBC INC.,
by
------------------------------
Name:
Title:
CREDITANSTALT-BANKVEREIN,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA,
by
------------------------------
Name:
Title:
CIBC INC.,
by /s/ Roger Colden
------------------------------
Name: Roger Colden
Title: Director, CIBC Wood Gundy
Securities Corp. AS AGENT
CREDITANSTALT-BANKVEREIN,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA,
by
------------------------------
Name:
Title:
CIBC INC.,
by
------------------------------
Name:
Title:
CREDITANSTALT-BANKVEREIN,
by /s/ Joseph P. Longosz
------------------------------
Name: Joseph P. Longosz
Title: Vice President
by /s/ Scott Kray
------------------------------
Name: Scott Kray
Title: Senior Associate
<PAGE>
FLEET NATIONAL BANK,
by /s/ Eric C. Vander Mel
------------------------------
Name: Eric C. Vander Mel
Title: Vice President
LEHMAN COMMERCIAL PAPER, INC.
by
------------------------------
Name:
Title:
LLOYDS BANK PLC,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
THE LONG TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
by
------------------------------
Name:
Title:
<PAGE>
FLEET NATIONAL BANK,
by
------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER, INC.
by /s/ Dennis J. Dee
------------------------------
Name: Dennis J. Dee
Title: Authorized Secretary
LLOYDS BANK PLC,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
THE LONG TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
by
------------------------------
Name:
Title:
<PAGE>
FLEET NATIONAL BANK,
by
------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER, INC.
by
------------------------------
Name:
Title:
LLOYDS BANK PLC,
by /s/ Paul D. Brianmonte
------------------------------
Name: Paul D. Brianmonte
Title: Vice President
B374
by /s/ Stephen J. Attree
------------------------------
Name: Stephen J. Attree
Title: Assistant Vice President
A088
THE LONG TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
by
------------------------------
Name:
Title:
<PAGE>
FLEET NATIONAL BANK,
by
------------------------------
Name:
Title:
LEHMAN COMMERCIAL PAPER, INC.
by
------------------------------
Name:
Title:
LLOYDS BANK PLC,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
THE LONG TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH
by /s/ Shuichi Tajima
------------------------------
Name: Shuichi Tajima
Title: Deputy General Manager
<PAGE>
KZH HOLDING CORPORATION,
by
------------------------------
Name:
Title:
MARINE MIDLAND BANK,
by /s/ JB Lyons
------------------------------
Name: JB Lyons
Title: SVP
MERRILL LYNCH CAPITAL CORPORATION,
by
------------------------------
Name:
Title:
METROPOLITAN LIFE INSURANCE COMPANY,
by
------------------------------
Name:
Title:
<PAGE>
KZH HOLDING CORPORATION,
by
------------------------------
Name:
Title:
MARINE MIDLAND BANK,
by
------------------------------
Name:
Title:
MERRILL LYNCH CAPITAL CORPORATION,
by /s/ Christopher K. Stout
------------------------------
Name: Christopher K. Stout
Title: VP
METROPOLITAN LIFE INSURANCE COMPANY,
by
------------------------------
Name:
Title:
<PAGE>
NATIONSBANK, N.A. (SOUTH),
by
------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK PLC
by /s/ W. Wakefield Smith
------------------------------
Name: W. Wakefield Smith
Title: Vice President
THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY,
by
------------------------------
Name:
Title:
OAK HILL SECURITIES FUND, L.P.
by
------------------------------
Name:
Title:
<PAGE>
NATIONSBANK, N.A. (SOUTH),
by
------------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK PLC
by /s/ Derrick C. Bell
------------------------------
Name: Derrick C. Bell
Title: Vice President
THE SAKURA BANK, LIMITED
by
------------------------------
Name:
Title:
SOCIETE GENERALE,
by
------------------------------
Name:
Title:
<PAGE>
ORIX USA CORPORATION,
by
------------------------------
Name:
Title:
PRIME INCOME TRUST,
by /s/
------------------------------
Name:
Title:
PROTECTIVE LIFE INSURANCE COMPANY,
by
------------------------------
Name:
Title:
THE SAKURA BANK, LIMITED,
by /s/ Yasuhiro Terada
------------------------------
Name: Yasuhiro Terada
Title: Senior Vice President
<PAGE>
SOCIETE GENERALE,
by /s/ John M. Stack
------------------------------
Name: John M. Stack
Title: Vice President
SOUTHTRUST BANK OF ALABAMA, NATIONAL
ASSOCIATION.
by /s/
------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
by
------------------------------
Name:
Title:
THE TRAVELERS INSURANCE COMPANY,
by
------------------------------
Name:
Title:
<PAGE>
SOCIETE GENERALE,
by
------------------------------
Name:
Title:
SOUTHTRUST BANK OF ALABAMA, NATIONAL
ASSOCIATION.
by /s/ Allan P. Causey
------------------------------
Name: Allan P. Causey
Title: Vice President
THE SUMITOMO BANK, LIMITED,
by
------------------------------
Name:
Title:
THE TRAVELERS INSURANCE COMPANY,
by
------------------------------
Name:
Title:
<PAGE>
SOCIETE GENERALE,
by
------------------------------
Name:
Title:
SOUTHTRUST BANK OF ALABAMA, NATIONAL
ASSOCIATION.
by
------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
by /s/ John C. Kissinger
------------------------------
Name: John C. Kissinger
Title: Joint General Manager
THE TRAVELERS INSURANCE COMPANY,
by
------------------------------
Name:
Title:
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST,
by
------------------------------
Name:
Title:
WACHOVIA BANK OF GEORGIA, N.A.,
by /s/ John C. Canty
------------------------------
Name: John C. Canty
Title: Banking Officer
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
<PAGE>
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February 13, 1997, among
KCLC Acquisition Corp., a Delaware corporation (the "Company"), KLC Associates,
L.P., a Delaware limited partnership ("KLC"), and KKR Partners II, L.P., a
Delaware limited partnership ("KKR Partners" and, together with KLC, the "Common
Stock Partnerships").
RECITALS
Pursuant to an Agreement and Plan of Merger, dated as of October 3,
1996 and as amended as of December 27, 1996 (the "Merger Agreement"), among
KinderCare Learning Centers, Inc. ("KinderCare") and the Company, the Company
will be merged with and into KinderCare on February 13, 1997 (the "Merger"). As
a result of the Merger, each outstanding share of common stock, par value $.01
per share (the "Common Stock") of the Company, all 100 of which shares are owned
collectively by the Common Stock Partnerships, will be converted into (i) a
number of shares of common stock, par value $.01 per share, of KinderCare equal
to the quotient of (A) 7,828,947 divided by (B) the number of shares of Common
Stock outstanding immediately prior to the Effective Time. At the Effective
Time, KinderCare shall succeed by merger to all of the rights and obligations of
the Company, including those set forth herein, as well as to all of the other
property and assets of the Company.
Pursuant to a Stock Sale and Equity Contribution Agreement, dated as
of February 13, 1997 (the "Equity Contribution Agreement"), among the Company
and the Common Stock Partnerships, the Common Stock Partnerships made equity
contributions of $148.75 million in the aggregate to the Company. Upon the
merger of the Company with and into KinderCare, such $148.75 million will be
received by KinderCare as an equity contribution by the Common Stock
Partnerships.
AGREEMENT
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the following respective meanings:
"Common Stock": the common stock, par value $.01 per share, of the
Company and its successors, including, without limitation, the common
stock of KinderCare into which the Common Stock may be converted by
Merger.
"Common Equivalent Securities": securities that are convertible into
or exchangeable or exercisable for Common Stock.
"Demand Party": (a) KLC, (b) KKR Partners or (c) any other Holder or
Holders, including, without limitation, any present or future general or
limited partner
<PAGE>
of either Common Stock Partnership, or any general or limited partner or
member of any general or limited partner thereof, that may become an
assignee of such Common Stock Partnership's rights hereunder; provided
that to be a Demand Party under this clause (c), a Holder or Holders must
either individually or in aggregate with all other Holders with whom it is
acting together to demand registration own at least 1% of the total number
of Registrable Securities.
"Exchange Act": The Securities Exchange Act of 1934, as amended, or
any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
"Holder": Each Common Stock Partnership and any other holder of
Registrable Securities (including any direct or indirect transferees of a
Common Stock Partnership) who agrees in writing to be bound by the
provisions of this Agreement.
"Person": Any individual, partnership, limited liability company,
joint venture, corporation, trust, unincorporated organization or
government or any department or agency thereof.
"Registrable Securities": Any Common Stock or Common Equivalent
Securities acquired by a Common Stock Partnership from the Company or any
affiliate of the Company, whether as a result of the Merger or upon the
conversion of any convertible security or otherwise, and any Common Stock
or Common Equivalent Securities which may be issued or distributed in
respect thereof by way of stock dividend or stock split or other
distribution, recapitalization or reclassification. As to any particular
Registrable Securities, once issued, such Registrable Securities shall
cease to be Registrable Securities when (i) a registration statement with
respect to the sale by the Holder of such securities shall have become
effective under the Securities Act (as defined below) and such securities
shall have been disposed of in accordance with such registration
statement, (ii) such securities shall have been distributed to the public
pursuant to Rule 144 (or any successor provision) under the Securities
Act, (iii) such securities shall have been otherwise transferred, new
certificates for such securities not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent
disposition of such securities shall not require registration or
qualification of such securities under the Securities Act or any state
securities or blue sky law then in force, or (iv) such securities shall
have ceased to be outstanding.
"Registration Expenses": Any and all expenses incident to
performance of or compliance with this Agreement, including, without
limitation, (i) all SEC (as defined below) and stock exchange or National
Association of Securities Dealers, Inc. (the "NASD") registration and
filing fees (including, if applicable, the fees and expenses of any
"qualified independent underwriter," as such term is defined in Schedule E
to the By-laws of the NASD, and of its counsel), (ii) all fees and
expenses of complying with securities or blue sky laws (including fees and
disbursements of counsel for the
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underwriters in connection with blue sky qualifications of the Registrable
Securities), (iii) all printing, messenger and delivery expenses, (iv) all
fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange pursuant to clause
(viii) of Section 4 and all rating agency fees, (v) the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such performance and
compliance, (vi) the reasonable fees and disbursements of counsel selected
pursuant to Section 7 hereof by the Holders of the Registrable Securities
being registered to represent such Holders in connection with each such
registration, (vii) any fees and disbursements of underwriters customarily
paid by the issuers or sellers of securities, including liability
insurance if the Company so desires or if the underwriters so require, and
the reasonable fees and expenses of any special experts retained in
connection with the requested registration, but excluding underwriting
discounts and commissions and transfer taxes, if any, and (viii) other
reasonable out-of-pocket expenses of Holders (provided that such expenses
shall not include expenses of counsel other than those provided for in
clause (vi) above).
"Securities Act": The Securities Act of 1933, as amended, or any
similar federal statute then in effect, and a reference to a particular
section thereof shall be deemed to include a reference to the comparable
section, if any, of any such similar federal statute.
"SEC": The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act or the Exchange Act.
2. Incidental Registrations. (a) Right to Include Registrable
Securities. If the Company at any time after the date hereof proposes to
register its Common Stock or any Common Equivalent Securities under the
Securities Act (other than a registration on Form S-4 or S-8, or any successor
or other forms promulgated for similar purposes), whether or not for sale for
its own account, in a manner which would permit registration of Registrable
Securities for sale to the public under the Securities Act, it will, at each
such time, give prompt written notice to all Holders of Registrable Securities
of its intention to do so and of such Holders' rights under this Section 2. Upon
the written request of any such Holder made within 15 days after the receipt of
any such notice (which request shall specify the Registrable Securities intended
to be disposed of by such Holder), the Company will use its best efforts to
effect the registration under the Securities Act of all Registrable Securities
which the Company has been so requested to register by the Holders thereof, to
the extent requisite to permit the disposition of the Registrable Securities so
to be registered; provided that (i) if, at any time after giving written notice
of its intention to register any securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to proceed with the proposed
registration of the securities to be sold by it, the Company may, at its
election, give written notice of such determination to each Holder of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), and (ii) if such registration involves an underwritten offering, all
Holders of
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Registrable Securities requesting to be included in the Company's registration
must sell their Registrable Securities to the underwriters selected by the
Company on the same terms and conditions as apply to the Company, with such
differences, including any with respect to indemnification and liability
insurance, as may be customary or appropriate in combined primary and secondary
offerings. If a registration requested pursuant to this Section 2(a) involves an
underwritten public offering, any Holder of Registrable Securities requesting to
be included in such registration may elect, in writing prior to the effective
date of the registration statement filed in connection with such registration,
not to register such securities in connection with such registration. Nothing in
this Section 2(a) shall operate to limit the right of any Holder to (i) request
the registration of Common Stock issuable upon conversion, exercise or exchange
of Common Equivalent Securities held by such Holder notwithstanding the fact
that at the time of request such Holder holds only Common Equivalent Securities
or (ii) request the registration at one time of both Common Stock and Common
Equivalent Securities.
