<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LA PETITE ACADEMY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8351 43-1243221
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
14 CORPORATE WOODS, 8717 WEST 110TH STREET,
SUITE 300,
OVERLAND PARK, KANSAS 66201
(913) 345-1250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LPA HOLDING CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 48-1144353
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
14 CORPORATE WOODS, 8717 WEST 110TH STREET,
SUITE 300,
OVERLAND PARK, KANSAS 66201
(913) 345-1250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LPA SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6411 74-2849053
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
14 CORPORATE WOODS, 8717 WEST 110TH STREET,
SUITE 300,
OVERLAND PARK, KANSAS 66201
(913) 345-1250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES R. KAHL
CHIEF EXECUTIVE OFFICER
14 CORPORATE WOODS, 8717 WEST 110TH
STREET, SUITE 300,
OVERLAND PARK, KANSAS 66201
(913) 345-1250
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
With a copy to:
JOHN J. SUYDAM, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP
30 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10112
(212) 408-2400
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC. As soon as
practicable after this Registration Statement becomes effective.
If any of 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: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SECURITY OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C>
10% Series B Senior Notes
due 2008........................... $145,000,000 100% $145,000,000 $42,775
Guarantees of the 10% Series B
Senior Notes.................. $145,000,000 (1) (1) (1)
</TABLE>
(1) This Registration Statement covers the Guarantees to be issued by the
subsidiary of La Petite Academy, Inc. of its obligations under the 10%
Series B Senior Notes. Such Guarantees are to be issued for no additional
consideration, and therefore no registration fee is required.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
LA PETITE ACADEMY, INC.
LPA HOLDING CORP.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................. Facing Page of Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front and Outside Back Cover Pages of
Prospectus; Available Information
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................... Prospectus Summary; Risk Factors; Selected Historical
Consolidated Financial and Other Data
4. Terms and Transaction................................ Prospectus Summary; The Exchange Offer; Description
of Notes
5. Pro Forma Financial Information...................... Unaudited Pro Forma Consolidated Financial
Information
6. Material Contracts with the Company Being Acquired... *
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters........ Plan of Distribution
8. Interests of Named Experts and Counsel............... *
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities....................... *
10. Information With Respect to S-3 Registrants.......... *
11. Incorporation of Certain Information by Reference.... *
12. Information With Respect to S-2 or S-3 Registrants... *
13. Incorporation of Certain Information by Reference.... *
14. Information With Respect to Registrants Other Than
S-2 or S-3 Registrants............................... Prospectus Summary; Risk Factors; Selected Historical
Consolidated Financial and Other Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Description of the
Credit Agreement; Certain United States Federal
Income Tax Considerations
15. Information With Respect to S-3 Companies............ *
16. Information With Respect to S-2 or S-3 Companies..... *
17. Information With Respect to Companies Other Than S-2
or S-3 Companies..................................... *
18. Information if Proxies, Consents or Authorization Are
to be Solicited...................................... *
19. Information if Proxies, Consents or Authorizations
Are Not to be Solicited, or in an Exchange Offer..... Management; Ownership of Securities; Certain
Relationships and Related Transactions
</TABLE>
- ------------------
* Not applicable or answer is in the negative.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. 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 STATE.
SUBJECT TO COMPLETION, DATED JUNE 5, 1998
PROSPECTUS
LA PETITE ACADEMY, INC.
LPA HOLDING CORP.
OFFER TO EXCHANGE UP TO $145,000,000 OF THEIR
10% SERIES B SENIOR NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING
10% SENIOR NOTES DUE 2008
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
------------------------
La Petite Academy, Inc. (the 'Company') and LPA Holding Corp. ('Parent' and,
together with the Company, the 'Issuers') hereby offer, 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 $1,000 principal amount of 10% Series B Senior Notes due 2008 (the 'New
Notes') of the Issuers for each $1,000 principal amount of the issued and
outstanding 10% Senior Notes due 2008 (the 'Old Notes,' and the Old Notes and
the New Notes, collectively, the 'Notes') of the Issuers from the Holders (as
defined herein) thereof. As of the date of this Prospectus, there is
$145,000,000 aggregate principal amount of the Old Notes outstanding. The terms
of the New Notes are identical in all material respects to the Old Notes, except
that the New 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 the payment
of liquidated damages to the holders of the Old Notes under certain
circumstances relating to the Registration Rights Agreement (as defined herein),
which provisions will terminate as to all of the Notes upon the consummation of
the Exchange Offer.
Interest on the New Notes will accrue from May 11, 1998 and will be payable
semi-annually on May 15 and November 15 of each year, commencing November 15,
1998. No interest will be payable on the Old Notes accepted for exchange. The
New Notes will mature on May 15, 2008. Except as described below, the New Notes
will not be redeemable at the option of the Issuers prior to May 15, 2003.
Thereafter, the New Notes will be redeemable at the option of the Issuers, in
whole or in part, at the redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time and
from time to time on or prior to May 15, 2001, the Issuers may, subject to
certain requirements, redeem up to a maximum of 35% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings (as defined) following which there is a Public Market (as defined), at
a redemption price equal to 110% of the principal amount of the Notes to be
redeemed, plus accrued and unpaid interest, if any, to the date of redemption,
provided, however, that, after giving effect to any such redemption, at least
65% of the original aggregate principal amount of the Notes remains outstanding.
The New Notes will not be subject to any sinking fund requirements. Upon the
occurrence of a Change of Control (as defined), each holder of New Notes will
have the right to require the Issuers to repurchase all or any part of such
holder's New Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase.
See 'Description of Notes.'
The New Notes will be unsecured Senior Indebtedness (as defined) of the
Issuers and will be effectively subordinated to all existing and future Secured
Indebtedness (as defined) of the Issuers and the Guarantors to the extent of the
value of the assets securing such Indebtedness. The New Notes will rank pari
passu in right of payment with all existing and future Senior Indebtedness of
the Issuers and will rank senior in right of payment to all Subordinated
Obligations (as defined) of the Issuers. The New Notes will be fully and
unconditionally guaranteed (the 'Guarantees') on an unsecured, senior basis by
the Company's existing subsidiary and by all of the Company's future Restricted
Subsidiaries (as defined) (the 'Guarantors'). Parent and the Company's existing
subsidiary, as well as all of the Company's future domestic subsidiaries,
guarantee the Credit Agreement (as defined) and are jointly and severally liable
on a senior basis with the Company for the obligations thereunder. Such
obligations are secured by pledges of all the capital stock of the Company and
the Company's existing subsidiary, as well as all of the Company's future
domestic subsidiaries, and security interests in, or liens on, substantially all
other tangible and intangible assets of Parent, the Company and the Company's
existing subsidiary, as well as all of the Company's future subsidiaries. See
'Description of the Credit Agreement,' 'Description of Notes--Guarantees' and
'--Certain Covenants--Future Guarantors.' As of March 14, 1998, after giving pro
forma effect to the Transactions (as defined) and the application of the net
proceeds therefrom, (i) the outstanding Senior Indebtedness of the Issuers would
have been $187.1 million, of which $42.1 million would have been Secured
Indebtedness (exclusive of unused commitments under the Credit Agreement) and
(ii) the Guarantor would have had no Senior Indebtedness outstanding (exclusive
of guarantees of indebtedness under the Credit Agreement (all of which would
have been Secured Indebtedness) and the Guarantee). The indenture (the
'Indenture') governing the Notes permits the Issuers to incur additional Senior
Indebtedness, including Senior Indebtedness under the Credit Agreement, subject
to certain limitations. See 'Description of Notes--Ranking.'
The Old Notes were 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 New Notes are being offered hereby in order to satisfy
certain obligations of the Issuers 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 Issuers believe that the New 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 Issuers 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 New 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 New Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such New Notes. Notwithstanding the foregoing, each
broker-dealer that receives New 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 New 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 New 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 Issuers). The
Issuers have agreed that, for a period of 180 days after the date of this
Prospectus, they 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 New Notes. The Issuers do not currently
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotations system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
The Issuers will not receive any proceeds from the Exchange Offer. The
Issuers will pay all of the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn as provided herein at
any time prior to the Expiration Date (as defined herein). The Exchange Offer is
subject to certain customary conditions.
This Prospectus has been prepared for use in connection with the Exchange
Offer and may be used by Chase Securities Inc. ('CSI') in connection with offers
and sales related to market-making transactions in the Notes. CSI may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. See 'Plan of
Distribution.'
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE 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 , 1998.
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES,
MANY OF WHICH ARE BEYOND THE ISSUERS' CONTROL. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING THE
STATEMENTS UNDER 'SUMMARY--THE COMPANY,' 'MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS' AND 'BUSINESS' AND LOCATED
ELSEWHERE HEREIN REGARDING THE ISSUERS' FINANCIAL POSITION, PLANS TO INCREASE
REVENUES, REDUCE EXPENSES AND TAKE ADVANTAGE OF SYNERGIES AND ANY STATEMENTS
REGARDING OTHER FUTURE EVENTS OR FUTURE PROSPECTS OF THE ISSUERS, ARE
FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS PROSPECTUS, THE WORDS 'BELIEVE,'
'ANTICIPATE,' 'INTEND,' 'ESTIMATE,' 'EXPECT,' 'PROJECT' AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, ALTHOUGH NOT ALL
FORWARD-LOOKING STATEMENTS CONTAIN SUCH WORDS. THESE FORWARD-LOOKING STATEMENTS
SPEAK ONLY AS OF THE DATE HEREOF. THE ISSUERS DO NOT UNDERTAKE ANY OBLIGATION TO
UPDATE OR REVISE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF
NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. ALTHOUGH MANAGEMENT BELIEVES THAT
THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE CORRECT OR THAT
SAVINGS OR OTHER BENEFITS ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS WILL BE
ACHIEVED. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM MANAGEMENT'S EXPECTATIONS ('CAUTIONARY STATEMENTS') ARE DISCLOSED IN THIS
PROSPECTUS, INCLUDING IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROSPECTUS AND UNDER 'RISK FACTORS.' PROSPECTIVE PURCHASERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY, ANY GUARANTOR OR PERSONS ACTING ON THEIR BEHALF ARE EXPRESSLY QUALIFIED
IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. SEE 'RISK FACTORS.'
i
<PAGE>
AVAILABLE INFORMATION
The Issuers have 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 New
Notes being offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted pursuant to the rules and regulations promulgated by the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each such contract, agreement or other document filed or incorporated by
reference as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference.
The Registration Statement may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material may also be obtained at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. Such
materials can also be inspected on the Internet at http://www.sec.gov.
The Company is, and upon consummation of the Exchange Offer Parent will
become, subject to the informational reporting requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'). In accordance therewith,
the Issuers will file reports and other information with the Commission. Such
materials filed by the Issuers with the Commission may be inspected, and copies
thereof obtained, at the places, and in the manner, set forth above.
In the event that the Issuers cease to be subject to the informational
reporting requirements of the Exchange Act, the Issuers have agreed that, so
long as the Notes remain outstanding, they will file with the Commission and
distribute to holders of the Notes copies of the financial information that
would have been contained in annual reports and quarterly reports, including
management's discussion and analysis of financial condition and results of
operations, that the Issuers would have been required to file with the
Commission pursuant to the Exchange Act. Such financial information will include
annual reports containing consolidated financial statements and notes thereto,
together with an opinion thereto expressed by an independent public accounting
firm, as well as quarterly reports containing unaudited condensed consolidated
financial statements for the first three quarters of each fiscal year. The
Issuers will also make such reports available to prospective purchasers of the
Notes, securities analysts and broker-dealers upon their request. In addition,
the Issuers have agreed that for so long as any of the Old Notes remain
outstanding they will make available to any prospective purchaser of the Old
Notes or beneficial owner of the Old Notes in connection with any sale thereof
the information required by Rule 144A(d)(4) under the Securities Act, until such
time as the Issuers have either exchanged the Old Notes for securities identical
in all material respects which have been registered under the Securities Act or
until such time as the holders thereof have disposed of such Old Notes pursuant
to an effective registration statement filed by the Issuers.
ii
<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,' 'La Petite Academy'
or 'La Petite' mean La Petite Academy, Inc., its consolidated subsidiary and
predecessor, unless the context indicates otherwise. All references to
'Academies' mean all residential and employer-based La Petite Academies and all
Montessori schools that the Company operates, unless the context indicates
otherwise. All references to fiscal year in this Prospectus refer to the fiscal
year ending on the last Saturday in August of each year. All references to
market share and demographic data in this Prospectus are based on industry and
government publications and Company estimates.
THE COMPANY
GENERAL
La Petite Academy, founded in 1968, is the second largest operator of for
profit preschool educational facilities in the United States. The Company
provides center-based educational and child care services five days a week
throughout the year to children between the ages of six weeks and 12 years.
Management believes the Company differentiates itself through its superior
educational programs, which were developed and are regularly enhanced by its
curriculum department. The Company's focus on quality educational services
allows it to capitalize on the increased awareness of the benefits of premium
educational instruction for preschool and elementary school age children. At its
residential and employer-based Academies, the Company utilizes its proprietary
Journey(Registered) curriculum with the intent of maximizing a child's cognitive
and social development. The Company also operates Montessori schools which
employ the Montessori method of learning, a classical approach that features the
programming of tasks with materials presented in a sequence dictated by each
individual child's capabilities.
As of March 14, 1998, the Company operated 744 educational facilities,
including 692 residential Academies, 32 employer-based Academies and 20
Montessori schools, located in 35 states and the District of Columbia, and had
an enrollment of approximately 87,000 full and part-time children. The Company's
Operating Capacity (as defined) as of March 14, 1998, was approximately 91,000
full-time children. For the 52 weeks ended March 14, 1998, estimated full-time
equivalent student ('FTE') Utilization (as defined) was 65% and the estimated
Average Weekly FTE Tuition (as defined) was $100.
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 child care center chains and civic groups such
as the YMCA) has grown at a compound annual growth rate of 12.1% from $5.7
billion in revenues in 1982 to an estimated $31.6 billion in 1997, and is
expected to grow at a 7.1% compound annual growth rate from 1998 until 2003,
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 in the 1990s as compared generally to
the 1970s and 1980s, (ii) an increase in the percentage of mothers in the
workforce and (iii) a significant increase in the appreciation by parents of the
benefits of center-based preschool education and child care. According to the
United States Bureau of the Census (the 'Census Bureau'), in 1989 and each year
since, the annual number of births has approximated 4.0 million per year and is
expected to remain at that level through 2010. Furthermore, the number of
children under the age of five has grown 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 the number of mothers
entering the work force. According to the U.S. Bureau of Labor Statistics, the
labor force participation rate of mothers with children under the age of six
relative to all mothers with children under the age of six, has increased from
approximately 39% in 1975 to an estimated 62% in 1995. In addition, the
percentage of mothers in the work force that have children between the ages of
five and 12, relative to all mothers of children between the ages of five and
12, has risen from 53% in 1975 to 75% in 1995.
1
<PAGE>
There has been a significant increase in the use of center-based child care
facilities by families with both working and non-working mothers. 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. In 1993, according to the most recent data
from the Census Bureau, 30% of families with working mothers of preschool aged
children used center-based care as their primary form of non-parental care, up
from 6% in 1965. 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.
Growing Awareness of the Importance of Early Childhood Development. The
demand for quality child care is increasing as scientific research highlights
the importance of education during a child's early developmental years. The
Families and Work Institute, an organization devoted to the study of neurology,
cognitive psychology and child development, has recently completed research the
results of which management believes demonstrate the importance of early
childhood experiences in a child's overall cognitive development. Recent essays
and other scientific research into early childhood development have drawn
widespread media and political attention, increasing parents' awareness and
demand for quality educational facilities for their children.
Fragmented Industry. The U.S. child care industry is highly fragmented,
with the aggregate capacity of the top 50 for profit child care companies
serving approximately 1% of the potential child care market, or approximately
500,000 children out of an estimated 50 million children under the age of 12 in
the United States as of January 1, 1997, according to Child Care Information
Exchange. Based on a study sponsored by the National Association for the
Education of Young Children, management estimates that approximately 35% of all
child care centers are operated for profit, as independent businesses or as part
of a local or national chain. Non-profit centers, such as churches, employers,
government agencies and YMCAs, account for the remaining 65%. Of the
approximately 100,000 child care centers in the United States, only 4,400 are
operated by the top 50 for profit child care companies. Furthermore, including
La Petite, only ten companies have total capacity in excess of 10,000 children
and only eight companies have more than 100 centers. Although other national
child care chains operate in many of the Company's markets, in general, the
Company primarily competes with local operators that typically do not have the
substantial resources required to invest in the educational materials and
curricula and staff training necessary for the educational development of
children in their care.
COMPETITIVE STRENGTHS
Strong Market Position and Brand Identities. Based on the number of
centers operated, children served, operating revenue and operating income, La
Petite Academy is the second largest provider of for profit preschool education
and child care services in the United States, in an industry where the three
largest center-based providers represent approximately 55% of the top 50 for
profit center-based child care providers' total capacity. Operating since 1968,
the Company has built brand equity in the markets it serves through the
development of a network of Academies concentrated in clusters in
demographically desirable Metropolitan Statistical Areas ('MSAs'). The Company's
Academy clusters maintain close ties with local neighborhoods through public
relations efforts, parent newsletters and brochures and support of community
activities. The Company believes that it benefits significantly from
word-of-mouth referrals from parents, educators and other school administrators.
The Company's advertising reinforces its community-based reputation for quality
service principally through targeted direct mailings and radio air time. In
September 1995, the Company introduced the 'Parent's Partner(Registered) Plan,'
a program that, among other things, provides parents with individualized
feedback on their child's development on at least a weekly basis. Management
believes this program has contributed to the increase in overall student
retention and added new enrollments at the Academies. The Company's high,
customer-driven standards and well-trained and caring staff strengthens its
image as an innovative education provider.
Focused Educational Curriculum. The Company's focus is on educating the
child rather than simply providing traditional child care services. The
Company's high quality proprietary Journey curriculum was originally developed
in 1991 by La Petite educators with the assistance of experts in early childhood
education with the intent of maximizing a child's cognitive development while
ensuring a positive experience for the child. The curriculum emphasizes
individuality and allows children to progress at their own pace, building skills
in a logical pattern using a 'hands-on' approach. All programs and activities
are developmentally appropriate, promote a child's intellectual, physical,
emotional and social development and are enhanced by on-site efforts of
2
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the Company's educational staff. The Company also operates Montessori schools,
which target education conscious parents, under the name Montessori
Unlimited(Registered). The Montessori method is a classical approach that
provides specific task-oriented educational materials or 'apparatus' presented
in a sequence determined by each child's natural capabilities. Each activity in
the prepared environment of the Montessori classroom has its roots in early
development and serves as a foundation for future, more complex developments.
Attractive Business Model. Improvements in profitability at the Academy
level have been achieved through a combination of (i) revenue enhancement and
cost management at the individual Academies and (ii) the economies of scale and
synergies realized through the clustering of Academies in economically and
demographically attractive areas. The Company has increased estimated FTE
Utilization from 59% in fiscal 1994 to 66% in fiscal 1997. During the four
fiscal years ended August 1994, the Company opened 100 residential Academies
with an estimated Operating Capacity of 125 children and an average facility
size of 6,200 square feet. The average EBITDA for such Academies in fiscal 1997
was approximately $54,700. In addition, the Company's Montessori schools have
proved to be successful with higher student retention, tuition averaging
approximately 20% more than at the Company's residential and employer-based
Academies and more favorable teacher-student ratios, resulting in increased
profitability. The Company has focused on providing its Academies with the
systems to improve capacity utilization and operational efficiency. In March
1998, the Company completed the installation in all of its residential Academies
of the first phase of a newly developed proprietary management information
system, the Academy Document Management and Information Network ('ADMIN'). The
first phase of ADMIN is a unique point of sale system which enables the Company
to more effectively monitor attendance, increase revenues and gather information
throughout all of its markets. By eliminating clerical errors and ensuring that
all service delivery is accounted for, the implementation of the ADMIN point of
sale system has increased operating revenue by more than 2% at the 246 Academies
which have been operating on the system since January 1, 1998. ADMIN currently
handles the tuition billing process, allowing Academy Directors to concentrate
on communicating and interacting with parents, supervising staff and spending
time with children. In subsequent phases, ADMIN will automate substantially all
of the clerical functions at the Academies. The Company's size and scope also
allows it to cost-effectively purchase supplies, conduct advertising and
marketing outreach programs and train employees.
Geographically Diversified Operations. The Company's operations are
geographically diversified, with 744 Academies located throughout 35 states and
the District of Columbia as of March 14, 1998. Although the highest number of
the Company's Academies are located in Texas, Florida, California, Georgia and
Virginia, these states account for less than half of the Company's Academies.
The geographical diversity of the Company's operations and profitability
mitigates the potential impact of regional economic downturns or adverse changes
in local regulations.
Experienced and Incentivized Management Team. The top four members of
senior management of the Company average approximately ten years of experience
with the Company. In addition, the Company's eight Area Vice Presidents and 77
Regional Directors average over 15 years and 11 years with La Petite,
respectively. Management has successfully reduced employee turnover, closed or
revitalized underperforming Academies, implemented operational data systems and
improved operating margins. Management owns or has the right to acquire, subject
to certain performance requirements, approximately 15.6% of the common stock of
Parent on a fully diluted basis.
BUSINESS STRATEGY
Management believes the Company is well positioned for future growth as one
of the leading providers of quality educational care to preschool aged children.
The Company's objective is to grow its higher margin businesses and continue to
be a leader in the markets in which it operates.
Emphasize Educational Curriculum. The Company's curriculum department
continually evaluates and improves the quality of its educational materials and
programs. The Company has invested significant resources in developing its
proprietary Journey curriculum, utilized at both its residential and
employer-based Academies, and intends to develop additional innovative
curriculum both internally and with the assistance of educational consultants.
The Company is investing in additional staff training, classroom facilities and
educational materials to enhance the delivery of the Journey curriculum at
approximately one-third of the Company's residential
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Academies for the school year beginning in the fall of 1998. The Company's
Montessori schools are staffed with certified Montessori lead teachers who
follow traditional Montessori methods that appeal to education conscious
parents.
Capitalize on Reputation for Customer Driven Service. Management believes
that the Company's knowledge of parents' objectives and desires for their
children's education differentiates it from other child care providers. In order
to better understand customer needs, the Company conducts (i) focus groups with
parents, (ii) bi-annual and annual customer and employee satisfaction surveys
(conducted by the Company and third parties) and (iii) interviews with parents.
The Company's Parent's Partner Plan was designed in part to bridge the gap
between what parents look for on a tour of the facility and expect on a
day-to-day basis and the requirements of a professionally designed curriculum.
The program includes a video and a monthly newsletter that explain the
curriculum being provided to the children and guarantees the delivery of daily
or weekly (depending on the age of the child) individual progress reports. The
Company continually strives to improve its customer retention and increase
loyalty by interacting with parents on a daily basis and focusing on meeting
and, if possible, exceeding their expectations.
Increase Academy Profitability. The Company plans to improve Academy
profitability by increasing capacity utilization and tuition rates, managing
costs and leveraging its existing and newly built Academies to achieve economies
of scale and synergies. The Company intends to continue to increase capacity
utilization by emphasizing local marketing programs and improving customer
retention and loyalty. The Company believes it is an industry leader in its
commitment to ongoing qualitative and quantitative research to determine
customer needs and expectations. Academy Directors use their understanding of
the markets in which they operate to cost effectively target parents through
customer referrals, the support of community activities and print media and spot
radio advertising. In addition, with the implementation of ADMIN, which provides
the Company with the information necessary to implement targeted pricing, the
Company has the ability to maximize revenue by charging its customers a premium
for services in high demand. The ability to control revenue and increase
operating efficiency at the point of sale through the implementation of ADMIN
also presents an opportunity for the Company to better allocate an Academy
Director's time. The Company achieves local economies of scale by employing a
cluster strategy of either building in markets where it has existing Academies
or entering new markets through the construction of a minimum number of
Academies.
Build Academies and Montessori Schools in Attractive Markets. The Company
intends to expand within existing markets and enter new markets with Academies
and Montessori schools concentrated in clusters. Over the last three years, the
Company has made significant investments in personnel and infrastructure to
facilitate the future growth of the Company. The Company currently expects to
open approximately 25 and 35 Academies in fiscal 1999 and fiscal 2000,
respectively. The Company has targeted 25 MSAs that it believes have favorable
characteristics for development, as measured by household income and education
levels, population growth, existing competition, labor supply, appropriate real
estate, and marketing possibilities. The Company expects to build residential
Academies and Montessori schools, primarily in higher-end neighborhoods, both of
which are anticipated to generate higher operating margins than the average
existing Academy. Because of the Montessori schools' success and popularity,
management intends to build new Montessori schools and convert certain existing
Academies to create new clusters of Montessori schools. Based upon significant
input from the Company's field personnel, visits to competitors and focus groups
with parents, the Company has recently designed a new prototype for its
Academies. New Academies will be approximately 9,500 square feet, built on sites
of approximately one acre, have an Operating Capacity of approximately 175
children for residential Academies and 150 children for Montessori schools and
incorporate a closed classroom concept. The Company will continue to target
profitable opportunities for employer-based Academies and seek to leverage its
residential Academy network to meet the needs of its corporate customers.
Pursue Strategic Opportunities. In addition to accelerating new Academy
development, the Company may seek to acquire existing child care centers where
demographics and facility conditions complement its business strategy.
Management believes the Company's competitive position, economies of scale and
financial strength will enable it to capitalize on selective acquisition
opportunities in the fragmented child care industry. The Company may also engage
in cross-marketing opportunities with manufacturers and marketers of educational
products. These opportunities should enable La Petite to further its reputation
as an educator and carry the residual benefit of an additional revenue stream.
4
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THE TRANSACTIONS
On March 17, 1998, LPA Investment LLC (the 'Investor'), a limited liability
company owned by an affiliate of Chase Capital Partners ('CCP') and by an entity
controlled by Robert E. King, a Director of the Company, and Vestar/LPA
Investment Corp., the parent company of the Company, which was renamed LPA
Holding Corp. ('Parent'), entered into a Merger Agreement pursuant to which a
wholly owned subsidiary of the Investor was merged into Parent (the
'Recapitalization'). In the Recapitalization (i) all of the then outstanding
shares of preferred stock and common stock of Parent (other than the shares of
common stock retained by Vestar/LPT Limited Partnership ('Vestar') and
management of the Company) owned by the existing stockholders of the Parent (the
'Existing Stockholders') were converted into the right to receive cash and (ii)
the Existing Stockholders received the cash of the Company as of the date of the
closing of the Transactions. As part of the Recapitalization, the Investor
purchased $72.5 million (less the value of options retained by management) of
common stock of the Parent (representing approximately 74.5% of the common stock
of Parent on a fully diluted basis) and $30 million of redeemable preferred
stock of Parent (collectively, the 'Equity Investment'). In addition, in
connection with the purchase of preferred stock of Parent, the Investor received
warrants to purchase up to 6.0% of Parent's common stock on a fully diluted
basis (resulting in an aggregate fully diluted ownership of 80.5% of the common
stock of Parent). Vestar retained common stock of Parent having a value (based
on the amount paid by the Investor for its common stock of Parent) of $2.8
million (representing 3.0% of the outstanding common stock of Parent on a fully
diluted basis). Management retained common stock of Parent having a value (based
on the amount paid by the Investor for its common stock of Parent) of $4.7
million (representing 5.0% of the common stock of Parent on a fully diluted
basis) and retained existing options to acquire 3.0% of Parent's fully diluted
common stock. In addition, Parent adopted a new option plan (the 'New Option
Plan') covering 8.5% of its fully diluted common stock. Accordingly, management
owns or has the right to acquire, subject to certain performance requirements,
approximately 16.5% of the common stock of Parent on a fully diluted basis. The
Equity Investment was used, together with the proceeds of the offering of the
Old Notes (the 'Offering') and borrowings under the Credit Agreement, to finance
the Recapitalization, to refinance substantially all of the Company's
outstanding indebtedness and outstanding preferred stock (the 'Refinancing
Transactions') and to pay the fees and expenses relating to the foregoing. See
'Ownership of Securities.'
The Refinancing Transactions consisted of (i) the defeasance by the Company
of all of its outstanding $85 million principal amount of 9 5/8% Senior Secured
Notes due 2001 (the 'Senior Notes'), (ii) the exchange of all outstanding shares
of the Company's Class A Preferred Stock (the 'Class A Preferred Stock') for
$34.7 million in aggregate principal amount of the Company's 12 1/8%
Subordinated Exchange Debentures due 2003 (the 'Exchange Debentures'), (iii) the
defeasance of all of the then outstanding Exchange Debentures and (iv) the
retirement of all the Company's outstanding 6 1/2% Convertible Subordinated
Debentures due 2011 (the 'Convertible Debentures').
In connection with the Recapitalization and the Refinancing Transactions,
the Company entered into a new credit agreement (the 'Credit Agreement')
providing for a $40 million term loan facility (the 'Term Loan Facility') and a
$25 million revolving loan facility (the 'Revolving Credit Facility'), which is
available for the Company's working capital requirements. See 'Description of
the Credit Agreement.'
The Offering, the Recapitalization, the Equity Investment, the borrowings
under the Credit Agreement and the Refinancing Transactions are collectively
referred to herein as the 'Transactions.' The Transactions closed on May 11,
1998.
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OWNERSHIP AND MANAGEMENT
As a result of the Recapitalization, the Investor beneficially owns 80.5%
of the common stock of Parent on a fully diluted basis and $30 million of
redeemable preferred stock of Parent. A majority of the economic interests of
the Investor are owned by CCP and a majority of the voting interests of the
Investor are owned by an entity controlled by Robert E. King, a Director of the
Company. CCP is the private equity group of The Chase Manhattan Corporation, the
largest bank holding company in the United States, and is one of the largest
private equity organizations in the United States, with over $5.0 billion under
management. Through its affiliates, CCP invests in leveraged buyouts,
recapitalizations and venture capital opportunities by providing equity and
mezzanine debt capital. Since its inception in 1984, CCP has made over 550
direct investments in a variety of industries.
The top four members of senior management of the Company average
approximately ten years of experience with the Company. In addition, the
Company's eight Area Vice Presidents and 77 Regional Directors average over 15
years and 11 years with La Petite, respectively. Management owns or has the
right to acquire, subject to certain performance requirements, approximately
16.5% of the common stock of Parent on a fully diluted basis.
------------------------
The principal executive offices of the Company are located at 8717 West
110th Street, Suite 300, Overland Park, Kansas 66210 and its telephone number is
(913) 345-1250.
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THE EXCHANGE OFFER
THE OFFERING
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<S> <C>
Registration Rights Agreement............. The Old Notes were sold by the Issuers on May 11, 1998 to CSI and
NationsBanc Montgomery Securities LLC (the 'Initial Purchasers'), who
resold the Old Notes to qualified institutional investors in reliance
on Rule 144A under the Securities Act or pursuant to offers and sales
that occurred outside the United States within the meaning of
Regulation S under the Securities Act. In connection therewith, the
Issuers, the Guarantor and the Initial Purchasers executed and
delivered for the benefit of the holders of the Old Notes an exchange
and registration rights agreement (the 'Registration Rights
Agreement') providing, among other things, for the Exchange Offer.
The Exchange Offer........................ New Notes are being offered in exchange for a like principal amount
of Old Notes. As of the date hereof, $145,000,000 aggregate principal
amount of Old Notes are outstanding. The Issuers will issue the New
Notes to Holders promptly following the Expiration Date. See 'Risk
Factors--Consequences of Failure to Exchange.'
Expiration Date........................... 5:00 p.m., New York City time, on , 1998, unless the
Exchange Offer is extended as provided herein, in which case the term
'Expiration Date' means the latest date and time to which the
Exchange Offer is extended.
Interest.................................. Each New Note will bear interest from May 11, 1998. No interest will
be paid on the Old Notes accepted for exchange.
Conditions to the Exchange Offer.......... The Exchange Offer is subject to certain customary conditions, which
may be waived by the Issuers. The Issuers reserve the right to amend,
terminate or extend the Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any such condition. See 'The
Exchange Offer--Conditions.'
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 Transmittal, or
such facsimile, together with the Old Notes and any other required
documentation to the exchange agent (the 'Exchange Agent') at the
address set forth herein. By executing the Letter of Transmittal,
each Holder will represent to the Issuers, among other things, that
(i) the New Notes acquired pursuant to the Exchange Offer by the
Holder and any beneficial owners of Old Notes are being obtained in
the ordinary course of business of the person receiving such New
Notes, (ii) neither the Holder nor such beneficial owner has an
arrangement with any person to participate in the distribution of
such New Notes, (iii) neither the Holder nor such beneficial owner
nor any such other person is engaging in or intends to engage in a
distribution of such New Notes and (iv) neither the Holder nor such
beneficial owner is an 'affiliate,' as defined under Rule 405
promulgated under the Securities Act, of the Issuers. Each
broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of marketmaking activities or other trading
activities (other than Old Notes acquired directly from the Issuers),
may participate in the Exchange Offer but
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<S> <C>
may be deemed an 'underwriter' under the Securities Act and,
therefore, must acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such New 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.
See 'The Exchange Offer--Procedures for Tendering' and 'Plan of
Distribution.'
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 his
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.'
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--
Guaranteed Delivery Procedures.'
Withdrawal Rights......................... Tenders may be withdrawn as provided herein at any time prior to 5:00
p.m., New York City time, on the Expiration Date. See 'The Exchange
Offer--Withdrawal of Tenders.'
Acceptance of Old Notes and Delivery of
New Notes............................... The Issuers 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 New Notes issued pursuant to
the Exchange Offer will be delivered promptly following the
Expiration Date. See 'The Exchange Offer--Terms of the Exchange
Offer.'
Exchange Agent............................ PNC Bank, National Association is serving as Exchange Agent in
connection with the Exchange Offer. See 'The Exchange Offer--
Exchange Agent.'
Use of Proceeds........................... There will be no cash proceeds to the Issuers from the exchange
pursuant to the Exchange Offer.
Consequences of Failure to Exchange....... Holders of Old Notes who do not exchange their Old Notes for New
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 issuance of the Old Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. 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 Securities
Act and applicable state securities laws.
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SUMMARY DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $145,000,000 aggregate principal amount of
Old Notes. The terms of the New Notes are identical in all material respects to
the Old Notes except that the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not contain certain provisions providing for the payment of liquidated
damages to the holders of the Old Notes under certain circumstances relating to
the Registration Rights Agreement, which provisions will evidence the same debt
as the Old Notes and, except as set forth in the immediately preceding sentence,
will be entitled to the benefits of the Indenture, under which both the Old
Notes were, and the New Notes will be, issued. See 'Description of Notes.'
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Securities Offered........................ $145,000,000 aggregate principal amount of 10% Series B Senior Notes
due 2008.
Maturity.................................. May 15, 2008.
Interest Payment Dates.................... May 15 and November 15 of each year commencing November 15, 1998.
Sinking Fund.............................. None.
Optional Redemption....................... Except as described below, the Notes will not be redeemable at the
option of the Issuers prior to May 15, 2003. Thereafter, the Notes
will be redeemable at the option of the Issuers, in whole or in part,
on not less than 30 nor more than 60 days' prior notice, at the
redemption prices set forth herein, plus accrued and unpaid interest,
if any, to the date of redemption. In addition, at any time and from
time to time on or prior to May 15, 2001, the Issuers may, subject to
certain requirements, redeem up to a maximum of 35% of the original
aggregate principal amount of the Notes (calculated giving effect to
any issuance of Additional Notes (as defined)) with the proceeds of
one or more Public Equity Offerings following which there is a Public
Market, at a redemption price equal to 110% of the principal amount
of the Notes to be redeemed, plus accrued and unpaid interest, if
any, to the date of redemption; provided, however, that, after giving
effect to any such redemption, at least 65% of the original aggregate
principal amount of the Notes (calculated giving effect to any
issuance of Additional Notes) remains outstanding. See 'Description
of Notes--Optional Redemption.'
Change of Control......................... Upon the occurrence of a Change of Control, each holder of Notes will
have the right to require the Issuers to repurchase all or any part
of such holder's Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any,
to the date of repurchase. See 'Description of Notes--Change of
Control.'
Guarantees................................ The New Notes will be fully and unconditionally guaranteed on an
unsecured, senior basis by the Guarantors. Parent and the Company's
existing subsidiary, as well as all of the Company's future domestic
subsidiaries, guarantee the Credit Agreement and are jointly and
severally liable on a senior basis with the Company for the
obligations thereunder. The obligations under the Credit Agreement
are secured by pledges of all the capital stock of the Company and
the Company's existing subsidiary, as well as all of the Company's
future domestic subsidiaries, and security interests in, or liens on,
substantially all other tangible and intangible assets of Parent, the
Company and the Company's existing subsidiary, as well as all of the
Company's future domestic subsidiaries. See 'Description of the
Credit Agreement,' 'Risk Factors--Unsecured
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<S> <C>
Status of Notes and Guarantees,' 'Description of Notes--Guarantees,'
and '--Certain Covenants--Future Guarantors.'
Ranking................................... The New Notes will be unsecured Senior Indebtedness of the Issuers
and will be effectively subordinated to all existing and future
Secured Indebtedness of the Issuers and the Guarantor to the extent
of the value of the assets securing such Indebtedness. The New Notes
will rank pari passu in right of payment with all existing and future
Senior Indebtedness of the Issuers and will rank senior in right of
payment to all Subordinated Obligations of the Issuers. The
Guarantees will be unsecured and will be pari passu in right of
payment to all existing and future Senior Indebtedness of the
Guarantors. As of March 14, 1998, after giving pro forma effect to
the Transactions and the application of the net proceeds therefrom as
described under 'Use of Proceeds,' (i) the outstanding Senior
Indebtedness of the Issuers would have been $187.1 million, of which
$42.1 million would have been Secured Indebtedness (exclusive of
unused commitments under the Credit Agreement) and (ii) the Guarantor
would have had no Senior Indebtedness outstanding (exclusive of
guarantees of Indebtedness under the Credit Agreement (all of which
would have been Secured Indebtedness) and the Guarantees).
Restrictive Covenants..................... The Indenture contains certain covenants that, among other things,
limit (i) the incurrence of additional indebtedness of Parent, the
Company and its Restricted Subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stock of the Parent, Company
and its Restricted Subsidiaries and the redemption of certain
subordinated obligations of Parent, the Company and its Restricted
Subsidiaries, (iii) investments, (iv) sales of assets and subsidiary
stock, (v) the grants of liens on the assets of Parent, the Company
and its Restricted Subsidiaries, (vi) certain transactions with
affiliates, (vii) the sale or issuance of capital stock of the
Restricted Subsidiaries of the Company and (viii) consolidations,
mergers and transfers of all or substantially all the assets of
Parent or the Company. The Indenture also prohibits any restriction
on the ability of any Restricted Subsidiary of the Company to pay
dividends or make certain other distributions. All of these
limitations and prohibitions, however, are subject to a number of
important qualifications and exceptions. See 'Description of
Notes--Certain Covenants' and '--Merger and Consolidation.'
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth as of the dates and for the periods
indicated summary historical financial and other data for Parent and the Company
on a consolidated basis. The historical consolidated data for the fiscal years
ended August 30, 1997 and August 26, 1995 have been derived from and should be
read in conjunction with the audited consolidated financial statements and the
related notes thereto included elsewhere in this Prospectus. Fiscal 1996 was a
53 week year ending on August 31, 1996. For comparison purposes, the following
table presents the unaudited results of the first 52 weeks of fiscal 1996. The
historical unaudited consolidated financial data for the 28 weeks ended March
14, 1998 and March 15, 1997 have been derived from and should be read in
conjunction with the unaudited consolidated financial statements 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. The unaudited
pro forma financial data are derived from the unaudited pro forma financial
statements and the related notes included elsewhere herein that give pro forma
effect to the Transactions. The pro forma financial data for the periods
presented give effect to the Transactions as if they had been consummated on
September 1, 1996 for the fiscal year ended August 30, 1997 and as of August 31,
1997 for the 28 weeks ended March 14, 1998. The unaudited pro forma balance
sheet data gives effect to the Transactions as if they had occurred on March 14,
1998. The summary pro forma data do not purport to represent what the results of
operations or financial position would have been if the Transactions had been
completed as of the date or for the periods presented, nor do such data purport
to represent the results of operations for any future period. See 'Unaudited Pro
Forma Consolidated Financial Information,' '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 notes thereto included elsewhere herein.
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52 WEEKS ENDED 28 WEEKS ENDED(B)
-------------------------------------------------------- --------------------------------
AUGUST 26, 1995 AUGUST 24, 1996(A) AUGUST 30, 1997 MARCH 15, 1997 MARCH 14, 1998
--------------- ------------------ --------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT ACADEMY DATA)
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STATEMENT OF OPERATIONS DATA:
Operating revenue................. $ 279,806 $294,836 $ 302,766 $159,983 $166,701
Operating expenses................ 287,552 284,684 288,740 154,167 159,310
Operating income.................. (7,746) 10,152 14,026 5,816 7,391
Interest expense(c)............... 11,110 10,126 9,245 4,994 4,917
Net loss.......................... (14,462) (4,737) (1,217) (1,671) (937)
OTHER FINANCIAL DATA:
EBITDA(d)......................... $ 21,167 $ 26,605 $ 30,087 $ 14,464 $ 15,668
Cash flows from operating
activities ..................... 17,140 15,208 14,886 2,739 6,321
Cash flows from investing
activities ..................... (2,956) (6,045) (7,239) (2,973) (4,437)
Cash flows from financing
activities ..................... (9,348) (12,671) 3,533 3,862 (1,100)
Depreciation...................... 13,501 13,680 13,825 7,444 7,073
Amortization of goodwill and other
intangibles..................... 3,712 2,773 2,236 1,204 1,204
Capital expenditures.............. 9,101 8,570 7,691 3,061 4,776
Ratio of earnings to fixed
charges(e)...................... (e) (e) 1.1x (e) 1.1x
ACADEMY DATA:
Number of Academies............... 786 751 745 751 744
Operating Capacity (at end of
period)(f)...................... 94,671 91,049 90,601 91,202 90,599
FTE Utilization(g)................ 59% 64% 66% 65% 65%
Average Weekly FTE Tuition(h)..... $ 96 $ 97 $ 98 $ 97 $ 101
PRO FORMA DATA:
Cash interest expense(i).......... 18,178 9,804
Ratio of earnings to fixed
charges(e)...................... (e) (e)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 14, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and restricted cash(j)............................................... $ 27,533 $ 1,100
Working capital............................................................................. 10,901 (15,532)
Total assets................................................................................ 170,347 150,441
Total long term debt........................................................................ 87,345 187,112
Redeemable preferred stock.................................................................. 34,698 --
Stockholders' equity (deficit)(k)........................................................... 2,396 (82,579)
</TABLE>
(Footnotes on next page)
11
<PAGE>
(Footnotes from previous page)
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(a) Fiscal 1996 was a 53 week year ending on August 31, 1996. Capital
expenditures are for the entire 53 week fiscal year.
(b) The Company's fiscal year ends on the last Saturday in August. The first
quarter consists of 16 weeks and the second, third and fourth quarters each
consist of 12 weeks. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview' for a discussion of
seasonality.
(c) Interest expense includes $1.4 million, $1.3 million, $0.9 million, $0.5
million and $0.5 million of amortization of deferred financing expense and
accretions of the discount on the Convertible Debentures for fiscal 1995,
1996 and 1997 and the 28 weeks ended March 15, 1997 and March 14, 1998.
(d) EBITDA is defined herein as net income before non-cash restructuring
charges, extraordinary items, net interest expense, taxes, depreciation and
amortization. EBITDA is not 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. EBITDA is
presented because the Company believes that EBITDA represents a more
consistent financial indicator of the Company's ability to service its debt.
(e) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes and extraordinary items, plus
fixed charges. Fixed charges consists 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
historical 52 weeks ended August 26, 1995 and August 24, 1996, and the 28
weeks ended March 15, 1997, the deficiency of earnings to fixed charges were
$20.6 million, $2.7 million and $0.6 million, respectively. For the Pro
Forma 52 weeks ended August 30, 1997 and the 28 weeks ended March 15, 1997,
the deficiency of earnings to fixed charges are $8.1 million and $4.2
million, respectively.
(f) As a result of the Company's targeted teacher-student ratios, the physical
layout of certain residential Academies and the typical layout of Montessori
Schools, the Company's Academies have an operating capacity ('Operating
Capacity') approximately 8% below Licensed Capacity. 'Licensed Capacity'
measures the overall capacity of the Company's Academies based upon
applicable state licensing regulations.
(g) 'FTE Utilization' is the ratio of 'full-time equivalent' ('FTE') students to
the total Operating Capacity for all of the Company's Academies. FTE
attendance is not a measure of the absolute number of students attending the
Company's Academies. Rather, it is an approximation of the full-time
equivalent number of students based on Company estimates and weighted
averages. For example, a student attending full-time is equivalent to one
FTE, while a student attending only one-half of each day is equivalent to
0.5 FTE.
(h) The Company calculates the 'Average Weekly FTE Tuition' by dividing total
operating revenue by the number of weeks in the applicable period and by the
number of FTE students for the applicable period.
(i) Pro forma cash interest expense is defined as interest expense exclusive of
bank agency fees and amortization of deferred financing costs.
(j) The pro forma amount consists entirely of the cash required to be deposited
in the restricted cash investment accounts pursuant to the Company's
self-insurance program.
(k) The pro forma amount represents the implied value of the stockholders'
equity of Parent to be purchased and retained in the Transactions of
approximately $110 million. See 'The Transactions.'
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<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Notes offered by this Prospectus.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
As a result of the Offering and the borrowings under the Credit Agreement,
the Company has a highly leveraged capital structure and the Company's
consolidated indebtedness is substantial in relation to its stockholders'
equity. As of March 14, 1998, on a pro forma basis after giving effect to the
Transactions, the Company would have had consolidated indebtedness of
approximately $187.1 million (exclusive of unused commitments under the Credit
Agreement) and the Company would have had a stockholders' deficit of $82.4
million.
The degree to which the Company is leveraged could have important
consequences to the holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be required to be dedicated to the payment of interest on, and principal
of, its indebtedness, including the Notes, thereby reducing the funds available
for other purposes; (ii) the Company's ability to obtain additional financing in
the future, as needed, may be significantly impaired (including the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or other corporate purposes and to obtain sale
leaseback financing); (iii) certain of the Company's indebtedness is at variable
rates of interest, which could result in higher interest expense in the event of
increases in interest rates; (iv) all the indebtedness outstanding under the
Credit Agreement is secured by pledges of all the capital stock of the Company
and the Company's existing subsidiary, as well as the capital stock of all of
the Company's future subsidiaries, and security interests in, or liens on,
substantially all other tangible and intangible assets of Parent, the Company
and the Company's existing subsidiary, as well as all of the Company's future
subsidiaries, and such indebtedness will mature prior to the maturity of the
Notes; (v) the Company's ability to compete through capital improvement and
expansion may be limited and (vi) the Company's ability to adjust to changing
market conditions and to withstand competitive pressures could be limited, and
the Company may be vulnerable in the event of a downturn in general economic
conditions or its business.
The Company's ability to make scheduled payments (and to refinance its
obligations) with respect to its indebtedness (including the Notes) will depend
upon its future operating performance, which, in turn, will be affected by
general economic and competitive conditions and by financial, business and other
factors, many of which are beyond the control of the Company. For the 52 weeks
ended March 14, 1998, on a pro forma basis after giving effect to the
Transactions, the Company's consolidated cash interest expense would have been
approximately $18.2 million. The Company anticipates that its cash flow,
together with borrowings under the Credit Agreement, will be sufficient to meet
its operating expenses and to service its debt requirements as they become due.
If the Company is unable to generate sufficient cash flow from operations in the
future or borrow under the Credit Agreement in an amount sufficient to meet its
operating expenses and to service its debt requirements as they become due, it
will be required to adopt an alternative strategy that may include actions such
as reducing or delaying capital expenditures, selling assets, restructuring or
refinancing its indebtedness, changing its corporate structure or seeking
additional equity capital. There can be no assurance that any of these actions
could be effected in a timely manner on satisfactory terms, if at all, or that
any of these actions would enable the Company to continue to meet its operating
expenses and to service its debt requirements as they become due. In addition,
the terms of the agreements governing the Company's existing and future
indebtedness, including the terms of the Credit Agreement and the Indenture, may
prohibit the Company from taking any of these actions. The failure to generate
sufficient cash flow from operations, to borrow under the Credit Agreement or to
adopt an alternative strategy could materially adversely affect, among other
things, the Company's ability to pay interest on, and to repay the principal of,
the Notes and the market value of the Notes. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'
13
<PAGE>
UNSECURED STATUS OF NOTES AND GUARANTEES
The Indenture permits Parent, the Company and its Restricted Subsidiaries
to incur Secured Indebtedness, including indebtedness under the Credit
Agreement, which is secured by security interests in, or liens on, substantially
all tangible and intangible assets of Parent, the Company and the Company's
existing subsidiary, as well as all of the Company's future subsidiaries. The
Notes and the Guarantees are unsecured and therefore will not have the benefit
of any collateral. Accordingly, in the event of a bankruptcy, liquidation,
reorganization or similar proceeding of either of the Issuers or a Guarantor,
the lenders of such Secured Indebtedness would have the right to foreclose upon
such collateral to the exclusion of the holders of the Notes, notwithstanding
the existence of an event of default with respect to the Notes or the applicable
Guarantee. In such event, the assets of either Issuer or the Guarantors, as the
case may be, constituting such collateral would first be used to repay in full
all amounts outstanding under such Secured Indebtedness, resulting in all or a
portion of the assets of the Issuers or such Guarantors being unavailable to
satisfy claims of holders of the Notes and other unsecured indebtedness.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The terms and conditions of the Credit Agreement impose restrictions on the
ability of the Issuers to, among other things, incur indebtedness or issue
certain equity securities, incur liens, undergo certain fundamental changes,
make loans or advances, incur guarantees or make acquisitions, undertake asset
sales, engage in sale and leaseback transactions, enter into hedging agreements,
pay dividends in respect of, make distributions on or repurchase or redeem
capital stock or certain indebtedness, enter into transactions with affiliates,
enter into certain restrictive agreements, amend certain material documents,
make capital expenditures and engage in mergers and consolidations. The Credit
Agreement also requires the Issuers to maintain specified financial ratios and
satisfy certain tests, including, without limitation a maximum leverage ratio, a
fixed charge coverage ratio and a minimum EBITDA (as defined in the Credit
Agreement) test. The terms and conditions of the Indenture impose restrictions
on the ability of the Issuers and the Restricted Subsidiaries to, among other
things, incur additional indebtedness, pay dividends on and redeem capital
stock, redeem certain subordinated obligations, make investments, undertake
sales of assets and subsidiary stock, grant liens on the assets of Parent, the
Company and the Restricted Subsidiaries, engage in certain transactions with
affiliates, sell or issue capital stock of the Restricted Subsidiaries and
engage in consolidations, mergers and transfers of all or substantially all the
assets of the Issuers. The ability of the Issuers to comply with these and other
terms and conditions of the Credit Agreement and the Indenture may be affected
by general economic and competitive conditions and by financial, business and
other factors, many of which are beyond the control of the Issuers. A breach of
any of these covenants could result in a default under the Credit Agreement or
the Indenture. In addition, the lenders under the Credit Agreement could elect
to declare all amounts outstanding under the Credit Agreement, together with
accrued and unpaid interest, to be immediately due and payable. If the Company
were unable to repay such amounts, such lenders would have the right to proceed
against the collateral granted to them to secure such indebtedness and other
amounts. See 'Description of the Credit Agreement' and 'Description of Notes.'
PURCHASE OF THE NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Issuers to repurchase all or any part of such holder's
Notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase. The occurrence
of certain events which would constitute a Change of Control would also
constitute an event of default under the Credit Agreement. In addition, the
Credit Agreement will effectively prohibit the repurchase of the Notes by the
Company in the event of a Change of Control unless all amounts outstanding
thereunder are repaid in full. The failure by the Issuers to repurchase any
Notes upon the occurrence of a Change of Control would result in an event of
default under the Indenture. The inability to repay all indebtedness outstanding
under the Credit Agreement, if accelerated, would also constitute an event of
default under the Indenture. In the event of a Change of Control, there can be
no assurance that the Issuers will have sufficient assets to satisfy all
obligations under the Credit Agreement and the Indenture. The agreements
governing future indebtedness of the Issuers may also contain prohibitions of
certain events and transactions which would constitute a Change of Control. See
'Description of Notes--Change of Control.'
14
<PAGE>
LICENSING REQUIREMENTS AND GOVERNMENT REGULATIONS
Each Academy must be licensed under applicable state and local licensing
laws and is subject to a variety of state and local regulations. Although these
state and local licensing requirements and regulations vary greatly from
jurisdiction to jurisdiction, governmental agencies generally review the safety,
fitness and adequacy of the buildings and equipment, the ratio of staff to
children, the dietary program, the daily curriculum and compliance with health
standards. In many jurisdictions, new legislation or regulations have been
enacted or are being considered which establish requirements for employee
background checks or other clearance procedures for new employees of child care
centers. For example, many of the states in which the Company operates require
criminal record checks for all child care staff as part of their licensing
regulations, and some states in which the Company operates require fingerprint
verification. Repeated failures by an Academy to comply with applicable
regulations may subject the Academy to state sanctions, which might include
fines, corrective orders, being placed on probation or, in more serious cases,
suspension or revocation of the Academy's license to operate. Management
believes the Company is in substantial compliance with all material licensing
requirements and regulations applicable to its businesses.
State and local licensing requirements often provide that licenses 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 the ownership of the equity capital of Parent to be effected
pursuant to the Recapitalization will not constitute a transfer of the Company's
businesses under applicable state and local licensing regulations. If an
administrative body were to take a contrary position, the Company may, in
certain circumstances, be required to apply for relicensing in the applicable
jurisdiction. If such relicensing were required, there can be no assurance that
the Company would not incur material expenses.
Although there are presently no federal licensing requirements, certain
minimum standards must be satisfied in order for a child care center to qualify
for participation in certain federal subsidy programs. Management believes the
Company has substantially satisfied all material standards necessary to qualify
for participation in the federal subsidy programs relevant to its business.
IMPACT OF POSSIBLE LOSS OF GOVERNMENT FUNDING
During fiscal 1997, management estimates approximately 5% to 10% 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 additional funding for child care will be
available for low income families as part of the welfare reform included in
legislation signed by President Clinton in August 1996, no assurance can be
given that the Company will benefit from any such additional funding. In
addition, although the Internal Revenue Code of 1986, as amended (the 'Code'),
makes certain tax incentives available to parents utilizing child care programs,
such provisions of the Code are subject to change. See 'Business--Government
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 filing 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 high 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 competitors, the Company is periodically subject
to claims of child abuse arising out of alleged incidents at its Academies. In
addition, any adverse publicity concerning reported incidents of alleged
physical or sexual abuse
15
<PAGE>
of children at the Company's Academies or at other child care centers could
affect occupancy levels at the Company's Academies.
SEASONALITY
The Company's revenues and the initial success of new Academies 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 vacation. Academies 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.
CONTROL BY KING AND CCP
All of the outstanding common stock of the Company is held by Parent. All
of the outstanding shares of preferred stock of Parent are owned by the
Investor, and approximately 80.5% of the fully diluted common stock of Parent is
owned by the Investor. A majority of the economic interests of the Investor is
owned by CCP, and a majority of the voting interests of the Investor is owned by
an entity controlled by Robert E. King, a Director of the Parent and the
Company. Mr. King is entitled to three votes as a director of Parent and the
Company. However, pursuant to an operating agreement between CCP and the
Investor (the 'Operating Agreement'), CCP has the right to elect a majority of
the directors of the Investor if certain triggering events occur, and the
Investor is prohibited from taking certain actions in respect of the common
stock of Parent held by the Investor without the consent of CCP. See 'Ownership
of Securities.'
Accordingly, the Investor controls the affairs of the Company and has the
power to elect all of its directors (other than James R. Kahl, the Chairman of
the Board, President and Chief Executive Officer of the Company), 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 all or substantially all of the
Company's assets. Circumstances may occur in which the interests of the
Investor, as the majority stockholder of Parent, may conflict with the interests
of the holders of Notes. See 'Management,' 'Ownership of Securities' and
'Certain Relationships and Related Transactions.'
COMPETITION
The United States preschool education and child care industry is highly
fragmented and competitive. The Company's competition consists principally of
local nursery schools and child 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 child 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 and may
utilize volunteers for staffing. 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.
IMPACT OF RECESSION
Demand for the Company's services may be subject to general economic
conditions, and the Company's revenues depend, in part, on the number of working
mothers and working single parents who require child care services. Recessionary
pressure on the economy, and a consequent reduction in the size of the labor
force, may adversely impact the Company's business, financial condition and
results of operations as a result of the general tendency of parents who are not
employed to cease using child care services.
16
<PAGE>
FRAUDULENT CONVEYANCE STATUTES
The incurrence by the Issuers and the Guarantors of indebtedness (such as
the Notes and the Guarantees) in connection with the Transactions may be subject
to review under relevant federal and state fraudulent conveyance and similar
statutes in a bankruptcy or reorganization case or lawsuit commenced by or on
behalf of creditors of either of the Issuers or any of the Guarantors. Under
these statutes, if a court were to find that, after giving effect to the
issuance of the Notes and the incurrence of the Guarantees, (i) either of the
Issuers, or the relevant Guarantor incurred such indebtedness with the intent of
hindering, delaying or defrauding present or future creditors, (ii) either of
the Issuers or the relevant Guarantor received less than the reasonably
equivalent value in consideration for incurring such indebtedness, and, at the
time of the incurrence of such indebtedness such Issuer or such Guarantor (a)
was insolvent or was rendered insolvent by reason of such incurrence, (b) was
engaged or was about to engage in a business or transaction for which its
remaining unencumbered assets constituted unreasonably small capital or (c)
intended to incur, or did incur, or believed that it would incur, debts beyond
its ability to pay as they matured or became due, such court might subordinate
the Notes or the applicable Guarantee to presently existing or future
indebtedness of such Issuer or Guarantor, void the issuance of the Notes or the
incurrence of such Guarantee and direct the repayment of any amounts paid
thereunder to the creditors of such Issuer or Guarantor or take other actions
detrimental to holders of the Notes.
The measure of insolvency under fraudulent conveyance statutes will vary
depending upon the law of the jurisdiction being applied. Generally, however, a
debtor will be considered insolvent with respect to a particular date if on such
date the sum of all its liabilities, including contingent liabilities, was
greater than the value of all its assets at fair valuation or if the present
fair saleable value of its assets was less than the amount required to repay its
probable liabilities, including contingent liabilities, as they become absolute
and matured.
If a court were to find that any component of the Transactions constituted
a fraudulent transfer, to the extent proceeds from the Offering were used to
finance such component, the court might find that the Issuers or the Guarantor
did not receive reasonably equivalent value in consideration for incurring the
indebtedness represented by the Notes and the Guarantee. The Guarantee may be
subject to the additional claim that, because the Guarantee was incurred for the
benefit of the Issuers (and only indirectly for the benefit of the Guarantor),
the obligations of the Guarantor thereunder were incurred for less than
reasonably equivalent value.
Each of the Issuers and the Guarantor believes that it will receive
equivalent value at the time the indebtedness under the Notes or the Guarantee
is incurred. In addition, after giving effect to the Transactions, each of the
Issuers and the Guarantor (a) believes that it will not be insolvent or rendered
insolvent, (b) believes that it will not be engaged or be about to engage in a
business or transaction for which its remaining unencumbered assets constitute
unreasonably small capital or (c) does not intend to incur, will not incur, and
does not believe that it will incur, debts beyond its ability to pay as they
mature or become due. These beliefs and intentions are based upon analyses of
internal cash flow projections and estimated values of assets and liabilities at
the time of the Offering. There can be no assurance, however, that a court
passing on these issues would make the same determination.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange the Old Notes for New 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 issuance of the Old Notes pursuant to exemptions from, or in
transactions 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. Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Issuers believe that the New 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 Issuers 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 New
Notes are acquired in the ordinary course of such holder's business, such holder
has no arrangement with any person to participate in the
17
<PAGE>
distribution of such New Notes and neither such holder nor any such other person
is engaging in or intends to engage in a distribution of such New Notes.
Notwithstanding the foregoing, each broker-dealer that receives New 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 New 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 New 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 (other than Old Notes acquired directly
from the Issuers). The Issuers have agreed that, for a period of 180 days after
the date of this Prospectus, they will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See 'Plan of
Distribution.' However, the ability of any Holder to resell the New Notes is
subject to applicable state securities laws as described in '--Blue Sky
Restrictions on Resale of New Notes' below.
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and to avoid the restrictions on
transfer of the Old Notes, Holders of Old Notes must transmit a properly
completed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at the address set forth below
under 'The Exchange Offer--Exchange Agent' on or prior to the Expiration Date.
In addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer for such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
pursuant to the procedure for book-entry transfer described herein, must be
received by the Exchange Agent prior to the Expiration Date or (iii) the Holder
must comply with the guaranteed delivery procedures described herein. See 'The
Exchange Offer.'
BLUE SKY RESTRICTIONS ON RESALE OF NEW NOTES
In order to comply with the securities laws of certain jurisdictions, the
New Notes may not be offered or resold by any Holder unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the requirements of such
exemption have been satisfied. The Issuers do not currently intend to register
or qualify the resale of the New Notes in any such jurisdictions. However, an
exemption is generally available for sales to registered broker-dealers and
certain institutional buyers. Other exemptions under applicable state securities
laws may also be available.
LACK OF A PUBLIC MARKET FOR THE NEW NOTES
The New Notes will constitute a new class of securities with no established
trading market. The Issuers do not intend to list the New Notes on any national
securities exchange or to seek the admission thereof to trading in the Nasdaq
National Market. The Old Notes are designated for trading in the Private
Offerings, Resale and Trading through Automatic Linkages ('PORTAL') market. The
Issuers have been advised by CSI that CSI currently intends to make a market in
the New Notes. CSI is not obligated to do so, however, and any market-making
activities with respect to the New Notes may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act, and may be limited during
the Exchange Offer and the pendency of any Shelf Registration Statement (as
defined). Accordingly, no assurance can be given that an active public or other
market will develop for the New Notes or as to the liquidity of the trading
market for the New Notes. If a trading market does not develop or is not
maintained, holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a market develops for the New
Notes, future trading prices of the New Notes will depend on many factors,
including, among other things, prevailing interest rates, the Issuers' financial
condition and results of operations, and the market for similar notes. Depending
on those and other factors, the New Notes may trade at a discount from their
principal amount.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Issuers on May 11, 1998 to the Initial
Purchasers, who resold the Old Notes to qualified institutional investors in
reliance on Rule 144A under the Securities Act or pursuant to offers and sales
that occurred outside the United States within the meaning of Regulation S under
the Securities Act. In connection therewith, the Issuers, the Guarantor and the
Initial Purchasers entered into the Registration Rights Agreement, which
provides that (i) the Issuers will file an Exchange Offer Registration Statement
with the Commission within 60 days after the date of the original issuance of
the Old Notes (the 'Issue Date'), (ii) the Issuers will use their best efforts
to have the Exchange Offer Registration Statement declared effective by the
Commission within 120 days after the Issue Date (the 'Target Effectiveness
Date'), (iii) the Issuers will consummate the Exchange Offer within 180 days
after the Issue Date (the 'Target Consummation Date') and (iv) if obligated to
file the Shelf Registration Statement (as described below), the Issuers will use
their best efforts to file the Shelf Registration Statement with the Commission
promptly after such filing obligation arises and to cause the Shelf Registration
Statement to become effective by the Commission as promptly as possible after
such obligation arises. Promptly after the effectiveness of the Registration
Statement, the Issuers will offer, pursuant to this Prospectus, to the Holders
of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of New Notes, to be issued without a restrictive legend and
which may, generally, be reoffered and resold by the holder without restrictions
or limitations under the Securities Act. The term 'Holder' with respect to the
Exchange Offer means any person in whose name Old Notes are registered on the
books of the Issuers or any other person who has obtained a properly completed
bond power from the registered holder.
The Issuers have not requested, and do not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
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 interpretations by the staff of the Commission
set forth in no-action letters issued to Exxon Capital Holdings Corporation
(available April 13, 1989), Morgan Stanley & Co. Incorporated (available June 5,
1991) and Shearman & Sterling (available July 2, 1993), the Issuers believe that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder of such New
Notes (other than any such holder that is an 'affiliate' of the Issuers 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 New Notes are acquired in the ordinary course of such
Holder's business, such Holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes and neither such
Holder nor any other such person is engaging in or intends to engage in a
distribution of such New Notes. Because 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 Issuers or who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the New Notes cannot rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale transaction.
Each broker-dealer that receives New 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 New 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 resales of New 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 (other than Old Notes acquired directly from the Issuers). The
Issuers have agreed that, for a period of 180 days after the date of this
Prospectus, they will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See 'Plan of Distribution.'
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SHELF REGISTRATION
Pursuant to the Registration Rights Agreement, if (i) because of any change
in law or applicable interpretations thereof by the staff of the Commission, the
Issuers not permitted to effect the Exchange Offer as contemplated hereby, (ii)
any Old Notes validly tendered pursuant to the Exchange Offer are not exchanged
for New Notes within 180 days after the Issue Date, (iii) the Initial Purchasers
so request with respect to Old Notes not eligible to be exchanged for New Notes
in the Exchange Offer, (iv) any applicable law or interpretations do not permit
any holder of Old Notes to participate in the Exchange Offer, (v) any holder of
Old Notes that participates in the Exchange Offer does not receive freely
transferable New Notes in exchange for tendered Old Notes, or (vi) the Company
so elects, then the Issuers will file with the Commission a shelf registration
statement (the 'Shelf Registration Statement') to cover resales of Transfer
Restricted Securities by such holders who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. For purposes of the foregoing, 'Transfer Restricted Securities' means
each Old Note until (i) the date on which such Old Note has been exchanged for a
freely transferable New Note in the Exchange Offer; (ii) the date on which such
Old Note has been effectively registered under the Securities Act and disposed
of in accordance with the Shelf Registration Statement or (iii) the date on
which such Old Note is distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act.
The Issuers will use their reasonable best efforts to have the Shelf
Registration Statement declared effective by the Commission as promptly as
practicable after the filing thereof and to keep the Shelf Registration
Statement continuously effective until May 11, 2000 or such shorter period that
will terminate when all the Transfer Restricted Securities covered by the Shelf
Registration Statement have been sold pursuant thereto. The Issuers, at their
expense, will provide to each holder of the Old Notes copies of the prospectus
that 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 from
time to time. A holder of Old Notes who sells such Old Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder 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 which are applicable to such
holder (including certain indemnification obligations).
ADDITIONAL INTEREST
If (i) the applicable Registration Statement is not filed with the
Commission on or prior to 60 days after the Issue Date, (ii) the Exchange Offer
Registration Statement or the Shelf Registration Statement as the case may be,
is not declared effective within 120 days after the Issue Date (or in the case
of a Shelf Registration Statement required to be filed in response to a change
in law or the applicable interpretations of Commission's staff, if later, within
45 days after publication of the change in law or interpretation), (iii) the
Registered Exchange Offer is not consummated on or prior to 180 days after the
Issue Date, or (iv) the Shelf Registration Statement is filed and declared
effective within 120 days after the Issue Date (or in the case of a Shelf
Registration Statement required to be filed in response to a change in law or
the applicable interpretations of Commission's staff, if later, within 45 days
after publication of the change in law or interpretation) but shall thereafter
cease to be effective (at any time that the Issuers are obligated to maintain
the effectiveness thereof) without being succeeded within 30 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (i) through (iv), a 'Registration Default'), the Issuers
and the Guarantor will be jointly and severally obligated to pay liquidated
damages to each Holder of Transfer Restricted Securities, during the period of
one or more such Registration Defaults, in an amount equal to $0.192 per week
per $1,000 principal amount of Transfer Restricted Securities held by such
Holder until (i) the applicable Registration Statement is filed, (ii) the
Exchange Offer Registration Statement is declared effective and the Registered
Exchange Offer is consummated, (iii) the Shelf Registration Statement is
declared effective or (iv) the Shelf Registration Statement again becomes
effective, as the case may be.
Holders of Old Notes will be required to make certain representations to
the Issuers (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf
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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 benefit from the provisions set forth above.
The summary herein of the material provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all of the provisions of the Registration Rights Agreement, a
copy of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer, Holders of Old Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old Notes will not be entitled to certain
rights under the Registration Rights Agreement and such Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time on the
Expiration Date. The Issuers will issue $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes (i)
have been registered under the Securities Act and therefore will not bear
legends restricting their transfer, (ii) will not contain certain provisions
providing for the payment of additional interest on the Old Notes under certain
circumstances relating to the Registration Rights Agreement, which provisions
will terminate upon the consummation of the Exchange Offer and (iii) have been
given a series designation to distinguish the New Notes from the Old Notes. The
New Notes will evidence the same debt as the Old Notes and will be entitled to
the benefits of the Indenture under which the Old Notes were, and the new Notes
will be, issued.
As of the date of this Prospectus, $145,000,000 aggregate principal amount
of the Old Notes are outstanding. The Issuers have fixed the close of business
on , 1998 as the record date for the Exchange Offer for purposes
of determining the persons to whom this Prospectus, together with the Letter of
Transmittal, will initially be sent. As of such date, there were registered
Holders of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law (the 'DGCL') or the Indenture in
connection with the Exchange Offer. The Issuers intend to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission promulgated thereunder.
The Issuers shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuers have given oral notice (confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of the exchange of Old Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders who tender Old Notes in the Exchange Offer will 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 Old Notes
pursuant to the Exchange Offer. The Issuers will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
'--Fees and Expenses.'
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' shall mean 5:00 p.m., New York City time, on
, 1998 unless the Issuers, in their sole discretion, extends the
Exchange Offer, in which case the term 'Expiration Date' shall mean the latest
date and time to which the Exchange Offer is extended, which shall in no event
be later than , 1998.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral notice (confirmed in writing) or written notice
and will make a public announcement thereof prior to 9:00 a.m., New York City
time, on the next business day after each previously scheduled expiration date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under 'The Exchange Offer--Conditions' shall not have
been satisfied, to terminate the Exchange Offer, by giving oral notice
(confirmed in writing) or written notice of such delay, extension or termination
to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any
manner. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a public announcement thereof. If the
Exchange Offer is amended in a manner determined by the Issuers to constitute a
material change, the Issuers will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered Holders, and
the Issuers will extend the Exchange Offer for a period of five to 10 business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five- to 10-business-day period.
Without limiting the manner in which the Issuers may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Issuers shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
Each New Note will bear interest from May 11, 1998, its date of original
issuance. Holders of Old Notes that are accepted for exchange and exchanged for
New Notes will receive, in cash, accrued interest thereon to, but not including,
the original issuance date of the New Notes. The Old Notes will bear interest at
a rate per annum of 10% through the date next preceding the date of the original
issuance of the New Notes. Such interest will be paid on the first interest
payment date for the New Notes. Interest on the Old Notes accepted for exchange
and exchanged in the Exchange Offer will cease to accrue on the date next
preceding the date of original issuance of the New Notes. The New Notes will
bear interest (as do the Old Notes) at a rate per annum of 10%, which interest
will be payable semi-annually on each May 15 and November 15, commencing on
November 15, 1998.
PROCEDURES FOR TENDERING
The tender of Old Notes by a holder thereof pursuant to one of the
procedures set forth below and the acceptance thereof by the Issuers will
constitute a binding agreement between such Holder and the Issuers in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal. This Prospectus, together with the Letter of Transmittal, will
first be sent on or about , 1998, to all Holders of Old Notes
known to the Issuers and the Exchange Agent.
Only a Holder of the Old Notes may tender such Old Notes in the Exchange
Offer. A Holder who wishes to tender any Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, including any other required documents, to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a 'Book-Entry Confirmation') of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the 'Book-Entry Transfer Facility') pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with
the guaranteed delivery procedures described below. To be tendered effectively,
the Old Notes, Letter of Transmittal and other required documents
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must be received by the Exchange Agent at the address set forth below under
'Exchange Agent' prior to 5:00 p.m., New York City time, on the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED AND PROPER INSURANCE BE
OBTAINED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE ISSUERS.
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 the 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 such beneficial owner's 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.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled 'Special Registration
Instructions' or 'Special Delivery Instructions' on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an 'eligible guarantor institution' within
the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an 'Eligible
Institution').
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers 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 Issuers,
evidence satisfactory to the Issuers of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and DTC have confirmed to the Issuers that any financial
institution that maintains a direct account with DTC (a 'Participant') may
utilize DTC's Automated Tender Offer Program ('ATOP') to tender Old Notes for
exchange in the Exchange Offer. The Exchange Agent will request that DTC
establish an account with respect to the Old Notes for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any
Participant may effect book-entry delivery of Old Notes by causing DTC to record
the transfer of the tendering Participant's beneficial interests in the global
Old Notes into the Exchange Agent's account in accordance with DTC's ATOP
procedures for such transfer. However, the exchange of New Notes for Old Notes
so tendered only will be made after a Book-Entry Confirmation of Old Notes into
the Exchange Agent's account, and timely receipt by the Exchange Agent of an
Agent's Message (as defined below) and any other documents required by the
Letter of Transmittal. The term 'Agent's Message' as used herein means a
message, transmitted by DTC and received by the Exchange Agent and forming part
of a Book-Entry Confirmation, which states that DTC has received an express
acknowledgement from a Participant tendering Old Notes for exchange which are
the subject of such Book-Entry Confirmation that such Participant has received
and agrees to be bound by the terms and conditions of the Letter of Transmittal,
and that the Company may enforce such agreement against such Participant.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuers in their sole discretion, which determination will be final and
binding. The Issuers reserve the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Issuers' acceptance of which would,
in the opinion of counsel for the Issuers, be unlawful. The
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Issuers also reserve the right to waive any defects, irregularities or
conditions of tender as to particular Old Notes. The interpretation by the
Issuers of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Issuers shall determine.
Although the Issuers intend to notify Holders of defects or irregularities with
respect to tenders of Old Notes, neither the Issuers, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that the Issuers determine are not properly tendered and as to which the
defects or irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering Holders, unless otherwise provided in the Letter
of Transmittal, as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Issuers, among other
things, that (i) the New Notes acquired by the Holder and any beneficial owners
of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, (ii) neither the
Holder nor such beneficial owner has an arrangement with any person to
participate in the distribution of such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other person is engaging in or intends to
engage in a distribution of such New Notes and (iv) neither the Holder nor any
such other person is an 'affiliate,' as defined under Rule 405 promulgated under
the Securities Act, of the Issuers. Each broker-dealer that receives New 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 (other than Old Notes acquired directly from the Issuers),
may participate in the Exchange Offer but may be deemed an 'underwriter' under
the Securities Act and, therefore, must acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
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. See 'Plan of
Distribution.'
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
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 the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at the address
set forth below under '--Exchange Agent' on or prior to the Expiration Date or
the guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes, or a Book-Entry Confirmation, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
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(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited 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) 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 (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the persons withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, 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
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuers in their sole discretion, which determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Properly withdrawn Old Notes may be retendered
by following one of the procedures described above under '--Procedures for
Tendering' at any time prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable 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 Transfer Facility pursuant
to the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court
or by any governmental agency that might materially impair the ability of
the Issuers to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to the Issuers; or
(c) any governmental approval has not been obtained, which approval
the Issuers shall deem necessary for the consummation of the Exchange
Offer.
If the Issuers determine in their sole discretion that any of the
conditions are not satisfied, the Issuers may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders (or, in the case of
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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 Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of Holders to withdraw such Old Notes (see '--Withdrawal
of Tenders') or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Old Notes which have not been
withdrawn. If such waiver constitutes a material change to the Exchange Offer,
the Issuers will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and the Issuers
will extend the Exchange Offer for a period of five to 10 business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered Holders, if the Exchange Offer would otherwise expire during such
five- to 10-business-day period.
EXCHANGE AGENT
PNC Bank, National Association has been appointed as Exchange Agent for the
Exchange Offer. 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
addressed as follows:
PNC Bank, National Association
Two Tower Center Boulevard
20th Floor
East Brunswick, New Jersey 08816
Attention: Robert Frier
Telecopier: (732) 220-3745
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Issuers and their affiliates.
The Issuers have 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 Issuers, 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 cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New 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 New Notes will be recorded at the same carrying value as the Old Notes,
which is face value less unamortized discount, as reflected in the Issuers'
accounting records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized. The expenses of the Exchange Offer and
the unamortized expenses related to the issuance of the Old Notes will be
amortized over the term of the New Notes.
26
<PAGE>
USE OF PROCEEDS
The Issuers will not receive any proceeds from the Exchange Offer, because
it will be an even exchange of the Old Notes. The net proceeds to the Issuers
from the Old Notes were approximately $140 million, after deducting the Initial
Purchasers' discounts and fees and expenses of the Offering. The Issuers used
such net proceeds, together with the proceeds from the Equity Investment and
borrowings under the Credit Agreement, to consummate the Recapitalization and
the Refinancing Transactions and to pay fees and expenses related to the
foregoing.
THE TRANSACTIONS
On March 17, 1998, the Investor and Parent entered into a Merger Agreement
pursuant to which a wholly owned subsidiary of the Investor was merged into
Parent to effect the Recapitalization. In the Recapitalization (i) all of the
then outstanding shares of preferred stock and common stock of Parent (other
than the shares of common stock retained by Vestar and management of the
Company) owned by the Existing Stockholders was converted into the right to
receive cash and (ii) the Existing Stockholders received the cash of the Company
as of the date of the closing of the Transactions. As part of the
Recapitalization, the Investor purchased $72.5 million (less the value of
options retained by management) of common stock of Parent (representing
approximately 74.5% of the common stock of Parent on a fully diluted basis) and
$30 million of redeemable preferred stock of Parent. In addition, in connection
with the purchase of preferred stock of Parent, the Investor received warrants
to purchase up to 6.0% of Parent's common stock on a fully diluted basis
(resulting in an aggregate fully diluted interest of 80.5%). Vestar retained
common stock of Parent having a value (based on the amount paid by the Investor
for its common stock of Parent) of $2.8 million (representing approximately 3.0%
of the outstanding common stock of Parent on a fully diluted basis). Management
retained common stock of Parent having a value (based on the amount paid by the
Investor for its common stock of Parent) of $4.7 million (representing 5.0% of
the outstanding common stock of Parent on a fully diluted basis) and retained
existing options to acquire 3.0% of Parent's fully diluted common stock. In
addition, Parent adopted the New Option Plan covering 8.5% of its fully diluted
common stock. Accordingly, management owns or has the right to acquire, subject
to certain performance requirements, approximately 16.5% of the common stock of
Parent on a fully diluted basis. The Equity Investment was used, together with
the proceeds of the offering and borrowings under the Credit Agreement, to
finance the Recapitalization, to consummate the Refinancing Transactions and to
pay the fees and expenses relating to the foregoing. See 'Ownership of
Securities.'
The Refinancing Transactions consisted of (i) the defeasance by the Company
of all of its outstanding Senior Notes, (ii) the exchange of all outstanding
shares of the Class A Preferred Stock for $34.7 million aggregate principal
amount of the Exchange Debentures, (iii) the defeasance by the Company of all of
the then outstanding Exchange Debentures and (iv) the retirement of the
Convertible Debentures.
As a result of the Recapitalization, the Investor owns 90.3% of the common
stock of Parent (80.5% on a fully diluted basis). A majority of the economic
interests of the Investor is owned by CCP, and a majority of the voting
interests of the Investor is owned by an entity controlled by Robert E. King, a
Director of the Company. However, pursuant to the Operating Agreement, the
Investor granted to CCP the right to elect a majority of the directors of the
Investor if certain triggering events occur and the Investor agreed not to take
certain actions in respect of the common stock of Parent held by the Investor
without the consent of CCP. See 'Ownership of Securities.'
In connection with the Recapitalization and the related refinancing
transactions, the Company entered into the Credit Agreement providing for the
$40 million Term Loan Facility and the $25 million Revolving Credit Facility,
which is available for the Company's working capital requirements. See
'Description of the Credit Agreement.'
27
<PAGE>
CAPITALIZATION
The following table sets forth as of March 14, 1998 the (i) actual
capitalization of the Company and (ii) pro forma capitalization of the Company,
assuming the Transactions had occurred on March 14, 1998. This table should be
read in conjunction with the information contained in 'Use of Proceeds,'
'Unaudited Pro Forma Consolidated Financial Information' and the notes thereto
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' as well as the Company's consolidated financial statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 14, 1998
------------------------
PRO FORMA
FOR THE
ACTUAL TRANSACTIONS
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and restricted cash(a)........................................... $ 27,533 $ 1,100
-------- ------------
-------- ------------
Long-term debt and capital lease obligations:...........................................
Revolving Credit Facility(b)............................................................ $ -- $ 433
Capital lease obligations (excluding current portion)(c)................................ 1,679 1,679
Term Loan Facility...................................................................... -- 40,000
Existing Senior Notes................................................................... 85,000 --
Senior Notes offered hereby............................................................. -- 145,000
Convertible Debentures(d)............................................................... 666 --
-------- ------------
Total debt............................................................................ 87,345 187,112
Class A Preferred Stock(e).............................................................. 34,698 --
Stockholders' equity (deficit)(f)....................................................... 2,396 (82,579)
-------- ------------
Total capitalization.................................................................. $124,439 $104,533
-------- ------------
-------- ------------
</TABLE>
- ------------------
(a) The pro forma amount consists entirely of the cash required to be deposited
in the restricted cash investment accounts pursuant to the Company's
self-insurance program.
(b) The Revolving Credit Facility provides for borrowings of up to $25.0
million. See 'Description of the Credit Agreement.'
(c) Consists of capital lease obligations arising from computer hardware
acquired in connection with the implementation of ADMIN, excluding the
current portion of $857,000.
(d) Presented net of unamortized debt discount of $184,000.
(e) This preferred stock is held by unrelated third parties.
(f) The pro forma amount represents the implied value of the stockholders'
equity of Parent to be purchased and retained in the Transactions of
approximately $110 million. See 'The Transactions.'
28
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth selected historical financial and other data
for Parent and the Company on a consolidated basis. The historical consolidated
financial statements of the Company and its predecessor (the 'Predecessor')
presented in the following table for the periods from January 1 to July 23, 1993
and July 24 to August 28, 1993 and the fiscal years ended August 27, 1994,
August 26, 1995 and August 30, 1997 have been audited. The historical
consolidated data for the 52 weeks ended August 26, 1995 and August 30, 1997
have been derived from and should be read in conjunction with the audited
consolidated financial statements and the related notes thereto. The
consolidated financial statements for each of the fiscal years in the three-year
period ended August 30, 1997 are included elsewhere in this Prospectus. Such
consolidated financial statements have been audited by Deloitte & Touche LLP,
independent auditors. Fiscal 1996 was a 53 week year ending on August 31, 1996.
For comparative purposes, the following table presents the unaudited results of
the first 52 weeks of fiscal 1996, except with respect to balance sheet data,
which is as of August 31, 1996 and has been audited. The historical unaudited
consolidated financial data for the 28 weeks ended March 14, 1998 and March 15,
1997 have been derived from and should be read in conjunction with the unaudited
consolidated financial statements 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. The historical statement of operations and
other data with respect to the fiscal 1994 and Predecessor and Company periods
in 1993 and the balance sheet data for fiscal 1995, 1994 and 1993 are derived
from audited financial statements not included in this Prospectus. Results for
the fiscal year ended August 28, 1993 reflect a change in the Company's fiscal
year. The following information should be read in conjunction with 'Unaudited
Pro Forma Consolidated Financial Information,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the historical
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
(THE COMPANY) 52 WEEKS ENDED
(PREDECESSOR) JULY 24, TO ----------------------------------------------
JANUARY 1, TO AUGUST 28, AUGUST 27, AUGUST 26, AUGUST 24, AUGUST 30,
JULY 23, 1993 1993 1994 1995 1996(A) 1997(A)
------------- ------------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT ACADEMY DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue............................... $ 150,254 $ 24,763 $274,195 $279,806 $294,836 $302,766
Operating expenses:
Salaries, wages and benefits................... 74,173 12,350 135,765 142,757 152,234 159,236
Facility lease expense......................... 21,573 3,739 38,906 39,901 38,858 39,332
Depreciation................................... 5,484 1,099 12,535 13,501 13,680 13,825
Amortization of goodwill and other
intangibles.................................. 81 431 3,492 3,712 2,773 2,236
Restructuring charge(c)........................ -- -- -- 11,700 -- --
Other expenses(d).............................. 40,219 6,995 72,190 75,981 77,139 74,111
------------- ------------- ---------- ---------- ---------- ----------
Total operating expenses..................... 141,530 24,614 262,888 287,552 284,684 288,740
------------- ------------- ---------- ---------- ---------- ----------
Operating income (loss)......................... 8,724 149 11,307 (7,746) 10,152 14,026
Interest expense(e)............................. 1,251 1,119 12,665 11,110 10,126 9,245
Minority interest in net income of subsidiary... 244 2,452 2,824 3,561 3,693
Interest income................................. (551) (29) (825) (1,063) (884) (959)
------------- ------------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and
extraordinary items............................ 8,024 (1,185) (2,985) (20,617) (2,651) 2,047
Provision (benefit) for income taxes............ 3,330 97 642 (6,155) 1,267 3,264
------------- ------------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary items........ 4,694 (1,282) (3,627) (14,462) (3,918) (1,217)
Extraordinary item--loss on early retirement of
debt........................................... -- -- (1,610) -- (819) --
------------- ------------- ---------- ---------- ---------- ----------
Net income (loss)............................... $ 4,694 $ (1,282) $ (5,237) $(14,462) $ (4,737) $ (1,217)
------------- ------------- ---------- ---------- ---------- ----------
------------- ------------- ---------- ---------- ---------- ----------
OTHER FINANCIAL DATA:
EBITDA(f)....................................... $ 14,289 1,679 $ 27,334 $ 21,167 $ 26,605 $ 30,087
Cash flows from operating activities............ 14,388 2,121 3,124 17,140 15,208 14,886
Cash flows from investing activities............ 4,455 (117,490) (5,097) (2,956) (6,045) (7,239)
Cash flows from financing activities............ (32,066) 130,165 (1,360) (9,348) (12,671) 3,533
Capital expenditures............................ 6,575 1,755 8,496 9,101 8,570 7,691
Ratio of earnings to fixed charges(g)........... 1.9x (g) (g) (g) (g) 1.1x
ACADEMY DATA:
Number of Academies (at end of period).......... 784 788 787 786 751 745
Operating Capacity (at end of period)(h)........ NA NA 94,549 94,671 91,049 90,601
FTE Utilization(i).............................. NA NA 59% 59% 64% 66%
Average Weekly FTE Tuition(j)................... NA NA $ 94 $ 96 $ 97 $ 98
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, cash equivalents and restricted cash...... $ 21,996 $ 19,111 $ 24,586 $ 22,018 $ 26,283
Working capital (deficiency).................... (1,862) (3,650) (4,574) 196 7,398
Total assets.................................... 216,000 204,885 195,604 177,133 171,160
Total debt...................................... 108,787 102,352 99,186 86,590 85,903
Redeemable preferred stock...................... 19,990 22,442 25,266 28,827 32,521
Stockholder's equity............................ 28,753 23,658 9,175 4,787 3,374
<CAPTION>
28 WEEKS ENDED(B)
--------------------
MARCH 15, MARCH 14,
1997 1997
--------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue............................... $159,983 $166,701
Operating expenses:
Salaries, wages and benefits................... 84,077 87,772
Facility lease expense......................... 21,143 21,328
Depreciation................................... 7,444 7,073
Amortization of goodwill and other
intangibles.................................. 1,204 1,204
Restructuring charge(c)........................ -- --
Other expenses(d).............................. 40,299 41,933
--------- ---------
Total operating expenses..................... 154,167 159,310
--------- ---------
Operating income (loss)......................... 5,816 7,391
Interest expense(e)............................. 4,994 4,917
Minority interest in net income of subsidiary... 1,935 2,177
Interest income................................. (493) (601)
--------- ---------
Income (loss) before income taxes and
extraordinary items............................ (620) 898
Provision (benefit) for income taxes............ 1,051 1,835
--------- ---------
Income (loss) before extraordinary items........ (1,671) (937)
Extraordinary item--loss on early retirement of
debt........................................... -- --
--------- ---------
Net income (loss)............................... $ (1,671) $ (937)
--------- ---------
--------- ---------
OTHER FINANCIAL DATA:
EBITDA(f)....................................... $ 14,464 $ 15,668
Cash flows from operating activities............ 2,739 6,321
Cash flows from investing activities............ (2,973) (4,437)
Cash flows from financing activities............ 3,862 (1,100)
Capital expenditures............................ 3,061 4,776
Ratio of earnings to fixed charges(g)........... (g) 1.1x
ACADEMY DATA:
Number of Academies (at end of period).......... 751 744
Operating Capacity (at end of period)(h)........ 91,202 90,599
FTE Utilization(i).............................. 65% 65%
Average Weekly FTE Tuition(j)................... $ 97 $ 101
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, cash equivalents and restricted cash...... $ 27,533
Working capital (deficiency).................... 10,901
Total assets.................................... 170,347
Total debt...................................... 88,202
Redeemable preferred stock...................... 34,698
Stockholder's equity............................ 2,396
</TABLE>
(Footnotes on next page)
29
<PAGE>
(Footnotes from previous page)
- ------------------
(a) Fiscal 1996 was a 53 week year ending on August 31, 1996. Balance sheet data
set forth herein is as of August 31, 1996. Capital expenditures are for the
entire 53 week fiscal year.
(b) The Company's fiscal year ends on the last Saturday in August. The first
quarter consists of 16 weeks and the second, third and fourth quarters each
consist of 12 weeks. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview' for a discussion of
seasonality.
(c) During fiscal 1995, the Company approved a plan to close 39 Academies
located in areas where demographic conditions did not support an
economically viable operation and an initiative to restructure its operating
management to better serve the remaining Academies. Accordingly, the Company
recorded an $11.7 million restructuring charge ($7.0 million after taxes) to
provide for the costs associated with the Academy closures and
restructuring. The charge included approximately $10.0 million for the
present value of rent and real estate taxes for the remaining lease terms.
The charge also included restructuring and other related costs. During
fiscal 1996 and 1997 and the 28 weeks ended March 15, 1997 and March 14,
1998, the amount of the restructuring reserve was reduced by $1.1 million,
$1.8 million, $0.9 million and $0.7 million, respectively, as a result of
rent payments with respect to closed Academies.
(d) Other expenses includes expenses related to repairs and maintenance,
utilities, telephone, insurance, property taxes, advertising, supplies and
other expenses associated with the daily operations of the Academies.
(e) Interest expense includes $1.4 million, $1.3 million, $0.9 million, $0.5
million and $0.5 million of amortization of deferred financing costs and
accretion of the discount on the Convertible Debentures for fiscal 1995,
1996 and 1997 and the 28 weeks ended March 15, 1997 and March 14, 1998.
(f) EBITDA is defined herein as net income before non-cash restructuring
charges, extraordinary items, net interest expense, taxes, depreciation and
amortization. EBITDA is not 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. EBITDA is
presented because the Company believes that EBITDA represents a more
consistent financial indicator of the Company's ability to service its debt.
(g) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes and extraordinary items, plus
fixed charges. Fixed charges consists 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 period
from July 24, 1993 to August 28, 1993, the 52 weeks ended August 27, 1994,
August 26, 1995 and August 24, 1996, and the 28 weeks ended March 15, 1997,
the deficiency of earnings to fixed charges were $1.2 million, $3.0 million,
$20.6 million, $2.7 million and $.06 million, respectively.
(h) As a result of the Company's targeted teacher-student ratios, the physical
layout of certain Residential Academies and the typical layout of Montessori
Schools, the Company's Academies have an Operating Capacity approximately 8%
below Licensed Capacity. Licensed Capacity measures the overall capacity of
the Company's Academies based upon applicable state licensing regulations.
(i) FTE Utilization is the ratio of FTE students to the total Operating Capacity
for all of the Company's Academies. FTE attendance is not a measure of the
absolute number of students attending the Company's Academies. Rather, it is
an approximation of the full-time equivalent number of students based on
Company estimates and weighted averages. For example, a student attending
full-time is equivalent to one FTE, while a student attending only one-half
of each day is equivalent to 0.5 FTE.
(j) The Company calculates the Average Weekly FTE Tuition by dividing total
operating revenue by the number of weeks in the applicable period and by the
number of FTE students for the applicable period.
30
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements ('Pro
Forma Financial Statements') have been derived by the application of pro forma
adjustments to the historical consolidated financial statements included
elsewhere in this Prospectus. The pro forma data for the periods presented give
effect to the Transactions as if they had been consummated on September 1, 1996
for the fiscal year ended August 30, 1997 and as of August 31, 1997 for the 28
weeks ended March 14, 1998. The unaudited pro forma balance sheet data gives
effect to the Transactions as if they had occurred on March 14, 1998. 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 Transactions been consummated on the date or for the
periods indicated and do not purport to indicate balance sheet data or results
of operations as of any future date or any future period. The Pro Forma
Financial Statements should be read in conjunction with the 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 Transactions as
a recapitalization. Accordingly, the historical accounting basis of the assets
and liabilities herein have not been impacted by the transaction.
31
<PAGE>
LPA HOLDING CORP.
(FORMERLY VESTAR/LPA INVESTMENT CORP.)
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 14, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and restricted cash............................ $ 27,533 $ (26,433)(a) $ 1,100
Receivables........................................................... 4,567 -- 4,567
Prepaid expenses and supplies......................................... 9,485 -- 9,485
Deferred income taxes................................................. 1,350 -- 1,350
---------- ----------- --------
Total current assets.................................................... 42,935 (26,433) 16,502
Property and equipment, net............................................. 60,839 -- 60,839
Deferred income taxes................................................... 4,469 -- 4,469
Other assets............................................................ 62,104 6,527(b) 68,631
---------- ----------- --------
Total assets............................................................ $ 170,347 $ (19,906) $150,441
---------- ----------- --------
---------- ----------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and overdrafts due banks............................. $ 7,582 $ -- $ 7,582
Other current liabilities............................................. 24,452 -- 24,452
---------- ----------- --------
Total current liabilities............................................... 32,034 -- 32,034
Long-term debt and capital lease obligations............................ 87,345 99,767(c) 187,112
Other noncurrent liabilities............................................ 13,874 -- 13,874
---------- ----------- --------
Total liabilities....................................................... 133,253 99,767 233,020
Class A Preferred Stock................................................. 34,698 (34,698)(d) --
Stockholders' equity.................................................... 2,396 (84,975)(e) (82,579)
---------- ----------- --------
Total liabilities and stockholders' equity.............................. $ 170,347 $ (19,906) $150,441
---------- ----------- --------
---------- ----------- --------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet
32
<PAGE>
LPA HOLDING CORP.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Pursuant to the terms of the Recapitalization, the Existing Stockholders
will retain cash which at March 14, 1998 was $27.5 million. The Company
maintains a minimum cash balance of $1.1 million in restricted cash
investment accounts pursuant to the terms of its self-insurance program.
(b) To reflect the incurrence of deferred financing costs of approximately $9.6
million as a result of the Recapitalization and the elimination of
approximately $3.1 million in deferred financing costs as a result of the
Refinancing Transactions.
(c) To reflect the Refinancing Transactions, the Offering, and borrowings under
the Revolving Credit Facility and the Term Loan Facility:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Repayment of the Senior Notes..................................................... $ (85,000)
Repayment of Convertible Debentures............................................... (666)
Revolving Credit Facility......................................................... 433
Term Loan Facility................................................................ 40,000
Senior Notes offered hereby....................................................... 145,000
------------
Total adjustment................................................................ $ 99,767
------------
------------
</TABLE>
(d) Represents the defeasance of the Exchange Debentures.
(e) To reflect the aggregate net adjustment as a result of the Recapitalization:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Consideration for the Recapitalization:
Consideration for existing equity........................................... $ (148,404)
Repayment of prepaid rent................................................... (1,857)
Repayment of funding for Academies under development........................ (1,826)
Less: Bank overdrafts....................................................... 1,950
-----------
(150,137)
Cash to Existing Stockholders................................................. (27,533)
Total consideration to Existing Stockholders................................ $ (177,670)
Retained equity investment.................................................... (7,500)
Prepayment costs:
Senior Notes................................................................ (3,506)
Preferred stock............................................................. (3,042)
Unamortized debt discount associated with the retirement of
Convertible Debentures................................................... (184)
-----------
Total prepayment costs...................................................... (6,732)
Write-off of deferred financing costs......................................... (3,073)
Equity Investment and retained equity investment.............................. 110,000
-----------
Total adjustment............................................................ $ (84,975)
-----------
-----------
</TABLE>
33
<PAGE>
LPA HOLDING CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS ENDED 28 WEEKS ENDED
AUGUST 30, 1997 MARCH 14, 1998
-------------------------------------- --------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues................... $ 302,766 $ -- $302,766 $ 166,701 $ -- $166,701
Operating expenses................... 288,740 (700)(a) 288,040 159,310 (965)(a) 158,345
---------- ----------- --------- ---------- ----------- ---------
Operating income..................... 14,026 700 14,726 7,391 965 8,356
Interest income...................... (959) 959(b) -- (601) 601(b) --
Minority interest in net income of
subsidiary......................... 3,693 3,693 2,177 2,177
Interest expense..................... 9,245 9,916(c) 19,161 4,917 5,416(c) 10,333
---------- ----------- --------- ---------- ----------- ---------
Income (loss) before income taxes.... 2,047 (10,175) (8,128) 898 (5,052) (4,154)
Income tax expense (benefit)......... 3,264 (4,070)(d) (806) 1,835 (2,021)(d) (186)
---------- ----------- --------- ---------- ----------- ---------
Net income (loss).................... $ (1,217) (6,105) $ (7,322) $ (937) $(3,031) $ (3,968)
---------- ----------- --------- ---------- ----------- ---------
---------- ----------- --------- ---------- ----------- ---------
Ratio of earnings to fixed
charges(e)......................... (e) (e)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statement of
Operations
34
<PAGE>
LPA HOLDING CORP.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(a) The pro forma adjustments to operating expense reflect the following:
<TABLE>
<CAPTION>
52 WEEKS ENDED
AUGUST 30, 28 WEEKS ENDED
1997 MARCH 14, 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Seller's fees:
Management fees.......................................... $ 500 $ 269
Board of Directors' fees and expenses.................... 200 108
Expenses related to a special directors' conference........ -- 588
-------------- --------------
Total adjustment......................................... $ 700 $ 965
-------------- --------------
-------------- --------------
</TABLE>
The above amounts represent non-recurring expenses the Company does not
anticipate incurring after the Transactions.
(b) To reflect the elimination of cash on the balance sheet.
(c) The pro forma adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
52 WEEKS ENDED
AUGUST 30, 28 WEEKS ENDED
1997 MARCH 14, 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest and fees on debt repaid in the Transactions....... $ (8,356) $ (4,426)
Interest expense on Revolving Credit Facility.............. 39 21
Interest expense on Term Loan Facility..................... 3,600 1,938
Interest expense on Senior Notes........................... 14,500 7,808
Amortization of deferred financing costs on historical debt
and preferred stock...................................... (850) (454)
Amortization of deferred financing costs on new debt....... 983 529
-------------- --------------
Total adjustment......................................... $ 9,916 $ 5,416
-------------- --------------
-------------- --------------
Capital lease and miscellaneous interest expense, net of
capitalized interest..................................... $ 39 $ 37
-------------- --------------
-------------- --------------
</TABLE>
An increase or decrease of 0.125% in the assumed interest rate on the
Revolving Credit Facility and the Term Loan Facility would change the pro
forma interest expense by $51,000 for the fiscal year ended August 30, 1997
and by $27,000 for the 28 weeks ended March 14, 1998.
(d) To reflect the tax effects of the pro forma adjustments at a 40% effective
income tax rate.
(e) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes and extraordinary items, plus
fixed charges. Fixed charges consists 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 Pro
Forma 52 weeks ended August 30, 1997 and the 28 weeks ended March 15, 1997,
the deficiency of earnings to fixed charges are $8.1 million and $4.2
million, respectively.
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 the related notes thereto included
elsewhere in this Prospectus. The financial information contained in the
following discussion represents the results of operations of the Company for the
periods presented and is the same as the consolidated results of operations of
Parent for the same periods. The information presented herein refers to the 28
weeks ended March 14, 1998 and March 15, 1997 and fiscal 1997, fiscal 1996 and
fiscal 1995. Fiscal 1997 and fiscal 1995 were 52 week fiscal years. Fiscal 1996
was a 53 week fiscal year with an additional week included in the fourth
quarter.
OVERVIEW
The Company's operating revenue consists principally of tuition charges to
parents for children enrolled at La Petite Academies. Tuition payments are due
on the first day of each week, in advance of the services provided. As a result
of this policy, receivables from parents have historically represented a small
percentage of revenues, averaging less than $0.5 million during the past three
fiscal years. With the implementation of ADMIN, the Company has begun to collect
additional revenue from late fees and other charges previously not recorded and
billed. As a result, in addition to the increase in revenue, the Company's
average receivables from parents increased to $1.0 million in the 28 weeks ended
March 14, 1998. Some parents prepay for services to be provided in future weeks,
resulting in a prepayment balance averaging $0.9 million over the past three
fiscal years. Tuition charges paid by third parties, such as social services
agencies, are generally billed on a monthly basis at the end of the month and
receivables relating to these payments have averaged $3.7 million over the past
three fiscal years. Substantially all of the Company's expenses, other than
rent, are paid in arrears. Consequently, the Company has limited working capital
requirements.
The Company's operating revenue follows the seasonality of the school year.
The number of new children attending the Academies is highest in September
through October and January through February, generally referred to as the fall
and winter enrollment periods. Enrollment and, therefore, operating revenue
decline during the calendar year-end holiday period and during the summer. As a
result of this seasonality, the Company concentrates its marketing efforts and
new Academy openings immediately preceding these highest enrollment periods.
Labor costs represent more than 50% of operating revenue, and hourly wages
paid to Academy teachers and teachers' aides make up approximately 80% of total
salary and wages. Labor scheduling for teachers and teachers' aides is based on
attendance and teacher-student ratios. As a result, labor costs for teachers and
teachers' aides are variable and increase or decrease in relation to increases
or decreases in attendance. Other labor costs do not change with changes in
enrollment and include (i) salaries of Academy directors, field management and
field support staff, (ii) corporate office salaries and wages, (iii) employee
benefit costs and (iv) field and corporate office bonuses.
In the last several years the Company has raised tuition rates by 3.5% to
4.0% in February of each year and has focused on increasing attendance of
preschool children rather than infants. Although tuition rates for infants are
higher than for preschool children, the costs of infant care, as a result of
higher teacher-student ratios and larger space requirements, more than offset
the higher revenues. The resulting change in student mix, together with the
impact of changes in discount policies, has resulted in Average Weekly FTE
Tuition increases of approximately 1% to 2%.
Facility lease costs are the second largest cost item, because the Company
leases 676 of its 744 facilities. Most Academy leases have 15-year terms, some
have 20-year terms and many have renewal options. In addition, some of the
leases provide for contingent rentals if the Academy's operating revenue exceeds
certain base levels.
Other operating expenses include (i) occupancy costs such as repairs and
maintenance, utilities and telephone, insurance and property taxes and
(ii) general and administrative costs such as food, supplies, transportation and
marketing. Food and supplies, like labor, are variable and increase or decrease
in relationship
36
<PAGE>
to increases or decreases in attendance. The remaining costs are relatively
fixed and/or discretionary and do not increase or decrease directly with small
changes in attendance.
During the period from the Company's formation in 1968 through 1993, the
Company achieved significant growth in operating revenue and profits largely due
to an aggressive program of new Academy openings. In July 1993, Vestar Capital
Partners, Inc. and the current management team completed a management buyout of
La Petite. Following this transaction, management shifted its focus from
aggressive growth and short-term profitability to improving the quality of and
long-term growth in profitability by: (i) investing resources in existing
Academies and building an operating structure focused on capacity utilization,
(ii) opening new Academies more selectively in locations with targeted
demographics, (iii) closing less efficient Academies, (iv) focusing on cash flow
management, (v) increasing emphasis on staff training and compensation and (vi)
planning and developing a comprehensive management information system.
During fiscal 1995, the Company approved a plan to close 39 Academies
located in areas where the demographic conditions no longer supported an
economically viable operation and to restructure its operating management to
better serve the remaining Academies. Accordingly, the Company recorded an $11.7
million restructuring charge ($7.0 million after tax) to provide for costs
associated with the Academy closures and restructuring, including approximately
$10.0 million for the present value of rent and real estate taxes for the
remaining lease terms. As of March 14, 1998, $5.3 million of costs related to
the closings and restructuring had been charged against the restructuring
reserve.
At the end of fiscal 1997, management believed the Company was well
positioned to increase the scope of its operations. Accordingly, in fiscal 1998,
management began implementing a growth strategy focused on building new
Academies in areas with rapid growth and higher-end demographics. The Company
has made significant investments in personnel and infrastructure to facilitate
the future growth of the Company. The Company currently expects to open
approximately 25 and 35 Academies in fiscal 1999 and fiscal 2000, respectively.
The new Academies will stress preschool characteristics in design, classroom
mix, staffing and curriculum. See '--New Academy Development and Financing.'
28 WEEKS ENDED MARCH 14, 1998 COMPARED TO 28 WEEKS ENDED MARCH 15, 1997
The Company's operating results for the comparative 28 week periods were as
follows:
<TABLE>
<CAPTION>
28 WEEKS ENDED 28 WEEKS ENDED
----------------------- -----------------------
MARCH 15 PERCENT OF MARCH 14, PERCENT OF
1997 REVENUE 1998 REVENUE
--------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenue....................................... $ 159,983 100.0% $ 166,701 100.0%
Operating expenses:
Salaries, wages and benefits.......................... 84,077 52.6 87,772 52.7
Facility lease expense................................ 21,143 13.2 21,328 12.8
Depreciation.......................................... 7,444 4.6 7,073 4.2
Amortization of goodwill and other intangibles........ 1,204 0.8 1,204 0.7
Other................................................. 40,299 25.2 41,933 25.2
--------- ---------- --------- ----------
Total operating expenses........................... 154,167 96.4 159,310 95.6
--------- ---------- --------- ----------
Operating income........................................ $ 5,816 3.6% $ 7,391 4.4%
--------- ---------- --------- ----------
--------- ---------- --------- ----------
EBITDA.................................................. $ 14,464 9.0% $ 15,668 9.4%
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
The results of operations for the Company for the 28 weeks ended March 14,
1998 are consistent and comparable with the 28 weeks ended March 15, 1997. Nine
Academies in operation at the end of the second quarter of fiscal 1997 were
closed and two new Academies were opened prior to the end of the second quarter
of fiscal 1998. As a result, the Company operated 744 Academies at the end of
the second quarter of fiscal year 1998, seven less than at the end of the same
quarter of fiscal 1997. The closures resulted from management decisions not to
renew the leases of certain Academies at lease expiration.
37
<PAGE>
Operating revenue. During the 28 weeks ended March 14, 1998 as compared to
the prior fiscal year, operating revenue increased 4.2%, FTE attendance declined
0.4% and Average Weekly FTE Tuition increased 4.7%. Excluding closed Academies
from both years, operating revenue increased 5.1%, FTE attendance increased 0.5%
and Average Weekly FTE Tuition increased 4.6%. The increase in Average Weekly
FTE Tuition was principally due to selective price increases that were put into
place in the second quarter of fiscal 1997, based on geographic market
conditions and class capacity utilization.
Salaries, wages and benefits. Salaries, wages and benefits increased $3.7
million or 4.4% during the 28 weeks ended March 14, 1998 as compared to the same
period in the prior year. The increase was principally due to increased average
hourly wage rates as staff hours worked were relatively stable. As a percentage
of revenue, labor costs were 52.7% for the 28 weeks ended March 14, 1998 as
compared to 52.6% during the same period in the prior year.
All other operating costs. Many of the Company's operating costs are
relatively fixed and do not decline or increase directly with small changes in
attendance. Facility lease expense, depreciation, amortization and other
operating costs all declined or remained unchanged as a percentage of revenue
during the 28 weeks ended March 14, 1998 as compared to the same period in the
prior year. In September 1997, the Company held a special conference to which
all Academy Directors were invited at which the Company articulated its future
business strategy for the growth of the Company. Total operating expenses for
the 28 weeks ended March 14, 1998 include $0.6 million related to this
conference.
Interest expense. Interest expense for the 28 weeks ended March 14, 1998
decreased $0.1 million or 1.5% from the same period in the prior year.
Income tax rate. After adding back nondeductible goodwill amortization to
pre-tax income, the effective income tax rate for the 28 weeks ended March 14,
1998 was approximately 40%, unchanged from the same period in the prior year.
State income taxes accounted for the difference between this effective rate and
the statutory Federal rate.
Operating income and EBITDA. As a result of the foregoing, operating
income was $7.4 million for the 28 weeks ended March 14, 1998, an increase of
$1.6 million or 27.1% from the same period in the prior year. EBITDA was $15.7
million for the 28 weeks ended March 14, 1998 as compared to $14.5 million for
the same period in the prior year, an increase of 8.3%.
52 WEEKS ENDED AUGUST 30, 1997 COMPARED TO 52 WEEKS ENDED AUGUST 24, 1996
The Company's operating results for the comparative fiscal years were as
follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED
------------------------ ------------------------
AUGUST 24, PERCENT OF AUGUST 30, PERCENT OF
1996, REVENUE 1997 REVENUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenue....................................... $ 294,836 100.0% $ 302,766 100.0%
Operating expenses:
Salaries, wages and benefits.......................... 152,234 51.6 159,236 52.6
Facility lease expense................................ 38,858 13.2 39,332 13.0
Depreciation.......................................... 13,680 4.7 13,825 4.6
Amortization of goodwill and other intangibles........ 2,773 0.9 2,236 0.7
Other................................................. 77,139 26.2 74,111 24.5
---------- ---------- ---------- ----------
Total operating expenses........................... 284,684 96.6 288,740 95.4
---------- ---------- ---------- ----------
Operating income........................................ $ 10,152 3.4% $ 14,026 4.6%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EBITDA.................................................. $ 26,605 9.0% $ 30,087 9.9%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Operating results for fiscal 1996 contained a 'leap week,' or 53 weeks in
the year, to catch up with the calendar. The extra week in 1996 added $5.4
million to revenue and $0.7 million to EBITDA and operating income. For
comparative purposes, the above table presents the results of the first 52 weeks
of fiscal 1996. The following discussion of results is based on the 52 week
comparison.
38
<PAGE>
Operating revenue. During the 52 weeks ended August 30, 1997 as compared
to the prior fiscal year, operating revenue increased 2.7%, FTE attendance
increased 1.6% and Average Weekly FTE Tuition increased 0.9%. Excluding closed
Academies from both years, operating revenue increased 4.6%, FTE attendance
increased 3.2% and Average Weekly FTE Tuition increased 1.4%. The increase in
attendance during fiscal 1997 over fiscal 1996 was attributable to a successful
fall enrollment period and retention of the children throughout the year. The
increase in the Average Weekly FTE Tuition was principally due to selective
increases in tuition rates which took place in the second quarter of fiscal
1996, offset in part by increased discounts implemented at the beginning of
fiscal 1997 in connection with the Parent's Partner Plan.
The Company opened three new Academies and closed nine Academies during
fiscal 1997. As a result, the Company operated six fewer Academies at the end of
fiscal 1997 than at the end of fiscal 1996. Two of the closures were
underperforming employer-based centers, one closure was an underperforming
residential Academy, and the remaining six closures were due to management
decisions not to renew the leases of certain Academies at lease expiration.
Salaries, wages and benefits. Salaries, wages and benefits increased $7.0
million or 4.6% during the 52 weeks ended August 30, 1997 as compared to the
same period in the prior year. As a percentage of revenue, labor costs were
52.6% for the 52 weeks ended August 30, 1997 as compared to 51.6% during the
same period in the prior year. The increase in labor cost as a percentage of
revenue was principally due to staff merit increases effective January 1, 1997
and increased health care benefit costs.
Facility lease expense. Facility lease expense declined as a percentage of
revenue by 0.2% during the 52 weeks ended August 30, 1997 as compared to the
same period in the prior year. This decrease was primarily due to the closing of
46 Academies at various times during fiscal 1996.
Amortization of goodwill and other intangibles. Amortization of goodwill
and other intangibles decreased 19.4% during the 52 weeks ended August 30, 1997,
as the intangible asset for an in-place workforce became fully amortized during
fiscal 1996.
All other operating costs. Other operating expenses declined as a
percentage of revenue by 1.7% to 24.5% for fiscal 1997 as compared to the same
period in the prior year. The reduction was primarily due to new management cost
controls which reduced insurance, auto, food and other Academy supply costs.
Interest expense. Interest expense for the 52 weeks ended August 30, 1997
declined $0.9 million or 8.7% from the same period in the prior year due to
prepayment of a term loan facility in May 1996.
Income tax rate. The effective income tax rate, after adding back
nondeductible goodwill amortization to pre-tax income, was approximately 40% for
both years. State income taxes accounted for the difference between the
effective rate and the statutory Federal rate.
Operating income and EBITDA. As a result of the foregoing, operating
income was $14.0 million for the 52 weeks ended August 30, 1997, an increase of
$3.9 million or 38.2% from the same period in the prior year. EBITDA was $30.1
million for the 52 weeks ended August 30, 1997 as compared to $26.6 million for
the same period in the prior year.
39
<PAGE>
52 WEEKS ENDED AUGUST 24, 1996 COMPARED TO 52 WEEKS ENDED AUGUST 26, 1995
The Company's operating results for the comparative fiscal years were as
follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED
------------------------ ------------------------
AUGUST 24, PERCENT OF AUGUST 24, PERCENT OF
1995, REVENUE 1996 REVENUE
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating revenue....................................... $ 279,806 100.0% 294,836 100.0%
Operating expenses:
Salaries, wages and benefits.......................... 142,757 51.0 152,234 51.6
Facility lease expense................................ 39,901 14.3 38,858 13.2
Depreciation.......................................... 13,501 4.8 13,680 4.7
Restructuring charge.................................. 11,700 4.2
Amortization of goodwill and other intangibles........ 3,712 1.3 2,773 0.9
Other................................................. 75,981 27.2 77,139 26.2
---------- ---------- ---------- ----------
Total operating expenses................................ 287,552 102.8 284,684 96.6
---------- ---------- ---------- ----------
Operating income (loss)................................. $ (7,746) (2.8)% $ 10,152 3.4%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
EBITDA.................................................. $ 21,167 7.6% $ 26,605 9.0%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Operating results for fiscal 1996 contained a 'leap week,' or 53 weeks in
the year, to catch up with the calendar. The extra week in 1996 added $5.4
million to revenue and $0.7 million to EBITDA and operating income. For
comparative purposes, the above table presents the results of the first 52 weeks
of fiscal 1996. The following discussion of results is based on the 52 week
comparison.
Operating revenue. During the 52 weeks ended August 24, 1996 as compared
to the prior fiscal year, operating revenue increased 5.4%, FTE attendance
increased 4.4% and Average Weekly FTE Tuition increased 1.0%. Excluding closed
Academies from both years, operating revenue increased 6.6%, FTE attendance
increased 5.4% and Average Weekly FTE Tuition increased 1.2%. The increase in
attendance during fiscal 1996 was attributable to (i) a successful fall
enrollment period and retention of the children throughout the year, (ii)
receipt of grants from the State of Georgia to provide pre-kindergarten
education and (iii) increased management focus on enrollment and attendance. The
increase in the Average Weekly FTE Tuition was due to selective and limited
price increases in February 1995, offset in part by increased promotional
discounts.
The Company opened 11 new Academies and closed 46 Academies during fiscal
1996. As a result, the Company operated 35 fewer Academies at the end of fiscal
1996 than at the end of fiscal 1995. Thirty-three of the Academy closures were
part of a plan announced by the Company at the end of fiscal 1995 to close 39
underperforming Academies located in areas where the demographics did not
support an economically viable operation. Operating performance at the remaining
six Academies improved substantially as a result of new policies and,
accordingly, management determined to keep those six Academies open. The
remaining 13 closures were due to management decisions not to renew the leases
of certain Academies at lease expiration.