(b) Expenses. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 2.
(c) Priority in Incidental Registrations. If a registration pursuant
to this Section 2 involves an underwritten offering and the managing underwriter
advises the Company in writing that, in its opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering, so as to be likely to have an adverse effect on the
price, timing or distribution of the securities offered in such offering as
contemplated by the Company (other than the Registrable Securities), then the
Company will include in such registration (i) first, 100% of the securities the
Company proposes to sell and (ii) second, to the extent of the number of
Registrable Securities requested to be included in such registration which, in
the opinion of such managing underwriter, can be sold without having the adverse
effect referred to above, the number of Registrable Securities which the Holders
have requested to be included in such registration, such amount to be allocated
pro rata among all requesting Holders on the basis of the relative number of
shares of Registrable Securities then held by each such Holder (provided that
any shares thereby allocated to any such Holder that exceed such Holder's
request will be reallocated among the remaining requesting Holders in like
manner).
3. Registration on Request. (a) Request by the Demand Party. At any
time, upon the written request of the Demand Party requesting that the Company
effect the registration under the Securities Act of all or part of such Demand
Party's Registrable Securities and specifying the amount and intended method of
disposition thereof, the Company will promptly give written notice of such
requested registration to all other Holders of such Registrable Securities, and
thereupon will, as expeditiously as possible, use its best efforts to effect the
registration under the Securities Act of:
(i) such Registrable Securities (including, if such request
relates to any Common Equivalent Securities, the shares of Common Stock
issuable upon such conversion, exercise or exchange) which the Company has
been so requested to register by the Demand Party; and
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(ii) all other Registrable Securities of the same class or series
as are to be registered at the request of a Demand Party and which the
Company has been requested to register by any other Holder thereof by
written request given to the Company within 15 days after the giving of
such written notice by the Company (which request shall specify the amount
of such Registrable Securities),
all to the extent necessary to permit the disposition (in accordance with the
intended method of distribution thereof as aforesaid) of the Registrable
Securities so to be registered; provided, that with respect to any Demand Party
other than a Common Stock Partnership, the Company shall not be obligated to
effect any registration of Registrable Securities under this Section 3(a) unless
such Demand Party requests that the Company register at least 1% of the total
number of Registrable Securities; and provided, further, that, unless Holders of
a majority of the shares of Registrable Securities held by Holders consent
thereto in writing, the Company shall not be obligated to file a registration
statement relating to any registration request under this Section 3(a) (x)
within a period of nine months after the effective date of any other
registration statement relating to any registration request under this Section
3(a) which was not effected on Form S-3 (or any successor or similar short-form
registration statement) or relating to any registration effected under Section
2, or (y) if with respect thereto the managing underwriter, the SEC, the
Securities Act or the rules and regulations thereunder, or the form on which the
registration statement is to be filed, would require the conduct of an audit
other than the regular audit conducted by the Company at the end of its fiscal
year, in which case the filing may be delayed until the completion of such
regular audit (unless the Holders of the Registrable Securities to be registered
agree to pay the expenses of the Company in connection with such an audit other
than the regular audit). Nothing in this Section 3 shall operate to limit the
right of any Holder to (i) request the registration of Common Stock issuable
upon conversion, exercise or exchange of Common Equivalent Securities held by
such Holder notwithstanding the fact that at the time of request such Holder
holds only Common Equivalent Securities or (ii) request the registration at one
time of both Common Stock Common Equivalent Securities.
(b) Registration Statement Form. If any registration
requested pursuant to this Section 3 which is proposed by the Company to be
effected by the filing of a registration statement on Form S-3 (or any successor
or similar short-form registration statement) shall be in connection with an
underwritten public offering, and if the managing underwriter shall advise the
Company in writing that, in its opinion, the use of another form of registration
statement is of material importance to the success of such proposed offering,
then such registration shall be effected on such other form.
(c) Expenses. The Company will pay all Registration Expenses in
connection with the first six (6) registrations of each class or series of
Registrable Securities pursuant to this Section 3 upon the written request of
any Demand Party, provided that, for purposes hereof, a request to register
Common Stock into which a Common Equivalent Security is convertible, exercisable
or exchangeable in conjunction with a registration of such Common Equivalent
Security shall be deemed to be one request for registration of a class or series
of Registrable Securities. All expenses for any subsequent registrations of
Registrable Securities pursuant to this Section 3 shall be paid pro rata by the
Company and all other Persons
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(including the Holders) participating in such registration on the basis of the
relative number of shares of Common Stock of each such person whose Registrable
Securities are included in such registration.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 3 will not be deemed to have been effected unless it
has become effective and all of the Registrable Securities registered thereunder
have been sold; provided that if, within 180 days after it has become effective,
the offering of Registrable Securities pursuant to such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court, such registration will be deemed
not to have been effected.
(e) Selection of Underwriters. If a requested registration pursuant
to this Section 3 involves an underwritten offering, the Holders of a majority
of the shares of Registrable Securities which are held by Holders and which the
Company has been requested to register shall have the right to select the
investment banker or bankers and managers to administer the offering; provided,
however, that such investment banker or bankers and managers shall be reasonably
satisfactory to the Company.
(f) Priority in Requested Registrations. If a requested registration
pursuant to this Section 3 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceeds the number which
can be sold in such offering, the Company will include in such registration only
the Registrable Securities requested to be included in such registration. In the
event that the number of Registrable Securities requested to be included in such
registration exceeds the number which, in the opinion of such managing
underwriter, can be sold, the number of such Registrable Securities to be
included in such registration shall be allocated pro rata among all requesting
Holders on the basis of the relative number of shares of Registrable Securities
then held by each such Holder (provided that any shares thereby allocated to any
such Holder that exceed such Holder's request shall be reallocated among the
remaining requesting Holders in like manner). In the event that the number of
Registrable Securities requested to be included in such registration is less
than the number which, in the opinion of the managing underwriter, can be sold,
the Company may include in such registration the securities the Company proposes
to sell up to the number of securities that, in the opinion of the underwriter,
can be sold.
(g) Additional Rights. If the Company at any time grants to any
other holders of Common Stock any rights to request the Company to effect the
registration under the Securities Act of any such shares of Common Stock on
terms more favorable to such holders than the terms set forth in this Section 3,
the terms of this Section 3 shall be deemed amended or supplemented to the
extent necessary to provide the Holders such more favorable rights and benefits.
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4. Registration Procedures. If and whenever the Company is required
to use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, the Company
will, as expeditiously as possible:
(i) prepare and, in any event within 120 days after the end of
the period within which a request for registration may be given to the
Company, file with the SEC a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective, provided, however, that the Company may
discontinue any registration of its securities which is being effected
pursuant to Section 2 at any time prior to the effective date of the
registration statement relating thereto;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period not in excess of 270 days and to comply
with the provisions of the Securities Act, the Exchange Act and the rules
and regulations of the SEC thereunder with respect to the disposition of
all securities covered by such registration statement during such period
in accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement; provided that
before filing a registration statement or prospectus, or any amendments or
supplements thereto, the Company will furnish to counsel selected pursuant
to Section 7 hereof by the Holders of the Registrable Securities covered
by such registration statement to represent such Holders, copies of all
documents proposed to be filed, which documents will be subject to the
review of such counsel;
(iii) furnish to each seller of such Registrable Securities such
number of copies of such registration statement and of each amendment and
supplement thereto (in each case including all exhibits filed therewith,
including any documents incorporated by reference), such number of copies
of the prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents as such
seller may reasonably request in order to facilitate the disposition of
the Registrable Securities by such seller;
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such registration in such jurisdictions as each
seller shall reasonably request, and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such Seller, except that the Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction where, but for the requirements of this
clause (iv), it would not be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
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(v) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) notify each seller of any such Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (ii) of this Section 4,
of the Company's becoming aware that the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such
seller, prepare and furnish to such seller a reasonable number of copies
of an amended or supplemental prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable (but not more than eighteen
months) after the effective date of the registration statement, an
earnings statement which shall satisfy the provisions of Section 11(a) of
the Securities Act and the rules and regulations promulgated thereunder;
(viii) (A) use its best efforts to list such Registrable Securities
on any securities exchange on which the Common Stock is then listed (or if
the Common Stock is not then listed, on any securities exchange requested)
if such Registrable Securities are not already so listed and if such
listing is then permitted under the rules of such exchange; (B) if such
Registrable Securities are Common Equivalent Securities, upon the
reasonable request of sellers of a majority of shares of such Registrable
Securities, use its best efforts to list the Common Equivalent Securities
and, if requested, the Common Stock underlying such Common Equivalent
Securities, notwithstanding that at the time of request such sellers hold
only Common Equivalent Securities, on any securities exchange so
requested, if such Registrable Securities are not already so listed, and
if such listing is then permitted under the rules of such exchange; (C)
and use its best efforts to provide a transfer agent and registrar for
such Registrable Securities covered by such registration statement not
later than the effective date of such registration statement;
(ix) enter into such customary agreements (including an
underwriting agreement in customary form), which may include
indemnification provisions in favor of underwriters and other persons in
addition to, or in substitution for the provisions of Section 5 hereof,
and take such other actions as sellers of a majority of shares of such
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Registrable Securities or the underwriters, if any, reasonably requested
in order to expedite or facilitate the disposition of such Registrable
Securities;
(x) obtain a "cold comfort" letter or letters from the Company's
independent public accounts in customary form and covering matters of the
type customarily covered by "cold comfort" letters as the seller or
sellers of a majority of shares of such Registrable Securities shall
reasonably request (provided that Registrable Securities constitute at
least 25% of the securities covered by such registration statement);
(xi) make available for inspection by any seller of such
Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of the Company, and cause all of the Company's officers, directors and
employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement;
(xii) notify counsel (selected pursuant to Section 7 hereof) for
the Holders of Registrable Securities included in such registration
statement and the managing underwriter or agent, immediately, and confirm
the notice in writing (i) when the registration statement, or any
post-effective amendment to the registration statement, shall have become
effective, or any supplement to the prospectus or any amendment prospectus
shall have been filed, (ii) of the receipt of any comments from the SEC,
(iii) of any request of the SEC to amend the registration statement or
amend or supplement the prospectus or for additional information, and (iv)
of the issuance by the SEC of any stop order suspending the effectiveness
of the registration statement or of any order preventing or suspending the
use of any preliminary prospectus, or of the suspension of the
qualification of the registration statement for offering or sale in any
jurisdiction, or of the institution or threatening of any proceedings for
any of such purposes;
(xiii) make every reasonable effort to prevent the issuance of any
stop order suspending the effectiveness of the registration statement or
of any order preventing or suspending the use of any preliminary
prospectus and, if any such order is issued, to obtain the withdrawal of
any such order at the earliest possible moment;
(xiv) if requested by the managing underwriter or agent or any
Holder of Registrable Securities covered by the registration statement,
promptly incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or agent or such
Holder reasonably requests to be included therein, including, without
limitation, with respect to the number of Registrable Securities being
sold by such Holder to such underwriter or agent, the purchase price being
paid therefor by such underwriter or agent and with respect to any other
terms of the
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underwritten offering of the Registrable Securities to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after being notified of
the matters incorporated in such prospectus supplement or post-effective
amendment;
(xv) cooperate with the Holders of Registrable Securities covered
by the registration statement and the managing underwriter or agent, if
any, to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legends) representing securities to be sold
under the registration statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter or
agent, if any, or such Holders may request;
(xvi) obtain for delivery to the Holders of Registrable Securities
being registered and to the underwriter or agent an opinion or opinions
from counsel for the Company in customary form and in form, substance and
scope reasonably satisfactory to such Holders, underwriters or agents and
their counsel; and
(xvii) cooperate with each seller of Registrable Securities and
each underwriter or agent participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company with such
information regarding such seller and pertinent to the disclosure requirements
relating to the registration and the distribution of such securities as the
Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in clause (vi) of this Section 4, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by clause (vi) of this
Section 4, and, if so directed by the Company, such Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the period mentioned in clause (ii) of this
Section 4 shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to clause (vi) of this
Section 4 and including the date when each seller of Registrable Securities
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by clause (vi) of this Section
4.
5. Indemnification. (a) Indemnification by the Company. In the event
of any registration of any securities of the Company under the Securities Act
pursuant to Section 2 or 3, the Company will, and it hereby does, indemnify and
hold harmless, to the extent
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permitted by law, the seller of any Registrable Securities covered by such
registration statement, each affiliate of such seller and their respective
directors and officers, general and limited partners or members (including any
director, officer, affiliate, employee, agent and controlling Person of any of
the foregoing), each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who controls
such seller or any such underwriter within the meaning of the Securities Act,
against any and all losses, claims, damages or liabilities, joint or several,
and expenses (including reasonable attorney's fees and reasonable expenses of
investigation) to which such indemnified party may become subject under the
Securities Act, common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof, whether or not
such indemnified party is a party thereto) arise out of or are based upon (a)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Securities Act, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, or (b) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in light
of the circumstances under which they were made) not misleading, and the Company
will reimburse such indemnified party for any legal or any other expenses
reasonably incurred by it in connection with investigating or defending against
any such loss, claim, liability, action or proceeding; provided that the Company
shall not be liable to any indemnified party in any such case to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such seller specifically stating that it is for use in the preparation
thereof. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any indemnified party and
shall survive the transfer of such securities by such seller.