Salaries, wages and benefits. Salaries, wages and benefits increased $9.5
million or 6.6% during the 52 weeks ended August 24, 1996 as compared to the
same period in the prior year. As a percentage of revenue, labor costs were
51.6% for the 52 weeks ended August 24, 1996 as compared to 51.0% during the
same period in the prior year. The increase in labor cost as a percentage of
revenue was principally due to staff merit increases effective January 1, 1996,
higher field level bonuses relating to increased operating income performance at
many Academies and additional support staff.
Facility lease expense. Facility lease expense declined as a percentage of
revenue by 1.1% during the 52 weeks ended August 24, 1996 as compared to the
same period in the prior year. The decrease was primarily attributable to the
closing of 46 Academies in fiscal 1996.
40
<PAGE>
Amortization of goodwill and other intangibles. Amortization of goodwill
and other intangibles decreased 25.3% during the 52 weeks ended August 24, 1996,
as the intangible asset for an in-place workforce became fully amortized in
January 1996.
All other operating costs. Other operating expenses declined as a
percentage of revenue by 1.0% to 26.2% for fiscal 1996 as compared to the same
period in the prior year. The reduction was primarily due to decreases in
insurance and repairs and maintenance costs.
Interest expense. Interest expense for the 52 weeks ended August 24, 1996
declined $1.0 million or 8.9% from the same period in the prior year, due to
prepayment of a term loan facility in May 1996.
Income tax rate. The effective income tax rate, after adding back
nondeductible goodwill amortization to pre-tax income, was approximately 40% for
both the 52 weeks ended August 24, 1996 and August 26, 1995. State income taxes
accounted for the difference between the effective rate and the statutory
Federal rate.
Extraordinary loss. On May 24, 1996, the Company retired the remaining
balance under its term loan facility in the amount of $5.5 million. The
transaction resulted in a $0.8 million extraordinary loss on retirement of debt.
The loss reflects the write-off of related deferred financing costs, net of
applicable income tax benefit. The prepayment was financed by available
operating funds.
Operating income and EBITDA. As a result of the foregoing, operating
income was $10.2 million for the 52 weeks ended August 24, 1996, up $6.2 million
from the same period in the prior year, excluding the $11.7 million
restructuring charge in fiscal 1995. EBITDA was $26.6 million for the 52 weeks
ended August 24, 1996 as compared to $21.2 million for the same period in the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are from cash flow generated
by operations, borrowings under the Revolving Credit Facility and sale and
leaseback financing for newly constructed facilities. The Company's principal
uses of liquidity are to meet its debt service requirements, finance its capital
expenditures and provide working capital.
The Company incurred substantial indebtedness in connection with the
Transactions. See 'Capitalization.' On a pro forma basis to reflect the
Transactions, the Company had approximately $187.1 million of consolidated
long-term indebtedness as compared to $87.3 million at March 14, 1998. The
Company's debt service obligations could have important consequences to holders
of the Notes. See 'Risk Factors--Substantial Leverage and Debt Service
Obligations.'
In connection with the Recapitalization and the Refinancing Transactions,
the Company entered into the Credit Agreement, consisting of the $40 million
Term Loan Facility and the $25 million Revolving Credit Facility. On a pro forma
basis as of March 14, 1998, the Company would have borrowed the entire $40
million available under the Term Loan Facility and approximately $0.4 million
under the Revolving Credit Facility. In addition, on a pro forma basis as of
March 14, 1998, the Company would have had outstanding letters of credit in an
aggregate amount equal to $3.4 million and $21.2 million available for working
capital purposes under the Revolving Credit Facility. The borrowings under the
Credit Agreement, together with the proceeds from the sale of the Notes and the
Equity Investment, were used to consummate the Recapitalization and the
Refinancing Transactions and to pay the related fees and expenses related to the
foregoing.
The Term Loan Facility is subject to mandatory prepayment in the event of
certain equity or debt issuances or asset sales by Parent, the Company or any of
its subsidiaries and in amounts equal to specified percentages of the Company's
excess cash flow. The Term Loan Facility will terminate seven years after the
closing of the Transactions and provides for gradually increasing annual
amortization. The Revolving Credit Facility will terminate seven years after the
closing of the Transactions. See 'Description of the Credit Agreement.'
New Academy Development and Financing. The Company currently expects to
open approximately 25 and 35 Academies in fiscal 1999 and fiscal 2000,
respectively. See 'Business-New Academy Development.' The cost to open a new
Academy ranges from $1.0 million to $1.5 million, of which approximately 85% is
typically financed through a sale and leaseback transaction. To open a new
Academy, the Company normally acquires the land, constructs the facility and
then seeks long-term financing for the Academy through a sale and leaseback
41
<PAGE>
transaction. Alternatively, the Academy may be constructed on a build to suit
basis, which reduces the working capital requirements during the construction
process. In addition, the Company intends to explore other efficient real estate
financing transactions in the future.
Purchasers of Academies in sale and leaseback transactions have included
insurance companies, bank trust departments, pension funds, real estate
investment trusts and individuals. The leases are operating leases and generally
have terms of 15 to 20 years with one or two five-year renewal options. Most of
these transactions are structured with an annual rental designed to provide the
owner/lessor with a fixed cash return on its capitalized cost over the term of
the lease. In addition, many of the Company's leases provide for either
contingent rentals if the Academy's operating revenue exceeds certain levels or
a fixed percentage increase every five years. Although the Company expects sale
and leaseback transactions to continue to finance its expansion, no assurance
can be given that such funding will always be available.
Capital Expenditures. Total capital expenditures for fiscal 1995, 1996,
1997 and for the 28 weeks ended March 14, 1998 were $9.1 million, $8.6 million,
$7.7 million and $4.8 million, respectively. The Company views all capital
expenditures, other than those incurred in connection with the development of
new Academies, to be maintenance capital expenditures. Maintenance capital
expenditures for fiscal 1995, 1996, 1997 and for the 28 weeks ended March 14,
1998 were $4.8 million, $6.7 million, $7.2 million and $3.3 million,
respectively. Maintenance capital expenditures for the 28 weeks ended March 14,
1998 included $0.6 million for the implementation of ADMIN. For fiscal 1998, the
Company expects total maintenance capital expenditures to be approximately $9.5
million, including $1.3 million for the full implementation of ADMIN.
In addition to maintenance capital expenditures, the Company expends
additional funds to ensure that its facilities are in good working condition.
Such funds are expensed in the periods in which they are incurred. The amounts
of such expenses in fiscal 1995, 1996, 1997 and for the 28 weeks ended March 14,
1998 were $10.0 million, $9.4 million, $9.2 million and $5.2 million,
respectively. Over the past three fiscal years, total expenditures for the
maintenance and upkeep of the Company's Academies have averaged approximately
$21,000 per Academy each year.
INFLATION AND GENERAL ECONOMIC CONDITIONS
The Company has historically been able to increase tuition to offset
increases in its costs. During the past two years, a period of low to moderate
inflation, the Company implemented selective increases in tuition rates, based
on geographic market conditions and class capacity utilization. The Company did
not experience a material decline in attendance as a result of these increases.
On September 1, 1997, the Federal minimum wage increased from $4.75 to
$5.15 per hour. This increase did not have a material impact on the Company's
operations.
A sustained recession with high unemployment could have a material adverse
effect on the Company's operations. The recession during 1990 and 1991 adversely
affected attendance at the Company's Academies.
MANAGEMENT INFORMATION SYSTEMS AND THE YEAR 2000
The arrival of the year 2000 is not expected to have any significant impact
on the Company's computerized information systems and the cost of compliance is
expected to be minimal.
The most important new system for the Company has been the installation of
its ADMIN system nationwide. ADMIN is a PC based application which was written
using a calendar dating system that is not sensitive to the year 2000 issue. See
'Business--Information Systems.'
The Company utilizes software under licensing arrangements for the purposes
of general ledger/financial reporting, accounts payable/disbursements, fixed
assets record keeping and purchase order accounting. All of these systems have
already been upgraded and are currently year 2000 compliant, and the cost of the
upgrades was included as part of the annual licensing fees.
The Company utilizes software under licensing arrangements for the purposes
of payroll processing and human resources information systems. New releases for
these systems which will be year 2000 compliant are expected to be installed
during calendar 1998 as part of the annual licensing fees. In the event that the
licensor is
42
<PAGE>
unable to deliver such upgrades, other comparable software packages at
comparable costs which are year 2000 compliant are currently available in the
market.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 121,
'Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of,' ('SFAS No. 121') as of the beginning of fiscal 1997. SFAS No.
121 establishes accounting standards for the impairment of long-lived assets,
certain intangibles and goodwill related to those assets. The adoption of SFAS
No. 121 did not have an effect on the Company's consolidated financial
statements.
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123, 'Accounting for Stock-Based Compensation' ('SFAS
No. 123'). SFAS No. 123 encourages rather than requires companies to adopt a new
method that accounts for stock compensation awards based on their estimated fair
value at the date they are granted. Companies are permitted, however, to
continue accounting for stock compensation awards under Accounting Principles
Board ('APB') Opinion No. 25, which requires compensation cost to be recognized
based on the excess, if any, between the quoted market price of the stock at the
date of grant and the amount an employee must pay to acquire the stock. The
Company has elected to continue to apply APB Opinion No. 25 and has disclosed
the pro forma net income (loss), determined as if the method under SFAS No. 123
had been applied, in the notes to its consolidated financial statements included
elsewhere in this Prospectus.
43
<PAGE>
BUSINESS
GENERAL
La Petite Academy, founded in 1968, is the second largest operator of for
profit preschool educational facilities in the United States. The Company
provides center-based educational and child care services five days a week
throughout the year to children between the ages of six weeks and 12 years.
Management believes the Company differentiates itself through its superior
educational programs, which were developed and are regularly enhanced by its
curriculum department. The Company's focus on quality educational services
allows it to capitalize on the increased awareness of the benefits of premium
educational instruction for preschool and elementary school age children. At its
residential and employer-based Academies, the Company utilizes its proprietary
Journey curriculum with the intent of maximizing a child's cognitive and social
development. The Company also operates Montessori schools which employ the
Montessori method of learning, a classical approach that features the
programming of tasks with materials presented in a sequence dictated by each
individual child's capabilities.
As of March 14, 1998, the Company operated 744 educational facilities,
including 692 residential Academies, 32 employer-based Academies and 20
Montessori schools, located in 35 states and the District of Columbia, and had
an enrollment of approximately 87,000 full and part-time children. The Company's
Operating Capacity as of March 14, 1998, was approximately 91,000 full-time
children. For the 52 weeks ended March 14, 1998, estimated FTE Utilization was
65% and the estimated Average Weekly FTE Tuition was $100.
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 child care center chains and civic groups such
as the YMCA) has grown at a compound annual growth rate of 12.1% from $5.7
billion in revenues in 1982 to an estimated $31.6 billion in 1997, and is
expected to grow at a 7.1% compound annual growth rate from 1998 until 2003,
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 in the 1990s as compared generally to
the 1970s and 1980s, (ii) an increase in the percentage of mothers in the
workforce and (iii) a significant increase in the appreciation by parents of the
benefits of center-based preschool education and child care. According to the
Census Bureau, in 1989 and each year since, the annual number of births has
approximated 4.0 million per year and is expected to remain at that level
through 2010. Furthermore, the number of children under the age of five has
grown 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 the number of mothers entering the work force. According
to the U.S. Bureau of Labor Statistics, the labor force participation rate of
mothers with children under the age of six relative to all mothers with children
under the age of six, has increased from approximately 39% in 1975 to an
estimated 62% in 1995. In addition, the percentage of mothers in the work force
that have children between the ages of five and 12, relative to all mothers of
children between the ages of five and 12, has risen from 53% in 1975 to 75% in
1995.
There has been a significant increase in the use of center-based child care
facilities by families with both working and non-working mothers. 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. In 1993, according to the most recent data
from the Census Bureau, 30% of families with working mothers of preschool aged
children used center-based care as their primary form of non-parental care, up
from 6% in 1965. 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.
Growing Awareness of the Importance of Early Childhood Development. The
demand for quality child care is increasing as scientific research highlights
the importance of education during a child's early developmental years. The
Families and Work Institute, an organization devoted to the study of neurology,
cognitive psychology and child development, has recently completed research the
results of which management believes demonstrate the importance of early
childhood experiences in a child's overall cognitive development.
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Recent essays and other scientific research into early childhood development
have drawn widespread media and political attention, increasing parents'
awareness and demand for quality educational facilities for their children.
Fragmented Industry. The U.S. child care industry is highly fragmented,
with the aggregate capacity of the top 50 for profit child care companies
serving approximately 1% of the potential child care market, or approximately
500,000 children out of an estimated 50 million children under the age of 12 in
the United States as of January 1, 1997, according to Child Care Information
Exchange. Based on a study sponsored by the National Association for the
Education of Young Children, management estimates that approximately 35% of all
child care centers are operated for profit, as independent businesses or as part
of a local or national chain. Non-profit centers, such as churches, employers,
government agencies and YMCAs, account for the remaining 65%. Of the
approximately 100,000 child care centers in the United States, only 4,400 are
operated by the top 50 for profit child care companies. Furthermore, including
La Petite, only ten companies have total capacity in excess of 10,000 children
and only eight companies have more than 100 centers. Although other national
child care chains operate in many of the Company's markets, in general, the
Company primarily competes with local operators that typically do not have the
substantial resources required to invest in the educational materials and
curricula and staff training necessary for the educational development of
children in their care.
COMPETITIVE STRENGTHS
Strong Market Position and Brand Identities. Based on the number of
centers operated, children served, operating revenue and operating income, La
Petite Academy is the second largest provider of for profit preschool education
and child care services in the United States, in an industry where the three
largest center-based providers represent approximately 55% of the top 50 for
profit center-based child care providers' total capacity. Operating since 1968,
the Company has built brand equity in the markets it serves through the
development of a network of Academies concentrated in clusters in
demographically desirable MSAs. The Company's Academy clusters maintain close
ties with local neighborhoods through public relations efforts, parent
newsletters and brochures and support of community activities. The Company
believes that it benefits significantly from word-of-mouth referrals from
parents, educators and other school administrators. The Company's advertising
reinforces its community-based reputation for quality service principally
through targeted direct mailings and radio air time. In September 1995, the
Company introduced the 'Parent's Partner Plan,' a program that, among other
things, provides parents with individualized feedback on their child's
development on at least a weekly basis. Management believes this program has
contributed to the increase in overall student retention and added new
enrollments at the Academies. The Company's high, customer-driven standards and
well-trained and caring staff strengthens its image as an innovative education
provider.
Focused Educational Curriculum. The Company's focus is on educating the
child rather than simply providing traditional child care services. The
Company's high quality proprietary Journey curriculum was originally developed
in 1991 by La Petite educators with the assistance of experts in early childhood
education with the intent of maximizing a child's cognitive development while
ensuring a positive experience for the child. The curriculum emphasizes
individuality and allows children to progress at their own pace, building skills
in a logical pattern using a 'hands-on' approach. All programs and activities
are developmentally appropriate, promote a child's intellectual, physical,
emotional and social development and are enhanced by on-site efforts of the
Company's educational staff. The Company also operates Montessori schools, which
target education conscious parents under the name Montessori Unlimited. The
Montessori method is a classical approach that provides specific task-oriented
educational materials or 'apparatus' presented in a sequence determined by each
child's natural capabilities. Each activity in the prepared environment of the
Montessori classroom has its roots in early development and serves as a
foundation for future, more complex developments.
Attractive Business Model. Improvements in profitability at the Academy
level have been achieved through a combination of (i) revenue enhancement and
cost management at the individual Academies and (ii) economies of scale and
synergies realized through the clustering of Academies in economically and
demographically attractive areas. The Company has increased estimated FTE
Utilization from 59% in fiscal 1994 to 66% in fiscal 1997. During the four
fiscal years ended August 1994, the Company opened 100 residential Academies
with an estimated Operating Capacity of 125 children and an average facility
size of 6,200 square feet. The average EBITDA for such Academies in fiscal 1997
was approximately $54,700. In addition, the Company's Montessori schools have
proved to be successful with higher student retention, tuition averaging
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approximately 20% more than at the Company's residential and employer-based
Academies and more favorable student-teacher ratios, resulting in increased
profitability. The Company has focused on providing its Academies with the
systems to improve capacity utilization and operational efficiency. In March
1998, the Company completed the installation in all of its residential Academies
of the first phase of a newly developed proprietary management information
system, ADMIN. The first phase of ADMIN is a unique point of sale system which
enables the Company to more effectively monitor attendance, increase revenues
and gather information throughout all of its markets. By eliminating clerical
errors and ensuring that all service delivery is accounted for, the
implementation of the ADMIN point of sale system has increased operating revenue
by more than 2% at the 246 Academies which have been operating on the system
since January 1, 1998. ADMIN currently handles the tuition billing process,
allowing Academy Directors to concentrate on communicating and interacting with
parents, supervising staff and spending time with children. In subsequent
phases, ADMIN will automate substantially all of the clerical functions at the
Academies. The Company's size and scope also allows it to cost-effectively
purchase supplies, conduct advertising and marketing outreach programs and train
employees.
Geographically Diversified Operations. The Company's operations are
geographically diversified, with 744 Academies located throughout 35 states and
the District of Columbia as of March 14, 1998. Although the highest number of
the Company's Academies are located in Texas, Florida, California, Georgia and
Virginia, these states account for less than half of the Company's Academies.
The geographical diversity of the Company's operations and profitability
mitigates the potential impact of regional economic downturns or adverse changes
in local regulations.
Experienced and Incentivized Management Team. The top four members of
senior management of the Company average approximately ten years of experience
with the Company. In addition, the Company's eight Area Vice Presidents and 77
Regional Directors average over 15 years and 11 years with La Petite,
respectively. Management has successfully reduced employee turnover, closed or
revitalized underperforming Academies, implemented operational data systems and
improved operating margins. On a pro forma basis, management will own or have
the right to acquire, subject to certain performance requirements, approximately
16.5% of the common stock of Parent on a fully diluted basis.
BUSINESS STRATEGY
Management believes the Company is well positioned for future growth as one
of the leading providers of quality educational care to preschool aged children.
The Company's objective is to grow its higher margin businesses and continue to
be a leader in the markets in which it operates.
Emphasize Educational Curriculum. The Company's curriculum department
continually evaluates and improves the quality of its educational materials and
programs. The Company has invested significant resources in developing its
proprietary Journey curriculum, utilized at both its residential and
employer-based Academies, and intends to develop additional innovative
curriculum both internally and with the assistance of educational consultants.
The Company is investing in additional staff training, classroom facilities and
educational materials to enhance the delivery of the Journey curriculum at
approximately one-third of the Company's residential Academies for the school
year beginning in the fall of 1998. The Company's Montessori schools are staffed
with certified Montessori lead teachers who follow traditional Montessori
methods that appeal to education conscious parents.
Capitalize on Reputation for Customer Driven Service. Management believes
that the Company's knowledge of parents' objectives and desires for their
children's education differentiates it from other child care providers. In order
to better understand customer needs, the Company conducts (i) focus groups with
parents, (ii) bi-annual and annual customer and employee satisfaction surveys
(conducted by the Company and third parties) and (iii) interviews with parents.
The Company's Parent's Partner Plan was designed in part to bridge the gap
between what parents look for on a tour of the facility and expect on a
day-to-day basis and the requirements of a professionally designed curriculum.
The program includes a video and a monthly newsletter that explain the
curriculum being provided to the children and guarantees the delivery of daily
or weekly (depending on the age of the child) individual progress reports. The
Company continually strives to improve its customer retention and increase
loyalty by interacting with parents on a daily basis and focusing on meeting
and, if possible, exceeding their expectations.
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Increase Academy Profitability. The Company plans to improve Academy
profitability by increasing capacity utilization and tuition rates, managing
costs and leveraging its existing and newly built Academies to achieve economies
of scale and synergies. The Company intends to continue to increase capacity
utilization by emphasizing local marketing programs and improving customer
retention and loyalty. The Company believes it is an industry leader in its
commitment to ongoing qualitative and quantitative research to determine
customer needs and expectations. Academy Directors use their understanding of
the markets in which they operate to cost effectively target parents through
customer referrals, the support of community activities and print media and spot
radio advertising. In addition, with the implementation of ADMIN, which provides
the Company with the information necessary to implement targeted pricing, the
Company has the ability to maximize revenue by charging its customers a premium
for services in high demand. The ability to control revenue and increase
operating efficiency at the point of sale through the implementation of ADMIN
also presents an opportunity for the Company to better allocate an Academy
Director's time. The Company achieves local economies of scale by employing a
cluster strategy of either building in markets where it has existing Academies
or entering new markets through the construction of a minimum number of
Academies.
Build Academies and Montessori Schools in Attractive Markets. The Company
intends to expand within existing markets and enter new markets with Academies
and Montessori schools concentrated in clusters. Over the last three years, the
Company has made significant investments in personnel and infrastructure to
facilitate the future growth of the Company. The Company currently expects to
open approximately 25 and 35 Academies in fiscal 1999 and fiscal 2000,
respectively. The Company has targeted 25 MSAs that it believes have favorable
characteristics for development, as measured by household income and education
levels, population growth, existing competition, labor supply, appropriate real
estate, and marketing possibilities. The Company expects to build residential
Academies and Montessori schools primarily in higher-end neighborhoods, both of
which are anticipated to generate higher operating margins than the average
existing Academy. Because of the Montessori schools' success and popularity,
management intends to build new Montessori schools and convert certain existing
Academies to create new clusters of Montessori schools. Based upon significant
input from the Company's field personnel, visits to competitors and focus groups
with parents, the Company has recently designed a new prototype for its
Academies. New Academies will be approximately 9,500 square feet, built on sites
of approximately one acre, have an Operating Capacity of approximately 175
children for residential Academies and 150 children for Montessori schools and
incorporate a closed classroom concept. The Company will continue to target
profitable opportunities for employer-based Academies and seek to leverage its
residential Academy network to meet the needs of its corporate customers.
Pursue Strategic Opportunities. In addition to accelerating new Academy
development, the Company may seek to acquire existing child care centers where
demographics and facility conditions complement its business strategy.
Management believes the Company's competitive position, economies of scale and
financial strength will enable it to capitalize on selective acquisition
opportunities in the fragmented child care industry. The Company may also engage
in cross-marketing opportunities with manufacturers and marketers of educational
products. These opportunities should enable La Petite to further its reputation
as an educator and carry the residual benefit of an additional revenue stream.
CURRICULUM
Residential and Employer-Based Academies. In 1991, the Company, with the
assistance of outside educational experts, designed and developed the Journey
curriculum to not only maximize a child's cognitive development but also to
provide a positive learning experience for the child. The Company believes the
Journey curriculum is unsurpassed by the educational materials of any of the
major child care providers or its other competitors, many of whom purchase
educational materials from third party vendors.
Journey is an integrated approach to learning, giving children
opportunities to learn through all of their senses while stimulating development
and learning in all areas. Children progress at their own pace, building skills
and abilities in a logical pattern. The Journey curriculum covers children of
all ages that La Petite Academy serves. Each level of the curriculum includes:
(i) a parent component; (ii) built-in teacher training; (iii) carefully selected
age appropriate materials, equipment and activities; and (iv) a well planned and
developed environment.
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For infants and toddlers, Journey provides activities for a variety of
developmental areas such as listening and talking, physical development,
creativity and learning from the world around them. As infants become toddlers,
more activities focus on nurturing their need for independence and practicing
small motor skills that help them to learn to feed themselves, walk and
communicate with others. Journey provides songs, fingerplay, art ideas,
storytelling tips, building activities and many activities to develop the bodies
of toddlers through climbing, pushing and pulling. These activities also build
the foundation for social skills such as how to get along with others and how to
share.
The Journey preschool program includes a balance of teacher-directed and
child-directed activities which address both the physical and intellectual
development of preschool children. Physical activities are designed to increase
physical and mental dexterity, specifically hand-eye and large and small muscle
coordination. Preschool children also engage in creative and expressive
activities such as painting, crafts and music. Intellectual activities are
designed to promote language development, pre-reading, writing and thinking
skills, imagination through role playing, pretending and problem solving. In
addition, Journey enables the children to experience the world around them
through geography, Spanish, mathematics and sensorial activities.
The Journey curriculum for SuperStars consists of providing (i) quiet,
private space for them to do homework, (ii) social interaction with children of
their own age, (iii) participation in enrichment programs such as arts and
crafts and fitness activities and (iv) transportation to and from their
elementary schools.
Montessori Schools. Montessori is a non-traditional method of education in
which children work and learn in a highly individualized environment. Montessori
materials, combined with the Company's certified Montessori instructors, create
a learning environment in which children become energized to explore,
investigate and learn. Children work in mixed age group classrooms with
attractive, state-of-the-art Montessori materials which have been designed to
stimulate each child's interest in reading, mathematics, geography and science.
In addition to the Montessori method, Montessori schools provide enrolled
children foreign language and computer learning.
ACADEMY NETWORK
The Company operates three types of child care centers: residential
Academies, employer-based Academies and Montessori schools. Academies generally
operate year round, five days a week and typically are open from 6:30 AM to 6:30
PM. A child may be enrolled in any of a variety of program schedules from a
full-time, five-day-per-week plan to as little as two or three half-days a week.
A child attending full-time typically spends approximately nine hours a day,
five days per week, at an Academy. The Company's SuperStars program for children
ages five to 12 provides extended child care before and after the elementary
school day and transportation to and from the elementary school.
Academy employees include Academy Directors, Assistant Directors (who are
generally teachers), full-time and part-time teachers, temporary and substitute
teachers, teachers' aides, and non-teaching staff. On average, there are 15 to
20 employees per Academy. Each Academy is managed by an Academy Director. An
Academy Director implements Company policies and procedures, but has the
autonomy to individualize local operations. Responsibilities of Academy
Directors include curriculum implementation, the establishment of daily, weekly
and monthly operating schedules, staffing, marketing to develop and increase
enrollment and control of operating expenses. Personnel involved in operations
as Academy Director and above are compensated in part on the basis of the
profitability and level of parent and employee satisfaction of each Academy for
which they have managerial responsibility.
Academy Directors are supervised by a Regional Director. The Company's
Regional Directors have an average of 11 years of experience with the Company,
typically are responsible for six to 12 Academies and report to one of eight
Area Vice Presidents. Regional Directors visit their Academies regularly and are
in frequent contact to help make decisions and improvements to program quality
and profitability. The eight Area Vice Presidents average in excess of 15 years
of experience with the Company.
Residential Academies. As of March 14, 1998 the Company operated 692
residential Academies in 33 states. Residential Academies are typically located
in residential, middle income neighborhoods, and are usually one-story,
air-conditioned buildings located on three-quarters of an acre to one acre of
land. A typical Academy
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also has an adjacent playground designed to accommodate the full age range of
children attending the school. The last 100 residential Academies built by the
Company have an estimated Operating Capacity of 125 children and an average
facility size of 6,200 square feet. The Company continues to improve, modernize
and renovate existing residential Academies to improve efficiency and
operations, to better compete, to respond to the requests of parents and to
support the Journey curriculum.
Residential Academies generally have programs to care for children from
toddlers to 12 years old arranged in five age groups. In addition, approximately
half of the Academies offer child care for infants, as young as six weeks old.
Teacher-student ratios vary depending on state requirements but generally
decrease with the older child groups.
Employer-Based Academies. As of March 14, 1998 the Company operated 32
employer-based Academies, which are similar to residential Academies, but are
designed to offer businesses, including government employers and hospitals,
on-site employer-sponsored child care. To date, the Company's focus has been
principally on developing on-site centers, operating employers' on-site centers
through management contracts and providing consulting services for developing
and managing centers. At most of the Company's employer-based Academies, the
Company collects tuition from its students in the same way as at residential
Academies. At some of the employer-based Academies, the Company receives
additional payments or support services from the sponsoring employer. At other
employer-based Academies, the Company receives a fee in addition to tuition.
Montessori Schools. As of March 14, 1998 the Company operated 20
Montessori schools in Dallas, Houston, Atlanta and south Florida. Sixteen of the
Montessori schools were opened between 1983 and 1989. Two Montessori schools
were residential Academies that were recently converted to Montessori formats,
one in fiscal 1996 and one in early fiscal 1997. Montessori schools are
typically located in upper-middle income areas and feature brick facades and
closed classrooms. The Montessori schools typically have lower staff turnover,
and their lead teachers are certified Montessori instructors, many of whom are
certified through the Company's own training program. In addition, unlike
students at residential Academies, Montessori students are enrolled for an
entire school year, pay tuition monthly in advance and pay higher tuition rates.
NEW ACADEMY DEVELOPMENT
The Company intends to expand within existing markets and enter new markets
with Academies and Montessori schools concentrated in clusters. In its existing
markets, management believes it has developed an effective selection process to
identify attractive markets for prospective Academy sites. In evaluating the
suitability of a particular location, the Company concentrates on the
demographics of its target customer within a two mile radius for residential
Academies and a six mile radius for Montessori schools. The Company targets MSAs
with benchmark demographics which indicate parent education levels and family
incomes combined with high child population growth, and considers the labor
supply, cost of marketing and the likely speed and ease of development of
Academies in the area. The Company has targeted 25 MSAs that it believes have
favorable characteristics for Academy development.
Newly constructed Academies are generally able to open approximately 36
weeks after the real estate contract is signed. Because a location's early
performance is critical in establishing its ongoing reputation, the Academy
staff is supported with a variety of special programs to help achieve quick
enrollment gains and development of a positive reputation. These programs
include special compensation for the Academy Director who opens the new site and
investment in local marketing prior to the opening. Historically, new Academies
have been profitable within their second year of operation and reached maturity
within three years. Management believes that the new site selection and
development process, earlier selection and installment of the Academy Director
and staff, the increased marketing investment prior to opening, the new design
and the rapid access to attendance and tuition information provided by the ADMIN
system will reduce the time to maturity of Academies to two years.
The Company has recently designed new prototypes for residential Academies
and Montessori schools, both of which are 9,500 square foot facility prototypes
to be built on one acre or more of commercially zoned property. The new
residential Academy prototype will have an Operating Capacity for approximately
175 children and is a closed classroom design, without infant rooms, that
reflects a preschool environment and supports the latest curriculum
improvements. The Montessori school prototype will be divided into six equal-
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sized classrooms which will each support 25 children, resulting in an Operating
Capacity for approximately 150 children. Management believes the new prototypes
afford the Company more flexibility to better suit varying site plans and future
changes as residential neighborhoods evolve. The new exterior design was
developed to enhance the appearance and image of the Academies. The cost to open
each of the prototype Academies is estimated at approximately $1.0 million to
$1.5 million, of which approximately 85% is typically financed through a sale
and leaseback transaction.
TUITION
Academy tuition depends upon a number of factors including, but not limited
to, location of an Academy, age of the child, full or part-time attendance and
competition. The Company also provides various tuition discounts primarily
consisting of sibling, staff, Corporate Referral Program and Parent's Partner
Plan. The Company adjusts tuition for Academy programs by child age-group and
program schedule within each Academy on an annual basis each February. Parents
also pay an annual registration fee of $40 per child, which is reduced for
families with more than one child attending an Academy. Tuition and fees are
payable weekly and in advance for most residential and employer-based Academies
and monthly and in advance for Montessori schools. Management estimates that
state governments pay the tuition for approximately 5% to 10% of the children
under the Company's care.
MARKETING AND ADVERTISING
The Company's marketing program reflects its commitment to ongoing
qualitative and quantitative research to determine customer needs, expectations
and interpretation of service delivery. For example, the Company's research was
instrumental in the development of the Parent's Partner Plan, which was
introduced in 1995. The Parent's Partner Plan was designed in part to bridge the
gap between what parents look for on a tour of the facility and expect on a
day-to-day basis and the requirements of a professionally designed curriculum.
This program offers parents such features as flexible absence day options,
extended care during holidays and guaranteed parent communications. These
features provide tangible benefits to parents, can be universally delivered in a
multi-unit environment and were developed directly in response to needs
expressed by parents. Customer focus groups and research have also guided the
Company in developing and enhancing communications to current and potential
parent customers regarding its programs.
The Company believes that retention of current parents is critical in
building brand equity and generating favorable word-of-mouth promotion. The
Company's retention activities include 'Gift of Time' (added free child care on
certain weekends and during the Christmas holidays), focused parent
communication (through videotapes, correspondence and face to face meetings) and
fall and spring preschool orientation meetings. The Company's marketing programs
include activities to attract new students to support fall enrollment programs.
The Company is also establishing programs to broaden parent loyalty beyond the
neighborhood Academy to the Company as a whole. These programs include personal
welcome calls, e-mail access and a toll-free number to call the Company.
The remainder of the marketing budget is used to fund activities designed
to increase enrollments, with over 50% of the budget supporting the Fall
enrollment period. Primary media vehicles are spot radio, which is centrally
negotiated and locally approved, direct mail and local print media. The Company
also has a web site that allows parents to find the closest La Petite Academy
and to learn more about the Journey curriculum. Finally, the Company's Corporate
Referral Program offers tuition discounts to employees of preferred corporate
clients such as AT&T, Federal Express and Wal-Mart. This program enables the
Company to market directly to employees who need preschool and child care
services.
In fiscal 1998, the Company will implement its first coordinated marketing
plan to broaden the awareness of its Montessori Unlimited brand. Based on
extensive focus group research, the plan will first educate parents generally
about Montessori philosophies and techniques, and then inform parents about the
Company's Montessori schools and programs.
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INFORMATION SYSTEMS
The Company has recently completed in its residential Academies the
installation of the nationwide point of sale information phase of ADMIN. In
subsequent phases, ADMIN will automate substantially all of the clerical record
keeping functions at an Academy. ADMIN is a proprietary, state of the art,
decentralized, multimedia PC-based network that processes transactions, stores
data and produces reports locally. Remote host collection of data on a daily,
weekly and as needed basis provides timely access to information by senior
management, Regional Directors and Area Vice Presidents.
The point of sale system has been operational in all residential Academies
since mid-March 1998 and is being expanded to the Company's Montessori schools
and employer-based Academies. The system tracks attendance, revenues,
receivables and pricing information. Parents sign their children in and out of
an Academy using a ten key pad and PIN number, enabling the Academy Director to
have real time access to parent receivables and an Academy's current, past and
expected future enrollment by class, day and program. Previously, these records
were maintained manually by Academy Directors, consuming eight to ten hours of
their time each week, and were subject to clerical error. The time savings
enable Academy Directors to spend this time on more valuable tasks such as
communicating and interacting with parents and staff. By eliminating clerical
errors and ensuring that all service delivery is accounted for, the
implementation of the ADMIN point of sale system has increased operating revenue
by more than 2% at the 246 Academies which have been operating on the system
since January 1, 1998.
ADMIN provides management weekly access to detailed, accurate information
on the Company's operations, facilitating rapid response to any Academy
requiring attention. In addition, the new attendance data by class by day will
enable future pricing decisions to better target those classes and programs with
the greatest demand, enabling the Company to further increase revenues without
impacting capacity utilization. By providing student turnover and tenure
information, the point of sale system will create a new capability for focusing
programs on customer satisfaction and retention.
Future phases of ADMIN will include labor (which encompasses payroll,
benefits and scheduling), cash management, marketing, training and the
automation of a number of manual tasks that are currently performed by the
Academy Directors or their staff. The investment requirement by these
applications is expected to be fairly minimal because the major cost was for the
hardware that has already been installed. Management is currently in the process
of specifying the functional requirements for the labor module, and the cash
management application is in development.
COMPETITION
The United States preschool education and child care industry is highly
fragmented and competitive. The Company's competition consists principally of
local nursery schools and child 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 child 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,
may receive donations or other funding to cover operating expenses and may
utilize volunteers for staffing. Consequently, tuition rates at these facilities
are commonly lower 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 Academies. 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 principally by offering trained and qualified
personnel, professionally planned educational and recreational programs,
well-equipped facilities and additional services such as transportation. In
addition, the Company offers a challenging and sophisticated program that
emphasizes the individual development of the child. Management believes that the
quality of the staff and facilities and the unique programs offered are the
principal factors in parents' choice of the Company, although price and location
of the facility are also important. For some of the Company's potential
customers, the non-profit status of certain of the Company's competitors may be
a significant factor in choosing a child care provider.
51
<PAGE>
GOVERNMENT 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 state and local
regulations vary greatly from jurisdiction to jurisdiction, government agencies
generally review the ratio of staff to enrolled children, the safety, fitness
and adequacy of the buildings and equipment, the dietary program, the daily
curriculum, staff training, record keeping and compliance with health and safety
standards. In certain jurisdictions, new legislation or regulations have been
enacted or are being considered which establish requirements for employee
background checks or other clearance procedures for new employees of child care
centers. In most jurisdictions, governmental agencies conduct scheduled and
unscheduled inspections of child care centers, and licenses must be renewed
periodically. Failures by an Academy to comply with applicable regulations can
subject it to state sanctions, which might include the Academy being placed on
probation or, in more serious cases, suspension or revocation of the Academy's
license to operate. Management believes the Company is in compliance with all
material regulations and licensing requirements applicable to its businesses.
Certain tax incentives exist 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 in the Code). 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 of the Code. In
addition to the federal tax credits, various state programs provide child care
assistance to low income families. Management estimates 5% to 10% of the
Company's operating revenue is generated from such state programs. 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.
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.
TRADEMARKS
The Company has various registered trademarks covering the name La Petite
Academy, its logos, and a number of other names, slogans and designs, including,
but not limited to: La Petite Journey, Parent's Partner, SuperStars and
Montessori Unlimited. 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 Japan, Taiwan and the Peoples Republic of China. The Company
believes that its name and logos are important to its operations and intends to
continue to renew the trademark registrations thereof.
INSURANCE
The Company maintains insurance covering comprehensive general liability,
automotive liability, workers' compensation, property and casualty, crime and
directors and officers insurance. The policies provide for a variety of
coverages, are subject to various limits, and include substantial deductibles or
self-insured retention. 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.
The Company has instituted a number of initiatives to improve risk
management and reduce insurance costs. In 1994, the Company switched to a
self-insured program for workers' compensation, automotive and general
liabilities up to certain retention levels. In 1995, the Company re-bid its
entire insurance program, thereby reducing premium costs and increasing
coverages. Also in 1995, the Company began a program of actively seeking to
close all old open liability and workers' compensation claims and aggressively
seeking to close new claims on a timely basis. All student accident and auto
claims are now managed and administered in-house by the Company's General
Counsel, which has reduced the frequency and severity of liability claims. As a
result of all
52
<PAGE>
of the aforementioned actions, insurance costs dropped from $9.5 million in
fiscal 1995 to $6.2 million in fiscal 1997, representing a 35% reduction.
EMPLOYEES
As of March 14, 1998, the Company employed 12,582 persons, including eight
Area Vice Presidents, 77 Regional Directors, 744 Academy Directors and 120
employees at corporate headquarters. Approximately 93% of these employees are
paid on an hourly basis; the remainder are salaried. Because of high employee
turnover rates in the child care industry in general, the Company focuses on and
emphasizes recruiting and retaining qualified personnel. Management believes
that the turnover of the Company's employees is in line with other companies in
the industry. The Company's employees are not represented by any organized labor
unions or employee organizations and management believes relations with
employees are good.
PROPERTIES
As of March 14, 1998, the Company operated 744 Academies, 675 of which were
leased under operating leases, 55 of which were owned and 14 of which were
operated in employer-owned centers. In fiscal 1997, the Company opened three new
Academies, two of which were employer-based. Most of the Academy leases have
15-year terms, some have 20-year terms, many have renewal options, and
substantially all require the Company to pay utilities, maintenance, insurance
and property taxes. In addition, some of the leases provide for contingent
rentals if the Academy's operating revenue exceeds certain base levels.
Because of the different licensing requirements and design features,
Academies vary in size and Licensed Capacity. Academies typically contain 5,400,
6,700 or 7,800 square feet and Licensed Capacity for the same size building
varies from state to state because of different licensing requirements.
The following table summarizes Academy openings and closings for the
indicated periods.
<TABLE>
<CAPTION>
FISCAL YEAR 1993(A) 1994 1995 1996 1997
- ----------------------------------------------------------------------------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Academies:
Open at Beginning of Period.................................................. 785 788 787 786 751
Opened During Period......................................................... 5 12 5 11 3
Closed During Period......................................................... (2) (13) (6) (46) (9)
------- ---- ---- ---- ----
Open at End of Period........................................................ 788 787 786 751 745
------- ---- ---- ---- ----
------- ---- ---- ---- ----
</TABLE>
- ------------------
(a) Fiscal year end changed from December 31 to the last Saturday in August.
Fiscal 1993 represents the eight months from January 1, 1993 to August 28,
1993.
53
<PAGE>
The residential and employer-based Academies and Montessori schools
operated by the Company as of March 14, 1998 were located as follows:
<TABLE>
<CAPTION>
EMPLOYER-
RESIDENTIAL BASED MONTESSORI
STATE ACADEMICS ACADEMICS SCHOOLS TOTAL
- ---------------------------------------------------------------------- ----------- --------- ---------- -----
<S> <C> <C> <C> <C>
Alabama............................................................... 14 4 -- 18
Arizona............................................................... 23 1 -- 24
Arkansas.............................................................. 8 -- -- 8
California............................................................ 55 4 -- 59
Colorado.............................................................. 24 1 -- 25
Delaware.............................................................. 1 -- -- 1
Florida............................................................... 94 2 3 99
Georgia............................................................... 48 -- 6 54
Illinois.............................................................. 16 -- -- 16
Indiana............................................................... 15 2 -- 17
Iowa.................................................................. 9 -- -- 9
Kansas................................................................ 21 1 -- 22
Kentucky.............................................................. 4 -- -- 4
Louisiana............................................................. -- 1 -- 1
Maryland.............................................................. 11 3 -- 14
Minnesota............................................................. -- 1 -- 1
Mississippi........................................................... 3 -- -- 3
Missouri.............................................................. 29 1 -- 30
Nebraska.............................................................. 10 -- -- 10
Nevada................................................................ 9 -- -- 9
New Jersey............................................................ 2 -- -- 2
New Mexico............................................................ 4 -- -- 4
North Carolina........................................................ 30 -- -- 30
Ohio.................................................................. 16 1 -- 17
Oklahoma.............................................................. 23 2 -- 25
Oregon................................................................ 4 -- -- 4
Pennsylvania.......................................................... 3 3 -- 6
South Carolina........................................................ 24 -- -- 24
Tennessee............................................................. 26 1 -- 27
Texas................................................................. 108 -- 11 119
Utah.................................................................. 4 1 -- 5
Virginia.............................................................. 36 -- -- 36
Washington............................................................ 15 1 -- 16
Wisconsin............................................................. 2 -- -- 2
Wyoming............................................................... 1 -- -- 1
District of Columbia.................................................. -- 2 -- 2
--- -- -- -----
692 32 20 744
--- -- -- -----
--- -- -- -----
</TABLE>
LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company believes that
it is not presently a party to any litigation the outcome of which would have a
material adverse effect on its financial condition or results of operations. The
Company maintains insurance coverage against claims in an amount which it
believes to be adequate.
54
<PAGE>
MANAGEMENT
The following table sets forth the name, age and current position held by
the persons who are the directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
James R. Kahl................................... 56 Chairman of the Board, Chief Executive Officer,
President and Director
Rebecca L. Perry................................ 43 Executive Vice President, Operations
David J. Anglewicz.............................. 50 Senior Vice President, Facility Services
Phillip M. Kane................................. 50 Senior Vice President, Finance and Chief
Financial Officer
Mary Jean Wolf.................................. 60 Senior Vice President, Organizational Services
Mitchell J. Blutt, M.D.......................... 41 Director
Robert E. King.................................. 62 Director
Stephen P. Murray............................... 35 Director
Brian J. Richmand............................... 44 Director
</TABLE>
The business experience during the last five years and other information
relating to each executive officer and director of the Company is set forth
below:
James R. Kahl became Chairman of the Board upon consummation of the
Transactions. Mr. Kahl has been a Director of the Company since September 1993,
the Chief Executive Officer of the Company since July 1993 and President since
May 1997. Mr. Kahl was an Executive Vice President at Knott's Berry Farm from
1991 to February 1993. From 1988 to 1991, Mr. Kahl was the Senior Vice
President, Operations of the Contract Food and Services Division, Health Care
and Education Group at the Marriott Corporation in Washington, D.C. From 1982 to
1988, Mr. Kahl held various other executive positions with the Marriott
Corporation. Prior to joining the Marriott Corporation, Mr. Kahl held various
positions with Arthur Andersen & Co. between 1964 and 1982, including Partner
and Managing Partner. He has an M.B.A. from the University of Wisconsin and is a
Certified Public Accountant. Mr. Kahl is a director of Integrated Medical
Resources.
Rebecca L. Perry has been Executive Vice President of Operations since May
1997. From July 1993 to May 1997, Ms. Perry was a Senior Vice President and
Eastern Operating Officer. From 1988 to June 1993, she was Assistant Vice
President of Operations with supervisory responsibility for the operations of
the Company in 14 southern and midwestern states. From 1985 to 1988, she served
as Divisional Director of Florida and from 1981 to 1985, she served as Regional
Director of Tampa.
David J. Anglewicz has been Senior Vice President, Facility Services since
March 1997. From July 1993 to March 1997, Mr. Anglewicz was Executive Vice
President-Property Development and Chief Administrative Officer. Mr. Anglewicz
has been involved in the development of over 500 of the Academies throughout the
United States since he joined the Company in 1985. Mr. Anglewicz has an M.B.A.
from the University of Illinois and a B.S. from the Lawrence Institute of
Technology.
Phillip M. Kane has been Senior Vice President, Finance and Chief Financial
Officer since 1994. From 1989 to 1993, Mr. Kane was the Chief Financial Officer
of the U.S. Department of Housing and Urban Development. From 1974 to 1989, Mr.
Kane held various financial management positions with Knight-Ridder, including
Vice President and Controller. Prior to joining Knight-Ridder, Mr. Kane was
associated with Arthur Andersen & Co. Mr. Kane has a B.A. from the University of
Miami (Fla.) and is a Certified Public Accountant.
Mary Jean Wolf has been Senior Vice President, Organizational Services
since August 1997. From September 1991 to August 1997, Ms. Wolf was an
independent consultant specializing in executive transition and other human
resources issues. From July 1987 to June 1991, she was a Senior Vice President
and Chief Human Resource Officer with Dime Savings Bank of New York, and from
September 1978 to December 1985, she was Vice President of Personnel with Trans
World Airlines. Ms. Wolf has a B.S. from Drexel University and an M.B.A. from
New York University Graduate School of Business.
55
<PAGE>
Mitchell J. Blutt, M.D. became a Director of the Company upon consummation
of the Transactions. Dr. Blutt has been an Executive Partner of CCP since
December 1992. From December 1988 to November 1992 he was a General Partner of
CCP. Dr. Blutt has a B.A. and a M.D. from the University of Pennsylvania and an
M.B.A. from The Wharton School of the University of Pennsylvania. He is a
director of the Hanger Orthopedic Group, UtiliMed, Vista Healthcare Asia, Pte.,
Ltd., Senior Psychology Services Management, Medical Arts Press and Fisher
Scientific International, Inc., among others.
Robert E. King became a Director of the Company upon consummation of the
Transactions. Mr. King is Chairman of Salt Creek Ventures, LLC, a company he
founded in 1994. Salt Creek Ventures, LLC is an organization specializing in
equity investments in software, computer services, transaction processing and
other information-based companies. Mr. King has been involved over the past 33
years as a corporate executive and entrepreneur in technology-based companies.
From 1983 to 1994, he was President and Chief Executive Officer of The Newtrend
Group. Mr. King has participated as a founding investor in five companies. Mr.
King has a B.A. from Northwestern University. He serves on the Board of
Directors of DeVRY, Inc., U.S. Servis, Inc., American Floral Services, Inc. and
Collegis, Inc.
Stephen P. Murray became a Director of the Company upon consummation of the
Transactions. Mr. Murray has been a General Partner of CCP since June 1994. From
November 1988 to June 1994, Mr. Murray was a Principal at CCP. Prior thereto, he
was a Vice President with the Middle-Market Lending Division of Manufacturers
Hanover. Mr. Murray has a B.A. from Boston College and an M.B.A. from Columbia
Business School. He is a director of The Vitamin Shoppe, Home Products, Inc.,
Futurecall Telemarketing, American Floral Services, The Cornerstone Group,
Medical Arts Press and Regent Lighting Corporation.
Brian J. Richmand became a Director of the Company upon consummation of the
Transactions. Mr. Richmand has been a General Partner of CCP since August 1993.
From 1986 to August 1993, Mr. Richmand was a partner with the law firm of
Kirkland & Ellis. He has a B.S. from The Wharton School of the University of
Pennsylvania and a J.D. from Stanford Law School. Mr. Richmand is a director of
OCI Holdings Corp., Riverwood International Corp., Qualitech Steel Corporation
and Western Pork Production Corporation.
Upon consummation of the Transactions, the Investor became entitled to
nominate four directors to Parent's board. One of such directors, Robert E.
King, is entitled to three votes as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company has an Audit Committee consisting of
James R. Kahl, Robert E. King and Stephen P. Murray, and a Compensation
Committee consisting of Mitchell J. Blutt, M.D., Brian J. Richmand and
ex-officio member James R. Kahl. The Audit Committee reviews the scope and
results of audits and internal accounting controls and all other tasks performed
by the independent public accountants of the Company. The Compensation Committee
determines compensation for executive officers of the Company and will
administer the New Option Plan.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors do not receive compensation for their
service on the Board of Directors or any committee thereof but will be
reimbursed for their out-of-pocket expenses. The Company may, in the future,
have persons who are neither officers of the Company nor affiliated with CCP or
the Investor serve on its Board of Directors. Such persons may receive customary
compensation for services on the Board of Directors of the Company.
The following table provides certain summary information concerning
compensation earned for fiscal 1997, fiscal 1996 and fiscal 1995 paid to the
Company's Chief Executive Officer and the three next most highly compensated
executive officers of the Company.
56
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NUMBER OF
COMPENSATION FOR THE PERIOD(A) SECURITIES
------------------------------- UNDERLYING
FISCAL OPTIONS/SAR
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS
- ------------------------------------------------------------------ ------ -------- --------- -----------
<S> <C> <C> <C> <C>
James R. Kahl
Chief Executive Officer and President........................... 1997 $280,000 $ 125,000 10,000
1996 265,000 142,500
1995 239,200 20,000
Rebecca L. Perry
Executive Vice President, Operations............................ 1997 130,000 60,000 1,000
1996 110,000 40,900 5,000
1995 90,000 9,000
David J. Anglewicz
Senior Vice President, Facility Services........................ 1997 150,000 15,000
1996 142,000 35,000
1995 135,000 7,000
Phillip M. Kane
Senior Vice President, Finance and Chief Financial Officer...... 1997 160,000 28,000 1,000
1996 150,000 41,400 5,000
1995 125,000 9,500
</TABLE>
- ------------------
(a) Perquisites and other personal benefits for fiscal 1997, 1996 and 1995 paid
to the named officers did not, as to any of them, exceed the lesser of
$50,000 or 10 percent of the sum of their respective salary and bonus.
The Company previously issued stock options to James R. Kahl, Rebecca L.
Perry and Phillip M. Kane to purchase common stock of the Parent. As part of the
Recapitalization, Mr. Kahl and Mr. Kane continue to hold certain existing
options.
EMPLOYMENT CONTRACTS
The Company entered into employment agreements, each dated as of the date
of the closing of the Transactions (the 'Employment Agreements'), with James R.
Kahl, Rebecca L. Perry and Phillip M. Kane. The Employment Agreements provide
for Mr. Kahl, Ms. Perry and Mr. Kane to receive a base salary, subject to annual
performance adjustments, of $297,500, $172,500 and $170,000, respectively, plus
a bonus of up to 180%, 75% and 75%, respectively, of base salary. The terms of
the Employment Agreement are as follows: for Mr. Kahl, four years, for Ms.
Perry, one year and for Mr. Kane, one year, in each case subject to one year
automatic renewals. Each Employment Agreement also provides that the executive
is entitled to participate in the health and welfare benefit plans available to
the Company's other senior executives. The Employment Agreements provide for
severance in the case of a termination without 'cause' or a resignation with
'good reason' (each as defined in the applicable Employment Agreement) in an
amount equal to the base salary plus bonus for Mr. Kahl, and in an amount equal
to the base salary for Ms. Perry and Mr. Kane. If Mr. Kahl terminates his
employment with good reason after a change of control, Mr. Kahl would be
entitled to two years' base salary and bonus. The Employment Agreements also
contain customary non-disclosure, non-competition and non-solicitation
provisions.
NEW OPTION PLAN
After consummation of the Transactions, the Parent adopted the New Option
Plan pursuant to which options with respect to 8.5% of the Parent's common
stock, on a fully diluted basis, are available for grant. The new options will
be allocated in amounts to be agreed upon between the Investor and the Parent.
Seventy-five percent of the new options will vest over four years and
twenty-five percent of the new options will vest if certain transactions are
consummated which generate certain minimum returns to the Investor. The exercise
price for the time vesting options will be 50% of the per share price paid by
the Investor for its common stock of the Parent
57
<PAGE>
and the exercise price for the remaining options will be 100% of the per share
price paid by the Investor for its common stock of the Parent. The new options
will expire 10 years from the date of grant.
CHANGE IN CONTROL SEVERANCE ARRANGEMENTS
Pursuant to the severance policy of the Company, in the event of a change
in control of the Company, certain employees will be entitled to severance
payments if they are terminated or constructively discharged within 12 months of
the change of control. The amounts of such severance payments are as follows:
(a) executive or senior level officers reporting to the Chief Executive Officer
and President: 12 months' salary, (b) other officers: 6 months' salary, (c)
other directors (not including board members) and managers: 3 months' salary,
(d) Regional Directors: 2 months' salary and (e) Academy Directors: 6 weeks'
salary.
TRANSACTION BONUSES
In connection with the Recapitalization, the former controlling
stockholders of the Company paid transaction bonuses to certain employees of the
Company upon the close of the Transactions. The former controlling stockholders
paid transaction bonuses of $400,000, $150,000, $75,000, $150,000 and $10,000 to
James R. Kahl, Rebecca L. Perry, David J. Anglewicz, Phillip M. Kane and Mary
Jean Wolf, respectively.
58
<PAGE>
OWNERSHIP OF SECURITIES
All of the common stock of the Company is held by Parent. The Investor owns
approximately 90.3% of the outstanding common stock of Parent (approximately
80.5% on a fully diluted basis, including the warrants described below) and
Vestar and management of the Company (including James R. Kahl) own approximately
9.7% of the outstanding common stock of Parent (approximately 19.5% on a fully
diluted basis). In connection with the purchase of preferred stock of Parent,
the Investor received warrants to purchase up to 6.0% of Parent's outstanding
common stock on a fully diluted basis.
In connection with the Recapitalization, the Investor purchased redeemable
preferred stock of Parent (the 'Preferred Stock') and warrants to purchase up to
6.0% of the Parent's common stock on a fully diluted basis for aggregate cash
consideration of $30.0 million, the proceeds of which were contributed by Parent
to the Company as common equity. The Preferred Stock is not redeemable at the
option of the holder prior to the maturity of the Notes and dividends are not
payable in cash prior to the seventh anniversary of the consummation of the
Transactions. Thereafter, dividends may be paid in cash by Parent subject to any
restrictions contained in the Company's indebtedness, including the Credit
Agreement and the Indenture.
Following the consummation of the Recapitalization, Parent and its
stockholders, including all holders of options and warrants, entered into a
stockholders' agreement (the 'Stockholders' Agreement'). The Stockholders'
Agreement contains restrictions on the transferability of Parent's common stock,
subject to certain exceptions. The Stockholders' Agreement also contains
provisions regarding the designation of members of the Board of Directors and
other voting arrangements. The Stockholders' Agreement will terminate at such
time as the Parent consummates a qualified public offering.
The Stockholders' Agreement restricts transfers of common stock of Parent
by, among other things, (a) granting rights to all stockholders to tag along on
certain sales of stock by the Investor and management, (b) granting rights to
the Investor to force the other stockholders to sell their common stock on the
same terms as sales of common stock by the Investor and (c) granting preemptive
rights to all holders of 2% or more of the Parent's common stock in respect of
sales by other stockholders.
The Stockholders' Agreement provides that Parent's Board of Directors will
be comprised initially of five directors. The Investor is entitled to designate
four of the directors and James R. Kahl serves as the fifth director (so long as
he is employed by the Company). One of such directors, Robert E. King, is
entitled to three votes as a director.
The Stockholders' Agreement also contains covenants in respect of the
delivery of certain financial information to Parent's stockholders and granting
access to Parent's records to holders of more than 2% of the Parent's common
stock.
A majority of the economic interests of the Investor is owned by CCP and a
majority of the voting interests of the Investor is owned by an entity
controlled by Robert E. King, a Director of the Company. However, pursuant to
the Operating Agreement, the Investor has granted to CCP the right to elect a
majority of the directors of the Investor if certain triggering events occur and
the Investor agreed not to take certain actions in respect of the common stock
of Parent held by the Investor without the consent of CCP.
In connection with the Recapitalization, Parent and its stockholders
following consummation of the Recapitalization entered into a registration
rights agreement (the 'Registration Rights Agreement'). The Registration Rights
Agreement grants stockholders demand and incidental registration rights with
respect to shares of capital stock held by them and contains customary terms and
provisions with respect to such registration rights.
All of the common stock of the Company is held by Parent. All the
outstanding shares of preferred stock is owned by the Investor, and
approximately 80.5% of the fully diluted common stock of Parent is owned by the
Investor. A majority of the voting interests of the Investor is owned by an
entity controlled by Robert E. King, a Director of the Company, and a majority
of the economic interests of the Investor is owned by CB Capital Investors, L.P.
('CBCI'), an affiliate of CCP. As a licensed small business investment company
(an 'SBIC'), CBCI is subject to certain restrictions imposed upon SBICs by the
regulations established and enforced by the United States Small Business
Administration. Among these restrictions are certain limitations on the extent
to
59
<PAGE>
which an SBIC may exercise control over companies in which it invests. As a
result of these restrictions, unless certain events described in the Operating
Agreement occur, CBCI may not own or control a majority of the outstanding
voting stock of the Investor or designate a majority of the members of the Board
of Directors. Accordingly, while CBCI owns a majority of the economic interests
of the Investor, CBCI owns less than a majority of the Investor's voting stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Chase Securities Inc. ('CSI'), one of the Initial Purchasers, is an
affiliate of Chase (as defined), an agent and a lender to the Company under the
Credit Agreement. The Investor, an affiliate of CCP and CSI, owns approximately
90.3% of the outstanding common stock of the Parent (approximately 80.5% on a
fully diluted basis). The Investor owns $30 million of redeemable preferred
stock of Parent and warrants to purchase 6.0% of the common stock of Parent on a
fully diluted basis. Certain Partners of CCP are members of the Board of
Directors of the Company. See 'Management.' In addition, CSI, Chase and their
affiliates perform various investment banking and commercial banking services on
a regular basis for affiliates of the Company.
In connection with the Recapitalization, CBCI entered into an
indemnification agreement with Robert E. King, a director of the Company,
pursuant to which CBCI has agreed to indemnify Mr. King for any losses, damages
or liabilities and all expenses incurred or sustained by Mr. King in his
capacity as a manager, officer or director of the Investor or any of its
subsidiaries, including Parent and the Company.
NationsBanc Montgomery Securities LLC, one of the Initial Purchasers, is an
affiliate of NationsBank (as defined), an agent and a lender to the Company
under the Credit Agreement.
In connection with the Recapitalization, the Company paid transaction
bonuses to certain employees of the Company. See 'Management--Transaction
Bonuses.'
60
<PAGE>
DESCRIPTION OF THE CREDIT AGREEMENT
The following is a summary of the material terms of the Credit Agreement
among the Company, Parent, certain financial institutions party thereto,
NationsBank, N.A. ('NationsBank'), as administrative agent, and The Chase
Manhattan Bank ('Chase'), as syndication agent. The following summary is
qualified in its entirety by reference to the Credit Agreement, which is filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part.
THE FACILITIES
Structure. The Credit Agreement provides for (a) the Term Loan Facility in
an aggregate principal amount of $40 million and (b) the Revolving Credit
Facility providing for revolving loans to the Company, swingline loans to the
Company and the issuance of letters of credit for the account of the Company in
an aggregate principal amount (including swingline loans and the aggregate
stated amount of letters of credit) of $25 million.
Availability. Availability under the Credit Agreement is subject to various
conditions precedent typical of bank loans, and the commitment of Chase and
NationsBank to provide financing under the Credit Agreement is also subject to,
among other things, the absence of any event, condition or circumstance that has
had or is reasonably likely to have a material adverse effect on the business,
operations, properties, assets, liabilities or financial condition of Parent,
the Company and its subsidiaries, taken as a whole. The full amount of the Term
Loan Facility was drawn at the closing of the Transactions and amounts repaid or
prepaid will not be able to be reborrowed. Amounts under the Revolving Credit
Facility will be available on a revolving basis.
INTEREST
Borrowings under the Credit Agreement will bear interest at a rate per
annum equal (at the Company's option) to: (a) an adjusted London inter-bank
offered rate ('LIBOR') plus a percentage based on the Company's financial
performance or (b) a rate equal to the highest of Chase's published prime rate,
a certificate of deposit rate plus 1% and the Federal Funds effective rate plus
1/2 of 1% ('ABR') plus, in each case a percentage based on the Company's
financial performance. The borrowing margins applicable to the Credit Agreement
are initially 3.25% for LIBOR loans and 2.25% for ABR loans. Amounts outstanding
under the Credit Agreement not paid when due bear interest at a default rate
equal to 2.00% above the rates otherwise applicable to the loans under the
Credit Agreement.
FEES
The Company has agreed to pay certain fees with respect to the Credit
Agreement, including (i) fees on the unused commitments of the lenders equal to
1/2 of 1% on the undrawn portion of the commitments in respect of the Credit
Agreement (subject to a reduction based on the Company's financial performance);
(ii) letter of credit fees on the aggregate face amount of outstanding letters
of credit equal to the then applicable borrowing margin for LIBOR loans under
the Revolving Credit Facility and a 1/4 of 1% per annum issuing bank fee for the
letter of credit issuing bank; (iii) annual administration fees; and (iv) agent,
arrangement and other similar fees.
SECURITY; GUARANTEES
The obligations of the Company under the Credit Agreement are irrevocably
guaranteed, jointly and severally, by Parent and by each existing and
subsequently acquired or organized subsidiary of the Company. In addition, the
Credit Agreement and the guarantees thereunder are secured by substantially all
of the assets of the Parent, the Company and its domestic subsidiaries
(collectively, the 'Collateral'), including but not limited to (i) a first
priority pledge of all the capital stock of the Company and of each existing and
subsequently acquired or organized subsidiary of the Company and (ii) a
perfected first priority security interest in, and mortgage on, substantially
all tangible and intangible assets of the Company and the guarantors (including,
but not limited to, accounts receivable, documents, inventory, equipment,
investment property, general intangibles, real property, cash and cash accounts
and proceeds of the foregoing, but excluding leasehold interests), in each case
subject to certain exceptions.
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COMMITMENT REDUCTIONS AND REPAYMENTS
The Credit Agreement will mature on the date that is seven years after the
closing of the Transactions. The Term Loan Facility amortizes in an amount equal
to (a) $1.0 million in each of the first five years of the Term Loan Facility,
(b) $10.0 million in the sixth year thereof and (c) $25.0 million in the seventh
year thereof. In addition, the Term Loan Facility is subject to mandatory
prepayment and reductions in an amount equal to (a) 100% of the net cash
proceeds of certain equity issuances by Parent, the Company or any of its
subsidiaries, (b) 100% of the net cash proceeds of certain debt issuances of
Parent, the Company or any of its subsidiaries, (c) 75% of the Company's excess
cash flow (subject to a reduction to 50% based on the Company's financial
performance) and (d) 100% of the net cash proceeds of certain asset sales or
other dispositions of property by Parent, the Company or any of its
subsidiaries, in each case subject to certain exceptions.
AFFIRMATIVE, NEGATIVE AND FINANCIAL COVENANTS
The Credit Agreement contains a number of covenants that, among other
things, restrict the ability of Parent, the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, incur or guarantee
obligations, prepay other indebtedness or amend other debt instruments, pay
dividends, create liens on assets, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, change the business conducted
by the Company and its subsidiaries, make capital expenditures, or engage in
certain transactions with affiliates and otherwise restrict certain corporate
activities. In addition, the Credit Agreement requires Parent to comply with
specified financial ratios and tests, including a maximum leverage ratio, a
fixed charge coverage ratio and a minimum EBITDA (to be defined in the Credit
Agreement) test. The Credit Agreement also contains provisions that will
prohibit any modifications of the Indenture in any manner adverse to the lenders
under the Credit Agreement and that limit the Company's ability to refinance or
otherwise prepay the Notes without the consent of such lenders.
EVENTS OF DEFAULT
The Credit Agreement contains customary events of default, including
non-payment of principal, interest or fees, violation of covenants, inaccuracy
of representations or warranties in any material respect, cross default to
certain other indebtedness, bankruptcy, ERISA events, material judgments and
liabilities, actual or asserted invalidity of any material security interest and
change of control.
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DESCRIPTION OF NOTES
GENERAL
The Old Notes were, and the New Notes will be, issued under an Indenture
(the 'Indenture') among the Company, Capital Corp., the Guarantors and PNC Bank,
National Association, as trustee (the 'Trustee'). The terms of the New Notes are
identical in all respects to the Old Notes, except that the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and will not contain provisions providing for the
payment of liquidated damages under certain circumstances relating to the
Registration Rights Agreement, which provisions will terminate upon the
consummation of the Exchange Offer. The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Trust Indenture Act of
1939, as amended (the 'Trust Indenture Act'), and to all of the provisions of
the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the Trust Indenture Act, as
in effect on the date of the Indenture. The definitions of certain capitalized
terms used in the following summary are set forth below under 'Certain
Definitions.'
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Issuers in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee in New York, New York), except
that, at the option of the Issuers, payment of interest may be made by check
mailed to the registered holders of the Notes at their registered addresses.
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Issuers may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
The Indenture provides for the issuance of up to $100 million aggregate
principal amount of additional Notes having terms and conditions identical to
those of the Notes offered hereby (the 'Additional Notes'), subject to
compliance with the covenants contained in the Indenture. Any Additional Notes
will be part of the same issue as the Notes offered hereby and will vote on all
matters with the Notes offered hereby. Unless the context otherwise requires,
for purposes of this 'Description of Notes,' references to the Notes include
Additional Notes.
TERMS OF THE NOTES
The Notes are unsecured senior obligations of the Issuers, limited to $145
million aggregate principal amount, and mature on May 15, 2008. Each Note bears
interest at a rate of 10% per annum from May 11, 1998, or from the most recent
date to which interest has been paid or provided for, payable semiannually to
Holders of record at the close of business on the May 1 or November 1
immediately preceding the interest payment date on May 15 and November 15 of
each year, commencing November 15, 1998. The Company will pay interest on
overdue principal at 1% per annum in excess of such rate, and it will pay
interest on overdue installments of interest at such higher rate to the extent
lawful.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes are not
redeemable at the option of the Company prior to May 15, 2003. From and after
May 15, 2003, the Notes will be redeemable at the option of the Company, in
whole or in part, on not less than 30 nor more than 60 days' prior notice, at
the following redemption prices (expressed as percentages of principal amount),
plus accrued and unpaid interest, if any, to the redemption date
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(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing on May 15 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- -------------------------------------------------------- ----------------
<S> <C>
2003.................................................... 105.000%
2004.................................................... 103.333%
2005.................................................... 101.667%
2006 and thereafter..................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to May 15, 2001, the
Issuers may redeem up to a maximum of 35% of the original aggregate principal
amount of the Notes (calculated giving effect to any issuance of Additional
Notes) with the proceeds of one or more Public Equity Offerings by the Company
or Parent following which there is a Public Market, at a redemption price equal
to 110% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that after giving effect to any such
redemption, at least 65% of the original aggregate principal amount of the Notes
(calculated giving effect to any issuance of Additional Notes) remains
outstanding. Any such redemption shall be made within 60 days of such Public
Equity Offering upon not less than 30 nor more than 60 days' notice mailed to
each holder of Notes being redeemed and otherwise in accordance with the
procedures set forth in the Indenture.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption so long
as the Issuers have deposited with the Paying Agent funds sufficient to pay the
principal of, plus accrued and unpaid interest (if any) on, the Notes to be
redeemed.
RANKING
The indebtedness evidenced by the Notes is unsecured Senior Indebtedness of
the Issuers, ranks pari passu in right of payment with all existing and future
Senior Indebtedness of the Issuers and is senior in right of payment to all
existing and future Subordinated Obligations of the Issuers. The Notes are
effectively subordinated to any Secured Indebtedness of the Issuers and their
respective Subsidiaries to the extent of the value of the assets securing such
Indebtedness.
As of March 14, 1998, after giving pro forma effect to the
Recapitalization, the Offering, the Transactions and the application of the net
proceeds therefrom as described under 'Use of Proceeds,' (i) the outstanding
Senior Indebtedness of the Company would have been $187.1 million, of which
$42.1 million would have been Secured Indebtedness (exclusive of unused
commitments under the Credit Agreement), and (ii) the Guarantor would have had
no Senior Indebtedness outstanding (exclusive of guarantees of Indebtedness
under the Credit Agreement (all of which would have been Secured Indebtedness)
and the Guarantee). Although the Indenture will contain limitations on the
amount of additional Indebtedness which the Company may Incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness and may be Secured
Indebtedness. See '--Certain Covenants--Limitation on Indebtedness.'
GUARANTEES
The Company's existing Subsidiary and certain future Subsidiaries of the
Company (as described below), as primary obligors and not merely as sureties,
jointly and severally irrevocably and unconditionally guarantee on an unsecured
senior basis the performance and full and punctual payment when due, whether at
Stated Maturity,
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by acceleration or otherwise, of all obligations of the Issuers under the
Indenture and the Notes, whether for payment of principal of, or interest on,
and liquidated damages in respect of, the Notes, expenses, indemnification or
otherwise (all such obligations guaranteed by such Guarantors being herein
called the 'Guaranteed Obligations') by executing a Guarantee dated on and as of
the Closing Date (or the date a Subsidiary becomes a Restricted Subsidiary).
Such Guarantors agree to pay, in addition to the amount stated above, any and
all costs and expenses (including reasonable counsel fees and expenses) incurred
by the Trustee or the Holders in enforcing any rights under any Guarantee. Each
Guarantee will be limited in amount to an amount not to exceed the maximum
amount that can be guaranteed by the applicable Guarantor without rendering the
Guarantee, as it relates to such Guarantor, voidable under applicable laws
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. After the Closing Date, the Company
will cause each Restricted Subsidiary that Incurs Indebtedness to execute and
deliver to the Trustee a Guarantee pursuant to which such Restricted Subsidiary
will guarantee payment of the Notes. See '--Certain Covenants--Future
Guarantors.'
Each Guarantee is a continuing guarantee and shall (a) remain in full force
and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon each Guarantor and its successors and (c) inure to the benefit of,
and be enforceable by, the Trustee, the Holders and their successors,
transferees and assigns.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a 'Change of
Control'), each Holder will have the right to require the Issuers to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
(i) prior to the earlier to occur of (A) the first public offering of
common stock of Parent or (B) the first public offering of common stock of
the Company, the Permitted Holders cease to be the 'beneficial owner' (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company, whether as a result of issuance of securities
of Parent or the Company, any merger, consolidation, liquidation or
dissolution of Parent or the Company, any direct or indirect transfer of
securities by any Permitted Holder or otherwise (for purposes of this
clause (i) and clause (ii) below, the Permitted Holders shall be deemed to
beneficially own any Voting Stock of an entity (the 'specified entity')
held by any other entity (the 'parent entity') so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
entity);
(ii) (A) any 'person' (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (i) above, except that
for purposes of this clause (ii) such person shall be deemed to have
'beneficial ownership' of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of the Company and (B) the Permitted
Holders 'beneficially own' (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors (for the
purposes of this clause (ii), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person is the beneficial owner (as defined in this
clause (ii)), directly or indirectly, of more than 35% of the voting power
of the Voting Stock of such parent entity and the Permitted Holders
'beneficially own' (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent entity and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent entity);
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company or Parent, as the case may be (together with any new
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directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company or Parent, as applicable, was
approved (x) in accordance with the Stockholders Agreement, (y) by the
Permitted Holders or (z) by a vote of 66 2/3% of the directors of the
Company or Parent, as applicable, then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved), cease for any reason to
constitute a majority of the Board of Directors of the Company or Parent,
as applicable, then in office;
(iv) the adoption of a plan relating to the liquidation or
dissolution of the Company or Parent; or
(v) the merger or consolidation of the Company or Parent with or into
another Person or the merger of another Person with or into the Company or
Parent, or the sale of all or substantially all the assets of the Company
or Parent to another Person (other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation,
the securities of the Company or Parent, as the case may be, that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company or Parent,
as applicable, are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other consideration, securities
of the surviving Person or transferee that represent, immediately after
such transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving Person or transferee.
Within 30 days following any Change of Control, the Issuers shall mail a
notice to each Holder with a copy to the Trustee (the 'Change of Control Offer')
stating: (1) that a Change of Control has occurred and that such Holder has the
right to require the Issuers to purchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts and financial
information regarding such Change of Control; (3) the repurchase date (which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed); and (4) the instructions determined by the Issuers,
consistent with this covenant, that a Holder must follow in order to have its
Notes purchased.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Issuers will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Issuers will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuers and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company or Parent would decide to do so in the future. Subject to the
limitations discussed below, the Issuers could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's or Parent's capital structure or
credit ratings. Restrictions on the ability of the Issuers to incur additional
Indebtedness are contained in the covenant described under '--Certain
Covenants--Limitation on Indebtedness'. Such restrictions can only be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. Except for the limitations contained in such covenants,
however, the Indenture will not contain any covenants or provisions that may
afford holders of the Notes protection in the event of a highly leveraged
transaction.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased
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upon a Change of Control. Moreover, the exercise by the Holders of their right
to require the Issuers to repurchase the Notes could cause a default under such
Senior Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Issuers. Finally, the Issuers'
ability to pay cash to the Holders upon a repurchase may be limited by the
Issuers' then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The provisions under the Indenture relative to the Issuers'
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the holders of a
majority in principal amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness; provided, however, that the Company or any
Restricted Subsidiary may Incur Indebtedness if on the date of such Incurrence
and after giving effect thereto the Consolidated Coverage Ratio would be greater
than 2.00:1.00.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Bank Indebtedness Incurred pursuant to the Credit Agreement in
an aggregate principal amount not to exceed $65.0 million less the
aggregate amount of all prepayments of principal applied to permanently
reduce any such Indebtedness;
(ii) Indebtedness of the Company owed to, and held by, any Wholly
Owned Subsidiary or Indebtedness of a Restricted Subsidiary owed to, and
held by, the Company or any Wholly Owned Subsidiary; provided, however,
that (i) any subsequent issuance or transfer of any Capital Stock or any
other event that results in any such Wholly Owned Subsidiary ceasing to be
a Wholly Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or a Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by
the issuer thereof and (ii) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Notes;
(iii) Indebtedness (A) represented by the Notes (not including any
Additional Notes) and the Guarantees, (B) outstanding on the Closing Date
(other than the Indebtedness described in clauses (i) and (ii) above), (C)
consisting of Refinancing Indebtedness Incurred in respect of any
Indebtedness described in this clause (iii) or clause (v) (including
Indebtedness Refinancing, Refinancing Indebtedness) or the foregoing
paragraph (a) or (D) consisting of guarantees of any Indebtedness permitted
under clauses (i) and (ii) of this paragraph (b);
(iv) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by the
Company and the Restricted Subsidiaries in the ordinary course of their
business and (B) under Interest Rate Agreements entered into for bona fide
hedging purposes of the Company in the ordinary course of business;
provided, however, that such Interest Rate Agreements do not increase the
Indebtedness of the Company outstanding at any time other than as a result
of fluctuations in interest rates or by reason of fees, indemnities and
compensation payable thereunder;
(v) Purchase Money Indebtedness (including Capitalized Lease
Obligations) in an aggregate principal amount not in excess of $10.0
million at any time outstanding;
(vi) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two Business Days of its incurrence;
(vii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company 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
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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 of the
Company (provided that contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will
be deemed not 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 it is 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; or
(viii) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this
paragraph (b)) in an aggregate principal amount on the date of Incurrence
that, when added to all other Indebtedness Incurred pursuant to this clause
(viii) and then outstanding, shall not exceed $10.0 million.
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness will be
subordinated to the Notes to at least the same extent as such Subordinated
Obligations.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rates of currencies. For purposes of determining
the outstanding principal amount of any particular Indebtedness Incurred
pursuant to this covenant, (i) Indebtedness Incurred pursuant to the Credit
Agreement prior to or on the Closing Date shall be treated as Incurred pursuant
to clause (i) of paragraph (b) above, (ii) Indebtedness permitted by this
covenant need not be permitted solely by reference to one provision permitting
such Indebtedness but may be permitted in part by one such provision and in part
by one or more other provisions of this covenant permitting such Indebtedness
and (iii) in the event that Indebtedness meets the criteria of more than one of
the types of Indebtedness described in this covenant, the Company, in its sole
discretion, shall classify such Indebtedness and only be required to include the
amount of such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary, directly or
indirectly, to (i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) or similar payment to the direct
or indirect holders of its Capital Stock except dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and except
dividends or distributions payable to the Company or another Restricted
Subsidiary (and, if such Restricted Subsidiary has shareholders other than the
Company or other Restricted Subsidiaries, to its other shareholders on a pro
rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Company or any Restricted Subsidiary held by Persons other
than the Company or another Restricted Subsidiary, (iii) purchase, repurchase,
redeem, defease or otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) make any Investment (other than a
Permitted Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to as a 'Restricted Payment') if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment: (1) a Default will
have occurred and be continuing (or would result therefrom); (2) the Company
could not Incur at least $1.00 of additional Indebtedness under paragraph (a) of
the covenant described under '--Limitation on Indebtedness'; or (3) the
aggregate amount of such Restricted Payment and all other Restricted Payments
(the amount so expended, if other than in cash, to be determined in good faith
by the Board of Directors, whose determination will be conclusive and evidenced
by a resolution of the Board of Directors) declared or made subsequent to the
Closing Date would exceed the sum of: (A) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from the beginning
of the fiscal quarter immediately following the fiscal quarter during which the
Closing Date occurs to the end of the most recent fiscal
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quarter ending at least 45 days prior to the date of such Restricted Payment
(or, in case such Consolidated Net Income will be a deficit, minus 100% of such
deficit); (B) the aggregate Net Cash Proceeds received by the Company from the
issue or sale of its Capital Stock (other than Disqualified Stock) subsequent to
the Closing Date (other than an issuance or sale to (x) a Subsidiary of the
Company or (y) an employee stock ownership plan or other trust established by
the Company or any of its Subsidiaries); (C) the amount by which Indebtedness of
the Company or its Restricted Subsidiaries is reduced on the Company's balance
sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Closing Date of any Indebtedness of the Company or
its Restricted Subsidiaries convertible or exchangeable for Capital Stock (other
than Disqualified Stock) of the Company (less the amount of any cash or the fair
market value of other property distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange); (D) 100% of the aggregate amount
of cash and marketable securities contributed to the capital of the Company
after the Closing Date; and (E) the amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from (i) payments of
dividends, repayments of the principal of loans or advances or other transfers
of assets to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
'Investment') not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i)
any Restricted Payment made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of the Company or an employee stock ownership plan or other trust established by
the Company or any of its Subsidiaries); provided, however, that (A) such
Restricted Payment will be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale applied in the
manner set forth in this clause (i) will be excluded from the calculation of
amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase,
repurchase redemption, defeasance or other acquisition or retirement for value
of Subordinated Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the Company
that is permitted to be Incurred pursuant to paragraph (b) of the covenant
described under '--Limitation on Indebtedness'; provided, however, that such
purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value will be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
'--Limitation on Sales of Assets and Subsidiary Stock'; provided, however, that
such purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments; (iv) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this covenant; provided, however, that such dividend will be
included in the calculation of the amount of Restricted Payments; (v) the
repurchase or other acquisition of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved by
the Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock; provided,
however, that the aggregate amount of such repurchases shall not exceed $250,000
in any calendar year; provided further, however, that such repurchases and other
acquisitions shall be included in the calculation of the amount of Restricted
Payments; (vi) payment of dividends, other distributions or other amounts by the
Company for the purposes set forth in clauses (A) through (C) below; provided,
however, that such dividend, distribution or amount set forth in clause (C)
shall be included in the calculation of the amount of Restricted Payments for
the purposes of paragraph (a) above: (A) to Parent in amounts equal to the
amounts required for Parent to pay franchise taxes and other fees required to
maintain its corporate existence and provide for other operating costs of up to
$500,000 per fiscal year; (B) to Parent in amounts equal to amounts required for
Parent to pay Federal, state and local income taxes to the extent such income
taxes are attributable to the income of the Company and its Restricted
Subsidiaries (and, to the extent of amounts actually received from its
Unrestricted Subsidiaries, in amounts required to pay such taxes to the extent
attributable to the income of such Unrestricted Subsidiaries); (C) to Parent in
amounts equal to amounts expended by Parent to repurchase Capital
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Stock of Parent owned by former employees of the Company or its Subsidiaries or
their assigns, estates and heirs; provided, however, that the aggregate amount
paid, loaned or advanced to Parent pursuant to this clause (C) shall not, in the
aggregate, exceed $1.5 million per fiscal year of the Company plus any unused
amounts from any immediately preceding fiscal year, up to a maximum aggregate
amount of $5.0 million during the term of the Indenture, plus any amounts
contributed by Parent to the Company as a result of resales of such repurchased
shares of Capital Stock; or (vii) the payment of dividends on the Company's
Common Stock, following the first public offering of the Company's Common Stock
after the Closing 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, provided, however, that such
dividends will be included in the calculation of the amount of Restricted
Payments for purposes of paragraph (a) above.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any Restricted Subsidiary to, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness or other obligations
owed to the Company, (ii) make any loans or advances to the Company or (iii)
transfer any of its property or assets to the Company, except: (1) any
encumbrance or restriction pursuant to applicable law or an agreement in effect
at or entered into on the Closing Date; (2) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary prior to the date on which
such Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, in contemplation of, or to provide all or any
portion of the funds or credit support utilized to consummate the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was otherwise acquired by the Company) and
outstanding on such date; (3) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, (B) that is or was created by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any property
or assets of the Company or any Restricted Subsidiary not otherwise prohibited
by the Indenture or (C) contained in security agreements securing Indebtedness
of a Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security agreements; (4)
with respect to a Restricted Subsidiary, any restriction imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; (5) customary provisions in joint venture agreements
and other similar agreements entered into in the ordinary course of business; or
(6) an agreement governing Indebtedness incurred to Refinance the Indebtedness
issued, assumed or incurred pursuant to an agreement referred to in clauses (1)
through (5) above; provided, however, that the provisions relating to such
encumbrance or restriction contained in any agreement relating to such
Indebtedness are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Company in their reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in agreements relating to the Indebtedness being Refinanced.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Indenture
provides that the Company will not, and will not permit any Restricted
Subsidiary to, make any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration (including by way of relief from,
or by any other Person assuming sole responsibility for, any liabilities,
contingent or otherwise) at the time of such Asset Disposition at least equal to
the fair market value of the shares and assets subject to such Asset
Disposition, (ii) at least 85% of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash, provided that with
respect to the sale or other disposition of an operational Academy, the Company
shall be deemed to be in compliance with this clause (ii) if the Consolidated
Coverage Ratio after giving effect to such sale or disposition and the
application of proceeds received therefrom is greater than or equal to the
Consolidated Coverage Ratio immediately prior to giving effect to such sale or
disposition and (iii) an amount equal to 100% of the Net Available Cash from
such Asset Disposition is applied by the Company (or such Restricted Subsidiary,
as the case may be) (A) first, to the extent the Company elects (or is required
by the terms of any Indebtedness) to prepay, repay, redeem or purchase
Indebtedness of the Company outstanding under the Credit Agreement within 18
months after the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; (B) second, to the extent of the balance of Net
Available Cash after application in accordance with clause (A), to
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the extent the Company or such Restricted Subsidiary elects, to reinvest in
Additional Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary) within 18 months from the later of such Asset Disposition
or the receipt of such Net Available Cash; (C) third, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A) and (B), to make an Offer (as defined below) to purchase Notes pursuant to
and subject to the conditions set forth in section (b) of this covenant;
provided, however, that if the Company elects (or is required by the terms of
any other Senior Indebtedness), such Offer may be made ratably to purchase the
Notes and other Senior Indebtedness of the Company, and (D) fourth, to the
extent of the balance of such Net Available Cash after application in accordance
with clauses (A), (B) and (C), to (x) acquire Additional Assets (other than
Indebtedness and Capital Stock) or (y) prepay, repay or purchase Indebtedness of
the Company (other than Indebtedness owed to an Affiliate of the Company and
other than Disqualified Stock of the Company) or Indebtedness of any Restricted
Subsidiary (other than Indebtedness owed to the Company or an Affiliate of the
Company), in each case described in this clause (D) within 18 months from the
receipt of such Net Available Cash or, if the Company has made an Offer pursuant
to clause (C), six months from the date such Offer is consummated; provided,
however, that in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this covenant, the Company and the Restricted Subsidiaries will
not be required to apply any Net Available Cash in accordance with this covenant
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions that is not applied in accordance with this covenant exceeds $10
million.
For the purposes of clause (ii) of the preceding paragraph, the following
are deemed to be cash: (x) the assumption of Indebtedness of the Company (other
than Disqualified Stock of the Company) or any Restricted Subsidiary and the
release of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Restricted Subsidiary from the transferee that
are promptly converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Notes (and other Senior Indebtedness) pursuant to clause (a)(iii)(C) of this
covenant, the Company will be required to purchase Notes (and other Senior
Indebtedness) tendered pursuant to an offer by the Company for the Notes (and
other Senior Indebtedness) (the 'Offer') at a purchase price of 100% of their
principal amount plus accrued and unpaid interest, if any, to the date of
purchase in accordance with the procedures (including prorationing in the event
of oversubscription) set forth in the Indenture. If the aggregate purchase price
of Notes (and other Senior Indebtedness) tendered pursuant to the Offer is less
than the Net Available Cash allotted to the purchase of the Notes (and other
Senior Indebtedness), the Company will apply the remaining Net Available Cash in
accordance with clause (a)(iii)(D) of this covenant. The Company will not be
required to make an Offer for Notes (and other Senior Indebtedness) pursuant to
this covenant if the Net Available Cash available therefor (after application of
the proceeds as provided in clauses (A) and (B) of this covenant section
(a)(iii)) is less than $10 million for any particular Asset Disposition (which
lesser amount will be carried forward for purposes of determining whether an
Offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Indenture provides
that the Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into or conduct any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an 'Affiliate Transaction') (i) on
terms that are less favorable to the Company or such Restricted Subsidiary, as
the case may be, than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate,
(ii) if such Affiliate Transaction involves an aggregate amount in excess of
$1.0 million, such terms (1) are set forth in writing and (2) have been approved
by a majority
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of the members of the Board of Directors having no personal stake in such
Affiliate Transaction and (iii) if such Affiliate Transaction involves an amount
in excess of $5.0 million, such terms have also been determined by a nationally
recognized appraisal or investment banking firm to be fair, from a financial
standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
'Limitation on Restricted Payments', (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees and directors of the Company pursuant to plans approved by
the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business in accordance with past practices of the Company, but in any
event not to exceed $1.0 million in the aggregate outstanding at any one time,
(v) any transaction between the Company and a Wholly Owned Subsidiary or between
Wholly Owned Subsidiaries, (vi) reasonable fees and compensation paid to, and
indemnity provided on behalf of, officers, directors, employees, consultants or
agents of the Company or any Restricted Subsidiary of the Company as determined
in good faith by the Company's Board of Directors; (vii) any transactions
undertaken pursuant to any contractual obligations in existence on the Closing
Date (as in effect on the Closing Date); (viii) the provision by Persons who may
be deemed Affiliates of the Company of investment banking, commercial banking,
trust lending or financing, investment, underwriting, placement agent, financial
advisory or similar services to the Company or its Subsidiaries; (ix)
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 no
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not an Affiliate; and (x) any
contribution to the capital of the Company by Parent or any purchase of common
stock of the Company by Parent.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Indenture provides that the Company will not sell or
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary, and
will not permit any Restricted Subsidiary, directly or indirectly, to issue or
sell or otherwise dispose of any shares of its Capital Stock except: (i) to the
Company or a Wholly Owned Subsidiary; (ii) if, immediately after giving effect
to such issuance, sale or other disposition, neither the Company nor any of its
Subsidiaries own any Capital Stock of such Restricted Subsidiary or (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect thereto would have been permitted
to be made under the covenant described under '--Limitation on Restricted
Payments' if made on the date of such issuance, sale or other disposition. The
proceeds of any sale of such Capital Stock permitted hereby will be treated as
Net Available Cash from an Asset Disposition and must be applied in accordance
with the terms of the covenant described under '--Limitation on Sales of Assets
and Subsidiary Stock.'
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, Incur or
permit to exist any Lien of any nature whatsoever on any of its property or
assets (including Capital Stock of a Restricted Subsidiary), whether owned at
the Closing Date or thereafter acquired, other than Permitted Liens, without
effectively providing that the Notes shall be secured equally and ratably with
(or prior to) the obligations so secured for so long as such obligations are so
secured.
Future Guarantors. The Indenture provides that the Company will cause each
Domestic Subsidiary to become a Guarantor, and, if applicable, execute and
deliver to the Trustee a supplemental indenture in the form set forth in the
Indenture pursuant to which such Restricted Subsidiary will guarantee payment of
the Notes. Each Guarantee will be limited to an amount not to exceed the maximum
amount that can be guaranteed by that Restricted Subsidiary without rendering
the Guarantee, as it relates to such Restricted Subsidiary, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.
Reports. The Indenture provides that, notwithstanding that the Company may
not be subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file with the Commission
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and provide the Trustee and Noteholders and prospective Noteholders (upon
request) within 15 days after it files them with the Commission copies of its
annual report and the information, documents and other reports that are
specified in Sections 13 and 15(d) of the Exchange Act. In addition, following a
Public Equity Offering, the Company shall furnish to the Trustee and the
Noteholders, promptly upon their becoming available, copies of the annual report
to shareholders and any other information provided by the Company or Parent to
its public shareholders generally. The Company also will comply with the other
provisions of Section 314(a) of the TIA.
MERGER AND CONSOLIDATION
The Indenture provides that neither the Company nor Parent will consolidate
with or merge with or into, or convey, transfer or lease all or substantially
all its assets to, any Person, unless: (i) the resulting, surviving or
transferee Person (the 'Successor Company') will be a corporation organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Company (if not the Company or
Parent) will expressly assume, by a supplemental indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness which
becomes an obligation of the Successor Company or any Restricted Subsidiary as a
result of such transaction as having been Incurred by the Successor Company or
such Restricted Subsidiary at the time of such transaction), no Default will
have occurred and be continuing; and (iii) immediately after giving effect to
such transaction, the Successor Company would be able to Incur an additional
$1.00 of Indebtedness under paragraph (a) of the covenant described under
'--Certain Covenants--Limitation on Indebtedness.'
In the event of any transaction (other than a lease) described in, and
complying with, the immediately preceding paragraph in which the Company or
Parent, as applicable, is not the surviving Person and the surviving Person
assumes all the obligations of the Company or Parent, as applicable, under the
Notes and the Indenture pursuant to a supplemental indenture, such surviving
Person shall succeed to, and be substituted for, and may exercise every right
and power of, the Company or Parent, as applicable, and the Company or Parent,
as applicable, will be discharged from its obligations under the Indenture and
the Notes; provided that solely for the purpose of calculating amounts described
in clause (3) under '--Limitation on Restricted Payments,' any such surviving
Person shall only be deemed to have succeeded to, and be substituted for, the
Company or Parent, as applicable, with respect to the period subsequent to the
effective time of such transaction, and the Company or Parent, as applicable,
(before giving effect to such transaction) shall be deemed to be the 'Company'
or 'Parent,' as applicable for such purposes for all prior periods.
Parent will not and the Company will not permit any Guarantor to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or series of transactions, all or substantially all of its assets to
any Person unless: (i) the resulting, surviving or transferee Person (if not
such Guarantor) shall be a Person organized and existing under the laws of the
jurisdiction under which such Guarantor was organized or under the laws of the
United States of America, or any State hereof or the District of Columbia, and
such Person shall expressly assume, by an amendment to the Indenture, in a form
acceptable to the Trustee, all the obligations of such Guarantor under its
Guarantee; (ii) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which becomes
an obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and (iii) the
Issuers deliver to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
amendment to the Indenture, if any, complies with the Indenture.
Notwithstanding the foregoing, (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
jurisdiction to realize tax or other benefits.
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DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due and payable, and the default continues
for 30 days, (ii) a default in the payment of principal of any Note when due and
payable at its Stated Maturity, upon required redemption or repurchase, upon
acceleration or otherwise, (iii) the failure by Parent or the Company to comply
with its obligations under the covenant described under '--Merger and
Consolidation,' (iv) the failure by the Company or Parent to comply for 30 days
after notice with any of its obligations under the covenants described under
'--Change of Control' or '--Certain Covenants' (in each case, other than a
failure to purchase Notes), (v) the failure by the Company or Parent to comply
for 60 days after notice with its other agreements contained in the Notes or the
Indenture, (vi) the failure by the Company, Parent or any Significant Subsidiary
to pay any Indebtedness within any applicable grace period after final maturity
or the acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated exceeds
$10.0 million (the 'cross acceleration provision') and such failure continues
for 10 days after receipt of the notice specified in the Indenture, (vii)
certain events of bankruptcy, insolvency or reorganization of the Company,
Parent or a Significant Subsidiary (the 'bankruptcy provisions'), (viii) the
rendering of any judgment or decree for the payment of money in excess of $10.0
million at the time it is entered against the Company, Parent or a Significant
Subsidiary and is not discharged, waived or stayed if (A) an enforcement
proceeding thereon is commenced by any creditor or (B) such judgment or decree
remains outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed (the 'judgment default provision') or (ix) any
Guarantee ceases to be in full force and effect (except as contemplated by the
terms thereof) or any Guarantor or Person acting by or on behalf of such
Guarantor denies or disaffirms such Guarantor's obligations under the Indenture
or any Guarantee and such Default continues for 10 days after receipt of the
notice specified in the Indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is 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.
However, a default under clause (iv), (v) or (viii) above will not
constitute an Event of Default until the Trustee or the Holders of at least 25%
in principal amount of the outstanding Notes notify the Issuers of the default
and the Issuers do not cure such default within the time specified in clause
(iv), (v) or (viii) above after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Issuers) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Issuers may declare the principal of, and
accrued but unpaid interest on, all the Notes to be due and payable. Upon such a
declaration, such principal and interest will be due and payable immediately. If
an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Issuers occurs, the principal of, and interest on, all the
Notes will become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holders. Under certain circumstances, the
Holders of a majority in principal amount of the outstanding Notes may rescind
any such acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee in writing to pursue the remedy, (iii) such Holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity and (v)
the Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes will be given the right to direct the time,
method and place of conducting any proceeding for
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any remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
Indenture, the Trustee will be entitled to indemnification satisfactory to it in
its sole discretion against all losses and expenses caused by taking or not
taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within the earlier of 90 days after it occurs or 30 days after it is known to a
Trust Officer or written notice of it is received by the Trustee. Except in the
case of a Default in the payment of principal of, premium (if any) or interest
on any Note (including payments pursuant to the redemption provisions of such
Note), the Trustee may withhold notice if and so long as a committee of its
Trust Officers in good faith determines that withholding notice is in the
interests of the Noteholders. In addition, the Issuers will be required to
deliver to the Trustee, within 120 days after the end of each fiscal year, a
certificate indicating whether the signers thereof know of any Default that
occurred during the previous year. The Issuers will also be required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Events of Default, the status of any
such event and the action the Issuers is taking or proposes to take in respect
thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture or the Notes may be amended
with the written consent of the Holders of a majority in principal amount of the
Notes then outstanding, and any past default or compliance with any provisions
may be waived with the consent of the Holders of a majority in principal amount
of the Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected, no amendment may, among other things, (i) reduce the
amount of Notes whose Holders must consent to an amendment, (ii) reduce the rate
of or extend the time for payment of interest or any liquidated damages on any
Note, (iii) reduce the principal of, or extend the Stated Maturity of, any Note,
(iv) reduce the premium payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under '--Optional
Redemption,' (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any Holder to receive payment of principal of,
and interest or any liquidated damages 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, (vii) make any change in the amendment
provisions which require each Holder's consent or in the waiver provisions or
(viii) modify the Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Issuers and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Issuers
under the Indenture, to provide for uncertificated Notes in addition to, or in
place of, certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add additional Guarantees with respect to the Notes, to secure the
Notes, to add to the covenants of the Issuers for the benefit of the Noteholders
or to surrender any right or power conferred upon the Issuers, to make any
change that does not adversely affect the rights of any Holder, subject to the
provisions of the Indenture, to provide for the issuance of the Exchange Notes,
Private Exchange Notes or Additional Notes or to comply with any requirement of
the Commission in connection with the qualification of the Indenture under the
TIA.
The consent of the Noteholders will not be necessary under the Indenture to
approve the particular form of any proposed amendment. It will be sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuers will
be required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
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TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents, and the Issuers may require a Noteholder to pay any
taxes required by law or permitted by the Indenture. The Issuers are not
required to transfer or exchange any Note selected for redemption or to transfer
or exchange any Note for a period of 15 days prior to a selection of Notes to be
redeemed. The Notes will be issued in registered form and the registered holder
of a Note will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Issuers at any time may terminate all their obligations under the Notes
and the Indenture ('legal defeasance'), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Issuers at any time may terminate their obligations under the
covenants described under '--Certain Covenants,' the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under '--Defaults' and
the limitations contained in clause (iii) under the first paragraph of '--Merger
and Consolidation' ('covenant defeasance'). In the event that the Issuers
exercise their legal defeasance option or its covenant defeasance option, each
Guarantor will be released from all of its obligations with respect to its
Guarantee.
The Issuers may exercise their legal defeasance option notwithstanding
their prior exercise of their covenant defeasance option. If the Issuers
exercise their legal defeasance option, payment of the Notes may not be
accelerated because of an Event of Default with respect thereto. If the Issuers
exercise their covenant defeasance option, payment of the Notes may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect only to Significant Subsidiaries), (viii) (with respect only to
Significant Subsidiaries) or (ix) under '--Defaults' or because of the failure
of the Company or Parent to comply with clause (iii) under the first paragraph
of '--Merger and Consolidation.'
In order to exercise either defeasance option, the Issuers must irrevocably
deposit in trust (the 'defeasance trust') with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amounts and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
PNC Bank, National Association is the Trustee under the Indenture and has
been appointed by the Issuers as Registrar and Paying Agent with regard to the
Notes.
GOVERNING LAW
The Indenture provides that it and the Notes are governed by, and are to be
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
'Additional Assets' means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted
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Subsidiary; or (iii) Capital Stock constituting a minority interest in any
Person that at such time is a Restricted Subsidiary; provided, however, that any
such Restricted Subsidiary described in clause (ii) or (iii) above is primarily
engaged in a Related Business.
'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 the purposes of this definition,
'control' when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
'controlling' and 'controlled' have meanings correlative to the foregoing.
'Asset Disposition' means any sale, lease, sale-leaseback transaction,
transfer or other disposition (or series of related sales, leases, transfers or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a 'disposition'), of (i) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares or shares required by applicable law to be held by a Person
other than the Company or a Restricted Subsidiary), (ii) all or substantially
all the assets of any division or line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any Restricted
Subsidiary other than property or equipment that has become worn out, obsolete,
damaged or otherwise unsuitable for use in connection with the business of the
Company or any Restricted Subsidiary, as the case may be (other than, in the
case of (i), (ii) and (iii) above, (w) a disposition by a Restricted Subsidiary
to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (x) for purposes of the provisions described under '--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock' only, a
disposition subject to the covenant described under '--Certain
Covenants--Limitation on Restricted Payments,' (y) the sale, lease, transfer or
other disposition of all or substantially all the assets of the Company as
permitted by the covenant described under 'Merger and Consolidation' and (x) a
disposition of assets with a fair market value of less than $100,000).
'Average Life' means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
'Bank Indebtedness' means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
'Board of Directors' means the Board of Directors of the Company or Parent,
as applicable, or any committee thereof duly authorized to act on behalf of such
Board of Directors.
'Business Day' means each day which is not a Legal Holiday.
'Capital Stock' of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of, or
interests in (however designated), equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such equity.
'Capitalized Lease Obligations' means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
'CCP' means Chase Capital Partners and its Affiliates.
'Closing Date' means the date of the Indenture.
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'Code' means the Internal Revenue Code of 1986, as amended.
'Commission' means the Securities and Exchange Commission.
'Consolidated Coverage Ratio' as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are available to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (B) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid, repurchased,
defeased or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on a pro forma
basis as if such discharge had occurred on the first day of such period and as
if the Company or such Restricted Subsidiary has not earned the interest income
actually earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge such
Indebtedness, (C) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets that are the subject of such Asset Disposition for
such period or increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its continuing Restricted Subsidiaries in connection with such
Asset Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (D) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit of a
business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period and (E) 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 Asset Disposition or any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (C) or (D) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
of assets occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto, including related
cost savings measures, and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined 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 expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term as at the date of determination in
excess of 12 months).
'Consolidated Interest Expense' means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries, plus, to
the extent Incurred by the Company and its Subsidiaries in such
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period but not included in such interest expense, (i) interest expense
attributable to Capitalized Lease Obligations, (ii) amortization of debt
discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash
interest expense, (v) commissions, discounts and other fees and charges
attributable to letters of credit and bankers' acceptance financing, (vi)
interest accruing on any Indebtedness of any other Person to the extent such
Indebtedness is guaranteed by the Company or any Restricted Subsidiary, (vii)
net costs associated with Hedging Obligations (including amortization of fees),
(viii) dividends in respect of (A) all Preferred Stock of the Company and any of
the Subsidiaries of the Company and (B) Disqualified Stock of the Company, in
each of (A) and (B) to the extent held by Persons other than the Company or a
Wholly Owned Subsidiary, (ix) interest Incurred in connection with investments
in discontinued operations and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company) in connection with Indebtedness Incurred by such plan or trust.
'Consolidated Net Income' means, for any period, the net income of the
Company and its Consolidated Subsidiaries for such period; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution made to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (or loss) of any person
acquired by the Company or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income (or
loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
made to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain or loss realized upon the sale or other disposition of
any asset of the Company or its Consolidated Subsidiaries that is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) any extraordinary gain or loss; (vi) the cumulative effect of a change in
accounting principles; (vii) any bonuses paid to members of the Management Group
in connection with the Transactions; and (viii) any expenses relating to cash
payments made in respect of the termination of outstanding options in connection
with the Transactions. Notwithstanding the foregoing, for the purpose of the
covenant described under '--Certain Covenants--Limitation on Restricted
Payments' only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
'Consolidation' means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that 'Consolidation' will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term 'Consolidated' has a correlative
meaning.
'Credit Agreement' means the credit agreement dated as of May 11, 1998, as
amended, waived or otherwise modified from time to time (except to the extent
that any such amendment, waiver or other modification thereto would be
prohibited by the terms of the Indenture, unless otherwise agreed to by the
Holders of at least a majority in aggregate principal amount of Notes at the
time outstanding), among the Company, the Parent, the financial institutions
signatory thereto, NationsBank, N.A., as Administrative Agent, and The Chase
Manhattan Bank, as Syndication Agent.
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'Default' means any event which is, or after notice or passage of time or
both would be, an Event of Default.
'Disqualified Stock' means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes; provided, however, that any Capital Stock that
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an 'asset sale' or 'change of control'
occurring prior to the first anniversary of the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the 'asset sale' or 'change of
control' provisions applicable to such Capital Stock are not more favorable to
the holders of such Capital Stock than the provisions of the covenants described
under '--Change of Control' and '--Certain Covenants--Limitation on Sale of
Assets and Subsidiary Stock.'
'Domestic Subsidiary' means any direct or indirect Subsidiary of the
Company that is organized and existing under the laws of the United States, any
state thereof or the District of Columbia.
'EBITDA' for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense of the Company and its Consolidated Restricted
Subsidiaries, (ii) Consolidated Interest Expense, (iii) depreciation expense of
the Company and its Consolidated Restricted Subsidiaries, (iv) amortization
expense of the Company and its Consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (v) all non-cash charges associated with the granting of New
Options during such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary of the Company shall be added
to Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
'Exchange Act' means the Securities Exchange Act of 1934, as amended.
'Foreign Subsidiary' means any Subsidiary of the Company that is not a
Domestic Subsidiary.
'GAAP' means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the Commission
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission. All ratios and computations based on GAAP contained in the Indenture
shall be computed in conformity with GAAP.
'guarantee' means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
'guarantee' shall not
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include endorsements for collection or deposit in the ordinary course of
business. The term 'guarantee' used as a verb has a corresponding meaning.
'Guarantee' means each guarantee of the obligations with respect to the
Notes issued by a Subsidiary of the Company pursuant to the terms of the
Indenture.
'Guarantor' means any Person that has issued a Guarantee.
'Hedging Obligations' of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement.
'Holder' or 'Noteholder' means the Person in whose name a Note is
registered on the registrar's books.
'Incur' means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term 'Incurrence' when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
'Indebtedness' means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except Trade Payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations of such Person; (vi) the amount of all obligations of such Person
with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided, however,
that the amount of Indebtedness of such Person shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness of such other Persons or (viii) to the extent not otherwise
included in this definition, Hedging Obligations of such Person; all obligations
of the type referred to in clauses (i) through (ii) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any guarantee. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date.
'Interest Rate Agreement' means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
'Investment' in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
'Unrestricted Subsidiary' and the covenant described under '--Certain
Covenants--Limitation on Restricted Payments', (i) 'Investment' shall include
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of any 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 in an amount (if positive) equal to
(x) the Company's 'Investment' in such Subsidiary at the time of such
redesignation less (y) the
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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.
'King Investor' means an entity a majority of the economic interests of
which are owned by CCP and a majority of the voting interests of which are owned
by (i) Robert E. King, his descendants or, in the event of the death or
incompetence of any of the foregoing individuals, such Person's estate,
executor, administrator, committee or other personal representative or (ii) any
other Person approved by CCP.
'Lien' means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
'Management Group' means the group consisting of the directors and
executive officers of the Company.
'Net Available Cash' from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) appropriate amounts to
be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the property or other assets disposed of in such
Asset Disposition and retained by the Company or any Restricted Subsidiary after
such Asset Disposition.
'Net Cash Proceeds,' with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
'New Options' means the options granted to certain members of management
pursuant to the New Option Plan.
'New Option Plan' means the New Option Plan adopted by the Parent as part
of the Recapitalization.
'Officer' means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company or Parent.
'Officers' Certificate' means a certificate signed by two Officers.
'Opinion of Counsel' means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
'Parent' means LPA Holding Corp., a Delaware corporation.
'Permitted Holders' means CCP, the Management Group, the King Investor and
any Person acting in the capacity of an underwriter in connection with a public
or private offering of the Company's or Parent's Capital Stock.
'Permitted Investment' means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or
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into, or transfers or conveys all or substantially all its assets to, the
Company or a Restricted Subsidiary; provided, however, that such Person's
primary business is a Related Business; (iii) Temporary Cash Investments; (iv)
receivables owing to the Company or any Restricted Subsidiary, if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade terms
may include such concessionary trade terms as the Company or any such Restricted
Subsidiary deems reasonable under the circumstances; (v) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vi) loans or advances to employees made in
the ordinary course of business consistent with past practices of the Company or
such Restricted Subsidiary and not exceeding $1.0 million in the aggregate
outstanding at any one time; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments, (viii) any
Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition that was made pursuant to and in
compliance with the covenant described under '--Certain Covenants--Limitation on
Sale of Assets and Subsidiary Stock'; (ix) Interest Rate Agreements entered into
in the ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture; (x) additional
Investments (including joint ventures) in an amount that, when added to all
other Investments made pursuant to this clause (x), does not exceed 10% of the
Total Assets as of the end of the most recent fiscal quarter preceding the date
of such Investment for which financial statements are available; (xi)
Investments in securities of trade debtors of customers received pursuant to any
plan of reorganization or similar arrangement upon the bankruptcy or insolvency
of such trade debtors or customers; (xii) Investments made by the Company or its
Restricted Subsidiaries as a result of consideration received in connection with
an Asset Disposition made in compliance with the covenant described under
'Limitation on Sales of Assets and Subsidiary Stock'; and (xiii) Investments of
a Person or any of its Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary of the Company or at the time such Person merges or
consolidates with the Company or any of its Restricted Subsidiaries, in either
case in compliance with the Indenture; provided that such Investments were not
made by such Person in connection with, or in anticipation or contemplation of,
such Person becoming a Restricted Subsidiary of the Company or such merger or
consolidation.
'Permitted Liens' means, with respect to any Person:
(a) Liens imposed by law for taxes or other governmental charges that are
not yet due or are being contested in good faith by appropriate proceedings;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and
other like Liens imposed by law, arising in the ordinary course of business and
securing obligations that are not overdue by more than 60 days or are being
contested in good faith by appropriate proceedings;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other social
security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature (other than for the payment of Indebtedness), in
each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an Event
of Default under '--Events of Default';
(f) easements, zoning restrictions, rights-of-way and similar encumbrances
on real property imposed by law or arising in the ordinary course of business
that do not secure any monetary obligations and do not materially detract from
the value of the affected property or interfere with the ordinary conduct of
business of such Person;
(g) any interest of a landlord in or to property of the tenant imposed by
law, arising in the ordinary course of business and securing lease obligations
that are not overdue by more than 60 days or are being contested in good faith
by appropriate proceedings, or any possessory rights of a lessee to the leased
property under the provisions of any lease permitted by the terms of the
Indenture;
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(h) Liens of a collection bank arising in the ordinary course of business
under Section 4-208 of the Uniform Commercial Code in effect in the relevant
jurisdiction;
(i) Liens to secure Indebtedness permitted pursuant to clause (b)(i) of the
covenant described under '--Certain Covenants--Limitation on Indebtedness';
(j) Liens existing on the Closing Date provided, that (i) except as
permitted under subclause (D) of clause (l) of this definition such Lien shall
not apply to any other property or asset of such Person except assets financed
solely by the same financing source that provided the Indebtedness secured by
such Lien, and (ii) such Lien shall secure only those obligations that it
secures on the Closing Date and extensions, renewals and replacements thereof
that do not increase the outstanding principal amount thereof;
(k) any Lien existing on any property or asset prior to the acquisition
thereof by such Person or existing on any property or asset of another Person
that becomes a Subsidiary after the date hereof prior to the time such other
Person becomes a Subsidiary, provided that (A) such Lien is not created in
contemplation of or in connection with such acquisition or such other Person
becoming a Subsidiary, as the case may be, (B) such Lien shall not apply to any
other property or assets of such Person except assets financed solely by the
same financing source in existence on the date of such acquisition that provided
the Indebtedness secured by such Lien and (C) except as permitted under
subclause (D) of clause (l) of this definition such Lien shall secure only those
obligations that it secures on the date of such acquisition or the date such
other Person becomes a Subsidiary, as the case may be, and extensions, renewals
and replacements thereof that do not increase the outstanding principal amount
thereof;
(l) Liens on fixed or capital assets acquired, constructed or improved by
such Person and extensions, renewals and replacements thereof that do not
increase the outstanding principal amount of the Indebtedness secured thereby,
provided that (A) such security interests secure Indebtedness permitted under
'--Limitation on Indebtedness,' (B) such security interests and the Indebtedness
secured thereby are incurred prior to or within 12 months after such acquisition
or the completion of such construction or improvement, (C) the Indebtedness
secured thereby does not exceed 100% of the cost of acquiring, constructing or
improving such fixed or capital assets and other fixed or capital assets
financed solely by the same financing source and (D) such security interests
shall not apply to any other property or assets of such Person except assets
financed solely by the same financing source;
(m) licenses of intellectual property rights granted in the ordinary course
of business and not interfering in any material respect with the conduct of the
business;
(n) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to the Company or a Restricted Subsidiary;
(o) Liens securing Hedging Obligations so long as the related Indebtedness
is secured by a Lien on the same property securing such Hedging Obligation;
(p) Liens securing the Notes pursuant to the covenants described under
'--Certain Covenants--Limitation on Liens';
(q) Liens securing Refinancing Indebtedness of any Indebtedness secured by
any Lien referred to in clauses (j), (k) and (l); and
(r) Liens (other than those permitted by paragraphs (a) through (r) above)
securing liabilities permitted under the Indenture in an aggregate amount not
exceeding $1.0 million at any time outstanding.
'Person' means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
'Preferred Stock,' as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
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'principal' of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
'Public Equity Offering' means an underwritten primary public offering of
common stock of the Company or Parent pursuant to an effective registration
statement under the Securities Act.
'Public Market' means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 15% of the total issued and outstanding common
stock of the Company or Parent (as applicable) has been distributed by means of
an effective registration statement under the Securities Act.
'Purchase Money Indebtedness' means Indebtedness of the Company or any
Subsidiary Incurred to finance the acquisition, construction or improvement of
any fixed or capital assets, including Capital Lease Obligations and any
Indebtedness assumed in connection with the acquisition of any such assets or
secured by a Lien on any such assets prior to the acquisition thereof, and
extensions, renewals and replacements of any such Indebtedness that do not
increase the outstanding principal amount thereof or result in an earlier
maturity date or decreased weighted average life thereof, provided that such
Indebtedness is incurred prior to or within 12 months after such acquisition or
the completion of such construction or improvement.
'Refinance' means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness in whole or in
part. 'Refinanced' and 'Refinancing' shall have correlative meanings.
'Refinancing Indebtedness' means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) any Indebtedness of the Company or any Restricted
Subsidiary existing on the Closing Date or Incurred in compliance with the
Indenture (including Indebtedness of the Company that Refinances Refinancing
Indebtedness; provided, however, that (i) the Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced, (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being Refinanced
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing) and (iv)
if the Indebtedness being Refinanced is subordinated in right of payment to the
Notes, such Refinancing Indebtedness is subordinated in right of payment to the
Notes at least to the same extent as the Indebtedness being Refinanced; provided
further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Restricted Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
'Related Business' means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors of the Company) to the
businesses of the Company and the Restricted Subsidiaries on the Closing Date.
'Restricted Subsidiary' means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
'Secured Indebtedness' means any Indebtedness of the Company secured by a
Lien. 'Secured Indebtedness' of a Guarantor has a correlative meaning.
'Senior Indebtedness' of the Company means the principal of, premium (if
any) and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization of the Company,
regardless of whether or not a claim for post-filing interest is allowed in such
proceedings) on, and fees and other amounts owing in respect of, Bank
Indebtedness and all other Indebtedness of the Company, whether outstanding on
the Closing Date or thereafter incurred, unless in the instrument creating or
evidencing the same or pursuant to which the same is outstanding it is provided
that such obligations are subordinated in right of payment to the Notes. 'Senior
Indebtedness' of Parent or any Guarantor has a correlative meaning.
'Significant Subsidiary' means any Restricted Subsidiary that would be a
'Significant Subsidiary' of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
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'Stated Maturity' means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
'Subordinated Obligation' means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
'Subordinated Obligation' of Parent or a Guarantor has a correlative meaning.
'Subsidiary' of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
'Temporary Cash Investments' means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company that is organized under the laws of the United
States of America, any state thereof or any foreign country recognized by the
United States of America having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt is rated 'A' (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act), (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than one year after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of 'P-1' (or higher) according to Moody's
Investors Service, Inc. or 'A-1' (or higher) according to Standard and Poor's
Ratings Service, a division of The McGraw-Hill Companies, Inc. ('S&P'), (v)
investments in securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least 'A' by S&P or 'A' by Moody's Investors
Service, Inc. and (vi) investments in money market funds that invest
substantially all their assets in securities of the types described in clauses
(i) through (v) above.
'TIA' means the Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
'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.