(b) Indemnification by the Seller. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed in accordance with Section 4 herein, that the Company shall have received
an undertaking reasonably satisfactory to it from the prospective seller of such
Registrable Securities or any underwriter to indemnify and hold harmless (in the
same manner and to the same extent as set forth in subdivision (a) of this
Section 5) the Company and all other prospective sellers with respect to any
untrue statement or alleged untrue statement in or omission or alleged omission
from such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement, if such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company through
an instrument duly executed by such seller or underwriter specifically stating
that it is for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement, or a
document incorporated by reference into any of the foregoing. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any of the prospective sellers, or any of their
respective affiliates, directors, officers or
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controlling Persons and shall survive the transfer of such securities by such
seller. In no event shall the liability of any selling Holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided that the failure of the
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 5, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified party and indemnifying
parties may exist in respect of such claim, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party will consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof, the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in this
Section 5 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party under this Section 5(d) as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method
-12-
<PAGE>
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(e) Other Indemnification. Indemnification similar to that specified
in the preceding subdivisions of this Section 5 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation or governmental authority other than the
Securities Act.
(f) Non-Exclusivity. The obligations of the parties under this
Section 5 shall be in addition to any liability which any party may otherwise
have to any other party.
6. Rule 144. The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available such information), and it will
take such further action as any Holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell shares of Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of any
Holder of Registrable Securities, the Company will deliver to such Holder a
written statement as to whether it has complied with such requirements.
Notwithstanding anything contained in this Section 6, the Company may deregister
under Section 12 of the Exchange Act if it then is permitted to do so pursuant
to the Exchange Act and the rules and regulations thereunder.
7. Selection of Counsel. In connection with any registration of
Registrable Securities pursuant to Sections 2 and 3 hereof, the Holders of a
majority of the Registrable Securities covered by any such registration may
select one counsel to represent all Holders of Registrable Securities covered by
such registration; provided, however, that in the event that the counsel
selected as provided above is also acting as counsel to the Company in
connection with such registration, the remaining Holders shall be entitled to
select one additional counsel to represent all such remaining Holders.
8. Miscellaneous. (a) Other Investors. The Company may enter into
agreements with other purchasers of Common Stock who are then employees of the
Company (or its successor) or any of its subsidiaries, making them parties
hereto (and thereby giving them all, or a portion, of the rights, preferences
and privileges of an original party hereto) with respect to additional shares of
Common Stock (the "Supplemental Agreements"); provided, however, that pursuant
to any such Supplemental Agreement, such purchaser expressly agrees to be bound
by all of the terms, conditions and obligations of this Agreement as if such
purchaser were an original party hereto. All shares of Common Stock issued or
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<PAGE>
issuable pursuant to such Supplemental Agreements shall be deemed to be
Registrable Securities.
(b) Holdback Agreement. If any such registration shall be in
connection with an underwritten public offering, each Holder of Registrable
Securities agrees not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the Securities Act, of any equity securities of
the Company, or of any security convertible into or exchangeable or exercisable
for any equity security of the Company (in each case, other than as part of such
underwritten public offering), within 7 days before or such period not to exceed
180 days as the underwriting agreement may require (or such lesser period as the
managing underwriters may permit) after the effective date of such registration
(except as part of such registration), and the Company hereby also so agrees and
agrees to cause each other holder of any equity security, or of any security
convertible into or exchangeable or exercisable for any equity security, of the
Company purchased from the Company (at any time other than in a public offering)
to so agree.
(c) Amendments and Waivers. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the Holders of
a majority of the Registrable Securities then outstanding; provided, however,
that no amendment, waiver or consent to the departure from the terms and
provisions of this Agreement that is adverse to either Common Stock Partnership
or any of their respective successors and assigns shall be effective as against
any such Person for so long as such Person holds any Registrable Securities
unless consented to in writing by such Person. Each Holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 8(c), whether or not such Registrable Securities
shall have been marked to indicate such consent.
(d) Successors, Assigns and Transferees. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. In addition, and whether or not any express
assignment shall have been made, the provisions of this Agreement which are for
the benefit of the parties hereto other than the Company shall also be for the
benefit of and enforceable by any subsequent Holder of any Registrable
Securities, subject to the provisions contained herein. Without limitation to
the foregoing, in the event that either Common Stock Partnership distributes or
otherwise transfers any shares of the Registrable Securities to any of its
present or future general or limited partners, the Company hereby acknowledges
that the registration rights granted pursuant to this Agreement shall be
transferred to such partner or partners on a pro rata basis, and that at or
after the time of any such distribution or transfer, any such partner or group
of partners may designate a Person to act on its behalf in delivering any
notices or making any requests hereunder.
(e) Notices. All notices and other communications provided for
hereunder shall be in writing and shall be sent by first class mail, telex,
telecopier or hand delivery:
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<PAGE>
(i) (A) if to the Company prior to the Merger, to:
KCLC Acquisition Corp.
9 West 57th Street
New York, New York 10019
Attention: Clifton S. Robbins
(B) if to the Company following the Merger, to:
KinderCare Learning Centers, Inc.
2400 Presidents Drive
Montgomery, Alabama 36116
Attention: General Counsel
(ii) if to either Common Stock Partnership, to:
c/o Kohlberg Kravis Roberts & Co., L.P.
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, Esq
(iii) if to any other holder of Registrable Securities, to the
address of such other holder as shown in the stock record book of the
Company, or to such other address as any of the above shall have
designated in writing to all of the other above.
All such notices and communications shall be deemed to have been
given or made (1) when delivered by hand, (2) five business days after being
deposited in the mail, postage prepaid, (3) when telexed answer-back received or
(4) when telecopied, receipt acknowledged.
(f) Descriptive Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.
(g) Severability. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the remaining provisions, paragraphs,
words, clauses,
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<PAGE>
phrases or sentences hereof shall not be in any way impaired, it being intended
that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
(h) Counterparts. This Agreement may be executed in counterparts,
and by different parties on separate counterparts, each of which shall be deemed
an original, but all such counterparts shall together constitute one and the
same instrument.
(i) Governing Law; Submission to Jurisdiction. This Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of New York applicable to contracts made and to be performed therein. The
parties to this Agreement hereby agree to submit to the jurisdiction of the
courts of the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any thereof in any
action or proceeding arising out of or relating to this Agreement.
(j) Specific Performance. The parties hereto acknowledge and 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. Accordingly, it is agreed that they shall be entitled
to an injunction or injunctions to prevent breaches of the provision of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of competent jurisdiction in the United States or any state thereof, in
addition to any other remedy to which they may be entitled at law or in equity.
-16-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be duly executed on its behalf as of the
date first written above.
KCLC ACQUISITION CORP.
By: /s/ Clifton S. Robbins
---------------------------------------
Name: Clifton S. Robbins
Title: President
KLC ASSOCIATES, L.P.
By KKR Associates (KLC) L.P.,
as General Partner
By KKR-KLC L.L.C., as
General Partner
By: /s/ Clifton S. Robbins
---------------------------------------
Name: Clifton S. Robbins
Title: Member
KKR PARTNERS II, L.P.
By KKR ASSOCIATES L.P., as
General Partner
By: /s/ Clifton S. Robbins
---------------------------------------
Name: Clifton S. Robbins
Title: General Partner
-17-
<PAGE>
ACKNOWLEDGEMENT
The undersigned authorized officer of KinderCare Learning Centers, Inc. is aware
of this Registration Rights Agreement and acknowledges that KinderCare Learning
Centers, Inc. will be bound by the terms hereof as successor to KCLC Acquisition
Corp. by merger.
KINDERCARE LEARNING CENTERS, INC.
By /s/ Philip L. Maslowe
-----------------------------------
Name: Philip L. Maslowe
Title: Senior Vice President
Chief Financial Officer
-18-
<PAGE>
Exhibit 10.3
CONFORMED COPY
KINDERCARE LEARNING CENTERS, INC.
$300,000,000
9-1/2% Senior Subordinated Notes due 2009
PURCHASE AGREEMENT
February 10, 1997
CHASE SECURITIES INC.
270 Park Avenue
New York, NY 10017
BT SECURITIES CORPORATION
300 South Grand Avenue
41st Floor
Los Angeles, CA 90071
SALOMON BROTHERS INC
Seven World Trade Center
New York, NY 10048
SMITH BARNEY INC.
388 Greenwich Street
New York, NY 10013
Ladies and Gentlemen:
KinderCare Learning Centers, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell $300,000,000 principal amount of its
9-1/2% Senior Subordinated Notes due 2009 (the "Securities"). The Securities are
to be issued pursuant to an Indenture to be dated the Closing Date (as defined
in Section 3 hereof) (the "Indenture"), between the Company and Marine Midland
Bank, as trustee (the "Trustee"). The Company hereby confirms its agreement with
Chase Securities Inc. ("CSI") and BT Securities Corporation, Salomon Brothers
Inc and Smith Barney Inc. (together, with CSI, the "Initial Purchasers") with
respect to the sale by the Company of the Securities to the Initial Purchasers.
The Securities will be offered and sold to the Initial Purchasers
without being registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance on an exemption therefrom. The Company has
<PAGE>
2
prepared a preliminary offering memorandum dated January 23, 1997 (such
preliminary offering memorandum being hereinafter referred to as the
"preliminary offering memorandum"), and an offering memorandum dated February
10, 1997 (such offering memorandum, in the form first furnished to the Initial
Purchasers being hereinafter referred to as the "Offering Memorandum"), setting
forth information regarding the Company and the Securities for use in connection
with the offering of the Securities. Copies of the preliminary offering
memorandum have been, and copies of the Offering Memorandum will be, delivered
by the Company to the Initial Purchasers pursuant to the terms of this
Agreement. Any references herein to the preliminary offering memorandum and the
Offering Memorandum shall be deemed to include all amendments and supplements
thereto, unless otherwise noted. The Company hereby confirms that it has
authorized the use of the preliminary offering memorandum and the Offering
Memorandum in connection with the offering and sale of the Securities.
Holders (including subsequent transferees) of the Securities will
have the registration rights set forth in the Registration Rights Agreement (the
"Registration Rights Agreement"), to be dated the Closing Date, in substantially
the form of Exhibit A hereto, for so long as any such Securities constitute
"Registrable Notes" (as defined in the Registration Rights Agreement). Pursuant
to the Registration Rights Agreement, the Company will agree to file with the
Securities and Exchange Commission (the "Commission") (i) a registration
statement under the Securities Act (the "Exchange Offer Registration Statement")
registering an issue of a series of senior subordinated notes (the "Exchange
Securities") identical in all material respects to the Securities (except that
the Exchange Securities will not contain terms with respect to transfer
restrictions) to be offered in exchange for the Securities (the "Exchange
Offer") and (ii) under certain circumstances, a shelf registration statement
pursuant to Rule 415 under the Securities Act (the "Shelf Registration
Statement").
Capitalized terms used herein without definition have the respective
meanings specified therefor in the Offering Memorandum.
<PAGE>
3
1. Representations, Warranties and Agreements of the Company. The
Company represents and warrants to and agrees with the Initial Purchasers as of
the date hereof and as of the Closing Date that:
(a) Each of the preliminary offering memorandum and the Offering
Memorandum, as of its respective date, contains all the information that,
if requested by a prospective purchaser, would be required to be provided
pursuant to Rule 144A(d)(4) under the Securities Act. Each of the
preliminary offering memorandum and the Offering Memorandum, as of its
respective date, did not, and at the Closing Date, the Offering Memorandum
and any amendment or supplement thereto will not, 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, in light
of the circumstances under which they were made, not misleading. The
preceding sentence does not apply to information contained in or omitted
from the preliminary offering memorandum or the Offering Memorandum (or
any supplement or amendment thereto) in reliance upon and in conformity
with written information relating to the Initial Purchasers furnished to
the Company by or on behalf of the Initial Purchasers specifically for use
therein (the "Initial Purchasers' Information"). The parties acknowledge
and agree that the Initial Purchasers' Information consists solely of the
last paragraph of text on the cover page of the Offering Memorandum, the
stabilization legend on page four of the Offering Memorandum and the
third, sixth and eighth paragraphs under the caption "Plan of
Distribution" in the Offering Memorandum.