'Trade Payables' means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
'Trustee' means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
'Trust Officer' means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary
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unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or
Indebtedness of, or owns or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total Consolidated assets of $1,000 or less or (B) if such
Subsidiary has Consolidated assets greater than $1,000, then such designation
would be permitted under the covenant entitled 'Limitation on Restricted
Payments'. The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant entitled 'Limitation on
Indebtedness' and (y) no Default shall have occurred and be continuing. Any such
designation of a Subsidiary as a Restricted Subsidiary or Unrestricted
Subsidiary by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
'U.S. Government Obligations' means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
'Voting Stock' of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
'Wholly Owned Subsidiary' means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations to U.S. Holders and Non-U.S. Holders (as defined herein) relating
to the purchase, ownership and disposition of the Notes, but does not purport to
be a complete analysis of all the potential tax considerations relating thereto.
The terms 'U.S. Holder' and 'Non-U.S. Holder' refer, respectively, to persons
that are or are not classified as United States persons. As used herein, the
term 'United States person' means a holder which will hold Notes as 'capital
assets' (within the meaning of Section 1221 of the Code) and which is (i) a
citizen or resident of the United States, (ii) a corporation or other entity
taxable as a corporation created in, or organized under the laws of, the United
States or any political subdivision thereof, (iii) an estate the income of which
is subject to U.S. federal income taxation regardless of its source or (iv) a
trust (a) the administration over which a United States court can exercise
primary supervision and (b) all of the substantial decisions of which one or
more United States persons have the authority to control. Notwithstanding the
preceding sentence, to the extent provided in Treasury Regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons will also be a U.S. Holder. This summary does not address tax
considerations applicable to investors that may be subject to special tax rules,
such as banks, tax-exempt organizations, insurance companies, dealers in
securities or currencies, or persons that will hold Notes as a position in a
hedging transaction, 'straddle' or 'conversion transaction' for tax purposes.
This summary discusses the material federal income tax considerations applicable
to the Initial Purchasers of the Notes which purchase the Notes at par and those
applicable to subsequent purchasers of the Notes. This summary does not consider
the effect of any applicable foreign, state, local or other tax laws. This
summary is based on the Code, existing, temporary, and proposed Treasury
Regulations, laws, rulings and decisions now in effect, all of which are subject
to change. Any such changes may be applied retroactively in a manner that could
adversely affect a holder of the Notes.
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, INVESTORS
CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX
LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY
APPLICABLE TAX TREATY.
U.S. HOLDERS
Payment of Interest. Interest on a Note generally will be includable in
the income of a holder as ordinary interest income at the time such interest is
received or accrued, in accordance with such holder's method of accounting for
United States federal income tax purposes. The Company expects that the Notes
will not be considered to be issued with original issue discount for U.S.
federal income tax purposes.
Market Discount on Resale of Notes. A holder of a Note should be aware
that the purchase or resale of a Note may be affected by the 'market discount'
provisions of the Code. The market discount rules generally provide that if a
holder of a Note purchases the Note at a market discount (i.e., a discount other
than at original issue), any gain recognized upon the disposition of the Note by
the holder will be taxable as ordinary income, rather than as capital gain, to
the extent such gain does not exceed the accrued market discount on such Note at
the time of such disposition. 'Market discount' generally means the excess, if
any, of a Note's stated redemption price at maturity over the price paid by the
holder therefor, unless a de minimis exception applies. A holder who acquires a
Note at a market discount also may be required to defer the deduction of a
portion of the amount of interest that the holder paid or accrued during the
taxable year on indebtedness incurred or maintained to purchase or carry such
Note, if any.
Any principal payment on a Note acquired by a holder at a market discount
will be included in gross income as ordinary income to the extent that it does
not exceed the accrued market discount at the time of such payment. The amount
of the accrued market discount for purposes of determining the tax treatment of
subsequent payments on, or dispositions of, a Note is to be reduced by the
amounts so treated as ordinary income.
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A holder of a Note acquired at a market discount may elect to include
market discount in gross income, for U.S. federal income tax purposes, as such
market discount accrues, either on a straight-line basis or on a constant
interest rate basis. This current inclusion election, once made, applies to all
market discount obligations acquired on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the Internal Revenue Service ('IRS'). If a holder of a Note makes
such an election, the foregoing rules regarding the recognition of ordinary
income on sales and other dispositions and the receipt of principal payments
with respect to such Note, and regarding the deferral of interest deductions on
indebtedness incurred or maintained to purchase or carry such Note, will not
apply.
Notes Purchased at a Premium. In general, if a holder purchases a Note for
an amount in excess of its stated redemption price at maturity, the holder may
elect to treat such excess as 'amortizable bond premium,' in which case the
amount required to be included in the holder's income each year with respect to
interest on the Note will be reduced by the amount of amortizable bond premium
allocable (based on the Note's yield to maturity) to such year. Any such
election would apply to all bonds (other than bonds the interest on which is
excludable from gross income) held by the holder at the beginning of the first
taxable year to which the election applies or which thereafter are acquired by
the holder, and such election is irrevocable without the consent of the IRS.
Sale, Exchange or Retirement of the Notes. Upon the sale, exchange or
redemption of a Note, a holder generally will recognize capital gain or loss
equal to the difference between (i) the amount of cash proceeds and the fair
market value of any property received on the sale, exchange or redemption
(except to the extent such amount is attributable to either liquidated damages,
discussed below, or accrued interest income not previously included in income
which is taxable as ordinary income) and (ii) such holder's adjusted tax basis
in the Note. A holder's adjusted tax basis in a Note generally will equal the
purchase price of the Note to such holder. Such capital gain or loss will be
short-term or long-term if the holder is a corporation, or short-term, mid-term,
or long-term if the holder is not a corporation, depending in each case on the
holder's holding period in the Note at the time of sale, exchange or redemption.
Exchange of Notes for Exchange Notes. The exchange of Notes for Exchange
Notes pursuant to the Exchange Offer should not be considered a taxable exchange
for U.S. federal income tax purposes because the Exchange Notes should not
constitute a material modification of the terms of the Notes. Accordingly, such
exchange should have no U.S. federal income tax consequences to holders of
Notes, and a holder's adjusted basis and holding period in an Exchange Note will
be the same as such holder's adjusted tax basis and holding period in the Note
exchanged therefor.
Notwithstanding the foregoing, the IRS might attempt to treat the Exchange
Offer as an 'exchange' for federal income tax purposes. In such event the
Exchange Offer could be treated as a taxable transaction, in which case a holder
would be required to recognize gain or loss equal to the difference, if any,
between such holder's adjusted tax basis in the Notes and the issue price of the
Exchange Notes.
Liquidated Damages. The Company believes that liquidated damages, if any,
described above under 'Exchange and Registration Rights Agreement' will be
taxable to the holder as ordinary income in accordance with the holder's method
of accounting for federal income tax purposes. The IRS may take a different
position, however, which could affect the timing of a holder's income with
respect to liquidated damages, if any.
NON-U.S. HOLDERS
Payments of Interest. A Non-U.S. Holder will not be subject to United
States federal income tax by withholding or otherwise on payments of interest on
a Note (provided that the beneficial owner of the Note fulfills the statement
requirements set forth in applicable Treasury regulations) unless (A) such
Non-U.S. Holder (i) actually or constructively owns 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(ii) is a controlled foreign corporation related, directly or indirectly, to the
Company through stock ownership, or (iii) is a bank receiving interest described
in Section 881(c)(3)(A) of the Code or (B) such interest is effectively
connected with the conduct of a trade or business by the Non-U.S. Holder in the
United States.
89
<PAGE>
Gain on Disposition of the Notes. A Non-U.S. Holder will not be subject to
United States federal income tax by withholding or otherwise on any gain
realized upon the disposition of a Note unless (i) in the case of a Non-U.S.
Holder who is an individual, such Non-U.S. Holder is present in the United
States for a period or periods aggregating 183 days or more during the taxable
year of the disposition and certain other requirements are met or (ii) the gain
is effectively connected with the conduct of a trade or business by the Non-U.S.
Holder in the United States.
Effectively Connected Income. To the extent that interest income or gain
on the disposition of a Note is effectively connected with the conduct of a
trade or business of the Non-U.S. Holder in the United States, such income will
be subject to United States federal income tax on a net income basis in the same
manner as if such holder were a United States person. Additionally, in the case
of a Non-U.S. Holder which is a corporation, such effectively connected income
may be subject to the United States branch profits tax at the rate of 30%.
Treaties. A tax treaty between the United States and a country in which a
Non-U.S. Holder is a resident may alter the tax consequences described above.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note and payments of the proceeds
of the sale of a Note to certain noncorporate holders, and a 31% backup
withholding tax may apply to such payments if the holder (i) fails to furnish or
certify its correct taxpayer identification number to the payor in the manner
required, (ii) is notified by the IRS that it has failed to report payments of
interest and dividends properly or (iii) under certain circumstances, fails to
certify that it has not been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments. Any amounts
withheld under the backup withholding rules from a payment to a holder will be
allowed as a credit against such holder's United States federal income tax and
may entitle the holder to a refund, provided that the required minimum
information is furnished to the IRS.
Generally, such information reporting and backup withholding may apply to
payments of principal, interest and premium (if any) to Non-U.S. Holders which
are not 'Exempt Recipients' and which fail to provide certain information as may
be required by United States law and applicable regulations. The payment of the
proceeds of the disposition of Notes to or through the United States office of a
broker will be subject to information reporting and backup withholding at a rate
of 31% unless the owner certifies its status as a Non-U.S. Holder under
penalties of perjury or otherwise establishes an exemption.
Holders should consult their tax advisors regarding the application of
information reporting and backup withholding in their particular situation and
the availability of an exemption therefrom, and the procedures for obtaining any
such exemption.
The United States Department of the Treasury recently promulgated final
regulations regarding the information reporting and backup reporting rules
discussed above. In general, the final regulations do not significantly alter
the substantive information reporting and backup withholding requirements but
rather unify current certification procedures and forms and clarify reliance
standards. In addition, the final regulations permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The final regulations are generally effective for
payments made on or after January 1, 2000, subject to certain transition rules.
Prospective purchasers of the Notes should consult their own tax advisors
concerning the effect of such regulations on their particular situations.
90
<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
The New Notes initially will be represented by one or more permanent global
certificates in definitive, fully registered form (the 'Global Notes'). The
Global Notes will be deposited with, or on behalf of, The Depository Trust
Company ('DTC') and registered in the name of a nominee of DTC.
THE GLOBAL NOTES
The Issuers expect that pursuant to procedures established by DTC (i) upon
the issuance of the Global Notes, DTC or its custodian will credit, on its
internal system, the principal amount of New Notes of the individual beneficial
interests represented by the Global Notes to the respective accounts of persons
who have accounts with DTC and (ii) ownership of beneficial interests in the
Global Notes will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of Participants (as defined herein)) and the records of Participants
(with respect to interests of persons other than Participants). Ownership of
beneficial interests in the Global Notes will be limited to persons who have
accounts with DTC ('Participants') or persons who hold interests through
Participants. Interests in the Global Notes may be held directly through DTC, by
Participants, or indirectly through organizations which are Participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Issuers, the Trustee or 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 Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Issuers expect that DTC or its nominee, upon receipt of any payment of
principal premium, if any payment of principal, premium, if any, or interest in
respect of the Global Notes, will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Global Notes as shown on the records of DTC or its nominee. The
Issuers also expect that payments by Participants to owners of beneficial
interests in the Global Notes held through such Participants will be governed by
standing instructions and customary practice, 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 will be effected in the ordinary way in
accordance with DTC rules and will be settled in clearinghouse funds. If a
Holder requires physical delivery of a Certificated Note (as defined below) for
any reason, including to sell New Notes to persons in states which require
physical delivery of the New Notes, or to pledge such securities, such Holder
must transfer its interest in a Global Note in accordance with the normal
procedures of DTC and with the procedures set fourth in the Indenture.
DTC has advised the Issuers that it will take any action permitted to be
taken by a Holder of Notes (including the presentation of Exchange Notes for
exchange) only at the direction of one or more Participants to whose account the
DTC interests in the Global Notes are credited and only in respect of such
portion of the aggregate principal amount of Notes as to which such Participant
or Participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Notes in whole for
Certificated Notes, which it will distribute to the Participants.,
DTC has advised the Issuers as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, 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
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its
91
<PAGE>
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').
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among Participants, it is under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. Neither the Issuers nor the Trustee will have any responsibility
for the performance by DTC or the Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
If (i) the Issuers notify the Trustee in writing that DTC is no longer
willing or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation, (ii) the Issuers, at their
option, notify the Trustee in writing that they elect to cause the issuance of
Notes in definitive form under the Indenture or (iii) upon the occurrence of
certain other events as provided in the Indenture, then, upon surrender by DTC
of the Global Notes, Certificated Notes will be issued to each person that DTC
identifies as the beneficial owner of the Notes represented by the Global Notes.
Upon any such issuance, the Trustee is required to register such Certificated
Notes in the name of such person or persons (or the nominee of any thereof) and
cause the same to be delivered thereto.
None of the Issuers or the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).
92
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Issuers believe that the New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than any such holder that is an 'affiliate' of the Issuers 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 New 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 New Notes and neither such holder nor any such other
person is engaging in or intends to engage in a distribution of such New Notes.
Accordingly, any holder who is an affiliate of the Issuers or any holder using
the Exchange Offer to participate in a distribution of the New Notes will not be
able to rely on such interpretations by the staff to the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a resale transaction. Notwithstanding the
foregoing, each broker-dealer that receives New 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 New Notes. 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 New Notes received in exchange
for Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Issuers). The Issuers have agreed that, for a period of 180 days from
the date of this Prospectus, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1998 (90 days from the date of this
Prospectus), all dealers effecting transactions in the New Notes may be required
to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of New Notes by
broker-dealers. New 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 New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or 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 and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker-dealer that participates in a distribution of
such New Notes may be deemed to be an 'underwriter' within the meaning of the
Securities Act and any profit on any such resale of New 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 as required, a broker-dealer will not be deemed to admit that it is
an 'underwriter' within the meaning of the Securities Act.
For a period of 180 days from the date of this Prospectus, the Issuers will
send a reasonable number of 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 Issuers will pay all the
expenses incident to the Exchange Offer (including the expenses of one counsel
for the Holders) other than commissions or concessions of any broker-dealers.
The Issuers have agreed to indemnify the Initial Purchasers and any
broker-dealers participating in the Exchange Offer against certain liabilities,
including liabilities under the Securities Act.
This Prospectus has been prepared for use in connection with the Exchange
Offer and may be used by CSI in connection with offers and sales related to
market-making transactions in the Notes. CSI may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale. The Company will not receive any of the
proceeds of such sales. CSI has no obligation to make a market in the Notes and
may discontinue its market-making activities at any time without notice, at its
sole discretion. The Company has agreed to indemnify CSI against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments which CSI might be required to make in respect thereof.
For a description of certain relationships between the Company and CSI and
its affiliates, see 'Certain Relationships and Related Transactions' and
'Ownership of Securities'.
93
<PAGE>
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon by O'Sullivan
Graev & Karabell, LLP, New York, New York.
EXPERTS
The financial statements of the Parent and the Company on a consolidated
basis as of August 30, 1997 and August 31, 1996 and for each of the years ended
August 30, 1997, August 31, 1996 and August 26, 1995 included in this
Prospectus, the related financial statement schedules included elsewhere in the
Registration Statement, and the financial statements for the years ended August
30, 1997, August 26, 1995, August 27, 1994 and the periods from July 24, 1993 to
August 28, 1993 (the Parent and Company on a consolidated basis) and January 1,
1993 to July 23, 1993 (Predecessor Company) from which the 'Selected Financial
Data' included in this Prospectus have been derived, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the Registration Statement. Such financial
statements, financial statement schedules, and 'Selected Financial Data' have
been included in the Registration Statement in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
94
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of August 31, 1996 and August 30, 1997...................................... F-3
Consolidated Statements of Operations for the fiscal years ended August 30, 1997, August 31, 1996 and
August 26, 1995.......................................................................................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended August 30, 1997,
August 31, 1996 and August 26, 1995...................................................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended August 30, 1997,
August 31, 1996 and August 26, 1995...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of (unaudited) March 14, 1998 and
(audited) August 30, 1997................................................................................ F-16
Consolidated Statements of Operations for the (unaudited) 28 weeks
ended March 14, 1998 and March 15, 1997.................................................................. F-17
Consolidated Statements of Cash Flows for the (unaudited) 28 weeks
ended March 14, 1998 and March 15, 1997.................................................................. F-18
Notes to Unaudited Consolidated Financial Statements....................................................... F-19
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of
Vestar/LPA Investment Corp.:
We have audited the accompanying consolidated balance sheets of Vestar/LPA
Investment Corp. and its subsidiaries as of August 30, 1997 and August 31, 1996
and the related consolidated statements of operations, stockholders' equity and
cash flows for the 52 weeks ended August 30, 1997, the 53 weeks ended August 31,
1996 and the 52 weeks ended August 26, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Vestar/LPA Investment Corp. and its
subsidiaries as of August 30, 1997 and August 31, 1996 and the results of their
operations and their cash flows for the 52 weeks ended August 30, 1997, the 53
weeks ended August 31, 1996 and the 52 weeks ended August 26, 1995 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
October 3, 1997
F-2
<PAGE>
VESTAR/LPA INVESTMENT CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 30,
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 12,791 $ 23,971
Restricted cash investments (Note 1).................................................... 9,227 2,312
Accounts and notes receivable, net...................................................... 3,615 4,976
Prepaid food and supplies............................................................... 6,409 5,954
Other prepaid expenses.................................................................. 2,210 3,645
Refundable income taxes (Note 5)........................................................ 1,405 559
Current deferred income taxes (Note 5).................................................. 1,719 1,024
---------- ----------
Total current assets.................................................................. 37,376 42,441
Property and equipment, at cost:
Land.................................................................................... 6,867 6,927
Buildings and leasehold improvements.................................................... 60,995 64,811
Equipment............................................................................... 24,078 22,529
Facilities under construction........................................................... 377 317
---------- ----------
92,317 94,584
Less accumulated depreciation and amortization............................................ 24,497 33,460
---------- ----------
Net property and equipment............................................................ 67,820 61,124
Other assets (Note 2)..................................................................... 69,001 64,187
Deferred income taxes (Note 5)............................................................ 2,936 3,408
---------- ----------
$177,133 $171,160
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Overdrafts due banks.................................................................... $ 5,229 $ 2,356
Accounts payable........................................................................ 3,005 6,224
Current reserve for closed academies (Note 11).......................................... 2,700 1,860
Accrued salaries, wages and other payroll costs......................................... 10,317 10,717
Accrued insurance liabilities........................................................... 4,361 4,156
Accrued property and sales taxes........................................................ 4,254 4,128
Accrued interest payable................................................................ 739 719
Other current liabilities............................................................... 6,575 4,883
---------- ----------
Total current liabilities............................................................. 37,180 35,043
Long-term debt and capital lease obligations (Note 3)..................................... 86,590 85,903
Other long-term liabilities (Note 4 and 11)............................................... 19,749 14,319
Minority interest--Series A cumulative redeemable exchangeable preferred stock ($.01 par
value per share, 2,000,000 shares authorized; 800,000 shares issued and outstanding at
aggregate liquidation preference) (Note 7).............................................. 28,827 32,521
Commitments and contingencies.............................................................
Stockholders' equity:
10% cumulative convertible preferred stock ($.01 par value per share; 80,000 shares
authorized; 80,000 issued and outstanding).............................................. 1 1
10% nonconvertible preferred stock ($.01 par value per share; 150,000 shares authorized;
40,036 and 38,068 issued and outstanding, respectively)................................. -- --
Junior preferred stock ($.01 par value per share; 650,000 authorized; 213,750 issued and
outstanding)............................................................................ 2 2
Class A common stock ($.01 par value per share; 1,500,000 shares authorized; 852,160
issued and outstanding)................................................................. 9 9
Class B common stock ($.01 par value per share; 350,000 shares authorized, none issued and
outstanding)............................................................................ -- --
Additional paid-in capital................................................................ 33,105 34,234
Accumulated deficit....................................................................... (28,227) (30,573)
Less cost of treasury shares.............................................................. (103) (299)
---------- ----------
Total Stockholders' Equity............................................................ 4,787 3,374
---------- ----------
$177,133 $171,160
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
VESTAR/LPA INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
52 WEEKS ENDED 53 WEEKS ENDED 52 WEEKS ENDED
AUGUST 26, AUGUST 31, AUGUST 30,
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Operating revenue............................................. $279,806 $300,277 $302,766
Operating expenses:
Salaries, wages and benefits................................ 142,757 155,046 159,236
Facility lease expense...................................... 39,901 39,587 39,332
Depreciation................................................ 13,501 13,680 13,825
Amortization of goodwill and other intangibles.............. 3,712 2,774 2,236
Restructuring charge (Note 11).............................. 11,700
Other....................................................... 75,981 78,310 74,111
-------------- -------------- --------------
287,552 289,397 288,740
-------------- -------------- --------------
Operating income (loss)....................................... (7,746) 10,880 14,026
-------------- -------------- --------------
Interest expense.............................................. 11,110 10,256 9,245
Minority interest in net income of subsidiary................. 2,824 3,561 3,693
Interest income............................................... (1,063) (903) (959)
-------------- -------------- --------------
Net interest costs............................................ 12,871 12,914 11,979
-------------- -------------- --------------
Income (loss) before income taxes and extraordinary item...... (20,617) (2,034) 2,047
Provision (benefit) for income taxes (Note 5)................. (6,155) 1,518 3,264
-------------- -------------- --------------
Loss before extraordinary item................................ (14,462) (3,552) (1,217)
Extraordinary loss on retirement of debt, net of applicable
income taxes of $546........................................ (819)
Net loss...................................................... $(14,462) $ (4,371) $ (1,217)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
VESTAR/LPA INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PREFERRED PAID-IN ACCUMULATED TREASURY
STOCK STOCK CAPITAL DEFICIT STOCK TOTAL
---------- --------- ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 27, 1994................... $ 9 $ 3 $31,188 ($ 7,477) ($ 65) $ 23,658
Dividends on preferred stock (Note 8)...... 911 (911)
Repurchase of common stock................. (21) (21)
Net loss................................... (14,462) (14,462)
--- --- ------- ----------- -------- --------
Balance, August 26, 1995................... 9 3 32,099 (22,850) (86) 9,175
Dividends on preferred stock (Note 8).... 1,006 (1,006) --
Repurchase of common stock............... (17) (17)
Net loss................................. (4,371) (4,371)
--- --- ------- ----------- -------- --------
Balance, August 31, 1996................... 9 3 33,105 (28,227) (103) 4,787
Dividends on preferred stock (Note 8).... 1,129 (1,129) --
Repurchase of common stock............... (196) (196)
Net loss................................... (1,217) (1,217)
--- --- ------- ----------- -------- --------
Balance, August 30, 1997................... $ 9 $ 3 $34,234 ($ 30,573) ($ 299) $ 3,374
--- --- ------- ----------- -------- --------
--- --- ------- ----------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
VESTAR/LPA INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED
AUGUST 26, 1995 AUGUST 31, 1996 AUGUST 30, 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $ (14,462) $ (4,371) $(1,217)
Adjustments to reconcile net loss to net cash from operating
activities:
Noncash portion of extraordinary loss on retirement of
debt.................................................... -- 1,365 --
Restructuring charge...................................... 11,700 -- --
Depreciation and amortization............................. 18,638 17,704 16,911
Deferred income taxes..................................... (7,225) 225 223
Minority interest in net income of subsidiary............. 2,824 3,561 3,693
Changes in assets and liabilities:
Account and notes receivable............................ (951) (72) (1,402)
Prepaid expenses and supplies........................... 2,955 253 (980)
Accrued property and sales taxes........................ (94) (699) (125)
Accrued interest payable................................ (261) 81 (20)
Other changes in assets and liabilities, net............ 4,016 (2,839) (2,197)
--------------- --------------- ---------------
Net cash from operating activities................... 17,140 15,208 14,886
--------------- --------------- ---------------
Cash flows used for investing activities:
Capital expenditures......................................... (9,101) (8,570) (7,691)
Proceeds from sale of assets................................. 6,145 2,525 452
--------------- --------------- ---------------
Net cash used for investing activities............... (2,956) (6,045) (7,239)
--------------- --------------- ---------------
Cash flows from financing activities:
Repayment of long-term debt and capital lease obligations.... (3,200) (12,631) (900)
Deferred financing costs..................................... -- (225) --
Increase (decrease) in bank overdrafts....................... (5,510) 1,126 (2,873)
Decrease (increase) in restricted cash investments........... (638) (941) 6,915
Proceeds from capital lease.................................. -- -- 391
--------------- --------------- ---------------
Net cash from (used for) financing activities........ (9,348) (12,671) 3,533
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents.......... 4,836 (3,508) 11,180
Cash and cash equivalents at beginning of period............... 11,463 16,299 12,791
--------------- --------------- ---------------
Cash and cash equivalents at end of period..................... $ 16,299 12,791 23,971
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized)..................... $ 9,948 $ 8,926 $ 8,415
Income taxes.............................................. 1,636 1,031 5,470
Cash received during the period for:
Interest.................................................. $ 1,031 $ 903 $ 848
Income taxes.............................................. 805 650 1,154
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Vestar/LPA Investment Corp. ('Investment'), a privately-held Delaware
corporation, was formed in 1993 for the purpose of holding the capital stock of
La Petite Holdings Corp. ('Holdings'), a Delaware corporation.
Holdings was formed in 1993 for the purpose of holding the capital stock of
La Petite Acquisition Corp. ('Acquisition'). On July 23, 1993, ('Closing Date')
as a result of a series of transactions, Holdings acquired all the outstanding
shares of common stock, par value $.01 (the 'Common Stock'), of La Petite
Academy, Inc. ('La Petite').
In order to finance the transactions, Holdings (a) (i) sold common stock of
Holdings to Investment for approximately $30,000,000 (ii) sold to unaffiliated
investment firms $85,000,000 aggregate principal amount of 9 5/8% Senior Secured
Notes due August 1, 2001 (the 'Senior Notes') and (iii) sold to unaffiliated
investment firms $19,750,000, net of discount, Series A Cumulative Redeemable
Exchangeable Preferred Stock, par value $.01 per share (the 'Preferred
Stock-A'), (b) used $7,000,000 of cash and cash equivalents of La Petite and (c)
contributed to the capital of, or loaned to, Acquisition the portion of the
aggregate proceeds of such sales necessary to fund the payments made by
Acquisition in connection with the acquisition of La Petite.
In conjunction with these transactions at the Closing Date, Investment (i)
sold to Vestar/LPT Limited Partnership, certain employees and unaffiliated
investment firms 811,960 shares of Class A Common Stock (par value $.01 per
share) for $5 per share, or an aggregate amount of $4,059,800, (ii) sold to
Vestar/LPT Limited Partnership 213,750 shares of 10% Junior Preferred Stock (par
value $.01 per share) for approximately $84 per share, or an aggregate amount of
$17,975,000, (iii) sold to an unaffiliated party 80,000 shares of 10% Cumulative
Convertible Preferred Stock (par value $.01 per share) for $100 per share, or an
aggregate amount of $8 million, which are convertible on or after July 23, 1993
into 150,000 shares of Investment's Class A Common Stock. Subsequent to the
Closing Date and through August 30, 1997, Investment had paid stock dividends on
the 10% Cumulative Convertible Preferred Stock of 38,068 shares at a value of
$100 per share, of an aggregate amount of $3,806,800, in the form of shares of
10% Cumulative Nonconvertible Preferred Stock (par value $.01 per share).
On May 31, 1997, Holdings was merged into La Petite in a tax-free
transaction with La Petite as the surviving entity. As a result of the
transaction all of the shares of La Petite were retired, with Holdings shares
being reissued in the name of La Petite Academy, Inc.
On August 28, 1997, LPA Services, Inc. ('Services'), a wholly owned
subsidiary of La Petite, was incorporated. Services will provide third party
administrative services on insurance claims to La Petite beginning in fiscal
year 1998. La Petite, consolidated with Services, is referred to in these notes
as the 'Company'.
Investment is a holding company with all of its operations conducted
through La Petite, its wholly-owned subsidiary.
The Company offers educational, developmental and child care programs,
which are available on a full-time or part-time basis, for children between six
weeks and twelve years old. The La Petite Academy schools are located in 35
states and the District of Columbia, primarily in the southern, Atlantic coast,
midwestern and western regions of the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Investment
and its wholly-owned subsidiary, La Petite and its wholly-owned subsidiary,
Services, after elimination of all significant intercompany accounts and
transactions.
Fiscal Year End
The Company has a 52-53 week fiscal year which ends on the last Saturday in
August.
F-7
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
Recognition of Revenues and Preopening Expenses
The Company operates preschool education and child care Academies. Revenue
is recognized as the services are performed. Expenses associated with opening
new Academies are charged to expense as incurred.
Depreciation and Amortization
Buildings, furniture and equipment are depreciated over the estimated
useful lives of the assets using the straight-line method. For financial
reporting purposes, buildings are depreciated over 29 to 40 years, furniture and
equipment over five to 10 years and leasehold improvements over the term of the
related lease or five to 10 years, whichever is less.
Maintenance and repairs are charged to expense as incurred. The cost of
additions and improvements is capitalized and depreciated over the remaining
useful lives of the assets. The cost and accumulated depreciation of assets sold
or retired are removed from the accounts, and any gain or loss is recognized in
the year of disposal, except gains and losses on property and equipment which
have been sold and leased back which are recognized over the terms of the
related lease agreements.
Restricted Cash Investments
The restricted cash investment balance represents cash deposited in an
escrow account as security for the self-insured portion of the Company's workers
compensation and automobile insurance coverage.
Excess of Purchase Price Over the Net Assets Acquired
The excess of the purchase price over the fair value of tangible and
identifiable intangible assets and liabilities acquired related to the
acquisition of La Petite is being amortized over a period of 30 years on the
straight-line method.
Deferred Financing Costs
The costs of obtaining financing are included in other assets and are being
amortized over the life of the related debt.
Other Assets
Other assets include the fair value of identifiable intangible assets
acquired in connection with the acquisition of La Petite and are being amortized
over periods ranging from two to 10 years on the straight-line method.
Cash Equivalents
The Company's cash equivalents consist of commercial paper and money market
funds with original maturities of three months or less.
F-8
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards ('SFAS') No. 109, which requires the Company to establish
deferred tax assets and liabilities, as appropriate, for all temporary
differences, and to adjust deferred tax balances to reflect changes in tax rates
expected to be in effect during the periods the temporary differences reverse.
Management has evaluated the recoverability of the deferred income tax asset
balances and has determined that the deferred balances will be realized based on
future taxable income.
Disclosures Regarding Financial Instruments
The carrying values of the Company's financial instruments, with the
exception of the Company's Senior Notes, Convertible Debentures and Preferred
Stock-A, approximate fair value. The estimated fair values of Senior Notes,
Convertible Debentures and Preferred Stock-A at August 30, 1997 were $86.9
million, $0.9 million and $33.3 million, respectively. The estimated fair values
of Senior Notes, Convertible Debentures and Preferred Stock-A at August 31, 1996
were $80.0 million, $1.6 million and $27.1 million, respectively.
Impairment of Long-Lived Assets
The Company adopted SFAS No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,' as of the
beginning of its 1997 fiscal year. SFAS No. 121, establishes accounting
standards for the impairment of long-lived assets, certain intangibles, and
goodwill related to those assets. The adoption of this Statement did not have an
effect on the Company's consolidated financial statements.
Stock Based Compensation
The Company has adopted the disclosure provisions of SFAS No. 123,
'Accounting for Stock-Based Compensation'. The Statement encourages rather than
requires companies to adopt a new method that accounts for stock compensation
awards based on their estimated fair value at the date they are granted.
Companies are permitted, however, to continue accounting for stock compensation
awards under Accounting Principles Board ('APB') Opinion No. 25, which requires
compensation cost to be recognized based on the excess, if any, between the
quoted market price of the stock at the date of grant and the amount an employee
must pay to acquire the stock. The Company has elected to continue to apply APB
Opinion No. 25 and has disclosed the pro forma net income (loss), determined as
if the method under SFAS No. 123 had been applied, in Note 13.
Reclassifications
Certain reclassifications to prior year amounts have been made in order to
conform to the current year presentation.
F-9
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. OTHER ASSETS
<TABLE>
<CAPTION>
AUGUST 31, 1996 AUGUST 30, 1997
--------------- ---------------
(IN THOUSANDS OF DOLLARS)
----------------------------------
<S> <C> <C>
Intangible assets:
Excess purchase price over net assets acquired................................ $ 64,277 $ 64,277
Curriculum.................................................................... 1,497 1,497
Workforce..................................................................... 3,248 3,248
Accumulated amortization...................................................... (10,395) (12,714)
--------------- ---------------
58,627 56,308
Deferred financing costs........................................................ 12,854 12,752
Accumulated amortization........................................................ (6,271) (8,176)
Other assets.................................................................... 3,791 3,303
--------------- ---------------
$ 69,001 $ 64,187
--------------- ---------------
--------------- ---------------
</TABLE>
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
AUGUST 31, 1996 AUGUST 30, 1997
--------------- ---------------
(IN THOUSANDS OF DOLLARS)
----------------------------------
<S> <C> <C>
Convertible Debentures, 6.5% payable through June 1, 2011....................... $ 2,100 $ 850
Senior Notes, 9.625% payable through August 1, 2001............................. 85,000 85,000
Capital lease obligations....................................................... -- 244
--------------- ---------------
Total long-term debt and capital lease obligations.............................. 87,100 86,094
Less unamortized discount....................................................... (510) (191)
--------------- ---------------
$86,590 $85,903
--------------- ---------------
--------------- ---------------
</TABLE>
The Convertible Debentures, as a result of purchase accounting adjustments,
are shown net of a discount. The discount is being accreted on a level-yield
basis over the remaining life of the Convertible Debentures and is reflected in
interest expense in the Consolidated Statements of Operations. The holders of
the Convertible Debentures have the right to receive, upon conversion thereof,
$10.00 in cash for each $19.50 of principal amount converted.
The Senior Notes have a required redemption of $42.5 million in August
2000. Interest is payable semi-annually in February and August. Commencing
August 1997, the Senior Notes are redeemable, at various redemption prices, at
the Company s option. The Senior Notes contain certain covenants that, among
other things, limit the ability of La Petite to incur additional indebtedness,
transfer or sell assets and pay dividends. As of August 30, 1997, LaPetite would
not be permitted to pay cash dividends on its common or preferred stock. The
stock of La Petite is pledged as collateral for the Senior Notes.
On July 10, 1996, La Petite entered into a Credit Facility (the 'Credit
Facility') providing for a $15 million revolving credit facility for working
capital and other general corporate purposes through July 2000. Borrowings under
the Credit Facility are secured by a pledge of substantially all the assets of
the Company. Loans under the Credit Facility will bear interest at 1% above
prime rate or 2.25% above the Eurodollar rate, at La Petite's option. La Petite
is required to pay quarterly commitment fees of 0.5% per annum on the unused
revolving credit facility.
As of August 30, 1997, no amounts were outstanding under the Credit
facility; however, letters of credit issued under the facility in the amount of
$5.7 million were outstanding as of August 30, 1997. The letters of credit were
issued as security for the self-insured portion of the Company's workers'
compensation and automobile insurance coverages.
F-10
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS--(CONTINUED)
During fiscal year 1997, the Company entered into a master lease agreement
to provide computer equipment to the Company. The leases are recorded as a
capital lease at the time of delivery at a discount rate of 1.5% over the
interest rate of three year US Treasury notes.
Scheduled maturities and mandatory prepayments of long-term debt and
capital lease obligations during the five years subsequent to August 30, 1997
are as follows (in thousands of dollars):
<TABLE>
<S> <C>
1999........................................................... $ 126
2000........................................................... 42,618
2001 and thereafter............................................ 43,350
-------
$86,094
-------
-------
</TABLE>
4. OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
AUGUST 31, 1996 AUGUST 30, 1997
--------------- ---------------
(IN THOUSANDS OF DOLLARS)
----------------------------------
<S> <C> <C>
Unfavorable leases, net of accumulated
amortization.......................... $ 7,323 $ 6,085
Non-current reserve for closed
academies............................. 8,193 5,609
Long-term insurance liabilities......... 4,233 2,625
--------------- ---------------
$19,749 $14,319
--------------- ---------------
--------------- ---------------
</TABLE>
In connection with the acquisition of La Petite, an intangible liability
for unfavorable operating leases was recorded, which is being amortized over the
average remaining life of the leases.
The reserve for closed academies includes the long-term liability related
to leases for Academies which were closed and are no longer operated by the
Company.
5. INCOME TAXES
Tax Sharing Agreement
Investment and La Petite file a consolidated Federal income tax return and
have entered into a Tax Sharing Agreement, pursuant to which La Petite agreed to
pay to Investment an amount equal to the Federal and state income taxes La
Petite would have been required to pay if La Petite were not part of
Investment's consolidated
F-11
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES--(CONTINUED)
group for income tax purposes. The provisions for income taxes recorded in the
Consolidated Statements of Operations consisted of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
AUGUST 26, 1995 AUGUST 31, 1996 AUGUST 30, 1997
--------------- --------------- ---------------
(IN THOUSANDS OF DOLLARS)
-----------------------------------------------------
<S> <C> <C> <C>
Payable currently:
Federal...................................................... $ 910 $ 1,481 $ 2,921
State........................................................ 160 262 567
--------------- --------------- ---------------
Total................................................... 1,070 1,743 3,488
--------------- --------------- ---------------
Deferred:
Federal...................................................... (6,141) (190) (187)
State........................................................ (1,084) (35) (37)
--------------- --------------- ---------------
Total................................................... (7,225) (225) (224)
--------------- --------------- ---------------
Income tax provision (benefit)................................. $(6,155) $ 1,518 $ 3,264
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The difference between the provision for income taxes as reported in the
Consolidated Statements of Operations and the provision computed at the
statutory Federal rate of 34 percent is due primarily to state income taxes and
nondeductible amortization of the excess of purchase price over the net assets
acquired of $2.1 million, $2.1 million, and $2.2 million in the 52 weeks ended
August 30, 1997, the 53 weeks ended August 31, 1996 and the 52 weeks ended
August 26, 1995, respectively.
Deferred income taxes result from differences between the financial
reporting and tax basis of the Company's assets and liabilities. The sources of
these differences and their cumulative tax effects at August 30, 1997 and August
31, 1996 are estimated as follows:
<TABLE>
<CAPTION>
AUGUST 31, 1996 AUGUST 30, 1997
--------------- ---------------
(IN THOUSANDS OF DOLLARS)
----------------------------------
<S> <C> <C>
Current deferred taxes:
Accruals not currently deductible............................................. $ 4,576 $ 3,817
Supplies...................................................................... (2,596) (2,386)
Prepaids and other............................................................ (261) (407)
--------------- ---------------
Net current deferred tax assets.......................................... $ 1,719 $ 1,024
--------------- ---------------
Noncurrent deferred taxes:
Unfavorable leases............................................................ $ 2,973 $ 2,471
Insurance reserves............................................................ 1,719 1,067
Reserve for closed academies.................................................. 3,326 2,277
Other......................................................................... 361 342
Property and equipment........................................................ (3,528) (1,534)
Long-term debt and capital lease obligations.................................. (207) (78)
Intangible assets............................................................. (385) (311)
Deferred financing costs and other............................................ (1,323) (826)
--------------- ---------------
Net noncurrent deferred tax assets....................................... $ 2,936 $ 3,408
--------------- ---------------
--------------- ---------------
</TABLE>
As of August 30, 1997, only the income tax returns for years subsequent to
1992 are open to examination.
F-12
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES
Academy facilities are leased for terms ranging from 15 to 20 years. The
leases provide renewal options and require the Company to pay utilities,
maintenance, insurance and property taxes. Some leases provide for annual
increases in the rental payment and many leases require the payment of
additional rentals if operating revenue exceeds stated amounts. These additional
rentals range from 2% to 10% of operating revenue in excess of the stated
amounts and are recorded as rental expense. Vehicles are also rented under
various lease agreements, most of which are cancelable within 30 days after a
one-year lease obligation. Substantially all Academy and vehicle leases are
operating leases. Rental expense for these leases were $44.9 million, $45.1
million, and $44.8 million, for the 52 weeks ended August 30, 1997, 53 weeks
ended August 31, 1996, and 52 weeks ended August 26, 1995, respectively.
Contingent rental expense of $1.5 million, $1.2 million and $0.9 million were
included in rental expense for the 52 weeks ended August 30, 1997, 53 weeks
ended August 31, 1996 and 52 weeks ended August 26, 1995, respectively.
Aggregate minimum future rentals payable under facility leases as of August
30, 1997 were:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING: (IN THOUSANDS OF DOLLARS)
-------------------------
<S> <C>
1998.............................................. $ 38,948
1999.............................................. 36,783
2000.............................................. 34,264
2001.............................................. 30,445
2002 and thereafter............................... 94,790
-----------
$ 235,230
-----------
-----------
</TABLE>
7. REDEEMABLE PREFERRED STOCK
The Company has outstanding 800,000 shares of Preferred Stock-A (see Note
1) as of July 24, 1993. The carrying value of the Preferred Stock-A is being
accreted to its redemption value of $20.0 million on August 1, 2003. The
Preferred Stock-A is nonvoting and mandatorily redeemable in August 2003, with
La Petite having an option to redeem the Preferred Stock-A, in whole or in part,
on or after August 1, 1998. Dividends at 12.125% are cumulative and if not paid
upon quarterly declaration are added to the liquidation value. The liquidation
values per share as of August 30, 1997 and August 31, 1996 were $40.836 and
$36.250, respectively. The Preferred Stock-A may be exchanged for 12.125%
Subordinated Exchange Debentures due 2003, at the Company's option, subject to
certain conditions, in whole, but not in part, on any scheduled dividend payment
date.
The Preferred Stock contains certain restrictive provisions that limit the
ability of the La Petite to incur additional indebtedness, pay cash dividends or
make certain other restricted payments, or merge or consolidate with or sell all
or substantially all of its assets.
8. STOCKHOLDERS' EQUITY
As of August 30, 1997 and August 31, 1996, the Company has outstanding the
following issues of non-redeemable preferred stock:
10% Cumulative Convertible Preferred Stock ('Convertible Preferred') (par
value $.01 per share) each share of which is convertible into 1.875 shares of
Class A common Stock of the Company. Quarterly stock dividends are paid on the
Convertible Preferred in the form of 10% Cumulative Non-Convertible Preferred
Stock (par value $.01 per share) ('Non-Convertible Preferred'). Dividends are
declared quarterly on the Non-Convertible Preferred. Subsequent to the 52 weeks
ended August 30, 1997, a quarterly stock dividend consisting of Non-Convertible
Preferred was declared on September 30, 1997, which included 1,968 shares
aggregating $196,780 related to July and August 1997.
F-13
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDERS' EQUITY--(CONTINUED)
10% Junior Preferred Stock (par value $.01 per share) ('Junior Preferred')
with a liquidation value of $150.04 per share or $32,072,007, and $135.93 per
share or $29,055,656 at August 30, 1997 and August 31, 1996, respectively.
9. BENEFIT PLAN
La Petite sponsors a defined contribution plan (the 'Plan') for
substantially all employees. Eligible participants may make contributions to the
Plan from 1% to 20% of their compensation (as defined). La Petite may also make
contributions at the discretion of the Board of Directors. Contribution expense
attributable to this Plan was $425,000, $405,000, and $0, for the 52 weeks ended
August 30, 1997, the 53 weeks ended August 31, 1996, and the 52 weeks ended
August 26, 1995.
The Plan is currently under audit by the Internal Revenue Service ('IRS')
which has raised several issues concerning the Plan's operation. La Petite
believes that the Plan, as amended, continues to operate pursuant to IRS and
Department of Labor regulations.
10. RELATED PARTY TRANSACTIONS
Management Consulting Agreement
The Company has entered into an agreement for management consulting
services (the 'Management Consulting Agreement') with Vestar Management Partners
('Vestar') pursuant to which Vestar will make available to the Company
management consulting, corporate finance and investment advice for which the
Company pays to Vestar an annual fee of $500,000.
Transactions with Certain Investors
In 1992, the Company entered into a joint venture with Benesse Corp.
('Benesse'), formerly known as Fukutake Publishing Company, Ltd. The Company
agreed in principle to grant to Benesse exclusive rights to develop and operate
La Petite Academies in certain Asian countries. Under the terms of the pilot
program, Benesse operates 10 La Petite Academies in Japan. The Company is
reimbursed for all of its out-of-pocket expenses associated with assisting
Benesse with the pilot program. Benesse is a stockholder of the Company and
certain directors of the Company are affiliates of Benesse.
11. CONTINGENCIES
The Company has litigation pending which arose in the ordinary course of
business. Litigation is subject to many uncertainties and the outcome of the
individual matters is not presently determinable. It is management's opinion
that this litigation will not result in liabilities that would have a material
adverse effect on the Company's financial position or results of operations.
12. RESTRUCTURING CHARGE
During fiscal year 1995, the Company approved a plan to close 39 Academies
located in areas where the demographic conditions no longer support an
economically viable operation and to restructure its operating management to
better serve the remaining Academies. Accordingly, the Company recorded an $11.7
million restructuring charge ($7.0 million after tax) to provide for costs
associated with the Academy closures and restructuring. The charge includes
approximately $10.0 million for the present value of rent and real estate taxes
for the remaining lease terms. The charge also includes restructuring and other
costs related to the closures. As of August 30, 1997, $4.5 million of costs
related to the closings and restructuring had been charged against the
restructuring reserve.
F-14
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. STOCK BASED COMPENSATION
From time to time, the Board of Directors of Investment, in their sole
discretion, grant non-qualified stock options, with respect to the common stock
of Investment, to key executives of the Company. Options are granted pursuant to
an agreement at the time of grant, and typically become exercisable in equal
cumulative installments over a five-year period beginning one year after the
date of grant. To date, all options granted expire on the tenth anniversary of
the grant date. No market exists for the common stock of Investment, but options
are granted at prices that, in the opinion of the Board of Directors, are equal
to or greater than the fair value of the stock at the time of grant. Options on
62,794 shares have been granted to employees through August 30, 1997, of which
36,315 were exercisable at that date.
The Company accounts for the options in accordance with APB Opinion No. 25,
which requires compensation cost to be recognized only on the excess, if any,
between the fair value of the stock at the date of grant and the amount an
employee must pay to acquire the stock. Under this method, no compensation cost
has been recognized for stock options granted.
Had compensation cost for these options been recognized as prescribed by
SFAS No. 123, the Company's loss would have been increased by (in thousands) $19
in 1997 and $17 in 1996. The Company is privately owned and there is no market
for the stock of Investment. The estimated compensation element is based on the
time value of money at the US Treasury rates assuming that the value of the
stock will be at least equal to the grant price five years out when fully
exercisable. The estimated compensation expense above is assumed to be amortized
over the vesting period.
14. SUBSEQUENT EVENTS
On March 17, 1998, LPA Investment LLC (the 'Investor'), a limited liability
company owned by an affiliate of Chase Capital Partners ('CCP') and by an entity
controlled by Robert E. King, a Director of the Company, and Investment, the
parent company of the Company, which was renamed LPA Holding Corp. ('Parent'),
entered into a Merger Agreement pursuant to which a wholly owned subsidiary of
the Investor was merged into Parent (the 'Recapitalization'). In the
Recapitalization (i) all of the then outstanding shares of preferred stock and
common stock of Parent (other than the shares of common stock retained by
Vestar/LPT Limited Partnership and management of the Company) owned by the
existing stockholders of the Parent (the 'Existing Stockholders') were converted
into the right to receive cash and (ii) the Existing Stockholders received the
cash of the Company as of the date of the closing of the Transactions. As part
of the Recapitalization, the Investor purchased $72.5 million (less the value of
options retained by management) of common stock of the Parent (representing
approximately 74.5% of the common stock of Parent on a fully diluted basis) and
$30 million of redeemable preferred stock of Parent (collectively, the 'Equity
Investment'). In addition, in connection with the purchase of preferred stock of
Parent, the Investor received warrants to purchase up to 6.0% of Parent's common
stock on a fully diluted basis (resulting in an aggregate fully diluted
ownership of 80.5% of the common stock of Parent). Vestar/LPT Limited
Partnership retained common stock of Parent having a value (based on the amount
paid by the Investor for its common stock of Parent) of $2.8 million
(representing 3.0% of the outstanding common stock of Parent on a fully diluted
basis). Management retained common stock of Parent having a value (based on the
amount paid by the Investor for its common stock of Parent) of $4.7 million
(representing 5.0% of the common stock of Parent on a fully diluted basis) and
retained existing options to acquire 3.0% of Parent's fully diluted common
stock. In addition, Parent adopted a new option plan (the 'New Option Plan')
covering 8.5% of its fully diluted common stock. Accordingly, management owns or
has the right to acquire, subject to certain performance requirements,
approximately 16.5% of the common stock of Parent on a fully diluted basis. The
Equity Investment was used, together with the proceeds of the offering of $145
million of 10% Senior Notes due 2008 and borrowings under a new credit
agreement, consisting of a term loan facility of $40 million and a revolving
credit facility providing loans of up to $25 million, to finance the
Recapitalization, to refinance substantially all of the Company's outstanding
indebtedness and outstanding preferred stock (the 'Refinancing Transactions')
and to pay the fees and expenses relating to the foregoing. These transactions
closed on May 11, 1998.
F-15
<PAGE>
VESTAR/LPA INVESTMENT CORP.
CONSOLIDATED BALANCE SHEETS
28 WEEKS ENDED MARCH 14, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 14,
1998
AUGUST 30, -----------
1997
---------- (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 23,971 $ 24,755
Restricted cash investments............................................................ 2,312 2,778
Accounts and notes receivable, net..................................................... 4,976 4,567
Prepaid food and supplies.............................................................. 5,954 5,506
Other prepaid expenses................................................................. 3,645 3,605
Refundable income taxes................................................................ 559 374
Current deferred income taxes.......................................................... 1,024 1,350
---------- -----------
Total current assets................................................................. 42,441 42,935
Property and equipment, at cost:
Land................................................................................... 6,927 7,008
Buildings and leasehold improvements................................................... 64,811 67,373
Equipment.............................................................................. 22,529 25,740
Facilities under construction.......................................................... 317 1,251
---------- -----------
94,584 101,372
Less accumulated depreciation.......................................................... 33,460 40,533
---------- -----------
Net property and equipment........................................................... 61,124 60,839
Other assets (Note 3).................................................................... 64,187 62,104
Deferred income taxes.................................................................... 3,408 4,469
---------- -----------
$171,160 $ 170,347
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Overdrafts due banks................................................................... $ 2,356 $ 1,950
Accounts payable....................................................................... 6,224 5,632
Current reserve for closed academies................................................... 1,860 1,623
Accrued salaries, wages and other payroll costs........................................ 10,717 10,830
Accrued insurance liabilities.......................................................... 4,156 3,990
Accrued property and sales taxes....................................................... 4,128 2,779
Accrued interest payable............................................................... 719 970
Other current liabilities.............................................................. 4,883 4,260
---------- -----------
Total current liabilities............................................................ 35,043 32,034
Long-term debt and capital lease obligations (Note 4).................................... 85,903 87,345
Other long-term liabilities (Note 5)..................................................... 14,319 13,874
Commitments and contingencies (Note 6)...................................................
Minority interest--Series A cumulative redeemable exchangeable preferred stock ($.01 par
value per share, 2,000,000 shares authorized; 800,000 shares issued and outstanding at
aggregate liquidation preference; per share liquidation preference of $43.541 and
$40.836, respectively)................................................................. 32,521 34,698
Stockholders' equity:
10% cumulative convertible preferred stock ($.01 par value per share; 80,000 shares
authorized; 80,000 issued and outstanding)........................................... 1 1
10% nonconvertible preferred stock ($.01 par value per share; 150,000 shares
authorized; 46,579 and 40,036 issued and outstanding, respectively).................. -- --
Junior preferred stock ($.01 par value per share; 650,000 authorized; 213,750 issued
and outstanding)..................................................................... 2 2
Class A common stock ($.01 par value per share; 1,500,000 shares authorized; 852,160
issued and outstanding).............................................................. 9 9
Class B common stock ($.01 par value per share; 350,000 shares authorized, none issued
and outstanding)..................................................................... -- --
Additional paid-in capital............................................................. 34,234 34,888
Accumulated deficit.................................................................... (30,573) (32,164)
Less cost of treasury shares........................................................... (299) (340)
---------- -----------
Total stockholders' equity........................................................... 3,374 2,396
---------- -----------
$171,160 $ 170,347
---------- -----------
---------- -----------
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
VESTAR/LPA INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
28 WEEKS ENDED MARCH 14, 1998 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
28 WEEKS ENDED
--------------------
MARCH
MARCH 15 14,
1997 1998
-------- --------
<S> <C> <C>
Operating revenue......................................................................... $159,983 $166,701
Operating expenses:
Salaries, wages and benefits............................................................ 84,077 87,772
Facility lease expense.................................................................. 21,143 21,328
Depreciation............................................................................ 7,444 7,073
Amortization of goodwill and other intangibles.......................................... 1,204 1,204
Other................................................................................... 40,299 41,933
-------- --------
154,167 159,310
-------- --------
Operating income.......................................................................... 5,816 7,391
-------- --------
Interest expense.......................................................................... 4,994 4,917
Minority interest in net income of subsidiary............................................. 1,935 2,177
Interest income........................................................................... (493) (601)
-------- --------
Net interest costs...................................................................... 6,436 6,493
Income (loss) before income taxes......................................................... (620) 898
Provision for income taxes................................................................ 1,051 1,835
-------- --------
Net loss.................................................................................. $ (1,671) $ (937)
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
VESTAR/LPA INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
28 WEEKS ENDED MARCH 14, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
28 WEEKS ENDED
----------------------
MARCH 15, MARCH 14,
1997 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................................. $(1,671) $ (937)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization....................................................... 9,109 8,731
Deferred income taxes............................................................... (2,198) (1,387)
Minority interest in net income of subsidiary....................................... 1,935 2,177
Changes in assets and liabilities:
Account and notes receivable........................................................ (628) 373
Prepaid expenses and supplies....................................................... (130) 488
Accrued property and sales taxes.................................................... (1,115) (1,349)
Accrued interest payable............................................................ 301 251
Other changes in assets and liabilities, net........................................ (2,864) (2,026)
--------- ---------
Net cash from operating activities............................................... 2,739 6,321
--------- ---------
Cash flows used for investing activities:
Capital expenditures..................................................................... (3,061) (4,776)
Proceeds from sale of assets............................................................. 88 339
--------- ---------
Net cash used for investing activities........................................... (2,973) (4,437)
--------- ---------
Cash flows from (used for) financing activities:
Repayment of long-term debt and capital lease obligations................................ (875) (229)
Reduction in bank overdrafts............................................................. (1,793) (406)
Decrease (increase) in restricted cash investments....................................... 6,530 (465)
--------- ---------
Net cash from (used for) financing activities.................................... 3,862 (1,100)
--------- ---------
Net increase in cash and cash equivalents.................................................. 3,628 784
Cash and cash equivalents at beginning of period........................................... 12,791 23,971
--------- ---------
Cash and cash equivalents at end of period................................................. $16,419 $24,755
--------- ---------
--------- ---------
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized)................................................. $ 4,232 $ 4,211
Income taxes.......................................................................... 4,375 1,951
Cash received during the period for:
Interest.............................................................................. $ 470 $ 665
Income taxes.......................................................................... 1,141 204
</TABLE>
Non-cash investing and financing activities:
Capital lease obligations of $2,399 were incurred during the 28 weeks ended
March 14, 1998, when the Company entered into leases for new computer
equipment.
See notes to consolidated financial statements.
F-18
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATIONAL STRUCTURE AND RECAPITALIZATION TRANSACTION
Vestar/LPA Investment Corp. ('Investment'), a privately-held Delaware
corporation, was formed in 1993 for the purpose of holding the capital stock of
La Petite Holdings Corp. ('Holdings'), a Delaware corporation. Holdings was
formed in 1993 for the purpose of holding the capital stock of La Petite
Acquisitions Corp. ('Acquisition'). On July 23, 1993, as a result of a series of
transactions, Holdings acquired all the outstanding shares of common stock, par
value $.01 (the 'Common Stock'), of La Petite Academy, Inc. ('La Petite'). The
transaction was accounted for as a purchase and the excess of purchase price
over the net assets acquired is being amortized over 30 years. On May 31, 1997,
Holdings was merged with and into its wholly-owned subsidiary La Petite, a
Delaware corporation, with La Petite as the surviving corporation. On August 28,
1997, LPA Services, Inc. ('Services'), a wholly owned subsidiary of La Petite,
was incorporated. Services will provide third party administrative services on
insurance claims to La Petite. La Petite, consolidated with Services, is
referred to herein as the 'Company'.
On March 17, 1998, LPA Investment LLC (the 'Investor'), a limited liability
company owned by an affiliate of Chase Capital Partners ('CCP') and by an entity
controlled by Robert E. King, a Director of the Company, and Investment, the
parent company of the Company, which was renamed LPA Holding Corp. ('Parent'),
entered into a Merger Agreement pursuant to which a wholly owned subsidiary of
the Investor was merged into Parent (the 'Recapitalization'). In the
Recapitalization (i) all of the then outstanding shares of preferred stock and
common stock of Parent (other than the shares of common stock retained by
Vestar/LPT Limited Partnership and management of the Company) owned by the
existing stockholders of the Parent (the 'Existing Stockholders') were converted
into the right to receive cash and (ii) the Existing Stockholders received the
cash of the Company as of the date of the closing of the Transactions. As part
of the Recapitalization, the Investor purchased $72.5 million (less the value of
options retained by management) of common stock of the Parent (representing
approximately 74.5% of the common stock of Parent on a fully diluted basis) and
$30 million of redeemable preferred stock of Parent (collectively, the 'Equity
Investment'). In addition, in connection with the purchase of preferred stock of
Parent, the Investor received warrants to purchase up to 6.0% of Parent's common
stock on a fully diluted basis (resulting in an aggregate fully diluted
ownership of 80.5% of the common stock of Parent). Vestar/LPT Limited
Partnership retained common stock of Parent having a value (based on the amount
paid by the Investor for its common stock of Parent) of $2.8 million
(representing 3.0% of the outstanding common stock of Parent on a fully diluted
basis). Management retained common stock of Parent having a value (based on the
amount paid by the Investor for its common stock of Parent) of $4.7 million
(representing 5.0% of the common stock of Parent on a fully diluted basis) and
retained existing options to acquire 3.0% of Parent's fully diluted common
stock. In addition, Parent adopted a new option plan (the 'New Option Plan')
covering 8.5% of its fully diluted common stock. Accordingly, management owns or
has the right to acquire, subject to certain performance requirements,
approximately 16.5% of the common stock of Parent on a fully diluted basis. The
Equity Investment was used, together with the proceeds of the offering of $145
million of 10% Senior Notes due 2008 and borrowings under a new credit
agreement, consisting of a term loan facility of $40 million and a revolving
credit facility providing loans of up to $25 million, to finance the
Recapitalization, to refinance substantially all of the Company's outstanding
indebtedness and outstanding preferred stock (the 'Refinancing Transactions')
and to pay the fees and expenses relating to the foregoing. These transactions
closed on May 11, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company utilizes a 52-week fiscal year ending of the last Saturday in
August composed of 13 four-week periods. The first quarter contains four such
periods or 16 weeks and each remaining quarter contains three periods or 12
weeks.