(b) Each of the Company and the Subsidiaries (as defined below) has
been duly incorporated (or the equivalent thereof, in the case of
Subsidiaries other than Domestic Subsidiaries) and each Domestic
Subsidiary is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing (or
the equivalent thereof, in the case of Subsidiaries other than Domestic
Subsidiaries) as a foreign corporation in each jurisdiction in which its
ownership or lease of property or the conduct of its businesses requires
such qualification, and has all power and authority necessary to own or
hold its
<PAGE>
4
respective properties and to conduct the businesses in which it is engaged
as described in the Offering Memorandum, except where the failure to so
qualify or have such power or authority would not have, singly or in the
aggregate, a material adverse effect on the financial condition, results
of operations or business of the Company and the Subsidiaries considered
as a whole (a "Material Adverse Effect"). The term "Subsidiary" means each
person with at least nominal assets of which a majority of the voting
equity securities or other interests is owned, directly or indirectly, by
the Company as of the Closing Date, such persons being referred to
collectively as the "Subsidiaries". The only Subsidiaries of the Company
organized under the laws of the United States of America or any State
thereof or the District of Columbia are KinderCare Real Estate Corp. and
KC Development Corp (collectively, the "Domestic Subsidiaries").
(c) The Company has the capitalization as set forth in the Offering
Memorandum under the heading "Capitalization", and all the issued shares
of capital stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable. The outstanding shares of
capital stock of each Subsidiary are validly authorized and issued and
fully paid and nonassessable (or the equivalent thereof, in the case of
Subsidiaries other than Domestic Subsidiaries) and are owned, directly or
indirectly, by the Company free and clear of any lien (other than any lien
on such capital stock pursuant to the Credit Facilities), charge,
encumbrance, security interest, restriction upon voting or transfer or any
other claim of any third party.
(d) This Agreement and the Agreement and Plan of Merger (the "Merger
Agreement") dated as of October 3, 1996, and as amended as of December 27,
1996, between KCLC Acquisition Corp., a Delaware corporation, and the
Company have been duly authorized and validly executed and delivered by
the Company. At the Closing Date the Indenture will conform in all
material respects to the requirements of the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"), and the rules and regulations of
the Commission applicable to an indenture which is qualified thereunder.
The Indenture and the Registration Rights Agreement have been duly
<PAGE>
5
authorized by the Company. This Agreement and the Merger Agreement
constitute, and each of the Indenture and Registration Rights Agreement,
when duly executed and delivered in accordance with their terms by each
party thereto, will constitute, a valid and legally binding agreement of
the Company, enforceable against the Company in accordance with their
terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally, and to general equitable
principles (regardless of whether enforcement is considered in a
proceeding in equity or at law).
(e) On the Closing Date, the Securities will have been duly
authorized by the Company, and the Securities, the Indenture and the
Registration Rights Agreement will have been duly executed by the Company
and will conform in all material respects to the descriptions thereof
contained in the Offering Memorandum. When the Securities are issued,
authenticated and delivered in accordance with the Indenture and paid for
in accordance with the terms of this Agreement (assuming due
authorization, execution and delivery of the Indenture by the Trustee and
due authentication of the Securities by the Trustee), the Securities will
constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms and
entitled to the benefits of the Indenture, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights
generally, and to general equitable principles (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(f) The execution, delivery and performance of the Indenture, the
Securities, the Registration Rights Agreement, the Merger Agreement and
this Agreement by the Company, the consummation of the transactions
contemplated hereby and thereby, and the fulfillment of the terms hereof
or thereof, will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets (other than any lien pursuant to the Credit
Facilities) of the Company
<PAGE>
6
or any Subsidiary pursuant to, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary is
bound or to which any of their respective properties or assets is subject,
nor will such actions result in any violation of the provisions of the
charter or by-laws of the Company or any Subsidiary or any statute or any
judgment, order, decree, rule or regulation of any court or arbitrator or
governmental agency or body having jurisdiction over the Company or any
Subsidiary or any of their respective properties or assets, except for any
such conflict, breach, violation, default, lien, charge or encumbrance
that would not have a Material Adverse Effect; and no consent, approval,
authorization or order of, or filing or registration with, any such court
or arbitrator or governmental agency or body under any such statute,
judgment, order, decree, rule or regulation is required for the execution,
delivery and performance of the Indenture, the Securities, the
Registration Rights Agreement, the Merger Agreement or this Agreement by
the Company or any Subsidiary or the consummation of the transactions
contemplated hereby and thereby which shall not have been obtained or made
on or prior to the Closing Date (other than (i) such consents, approvals,
authorizations or orders of, or filings or registrations with, the
Commission or any state securities regulatory authorities as may be
required to be obtained or made pursuant to this Agreement, the Merger
Agreement or the Registration Rights Agreement and (ii) consents,
approvals, authorizations or orders of, or filings or registrations with,
state and local licensing authorities which shall be obtained as soon as
practicable following receipt of notice of the necessity therefor in
connection with state and local child care licensing requirements and the
absence of which, singly or in the aggregate, would not have a Material
Adverse Effect). Attached hereto as Annex A is a complete and accurate
list of all of the material contracts of the Company.
(g) KPMG Peat Marwick LLP ("Peat Marwick") are independent certified
public accountants with respect to the Company and its Subsidiaries (i)
within the meaning of Rule 101 of the Code of Professional Conduct of the
American Institute of Certified Public Accountants ("AICPA") and its
interpretations and
<PAGE>
7
rulings thereunder and (ii) as required by the Securities Act and the
rules and regulations thereunder for financial statements included in a
definitive prospectus forming part of a registration statement on Form S-1
under the Securities Act. The historical financial statements (including
the related notes) included in the preliminary offering memorandum and the
Offering Memorandum comply in all material respects (except for the
inclusion of financial statement schedules) with the requirements
applicable to a Registration Statement on Form S-1 and have been prepared,
and fairly present in all material respects, the financial position of the
Company and the Subsidiaries on a consolidated basis at the respective
dates indicated and the results of their operations and cash flows for the
respective periods indicated, subject in the case of unaudited
consolidated financial statements to year-end audit adjustments, in
accordance with generally accepted accounting principles consistently
applied throughout such periods, except as otherwise disclosed therein;
and the financial information and financial data set forth in the Offering
Memorandum under the captions "Offering Memorandum Summary--Summary
Consolidated Financial and Other Data", "Capitalization", "Pro Forma
Consolidated Financial Statements", "Selected Historical Consolidated
Financial and Other Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are derived from the
accounting records of the Company, and fairly present in all material
respects the data purported to be shown. The pro forma financial
statements contained in the preliminary offering memorandum and the
Offering Memorandum have been prepared on a basis consistent with such
historical statements, except for the pro forma adjustments specified
therein, include all material adjustments to the historical financial data
required by Rule 11-02 of Regulation S-X to reflect the Merger, the
Financings and other related transactions, give effect to assumptions made
on a reasonable basis and present fairly in all material respects the
historical and proposed transactions contemplated by the preliminary
offering memorandum, the Offering Memorandum and this Agreement. The other
historical financial and statistical information and data included in the
preliminary offering memorandum and the Offering Memorandum are, in all
material respects, accurately presented.
<PAGE>
8
(h) There are no pending actions or suits or judicial, arbitral or
other administrative or other proceedings to which the Company or any
Subsidiary is a party or of which any property or assets of the Company or
any Subsidiary is the subject which, singly or in the aggregate, if
determined adversely to the Company or any Subsidiary, are reasonably
likely to have a Material Adverse Effect; and to the Company's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or others.
(i) Neither the Company nor any Subsidiary is (A) in violation of
its charter or by-laws, (B) in default in any respect, nor has any event
occurred which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any term, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which the Company
or any Subsidiary is a party or by which it is bound or to which any of
their respective property or assets is subject or (C) in violation in any
respect of any law, ordinance, governmental rule, regulation or court
decree to which the Company or any Subsidiary or their respective property
or assets may be subject, except any violation or default under clauses
(B) or (C) that would not reasonably be expected to have a Material
Adverse Effect.
(j) The Company and the Subsidiaries possess all material licenses,
certificates, authorizations and permits issued by, and have made all
declarations and filings with, the appropriate state, federal or foreign
regulatory agencies or bodies which are necessary for the ownership of
their respective properties or the conduct of their businesses as
described in the Offering Memorandum, except where the failure to possess
or make the same would not have, singly or in the aggregate, a Material
Adverse Effect, and neither the Company nor any Subsidiary has received
notification of any revocation or modification of any such license,
authorization or permit (other than with respect to state child care
licensing requirements in connection with the transactions contemplated by
the Merger Agreement) and none of them has any reasonable basis to believe
that any such license, certificate, authorization or permit will not be
renewed.
<PAGE>
9
(k) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and the rules and regulations of
the Commission thereunder.
(l) The Company and the Subsidiaries maintain insurance covering
their respective properties, operations, personnel and businesses
(including, without limitation, insurance against claims of alleged child
abuse), which insurance is in amounts and insures against such losses and
risks, in each case as is in accordance with customary industry practice
to protect their respective businesses. Neither the Company nor any
Subsidiary has received notice from any insurer or agent of such insurer
that capital improvements or other expenditures will have to be made in
order to continue such insurance.
(m) Except as disclosed in the Offering Memorandum, there are no
securities of the Company or any Subsidiary registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
listed on a national securities exchange or quoted in a U.S. automated
inter-dealer quotation system.
(n) Except as disclosed in the Offering Memorandum (including with
respect to this Agreement), neither the Company nor any Subsidiary is a
party to any contract, agreement or understanding with any person that
would give rise to a valid claim against the Company or any Subsidiary or
the Initial Purchasers for a brokerage commission, finder's fee or like
payment in connection with the offering of the Securities.
(o) The Company and the Subsidiaries own or possess adequate rights
to use all patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights,
licenses and know-how (including trade secrets and other unpatented or
unpatentable proprietary or confidential information, systems or
procedures) necessary for the conduct of their businesses, except where
the failure to own or possess such rights would not have a Material
Adverse Effect, and the Company has no reasonable basis to believe that
the conduct of their businesses will conflict with any such rights of
others which would reasonably be
<PAGE>
10
expected to have a Material Adverse Effect, and neither the Company nor
any Subsidiary has received any notice of any claim of conflict with any
such rights of others which, if such assertion of conflict were sustained,
would have a Material Adverse Effect.
(p) The Company and the Subsidiaries have good and marketable title
in fee simple to, or have valid rights to lease or otherwise use, all
items of real or personal property material to the business of the Company
and the Subsidiaries taken as a whole, in each case free and clear of all
liens, encumbrances, claims, defects and imperfections of title (other
than pursuant to the Credit Facilities) that would reasonably be expected
to have a Material Adverse Effect, it being understood that liens,
encumbrances, claims, defects and imperfections of title that do not
materially interfere with the use made or proposed to be made of such
property would not reasonably be expected to have a Material Adverse
Effect.
(q) Except as described in the Offering Memorandum or which would
not reasonably be expected to have a Material Adverse Effect, none of the
Company or its Subsidiaries has any liability for any prohibited
transaction or funding deficiency or any complete or partial withdrawal
liability with respect to any pension, profit sharing or other plan which
is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company or any Subsidiary makes or ever
has made a contribution and in which any employee of the Company or any
Subsidiary is or has ever been a participant. With respect to such plans,
the Company and each of its Subsidiaries is in compliance with all
applicable provisions of ERISA, except where any non-compliance would not
reasonably be expected to have a Material Adverse Effect.
(r) There has been no storage, generation, transportation, handling,
treatment, disposal, discharge, emission, or other release of any kind of
toxic or other wastes or other hazardous substances by, due to, or caused
by the Company or any Subsidiary (or, to the best of the Company's
knowledge, any other entity for whose acts or omissions the Company or any
Subsidiary is or may reasonably be expected to be liable) upon any of the
property now or previously owned or leased by the Company or any
Subsidiary, or
<PAGE>
11
upon any other property, (i) in violation of any statute or any ordinance,
rule, regulation, order, judgment, decree or permit or (ii) which would,
under any statute or any ordinance, rule (including rule of common law),
regulation, order, judgment, decree or permit, give rise to any liability,
except in the case of both clauses (i) and (ii) for any violation or
liability which would not have, singly or in the aggregate with all such
violations and liabilities, a Material Adverse Effect; there has been no
disposal, discharge, emission or other release of any kind onto such
property or into the environment surrounding such property of any toxic or
other wastes or other hazardous substances with respect to which the
Company or any Subsidiary has knowledge, except for any such disposal,
discharge, emission or other release of any kind which would not have,
singly or in the aggregate with all such discharges and other releases, a
Material Adverse Effect.
(s) Neither the Company nor any affiliate (as such term is defined
in Rule 501(b) under the Securities Act) of the Company has, directly or
through any agent, sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any "security" (as defined in the
Securities Act), which is or will be integrated with the sale of the
Securities in a manner that would require the registration of the
Securities under the Securities Act.
(t) None of the Company or any affiliate (as such term is defined in
Rule 501(b) under the Securities Act) of the Company or any other person
acting on its or their behalf has engaged, in connection with the offering
of the Securities, in any form of general solicitation or general
advertising within the meaning of Rule 502(c) under the Securities Act.
(u) Assuming the accuracy of the Initial Purchasers' representations
in Section 2 hereof and their compliance with the agreements set forth
therein, it is not necessary, in connection with the issuance and sale of
the Securities and the offer, resale and delivery of the Securities in the
manner contemplated by this Agreement and the Offering Memorandum, to
register the Securities under the Securities Act or to qualify the
Indenture under the Trust Indenture Act.
<PAGE>
12
(v) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(w) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Rule 10b-6 under the Exchange Act in
connection with the offering of the Securities.
(x) Except as described or summarized in the Offering Memorandum,
there are no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares of
capital stock of or other equity interest in the Company.
(y) Since the date as of which information is given in the Offering
Memorandum, (A) there has been no material adverse change or any
development involving a prospective material adverse change in the
financial condition or in the earnings or business of the Company and the
Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business, (B) there have been no transactions entered into by
the Company or any Subsidiary, other than those in the ordinary course of
business, which are material with respect to the Company and the
Subsidiaries taken as a whole, and (C) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock, except as contemplated by the Merger
Agreement.
2. Purchase by the Initial Purchasers. On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Company agrees to issue and sell to
the Initial Purchasers, severally and not jointly, and the Initial Purchasers,
severally and not jointly, agree to purchase from the Company such respective
principal amounts of Securities as are set forth opposite the name of such
Initial Purchaser in Schedule I hereto at a purchase price equal to 97.25% of
the principal amount thereof, plus accrued interest, if any, from February 13,
1997, to the Closing Date.
<PAGE>
13
The Company shall not be obligated to deliver any of the Securities
except upon payment for all of the Securities to be purchased as provided
herein.
The Initial Purchasers have advised the Company that it is their
intention, as promptly as they deem appropriate after the Company shall have
furnished the Initial Purchasers with copies of the Offering Memorandum, to
resell the Securities pursuant to the procedures and upon the terms set forth in
the Offering Memorandum, including not to solicit any offer to buy or offer to
sell the Securities by means of any form of general solicitation or general
advertising (within the meaning of Regulation D under the Securities Act) or in
any manner involving a public offering within the meaning of Section 4(2) of the
Securities Act. Each Initial Purchaser, severally and not jointly, represents,
warrants and agrees with the Company that they have solicited and will solicit
offers for Securities only from, and will offer Securities only to, persons that
they reasonably believe to be (i) "Qualified Institutional Buyers" ("QIBs"), as
defined in Rule 144A under the Securities Act, or (ii) other Institutional
Accredited Investors, within the meaning of Rule 501(a) under the Securities
Act. The Initial Purchasers represent and warrant, severally and not jointly,
that they are either QIBs or Institutional Accredited Investors, in either case
with such knowledge and experience in financial and business matters as are
necessary to evaluate the merits and risks of an investment in the Securities,
and are acquiring their interest in the Securities not with a view to the
distribution or resale thereof, except resales in compliance with the
registration requirements or exemption provisions of the Securities Act and
neither they, nor anyone acting on their behalf, will offer the Securities so as
to bring the issuance and sale of the Securities within the provisions of
Section 5 of the Securities Act. The Company acknowledges and agrees that the
Initial Purchasers may sell Securities to any affiliate of an Initial Purchaser
and that any such affiliate may sell Securities purchased by it to the Initial
Purchasers. The Initial Purchasers agree that, prior to or simultaneously with
the confirmation of sale by the Initial Purchasers to any purchaser of any of
the Securities purchased by the Initial Purchasers from the Company pursuant
hereto, the Initial Purchasers shall furnish to that purchaser a copy of the
Offering Memorandum (and any amendment thereof or supplement thereto that the
Company shall have furnished to the Initial Purchasers prior to the date of such
confirmation of sale). In addition to the
<PAGE>
14
foregoing, the Initial Purchasers agree and understand that the Company and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Sections 5(c), (d), (e) and (f) hereof, counsel to the Company and to the
Initial Purchasers, respectively, may rely upon the accuracy and truth of the
foregoing representations, warranties and covenants in this Section 2 and the
Initial Purchasers hereby consent to such reliance.
3. Delivery of and Payment for the Securities. Delivery of and
payment for the Securities shall be made at the offices of Simpson Thacher &
Bartlett, New York, New York, or at such other place as shall be agreed upon by
the Initial Purchasers and the Company, at 10:00 a.m., New York City time, on
February 13, 1997, or at such other time or date, not later than seven full
business days thereafter, as shall be agreed upon by the Initial Purchasers and
the Company (such time and date of payment and delivery being referred to herein
as the "Closing Date").
On the Closing Date, payment of the purchase price for the
Securities shall be made to the Company by wire or book-entry transfer of
same-day funds to such account or accounts as the Company shall specify prior to
the Closing Date or by such other means as the parties hereto shall agree prior
to the Closing Date against delivery to the Initial Purchasers of the
certificates evidencing the Securities. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligations of the Initial Purchasers hereunder. Upon delivery,
the Securities shall be in global form, registered in such names and in such
denominations as CSI on behalf of the Initial Purchasers shall have requested in
writing not less than two full business days prior to the Closing Date. The
Company agrees to make one or more global certificates evidencing the Securities
available for inspection by CSI on behalf of the Initial Purchasers in New York,
New York at least 24 hours prior to the Closing Date.
4. Further Agreements of the Company. The Company agrees with the
Initial Purchasers:
(a) to advise the Initial Purchasers promptly and, if requested,
confirm such advice in writing, of the happening of any event which makes
any statement of a material fact made in the Offering Memorandum untrue
<PAGE>
15
or which requires the making of any additions to or changes in the
Offering Memorandum (as amended or supplemented from time to time) in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading and not to effect such amendment or
supplementation without the consent of the Initial Purchasers (such
consent not to be unreasonably withheld); to advise the Initial Purchasers
promptly of any order preventing or suspending the use of the preliminary
offering memorandum or the Offering Memorandum, of any suspension of the
qualification of the Securities for offering or sale in any jurisdiction
and of the initiation or threatening of any proceeding for any such
purpose; and to use reasonable best efforts to prevent the issuance of any
such order preventing or suspending the use of the preliminary offering
memorandum or the Offering Memorandum or suspending any such qualification
and, if any such suspension is issued, to obtain the lifting thereof at
the earliest possible time;
(b) to furnish promptly to each of the Initial Purchasers and
counsel for the Initial Purchasers, without charge, as many copies of the
preliminary offering memorandum and the Offering Memorandum (and any
amendments or supplements thereto) as may be reasonably requested; and the
Company hereby consents to the use of the preliminary offering memorandum
and the Offering Memorandum, and any amendments and supplements thereto,
in connection with resales of the Securities;
(c) if the delivery of the Offering Memorandum is required at any
time prior to the expiration of nine months after the time of the issue of
the Offering Memorandum in connection with the sale of the Securities and
if at such time any events shall have occurred as a result of which the
Offering Memorandum as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made when the Offering Memorandum is
delivered, not misleading, or if for any other reason it shall be
necessary at such time to amend or supplement the Offering Memorandum in
order to comply with any law, to notify the Initial Purchasers immediately
thereof, and
<PAGE>
16
to prepare promptly and furnish to the Initial Purchasers an amended
Offering Memorandum or a supplement to the Offering Memorandum which will
correct such statement or omission or effect such compliance. The Initial
Purchasers' delivery of any such amendment or supplement shall not
constitute a waiver of any of the conditions set forth in Section 5
hereof;
(d) prior to making any amendment or supplement to the Offering
Memorandum, to furnish a copy thereof to each of the Initial Purchasers
and counsel for the Initial Purchasers and not to effect any such
amendment or supplement to which the Initial Purchasers shall reasonably
object by notice to the Company after a reasonable period to review,
provided, however, that notwithstanding the Initial Purchasers' objection
such amendment or supplement may be effected if counsel to the Company
reasonably determines that the Company would be adversely affected if such
amendment or supplement is not effected;
(e) for a period of three years following the Closing Date, to
furnish to the Initial Purchasers all public reports and all reports,
documents, information and financial statements furnished by the Company
to the Commission pursuant to the Indenture or the Exchange Act or any
rule or regulation of the Commission thereunder;
(f) for so long as it is required to do so under the Indenture and
at any time that it is not subject to Section 13 or 15(d) of the Exchange
Act, upon request of any holder of the Securities, to furnish to such
holder, and to any prospective purchaser or purchasers of the Securities
designated by such holder, information satisfying the requirements of
subsection (d)(4) of Rule 144A under the Securities Act. This covenant is
intended to be for the benefit of the holders from time to time of the
Securities, and prospective purchasers of the Securities designated by
such holders;
(g) to use the proceeds from the sale of the Securities in the
manner described in the Offering Memorandum under the caption "Use of
Proceeds";
<PAGE>
17
(h) to assist the Initial Purchasers in arranging for the Securities
to be designated PORTAL Market securities in accordance with the rules and
regulations adopted by the NASD relating to trading in the PORTAL Market
and for the Securities to be eligible for clearance and settlement through
The Depository Trust Company ("DTC");
(i) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchasers;
(j) to do and perform all things required to be done and performed
by it under this Agreement that are within its control prior to or after
the Closing Date and to use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Securities;
(k) except following the effectiveness of the Exchange Offer
Registration Statement or Shelf Registration Statement, as the case may
be, neither the Company nor any of its affiliates (as such term is defined
in Rule 501(b) under the Securities Act) will, and the Company will not
authorize or knowingly permit any person acting on its or their behalf to,
solicit any offer to buy or offer to sell the Securities by means of any
form of general solicitation or general advertising (as such terms are
used in Regulation D under the Securities Act) or in any manner involving
a public offering within the meaning of Section 4(2) of the Securities
Act;
(l) to not, and to ensure that no affiliate (as such term is defined
in Rule 501(b) under the Securities Act) of the Company will, offer, sell
or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner that would require the
registration of the Securities under the Securities Act;
(m) to cause each Security to bear the legend set forth in the form
of Security attached as Exhibit A to the Indenture until such legend shall
no longer be necessary or advisable because the Securities are no
<PAGE>
18
longer subject to the restrictions on transfer described therein;
(n) promptly to take from time to time such action as the Initial
Purchasers may reasonably request to qualify the Securities for offering
and sale under the securities or Blue Sky laws of such jurisdictions as
the Initial Purchasers may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of the
Securities; provided, however, that in connection therewith neither the
Company nor any Subsidiary shall be required to qualify as a foreign
corporation or to file a general consent to service of process or to
subject itself to taxation in respect of doing business in any
jurisdiction where it is not so qualified or so subject. The Company will
promptly advise the Initial Purchasers of the receipt by the Company of
any notification with respect to the suspension of the qualification of
the Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(o) to comply with the Registration Rights Agreement and all
agreements set forth in the representation letter of the Company to DTC
relating to the approval of the Securities for "book-entry" transfer;
(p) for a period of 90 days from the date of the Offering
Memorandum, to not offer for sale, sell, contract to sell or otherwise
dispose of, directly or indirectly, or file a registration statement for,
or announce any offer, sale, contract for sale of or other disposition of
any debt securities issued or guaranteed by the Company or any of its
Subsidiaries (other than the Securities or the Exchange Securities)
without the prior written consent of the Initial Purchasers, which consent
shall not be unreasonably withheld. The Company will not offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, any
securities under circumstances where such offer, sale, contract or
disposition would cause the exemption afforded by Section 4(2) of the
Securities Act to cease to be applicable to the offer and sale of the
Securities as contemplated by this Agreement and the Offering Memorandum;
<PAGE>
19
(q) in connection with the offering, until the Initial Purchasers
shall have notified the Company of the completion of the resale of the
Securities, neither the Company nor any of its affiliated purchasers (as
defined in Rule 10b-6 under the Exchange Act), either alone or with one or
more other persons, will bid for or purchase, for any account in which it
or any of its affiliated purchasers has a beneficial interest, any
Securities, or attempt to induce any person to purchase any Securities;
and neither it nor any of its affiliated purchasers will make bids or
purchases for the purpose of creating actual, or apparent, active trading
in the Securities or of raising the price of the Securities;
(r) during the period from the Closing Date until three years after
the Closing Date, without the prior written consent of the Initial
Purchasers, to not, and not permit any of its affiliates (as defined in
Rule 144 under the Securities Act) to, resell any of the Securities that
have been reacquired by them, except for Securities purchased by the
Company or any of its affiliates and resold in a transaction registered
under the Securities Act; and
(s) to not take any action prior to the execution and delivery of
the Indenture which, if taken after such execution and delivery, would
have violated any of the covenants contained in the Indenture.