The information included in these interim financial statements reflect all
normal recurring adjustments which are, in the opinion of management, necessary
to fairly state the Company's financial position and the results of its
operations for the periods presented.
F-19
<PAGE>
VESTAR/LPA INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Consolidated Financial Statements include the accounts of Investment
and its wholly owned subsidiary, La Petite and its wholly owned subsidiary,
Services, after elimination of all significant intercompany accounts and
transactions.
3. OTHER ASSETS
<TABLE>
<CAPTION>
AUGUST 30, MARCH 14,
1997 1998
---------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Intangible assets:
Excess purchase price over net assets acquired......................................... $ 64,277 $64,277
Curriculum............................................................................. 1,497 1,497
Workforce.............................................................................. 3,248 3,248
Accumulated amortization............................................................... (12,714) (13,962)
---------- ---------
56,308 55,060
Deferred financing costs................................................................. 12,752 12,754
Accumulated amortization................................................................. (8,176) (9,240)
Other assets............................................................................. 3,303 3,530
---------- ---------
$ 64,187 $62,104
---------- ---------
---------- ---------
</TABLE>
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
<TABLE>
<CAPTION>
AUGUST 30, MARCH 14,
1997 1998
---------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Convertible Debentures, 6.5% payable through June 1, 2011................................ $ 850 $ 850
Senior Notes, 9.625% payable through August 1, 2001...................................... 85,000 85,000
Capital lease obligations................................................................ 366 2,536
---------- ---------
Total-long term debt and capital lease obligations..................................... 86,216 88,386
Less unamortized discount................................................................ (191) (184)
---------- ---------
86,025 88,202
Less current maturities of capital lease obligations..................................... (122) (857)
---------- ---------
$ 85,903 $87,345
---------- ---------
---------- ---------
</TABLE>
5. OTHER LONG-TERM LIABILTIES
<TABLE>
<CAPTION>
AUGUST 30, MARCH 14,
1997 1998
---------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Unfavorable leases, net of accumulated amortization...................................... $ 6,085 $ 5,419
Non-current reserve for closed Academies................................................. 5,609 4,919
Long-term insurance liabilities.......................................................... 2,625 3,536
---------- ---------
$ 14,319 $13,874
---------- ---------
---------- ---------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
The Company has litigation pending which arose in the ordinary course of
business. Litigation is subject to many uncertainties and the outcome of the
individual maters is not presently determinable. It is management's opinion that
this litigation will not result in liabilities that would have a material
adverse effect on the Company's financial position or results of operations.
F-20
<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 ISSUERS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.......................... ii
Prospectus Summary............................. 1
Risk Factors................................... 13
The Exchange Offer............................. 19
The Transactions............................... 27
Use of Proceeds................................ 27
Capitalization................................. 28
Selected Historical Consolidated Financial and
Other Data................................... 29
Unaudited Pro Forma Consolidated Financial
Information.................................. 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 36
Business....................................... 44
Management..................................... 55
Ownership of Securities........................ 59
Certain Relationships and Related
Transactions................................. 60
Description of the Credit Agreement............ 61
Description of Notes........................... 63
Certain United States Federal Income Tax
Considerations............................... 88
Book Entry; Delivery and Form.................. 91
Plan of Distribution........................... 93
Legal Matters.................................. 94
Experts........................................ 94
Index to Financial Statements.................. F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$145,000,000
LA PETITE ACADEMY, INC.
LPA HOLDING CORP.
10% SERIES B SENIOR NOTES DUE 2008
------------------------
PROSPECTUS
------------------------
, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director. Pursuant to Section 102(b)(7) of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation of
the Company and Parent provide that the directors of the Company and Parent,
individually or collectively, shall not be held personally liable to the Company
or Parent (as the case may be) or their respective stockholders for monetary
damages for breaches of fiduciary duty as directors, except that any director
shall remain liable (1) for any breach of the director's fiduciary duty of
loyalty to the Company or Parent (as the case may be) or their respective
stockholders, (2) for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law, (3) for liability under
Section 174 of the General Corporation Law of the State of Delaware or (4) for
any transaction from which the director derived an improper personal benefit.
The by-laws of the Company and Parent provide for indemnification of their
respective officers and directors to the full extent authorized by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of LPA Holding Corp.
3.2 -- Certificate of Designations, Preferences and Rights of Series A Redeemable Preferred Stock of LPA
Holding Corp.
3.3 -- Bylaws of LPA Holding Corp.
3.4 -- Amended and Restated Certificate of Incorporation of La Petite Academy, Inc.
3.5 -- Bylaws of La Petite Academy, Inc.
4.1 -- Indenture among LPA Holding Corp., La Petite Academy, Inc., LPA Services, Inc. and PNC Bank,
National Association dated as of May 11, 1998
*5.1 -- Opinion of O'Sullivan, Graev & Karabell, LLP
10.1 -- Purchase Agreement among Vestar/LPA Investment Corp., La Petite Academy, Inc., LPA Services, Inc.,
Chase Securities Inc. and NationsBanc Montgomery Securities LLC dated May 6, 1998
10.2 -- Exchange and Registration Rights Agreement among La Petite Academy, Inc., LPA Holding Corp., LPA
Services, Inc., Chase Securities Inc., NationsBanc Montgomery Securities LLC dated May 11, 1998
10.3 -- Merger Agreement by and between LPA Investment LLC and Vestar/LPA Investment Corp. dated as of
March 17, 1998
10.5 -- Stockholders Agreement among LPA Holding Corp., Vestar/LPT Limited Partnership, LPA Investment LLC
and the management stockholders dated as of May 11, 1998
10.6 -- 1998 Stock Option Plan and Stock Option Agreement for LPA Holding Corp. dated as of May 18, 1998
10.7 -- Preferred Stock Registration Rights Agreement between LPA Holding Corp. and LPA Investment LLC
dated May 11, 1998
10.8 -- Registration Rights Agreement among LPA Holding Corp., Vestar/LPT Limited Partnership, the
stockholders listed therein and LPA Investment LLC, dated May 11, 1998
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.9 -- Employment Agreement among LPA Holding Corp., La Petite Academy, Inc. and James R. Kahl
10.10 -- Employment Agreement among LPA Holding Corp., La Petite Academy, Inc. and Rebecca Perry
10.11 -- Employment Agreement among LPA Holding Corp., La Petite Academy, Inc. and Phillip Kane
10.12 -- Credit Agreement dated as of May 11, 1998 among La Petite Academy, Inc., LPA Holding Corp.,
Nationsbank, N.A., and The Chase Manhattan Bank
10.13 -- Pledge Agreement among La Petite Academy, Inc., LPA Holding Corp., Subsidiary Pledgors and
Nationsbank, N.A. dated as of May 11, 1998
10.14 -- Security Agreement among La Petite Academy, Inc., LPA Holding Corp., Subsidiary Guarantors and
Nationsbank, N.A. dated as of May 11, 1998
10.15 -- Parent Guarantee Agreement among LPA Holding Corp. and Nationsbank, N.A. dated as of May 11, 1998
10.16 -- Subsidiary Guarantee Agreement among Subsidiary Guarantor of La Petite Academy, Inc., LPA
Services, Inc. and Nationsbank, N.A. dated as of May 11, 1998
10.17 -- Indemnity, Subrogation and Contribution Agreement among La Petite Academy, Inc., LPA Services,
Inc., as Guarantor and Nationsbank, N.A. dated as of May 11, 1998
12.1 -- Statement re: computation of ratios
21.1 -- Subsidiaries of Registrant
23.1 -- Consent of O'Sullivan Graev & Karabell, LLP (included in Exhibit 5.1)
23.2 -- Consent of Deloitte & Touche LLP
24.1 -- Powers of Attorney (included on the signature page)
25.1 -- Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of PNC Bank,
National Association as Trustee
27.1 -- Financial Data Schedule
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Guaranteed Delivery
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
99.4 -- Form of Letter to Clients
</TABLE>
- ------------------
* To be filed by Amendment.
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore have
been omitted.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
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-2
<PAGE>
(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 thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the 'Securities Act') may be permitted to directors, officers and
controlling persons of the registrants pursuant to the DGCL, the Act, the
Certificate of Incorporation and Bylaws of the Company or Parent, or otherwise,
the registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrants of expenses incurred or paid by a director, officer or
controlling person of any 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 registrants 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
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrants hereby undertake 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.
(d) The undersigned registrants hereby undertake 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 OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK ON THIS 5TH DAY OF JUNE, 1998.
LA PETITE ACADEMY, INC.
By: /s/ JAMES R. KAHL
----------------------------------
Name: James R. Kahl
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JAMES R. KAHL AND PHILLIP M. KANE, AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS AND AGENTS AND EACH OF THEM FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON THIS 5TH DAY OF JUNE, 1998 BY THE
FOLLOWING PERSONS IN THE CAPACITY INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ------------------------------------------------------------------
<S> <C>
/s/ JAMES R. KAHL Chairman of the Board of Directors, President, Chief Executive
- ------------------------------------------ Officer and Director (principal executive officer)
James R. Kahl
/s/ PHILLIP M. KANE Senior Vice President, Finance and Chief Financial Officer
- ------------------------------------------ (principal financial officer and principal accounting officer)
Phillip M. Kane
/s/ MITCHELL J. BLUTT, M.D. Director
- ------------------------------------------
Mitchell J. Blutt, M.D.
/s/ ROBERT E. KING Director
- ------------------------------------------
Robert E. King
/s/ STEPHEN P. MURRAY Director
- ------------------------------------------
Stephen P. Murray
/s/ BRIAN J. RICHMAND Director
- ------------------------------------------
Brian J. Richmand
</TABLE>
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK ON THIS 5TH DAY OF JUNE, 1998.
LPA HOLDING CORP.
By: /s/ JAMES R. KAHL
----------------------------------
Name: James R. Kahl
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JAMES R. KAHL AND PHILLIP M. KANE, AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS AND AGENTS AND EACH OF THEM FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON THIS 5TH DAY OF JUNE, 1998 BY THE
FOLLOWING PERSONS IN THE CAPACITY INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ------------------------------------------------------------------
<S> <C>
/s/ JAMES R. KAHL President, Chief Executive Officer, Chief Financial Officer and
- ------------------------------------------ Director (principal executive officer, principal financial officer
James R. Kahl and principal accounting officer)
/s/ MITCHELL J. BLUTT, M.D. Director
- ------------------------------------------
Mitchell J. Blutt, M.D.
/s/ ROBERT E. KING Director
- ------------------------------------------
Robert E. King
/s/ STEPHEN P. MURRAY Director
- ------------------------------------------
Stephen P. Murray
/s/ BRIAN J. RICHMAND Director
- ------------------------------------------
Brian J. Richmand
</TABLE>
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK ON THIS 5TH DAY OF JUNE, 1998.
LPA SERVICES, INC
By: /s/ JAMES R. KAHL
----------------------------------
Name: James R. Kahl
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JAMES R. KAHL AND PHILLIP M. KANE, AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS AND AGENTS AND EACH OF THEM FULL POWER AND AUTHORITY TO DO AND PERFORM
EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON THIS 5TH DAY OF JUNE, 1998 BY THE
FOLLOWING PERSONS IN THE CAPACITY INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ------------------------------------------------------------------
<S> <C>
/s/ JAMES R. KAHL President, Chief Executive Officer and Director (principal
- ------------------------------------------ executive officer)
James R. Kahl
/s/ PHILLIP M. KANE Vice President of Finance, Chief Financial Officer and Director
- ------------------------------------------ (principal financial officer and principal accounting officer)
Phillip M. Kane
/s/ PEGGY A. FORD Secretary and Director
- ------------------------------------------
Peggy A. Ford
</TABLE>
II-6
<PAGE>
VESTAR/LPA INVESTMENT CORP.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
RESERVE FOR CLOSED ACADEMIES
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
AUGUST 31, COSTS AND CHARGED TO AUGUST 30,
DESCRIPTION 1996 EXPENSES RESERVE 1997
- ---------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reserve for Closed Academies........................ $ 10,893 $ $3,424 $ 7,469
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
AUGUST 26, COSTS AND CHARGED TO AUGUST 31,
DESCRIPTION 1995 EXPENSES RESERVE 1996
- ---------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reserve for Closed Academies........................ $ 13,711 $ $2,818 $ 10,893
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
AUGUST 27, COSTS AND CHARGED TO AUGUST 26,
DESCRIPTION 1994 EXPENSES RESERVE 1995
- ---------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reserve for Closed Academies........................ $ 2,971 $ 11,700 $ 960 $ 13,711
</TABLE>
S-1
<PAGE>
VESTAR/LPA INVESTMENT CORP.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
AUGUST 31, COSTS AND AUGUST 30,
DESCRIPTION 1996 EXPENSES WRITE-OFFS 1997
- ----------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts...................... $ 82 $1,670 $1,669 $ 83
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
AUGUST 26, COSTS AND AUGUST 31,
DESCRIPTION 1995 EXPENSES WRITE-OFFS 1996
- ----------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts...................... $722 $1,109 $1,749 $ 82
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
AUGUST 27, COSTS AND AUGUST 26,
DESCRIPTION 1994 EXPENSES WRITE-OFFS 1995
- ----------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts...................... $621 $ 841 $ 740 $722
</TABLE>
(a) During the fourth quarter of fiscal 1996, the Company performed an audit of
its third party receivable balances and wrote off substantially all of its
uncollectible accounts. In addition, the Company implemented new procedures
and controls to ensure write-offs are recorded on a timely basis.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of LPA Holding Corp.
3.2 -- Certificate of Designations, Preferences and Rights of Series A Redeemable Preferred
Stock of LPA Holding Corp.
3.3 -- Bylaws of LPA Holding Corp.
3.4 -- Amended and Restated Certificate of Incorporation of La Petite Academy, Inc.
3.5 -- Bylaws of La Petite Academy, Inc.
4.1 -- Indenture among LPA Holding Corp., La Petite Academy, Inc., LPA Services, Inc. and PNC
Bank, National Association dated as of May 11, 1998
*5.1 -- Opinion of O'Sullivan, Graev & Karabell, LLP
10.1 -- Purchase Agreement among Vestar/LPA Investment Corp., La Petite Academy, Inc., LPA
Services, Inc., Chase Securities Inc. and NationsBanc Montgomery Securities LLC dated May
6, 1998
10.2 -- Exchange and Registration Rights Agreement among La Petite Academy, Inc., LPA Holding
Corp., LPA Services, Inc., Chase Securities Inc., NationsBanc Montgomery Securities LLC
dated May 11, 1998
10.3 -- Merger Agreement by and between LPA Investment LLC and Vestar/LPA Investment Corp. dated
as of March 17, 1998
10.5 -- Stockholders Agreement among LPA Holding Corp., Vestar/LPT Limited Partnership, LPA
Investment LLC and the management stockholders dated as of May 11, 1998
10.6 -- 1998 Stock Option Plan and Stock Option Agreement for LPA Holding Corp. dated as of May
18, 1998
10.7 -- Preferred Stock Registration Rights Agreement between LPA Holding Corp. and LPA
Investment LLC dated May 11, 1998
10.8 -- Registration Rights Agreement among LPA Holding Corp., Vestar/LPT Limited Partnership,
the stockholders listed therein and LPA Investment LLC, dated May 11, 1998
10.9 -- Employment Agreement among LPA Holding Corp., La Petite Academy, Inc. and James R. Kahl
10.10 -- Employment Agreement among LPA Holding Corp., La Petite Academy, Inc. and Rebecca Perry
10.11 -- Employment Agreement among LPA Holding Corp., La Petite Academy, Inc. and Phillip Kane
10.12 -- Credit Agreement dated as of May 11, 1998 among La Petite Academy, Inc., LPA Holding
Corp., Nationsbank, N.A., and The Chase Manhattan Bank
10.13 -- Pledge Agreement among La Petite Academy, Inc., LPA Holding Corp., Subsidiary Pledgors
and Nationsbank, N.A. dated as of May 11, 1998
10.14 -- Security Agreement among La Petite Academy, Inc., LPA Holding Corp., Subsidiary
Guarantors and Nationsbank, N.A. dated as of May 11, 1998
10.15 -- Parent Guarantee Agreement among LPA Holding Corp. and Nationsbank, N.A. dated as of May
11, 1998
10.16 -- Subsidiary Guarantee Agreement among Subsidiary Guarantor of La Petite Academy, Inc., LPA
Services, Inc. and Nationsbank, N.A. dated as of May 11, 1998
10.17 -- Indemnity, Subrogation and Contribution Agreement among La Petite Academy, Inc., LPA
Services, Inc., as Guarantor and Nationsbank, N.A. dated as of May 11, 1998
12.1 -- Statement re: computation of ratios
21.1 -- Subsidiaries of Registrant
23.1 -- Consent of O'Sullivan Graev & Karabell, LLP (included in Exhibit 5.1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
23.2 -- Consent of Deloitte & Touche LLP
24.1 -- Powers of Attorney (included on the signature page)
25.1 -- Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of PNC
Bank, National Association as Trustee
27.1 -- Financial Data Schedule
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Guaranteed Delivery
99.3 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
99.4 -- Form of Letter to Clients
</TABLE>
- ------------------
* To be filed by Amendment.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LPA HOLDING CORP.
The name of the Corporation is LPA Holding Corp. The
Corporation was duly incorporated in the State of Delaware in April 1, 1993.
This Amended and Restated Certificate of Incorporation is being filed pursuant
to Sections 242 and 245 of the General Corporation Law of the State of Delaware.
ARTICLE FIRST
The name of the corporation (herein called the "Corporation")
is LPA Holding Corp.
ARTICLE SECOND
The address of the registered office of the Corporation in the
State of Delaware is 9 East Loockerman Street, City of Dover, County of Kent.
The name of the registered agent of the Corporation at such address is National
Registered Agents, Inc.
ARTICLE THIRD
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE FOURTH
The total number of shares of all classes of stock which
this corporation shall have authority to issue is 1,000,000, consisting of
950,000 shares of Class A Common Stock, $.01 par value (hereinafter referred
to as "Class A Common Stock"), 20,000 shares of Class B Common Stock, $.01 par
value (hereinafter referred to as "Class B Common Stock" and,
1
<PAGE>
collectively with the Class A Common Stock, the "Common Stock") and 30,000
shares of Preferred Stock, $.01 par value (hereinafter referred to as the
"Preferred Stock"), the rights, preferences and limitations of which shall be
determined by the Board of Directors.
The following is a statement of the designations, preferences,
voting powers, qualifications, special or relative rights and privileges in
respect of the authorized capital stock of the Corporation.
(a) Common Stock. Except where otherwise provided by law, by
this Amended and Restated Certificate of Incorporation, or by
resolution of the Board of Directors pursuant to this Article FOURTH,
all shares of Common Stock shall be identical in all respects and shall
entitle the holders thereof to the same rights and privileges, subject
to the same qualifications, limitations and restrictions. All holders
of Common Stock issued and outstanding shall have and possess the
exclusive right to notice of stockholders' meetings. Except as
otherwise required by applicable law or as set forth herein, the
holders of Class A Common Stock and Class B Common Stock shall vote
together on all matters as a single class and each share of Common
Stock shall entitle to the holder thereof to cast one vote. The holders
of Class B Common Stock shall have the exclusive right, voting
separately as a class, to elect one director to the board of directors
of the Corporation. Each share of Class B Common Stock shall be
convertible at the option of the holder thereof, at any time and from
time to time, into one share of Class A Common Stock. Subject to the
rights of the Preferred Stock, dividends may be paid on the Common
Stock, as and when declared by the Board of Directors, out of any funds
of this corporation legally available for the payment of such
dividends.
(b) Preferred Stock. The Board of Directors is authorized,
subject to any limitations prescribed by law, to provide for the
issuance of the shares of Preferred Stock in one or more series, and by
filing a certificate pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and any
2
<PAGE>
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but
not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the Common Stock,
without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
certificate or certificates establishing the series of Preferred Stock.
ARTICLE FIFTH
The number of directors of the Corporation shall be such as
from time to time shall be fixed in the manner provided in the By-laws of the
Corporation. The election of directors of the Corporation need not be by
ballot unless the By-laws so require. The individual elected to the board of
directors of the Corporation by the vote of a majority of the holders of Class
B Common Stock, voting separately as a class, shall be entitled to three votes
as a director. Each other individual elected to serve as a director of the
Corporation in accordance with the Bylaws shall be entitled to one vote as a
director.
ARTICLE SIXTH
A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation 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 Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit. If the Delaware General Corporation Law is
amended after the date of incorporation of the Corporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the
3
<PAGE>
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph 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.
ARTICLE SEVENTH
For the management of the business and for the conduct of
the affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation and of its directors and
stockholders, it is further provided:
(a) In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized and empowered:
(i) to make, alter, amend or repeal the By-laws in any
manner ot inconsistent with the laws of the State of Delaware
or this Certificate of Incorporation;
(ii) without the assent or vote of the stockholders, to
authorize and issue securities and obligations of the
Corporation, secured or unsecured, and to include therein such
provisions as to redemption, conversion or other terms
thereof as the Board of Directors in its sole discretion may
determine, and to authorize the mortgaging or pledging, as
security therefor, of any property of the Corporation, real
or personal, including after-acquired property;
(iii) to determine whether any, and if any, what part, of
the net profits of the Corporation or of its surplus shall be declared
in dividends and paid to the stockholders, and to direct and determine
the use and disposition of any such net profits or such surplus; and
(iv) to fix from time to time the amount of net profits
of the Corporation or of its surplus to be reserved as working capital
or for any other lawful purpose.
4
<PAGE>
In addition to the powers and authorities herein or by
statute expressly conferred upon it, the Board of Directors may
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the laws of the State of Delaware, of this Certificate
of Incorporation and of the By-laws of the Corporation.
(b) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in
such manner as shall be provided in the By-laws of the Corporation.
(c) From time to time any of the provisions of this
Certificate of Incorporation may be altered, amended or repealed, and
other provisions authorized by the laws of the State of Delaware at the
time in force may be added or inserted, in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
stockholders of the Corporation by this Certificate of Incorporation
are granted subject to the provisions of this paragraph (c).
ARTICLE EIGHTH
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of the Delaware General Corporation Law or on
the application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of Section 279 of the
Delaware General Corporation Law order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class
5
<PAGE>
of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree on any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
6
<PAGE>
Dated May __, 1998
LPA HOLDING CORP.
By:
--------------------------------
Name:
Title:
<PAGE>
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES A REDEEMABLE PREFERRED STOCK
OF
LPA HOLDING CORP.
* * * *
LPA HOLDING CORP., a corporation organized and existing
under the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY.
That, pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation of said Corporation, and
pursuant to the provisions of Section 151 of Title 8 of the Delaware Code of
1953, said Board of Directors, at a meeting duly held on May 11, 1998, adopted
a resolution providing for the issuance of a series of 30,000 shares of Series
A Redeemable Preferred Stock (as herein defined), which resolution is as
follows:
RESOLVED, that a series of Preferred Stock in LPA Holding
Corp., a Delaware corporation (the "Corporation"), having the rights,
preferences, privileges and restrictions, and the number of shares
constituting such series and the designation of such series set forth below,
is hereby authorized by the Board of Directors of the Corporation pursuant to
authority given by the Corporation's Certificate of Incorporation, as amended.
1. Number and Designation.
(a) This series shall consist of 30,000 preferred shares in
the Corporation and shall be designated the Series A Redeemable
Preferred Stock ("Redeemable Preferred Stock").
2. Dividends.
(a) During the Initial Dividend Period, dividends shall accrue
at the Applicable Dividend Rate on the sum of the Original Cost of a
share of Redeemable Preferred Stock plus all accumulated and unpaid
dividends thereon since the most recently preceding Preferred
Dividend Payment Date. Any dividends which accrue pursuant to this
Section 2(a) and which are not paid on the Preferred Dividend Payment
Date shall be classified as "accumulated dividends" and shall remain
"accumulated and unpaid dividends" until paid or otherwise canceled
pursuant to this Certificate. Such dividends shall accrue at the
Applicable Dividend Rate regardless of whether the Board of Directors
has declared a
<PAGE>
dividend payment or whether there are any profits, surplus or other
funds of the Corporation legally available for such dividends.
(b) During the Subsequent Dividend Period, the holders of the
outstanding shares of Redeemable Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors, out of
funds legally available therefor, cash dividends which shall accrue
at the Applicable Dividend Rate on the sum of the Original Cost of a
share of Redeemable Preferred Stock plus all accumulated and unpaid
dividends thereon since the most recently preceding Preferred
Dividend Payment Date, payable on each of December 31 and June 30
(each, the "Preferred Dividend Payment Date"), the first such
Preferred Dividend Payment Date for which dividends are payable in
cash being December 31, 2005. Such dividends shall accrue at the
Applicable Dividend Rate regardless of whether the Board of Directors
of the Corporation has declared a dividend payment or whether there
are any profits, surplus or other funds of the Corporation legally
available for dividends; provided, however that such dividend
payments are subject to any restrictions set forth in the agreements
with the holders of Senior Debt of the Corporation or its
Subsidiaries (including any limitations on dividends or distributions
by Subsidiaries.) Any dividends which accrue pursuant to this Section
2(b) and which are not paid on the Preferred Dividend Payment Date
shall be classified as "accumulated dividends" and shall remain
"accumulated and unpaid dividends" until paid or otherwise canceled
pursuant to this Certificate. All payments due under this Section
2(b) to any holder of shares of Redeemable Preferred Stock shall be
made to the nearest cent.
(c) The dividends payable with respect to the Redeemable
Preferred Stock on each Preferred Dividend Payment Date pursuant to
Section 2(b) shall be paid to the holders of shares of the Redeemable
Preferred Stock as they appear on the stock records of the
Corporation on such date (the "Preferred Record Date") as shall be
fixed by the Board of Directors, which Preferred Record Date shall
not be more than 60 days prior to the applicable Preferred Dividend
Payment Date and shall not precede the date upon which the resolution
fixing such Preferred Record Date is adopted.
(d) No dividend or distribution shall be paid to the holders
of any class of Redeemable Preferred Stock pursuant to Section 2(b)
in any form of consideration other than cash unless the holders of a
majority of the shares of such class of Redeemable Preferred Stock,
at the time of the distribution, approve such distribution (including
the valuation of the consideration being distributed).
(e) Subject to the restrictions set forth in Section 8(b), so
long as any shares of the Redeemable Preferred Stock are outstanding,
the Corporation shall not pay or declare or set apart for payment any
dividend or make any other distribution or other payment on or with
respect to the Common Stock or any class or series of stock of the
Corporation ranking on a parity with or junior to the Redeemable
Preferred Stock with respect to dividends or redeem, repurchase or
otherwise acquire any such stock unless the Corporation has paid, or
at the same time pays, all unpaid dividends on the Redeemable
Preferred Stock pursuant to this Section 2 that have accrued since
the beginning of the Subsequent Dividend Period.
<PAGE>
(f) Except as otherwise provided herein, if at any time the
Corporation pays less than the total amount of dividends then accrued
with respect to the Redeemable Preferred Stock, such payment shall be
distributed ratably among the holders of the such class of Redeemable
Preferred Stock based upon the number of shares of such class of
Redeemable Preferred Stock then held by each holder.
3. Liquidity Event.
Upon a Liquidity Event, after payment or provision for
payment in cash or cash equivalents of the debts and other liabilities of the
Corporation, the holders of Redeemable Preferred Stock shall be entitled to
receive, out of the remaining assets of the Corporation available for
distribution to its stockholders, with respect to each share of Redeemable
Preferred Stock, an amount equal to the Liquidation Amount of such share
before any distribution shall be made to the holders of the Common Stock or
any other class of capital stock of the Corporation ranking junior to the
Redeemable Preferred Stock. If upon any Liquidity Event the assets of the
Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of Redeemable Preferred Stock the full
Liquidation Amount to which they shall be entitled, the holders of Redeemable
Preferred Stock shall share in any distribution of assets pro rata in
accordance with the total Liquidation Amount that each such holder would have
received had there been such sufficient assets.
4. Mandatory Redemption.
Subject to the Corporation having funds legally available
for such purpose, the Corporation shall redeem all of the shares of the
Redeemable Preferred Stock then outstanding on the Mandatory Redemption Date.
The per share redemption price at which shares of the Redeemable Preferred
Stock are to be redeemed pursuant to this Section 4 shall be equal to the
Liquidation Amount (the "Mandatory Redemption Price"). If the funds of the
Corporation legally available for redemption of shares of Redeemable Preferred
Stock shall be insufficient to permit the payment of the Mandatory Redemption
Price required to be paid pursuant to this Section 4, then the holders of
Redeemable Preferred Stock shall share in any legally available funds ratably
in any such redemption based on the respective number of Redeemable Preferred
Stock that each holder thereof holds and the Corporation shall redeem the
remaining shares to have been redeemed as soon as practicable after the
Corporation has funds legally available therefor.
5. Change of Control
(a) Upon the occurrence of a Change of Control, the
Corporation shall be obligated to make an offer to purchase (the
"Change of Control Offer") the outstanding Redeemable Preferred Stock
at a purchase price equal to 101% of the original cost thereof plus,
without duplication, an amount in cash equal to all accumulated and
unpaid dividends thereon (including an amount in cash equal to a
prorated dividend for the period from the immediately preceding
Preferred Dividend Payment Date to the Change of Control Payment
Date) (such applicable purchase price being hereinafter referred to
as
<PAGE>
the "Change of Control Purchase Price") in accordance with the
procedures set forth in this Section 5.
(b) Within 90 days of the occurrence of a Change of Control,
the Corporation shall (i) cause a notice of the Change of Control
Offer to be sent at least once to the Dow Jones News Service or
similar business news service in the United States and (ii) send by
first-class mail, postage prepaid, to each holder of Redeemable
Preferred Stock, at the address appearing in the register maintained
by or on behalf of the Corporation, a notice stating:
(i) that the Change of Control Offer is being made
pursuant to this Section 5 and that all Redeemable Preferred
Stock validly tendered will be accepted for payment;
(ii) the Change of Control Purchase Price and the
purchase date (which shall be a business day not earlier than
30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"));
(iii) that any Redeemable Preferred Stock not validly
tendered will continue to accumulate dividends;
(iv) that, unless the Corporation defaults in the
payment of the Change of Control Purchase Price, any
Redeemable Preferred Stock accepted for payment pursuant to
the Change of Control Offer shall cease to accumulate
dividends after the Change of Control Payment Date;
(v) that holders accepting the offer to have their
Redeemable Preferred Stock purchased pursuant to a Change of
Control Offer will be required to surrender their certificates
representing Redeemable Preferred Stock to the Corporation at
the address specified in the notice prior to the close of
business on the business day preceding the Change of Control
Payment Date;
(vi) that holders will be entitled to withdraw their
acceptance if the Corporation receives, not later than the
close of business on the third business day preceding the
Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder,
the number of shares of Redeemable Preferred Stock delivered
for purchase, and a statement that such holder is
withdrawing his election to have such Redeemable Preferred
Stock purchased;
(vii) that holders whose Redeemable Preferred Stock is
being purchased only in part will be issued new certificates
representing the number of shares of Redeemable Preferred
Stock equal to the unpurchased portion of the certificates
surrendered; and
(viii) any other procedures that a holder must follow to
accept a Change of Control Offer or effect withdrawal of such
acceptance.
<PAGE>
(c) The Corporation will comply with any securities laws and
regulations, to the extent such laws and regulations, to the extent
such laws and regulations are applicable to the redemption of the
Redeemable Preferred Stock in connection with a Change of Control
Offer. Without limiting the foregoing, in the event that a Change of
Control occurs and the holders of Redeemable Preferred Stock exercise
their right to require the Corporation to purchase Redeemable
Preferred Stock, if such purchase constitutes a "tender offer" for
purposes of Rule 14e-1 under the Exchange Act at that time, the
Corporation will comply with the requirements of Rule 14e-1 as then
in effect with respect to such repurchase.
(d) On the Change of Control Payment Date, the Corporation
shall, to the extent lawful, (i) accept for payment the number of
shares of Redeemable Preferred Stock validly tendered pursuant to the
Change of Control Offer and (ii) promptly mail to each holder of
shares so accepted the Change of Control Purchase Price therefor and
execute and issue a new Redeemable Preferred Stock certificate
representing the number of shares of Redeemable Preferred Stock equal
to any unpurchased shares represented by a certificate surrendered.
Unless the Corporation defaults in the payment for the shares of
Redeemable Preferred Stock validly tendered pursuant to the Change of
Control Offer, dividends shall cease to accrue with respect to the
shares of Redeemable Preferred Stock so tendered and all rights of
holders of such tendered shares shall terminate, except for the right
to receive payment therefor, on the Change of Control Payment Date.
(e) If any Senior Debt of the Corporation or its Subsidiaries
would prevent the Corporation from making a Change of Control Offer
or paying the Change of Control Purchase Price (including any
limitations on dividends or distributions by Subsidiaries), then,
upon a Change of Control, prior to the mailing of the notice to
holders described in Section 5(b) above, but in any event within 30
days following any Change of Control, the Corporation shall, to the
extent required to permit the repurchase of Redeemable Preferred
Stock pursuant to this Section 5, be required to (i) cause the
borrowers thereunder to repay in full all obligations under such
Senior Debt or (ii) cause such borrowers to obtain the requisite
consent from the holders of such Senior Debt to permit the repurchase
of the Redeemable Preferred Stock as described above. Until the
requirements of the immediately preceding sentence are satisfied, the
Corporation shall not make, and shall not be required to make, any
Change of Control Offer.
(f) (i) If the Corporation has issued any outstanding
Preferred Stock (other than the Redeemable Preferred Stock), and the
Corporation is required to make a Change of Control Offer or to make
a distribution with respect to such Preferred Stock (other than the
Redeemable Preferred Stock) in the event of a Change of Control, the
Corporation shall not consummate any such offer or distribution with
respect to such Preferred Stock (other than the Redeemable Preferred
Stock) until such time as the Corporation shall have paid the Change
of Control Purchase Price in full to the holders of Redeemable
Preferred Stock that have validly accepted the Corporation's Change
of Control Offer and shall otherwise have consummated the Change of
Control Offer made to holders of the Redeemable Preferred Stock and
(ii) the Corporation will not issue Preferred Stock with change of
control provisions requiring the payment of such Preferred Stock
prior to the
<PAGE>
payment of the Redeemable Preferred Stock in the event
of a Change of Control under this Section 5.
(g) The Corporation will not be required to make a Change of
Control Offer upon a Change of Control if a third party makes such
Change of Control Offer contemporaneously with or upon a Change of
Control in the manner, at the times and otherwise in compliance with
the requirements of this Section 5 and purchases all Redeemable
Preferred Stock validly tendered and not withdrawn under such Change
of Control Offer.
6. Asset Sales
(a) Upon the consummation of an Asset Sale, the Corporation
shall apply, or cause a Subsidiary to apply, the Net Cash
Proceeds relating to such Asset Sale within eighteen months
after receipt thereof either (i) to prepay any Senior Debt,
(ii) to make an investment in properties and assets that
replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that will be used in the
business of the Corporation and its Subsidiaries as existing on
the Original Issuance Date or in businesses the same, similar
or reasonably related thereto ("Replacement Assets"), or (iii)
a combination of prepayment and investment permitted by the
foregoing clauses (i) and (ii). On the 1st business day of the
nineteenth month after receipt of such Net Cash Proceeds after
an Asset Sale or such earlier date, if any, as the Board of
Directors of
the Corporation or of such Subsidiary determines not to apply the Net
Cash Proceeds relating to such Asset Sale as set forth in clauses
(i), (ii) and (iii) above (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have
not been applied on or before such Net Proceeds Trigger Date as
permitted in clauses (i), (ii) or (iii) above (each a "Net Proceeds
Offer Amount") shall be applied by the Corporation or such Subsidiary
to make an offer to purchase (the "Net Proceeds Offer") on a date (the
"Net Proceeds Offer Payment Date") not less than 30 nor more than 60
days following the applicable Net Proceeds Offer Trigger Date, from
all holders of Redeemable Preferred Stock, the maximum amount of
Redeemable Preferred Stock that can be purchased with the Net
Proceeds Offer Amount at a price equal to the sum of (x) 101% of the
Liquidation Amount as of the most recently preceding Preferred
Dividend Payment Date of the Redeemable Preferred Stock to be
purchased, plus (y) accrued and unpaid dividends thereon, if any, to
the date of purchase (the "Net Proceeds Purchase Price"); provided,
however, that if at any time any non-cash consideration
received by the Corporation or any Subsidiary of the Corporation, as
the case may be, in connection with any Asset Sale is converted into or
sold or otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration), then such
conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in
accordance with this covenant. The Corporation may defer the Net
Proceeds until there is an aggregate unutilized Net Proceeds Offer
Amount equal to or in excess of $10 million resulting from one or
more Asset Sales (at which time, the entire unutilized Net Proceeds
Offer Amount, and not just the amount in excess of $10 million, shall
be applied as required pursuant to this paragraph).
<PAGE>
Notwithstanding the foregoing, the Corporation may redeem
pursuant to Section 7 the maximum amount of Redeemable Preferred Stock that
may be redeemed with the Net Proceeds Offer Amount. If the Corporation elects
to so redeem, it shall have no obligation to make a Net Cash Proceeds Offer.
If holders of Redeemable Preferred Stock accept the Net
Proceeds Offer with respect to Redeemable Preferred Stock having a Liquidation
Amount as of the most recently Preferred Dividend Payment Date in excess of
the Net Proceed Offer Amount, then such holders shall share ratably (or as
close thereto as possible to permit the redemption of whole shares) in any
such purchase based on the respective number of shares of Redeemable Preferred
Stock that each such holder thereof holds; provided, however, that in all
events, the Corporation shall purchase whole shares.
(b) On the Net Proceeds Offer Trigger Date, the Corporation
shall (i) cause a notice of the Net Proceeds Offer to be sent at
least once to the Dow Jones News Service or similar business news
service in the United States and (ii) send by first-class mail,
postage prepaid, to each holder of Redeemable Preferred Stock, at the
address appearing in the register maintained by the Transfer Agent, a
notice stating:
(i) that the Net Proceeds Offer is being made pursuant
to this Section 6 and that all Redeemable Preferred Stock
validly tendered will be accepted for payment;
(ii) the Net Proceeds Purchase Price and the purchase
date (which shall be a business day not earlier than 30 days
nor later than 60 days from the date such notice is mailed
(the "Net Proceeds Payment Date"));
(iii) that any Redeemable Preferred Stock not validly
tendered will continue to accumulate dividends;
(iv) that, unless the Corporation defaults in the
payment of the Net Proceeds Purchase Price, any Redeemable
Preferred Stock accepted for payment pursuant to the Net
Proceeds Offer shall cease to accumulate dividends after the
Net Proceeds Payment Date;
(v) that holders accepting the offer to have their
Redeemable Preferred Stock purchased pursuant to a Net
Proceeds Offer will be required to surrender their
certificates representing Redeemable Preferred Stock to the
Corporation at the address specified in the notice prior to
the close of business on the business day preceding the Net
Proceeds Payment Date;
(vi) that holders will be entitled to withdraw their
acceptance if the Corporation receives, not later than the
close of business on the third business day preceding the Net
Proceeds Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder,
the number of shares of Redeemable Preferred Stock delivered
for purchase, and a statement that such holder is withdrawing
his election to have such Redeemable Preferred Stock
purchased;
<PAGE>
(vii) that holders whose Redeemable Preferred Stock is
being purchased only in part will be issued new certificates
representing the number of shares of Redeemable Preferred
Stock equal to the unpurchased portion of the certificates
surrendered; and
(viii) any other procedures that a holder must follow
to accept a Net Proceeds Offer or effect withdrawal of such
acceptance.
(c) The Corporation will comply with any securities laws and
regulations, to the extent such laws and regulations, to the extent
such laws and regulations are applicable to the redemption of the
Redeemable Preferred Stock in connection with a Net Proceeds Offer.
Without limiting the foregoing, in the event that an Asset Sale
occurs and the holders of Redeemable Preferred Stock exercise their
right to require the Corporation to purchase Redeemable Preferred
Stock, if such purchase constitutes a "tender offer" for purposes of
Rule 14e-1 under the Exchange Act at that time, the Corporation will
comply with the requirements of Rule 14e-1 as then in effect with
respect to such repurchase.
(d) On the Net Proceeds Payment Date, the Corporation shall,
to the extent lawful, (i) accept for payment the number of shares of
Redeemable Preferred Stock validly tendered pursuant to the Net
Proceeds Offer and (ii) promptly mail to each holder of shares so
accepted the Net Proceeds Purchase Price therefor the execute and
issue a new Redeemable Preferred Stock certificate representing the
number of shares of Redeemable Preferred Stock equal to any
unpurchased shares represented by a certificate surrendered. Unless
the Corporation defaults in the payment for the shares of Redeemable
Preferred Stock validly tendered pursuant to the Net Proceeds Offer,
dividends shall cease to accumulate with respect to the shares of
Redeemable Preferred Stock so tendered and all rights of holders of
such tendered shares shall terminate, except for the right to receive
payment therefor, on the Net Proceeds Payment Date.
(e) Any obligation on the part of the Corporation to pay the
Net Proceeds Purchase Price shall be subject to the Corporation's and
its Subsidiaries' obligations to comply with the covenants set forth
in its agreements with the holders of its Senior Debt (including any
limitations on dividends or distributions by Subsidiaries) and
payments of any Net Proceeds Purchase Price payable may be deferred
in order to maintain the Corporation's compliance with such covenants
but shall, in any event, be paid as soon as permissable. Until the
requirements of the immediately preceding sentence are satisfied, the
Corporation shall not make, and shall not be required to make, any
Net Proceeds Offer.
(f) (i) If the Corporation has issued any outstanding
Preferred Stock (other than the Redeemable Preferred Stock), and the
Corporation is required to make a Net Proceeds Offer or to make a
distribution with respect to such Preferred Stock (other than the
Redeemable Preferred Stock) in the event of an Asset Sale, the
Corporation shall not consummate any such offer or distribution with
respect to such Preferred Stock (other than the Redeemable Preferred
Stock) until such time as the Corporation shall have paid the Net
Proceeds Offer Amount in full to the holders of Redeemable Preferred
Stock that have validly accepted the Corporation's Net Proceeds Offer
and shall otherwise have
<PAGE>
consummated the Net Proceeds Offer made to holders of the Redeemable
Preferred Stock and (ii) the Corporation will not issue Preferred
Stock with asset sale provisions requiring the payment of such
Preferred Stock prior to the payment of the Redeemable Preferred
Stock in the event of an Asset Sale under this Section 6.
7. Redemption at Option of the Corporation. The
Corporation shall have the right to redeem, out of funds legally
available for such purpose, all or any portion of the shares of
Redeemable Preferred Stock then outstanding, as follows:
(i) from the Original Issuance Date to the first
anniversary of the Original Issuance Date, the holders of
shares of Redeemable Preferred Stock shall be entitled to
receive the sum of (x) 103% of the Liquidation Amount as of
the most recently preceding Preferred Dividend Payment Date
plus (y) all accrued and unpaid dividends accrued since such
Preferred Dividend Payment Date and unpaid thereon with
respect to each share of Redeemable Preferred Stock;
(ii) from the first anniversary of the Original Issuance
Date to the second anniversary of the Original Issuance Date,
the holders of shares of Redeemable Preferred Stock shall be
entitled to receive the sum of (x) 102% of the Liquidation
Amount as of the most recently preceding Preferred Dividend
Payment Date plus (y) all accrued and unpaid dividends since
such Preferred Dividend Payment Date and unpaid thereon with
respect to each share of Redeemable Preferred Stock;
(iii) from the second anniversary of the Original
Issuance Date to the third anniversary of the Original
Issuance Date, the holders of shares of Redeemable Preferred
Stock shall be entitled to receive the sum of (x) 101% of the
Liquidation Amount as of the most recent preceding Preferred
Dividend payment Date plus (y) all accrued and unpaid
dividends since such Preferred Dividend Payment Date and
unpaid thereon with respect to each share of Redeemable
Preferred Stock; and
(iv) thereafter, the holders of shares of
Redeemable Preferred Stock shall be entitled to receive the
Liquidation Amount with respect to each share of Redeemable
Preferred Stock.
If the Corporation redeems less than all of the outstanding
Redeemable Preferred Stock pursuant to this Section 7, then the
requisite holders of Redeemable Preferred Stock shall share ratably
(or as close thereto as possible in order to permit the redemption of
whole shares) in any such redemption based on the respective number
of shares of Redeemable Preferred Stock that each holder thereof
holds; provided, however, that in all events, the Corporation shall
redeem whole shares.
(b) On and after any redemption date pursuant to this Section
7 (unless default shall be made by the Corporation in the payment of
the applicable redemption price, in which event such rights shall be
exercisable until such default is cured), all rights in respect of
the shares of Redeemable Preferred Stock to be redeemed, except the
right to
<PAGE>
receive the applicable redemption price, shall cease and terminate, and
such shares shall no longer be deemed to be outstanding, whether or not
the certificates representing such shares have been received by the
Corporation.
(c) Any communication or notice relating to redemption given
pursuant to this Section 7 shall be sent by first-class certified
mail, return receipt requested, postage prepaid, to the holders of
record of shares of Redeemable Preferred Stock, at their respective
addresses as the same shall appear on the books of the Corporation,
or to the Corporation at the address of its principal, or registered
office, as the case may be.
(d) At any time on or after any redemption date, the holders
of record of shares of Redeemable Preferred Stock being redeemed in
accordance with this Section 7 shall be entitled to receive the
applicable redemption price upon actual delivery to the Corporation or
its agents of the certificates representing the shares to be redeemed.
(e) Any redemption payments by the Corporation pursuant to
this Section 7 shall be paid in cash.
8. Voting Rights.
(a) The holders of the Redeemable Preferred Stock, except as
otherwise required under Delaware law or as set forth in the
paragraphs below, shall not be entitled or permitted to vote on any
matter required or permitted to be voted upon by the stockholders of
the Corporation.
(b) The Corporation shall not, and shall not permit any
Subsidiary to, without first obtaining the affirmative written
consent or approval of the Requisite Redeemable Preferred
Stockholders:
(i) in any manner authorize, create, designate, issue
or sell any class or series of capital stock of the
Corporation (including any shares of treasury stock) or
rights, options, warrants or other securities convertible
into or exercisable or exchangeable for capital stock or any
debt security which by its terms is convertible into or
exchangeable for any equity security or has any other equity
feature or any security that is a combination of debt and
equity, which, in each case, as to the payment of dividends,
distribution of assets or redemptions, including, without
limitation, distributions to be made upon a Liquidity Event,
is pari passu with or is senior to the Redeemable Preferred
Stock or which in any manner adversely affects the holders
of the Redeemable Preferred Stock (it being understood that
the Corporation shall be entitled to incur Indebtedness and
issue warrants to acquire Common Stock in connection with
any such incurrence of Indebtedness);
(ii) in any manner alter or change the terms,
designations, powers, preferences or relative,
participating, optional or other special rights, or the
qualifications, limitations or restrictions, of the
Redeemable Preferred Stock;
<PAGE>
(iii) reclassify the shares of any class or series of
capital stock of the Corporation into shares of any class or
series of capital stock (A) ranking, either as to payment of
dividends, distributions of assets or redemptions,
including, without limitation, distributions to be made upon
a Liquidation, senior to or on a parity with such Redeemable
Preferred Stock, or (B) which in any manner adversely
affects the rights of the holders of such Redeemable
Preferred Stock in their capacity as such;
(iv) amend, alter or repeal any of the provisions of
(A) this Certificate of Designation, (B) the Certificate of
Incorporation of the Corporation (as amended or restated) or
(C) the By-laws of the Corporation, if such amendment,
alteration or repeal would have an adverse effect on the
rights, preferences or privileges of the holders of such
Redeemable Preferred Stock;
(v) permit any Subsidiary to issue any capital stock to
any Person other than the Corporation or a direct or
indirect wholly owned Subsidiary of the Corporation; or
(vi) other than with respect to the Redeemable Preferred
Stock, the Qualified Stock or as would not be prohibited by
Section 4.04 of the Notes Indenture, declare or pay any
dividend, or make any payment on account of, or set apart
assets for a sinking or other analogous fund for, the
purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of capital stock of
the Corporation, or any warrants or options to purchase any
such capital stock, or make any other distribution in
respect thereof, either directly or indirectly, whether in
cash or property or in obligations of the Corporation.
9. Exchange.
(a) Requirements. The outstanding shares of Redeemable
Preferred Stock are exchangeable, in whole but not in part, at the
option of the Corporation, at any time on any Preferred Dividend
Payment Date for the Corporation's junior subordinated debentures
(the "Exchange Debentures"); provided, that any such exchange may
only be made if on or prior to the date of such exchange, (i) the
Corporation has paid (or is deemed to have paid) all accumulated
dividends on the Redeemable Preferred Stock which have accrued from
and after the Subsequent Dividend Period (including the dividends
payable on such Preferred Dividend Payment Date) and there shall be
no contractual impediment to such exchange on such Preferred Dividend
Payment Date; (ii) there shall be legally available funds sufficient
therefor; (iii) immediately after giving effect to such exchange, no
default or event of default under the Exchange Indenture or any other
material instrument governing Senior Debt outstanding at the time of
such exchange would be caused thereby; and (iv) the Exchange
Indenture has been qualified under the Trust Indenture Act, if such
qualification is required at the time of exchange. The exchange rate
shall be $1.00 principal amount of Exchange Debentures for each $1.00
of Liquidation Amount of Redeemable Preferred Stock. Exchange
Debentures shall be issued in principal amounts of $1,000 and
integral multiples thereof to the extent possible and, to the extent
necessary, in principal amounts less than $1,000, provided,
<PAGE>
that the Corporation shall have the right, at its option, to pay cash
in an amount equal to the principal amount of that portion of any
Exchange Debenture that is not an integral multiple of $1,000 in lieu
of delivering an Exchange Debenture in a denomination of less than
$1,000.
(b) Procedure for Exchange. At least thirty (30) days and not
more than sixty (60) days prior to the date fixed for exchange,
written notice (the "Exchange Notice") shall be given by the
Corporation by first-class mail, postage prepaid, to each holder of
record on the Preferred Record Date immediately preceding such
Preferred Dividend Payment Date at such holder's address as the same
appears on the stock register maintained by the Transfer Agent,
provided, that no failure to give such notice nor any deficiency
therein shall affect the validity of the procedure for the exchange
of shares of Redeemable Preferred Stock to be exchanged. The Exchange
Notice shall state:
(i) the date fixed for exchange;
(ii) that the holder is to surrender to the Corporation,
in the manner and at the place or places designated, his
certificate or certificates representing all his shares of
Redeemable Preferred Stock to be exchanged;
(iii) that dividends on the shares of Redeemable
Preferred Stock to be exchanged shall cease to accumulate on
the Exchange Date whether or not certificates for shares of
Redeemable Preferred Stock are surrendered for exchange on
the Exchange Date unless the Corporation shall default in
the delivery of the Exchange Debentures; and
(iv) that interest on the Exchange Debentures shall
accrue from the Exchange Date whether or not certificates
for shares of Redeemable Preferred Stock are surrendered for
exchange on the Exchange Date.
(A) On or before the Exchange Date, each
holder of shares of Redeemable Preferred Stock
shall surrender the certificates representing
such shares of Redeemable Preferred Stock, in
the manner and at the place designated in the
Exchange Notice. The Corporation shall cause the
Exchange Indenture and the Exchange Debentures
to be executed on the Exchange Date and, upon
surrender in accordance with the Exchange Notice
of the certificates for the shares of Redeemable
Preferred Stock so exchanged, duly endorsed (or
otherwise in proper form for transfer, as
determined by the Corporation), such shares
shall be exchanged by the Corporation into
Exchange Debentures. The Corporation shall pay
interest on the Exchange Debentures at the rate
and on the dates specified therein from the
Exchange Date.
(B) If notice has been mailed as aforesaid,
and if before the Exchange Date specified in
such notice all Exchange Debentures necessary
for such exchange shall have been duly
<PAGE>
executed by the Corporation and delivered to the
trustee under the Exchange Indenture with
irrevocable instructions to authenticate the
Exchange Debentures necessary for such exchange,
then the rights of the holders of Redeemable
Preferred Stock so exchanged as stockholders of
the Corporation shall cease (except the right to
receive Exchange Debentures (including Exchange
Debentures issued in exchange for shares of
Redeemable Preferred Stock issued on such
Preferred Dividend Payment Date), an amount in
cash equal to the amount of accumulated and
unpaid dividends to the Exchange Date and, if
the Corporation so elects, cash in lieu of any
Exchange Debenture not an integral multiple of
$1,000), and the Person or Persons entitled to
receive the Exchange Debentures issuable upon
exchange shall be treated for all purposes as
the registered holder or holders of such
Exchange Debentures as of the Exchange Date.
(v) No Exchange in Certain Cases. Notwithstanding the
foregoing provisions of this Section 9, the Corporation
shall not be entitled or required to exchange the Redeemable
Preferred Stock for Exchange Debentures if such exchange, or
any term or provision of the Exchange Indenture or the
Exchange Debentures, or the performance of the Corporation's
obligations under the Exchange Indenture or the Exchange
Debentures, shall materially violate or conflict with any
applicable law or agreement or instrument then binding on
the Corporation, including agreements with the holders of
the Senior Debt of the Corporation or its Subsidiaries, or
if, at the time of such exchange, the Corporation is
insolvent or it would be rendered insolvent by such
exchange.
10. Events of Non-Compliance.
(a) Each of the following shall constitute non-compliance
hereunder:
(i) the Corporation fails to pay in cash the dividends
or distributions required pursuant to Section 2(b) hereof
(regardless of whether such dividends are prohibited by
restrictions set forth in the agreements for Senior Debt)
and such failure to pay continues 10 days after notice of
such breach has been delivered by any holder of Redeemable
Preferred Stock, unless otherwise approved by the Requisite
Redeemable Preferred Stockholders;
(ii) a material breach of any of the representations,
warranties or covenants in any of the Related Documents that
continues 30 days after notice of such breach has been
delivered by any holder of Redeemable Preferred Stock;
(iii) the Corporation or any of its Subsidiaries shall
(A) voluntarily commence any proceeding or file any
petition seeking relief under Title 11 of the United
States Code or any other federal, state or foreign
bankruptcy, insolvency or similar law, (B) consent to
the institution of, or fail to controvert in a timely
and appropriate manner, any such proceeding or the
filing of any such petition,
<PAGE>
(C) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator or similar official for any
such Person or for any substantial part of its property or
assets, (D) file an answer admitting the material
allegations of a petition filed against it in any such
proceeding, (E) make a general assignment for the benefit of
creditors, (F) fail generally to pay its debts as they
become due or (G) take any corporate or stockholder action
in furtherance of any of the foregoing; or
(iv) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (A) relief in respect of the
Corporation or any of its Subsidiaries, or of any
substantial part of their respective property or assets,
under Title 11 of the United States Code or any other
federal, state or foreign bankruptcy, insolvency or similar
law, (B) the appointment of a receiver, trustee, custodian,
sequestrator or similar official for any such Person or for
any substantial part of its property or (C) the winding-up
or liquidation of any such Person, and such proceeding,
petition or order shall continue unstayed and in effect for
a period of 60 consecutive days.
(b) After the occurrence of and during the continuation of an
event of non-compliance pursuant to clauses (i) or (ii) of paragraph
(a) above, the Requested Redeemable Preferred Stockholders can declare
an Event of Non-Compliance. After the occurrence of and during the
continuation of an Event of Non-Compliance pursuant to clauses (iii)
and (iv) above, an Event of Non-Compliance shall occur automatically.
(c) Once an Event of Non-Compliance has occurred pursuant to
paragraph (b) above, the Applicable Dividend Rate automatically
increases from 12% per annum to 14% per annum.
11. Reissuance of Redeemable Preferred Stock.
Shares of Redeemable Preferred Stock that have been issued
and reacquired in any manner, including shares purchased or redeemed or
exchanged, shall (upon compliance with any applicable provisions of the laws
of Delaware) have the status of authorized and unissued shares of Preferred
Stock undesignated as to series and may be redesignated and reissued as part
of any series of Preferred Stock; provided, that any issuance of such shares
of Preferred Stock must be in compliance with the terms hereof.
12. Definitions.
As used herein, the following terms shall have the following
meanings:
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with such Person. For
the purpose of the above definition, the term "control" (including, with
correlative meaning, the terms "controlling", "controlled by", and "under
common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the
<PAGE>
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Applicable Dividend Rate" means 12% per annum; provided
however that the Applicable Dividend Rate may be increased to 14% from time to
time pursuant to Section 10.
"Asset Sale" means any sale, lease, sale-leaseback
transaction, transfer or other disposition (or series of related sales,
leases, transfers or dispositions) by the Corporation or any Subsidiary,
including any disposition by means of a merger, consolidation or similar
transaction (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of any Subsidiary (other
than directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Corporation or a Subsidiary), (ii) all or
substantially all the assets of any division or line of business of the
Corporation or any Subsidiary or (iii) any other assets of the Corporation or
any Subsidiary other than property or equipment that has become worn out,
obsolete, damaged or otherwise unsuitable for use in connection with the
business of the Corporation or any Subsidiary, as the case may be (other than,
in the case of (i), (ii) and (iii) above, a disposition by a Subsidiary to the
Corporation or by the Corporation or a Subsidiary to a Wholly Owned Subsidiary
and a disposition of assets with a fair market value of less than
$10,000,000).