5. Conditions of Initial Purchasers' Obligations. The respective
obligations of the Initial Purchasers hereunder are subject to the accuracy, on
and as of the date hereof and on the Closing Date, of the representations and
warranties of the Company contained herein, to the accuracy of the statements of
officers of the Company made in any certificates delivered pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to each of the following additional terms and conditions:
(a) The Offering Memorandum shall have been printed and copies
distributed to the Initial Purchasers as promptly as practicable on or
following the date of this Agreement or at such other date and time as to
which the Initial Purchasers may agree; and no stop order suspending the
sale of the Securities in any jurisdiction shall have been issued and no
<PAGE>
20
proceeding for that purpose shall have been commenced or shall be pending
or threatened.
(b) All corporate proceedings and other legal matters incident to
the authorization, form and validity of the Securities, the Indenture, the
Registration Rights Agreement, the Merger Agreement, this Agreement and
the Offering Memorandum, and all other legal matters relating to the
Securities, the Indenture, the Registration Rights Agreement, the Merger
Agreement, this Agreement and the transactions contemplated hereby shall
be reasonably satisfactory in all material respects to the Initial
Purchasers, and the Company shall have furnished to the Initial Purchasers
all documents and information that they or their counsel may reasonably
request to enable them to pass upon such matters; and none of the Initial
Purchasers shall have discovered and disclosed to the Company on or prior
to the Closing Date that the Offering Memorandum or any amendment or
supplement thereto contains an untrue statement of a fact which, in the
opinion of counsel for the Initial Purchasers, is material or omits to
state any fact which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to make the statements
therein not misleading.
(c) Simpson Thacher & Bartlett, shall have furnished to the Initial
Purchasers its written opinion, as special counsel to the Company,
addressed to the Initial Purchasers and dated the Closing Date, in form
and substance reasonably satisfactory to the Initial Purchasers, to the
effect that:
(i) no consent, approval, authorization, order, registration
or qualification of or with any federal or New York governmental
agency or body or any Delaware governmental agency or body acting
pursuant to the Delaware General Corporation law or, to the
knowledge of such counsel, any federal or New York court or any
Delaware court acting pursuant to the Delaware General Corporation
Law is required for the issue and sale of the Securities by the
Company to the Initial Purchasers and the resale by the Initial
Purchasers in accordance with the Purchase Agreement, and the
compliance by the Company with all of the provisions of this
Agreement, except
<PAGE>
21
for such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the
Securities by the Initial Purchasers;
(ii) neither the Company nor any Domestic Subsidiary is an
"investment company" within the meaning of the Investment Company
Act and the rules and regulations of the Commission thereunder;
(iii) each of this Agreement, the Merger Agreement and the
Registration Rights Agreement constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms (assuming the due authorization, execution
and delivery thereof by the Company and the other parties thereto)
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally, general
equitable principles (regardless of whether enforcement is
considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing and except to the extent
that indemnification or contribution provisions may be
unenforceable;
(iv) the Indenture constitutes a valid and legally binding
obligation of the Company, enforceable against the Company in
accordance with its terms (assuming due authorization, execution and
delivery by the Company and the Trustee), subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally, general equitable principles (regardless of
whether enforcement is considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing; the
Securities (assuming due authorization, execution and delivery by
the Company), upon the due authentication and delivery thereof by
the Trustee pursuant to the Indenture and upon payment and delivery
in accordance with this Agreement, will be duly and validly issued
<PAGE>
22
and outstanding and will constitute valid and legally binding
obligations of the Company entitled to the benefits of the Indenture
and enforceable against the Company in accordance with their terms,
subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally, general
equitable principles (regardless of whether enforcement is
considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing; and the Indenture, the
Securities, the Merger Agreement, the Registration Rights Agreement,
the Voting Agreement and the Stockholders' Agreement (assuming it is
signed in the form attached as an Exhibit to the Merger Agreement),
conform in all material respects to the descriptions thereof
contained in the Offering Memorandum; and
(v) assuming the accuracy of the representations, warranties
and agreements of the Company and each Subsidiary contained in
paragraphs (s) and (t) of Section 1 of this Agreement and of the
Initial Purchasers in Section 2 of this Agreement, no registration
of the Securities under the Securities Act of 1933, as amended, and
no qualification of the Indenture under the Trust Indenture Act of
1939, as amended, is required for the offer and sale of the
Securities by the Company to the Initial Purchasers or the initial
reoffer and resale of the Securities by the Initial Purchasers
solely in the manner contemplated by the Offering Memorandum, this
Agreement and the Indenture.
Such counsel shall state that they have participated in conferences
with representatives of the Company, representatives of the independent
auditors of the Company and representatives of the Initial Purchasers at
which conferences the contents of the Offering Memorandum, any amendment
thereof and supplement thereto and related matters were discussed, and,
although such counsel assume no responsibility for the accuracy or
completeness or fairness of the Offering Memorandum, any amendment thereof
or supplement thereto (except as expressly provided above), nothing has
come to the attention of such
<PAGE>
23
counsel to cause such counsel to believe that the Offering Memorandum or
any amendment thereof or supplement thereto (other than the financial
statements and other financial and statistical information contained
therein, as to which such counsel need express no belief) as of its date
or such Closing Date, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
In rendering such opinion, such counsel may state that its opinion
is limited to matters governed by the federal laws of the United States of
America, the laws of the State of New York, and the General Corporation
Law of Delaware and may rely as to matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of the
Company and public officials which are furnished to the Initial
Purchasers.
(d) Alston & Bird shall have furnished to the Initial Purchasers its
written opinion, as counsel to the Company, addressed to the Initial
Purchasers and dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchasers, to the effect that:
(i) each of the Domestic Subsidiaries has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation;
(ii) the outstanding shares of common stock of the Company and
each Domestic Subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable under the General
Corporation Law of the State of Delaware and neither the Company nor
any Domestic Subsidiary has any outstanding preferred stock;
(iii) the Company has full corporate power and authority to
execute and deliver the Indenture, the Securities, the Registration
Rights Agreement, the Merger Agreement and this Agreement and to
perform its obligations hereunder and thereunder; and the execution
and delivery of the Indenture,
<PAGE>
24
the Securities, the Registration Rights Agreement, the Merger
Agreement and this Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and
validly authorized by the Company;
(iv) each of this Agreement, the Merger Agreement and the
Registration Rights Agreement has been duly authorized, executed and
delivered by the Company;
(v) each of the Indenture and the Securities have been duly
authorized, executed and delivered by the Company;
(vi) the execution, delivery and performance by the Company of
the Indenture, the Securities, the Registration Rights Agreement,
the Merger Agreement and this Agreement and the fulfillment of the
terms hereof and thereof, do not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets (other than any
lien pursuant to the Credit Facilities) of the Company or any
Domestic Subsidiary pursuant to any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument specified on
Annex B, except for any such conflicts, breaches, violations or
defaults which would not reasonably be expected to have a Material
Adverse Effect, nor will such actions result in any violation of the
provisions of the charter or by-laws of the Company or any Domestic
Subsidiary or any statute, or, to the knowledge of such counsel, any
judgment, order, decree, rule or regulation of any Federal or
Georgia or, to the extent acting pursuant to the Delaware General
Corporation Law, Delaware court or governmental agency or body or
arbitrator having jurisdiction over the Company or any Domestic
Subsidiary or any of their respective properties or assets; and no
consent, approval, authorization or order of, or filing or
registration with, any such court or arbitrator or governmental
agency or body is required under any such statute, judgment, order,
decree, rule or regulation known to such counsel for the
<PAGE>
25
execution, delivery and performance of the Indenture, the
Securities, the Merger Agreement or the Registration Rights
Agreement by the Company; provided, however, that the foregoing may
exclude (A) state securities laws or Blue Sky laws, (B) any such
consents, approvals, authorizations, or order of, or filings or
registrations with, the Commission and any state securities
regulatory authorities as may be required to be obtained or made
pursuant to the Registration Rights Agreement; (C) any law, rule or
regulation of the government of the United States or any state
applicable to the Company and its Subsidiaries because of the
specific type of business in which each engages; (D) filing of the
Registration Statement on Form S-4 in connection with the Merger;
(E) the filing of a Certificate of Merger with the Secretary of
State of the State of Delaware; and (F) the Hart-Scott-Rodino
Antitrust Improvement Act of 1976; provided, further, however, that
such counsel need not express any opinion as to whether the offering
of the Securities may be made without registration under the
Securities Act.
(vii) neither the Company nor any Domestic Subsidiary is in
violation of any terms or provisions of its respective charter or
by-laws; and
(viii) to the knowledge of such counsel, no default exists and
no event has occurred which, with notice, lapse of time or both,
would constitute a default in the due performance and observance of
any term, covenant or condition of any agreement specified on Annex
B and which would reasonably be expected to have a Material Adverse
Effect.
Such counsel shall state that they participated in conferences with
officers of the Company in connection with the preparation by the Company
of its Annual Report on Form 10-K for the year ended May 31, 1996 (as
amended by Form 10-K/A filed with the Commission on September 30, 1996)
and its Quarterly Reports on Form 10-Q for the sixteen weeks ended
September 20, 1996, both of which are incorporated by reference in the
Offering Memorandum. In addition, such counsel
<PAGE>
26
shall state that they participated in certain conferences with the current
officers of the Company, other special counsel to the Company,
representatives of the independent auditors of the Company and
representatives of the Initial Purchasers at which conferences the
contents of the Offering Memorandum, any amendment thereof and supplement
thereto and related matters were discussed. Such counsel shall further
state that although such counsel has not independently verified and
assumes no responsibility for the accuracy, completeness or fairness of
statements contained in the Offering Memorandum, any amendment thereof or
supplement thereto, that, on the basis of the foregoing, nothing has come
to the attention of such counsel that causes such counsel to believe that
the Offering Memorandum (as amended or supplemented), as of its date or
the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that such counsel need
express no opinion as to financial statements and related notes, schedules
and other historical and pro forma financial and statistical data
contained or incorporated by reference in the Offering Memorandum or any
supplement or amendment thereto.
In rendering such opinion, such counsel may state that its opinion
is limited to matters governed by the federal laws of the United States of
America, the laws of the State of Georgia, and the General Corporation Law
of Delaware and may rely as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers of the Company and
public officials which are furnished to the Initial Purchasers.
(e) Rebecca S. Bryan, Esq., General Counsel of the Company shall
have furnished to the Initial Purchasers her written opinion, addressed to
the Initial Purchasers and dated the Closing Date, in form and substance
reasonably satisfactory to the Initial Purchasers, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of
<PAGE>
27
incorporation; each of the Company and the Domestic Subsidiaries is
duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its businesses requires such
qualification (other than those jurisdictions in which the failure
to so qualify would not have a Material Adverse Effect) and has all
corporate power and authority necessary to own or hold its
properties and to conduct the businesses in which it is engaged as
described in the Offering Memorandum (except where the failure to
have such power or authority would not have a Material Adverse
Effect);
(ii) there is no pending or, to the best knowledge of counsel,
threatened action or suit or judicial, arbitral or other
administrative or other proceeding to which the Company or any
Subsidiary is a party or of which any of their respective properties
or assets is the subject that, singly or in the aggregate, if
determined adversely to the Company or any Subsidiary is reasonably
likely to have a Material Adverse Effect or would materially and
adversely affect the ability of the Company to perform its
obligations under this Agreement, the Registration Rights Agreement,
the Merger Agreement or the Indenture; and
(iii) neither the Company nor any Domestic Subsidiary is in
violation of any terms or provisions of (A) any license, permit,
judgment, decree or order or (B) any statute, rule or regulation, in
each case pertaining to matters other than child care licensing
rules and regulations, which violation in any case referred to in
(A) or (B) above is reasonably likely to have a Material Adverse
Effect.
Such counsel shall also confirm that there are no material Federal
rules dealing with child care licensing matters, and that she has advised
the Company regarding state and local child care licensing rules and
regulations while serving as counsel to the Company. Such counsel shall
also state that, insofar as is known to her, based solely upon such
experience and subject to the qualifications and limitations set
<PAGE>
28
forth below, all consents, approvals, authorizations, and orders of state
and local child care licensing authorities have been obtained except for
such consents, approvals, authorizations or orders which the Company has
indicated that it will obtain as soon as practicable following
notification from any appropriate governmental authority of its failure to
have obtained any such required consents, approvals, authorizations or
orders and the absence of which would not have a Material Adverse Effect.
Such counsel shall state that she has participated in certain
conferences with representatives of the Company, representatives of the
independent auditors of the Company and representatives of the Initial
Purchasers at which conferences the contents of the Offering Memorandum,
any amendment thereof and supplement thereto and related matters were
discussed, and, although such counsel assumes no responsibility for the
accuracy or completeness or fairness of the Offering Memorandum, any
amendment thereof or supplement thereto, nothing has come to the attention
of such counsel to cause such counsel to believe that the Offering
Memorandum or any amendment thereof or supplement thereto (other than the
financial statements and other financial and statistical information
contained therein, as to which such counsel need express no belief) as of
its date or such Closing Date, contained or contains any untrue statement
of a material fact or omitted or omits to state a material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
In rendering such opinion, such counsel may state that her opinion
is limited to matters governed by the federal laws of the United States of
America, the laws of the State of Alabama, and the General Corporation Law
of Delaware and may rely as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers of the Company and
public officials which are furnished to the Initial Purchasers.