"Board" shall mean the Board of Directors of the Corporation.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of, or interests in (however designated), equity of such Person,
including any Preferred Stock, but excluding any debt securities convertible
into such equity.
"CCP" means Chase Capital Partners and its Affiliates.
"Change of Control" means the occurrence of any of the
following events (each a "Change of Control"):
(a) prior to the earlier to occur of (i) the first public
offering of Common Stock of the Corporation or (ii) the first public
offering of Common Stock of La Petite Academy, the Permitted Holders
cease to be the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of a majority
in the aggregate of the total voting power of the Voting Stock of La
Petite Academy, whether as a result of issuance of securities of the
Corporation, any merger, consolidation, liquidation or dissolution of
the Corporation or La Petite Academy, any direct or indirect transfer
of securities by any Permitted Holder or otherwise (for the purposes
of this clause (a) and clause (b) below, the Permitted Holders shall
be deemed to beneficially own any Voting Stock of an entity (the
"specified entity") held by any other entity (the "parent entity") so
long as the Permitted Holders beneficially own (as so defined),
directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of the parent entity);
(b) (i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in clause (a)
above, except that for purposes of this clause (b) such
<PAGE>
person shall be deemed to have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly
or indirectly, of more than 35% of the total voting power of the
Voting Stock of La Petite Academy and (ii) the Permitted Holders
"beneficially own" (as defined in clause (a) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting
power of the Voting Stock of La Petite Academy than such other person
and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board
of Directors (for the purposes of this clause (b), such other person
shall be deemed to beneficially own any Voting Stock of a specified
entity held by a parent entity, if such other person is the
beneficial owner (as defined in this clause (b)), directly or
indirectly, of more than 35% of the voting power of the Voting Stock
of such parent entity and the Permitted Holders "beneficially own"
(as defined in clause (a) above), directly or indirectly, in the
aggregate a lesser percentage of the voting power of the Voting Stock
of such parent entity and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent entity);
(c) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of
Directors of the Corporation or La Petite Academy, as the case may
be, (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Corporation or La Petite Academy, as applicable, was approved (i) in
accordance with the Stockholders Agreement, (ii) by the Permitted
Holders or (iii) by a vote of 66 2/3% of the directors of the
Corporation or La Petite Academy, as applicable, then still in office
who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved),
cease for any reason to constitute a majority of the Board of
Directors of the Corporation or La Petite Academy, as applicable,
then in office;
(d) the adoption of a plan relating to the liquidation or
dissolution of the Company or La Petite Academy; or
(e) the merger or consolidation of the Corporation or La
Petite Academy with or into another Person or the merger of another
Person with or into the Corporation or La Petite Academy, and, in the
case of any such merger or consolidation, the securities of the
Corporation or La Petite Academy, as the case may be, that are
outstanding immediately prior to such transaction and which represent
100% of the aggregate voting power of the Voting Stock of the
Corporation or La Petite Academy, as applicable, are changed into or
exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving
Person or transferee that represent, immediately after such
transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving Person or transferee.
"Change of Control Offer" shall have the meaning set forth in
Section 5(a)
<PAGE>
"Change of Control Payment Date" shall have the meaning set
forth in Section 5(b)(ii).
"Change of Control Purchase Price" shall have the meaning
set forth in Section 5(a).
"Common Stock" means (i) the Common Stock, par value $0.01,
of the Corporation, and (ii) any other class of capital stock of the
Corporation authorized after the Original Issuance Date that is entitled to at
least a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or winding up of the
Corporation.
"Credit Agreement" shall mean the Credit Agreement dated as
of May 11, 1998 the Corporation, La Petite Academy, The Chase Manhattan Bank
and NationsBank, N.A, as amended, supplemented or otherwise modified from time
to time.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Date" means the date, if any, on which such shares
of Redeemable Preferred Stock are exchanged by the Corporation for Exchange
Debentures.
"Exchange Debentures" mean the junior subordinated notes
with terms consistent with the terms of the Redeemable Preferred Stock,
including those terms set forth on Exhibit A attached hereto.
"Exchange Notice" shall have the meaning set forth in
Section 9.
"Indebtedness" of any Person means, without duplication, (a)
all obligations of such Person for borrowed money or with respect to deposits
or advances of any kind, (b) all obligations of such Person evidenced by (or
which customarily would be evidenced by) bonds, debentures, notes or similar
instruments, (c) all reimbursement obligations of such Person with respect to
letters of credit and similar instruments, (d) all obligations of such Person
under conditional sale or other title retention agreements relating to
property or assets purchased by such Person, (e) all obligations of such
Person incurred, issued or assumed as the deferred purchase price of property
or services other than accounts payable incurred and paid on terms customary
in the business of such Person (it being understood that the "deferred
purchase price" in connection with any purchase of property or assets shall
include only that portion of the purchase price which shall be deferred beyond
the date on which the purchase is actually consummated), (f) all obligations
secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned
or acquired by such Person, whether or not the obligations secured thereby
have been assumed, (g) all obligations of such Person under forward sales,
futures, options and other similar hedging arrangements (including interest
rate hedging or protection agreements), (h) all obligations of such Person to
purchase or otherwise pay for merchandise, materials, supplies, services or
other property under an arrangement which provides that payment for such
merchandise, materials, supplies, services or other property shall be made
regardless of whether delivery of such merchandise, materials, supplies,
services or other property is ever made or tendered, (i) all
<PAGE>
guaranties by such Person of obligations of others and (j) all capitalized
lease obligations of such Person.
"Exchange Indenture" shall mean an indenture to be prepared
by the Corporation at the time of the exchange of the Redeemable Preferred
Stock for junior subordination notes, such indenture to be in a form customary
for an indenture of its type and in a form reasonably acceptable to the
holders of the Requisite Redeemable Preferred Stockholders.
"Initial Dividend Period" means the period commencing on the
Original Issuance Date and terminating on the earliest to occur of (i) June
30, 2005, (ii) the Exchange Date and (iii) the Redemption Date.
"King Investor" means an entity a majority of the economic
interests of which are owned by CCP and a majority of the voting interests of
which are owned by (i) Robert E. King, his descendants or, in the event of the
death or incompetence of any of the foregoing individuals, such Person's
estate, executor, administrator, committee or other personal representative or
(ii) any other Person approved by CCP.
"La Petite Academy" means La Petite Academy, Inc., a Delaware
corporation.
"Lien" means any security interest, lien, pledge, claim,
charge, escrow, encumbrance, option, right of first offer, right of first
refusal, preemptive right, mortgage, indenture, security agreement or other
similar agreement, arrangement, contract, commitment, understanding or
obligation, whether written or oral and whether or not relating in any way to
credit or the borrowing of money.
"Liquidation" means any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation,
other than any dissolution, liquidation or winding up in connection with any
reincorporation of the Corporation in another jurisdiction.
"Liquidation Amount" means, as to each share of Redeemable
Preferred Stock, the Original Cost plus all accrued and unpaid dividends
payable with respect to such share of Redeemable Preferred Stock.
"Liquidity Event" means (i) any Liquidation or (ii) any sale
of all or substantially all of the Corporation's assets determined on a
consolidated basis.
"Management Group" means the group consisting of the
directors and executive officers of La Petite Academy.
"Mandatory Redemption Date" means May 11, 2008.
"Mandatory Redemption Price" has the meaning set forth in
Section 4.
"Merger Agreement" means the Agreement and Plan of Merger
dated as of March 17, 1998 between the Corporation and LPA Investment LLC, a
Delaware limited liability company.
<PAGE>
"Net Cash Proceeds" shall mean with respect to any Asset
Sale, the proceeds in the form of cash including payments in respect of
deferred payment obligations when received in the form of cash received by the
Corporation or any of its Subsidiaries from such Asset Sale net of (a)
reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account
any reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness
that is required to be repaid in connection with such Asset Sale, (d)
appropriate amounts to be provided by the Corporation or any Subsidiary, as
the case may be, as a reserve, in accordance with generally accepted
accounting principles, consistently applied, against any liabilities
associated with such Asset Sale and retained by the Corporation or any
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale and (e) a reasonable estimate of
the fees, expenses and commissions relating to the Corporation's compliance
with Section 6.
"Net Proceeds Offer" shall have the meaning set forth in
Section 6(a).
"Net Proceeds Payment Date" shall have the meaning set forth
in Section 6(b)(ii).
"Net Proceeds Purchase Price" shall have the meaning set
forth in Section 6(a).
"Notes Indenture" means the Indenture to be dated as of May
11, 1998, among the Corporation and the other signatories thereto.
"Original Cost" is $1,000 per share.
"Original Issuance Date" for the Redeemable Preferred Stock
means the date of original issuance of the first share of such Redeemable
Preferred Stock.
"Permitted Holders" means CCP, the Management Group, the
King Investor and any Person acting in the capacity of an underwriter in
connection with a public or private offering of the Corporation's or La Petite
Academy's Capital Stock.
"Person" shall be construed broadly and shall include,
without limitation, an individual, a partnership, an investment fund, a
limited liability corporation, a corporation, an association, a joint stock
corporation, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
"Preferred Dividend Payment Date" shall have the meaning set
forth in Section 2(b).
"Preferred Record Date" shall have the meaning set forth in
Section 2(c).
"Public Offering" means the sale in an underwritten public
offering registered under the Securities Act of 1933, as amended, of shares of
capital stock.
<PAGE>
"Purchase Agreement" means the Securities Purchase Agreement
proposed to be entered into between the Corporation and LPA Investment LLC, a
Delaware limited liability company.
"Qualified Stock" means any Capital Stock issued pursuant to
(i) any Management Stock Option Plan (as such term is defined in the
Stockholders Agreement), (ii) the Rollover Options (as such term is defined in
the Merger Agreement) or (iii) the Warrant.
"Redemption Date" shall mean the earliest date on which
shares of Redeemable Preferred are redeemed pursuant to Sections 4, 5, and 6.
"Registration Rights Agreement" means the Preferred Stock
Registration Rights Agreement to be dated as of May 11, 1998 between the
Corporation and LPA Investment LLC, a Delaware limited liability company.
"Related Documents" shall mean the Certificate, the Purchase
Agreement, the Stockholders Agreement and the Registration Rights Agreement.
"Requisite Redeemable Preferred Stockholders" means, as of
any date of determination, the holders of at least 51% of the outstanding
shares of Redeemable Preferred Stock as of such date.
"Senior Debt" shall mean any (i) Indebtedness pursuant to
the Credit Agreement or any related documents governing, evidencing or
securing the same, (ii) Indebtedness pursuant to the Senior Notes and any
related documents governing, evidencing or securing the same, (iii) any other
Indebtedness of the Corporation or its Subsidiaries which is not expressly
subordinated to the Redeemable Preferred Stock or the Exchange Debentures, if
the original principal amount exceeded $5 million and (iv) all refinancings or
modifications of the Indebtedness described in clauses (i) - (iii) above;
provided, however, that neither Corporation nor its Subsidiaries shall incur
any Indebtedness that contains restrictions on the payment of dividends or the
repurchase of Redeemable Preferred Stock pursuant to Section 5 or Section 6
that are more materially restrictive than those contained in the Indebtedness
existing on the date hereof.
"Senior Notes" means the 10% Senior Notes due 2008, issued
jointly by the Corporation and La Petite Academy.
"Stockholders Agreement" means the Stockholders Agreement to
be dated as of May 11, 1998 among the Corporation and its Stockholders.
"Subsequent Dividend Period" means the period commencing on
July 1, 2005 and terminating on the earlier of (i) the redemption of such
shares of Redeemable Preferred Stock or (ii) the exchange of such shares of
Redeemable Preferred Stock for Exchange Debentures.
"Subsidiary" means any corporation of which the shares of
outstanding capital stock possessing the voting power (under ordinary
circumstances) in electing the board of directors are, at the time as of which
any determination is being made, owned by the Corporation either directly or
indirectly through Subsidiaries.
<PAGE>
"Voting Stock" of a Person means all classes of Capital
Stock or other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof.
"Warrant" means that warrant issued to LPA Investment LLC, a
Delaware limited liability company, to purchase shares of Class A Common Stock
of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed by the President of the Corporation as of the
___th day of May, 1998.
------------------------
James R. Kahl
President
<PAGE>
LPA ACQUISITION CORP.
Incorporated under the laws
of the State of Delaware
---------------------------
BY-LAWS
---------------------------
As adopted on May 7, 1998
<PAGE>
BY-LAWS OF
LPA ACQUISITION CORP.
ARTICLE I
OFFICES
1.1 Registered Office.
The registered office of LPA Acquisition Corp. (the
"Corporation"), in the State of Delaware and the registered agent in
charge thereof shall be as set forth in the Certificate of Incorporation.
1.2 Other Offices.
The Corporation may also have an office or offices at
any other place or places within or outside the State of Delaware.
ARTICLE II
MEETING OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
2.1 Annual Meetings.
The annual meeting of the stockholders for the election
of directors, and for the transaction of such other business as may
properly come before the meeting, shall be held at such place, date and
hour as shall be fixed by the Board of Directors of the Corporation (the
"Board") and designated in the notice or waiver of notice thereof, except
that no annual meeting need be held if all actions, including the
election of directors, required by the General Corporation Law of the
State of Delaware (the "Delaware Statute") to be taken at a stockholders'
annual meeting are taken by written consent in lieu of meeting pursuant
to Section 10 of this Article II.
2.2 Special Meetings.
A special meeting of the stockholders for any purpose
or purposes may be called by the Board, the Chairman, or the record
holders of at least 25% of the issued and outstanding shares of Common
Stock of the Corporation, to be held at such place, date and hour as
shall be designated in the notice or waiver of notice thereof.
2.3 Notice of Meetings.
Except as otherwise required by statute, the
Certificate of Incorporation of the Corporation (the "Certificate") or
these By-laws, notice of each annual or special meeting of the
stockholders shall be given to each stockholder of record entitled to
vote at such meeting not less than 10 nor more than 60 days before the
day on which the meeting is to be held, by delivering written notice
thereof to him personally, or by mailing a copy of such notice, postage
prepaid, directly to him at his address as it appears in the records of
the Corporation, or by transmitting such notice thereof to him at such
address by telegraph, cable or other telephonic transmission. Every such
notice shall state the place, the date and hour of the meeting, and, in
case of a special
<PAGE>
meeting, the purpose or purposes for which the meeting is called. Notice of any
meeting of stockholders shall not be required to be given to any stockholder who
shall attend such meeting in person or by proxy, or who shall, in person or by
attorney thereunto authorized, waive such notice in writing, either before or
after such meeting. Except as otherwise provided in these By-laws, neither the
business to be transacted at, nor the purpose of, any meeting of the
stockholders need be specified in any such notice or waiver of notice. Notice of
any adjourned meeting of stockholders shall not be required to be given, except
when expressly required by law.
2.4 Quorum.
At each meeting of the stockholders, except where
otherwise provided by the Certificate or these By-laws, the holders of a
majority of the issued and outstanding shares of Common Stock of the
Corporation entitled to vote at such meeting, present in person or
represented by proxy, shall constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in interest of the
stockholders present in person or represented by proxy and entitled to
vote, or, in the absence of all the stockholders entitled to vote, any
officer entitled to preside at, or act as secretary of, such meeting,
shall have the power to adjourn the meeting from time to time, until
stockholders holding the requisite amount of stock to constitute a quorum
shall be present or represented. At any such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally called.
2.5 Organization.
Unless otherwise determined by the Board, at each
meeting of the stockholders, one of the following shall act as chairman
of the meeting and preside thereat, in the following order of precedence:
(a) the Chairman;
(b) the President;
(c) any director, officer or stockholder of the Corporation designated
by the Board to act as chairman of such meeting and to preside thereat if the
Chairman or the President shall be absent from such meeting; or
(d) a stockholder of record who shall be chosen chairman of such
meeting by a majority in voting interest of the stockholders present in person
or by proxy and entitled to vote thereat.
(e) the Secretary or, if he shall be presiding over such meeting in
accordance with the provisions of this Section 5 or if he shall be absent from
such meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary has been appointed and is present) whom the chairman of such meeting
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
<PAGE>
2.6 Order of Business.
The order of business at each meeting of the
stockholders shall be determined by the chairman of such meeting, but
such order of business may be changed by a majority in voting interest of
those present in person or by proxy at such meeting and entitled to vote
thereat.
2.7 Voting.
Except as otherwise provided by law, the Certificate or
these By-laws, at each meeting of the stockholders, every stockholder of
the Corporation shall be entitled to one vote in person or by proxy for
each share of Common Stock of the Corporation held by him and registered
in his name on the books of the Corporation on the date fixed pursuant to
Section 7 of Article VI as the record date for the determination of
stockholders entitled to vote at such meeting. Persons holding stock in a
fiduciary capacity shall be entitled to vote the shares so held. A person
whose stock is pledged shall be entitled to vote, unless, in the transfer
by the pledgor on the books of the Corporation, he has expressly
empowered the pledgee to vote thereon, in which case only the pledgee or
his proxy may represent such stock and vote thereon. If shares or other
securities having voting power stand in the record of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same
shares, unless the Secretary shall be given written notice to the
contrary and furnished with a copy of the instrument or order appointing
them or creating the relationship wherein it is so provided, their acts
with respect to voting shall have the following effect:
(a) if only one votes, his act binds all;
(b) if more than one votes, the act of the majority so voting binds
all; and
(c) if more than one votes, but the vote is evenly split on any
particular matter, such shares shall be voted in the manner provided by law.
If the instrument so filed shows that any such tenancy is held
in unequal interests, a majority or even-split for the purposes of this Section
7 shall be a majority or even-split in interest. The Corporation shall not vote
directly or indirectly any share of its own capital stock. Any vote of stock may
be given by the stockholder entitled thereto in person or by his proxy appointed
by an instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized, delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted after three years from its date, unless
said proxy provides for a longer period. At all meetings of the stockholders,
all matters (except where other provision is made by law, the Certificate or
these By-laws) shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy at such meeting and entitled to vote
thereon, a quorum being present. Unless demanded by a stockholder present in
person or by proxy at any meeting and entitled to vote thereon, the vote on any
question need not be by ballot. Upon a demand by any such stockholder for a vote
by ballot upon any question, such vote by ballot shall be taken. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
<PAGE>
2.8 Inspection.
The chairman of the meeting may at any time appoint one
or more inspectors to serve at any meeting of the stockholders. Any
inspector may be removed, and a new inspector or inspectors appointed, by
the Board at any time. Such inspectors shall decide upon the
qualifications of voters, accept and count votes, declare the results of
such vote, and subscribe and deliver to the secretary of the meeting a
certificate stating the number of shares of stock issued and outstanding
and entitled to vote thereon and the number of shares voted for and
against the question, respectively. The inspectors need not be
stockholders of the Corporation, and any director or officer of the
Corporation may be an inspector on any question other than a vote for or
against his election to any position with the Corporation or on any other
matter in which he may be directly interested. Before acting as herein
provided, each inspector shall subscribe an oath faithfully to execute
the duties of an inspector with strict impartiality and according to the
best of his ability.
2.9 List of Stockholders.
It shall be the duty of the Secretary or other officer
of the Corporation who shall have charge of its stock ledger to prepare
and make, at least 10 days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote thereat, arranged in
alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose
germane to any such meeting, during ordinary business hours, for a period
of at least 10 days prior to such meeting, either at a place within the
city where such meeting is to be held, which place shall be specified in
the notice of the meeting or, if not so specified, at the place where the
meeting is to be held. Such list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2.10 Stockholders' Consent in Lieu of Meeting.
Any action required by the Delaware Statute to be taken
at any annual or special meeting of the stockholders of the Corporation,
or any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and
without a vote, by a consent in writing, as permitted by the Delaware
Statute.
ARTICLE III
BOARD OF DIRECTORS
3.1 General Powers.
The business, property and affairs of the Corporation
shall be managed by or under the direction of the Board, which may
exercise all such powers of the Corporation and do all such lawful acts
and things as are not by law or by the Certificate directed or required
to be exercised or done by the stockholders.
<PAGE>
3.2 Number and Term of Office.
The number of directors shall be fixed from time to
time by the Board. Directors need not be stockholders. Each director
shall hold office until his successor is elected and qualified, or until
his earlier death or resignation or removal in the manner hereinafter
provided.
3.3 Election of Directors.
At each meeting of the stockholders for the election of
directors at which a quorum is present, the persons receiving the
greatest number of votes, up to the number of directors to be elected, of
the stockholders present in person or by proxy and entitled to vote
thereon shall be the directors; provided, however, that for purposes of
such vote no stockholder shall be allowed to cumulate his votes. Unless
an election by ballot shall be demanded as provided in Section 7 of
Article II, election of directors may be conducted in any manner approved
at such meeting.
3.4 Resignation, Removal and Vacancies.
Any director may resign at any time by giving written
notice to the Board, the Chairman, the President or the Secretary. Such
resignation shall take effect at the time specified therein or, if the
time be not specified, upon receipt thereof; unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to
make it effective.
Any director or the entire Board may be removed, with
or without cause, at any time by vote of the holders of a majority of the
shares then entitled to vote at an election of directors or by written
consent of the stockholders pursuant to Section 10 of Article II.
Vacancies occurring on the Board for any reason may be
filled by vote of the stockholders or by the stockholders' written
consent pursuant to Section 10 of Article II, or by vote of the Board or
by the directors' written consent pursuant to Section 6 of this Article
III. If the number of directors then in office is less than a quorum,
such vacancies may be filled by a vote of a majority of the directors
then in office.
3.5 Meetings.
(a) Annual Meetings. As soon as practicable after each annual election
of directors, the Board shall meet for the purpose of organization and the
transaction of other business, unless it shall have transacted all such business
by written consent pursuant to Section 6 of this Article III.
(b) Other Meetings. Other meetings of the Board shall be held at such
times and places as the Board, the Chairman, the President or any director shall
from time to time determine.
(c) Notice of Meetings. Notice shall be given to each director of each
meeting, including the time, place and purpose of such meeting. Notice of each
such meeting shall be mailed to each director, addressed to him at his residence
or usual place of business, at least two days before the date on which such
meeting is to be held, or shall be sent to him at such place by
<PAGE>
telegraph, cable, wireless or other form of recorded communication, or be
delivered personally or by telephone not later than the day before the day on
which such meeting is to be held, but notice need not be given to any director
who shall attend such meeting. A written waiver of notice, signed by the person
entitled thereto, whether before or after the time of the meeting stated
therein, shall be deemed equivalent to notice.
(d) Place of Meetings. The Board may hold its meetings at such place or
places within or outside the State of Delaware as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice thereof.
(e) Quorum and Manner of Acting. A majority of the total number of
directors then in office shall be present in person at any meeting of the Board
in order to constitute a quorum for the transaction of business at such meeting,
and the vote of a majority of those directors present at any such meeting at
which a quorum is present shall be necessary for the passage of any resolution
or act of the Board, except as otherwise expressly required by law or these
By-laws. In the absence of a quorum for any such meeting, a majority of the
directors present thereat may adjourn such meeting from time to time until a
quorum shall be present.
(f) Organization. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside thereat, in the following order
of precedence:
(i) the Chairman;
(ii) the President (if a director); or
(iii) any director designated by a majority of the directors
present.
(iv) The Secretary or, in the case of his absence, an
Assistant Secretary, if an Assistant Secretary has been appointed and is
present, or any person whom the chairman of the meeting shall appoint
shall act as secretary of such meeting and keep the minutes thereof.
3.6 Directors' Consent in Lieu of Meeting.
Any action required or permitted to be taken at any
meeting of the Board may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by all the directors then in office and such
consent is filed with the minutes of the proceedings of the Board.
3.7 Action by Means of Conference Telephone or Similar Communications Equipment.
Any one or more members of the Board may participate in
a meeting of the Board by means of conference telephone or similar
communications equipment by which all persons participating in the
meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
<PAGE>
3.8 Committees.
The Board may, by resolution or resolutions passed by a
majority of the whole Board, designate one or more committees, each such
committee to consist of one or more directors of the Corporation, which
to the extent provided in said resolution or resolutions shall have and
may exercise the powers of the Board in the management of the business
and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it, such
committee or committees to have such name or names as may be determined
from time to time by resolution adopted by the Board. A majority of all
the members of any such committee may determine its action and fix the
time and place of its meetings, unless the Board shall otherwise provide.
The Board shall have power to change the members of any such committee at
any time, to fill vacancies and to discharge any such committee, either
with or without cause, at any time.
ARTICLE IV
OFFICERS
4.1 Executive Officers.
The principal officers of the Corporation shall be a
Chairman, if one is appointed (and any references to the Chairman shall
not apply if a Chairman has not been appointed), a President, a
Secretary, and a Treasurer, and may include such other officers as the
Board may appoint pursuant to Section 3 of this Article IV. Any two or
more offices may be held by the same person.
4.2 Authority and Duties.
All officers, as between themselves and the
Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these By-laws or, to
the extent so provided, by the Board.
4.3 Other Officers.
The Corporation may have such other officers, agents
and employees as the Board may deem necessary, including one or more
Assistant Secretaries, one or more Assistant Treasurers and one or more
Vice Presidents, each of whom shall hold office for such period, have
such authority, and perform such duties as the Board, the Chairman, or
the President may from time to time determine. The Board may delegate to
any principal officer the power to appoint and define the authority and
duties of, or remove, any such officers, agents, or employees.
4.4 Term of Office, Resignation and Removal.
All officers shall be elected or appointed by the Board
and shall hold office for such term as may be prescribed by the Board.
Each officer shall hold office until his successor has been elected or
appointed and qualified or until his earlier death or resignation or
removal in the manner hereinafter provided. The Board may require any
officer to give security for the faithful performance of his duties.
<PAGE>
Any officer may resign at any time by giving written
notice to the Board, the Chairman, the President or the Secretary. Such
resignation shall take effect at the time specified therein or, if the
time be not specified, at the time it is accepted by action of the Board.
Except as aforesaid, the acceptance of such resignation shall not be
necessary to make it effective.
All officers and agents elected or appointed by the
Board shall be subject to removal at any time by the Board or by the
stockholders of the Corporation with or without cause.
4.5 Vacancies.
If the office of Chairman, President, Secretary or
Treasurer becomes vacant for any reason, the Board shall fill such
vacancy, and if any other office becomes vacant, the Board may fill such
vacancy. Any officer so appointed or elected by the Board shall serve
only until such time as the unexpired term of his predecessor shall have
expired, unless reelected or reappointed by the Board.
4.6 The Chairman.
The Chairman shall give counsel and advice to the Board
and the officers of the Corporation on all subjects concerning the
welfare of the Corporation and the conduct of its business and shall
perform such other duties as the Board may from time to time determine.
Unless otherwise determined by the Board, he shall preside at meetings of
the Board and of the Stockholders at which he is present.
4.7 The President.
The President shall be the chief executive officer of
the Corporation. The President shall have general and active management
and control of the business and affairs of the Corporation subject to the
control of the Board and shall see that all orders and resolutions of the
Board are carried into effect. The President shall from time to time make
such reports of the affairs of the Corporation as the Board of Directors
may require and shall perform such other duties as the Board may from
time to time determine.
4.8 The Secretary.
The Secretary shall, to the extent practicable, attend
all meetings of the Board and all meetings of the stockholders and shall
record all votes and the minutes of all proceedings in a book to be kept
for that purpose. He may give, or cause to be given, notice of all
meetings of the stockholders and of the Board, and shall perform such
other duties as may be prescribed by the Board, the Chairman or the
President, under whose supervision he shall act. He shall keep in safe
custody the seal of the Corporation and affix the same to any duly
authorized instrument requiring it and, when so affixed, it shall be
attested by his signature or by the signature of the Treasurer or, if
appointed, an Assistant Secretary or an Assistant Treasurer. He shall
keep in safe custody the certificate books and stockholder records and
such other books and records as the Board may direct, and shall perform
all other duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Board, the
Chairman or the President.
<PAGE>
4.9 The Treasurer.
The Treasurer shall have the care and custody of the
corporate funds and other valuable effects, including securities, shall
keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation and shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, shall render to the
Chairman, President and directors, at the regular meetings of the Board,
or whenever they may require it, an account of all his transactions as
Treasurer and of the financial condition of the Corporation and shall
perform all other duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Board,
the Chairman or the President.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
5.1 Execution of Documents.
The Board shall designate, by either specific or
general resolution, the officers, employees and agents of the Corporation
who shall have the power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, checks, drafts and other orders for the
payment of money and other documents for and in the name of the
Corporation, and may authorize such officers, employees and agents to
delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation;
unless so designated or expressly authorized by these By-laws, no
officer, employee or agent shall have any power or authority to bind the
Corporation by any contract or engagement, to pledge its credit or to
render it liable pecuniarily for any purpose or amount.
5.2 Deposits.
All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation or
otherwise as the Board or Treasurer, or any other officer of the
Corporation to whom power in this respect shall have been given by the
Board, shall select.
5.3 Proxies with Respect to Stock or Other Securities of Other Corporations.
The Board shall designate the officers of the
Corporation who shall have authority from time to time to appoint an
agent or agents of the Corporation to exercise in the name and on behalf
of the Corporation the powers and rights which the Corporation may have
as the holder of stock or other securities in any other corporation, and
to vote or consent with respect to such stock or securities. Such
designated officers may instruct the person or persons so appointed as to
the manner of exercising such powers and rights, and such designated
officers may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal or otherwise, such written
proxies, powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise its powers
and rights.
<PAGE>
ARTICLE VI
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
6.1 Certificates for Shares.
Every owner of stock of the Corporation shall be
entitled to have a certificate certifying the number and class of shares
owned by him in the Corporation, which shall be in such form as shall be
prescribed by the Board. Certificates shall be numbered and issued in
consecutive order and shall be signed by, or in the name of, the
Corporation by the Chairman, the President or any Vice President, and by
the Treasurer (or an Assistant Treasurer, if appointed) or the Secretary
(or an Assistant Secretary, if appointed). In case any officer or
officers who shall have signed any such certificate or certificates shall
cease to be such officer or officers of the Corporation, whether because
of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons
who signed such certificate had not ceased to be such officer or officers
of the Corporation.
6.2 Record.
A record in one or more counterparts shall be kept of
the name of the person, firm or corporation owning the shares represented
by each certificate for stock of the Corporation issued, the number of
shares represented by each such certificate, the date thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise
expressly required by law, the person in whose name shares of stock stand
on the stock record of the Corporation shall be deemed the owner thereof
for all purposes regarding the Corporation.
6.3 Transfer and Registration of Stock.
The transfer of stock and certificates which represent
the stock of the Corporation shall be governed by Article 8 of Subtitle 1
of Title 6 of the Delaware Code (the Uniform Commercial Code), as amended
from time to time. Registration of transfers of shares of the Corporation
shall be made only on the books of the Corporation upon request of the
registered holder thereof, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the
Corporation, and upon the surrender of the certificate or certificates
for such shares properly endorsed or accompanied by a stock power duly
executed.
6.4 Addresses of Stockholders.
Each stockholder shall designate to the Secretary an
address at which notices of meetings and all other corporate notices may
be served or mailed to him, and, if any stockholder shall fail to
designate such address, corporate notices may be served upon him by mail
directed to him at his post-office address, if any, as the same appears
on the share record books of the Corporation or at his last known
post-office address.
<PAGE>
6.5 Lost, Destroyed and Mutilated Certificates.
The holder of any shares of the Corporation shall
immediately notify the Corporation of any loss, destruction or mutilation
of the certificate therefor, and the Board may, in its discretion, cause
to be issued to him a new certificate or certificates for such shares,
upon the surrender of the mutilated certificates or, in the case of loss
or destruction of the certificate, upon satisfactory proof of such loss
or destruction, and the Board may, in its discretion, require the owner
of the lost or destroyed certificate or his legal representative to give
the Corporation a bond in such sum and with such surety or sureties as it
may direct to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss or destruction of any such
certificate.
6.6 Regulations.
The Board may make such rules and regulations as it may
deem expedient, not inconsistent with these By-laws, concerning the
issue, transfer and registration of certificates for stock of the
Corporation.
6.7 Fixing Date for Determination of Stockholders of Record.
In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board may fix a record date,
which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board, and which record date
shall be not more than 60 nor less than 10 days before the date of such
meeting. If no record date is fixed by the Board, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding
the day on which notice is given, or, if notice is waived, at the close
of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board may fix a new record date
for the adjourned meeting.
In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is
adopted by the Board, and which date shall be not more than 10 days after
the date upon which the resolution fixing the record date is adopted by
the Board. If no record date has been fixed by the Board, the record date
for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board is required
by the Delaware Statute, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in this
State, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail,
return receipt requested. If no record date has been fixed by the Board
and prior action by the Board is required by the Delaware Statute, the
record date for determining stockholders entitled to consent to corporate
<PAGE>
action in writing without a meeting shall be at the close of business on
the day on which the Board adopts the resolution taking such prior
action.
In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall
be not more than 60 days prior to such action. If no record date is
fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.
ARTICLE VII
SEAL
The Board may provide a corporate seal, which shall be
in the form of a circle and shall bear the full name of the Corporation,
the year of incorporation of the Corporation and the words and figures
"LPA Acquisition Corp. - Corporate Seal - 1998 Delaware."
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall be the
calendar year unless otherwise determined by the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
9.1 Indemnification.
As provided in the Charter, to the fullest extent
permitted by the Delaware Statute as the same exists or may hereafter be
amended, a director of this Corporation shall not be liable to the
Corporation or its stockholders for breach of fiduciary duty as a
director.
Without limitation of any right conferred by paragraph
(a) of this Section 1, each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer or employee of the Corporation or is or was serving at the
request of the Corporation as a director, officer or employee of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity while serving as a director,
officer or employee or in any other capacity while serving as a director,
officer or employee, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware Statute, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than permitted prior thereto),
against all expense, liability and loss (including attorneys' fees,
judgments, fines,
<PAGE>
excise taxes or amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith and such indemnification shall continue
as to an indemnitee who has ceased to be a director, officer or employee and
shall inure to the benefit of the indemnitee's heirs, testators, intestates,
executors and administrators; provided, however, that such person 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 with respect to a criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful;
provided further, however, that no indemnification shall be made in the case of
an action, suit or proceeding by or in the right of the Corporation in relation
to matters as to which it shall be adjudged in such action, suit or proceeding
that such director, officer, employee or agent is liable to the Corporation,
unless a court having jurisdiction shall determine that, despite such
adjudication, such person is fairly and reasonably entitled to indemnification;
provided further, however, that, except as provided in Section 1(c) of this
Article IX with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) initiated by such indemnitee was authorized by the Board of Directors
of the Corporation. The right to indemnification conferred in this Article IX
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware Statute requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer (and
not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section or otherwise.
If a claim under Section (b) of this Article IX is not
paid in full by the Corporation with 60 days after a written claim has
been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be 20
days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms
of any undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not
in a suit brought by the indemnitee to enforce a right to an advancement
of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met the
applicable standard of conduct set forth in the Delaware Statute. Neither
the failure of the Corporation (including the Board, independent legal
counsel, or the stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware Statute, nor an actual
determination by the Corporation (including the Board, independent legal
counsel, or the stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the
<PAGE>
indemnitee has not met the applicable standard of conduct or, in the case
of such a suit brought by the indemnitee, be a defense to such suit. In
any suit brought by the indemnitee to enforce a right to indemnification
or to an advancement of expenses hereunder, or by the Corporation to
recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to
be indemnified, or to such advancement of expenses, under this Section or
otherwise shall be on the Corporation.
The rights to indemnification and to the advancement of
expenses conferred in this Article IX shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
the Charter, agreement, vote of stockholders or disinterested directors
or otherwise.
9.2 Insurance.
The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any person who is or was a director,
officer, employee or agent of the Corporation or any person who is or was
serving at the request of the Corporation as a director, officer,
employer or agent of another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware Statute.
ARTICLE X
AMENDMENT
Any by-law (including these By-laws) may be adopted,
amended or repealed by the vote of the holders of a majority of the
shares then entitled to vote or by the stockholders' written consent
pursuant to Section 10 of Article II, or by the vote of the Board or by
the directors' written consent pursuant to Section 6 of Article III.
* * * * *
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
LA PETITE ACADEMY, INC.
(Under Section 245
of the Delaware General Corporation Law)
The undersigned, being the President of La Petite
Academy, Inc., a corporation existing under the laws of the State of
Delaware, does hereby certify as follows:
1. A Certificate of Incorporation of La Petite Academy, Inc.
was filed with the Secretary of State of the State of Delaware on October
5, 1981.
2. This Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware.
3. This Restated Certificate of Incorporation restates
and integrates and also further amends the provisions of the Corporation's
Certificate of Incorporation as heretofore amended, restated or supplemented.
This Restated Certificate of Incorporation was proposed by the directors and
adopted by the stockholders in the manner and by the vote prescribed by
Section 242 of the Delaware General Corporation Law.
4. This Restated Certificate of Incorporation shall be
effective as of midnight on May 31, 1997.
5. The text of the Restated Certificate of
Incorporation of La Petite Academy, Inc. is hereby restated to read in
full as follows:
FIRST: The name of the Corporation is La Petite Academy, Inc.
(hereinafter the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1209 Orange Street, in
the City of Wilmington, County of New Castle. The name of its
registered agent at that address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in
any lawful act or activity for which a corporation may be
organized under the General Corporation Law of the State of
Delaware as set forth in Title 8 of the Delaware Code (the
"DGCL").
<PAGE>
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 1,000 shares of
Common Stock, each having a par value of one penny ($.01) and
2,000,000 shares of Class A Preferred Stock, each having a par
value of one penny ($.01).
4.A. Common Stock.
(a) Issuance. Shares of Common Stock may be issued from
time to time as the Board of Directors of this Corporation shall
determine and on such terms and for such consideration as shall be fixed
by the Board of Directors.
(b) Dividends. After (i) the requirements with respect
to preferential dividends on the Class A Preferred Stock (fixed in
accordance with the provisions of this Article FOURTH herein), shall have
been met, and (ii) the Corporation shall have complied with the
requirements, if any, with respect to the setting aside of sums as
sinking funds or redemption or purchase accounts with respect to the
Class A Preferred Stock (fixed in accordance with the provisions of this
Article FOURTH herein), and subject to any other conditions which may be
fixed in accordance with the provisions herein, the holders of Common
Stock shall be entitled to receive such dividends as may be declared from
time to time by the Board of Directors.
(c) Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, after distribution in full of the preferential amount (fixed
in accordance with the provisions of this Article FOURTH herein), to be
distributed to the holders of Class A Preferred Stock, the holders of the
Common Stock shall be entitled to receive all of the remaining assets of
the Corporation, tangible and intangible of whatever kind, available for
distribution to the holders of the Common Stock ratably in proportion to
the number of shares of Common Stock held by them respectively.
4.B. Preferred Stock
(a) Issuance. Subject to the provisions contained
herein, the Class A Preferred Stock may be issued from time to time by
the Board of Directors of the Corporation. The initial liquidation
preference of the Class A Preferred Stock shall be $25.00 per share; such
amount shall be subject to increase as provided in paragraph (c)(i)
herein.
(b) Rank. The Class A Preferred Stock shall, with
respect to dividend distributions and distributions upon the liquidation,
winding up and dissolution of the Corporation, rank senior to all classes
of common stock of the Corporation (including, without limitation, the
Common Stock), and each other class of capital stock or series of
preferred stock hereafter created which does not expressly provide that
it ranks senior to or on a parity with the Class A Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding up
and dissolution of the Corporation ("Junior Stock"). The Class A
Preferred Stock shall, with respect to dividend distributions and
distributions upon the liquidation, winding up and
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<PAGE>
dissolution of the Corporation, rank on a parity with any class of
capital stock or series of preferred stock hereafter created which
expressly provides that it ranks on a parity with the Class A Preferred
Stock as to dividend distributions and distributions upon the
liquidation, winding up and dissolution of the Corporation ("Parity
Stock"), provided that any such Parity Stock that was not approved by the
Holders in accordance with paragraph (f)(ii)(A) hereof shall be deemed to
be Junior Stock and not Parity Stock. The Class A Preferred Stock shall,
with respect to dividend distributions and distributions upon the
liquidation, winding up and dissolution of the Corporation, rank junior
to each class of capital stock or series of preferred stock hereafter
created which has been approved by the Holders of the Class A Preferred
Stock in accordance with paragraph (f)(ii)(B) and which expressly
provides that it ranks senior to the Class A Preferred Stock as to
dividend distributions or distributions upon the liquidation, winding up
and dissolution of the Corporation ("Senior Stock").
(c) Dividends.
(i) Beginning on the Class A Preferred Stock Issue
Date, the Holders of the outstanding shares of Class A
Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors, out of funds
legally available therefor, distributions in the form
of cash dividends on each share of Class A Preferred
Stock, at a rate per annum equal to 12-1/8% of the then
effective liquidation preference per share of the Class
A Preferred Stock, payable quarterly. No interest shall
be payable in respect of any dividends which may be in
arrears. All dividends shall be cumulative, whether or
not earned or declared on a daily basis from the Class
A Preferred Stock Issue Date and shall be payable
quarterly in arrears on each Dividend Payment Date,
commencing on the first Dividend Payment Date after the
Class A Preferred Stock Issue Date, provided that if
any dividend payable on any Dividend Payment Date on or
before August 1, 1998 is not declared and paid in full
in cash on such Dividend Payment Date the amount
payable as dividends on such Dividend Payment Date that
is not paid in cash on such Dividend Payment Date shall
be added to the liquidation preference of the Class A
Preferred Stock on such Dividend Payment Date and the
amount so added to the liquidation preference shall be
deemed paid in full and shall not accumulate. Each
distribution in the form of a dividend shall be payable
to, or added to the liquidation preference of as herein
provided, the Class A Preferred Stock held by Holders
of record as they appear on the stock books of the
Corporation on such record dates, not less than ten
(10) nor more than sixty (60) days preceding the
related Dividend Payment Date, as shall be fixed by the
Board of Directors. Dividends shall cease to accumulate
in respect of the Class A
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<PAGE>
Preferred Stock on the Exchange Date or on the date of
their earlier redemption unless the Corporation shall
have failed to issue the appropriate aggregate
principal amount of Exchange Debentures in respect of
the Class A Preferred Stock on such Exchange Date or
shall have failed to pay the relevant redemption price
on the date fixed for redemption.
(ii) All dividends paid with respect to shares of the
Class A Preferred Stock pursuant to paragraph (c)(i)
shall be paid pro rata to the Holders entitled thereto.
(iii) Nothing herein contained shall in any way or
under any circumstances be construed or deemed to
require the Board of Directors to declare, or the
Corporation to pay or set apart for payment, any
dividends on shares of the Class A Preferred Stock at
any time.
(iv) Dividends on account of arrears for any past
Dividend Period and dividends in connection with any
optional redemption pursuant to paragraph (e)(i) may be
declared and paid at any time, without reference to any
regular Dividend Payment Date, to Holders of record on
such date, not more than forty-five (45) days prior to
the payment thereof, as may be fixed by the Board of
Directors of the Corporation.
(v) No full dividends shall be declared by the Board of
Directors or paid or set apart for payment by the
Corporation on any Parity Stock for any period unless
full cumulative dividends have been or
contemporaneously are declared and paid in cash, or
declared and a sum in cash set apart sufficient for
such payment, on the Class A Preferred Stock for all
Dividend Periods terminating on or prior to the date of
payment of such full dividends on such Parity Stock. If
any dividends are not paid in full in cash, as
aforesaid, upon the shares of the Class A Preferred
Stock and any other Parity Stock, all dividends
declared upon shares of the Class A Preferred Stock and
any other Parity Stock shall be declared pro rata so
that the amount of dividends declared per share on the
Class A Preferred Stock and such Parity Stock shall in
all cases bear to each other the same ratio that
accrued dividends per share on the Class A Preferred
Stock and such Parity Stock bear to each other.
(vi) (A) Holders of shares of the Class A Preferred
Stock shall be entitled to receive the dividends
provided for in paragraph
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(c)(i) hereof in preference to and in priority over any
dividends upon any of the Junior Stock.
(B) So long as any share of the Class A
Preferred Stock is outstanding, the Corporation shall
not declare, pay or set apart for payment any dividend
on any of the Junior Stock or make any payment on
account of, or set apart for payment money for a
sinking or other similar fund for, the purchase,
redemption or other retirement of, any of the Junior
Stock or any warrants, rights, calls or options
exercisable for or convertible into any of the Junior
Stock (other than redemptions of Junior Stock (and any
warrants, rights, calls or options exercisable for or
convertible into such Junior Stock) previously issued
to any of the Corporation's executive officers or
employees pursuant to any employee benefit or bonus
plan, which redemptions shall have been approved by a
majority of the Board of Directors, provided that
Junior Stock held by executive officers or other
management employees of the Corporation may only be
redeemed upon the termination, retirement, death or
disability of such executive officer or management
employee), or make any distribution in respect thereof,
either directly or indirectly, and whether in cash,
obligations or shares of the Corporation or other
property (other than distributions or dividends in
Junior Stock to the holders of Junior Stock), and shall
not permit any corporation or other entity directly or
indirectly controlled by the Corporation to purchase or
redeem any of the Junior Stock or any such warrants,
rights, calls or options unless the dividends
determined in accordance herewith on the Class A
Preferred Stock have been paid in full in cash.
(C) So long as any share of the Class A
Preferred Stock is outstanding, the Corporation shall
not make any payment on account of, or set apart for
payment money for a sinking or other similar fund for,
the purchase, redemption or other retirement of, any of
the Parity Stock or any warrants, rights, calls or
options exercisable for or convertible into any of the
Parity Stock, and shall not permit any corporation or
other entity directly or indirectly controlled by the
Corporation to purchase or redeem any of the Parity
Stock or any such warrants, rights, calls or options
unless the dividends determined in accordance herewith
on the Class A Preferred Stock have been paid (or
deemed to be paid) in full.
(vii) Dividends payable on the Class A Preferred Stock
for any period less than a year shall be computed on
the basis of a 360-day
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year of twelve 30-day months and the actual number of
days elapsed in the period for which payable.
(viii) The Corporation will not claim any deduction
from gross income for dividends paid on the Class A
Preferred Stock in any Federal income tax return, claim
for refund, or other statement, report or submissions
made to the Internal Revenue Service, and will make any
election or take any similar action to effectuate the
foregoing except, in each case, if there shall be a
change in law such that the Corporation may claim such
dividends as deductions from gross income without
affecting the ability of the Holders of the Class A
Preferred Stock to claim the dividends received
deduction under Section 243(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code") (or any
successor provision). At the reasonable request of any
Holder of Class A Preferred Stock (and at the expense
of such Holder), the Corporation will join in the
submission to the Internal Revenue Service of a request
for a ruling that the dividends paid on the Class A
Preferred Stock will be eligible for the dividends
received deduction under Section 243(a)(1) of the Code
(or any successor provision). In addition, the
Corporation will cooperate with any Holder of the Class
A Preferred Stock (at the expense of such Holder) in
any litigation, appeal or other proceeding relating to
the eligibility for the dividends received deduction
under Section 243(a)(1) of the Code (or any successor
provision) of any dividends (within the meaning of
Section 316(a) of the Code or any successor provision)
paid on the Class A Preferred Stock. To the extent
possible, the principles of this paragraph (c)(viii)
shall also apply with respect to State and local income
taxes.
(d) Liquidation Preference.
(i) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs
of the Corporation, the Holders of shares of Class A
Preferred Stock then outstanding shall be entitled to
be paid out of the assets of the Corporation available
for distribution to its stockholders an amount in cash
equal to the liquidation preference for each share
outstanding (including any dividends added to the
liquidation preference in accordance herewith), plus an
amount in cash equal to accumulated and unpaid
dividends thereon to the date fixed for liquidation,
dissolution or winding up (including an amount equal to
a prorated dividend for the period from the last
Dividend Payment Date to the date fixed
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<PAGE>
for liquidation, dissolution or winding up) before any
payment shall be made or any assets distributed to the
holders of any of the Junior Stock including, without
limitation, common stock of the Corporation. Except as
provided in the preceding sentence, Holders of Class A
Preferred Stock shall not be entitled to any
distribution in the event of liquidation, dissolution
or winding up of the affairs of the Corporation. If the
assets of the Corporation are not sufficient to pay in
full the liquidation payments payable to the Holders of
outstanding shares of the Class A Preferred Stock and
all Parity Stock, then the holders of all such shares
shall share equally and ratably in such distribution of
assets in accordance with the amounts which would be
payable on such distribution if the amount to which the
Holders of outstanding shares of Class A Preferred
Stock and the holders of outstanding shares of all
Parity Stock are entitled were paid in full.
(ii) For the purposes of this paragraph (d), neither
the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of
all or substantially all of the property or assets of
the Corporation nor the consolidation or merger of the
Corporation with or into one or more corporations shall
be deemed to be a liquidation, dissolution or winding
up of the affairs of the Corporation.
(e) Redemption.
(i) Optional Redemption. (A) The Corporation may, at
the option of the Board of Directors, redeem at any
time on or after August 1, 1998, from any source of
funds legally available therefor, in whole or in part,
in the manner provided in paragraph (e)(iii) hereof,
any or all of the shares of the Class A Preferred
Stock, at the redemption prices (expressed as a
percentage of the then effective liquidation
preference) set forth below plus, without duplication,
an amount in cash equal to all accumulated and unpaid
dividends per share (including an amount in cash equal
to a prorated dividend for the period from the Dividend
Payment Date immediately prior to the Redemption Date
to the Redemption Date) (the "Optional Redemption
Price"):
During the twelve (12) month period beginning on August
1 of the years indicated below:
1998............................106.00%
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1999............................104.00%
2000............................102.00%
2001 and thereafter.............100.00%
provided that no optional redemption pursuant to either
this paragraph or paragraph (e)(i)(B) hereof shall be
authorized or made unless prior thereto full unpaid
dividends for all Dividend Periods terminating on or
prior to the Redemption Date and for an amount equal to
a prorated dividend for the period from the Dividend
Payment Date immediately prior to the Redemption Date
to the Redemption Date have been or immediately prior
to the Redemption Notice are declared and paid in cash
or declared and a sum set apart sufficient for such
cash payment on the Redemption Date, on the Class A
Preferred Stock.
(B) In the event that the Corporation
consummates an initial public offering of its common
stock resulting in the receipt of cash proceeds, net of
underwriting discounts and commissions and net of the
expenses payable by the Corporation directly related to
such Offering, of at least $20,000,000 on or before
August 1, 1998, the Corporation may, at its option,
redeem from any source of funds legally available
therefor, in the manner provided in paragraph (e)(iii)
hereof, on a Redemption Date no later than 30 days
following the consummation of such offering, up to 100%
of the shares of the Class A Preferred Stock originally
issued at a redemption price equal to 112-1/8% of the
then effective liquidation preference thereof, plus,
without duplication, an amount in cash equal to all
accumulated and unpaid dividends per share (including
an amount in cash equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior
to the Redemption Date to the Redemption Date) (the
"Contingent Redemption Price").
(C) In the event of a redemption pursuant to
paragraph (e)(i)(A) or (e)(i)(B) hereof of only a
portion of the then outstanding shares of the Class A
Preferred Stock, the Corporation shall effect such
redemption pro rata according to the number of shares
held by each Holder of the Class A Preferred Stock,
except that the Corporation may redeem such shares held by
Holders of fewer than 100 shares (or shares held by
Holders who would hold
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<PAGE>
less than 100 shares as a result of such redemption), as
may be determined by the Corporation.
(ii) Mandatory Redemption. On August 1, 2003 the
Corporation shall redeem from any source of funds
legally available therefor, in the manner provided in
paragraph (e)(iii) hereof, all of the shares of the
Class A Preferred Stock then outstanding at a
redemption price equal to 100% of the then effective
liquidation preference per share, plus, without
duplication, an amount in cash equal to all accumulated
and unpaid dividends per share (including an amount
equal to a prorated dividend for the period from the
Dividend Payment Date immediately prior to the
Redemption Date to the Redemption Date but excluding
any dividends to be paid contemporaneously with such
redemption pursuant to the next sentence) (the
"Mandatory Redemption Price"). The Corporation shall,
to the extent of funds legally available therefor,
immediately prior to the authorization or the making of
any such redemption, declare and pay in cash (or set
apart a sum sufficient for such cash payment on such
Redemption Date) all accumulated and unpaid dividends
on the Class A Preferred Stock for all Dividend Periods
terminating on or prior to the Redemption Date and an
amount equal to a prorated dividend for the period from
the Dividend Payment Date immediately prior to the
Redemption Date to the Redemption Date.
(iii) Procedures for Redemption. (A) At least thirty
(30) days and not more than sixty (60) days prior to
the date fixed for any redemption of the Class A
Preferred Stock, written notice (the "Redemption
Notice") shall be given by first class mail, postage
prepaid, to each Holder of record on the record date
fixed for such redemption of the Class A Preferred
Stock at such Holder's address as the same appears on
the stock register of the Corporation, provided that no
failure to give such notice nor any deficiency therein
shall affect the validity of the procedure for the
redemption of any shares of Class A Preferred Stock to
be redeemed except as to the Holder or Holders to whom
the Corporation has failed to give said notice or
except as to the Holder or Holders whose notice was
defective. The Redemption Notice shall state:
(1) whether the redemption is pursuant to
paragraph (e)(i)(A), (e)(i)(B) or (e)(ii) hereof;
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<PAGE>
(2) the Optional Redemption Price,
the Mandatory Redemption Price or the
Contingent Redemption Price, as the case may
be;
(3) whether all or less than all the
outstanding shares of the Class A Preferred
Stock redeemable thereunder are to be redeemed
and the total number of shares of the Class A
Preferred Stock being redeemed;
(4) the number of shares of Class A
Preferred Stock held, as of the appropriate
record date, by the Holder that the
Corporation intends to redeem;
(5) the date fixed for redemption;
(6) that the Holder is to surrender
to the Corporation, at the place or places
where certificates for shares of Class A
Preferred Stock are to be surrendered for
redemption, in the manner and at the price
designated, his certificate or certificates
representing the shares of Class A Preferred
Stock to be redeemed; and
(7) that dividends on the shares of
the Class A Preferred Stock to be redeemed
shall cease to accumulate on such Redemption
Date unless the Corporation defaults in the
payment of the Optional Redemption Price, the
Contingent Redemption Price or the Mandatory
Redemption Price, as the case may be.
(B) Each Holder of Class A Preferred Stock
shall surrender the certificate or certificates
representing such shares of Class A Preferred Stock to
the Corporation, duly endorsed, in the manner and at
the place designated in the Redemption Notice, and on
the Redemption Date the full Optional Redemption Price,
Contingent Redemption Price or Mandatory Redemption
Price, as the case may be, for such shares shall be
payable in cash to the Person whose name appears on
such certificate or certificates as the owner thereof,
and each surrendered certificate shall be canceled and
retired. In the event that less than all of the shares
represented by
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<PAGE>
any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(C) Unless the Corporation defaults in the
payment in full of the applicable redemption price,
dividends on the Class A Preferred Stock called for
redemption shall cease to accumulate on the Redemption
Date, and the Holders of such redeemed shares shall
cease to have any further rights with respect thereto
on the Redemption Date, other than the right to receive
the Optional Redemption Price, the Contingent
Redemption Price or the Mandatory Redemption Price, as
the case may be, without interest.
(f) Voting Rights.
(i) The Holders of Class A Preferred Stock, except as
otherwise required under Delaware law or as set forth
in paragraphs (ii), (iii) and (iv) below, shall not be
entitled or permitted to vote on any matter required or
permitted to be voted upon by the stockholders of the
Corporation.
(ii) (A) So long as any shares of the Class A Preferred
Stock are outstanding, the Corporation shall not
authorize any class of Parity Stock without the
affirmative vote or consent of Holders of at least
66-2/3% of the then outstanding shares of Class A
Preferred Stock, voting or consenting, as the case may
be, as one class, given in person or by proxy, either
in writing or by resolution adopted at an annual or
special meeting.
(B) So long as any shares of the Class A
Preferred Stock are outstanding, the Corporation shall
not authorize any class of Senior Stock without the
affirmative vote or consent of Holders of at least
66-2/3% of the outstanding shares of Class A Preferred
Stock, voting or consenting, as the case may be, as one
class, given in person or by proxy, either in writing
or by resolution adopted at an annual or special
meeting.
(C) So long as any shares of the Class A
Preferred Stock are outstanding, the Corporation shall
not amend this Article FOURTH so as to affect adversely
the specified rights, preferences, privileges or voting
rights of holders of shares of Class A Preferred Stock
or to authorize the issuance of any additional shares
of Class A Preferred Stock without the affirmative vote
or consent of Holders of at least 66-2/3% of the issued
and outstanding shares of
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<PAGE>
Class A Preferred Stock, voting or consenting, as the
case may be, as one class, given in person or by proxy,
either in writing or by resolution adopted at an annual
or special meeting.
(D) Prior to the exchange of Class A Preferred
Stock for Exchange Debentures, the Corporation shall
not amend or modify the Indenture for the Exchange
Debentures in the form as executed on the Class A
Preferred Stock Issue Date (the "Indenture") (except as
expressly provided therein) without the affirmative
vote or consent of Holders of at least 66-2/3% of the
shares of Class A Preferred Stock then outstanding,
voting or consenting, as the case may be, as one class,
given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting.
(E) Except as set forth in paragraphs
(f)(ii)(A) and (f)(ii)(B) above, (x) the creation,
authorization or issuance of any shares of any Junior
Stock, Parity Stock or Senior Stock, or (y) the
increase or decrease in the amount of authorized
capital stock of any class, including preferred stock,
shall not require the consent of Holders of Class A
Preferred Stock and shall not, unless not complying
with paragraphs (f)(ii)(A) and (f)(ii)(B) above, be
deemed to affect adversely the rights, preferences,
privileges or voting rights of Holders of Class A
Preferred Stock.