(f) The Initial Purchasers shall have received from Cravath, Swaine
& Moore ("CS&M"), counsel for the Initial Purchasers, such opinion or
opinions, dated the Closing Date, with respect to such matters as the
<PAGE>
29
Initial Purchasers may reasonably require, and the Company shall have
furnished to such counsel such documents as they request for the purpose
of enabling them to pass upon such matters.
(g) At the time of the execution of this Agreement, the Company
shall have furnished to the Initial Purchasers a letter of Peat Marwick,
dated the date hereof (the "Initial Letter"), in form and substance
reasonably satisfactory to the Initial Purchasers, containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to initial purchasers with respect to the financial statements
and certain financial information contained in the Offering Memorandum.
(h) On the Closing Date, the Company shall have furnished to the
Initial Purchasers a letter (the "bring-down letter") of Peat Marwick,
addressed to the Initial Purchasers and dated the Closing Date confirming,
as of the date of the bring-down letter (or, with respect to matters
involving changes or developments since the respective dates as of which
specified financial information is given in the Offering Memorandum, as of
a date not more than three days prior to the date of the bring-down
letter), the conclusions and findings of such firm with respect to the
financial information and other matters covered by its Initial Letter.
(i) The Company shall have furnished to the Initial Purchasers a
certificate, dated the Closing Date, of its Chief Financial Officer and
its Treasurer stating that (A) such officers have carefully examined the
Offering Memorandum, (B) in their opinion, as of its date and the Closing
Date, the Offering Memorandum did not, and does not, include any untrue
statement of a material fact and did not, and does not, omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and since the date of the Offering Memorandum, no
event has occurred which should have been set forth in a supplement or
amendment to the Offering Memorandum so that the Offering Memorandum (as
so amended or supplemented) as of the Closing Date would not include any
untrue statement of a material fact and would not omit to state a material
fact
<PAGE>
30
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading
and (C) as of the Closing Date, the representations and warranties of the
Company in this Agreement are true and correct in all material respects,
the Company has complied with all agreements and satisfied in all material
respects all conditions on its part to be performed or satisfied hereunder
on or prior to the Closing Date, and subsequent to the date of the most
recent financial statements contained in the Offering Memorandum, there
has been no event or development that can reasonably be expected to result
in a Material Adverse Effect, except as set forth in the Offering
Memorandum.
(j) Subsequent to the execution and delivery of this Agreement or,
if earlier, the dates as of which information is given in the Offering
Memorandum (exclusive of any amendment or supplement thereto), there shall
not have been any event or development that can reasonably be expected to
result in a Material Adverse Effect or any change specified in the letters
referred to in paragraphs (g) or (h) of this Section, the effect of which,
in any such case described above, is, in the judgment of the Initial
Purchasers, so material and adverse as to make it impracticable or
inadvisable to proceed with the offering or delivery of the Securities on
the terms and in the manner contemplated in the Offering Memorandum
(exclusive of any amendment or supplement).
(k) No action shall have been taken and no statute, rule,
injunction, regulation or order shall have been enacted, adopted or issued
by any federal or state court of competent jurisdiction or any
governmental agency which would, as of the Closing Date, prevent the
issuance or sale of the Securities.
(l) Subsequent to the execution and delivery of this Agreement (i)
no downgrading shall have occurred in the rating accorded the Securities
or any of the Company's other debt securities or preferred stock by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) of the rules and
regulations of the Commission under the Securities Act, and (ii) no such
organization shall have publicly announced that it has under surveillance
or review
<PAGE>
31
(other than an announcement with positive implications of a possible
upgrading), its rating of the Securities or any of the Company's other
debt securities or preferred stock.
(m) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or limited, or
minimum prices shall have been established on any such exchange or such
market by the Commission, by such exchange or by any other regulatory body
or governmental authority having jurisdiction, or trading in securities of
the Company on any exchange or in the over-the-counter market shall have
been suspended or (ii) any moratorium on commercial banking activities
shall have been declared by Federal or New York State authorities or (iii)
an outbreak or escalation of hostilities or a declaration by the United
States of a national emergency or war or (iv) a material adverse change in
general economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States
shall be such) the effect of which, in the case of this clause (iv), is,
in the judgment of the Initial Purchasers, so material and adverse as to
make it impracticable or inadvisable to proceed with the sale or the
delivery of the Securities on the terms and in the manner contemplated by
this Agreement and in the Offering Memorandum (exclusive of any amendment
or supplement thereto).
(n) The Company and the Initial Purchasers shall have executed and
delivered the Registration Rights Agreement.
(o) The Securities shall have been approved by the NASD for trading
in the PORTAL Market; provided that CSI shall have performed all of the
obligations required to be performed by it in connection with such PORTAL
application.
(p) The Indenture shall have been duly executed and delivered by the
Company and the Trustee and the Securities shall have been duly executed
and delivered by the Company and duly authenticated by the Trustee.
<PAGE>
32
(q) There shall not have occurred any invalidation of Rule 144A under
the Securities Act by any court or any withdrawal or proposed withdrawal
of any rule or regulation under the Securities Act or the Exchange Act by
the Commission or any amendment or proposed amendment thereof by the
Commission which in the judgment of the Initial Purchasers would
materially impair the ability of the Initial Purchasers to purchase, hold
or effect resales of the Securities as contemplated hereby.
(r) The Company shall have furnished to the Initial Purchasers a
copy of the solvency letter of Valuation Research, Inc. addressed to The
Chase Manhattan Bank.
(s) The Merger Agreement shall have been executed and delivered by
the parties thereto and shall be in force and effect.
(t) The Initial Purchasers shall be satisfied that the Merger and
the Credit Facilities shall have been consummated or will be consummated
simultaneously with the offering of the Securities on the terms described
in the Offering Memorandum.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
in all material respects to CS&M.
6. Termination. The obligations of the Initial Purchasers hereunder
may be terminated by the Initial Purchasers, in their absolute discretion, by
notice given to and received by the Company prior to delivery of and payment for
the Securities if, prior to that time, any of the events described in Section
5(j), (k), (l) or (m) shall have occurred and be continuing.
7. Defaulting Initial Purchasers. (a) If, on the Closing Date, any
Initial Purchaser defaults in the performance of its obligations under this
Agreement, the non-defaulting Initial Purchasers may make arrangements for the
purchase of the Securities which such defaulting Initial Purchaser agreed but
failed to purchase by other persons satisfactory to the Company and the
non-defaulting Initial Purchasers, but if no such arrangements are made within
<PAGE>
33
36 hours after such default, then, (i) if the principal amount of defaulted
Securities does not exceed 10% of the principal amount of Securities to be
purchased on such date, each of the non-defaulting Initial Purchasers shall be
obligated, severally and not jointly, to purchase the full amount thereof in the
proportions that their respective obligations hereunder bear to the obligations
of all non-defaulting Initial Purchasers, or (ii) if the principal amount of
defaulted Securities exceeds 10% of the principal amount of Securities to be
purchased on such date, this Agreement shall terminate without liability on the
part of any non-defaulting Initial Purchaser or the Company, except that the
Company will continue to be liable for the payment of expenses to the extent set
forth in Sections 8 and 12 except that the provisions of Sections 9 and 10 shall
not terminate and shall remain in effect.
As used in this Agreement, the term "Initial Purchaser" includes,
for all purposes of this Agreement unless the context otherwise requires, any
party not listed in Schedule I hereto who, pursuant to this Section 7, purchases
Securities which a defaulting Initial Purchaser agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Initial
Purchaser of any liability it may have to the Company or any non-defaulting
Initial Purchaser for damages caused by its default. If other persons are
obligated or agree to purchase the Securities of a defaulting Initial Purchaser,
either the non-defaulting Initial Purchasers or the Company may postpone the
Closing Date for up to seven full business days in order to effect any changes
that in the opinion of counsel for the Company or counsel for the Initial
Purchasers may be necessary in the Offering Memorandum or in any other document
or arrangement, and the Company agrees to make promptly any amendment or
supplement to the Offering Memorandum that effects any such changes.
8. Reimbursement of Initial Purchasers' Expenses. If this Agreement
is terminated pursuant to Section 6 or if for any reason the purchase of the
Securities by the Initial Purchasers is not consummated, the Company shall
remain responsible (except to a defaulting Initial Purchaser) for the expenses
to be paid or reimbursed by it pursuant to Section 12 and the respective
obligations of the Company and the Initial Purchasers pursuant to Sections 9 and
10 shall remain in effect. In addition, if the purchase of the
<PAGE>
34
Securities by the Initial Purchasers is not consummated because any condition to
the obligations of the Initial Purchasers set forth in Section 5 hereof (other
than Section 5(m)) is not satisfied or because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or comply
with any provision hereof other than by reason of a default by the Initial
Purchasers, the Company will reimburse the Initial Purchasers upon demand
accompanied by reasonable supporting documentation for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with this Agreement and the
proposed purchase and sale of the Securities.
9. Indemnification. (a) The Company shall indemnify and hold
harmless the Initial Purchasers, their affiliates, and their respective
officers, directors, employees, representatives and agents, and each person, if
any, who controls any Initial Purchaser within the meaning of the Securities Act
or the Exchange Act (collectively referred to for the purposes of this Section 9
and Section 10 as the Initial Purchasers), to the fullest extent lawful, against
any loss, claim, damage, expense or liability, joint or several, or any action
in respect thereof, to which an Initial Purchaser may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of or is
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the preliminary offering memorandum or the Offering Memorandum
or in any amendment or supplement thereto or any information provided by the
Company pursuant to Section 4(e) or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and shall reimburse each Initial Purchaser promptly upon
demand for any legal or other expenses reasonably incurred by that Initial
Purchaser in connection with investigating or preparing to defend or defending
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability, expense or action promptly following receipt of
reasonably detailed statements itemizing such expenses; provided, however, that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of or is based upon any such
<PAGE>
35
untrue statement or alleged untrue statement or omission or alleged omission
from any of such documents in reliance upon and in conformity with the Initial
Purchasers' Information; and provided further that with respect to any such
untrue statement or omission made in the preliminary offering memorandum, the
foregoing indemnity shall not inure to the benefit of any Initial Purchaser from
whom the person asserting such loss, claim, damage, liability or action
purchased the Securities, to the extent that such sale was an initial resale by
such Initial Purchaser and any such loss, claim, damage, liability or action of
such Initial Purchaser is a result of the fact that both (i) to the extent
required by applicable law, a copy of the Offering Memorandum was not sent or
given to such person at or prior to the written confirmation of the sale of such
Securities to such person, and (ii) the untrue statement or omission in the
preliminary offering memorandum was corrected in the Offering Memorandum unless,
in either case, such failure to deliver the Offering Memorandum was a result of
non-compliance by the Company with Section 4(c).
(b) Each Initial Purchaser, severally and not jointly, shall
indemnify and hold harmless the Company, its affiliates, and their respective
officers, directors, employees, representatives and agents, and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act (collectively referred to for the purposes of this Section 9 and
Section 10 as the Compan, to the same extent as the foregoing indemnity from the
Company to each Initial Purchaser, against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company may
become subject, whether commenced or threatened, under the Securities Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such loss, claim, damage, expense, liability or
action arises out of or is based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the preliminary offering memorandum or
the Offering Memorandum or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, but in each case only to
the extent that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with the Initial
Purchasers' Information, and shall reimburse the Company for any legal or other
<PAGE>
36
expenses reasonably incurred by the Company in connection with investigating or
preparing to defend or defending against or appearing as a third party witness
in connection with any such loss, claim, damage, liability, expense or action
promptly following receipt of reasonably detailed statements itemizing such
expenses.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 9(a) or 9(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 9 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and, provided further that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 9. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that an
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based upon advice of counsel to the indemnified party) that there may
be legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party, (3)
a conflict or potential conflict exists (based upon advice of counsel to the
indemnified
<PAGE>
37
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (4) the indemnifying party has not
in fact employed counsel reasonably satisfactory to the indemnified party to
assume the defense of such action within a reasonable time after receiving
notice of the commencement of the action, in each of which cases the reasonable
fees, disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm of attorneys (in addition to any
local counsel) at any one time for all such indemnified party or parties. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 9(a) and 9(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without the
prior written consent of the indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
The obligations of the Company and the Initial Purchasers in this
Section 9 and in Section 10 are in addition to any other liability that the
Company or the Initial Purchasers, as the case may be, may otherwise have,
including in respect of any breaches of representations, warranties and
agreements made herein by any such party.
10. Contribution. If the indemnification provided for in Section 9
is unavailable or insufficient to hold harmless an indemnified party under
Section 9(a) or (b),
<PAGE>
38
then each indemnifying party shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability, or action in respect thereof,
(i) in such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
from the offering of the Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the Initial
Purchasers on the other with respect to the statements or omissions that
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Initial Purchasers on the other
with respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Securities purchased under this
Agreement (before deducting expenses) received by or on behalf of the Company
bear to the total discounts received by the Initial Purchasers with respect to
the Securities purchased under this Agreement, in each case as set forth in the
table on the cover page of the Offering Memorandum. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or to the Initial Purchasers' Information on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Initial Purchasers agree that it would not be just and equitable if
contributions pursuant to this Section 10 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 10 shall be deemed
to include, for purposes of this Section 10, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 10, no Initial Purchaser shall be required to contribute any amount in
excess of the amount by which the
<PAGE>
39
total price at which the Securities purchased from the Company by it were
offered to investors less the amount of any damages which such Initial Purchaser
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The Initial Purchasers' obligations to contribute as provided in
this Section 10 are several in proportion to their respective purchase
obligations and not joint.
11. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchasers, the Company
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Initial Purchasers, the Company and their respective
affiliates and successors and the controlling persons and officers and directors
referred to in Sections 9 and 10 and their heirs and legal representatives and
other than holders and prospective purchasers of the Securities as provided in
Section 4(e), any legal or equitable right, remedy or claim under or in respect
of this Agreement or any provision contained herein.
12. Expenses. The Company agrees with the Initial Purchasers to pay
(a) the costs incident to the authorization, issuance, sale, preparation and
delivery of the Securities; (b) the costs incident to the preparation, printing
and distribution of any preliminary offering memorandum, the Offering Memorandum
and any amendments and supplements thereto; (c) the costs of reproducing and
distributing this Agreement, the Registration Rights Agreement and the
Indenture; (d) the costs incident to the preparation, issuance and delivery of
the certificates for the Securities to the Initial Purchasers; (e) the fees and
expenses of qualifying the Securities under the securities laws of the several
jurisdictions as provided in Section 4(n) and of preparing, printing and
distributing a Blue Sky Memorandum (including related reasonable fees and
expenses of CS&M); (f) any fees charged by securities rating services for rating
the Securities; (g) all fees and expenses of the Trustee; (h) all costs incident
to and fees and expenses of the inclusion of the Securities on the
<PAGE>
40
PORTAL Market system and the approval of the Securities for book-entry transfer
by DTC; and (i) all other costs and expenses incident to the performance of the
obligations of the Company under this Agreement (other than each parties'
respective share of the costs and expenses incurred in connection with the
roadshow); provided, however, that, except as otherwise provided in this Section
12 and in Section 8 the Initial Purchasers shall pay their own costs and
expenses, including the costs and expenses of their counsel, any transfer taxes
on the Securities that they may sell and the expenses of advertising any
offering of the Securities made by the Initial Purchasers.
13. Survival. The respective indemnities, rights of contribution,
representations, warranties, agreements and statements made by or on behalf of
the Company and the Initial Purchasers and any of their respective affiliates,
representatives, officers, directors or controlling persons contained in this
Agreement or in any certificate delivered pursuant to this Agreement, shall
survive the delivery of and payment for the Securities and shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation or statement as to the results thereof made by or
on behalf of any of them or any person controlling any of them.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by
mail, telex or facsimile transmission to Chase Securities Inc., 270 Park
Avenue, New York, New York 10017, Attention: Legal Department; and
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Offering Memorandum, Attention: Chief Financial Officer; General Counsel;
provided, however, that any notice to the Initial Purchasers pursuant to Section
9(c) shall be delivered or sent by mail, telex or facsimile transmission to the
Initial Purchasers at their addresses set forth on the signature page hereof.
Any such statements, requests, notices or agreements shall take
effect at the time of receipt thereof.
<PAGE>
41
15. Business Day. For purposes of this Agreement, "business day"
means any day on which the New York Stock Exchange, Inc. is open for trading.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
17. Counterparts. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by facsimile) and, if
executed in one or more counterparts, the executed counter parts shall each be
an original, but all such counterparts shall together constitute one and the
same instrument.
18. Amendments. No amendment or waiver of any provision of this
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto.
<PAGE>
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing is in accordance with your understanding of this
Agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the several
Initial Purchasers in accordance with its terms. Initial Purchasers, kindly
indicate your acceptance in the space provided for that purpose below.
Very truly yours,
KINDERCARE LEARNING CENTERS, INC.,
by /s/ Philip L. Maslowe
----------------------------------
Name: Philip L. Maslowe
Title: Executive Vice President
and Chief Financial Officer
Accepted:
CHASE SECURITIES INC.,
By ________________________________
Name:
Title:
BT SECURITIES CORPORATION,
By ________________________________
Name:
Title:
SALOMON BROTHERS INC,
By ________________________________
Name:
Title:
<PAGE>
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing is in accordance with your understanding of this
Agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the several
Initial Purchasers in accordance with its terms. Initial Purchasers, kindly
indicate your acceptance in the space provided for that purpose below.
Very truly yours,
KINDERCARE LEARNING CENTERS, INC.,
by_______________________________________
Name:
Title:
Accepted:
CHASE SECURITIES INC.,
By /s/ Gerard J. Murray
--------------------------------
Name: Gerard J. Murray
Title: Managing Director
BT SECURITIES CORPORATION,
By ________________________________
Name:
Title:
SALOMON BROTHERS INC,
By ________________________________
Name:
Title:
<PAGE>
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing is in accordance with your understanding of this
Agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the several
Initial Purchasers in accordance with its terms. Initial Purchasers, kindly
indicate your acceptance in the space provided for that purpose below.
Very truly yours,
KINDERCARE LEARNING CENTERS, INC.,
by_______________________________________
Name:
Title:
Accepted:
CHASE SECURITIES INC.,
By ________________________________
Name:
Title:
BT SECURITIES CORPORATION,
By /s/ Michael R. Duckworth
--------------------------------
Name: Michael R. Duckworth
Title: Vice President
SALOMON BROTHERS INC,
By ________________________________
Name:
Title:
<PAGE>
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing is in accordance with your understanding of this
Agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the several
Initial Purchasers in accordance with its terms. Initial Purchasers, kindly
indicate your acceptance in the space provided for that purpose below.
Very truly yours,
KINDERCARE LEARNING CENTERS, INC.,
by_______________________________________
Name:
Title:
Accepted:
CHASE SECURITIES INC.,
By ________________________________
Name:
Title:
BT SECURITIES CORPORATION,
By ________________________________
Name:
Title:
SALOMON BROTHERS INC,
By /s/ Edward P. Biggins
--------------------------------
Name: Edward P. Biggins
Title: Vice President
<PAGE>
SMITH BARNEY INC.,
By /s/ Michael S. Klein
--------------------------------
Name: Michael S. Klein
Title: Managing Director
Address for Notices:
CHASE SECURITIES INC.
270 Park Avenue
New York, New York 10017
Attention: Legal Department
BT SECURITIES CORPORATION
300 South Grand Avenue
41st Floor
Los Angeles, CA 90071
Attention: Legal Department
SALOMON BROTHERS INC
Seven World Trade Center
New York, NY 10048
Attention: Brad Gans
SMITH BARNEY INC.
388 Greenwich Street
New York, NY 10013
Attention: Legal Department
<PAGE>
Schedule I
Principal
Amount of Senior
Initial Purchaser Subordinated Notes
- ----------------- ------------------
Chase Securities Inc. $165,000,000
BT Securities Corporation 45,000,000
Salomon Brothers Inc 45,000,000
Smith Barney Inc. 45,000,000
------------
TOTAL $300,000,000
============
<PAGE>
Exhibit 23.2
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
KinderCare Learning Centers, Inc.:
We consent to the use of our reports included herein and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 6, 1997
<PAGE>
Exhibit 25
Conformed Copy
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-----------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
-----------
Marine Midland Bank
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Warren L. Tischler
Senior Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-6560
(Name, address and telephone number of agent for service)
KINDERCARE LEARNING CENTERS, INC.
(Exact name of obligor as specified in its charter)
Delaware 63-0941966
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2400 Presidents Drive
Montgomery, Alabama 36116
(334) 277-5090 (Zip Code)
(Address of principal executive offices)
9 1/2% Senior Subordinated Notes due 2009
(Title of Indenture Securities)
<PAGE>
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
<PAGE>
Item 16. List of Exhibits.
Exhibit
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December
31, 1993 as to the authority of Marine
Midland Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January
20, 1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank
required by Section 321(b) of the Trust
Indenture Act of 1939.
T1A(vii) - Copy of the latest report of condition
of the trustee (December 31, 1996),
published pursuant to law or the
requirement of its supervisory or
examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 27th day of February, 1997.
MARINE MIDLAND BANK
By: /s/ Eileen M. Hughes
----------------------------
Eileen M. Hughes
Assistant Vice President
<PAGE>
Exhibit T1A (vii)
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Federal Financial Office of the Comptroller of the Currency
Institutions Examination OMB Number: 1557-0081
Council Expires March 31, 1999
- --------------------------------------------------------------------------------
This financial information has not ---
been reviewed, or confirmed for 1
accuracy or relevance, by the ---
Federal Reserve System. Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for A Bank With Domestic and
Foreign Offices--FFIEC 031
Report at the close of business December 31, (950630)
1996 -----------
(RCRI 9999)
This report is required by law; 12 U.S.C. ss.324 (State member banks); 12 U.S.C.
ss. 1817 (State nonmember banks); and 12 U.S.C. ss.161 (National banks).
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consoli- dated foreign subsidiaries, or
International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National Banks.
I, Gerald A. Ronning, Executive VP & Controller
------------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and believe.
/s/ Gerald A. Ronning
- --------------------------------------------------------=
Signature of Officer Authorized to Sign Report
1/27/97
- --------------------------------------------------------=
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ Bernard J. Kennedy
- --------------------------------------------------------=
Director (Trustee)
/s/ Northrup R. Knox
- --------------------------------------------------------=
Director (Trustee)
/s/ Henry J. Nowak
- --------------------------------------------------------=
Director (Trustee)
- --------------------------------------------------------------------------------
For Banks Submitting Hard Copy Report Forms:
State Member Bank: Return the original and one copy to the appropriate Federal
Reserve District Bank.
State Nonmember Banks: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
National Banks: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- --------------------------------------------------------------------------------
FDIC Certificate Number |0|0|5|8|9|
-----------
<PAGE>
(RCRI 9030)
<PAGE>
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
December 31, 1996
ASSETS
Thousands
of dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances
currency and coin ................................ $ 967,072
Interest-bearing balances ..................... 1,867,936
Held-to-maturity securities ................... 0
Available-for-sale securities ................. 2,841,138
Federal Funds sold and securities purchased
under agreements to resell in domestic
offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds sold ............................... 1,606,822
Securities purchased under
agreements to resell ............................. 235,041
Loans and lease financing receivables:
Loans and leases net of unearned
income ........................................ 14,555,533
LESS: Allowance for loan and lease
losses ........................................ 415,451
LESS: Allocated transfer risk reserve ......... 0
Loans and lease, net of unearned
income, allowance, and reserve ................ 14,140,082
Trading assets ................................ 891,546
Premises and fixed assets (including
capitalized leases) ........................... 189,690
Other real estate owned .......................... 1,144
Investments in unconsolidated
subsidiaries and associated companies ............ 0
Customers' liability to this bank on
acceptances outstanding .......................... 17,549
Intangible assets ................................ 187,259
Other assets ..................................... 399,875
Total assets ..................................... 23,345,154
<PAGE>
LIABILITIES
Deposits:
In domestic offices ........................... 15,864,140
Noninterest-bearing ........................... 4,242,927
Interest-bearing .............................. 11,621,213
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs ........................... 3,036,069
Noninterest-bearing ........................... 0
Interest-bearing .............................. 3,036,069
Federal funds purchased and securities sold
under agreements to repurchase in domestic
offices of the bank and its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds purchased ....................... 1,225,738
Securities sold under agreements to
repurchase .................................... 58,491
Demand notes issued to the U.S. Treasury ......... 181,786
Trading Liabilities .............................. 234,555
Other borrowed money:
With original maturity of one year
or less ....................................... 26,912
With original maturity of more than
one year ...................................... 0
Mortgage indebtedness and obligations
under capitalized leases ......................... 33,120
Bank's liability on acceptances
executed and outstanding ......................... 17,549
Subordinated notes and debentures ................ 397,522
Other liabilities ................................ 386,942
Total liabilities ................................ 21,462,824
Limited-life preferred stock and
related surplus .................................. 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus .......................................... 0
Common Stock ..................................... 185,000
Surplus .......................................... 1,633,431
Undivided profits and capital reserves ........... 54,753
Net unrealized holding gains (losses)
on available-for-sale securities ................. 9,146
Cumulative foreign currency translation
adjustments ...................................... 0
Total equity capital ............................. 1,882,330
Total liabilities, limited-life
preferred stock, and equity capital .............. 23,345,154