(iii) Without the affirmative vote or consent of
Holders of a majority of the issued and outstanding
shares of Class A Preferred Stock, voting or
consenting, as the case may be, as one class the
Corporation will not, in a single transaction or series
of related transactions, consolidate or merge with or
into, or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its
assets to, any Person or adopt a Plan of Liquidation
unless: (i) either (1) the Corporation shall be the
surviving or continuing corporation or (2) the Person
(if other than the Corporation) formed by such
consolidation or into which the Corporation is merged
or the Person which acquires by conveyance, transfer or
lease the properties and assets of the Corporation
substantially as an entirety or in the case of a Plan
of Liquidation, or Person to which assets of the
Corporation have been transferred shall be a
corporation organized and validly existing under the
laws of the United States or any State thereof or the
District of Columbia; (ii) the Class A Preferred Stock
shall be converted into or exchanged for and shall
become shares of such successor, transferee or
resulting corporation, having in respect of such
successor, transferee or resulting corporation the same
powers, preferences
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<PAGE>
and relative participating, optional or other special
rights and the qualifications, limitations or restrictions
thereon, that the Class A Preferred Stock had immediately
prior to such transaction; (iii) immediately after giving
effect to such transaction and the conversion or exchange
contemplated by clause (ii) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect
of such transaction), the Corporation (in the case of clause
(1) of the foregoing clause (i)) or such Person (in the
case of clause (2) thereof) (a) shall have a Consolidated
Net Worth (immediately after such transaction but prior to
any purchase accounting adjustments for such transaction)
equal to or greater than the Consolidated Net Worth of the
Corporation immediately prior to such transaction and (b)
shall be able to incur (assuming a market rate of interest
with respect thereto) at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under
paragraph (l)(i) hereof, provided that this clause
(iii) shall not be applicable with respect to a merger
of the Corporation with or into any Wholly Owned
Subsidiary of the Corporation; (iv) immediately before
and after giving effect to such transactions and the
conversion or exchange contemplated by clause (ii)
above (including giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such
transactions) no Voting Rights Triggering Event shall
have occurred or be continuing; and (v) neither the
Corporation nor any Subsidiary of the Corporation nor
such Person, as the case may be, would thereupon become
obligated with respect to any Indebtedness (including
Acquired Indebtedness), unless the Corporation or such
Subsidiary or such Person, as the case may be, could
incur such Indebtedness under paragraph (1)(i) hereof.
For purposes of the foregoing, the transfer
(by lease, assignment, sale or otherwise, in a single
transaction or series of transactions) of all or
substantially all of the properties or assets of one or
more Subsidiaries of the Corporation, the Capital Stock
of which constitutes all or substantially all of the
properties and assets of the Corporation shall be
deemed to be the transfer of all or substantially all
of the properties and assets of the Corporation.
(iv) (A) If (w) the corporation fails to declare and
pay dividends on the Class A Preferred Stock as set
forth in paragraph (c) (i) hereof (the deemed payment
of dividends pursuant to such
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<PAGE>
paragraph (c) (i) being also treated, for purposes of
this paragraph (f) (iv), as the declaration and payment
of dividends) in an amount equal to six full quarterly
dividends (a "Dividend Default"); or (x) the Corporation
fails to make a mandatory redemption of the Class A
Preferred Stock when required pursuant to paragraph (e)
(ii) hereof or to make a Change of Control Offer required
pursuant to paragraph (h) hereof (a "Redemption Default");
or (y) the Corporation breaches or violates one of the
provisions set forth in either of paragraphs (1) (i) or
(1) (ii) hereof and the breach or violation continues for
a period of 30 days or more (a "Restriction Default"); or
(z) a default occurs on the obligation to pay principal of,
interest on or any other payment obligation when due (a
"Payment Default") at final maturity on one or more classes
of Indebtedness of the Corporation or any Subsidiary,
whether such Indebtedness exists on the Class A
Preferred Stock Issue Date or is incurred thereafter,
having individually or in the aggregate, an outstanding
principal amount of $10.0 million or more, or any other
Payment Default occurs on one or more such classes of
Indebtedness and such class or classes of Indebtedness
are declared due and payable prior to their respective
maturities, then the number of directors constituting
the Board of Directors shall be adjusted by the Board
of Directors by the number, if any, necessary to permit
the Holders of the Class A Preferred Stock, voting
separately and as one class, to elect the lesser of two
directors or 25% of the members of the Board of
Directors of the Corporation. Holders of a majority of
the issued and outstanding shares of Class A Preferred
Stock, voting separately and as one class, shall have
the exclusive right to elect the lesser of two
directors or 25% of the members of the Board of
Directors at a meeting therefor called upon occurrence
of such Dividend Default, Redemption Default,
Restriction Default or Payment Default, as the case may
be, and at every subsequent meeting at which the terms
of office of the directors so elected by the Holders of
the Class A Preferred Stock expire (other than as
described in (f) (iv) (B) below). Each such event
described in clauses (w), (x), (y) and (z) is a "Voting
Rights Triggering Event."
(B) The right of the Holders of Class A
Preferred Stock voting together as a separate class to
elect members of the Board of Directors as set forth in
subparagraph (f) (iv) (A) above shall continue until
such time as (w) in the event such right arises due to
a Dividend Default, all accumulated dividends that are
in arrears on the Class A Preferred Stock are paid in
full and the Corporation has
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<PAGE>
paid dividends in full on the two consecutive Dividend
Payment Dates immediately following the payment of such
arrearage; and (x) in the event such right arises due to
a Redemption Default, the Corporation makes the mandatory
redemption payment in cash in full as required hereby or
makes the payment in full in cash as required hereby in
respect of the Change of Control Offer that gave rise to
such right; and (y) in the event such right arises due to
a Restriction Default, the Corporation remedies the
breach or violation; and (z) in the event such right
arises due to a Payment Default, the Corporation cures
the default, at which time (1) the special right of the
Holders of Class A Preferred Stock so to vote as a
class for the election of directors and (2) the term of
office of the directors elected by the Holders of the
Class A Preferred Stock shall terminate and the
directors elected by the holders of Common Stock shall
constitute the entire Board of Directors. At any time
after voting power to elect directors shall have become
vested and be continuing in the Holders of Class A
Preferred Stock pursuant to paragraph (f) (iv) hereof,
or if vacancies shall exist in the offices of directors
elected by the Holders of Class A Preferred Stock, a
proper officer of the Corporation may, and upon the
written request of the Holders of record of at least
ten percent (10%) of the shares of Class A Preferred
Stock then outstanding addressed to the Secretary of
the Corporation shall, call a special meeting of the
Holders of Class A Preferred Stock, for the purpose of
electing the directors which such Holders are entitled
to elect. If such meeting shall not be called by the
proper officer of the Corporation within twenty (20)
days after personal service of said written request
upon the Secretary of the Corporation, or within twenty
(20) days after mailing the same within the United
States by certified mail, addressed to the Secretary of
the Corporation at its principal executive offices,
then the Holders of record of at least twenty percent
(20%) of the outstanding shares of Class A Preferred
Stock may designate in writing one of their number to
call such meeting at the expense of the Corporation,
and such meeting may be called by the Person so
designated upon the notice required for the annual
meetings of stockholders of the Corporation and shall
be held at the place for holding the annual meetings of
stockholders. Any Holder of Class A Preferred Stock so
designated shall have, and the Corporation shall
provide, access to the lists of stockholders to be
called pursuant to the provisions hereof.
(C) At any meeting held for the purpose of
electing directors at which the Holders of Class A
Preferred Stock shall
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<PAGE>
have the right, voting together as a separate class, to
elect directors as aforesaid, the presence in person or
by proxy of the Holders of at least a majority of the
outstanding Class A Preferred Stock shall be required to
constitute a quorum of such Class A Preferred Stock.
(D) Any vacancy occurring in the office of a
director elected by the Holders of Class A Preferred
Stock may be filled by the remaining directors elected
by the Holders of Class A Preferred Stock unless and
until such vacancy shall be filled by the Holders of
Class A Preferred Stock.
(v) In any case in which the Holders of Class A
Preferred Stock shall be entitled to vote pursuant to
this paragraph (f) or pursuant to Delaware law, each
Holder of Class A Preferred Stock shall be entitled to
one vote for each share of Class A Preferred Stock
held.
(g) Exchange.
(i) Requirements. The outstanding shares of Class A
Preferred Stock are exchangeable as a whole but not in
part, at the option of the Corporation and subject to
the terms and conditions of the Credit Agreement and
the Senior Note Indenture at any time on any Dividend
Payment Date on or after June 1, 1997, for the
Corporation's 12-1/8% Subordinated Exchange Debentures
due 2003 (the "Exchange Debentures"), to be
substantially in the form of Exhibit A to the form of
Indenture, a copy of which is on file with the
Secretary of the Corporation, provided that any such
exchange may only be made if on or prior to the date of
such exchange (i) the Indenture and the trustee
thereunder (the "Trustee") each have been qualified
under the Trust Indenture Act of 1939, as amended; (ii)
the Corporation has paid (or is deemed to have paid)
all accumulated dividends on the Class A Preferred
Stock (including the dividends payable on the date of
exchange) and there shall be no contractual impediment
to such exchange; (iii) there shall be legally
available funds sufficient therefor; (iv) a
registration statement relating to the Exchange
Debentures shall have been declared effective under the
Securities Act of 1933, as amended (the "Act") prior to
such exchange and shall continue to be in effect on the
date of such exchange or the Corporation shall have
obtained a written opinion of counsel that an exemption
from the registration requirements of the Act is
available for such exchange, and that upon receipt of
such Exchange Debentures pursuant to such exchange made
in accordance with such
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<PAGE>
exemption, the holders (assuming such holder is not an
Affiliate of the Corporation) thereof will not be subject
to any restrictions imposed by the Act upon the resale
thereof and such exemption is relied upon by the Corporation
for such exchange; (v) immediately after giving effect to
such exchange, no Default or Event of Default (as defined
in the Indenture) would exist under the Indenture; and
(vi) the Corporation shall have delivered a written
opinion of counsel, dated the date of exchange,
regarding the satisfaction of the conditions set forth
in clauses (i)-(iv) and that the Corporation has
complied in all material respects with all applicable
state and Federal securities laws relating to such
exchange. The exchange rate shall be $1.00 principal
amount of the Exchange Debentures for each $1.00 of
liquidation preference of Class A Preferred Stock,
including, to the extent necessary, Exchange Debentures
in principal amounts less than $1,000, provided that
the Corporation shall have the right, at its option and
subject to the terms and conditions of the Senior Note
Indenture to pay cash in an amount equal to the
principal amount of that portion of any Exchange
Debenture that is not an integral multiple of $1,000
instead of delivering an Exchange Debenture in a
denomination of less than $1,000.
(ii) Procedure for Exchange. (A) At least thirty (30)
days and not more than sixty (60) days prior to the
date fixed for exchange, written notice (the "Exchange
Notice") shall be given by first-class mail, postage
prepaid, to each Holder of record on the record date
fixed for such exchange of the Class A Preferred Stock
at such Holder's address as the same appears on the
stock register of the Corporation, provided that no
failure to give such notice nor any deficiency therein
shall affect the validity of the procedure for the
exchange of any shares of Class A Preferred Stock to be
exchanged except as to the Holder or Holders to whom
the Corporation has failed to give said notice or
except as to the Holder or Holders whose notice was
defective. The Exchange Notice shall state:
(1) the date fixed for exchange;
(2) that the Holder is to surrender to the
Corporation, at the place or places where certificates
for shares of Class A Preferred Stock are to be
surrendered for exchange, in the manner designated, his
certificate or certificates representing the shares of
Class A Preferred Stock to be exchanged;
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(3) that dividends on the shares of Class A
Preferred Stock to be exchanged shall cease to accrue on
such Exchange Date whether or not certificates for shares
of Class A Preferred Stock are surrendered for exchange
on such Exchange Date unless the Corporation shall default
in the delivery of Exchange Debentures; and
(4) that interest on the Exchange Debentures
shall accrue from the Exchange Date whether or not
certificates for shares of Class A Preferred Stock are
surrendered for exchange on such Exchange Date.
(B) On or before the date fixed for exchange,
each Holder of Class A Preferred Stock shall surrender
the certificate or certificates representing such
shares of Class A Preferred Stock, in the manner and at
the place designated in the Exchange Notice. The
Corporation shall cause the Exchange Debentures to be
executed on the Exchange Date and, upon surrender in
accordance with the Exchange Notice of the certificates
for any shares of Class A Preferred Stock so exchanged
(properly endorsed or assigned for transfer, if the
notice shall so state), such shares shall be exchanged
by the Corporation into Exchange Debentures. The
Corporation shall pay interest on the Exchange
Debentures at the rate and on the dates specified
therein from the Exchange Date.
(C) If notice has been mailed as aforesaid,
and if before the Exchange Date specified in such
notice (x) the Indenture shall have been duly executed
and delivered by the Corporation and the trustee
thereunder and (y) all Exchange Debentures necessary
for such exchange shall have been duly executed by the
Corporation and delivered to the trustee under the
Indenture with irrevocable instructions to authenticate
the Exchange Debentures necessary for such exchange,
then the rights of the Holders of Class A Preferred
Stock so exchanged as a stockholders of the Corporation
shall cease (except the right to receive Exchange
Debentures, an amount in cash equal to the amount of
accrued and unpaid dividends to the Exchange Date and,
if the Corporation so elects, cash in lieu of any
Exchange Debenture not an integral multiple of $1,000),
and the Person or Persons entitled to receive the
Exchange Debentures issuable upon exchange shall be
treated for all purposes as the registered Holder or
Holders of such Exchange Debentures as of the date of
exchange.
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(iii) No Exchange in Certain Cases. Notwithstanding the
foregoing provisions of this paragraph (g), the
Corporation shall not be entitled to exchange the Class A
Preferred Stock for Exchange Debentures if such exchange,
or any term or provision of the Indenture or the Exchange
Debentures, or the performance of the Corporation's
obligations under the Indenture or the Exchange
Debentures, shall materially violate or conflict with
any applicable law or agreement or instrument then
binding on the Corporation or if, at the time of such
exchange, the Corporation is insolvent or if it would
be rendered insolvent by such exchange.
(h) Change of Control.
(i) In the event of a Change of Control (the date of
such occurrence being the "Change of Control Date"),
the Corporation shall notify the Holders of the Class A
Preferred Stock in writing of such occurrence and shall
make an offer to purchase (the "Change of Control
Offer"), on a Business Day (the "Change of Control
Payment Date") not later than 60 days following the
Change of Control Date, all then outstanding shares of
Class A Preferred Stock at a purchase price of 101% of
the then effective liquidation preference thereof plus,
without duplication, an amount in cash equal to all
accumulated and unpaid dividends per share (including
an amount in cash equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior
to the Change of Control Payment Date to the Change of
Control Payment Date). Immediately prior to authorizing
or making any such accrued and unpaid dividends, the
Corporation shall declare, to the extent of funds
legally available therefor, all such accrued and unpaid
dividends.
(ii) Notice of the Change of Control Offer shall be
mailed by the Corporation not less than 30 days nor
more than 60 days before the Change of Control Payment
Date to Holders of Class A Preferred Stock at their
last registered address and shall set forth:
(A) notice that a Change of Control has
occurred and that each Holder of Class A Preferred
Stock has the right to require the Corporation to
repurchase for cash such Holder's Class A Preferred
Stock at 101% of the then effective liquidation
preference thereof plus, without duplication, the
amount in cash as determined in accordance with
paragraph (h) (i) above;
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<PAGE>
(B) the fact that the Corporation has the
right to redeem the Class A Preferred Stock on or after
August 1, 1998, at the specified Optional Redemption
Price and a statement as to whether the Corporation
intends to exercise such right in connection with the
Change of Control;
(C) the Change of Control Payment Date;
(D) a description of the Change of Control; and
(E) a description of the procedures to be
followed by such Holder in order to have its Class A
Preferred Stock repurchased.
The Change of Control Offer shall remain open
from the time of mailing until the Business Day
preceding the Change of Control Payment Date.
(iii) The Corporation will comply with any securities
laws and regulations to the extent such laws and
regulations are applicable to the repurchase of the
Class A Preferred Stock in connection with a Change of
Control.
(iv) On the Change of Control Payment Date, unless the
Corporation defaults in the payment for the shares of
Class A Preferred Stock tendered pursuant to the Change
of Control Offer, dividends will cease to accrue with
respect to the shares of Class A Preferred Stock
tendered. All rights of Holders of such tendered shares
will terminate, except for the right to receive payment
therefor, on the Change of Control Payment Date.
(v) Notwithstanding anything to the contrary contained
above, prior to complying with the foregoing provisions
the Company shall, either repay all Indebtedness and
terminate all commitments outstanding under the Credit
Agreement or obtain the requisite consents, if any,
under the Credit Agreement required to permit the
repurchase of Class A Preferred Stock required by this
paragraph (h). Until the requirements of the
immediately preceding sentence are satisfied, the
Company shall not make, and shall not be obligated to
make, any Change of Control Offer.
(i) Conversion or Exchange. The Holders of shares of
Class A Preferred Stock shall not have any rights hereunder to convert
such shares into or exchange such shares for
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shares of any other class or classes or of any other series of any class or
classes of Capital Stock of the Corporation.
(j) Reissuance of Class A Preferred Stock. Shares of
Class A Preferred Stock that have been issued and reacquired in any
manner, including shares purchased or redeemed or exchanged, shall (upon
compliance with any applicable provisions of the laws of Delaware) have
the status of authorized and unissued shares of preferred stock
undesignated as to series and may be redesignated and reissued as part of
any series of preferred stock, provided that any issuance of such shares
as Class A Preferred Stock must be in compliance with the terms hereof.
(k) Business Day. If any payment, redemption or
exchange shall be required by the terms hereof to be made on a day that
is not a Business Day, such payment, redemption or exchange shall be made
on the immediately succeeding Business Day.
(l) Certain Additional Provisions.
(i) Limitation on Indebtedness. The Corporation will
not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, incur any
Indebtedness (including Acquired Indebtedness), other
than Permitted Indebtedness, provided that the
Corporation and its Subsidiaries may incur Indebtedness
(including Acquired Indebtedness) if: (i) no Voting
Rights Triggering Event shall have occurred and be
continuing at the time of the proposed incurrence
thereof or shall occur as a result of such proposed
incurrence, and (ii) after giving effect to such
proposed incurrence the Corporation's Consolidated
Fixed Charge Coverage Ratio would be greater than 2.0
to 1.0.
Notwithstanding anything herein to the
contrary, if at any time the amount incurred and
outstanding under clause (vi) of the definition of
Permitted Indebtedness exceeds the amount that would
then be permitted to be incurred thereunder as a result
of any adjustments made in accordance with such clause
(vi) to the amount permitted to be incurred thereunder,
the date the amount incurred and outstanding thereunder
exceeds the amount that would then be permitted to be
incurred thereunder shall be deemed to be the
incurrence of Indebtedness in the amount of such excess
for purposes of this Article FOURTH.
(ii) Limitation on Restricted Payments. (A) The
Corporation will not, and will not permit any of its
Subsidiaries to, directly or indirectly, make any
Restricted Payment if:
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<PAGE>
(1) at the time of such proposed Restricted
Payment or immediately after giving effect to such
proposed Restricted Payment any Voting Rights Triggering
Event shall have occurred and be continuing;
(2) immediately after giving effect to such
proposed Restricted Payment the Corporation's
Consolidated Fixed Charge Coverage Ratio would be less
than 2.25 to 1.0;
(3) immediately after giving effect to such
proposed Restricted Payment, and together with the
aggregate amount of all other Restricted Payments made
since the Class A Preferred Stock Issue Date, the
aggregate amount expended for all Restricted Payments
(the value of any such payment, if other than cash, to
be determined reasonably and in good faith by the Board
of Directors) would exceed the sum of:
(I) 50% of the Corporation's cumulative
Consolidated Net Income (or if such Consolidated Net
Income is a deficit, minus 100% of such deficit) during
the period beginning on the Class A Preferred Stock
Issue Date, and ending on the last day of the
Corporation's Fiscal Quarter immediately preceding such
proposed Restricted Payment; plus
(II) 100% of the aggregate Net Equity
Proceeds, including cash and the fair market value of
property other than cash (such value to be determined
reasonably and in good faith by the Board of
Directors), received by the Corporation from any Person
(other than from a Subsidiary of the Corporation) as a
capital contribution or from the issuance or sale
subsequent to the Class A Preferred Stock Issue Date of
Qualified Capital Stock of the Corporation (excluding
(x) any Qualified Capital Stock of the Corporation paid
as a dividend on any Capital Stock of the Corporation
or as interest on any Indebtedness of the Corporation
or any of its Subsidiaries, (y) the issuance of
Qualified Capital Stock of the Corporation upon the
conversion of, or in exchange for, any Capital Stock of
the Corporation or any of its Subsidiaries and (z) any
Qualified Capital Stock of the Corporation with respect
to which the purchase price thereof has been financed,
directly or indirectly, using funds (A) borrowed from
the Corporation or any of its Subsidiaries, unless and
until and to the extend such borrowing is repaid, or
(B) contributed, extended, guaranteed or advanced by
the Corporation or any of its Subsidiaries, including,
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<PAGE>
without limitation, in respect of any employee stock
ownership or benefit); or
(4) After August 1, 1998, the Corporation has
not, on or prior to the date of such proposed
Restricted Payment, paid cash dividends on the Class A
Preferred Stock for two consecutive Dividend Payment
Dates in respect thereof.
(B) notwithstanding the above paragraph (A),
the Corporation or its Subsidiaries may (i) pay
dividends on the Corporation's Capital Stock within 60
days after the date of declaration thereof it at such
date of declaration the payment of such dividend would
comply with the provisions set forth in paragraph (A)
above (provided that such dividend will be deemed to
have been paid as of its date of declaration for the
purposes of this provision); and (ii) if no Voting
Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof,
purchase, redeem, retire or acquire any shares of
Capital Stock of the Corporation solely with or out of
the cash proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Corporation) of
shares of Qualified Capital Stock of the Corporation
and no such purchase, redemption, retirement or
acquisition or the proceeds of any such sale shall be
included in any computation made under clause (A) (3)
(II) above.
In determining the amount of Restricted Payments
permissible under clause (3) of paragraph (A) above, amounts expended
pursuant to clause (i) of paragraph (B) above shall be included as
Restricted Payments.
For purposes of this provision, any payment by the
Corporation to Vestar LPA or its Affiliates pursuant to the Management
Consulting Agreement or any other management agreement in excess of
$500,000 in any fiscal year shall deemed to be a Restricted Payment.
For purposes of this provision a distribution to
holders of the Corporation's Capital Stock of (i) shares of Capital Stock
of any Subsidiary of the Corporation or (ii) other assets of the
Corporation or of any Subsidiary of the Corporation, without, in either
case, the receipt of equivalent consideration therefor shall be deemed to
be the equivalent of a cash dividend equal to the excess of the Fair
Market Value of the shares or other assets being so distributed at the
time of such distribution over the consideration, if any, received
therefor.
(iii) Reports. So long as any share of Class A
Preferred Stock is outstanding, the Corporation shall
file with the SEC the annual reports, quarterly reports
and the information, documents and other reports
required to be filed by the Corporation with the SEC
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<PAGE>
pursuant to Sections 13 and 15 of the Exchange Act,
whether or not the Corporation has or is required to
have a class of securities registered under the
Exchange Act, at the time it is or would be required
to file the same with the SEC and within 15 days after
it is or would be required to file such reports,
information or documents with the SEC shall mail such
reports, information and documents to the Holders at
their addresses set forth in the register of Class A
Preferred Stock maintained by the transfer agent and
registrar of the Class A Preferred Stock. Each annual
and quarterly report will include a statement setting
forth the then effective liquidation preference per
share of the Class A Preferred Stock as of the date of
the most recent balance sheet set forth in the financial
statements contained therein.
(m) Definitions. As used in this Article FOURTH, the
following terms shall have the following meanings (with terms defined in
the singular having comparable meanings when used in the plural and vice
versa), unless the context otherwise requires:
"Acquired Indebtedness" of any specified
Person means Indebtedness of any other Person and its
Subsidiaries existing at the time such other Person
merged with or into or became a Subsidiary of such
specified Person or assumed in connection with the
acquisition of assets from such other Person including,
without limitation, Indebtedness of such other Person
and its Subsidiaries incurred in connection with or in
anticipation of such other Person being merged with or
into or becoming a Subsidiary of such specified Person
to such acquisition.
"Affiliate" means, when used with reference to
any Person, any other Person directly or indirectly
controlling, controlled by, or under direct or indirect
common control with, such first Person, or any Person
who beneficially owns, directly or indirectly, 5% or
more of the equity interests (excluding the Class A
Preferred Stock in the case of the Corporation) of such
first Person or warrants, options or other rights to
acquire or hold more than 5% of any class of equity
interests (excluding the Class A Preferred Stock in the
case of the Corporation) of such first Person, provided
that the term "Affiliate", when used in reference to
the Corporation shall not include Bankers Trust
Corporation and its Affiliates. For the purposes of
this definition, "control" when used with respect to
any specified Person means the power to direct or cause
the direction of management or policies of such Person,
directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings
correlative of the foregoing.
"Associate" of or a Person "associated" with,
any Person, means (i) any trust or other estate in
which such Person has a substantial beneficial interest
or as
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<PAGE>
to which such Person serves as a trustee or in a similar
fiduciary capacity and (ii) any relative or spouse of
such Person, or any relative of such spouse, who has the
same home as such Person.
"Board of Directors" shall mean the board of
directors of the Corporation.
"Business Day" means any day except a
Saturday, a Sunday, or any day on which banking
institutions in New York, New York are required or
authorized by law or other governmental action to be
closed.
"Capital Stock" means, with respect to any
Person, any and all shares, interests, participation,
rights in, or other equivalents (however designated and
whether voting or non-voting) of, such Person's capital
stock, whether outstanding on the Class A Preferred
Stock Issue Date or issued after the Class A Preferred
Stock Issue Date, and any and all rights, warrants or
options exchangeable for or convertible into such
capital stock (but excluding any debt security that is
exchangeable for or convertible into such capital
stock).
"Capitalized Lease Obligation" means any
obligation under a lease that is required to be
classified and accounted for as a capital lease
obligation under GAAP and, for purposes of this Article
FOURTH, the amount of such obligation at any date shall
be the capitalized amount of such obligation at such
date, determined in accordance with GAAP, and the
Stated Maturity thereof shall be the date of the last
payment of rent or any other amount due thereunder
prior to the first date upon which such lease may be
terminated by the lessee pursuant to the terms thereof
without payment of any penalty.
"Cash Equivalents" means at any time, (i) any
evidence of Indebtedness with a maturity of one year or
less from the date of acquisition issued or directly
and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof
(provided that the full faith and credit of the United
States of America or any agency or instrumentality
thereof is pledged in support thereof); (ii) bank
deposits of, or certificates of deposit or acceptances
with a maturity of one year or less from the date of
acquisition of, any financial institution that is a
member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less
than $250 million; (iii) commercial paper with a
maturity of one year or less from the date of
acquisition issued by a corporation (except an
Affiliate of the Corporation) organized under the laws
of any state of the United States or the District of
Columbia and rated at least A-1 by Standard & Poor's
Corporation or at least P-1 by Moody's Investors
Service, Inc.; (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the
United States Government or issued by any agency
thereof and backed by the full faith and credit
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<PAGE>
of the United States, in each case maturing within one
year from the date of acquisition, provided that the
terms of such agreements comply with the guidelines set
forth in the Federal Financial Agreements of Depositary
Institutions With Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31,
1985; and (v) money market funds and mutual funds, the
assets of which are solely invested in (i) through (iv)
above.
"Change of Control" means the occurrence of
one of more of the following events (whether or not
approved by the Board of Directors of the Corporation):
(i) any direct or indirect sale, lease, exchange or
other transfer (in one transaction or a series of
related transactions) of all or substantially all of
the assets of the Corporation to any Person or entity
or group of Persons or entities acting in concert (a
"Group") for purposes of Section 13 (d) of the Exchange
Act, together with any Affiliates thereof (whether or
not otherwise in compliance with the provisions of this
Article FOURTH); (ii) the approval by the holders of
the Capital Stock of the Corporation of any Plan of
Liquidation (whether or not otherwise in compliance
with the provisions of this Article FOURTH); (iii) the
acquisition in one or more transactions of "beneficial
ownership" (within meaning of Rule 13d-3 and Rule 13d-5
under the Exchange Act, whether or not applicable) by
any Person or other entity (other than any Permitted
Holder), or Group (excluding Permitted Holders)
together with its or their Affiliates or Associates, in
either case, of any securities of the Corporation or
any securities of Vestar LPA such that, as a result of
such acquisition, such Person, entity or Group either:
(A) beneficially owns (as set forth above), directly or
indirectly, at least 51% or more of the combined voting
power of the Corporation's then outstanding Voting
Stock or (B) otherwise has the ability to elect,
directly or indirectly, a majority of the members of
the Board of Directors of the Corporation or other
equivalent governing body thereof; or (iv) during any
consecutive two-year period, individuals who at the
beginning of such period constituted the Board of
Directors of the Corporation (together with any new
directors whose election to the Board of Directors of
the Corporation was approved by a vote of a majority of
the directors then still in office who were either
directors at the beginning of such period or whose
election or nomination for election was previously so
approved) or such other directors as have been
appointed by the Permitted Holders cease for any reason
to constitute a majority of the Board of Directors of
the Corporation then in office.
"Change of Control Date" shall have the
meaning ascribed to it in paragraph (h)(i) hereof.
"Change of Control Payment Date" shall have
the meaning ascribed to it in paragraph (h)(i) hereof.
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<PAGE>
"Change of Control Offer" shall have the
meaning ascribed to it in paragraph (h)(i) hereof.
"Class A Preferred Stock" shall have the
meaning ascribed to it in paragraph (a) hereof.
"Class A Preferred Stock Issue Date" means the
date on which the Class A Preferred Stock was
originally issued by La Petite Holdings Corp.
"Code" has the meaning ascribed to it in
paragraph (c) (viii) hereof.
"Common Stock" means the 1,000 shares of
common stock of the Corporation, each having a par
value of one penny ($.01).
"Consolidated EBITDA" for any Person means for
any period for which it is to be determined (A) the sum
of, without duplication, the amounts for such period,
taken as a single accounting period, of (i)
Consolidated Net Income; and (ii) only to the extent
Consolidated Net Income has been reduced thereby, (1)
Consolidated Tax Expense of such Person and its
Consolidated Subsidiaries paid or accrued in accordance
with GAAP for such period: (2) Consolidated Interest
Expense of such Person and its Consolidated
Subsidiaries for such period; and (3) all depreciation
and amortization expenses, the accretion for carrying
value of the Subordinated Debentures and other non-cash
expenses (other than any non-cash expense which
requires the accrual of a reserve for cash charges for
any future period) for such Person and its Consolidated
Subsidiaries for such period, less (B) the amount of
consolidated non-cash items increasing Consolidated Net
Income for such period, all as determined on a
consolidated basis in conformity with GAAP consistent
with those applied in the preparation of the audited
financial statements of the Corporation and its
Consolidated Subsidiaries.
"Consolidated Fixed Charge Coverage Ratio"
means, with respect to any Person, the ratio of (a) the
aggregate amount of Consolidated EBITDA of such Person
for the four full Fiscal Quarters ending on or
immediately prior to the date of the transaction (the
"Transaction Date") giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio
(such four full Fiscal Quarter period being referred to
herein as the "Four Quarter Period") to (b) the
aggregate Consolidated Fixed Charges of such Person for
such Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this
definition, Consolidated EBITDA and Consolidated Fixed
Charges shall be calculated after giving effect on a
pro forma basis for the period of such calculation to:
(i) the incurrence or retirement, as the case may be,
of any Indebtedness (including Acquired Indebtedness)
of such Person or of any of its Subsidiaries during the
period commencing on the first day of the Four Quarter
Period to and including the Transaction Date (the
"Reference Period"), including, without limitation, the
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incurrence of the Indebtedness giving rise to the need
to make such calculation, as if such incurrence or
retirement, as the case may be, occurred on the first
day of the Reference Period and (ii) the Consolidated EBITDA
of such Person during the Reference Period attributable
to any acquired or divested Person, business, property
or asset to the extent otherwise included or includible
in the referent Person's Consolidated EBITDA, as if
such transaction occurred on the first day of the
Reference Period. If the Person for whom this ratio is
being calculated or any of its Subsidiaries directly or
indirectly guarantees Indebtedness of a third person,
the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such
Person or any Subsidiary of such Person had directly
incurred or otherwise assumed such guaranteed
Indebtedness as of the first day of the Reference
Period. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of determining the denominator
(but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio, " (1) interest on Indebtedness
determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if
interest on any Indebtedness actually incurred on the
Transaction Date may be optionally determined at an
interest rate based upon a factor of a prime or similar
rate, a eurocurrency interbank offered rate or other
rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect
during the Four Quarter Period; and (3) notwithstanding
the foregoing, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is
covered by agreements relating to interest swap
agreements, shall be deemed to accrue at the rate per
annum resulting after given effect to the operation of
such agreement.
"Consolidated Fixed Charges" means, with
respect to any Person for any period, the sum of,
without duplication, the amounts for such period, taken
as a single accounting period, of (i) Consolidated
Interest Expense; and (ii) the product of (x) the
amount of all cash dividends declared or paid on
preferred stock of such Person and its Consolidated
Subsidiaries during such period multiplied by (y) a
fraction, the numerator of which is one and the
denominator of which is one minus the then current
effective consolidated Federal, state, local and
foreign tax rate (expressed as a decimal number between
1 and 0) of such Person (as reflected in the audited
consolidated financial statements of such Person for
the most recently completed fiscal year), less, to the
extent included in Consolidated Interest Expense, any
amortization of any debt-issuance costs of such Person
and its Consolidated Subsidiaries.
"Consolidated Interest Expense" means, with
respect to any Person for any period, the aggregate of
the interest expense of such Person and its
Consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance
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with GAAP, including all amortization of original issue
discount, the interest component of Capitalized Lease
Obligations, net cash costs under all Interest Rate
Protection Agreements, all capitalized interest, the
interest portion of any deferred payment obligations
for such period and cash contributions to any employee
stock ownership plan to the extent such contributions
are used by such employee stock ownership plan to pay
interest or fees to any Person (other than the
Corporation or Wholly Owned Subsidiary of the
Corporation) in connection with loans incurred by such
employee stock ownership plan to purchase Capital Stock
of the Corporation, provided that the accretion for
carrying value for the Convertible Debentures shall be
excluded from the calculation of Consolidated Interest
Expense.
"Consolidated Net Income" means, with respect
to any Person for any period, the consolidated net
income (or deficit) of the referent Person and its
Consolidated Subsidiaries for such period, on a
consolidated basis, as determined in accordance with
GAAP consistently applied, provided that the net income
of any other Person (other than a Subsidiary of the
referent Person) in which the referent Person or any
Subsidiary of the referent Person has a joint interest
with a third party (which interest does not cause the
net income of such other Person to be consolidated into
the net income of the referent Person in accordance
with GAAP) shall be included only to the extent of the
lesser of (a) such income that has been actually
received by the referent Person or such Subsidiary in
the form of cash dividends or similar cash
distributions (subject to, in the case of a dividend or
other distribution to a Subsidiary of the referent
Person, the limitations set forth in clause (i) (x)
below) and (b) the net income of such other Person
(which in no event shall be less than zero), provided,
further, that there shall be excluded (i) (x) the net
income or loss of any Subsidiary of the referent Person
that is subject to any restriction or limitation on the
payment of dividends or the making of other
distributions to the extent of such restriction or
limitation and (y) the net income of any Person
acquired in a pooling of interests transaction accrued
prior to the date it became a Subsidiary of the
referent Person or is merged into or consolidated with
the referent Person or any Subsidiary of the referent
Person; (ii) any restoration to income of any
contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated
Net Income of the referent Person accrued at any time
following the Class A Preferred Stock Issue Date; (iii)
any gain or loss, together with any related provisions
for taxes, realized upon the sale or other disposition
(including, without limitation, dispositions pursuant
to sale-leaseback transactions) of any property or
assets of the referent Person and its Subsidiaries
which are not sold or otherwise disposed of in the
ordinary course of business and upon the sale or other
disposition of any Capital Stock of any Subsidiary of
the referent Person; (iv) any gain arising from the
acquisition of any securities, or other extinguishment,
under GAAP, of any Indebtedness of the referent Person
and its Subsidiaries; (v) any extraordinary gain
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<PAGE>
or loss together with any related provision for taxes on
any such extraordinary gain, realized by the referent
Person or any of its Subsidiaries during the period for
which such determination is made; and (vi) in the case
of a successor to the referent Person by consolidation
or merger or as a transferee of its assets, any
earnings of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" means, with respect
to any Person for any date of determination (without
duplication), the sum of: (i) stated capital, par or
liquidation value with respect to Capital Stock of such
Person and additional paid-in-capital or capital
surplus, and (ii) retained earnings or earned surplus
(or minus accumulated deficit) of such Person and its
Consolidated Subsidiaries, less: (a) any revaluation or
other write-ups subsequent to the Class A Preferred
Stock Issue Date in the book value of any asset owned
by such Person or a Consolidated Subsidiary of such
Person; (b) to the extent included in the foregoing,
amounts attributable to any Disqualified Stock or any
preferred stock or other equity security of such Person
which is not Disqualified Stock and which is
exchangeable for or convertible into a debt security
for a security exchangeable for or convertible into a
debt security) of such Person or of any of its
Subsidiaries at the option of such Person or any of its
Subsidiaries; and (c) any amounts attributable to the
cost of treasury stock and any amount receivable but
not paid from sales of Capital Stock of such Person or
its Consolidated Subsidiaries, all as determined in
accordance with GAAP.
"Consolidated Subsidiary" of any Person means
a Subsidiary which for financial reporting purposes is
or, in accordance with GAAP, should be, accounted for
by such Person as a consolidated subsidiary.
"Consolidated Tax Expense" means, with respect
to any Person for any period, the aggregate of the U.S.
Federal, state and local tax expense attributable to
taxes based on income and foreign income tax expenses
of such Person and its Consolidated Subsidiaries for
such period (net of any income tax benefit), determined
in accordance with GAAP, other than taxes (either
positive or negative) attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes
attributable to Asset Sales.
"Contingent Redemption Price" shall have the
meaning ascribed to it in paragraph (e) (i) (B) hereof.
"Convertible Debentures" means the 6 1/2%
Convertible Subordinated Debentures due 2011 of the
Corporation.
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"Credit Agreement" means the credit agreement
dated as of July 1, 1993, among La Petite Holdings
Corp., La Petite Acquisition Corp., the lenders which
are or became parties from time to time thereto and
Bankers Trust Company and Banque Paribas, as Agent Banks,
together with the documents related thereto (including,
without limitation, any guarantees or security documents),
as amended, and as the same may at any time may be
amended and restated, supplemented or otherwise modified,
including any refinancing, refunding, replacement or
extension thereof (whether before or after the
termination thereof) and whether by the same or any
other lender or group of lenders.
"Disqualified Stock" means any class or series
of Capital Stock or other equity interest that, by its
terms or the terms of any agreement related thereto (or
by the terms of any security into which it is
convertible or for which it is exchangeable), or upon
the happening of any event or the passage of time,
matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof (except, in each
case, upon the occurrence of a change of control of the
issuer of such Capital Stock), in whole or in part, on
or prior to the mandatory redemption date of the Class
A Preferred Stock, or is convertible into or
exchangeable for debt securities at the option of the
holder at any time prior to such date.
"Dividend Payment Date" means February 1, May 1,
August 1 and November 1, of each year.
"Dividend Period" means the Initial Dividend
Period and, thereafter, each Quarterly Dividend Period.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Exchange Date" means a date on which shares
of Class A Preferred Stock are exchanged by the
Corporation for Exchange Debentures.
"Exchange Debentures" shall have the meaning
ascribed to it in paragraph (g) (i) hereof.
"Exchange Notice" shall have the meaning ascribed
to it in paragraph (g) (ii) hereof.
"Fair Market Value" or "fair value" means,
with respect to any asset or property, the price which
could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a
willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair
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Market Value shall be determined by the Board of Directors
acting reasonably and in good faith.
"Fiscal Quarter" means any quarter in any
Fiscal Year, the duration of such quarter being defined
in accordance with GAAP.
"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
statements and pronouncements of the Financial
Accounting Standards Board or in such other statements
by such other entity as may be approved by a
significant segment of the accounting profession of the
United States, which are in effect as of the Class A
Preferred Stock Issue Date.
"guarantee" means, as applied to any
obligation, (i) a guarantee (other than by endorsement
of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in
any manner, of any part of all of such obligation and
(ii) an agreement, direct or indirect, contingent or
otherwise, the practical or legal effect of which is to
assure in any way the payment or performance (or
payment of damages in the event of a non-performance)
of all or any part of such obligation, including,
without limitation, the payment of amounts drawn down
by letters of credit.
"Holder" means a holder of shares of Class A
Preferred Stock.
"incur" means, with respect to any
Indebtedness or other obligation of any Person, to
create, issue, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become
liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurable" and "incurring"
shall have meanings correlative to the foregoing),
provided that a change in GAAP that results in an
obligation of such Person that exists at such time
becoming Indebtedness shall not be deemed an incurrence
of such Indebtedness.
"Indebtedness" means, with respect to any
Person, at any date, any of the following, without
duplication, (i) any liability, contingent or
otherwise, of such Person (A) for borrowed money
(whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion
thereof), (B) evidenced by a note, bond, debenture or
similar instrument or a letter of credit (including a
purchase money obligation) or (C) for the payment of
money relating to a Capitalized Lease Obligation or
other obligation (whether issued or assumed) relating
to the deferred purchase price of property but
excluding trade accounts
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<PAGE>
payable arising in the ordinary course of business; (ii)
all conditional sale obligations and all obligations under
any title retention agreement (even if the rights and
remedies of the seller under such agreement in the event of
default are limited to repossession or sale of such
property), but excluding trade accounts payable arising in
the ordinary course of business; (iii) all obligations for
the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit
transaction entered into in the ordinary course of
business; (iv) all Indebtedness of others secured by
(or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured
by) any Lien on any asset or property (including,
without limitation, leasehold interests and any other
tangible or intangible property) of such Person,
whether or not such Indebtedness is assumed by such
Person or is not otherwise such Person's legal
liability, provided that if the obligations so secured
have not been assumed in full by such Person or are
otherwise not such Person's legal liability in full,
the amount of such Indebtedness for the purposes of
this definition shall be limited to the lesser of the
amount of such Indebtedness secured by such Lien or the
Fair Market Value of the assets or property securing
such Lien; (v) all Indebtedness of others (including
all interest and dividends on any Indebtedness or
preferred stock of any other Person for the payment of
which is) guaranteed, directly or indirectly, by such
Person or that is otherwise its legal liability or
which such Person has agreed to purchase or repurchase
or in respect of which such Person has agreed
contingently to supply or advance funds; and (vi) all
obligations under Interest Rate Protection Agreements.
"Indenture" shall have the meaning ascribed to it
in paragraph (f) (ii) (d) hereof.
"Initial Dividend Period" means the dividend
period commencing on the Class A Preferred Stock Issue
Date and ending on the first Dividend Payment Date to
occur thereafter.
"Interest Protection Agreements" means the
Interest Rate Protection Agreements (i) entered into by
the Corporation in a notional amount not exceeding the
aggregate principal amount outstanding under the Credit
Agreement and (ii) as otherwise permitted by the Credit
Agreement, so long as the notional amount thereof does
not exceed the underlying obligation to which it
relates.
"Interest Rate Protection Agreement" means any
interest rate swap agreement, interest rate cap
agreement or other similar financial agreement.
"Investment" by any Person means any direct or
indirect (i) loan, advance or other extension of credit
or capital contribution (by means of transfers of cash
or other property to others or payments for property or
services for the account or use of others, or
otherwise), (ii) purchase or acquisition of Capital
Stock, bonds,
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<PAGE>
notes, debentures or other securities or evidences of
Indebtedness issued by any other Person (whether by merger,
consolidation, amalgamation or otherwise and whether or
not purchased directly from the issuer of such securities
or evidences of Indebtedness), (iii) guarantee or assumption
of the Indebtedness of any other Person and (iv) all
other items that would be classified as investments
(including, without limitation, purchases of assets
outside the ordinary course of business) on a balance
sheet of such Person prepared in accordance with GAAP.
Investments shall exclude extensions of trade credit
and advances to customers and suppliers to the extent
in the ordinary course of business and made in
accordance with customary industry practice. The amount
of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto,
without any adjustments for increases or decreases in
value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Junior Stock" shall have the meaning ascribed to
it in paragraph (b) hereof.
"Lien" means any mortgage, pledge, security
interest, encumbrance, lien, charge or adverse claim
affecting title or resulting in an encumbrance against
real or personal property or a security interest of any
kind (including, without limitation, any conditional
sale or other title retention agreement or lease in the
nature thereof or any filing or agreement to file a
financing statement as debtor under the Uniform
Commercial Code or any similar statute other than to
reflect ownership by a third party of property leased
to the Corporation or any of its Subsidiaries under a
lease that is not in the nature of a conditional sale
or title retention agreement).
"Management Consulting Agreement" means the
management consulting agreement dated as of July 23,
1993 between Vestar and La Petite Acquisition Corp.
"Management Investors" means employees of the
Corporation who acquired or have the right to acquire
Common Stock of Vestar LPA.
"Mandatory Redemption Price" shall have the
meaning ascribed to it in paragraph (e) (ii) hereof.
"Merger" means the merger of La Petite
Holdings Corp., a Delaware corporation, with and into
the Corporation, its Wholly Owned Subsidiary, with the
Corporation as the survivor, effective as of midnight
on May 31, 1997. Pursuant to the Merger and by
operation of law, the 9-5/8% Senior Notes of the
Corporation from time to time issued in accordance with
the Senior Note Indenture evidencing indebtedness of to
La Petite Holdings Corp. ceased to exist.
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<PAGE>
"Net Equity Proceeds" means (a) in the case of
any sale by the Corporation of Qualified Capital Stock
of the Corporation, the aggregate net proceeds received
by the Corporation, after payment of expenses,
commissions and similar charges incurred in connection
therewith, whether such proceeds are in cash or in
other property (valued at the Fair Market Value thereof
at the time of receipt) and (b) in the case of any
exchange, exercise, conversion or surrender of any
outstanding Indebtedness of the Corporation for or into
shares of Qualified Capital Stock of the Corporation,
the amount of such Indebtedness (or, if such
Indebtedness was issued at an amount less than the
stated principal amount thereof, the accredited amount
thereof as determined in accordance with GAAP) as
reflected in the consolidated financial statements of
the Corporation prepared in accordance with GAAP as of
the most recent date next preceding the date of such
exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the holder of
such Indebtedness to the Corporation upon such
exchange, exercise, conversion or surrender and less
any and all payments made to the holders of such
Indebtedness, and all other expenses incurred by the
Corporation in connection therewith), in the case of
either clause (a) or (b) to the extent consummated
after the Class A Preferred Stock Issue Date.
"Optional Redemption Price" shall have the meaning
ascribed to it in paragraph (e) (i) hereof.
"Parity Stock" shall have the meaning ascribed to it
in paragraph (b) hereof.
"Permitted Holders" means Vestar LPA (for so
long as the Voting Stock of Vestar LPA is controlled by
Vestar, the Management Investors and their respective
Affiliates and Associates), the Management Investors
and their respective Affiliates and Associates.
"Permitted Indebtedness" means (i)
Indebtedness of Holdings and its Subsidiaries existing
on the Class A Preferred Stock Issue Date as in effect
on the Class A Preferred Stock Issue Date; (ii)
Indebtedness of the Corporation and its Subsidiaries
evidenced by or arising under (a) the Credit Agreement,
provided that the aggregate principal amount of
Indebtedness outstanding under the Credit Agreement
(whether or not amended or refinanced) pursuant to this
clause (ii) (a) shall not exceed $25,000,000 (less, as
of any date, any and all amounts of principal repaid (a
refinancing not being deemed a repayment) pursuant to
such agreement since the Class A Preferred Stock Issue
Date (other than pursuant to the working capital
facility portion thereof)) at any time, and (b)
Interest Protection Agreements; (iii) Indebtedness of
the Corporation evidenced by or arising under the
Senior Notes and the Senior Note Indenture (in each
case as in effect on the
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<PAGE>
Class A Preferred Stock Issue Date); (iv) Indebtedness of
the Corporation to a Subsidiary of the Corporation or by
a Subsidiary of the Corporation to the Corporation or
between Subsidiaries of the Corporation, provided that any
Indebtedness of the Corporation to any of its Subsidiaries
shall be evidenced by an intercompany promissory note that
is subordinated in right of payment to the payment and
performance of the Corporation's obligations under the
Senior Note Indenture and the Senior Notes to the same
extent and in the same manner as the Exchange Debentures
would, if issued, be subordinated to Senior Indebtedness of
the Company (as defined in the Indenture), and provided,
further, that any subsequent issuance or transfer of
Capital Stock of a Subsidiary of the Corporation (the
"Obligee Subsidiary") that results in such Subsidiary's
ceasing to be a Subsidiary of the Corporation or any
subsequent transfer of such Indebtedness owing from the
Corporation or any Subsidiary of the Corporation to
such Obligee Subsidiary (other than a transfer to
another Subsidiary of the Corporation) shall be deemed
in each case to constitute the incurrence of
Indebtedness by the Corporation or a Subsidiary of the
Corporation to the extent the Corporation or any
Subsidiary of the Corporation is indebted to such
Obligee Subsidiary that no longer is a Subsidiary of
the Corporation or has transferred such Indebtedness;
(v) Indebtedness secured by mortgages or Capitalized
Lease Obligations incurred in connection with (x) the
development or improvement of properties of the
Corporation existing on the Class A Preferred Stock
Issue Date (including Indebtedness incurred to
refinance or refund the cost of such development or
improvement (whether incurred at the time of such
development or improvement or thereafter)), not to
exceed $3,000,000 at any time outstanding and (y) the
purchase or development of academies of the Corporation
not existing on the Class A Preferred Stock Issue Date
(including Indebtedness incurred to refinance or refund
the cost of such development or improvement (whether
incurred at the time of such development or improvement
or thereafter)), such incurrence not to exceed more
than $10,000,000 in aggregate principal amount in any
fiscal year of the Corporation ($4,250,000 for the
fiscal year ended December 31, 1993); (vi) other
Indebtedness of the Corporation and of its Subsidiaries
which may, but need not, be incurred under the Credit
Agreement (to the extent not permitted by clause (ii)
(a) above), provided that the aggregate of all
Indebtedness outstanding at any time pursuant to this
clause (vi) does not exceed $20,000,000 (after giving
effect to the Indebtedness to be incurred on such date
pursuant to this clause (vi) and after giving effect to
the adjustments reflected in the next proviso hereto),
and provided, further, that to the extent the term loan
portion of the Credit Agreement is refinanced at any
time after the Class A Preferred Stock Issue Date and
the Indebtedness that is or may be incurred thereunder
is or may be incurred for any purpose other than to
fund the redemption of the Subordinated Debentures,
then the amount of Indebtedness at any date permitted
to be incurred (or incurred and outstanding) under this
clause (vi) shall be reduced by an amount equal to the
excess, if any, of (x) the aggregate principal amount
of Indebtedness outstanding at
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<PAGE>
such date under such refinancing of the term loan portion
of the Credit Agreement over (y) the sum of (1) the
reduction since the Class A Preferred Stock Issue Date in
the amount payable upon conversion of all of the
Subordinated Debentures (not to exceed $17,400,000 in the
aggregate) as a result of conversions, redemptions or
repurchases of the Subordinated Debentures plus (2) the
product of (A) $2,600,000 and (b) the ratio of the
aggregate principal amount of Subordinated Debentures
that have been converted or repurchased as of such date
since the Issue Date to $33,900,000 (not to exceed
$2,600,000 in the aggregate); (vii) any replacement,
renewal, refinancing, amendment or extension
(collectively, "refinancing") of Indebtedness of the
Corporation or of any of its Subsidiaries incurred
under clause (i) and (iii) of this definition or any
refinancing of Indebtedness of the Corporation or of
any of its Subsidiaries incurred in accordance with the
Consolidated Fixed Charge Coverage Ratio provisions
under paragraph (1) (i) hereof ("Existing Debt," and
any such refinancing of such Indebtedness, "New Debt"),
provided that (a) any such New Debt shall have a Stated
Maturity no earlier than the earlier of one year after
August 1, 2003 or the Stated Maturity of the Existing
Debt and shall not provide for any other mandatory
redemptions or other repayments or prepayments in an
amount greater than or at a time prior to the amounts
and times specified in the Existing Debt, and (b) to
the extent the principal amount of such New Debt
exceeds the amount of principal, interest and premium,
if any, of the Existing Debt outstanding as of the date
of the proposed incurrence of the New Debt, such excess
may only be incurred if otherwise permitted under the
provisions described under paragraph (1) (i) hereof;
and (viii) letters of credit obtained by the
Corporation or its Subsidiaries in the ordinary course
of business consistent with past practices in
connection with workers' compensation and other
insurance.
"Permitted Investments" means (i) Investments
in the Corporation by any Subsidiary of the Corporation
or Investments (including acquisitions) in any other
Person, if after giving effect to any such Investment,
such Person continues to be or would be a Subsidiary of
the Corporation; (ii) cash and Cash Equivalents; (iii)
Investments by the Corporation or by any of its
Subsidiaries in a business substantially similar to or
related to that of the Corporation including, but not
limited to, joint ventures or other business alliances
formed for the purpose of contract bidding and
execution in the ordinary course of business or
otherwise; and (iv) Investments of the Corporation and
its Subsidiaries arising as a result of any Asset Sale
(as defined in the Senior Note Indenture) otherwise
complying with the terms of the Senior Note Indenture.
"Person" means any individual, corporation,
partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or
government or any agency or political subdivision
thereof.
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"Plan of Liquidation" means a plan (including
by operation of law) that provides for, contemplates or
the effectuation of which is preceded or accompanied by
(whether or not substantially contemporaneously) (i)
the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Corporation
otherwise than as an entirety or substantially as an
entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or
other disposition and all or substantially all of the
remaining assets of the Corporation to the holders of the
Capital Stock of the Corporation.
"Qualified Capital Stock" means, with respect
to any Person, any Capital Stock of such Person that is
not Disqualified Stock or convertible into or
exchangeable or exercisable for Disqualified Stock.
"Quarterly Dividend Period" shall mean the
quarterly period commencing on each February 1, May 1,
August 1 and November 1 and ending on each Dividend
Payment Date, respectively.
"Redemption Date", with respect to any shares
of Class A Preferred Stock, means the date on which
such shares of Class A Preferred Stock are redeemed by
the Corporation.
"Redemption Notice" shall have the meaning ascribed
to it in paragraph (e) (iii) hereof.
"refinancing" has the meaning set forth under
the definition of Permitted Indebtedness, and
"refinanced" and "refinance" have meanings correlative
thereto.
"Restricted Payment" means (i) the declaration
or payment of any dividend or the making of any other
distribution (whether in cash, securities or other
property or assets of the Corporation or of any of its
Subsidiaries) on the Corporation's Capital Stock (other
than the Class A Preferred Stock), or to the holders of
the Corporation's Capital Stock (other than the Class A
Preferred Stock), other than dividends distributions
payable solely in Qualified Capital Stock of the
Corporation; (ii) the making of any Investment by the
Corporation or by any Subsidiary of the Corporation
other than Permitted Investments; or (iii) any
purchase, redemption, retirement or other acquisition
for value of any Capital Stock of the Corporation, or
any warrants, rights or options to purchase or acquire
shares of the Capital Stock of the Corporation held by
any Person, other than through the issuance in exchange
therefor solely of Qualified Capital Stock of the
Corporation. The dollar amount of the non-cash dividend
or distribution by the Corporation or on the
Corporation's Capital Stock shall be equal to the Fair
Market Value of such dividend or distribution at the
time of such dividend or distribution.
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Notwithstanding the foregoing, provided that
no Voting Rights Triggering Event (as provided herein)
has occurred and is continuing at the time thereof or
would occur as a result thereof the advancing or
dividending of funds in amounts and at times necessary
to permit the acquisition of Common Stock of a direct
or indirect parent of the Corporation from members of
management of the Corporation who have died or whose
employment has terminated in accordance with existing
agreements shall not be or be deemed to be Restricted
Payments, provided that (x) the aggregate amount of all
such advances, dividends and payments from and including
the Class A Preferred Stock Issue Date shall not exceed
$2,000,000 net of receipts from reissuance and (y) the
aggregate of all such advances, dividends and payments
shall not exceed $1,000,000 unless immediately after
giving effect to any such proposed advance, dividend or
payment the Corporation could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under
paragraph (1) (i) hereof.
"SEC" means the Securities and Exchange Commission.
"Senior Notes" means the 9-5/8% Senior Secured
Notes due 2001 of the Corporation issued under the
Senior Note Indenture.
"Senior Note Indenture" means the Indenture
dated as of July 15, 1993, as amended, between the
Corporation and Shawmut Bank Connecticut, National
Association, as trustee thereunder, under which the
Corporation's 9-5/8% Senior Secured Notes due 2001 were
issued.
"Senior Stock" shall have the meaning ascribed to
it in paragraph (b) hereof.
"Stated Maturity" means, with respect to any
security or Indebtedness, the date specified in such
security or Indebtedness as the fixed date on which the
principal of such security or Indebtedness is due and
payable, including pursuant to any mandatory redemption
provision (other than pursuant to any provision
providing for the repurchase of such security at the
option of the holder thereof).
"Subordinated Debenture Indenture" means the
indenture dated as of June 1, 1986 between the
Corporation and United Missouri Bank of Kansas City,
N.A., as trustee as in effect on the Issue Date,
pursuant to which the Subordinated Debentures were
issued.
"Subordinated Debentures" means the 6 1/2%
Convertible Subordinated Debentures due June 1, 2011 of
the Corporation issued pursuant to the Subordinated
Debenture Indenture.
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"Subsidiary" means, with respect to any
Person, (i) any corporation more than fifty percent
(50%) of the voting securities, having ordinary voting
power, of which is owned directly or indirectly by such
Person or by one or more other Subsidiaries of such
Person or such Person in conjunction with one or more
other Subsidiaries of such Person or (ii) any other
Person more than fifty percent (50%) of the voting
interest, under ordinary circumstances of which is owned
directly or indirectly by such Person or by one or more
Subsidiaries of such Person or by such Person in
conjunction with one or more other Subsidiaries of such
Person.
"Vestar" means Vestar Capital Partners, Inc.,
a Delaware corporation.
"Vestar LPA" means Vestar/LPA Investment
Corp., a Delaware Corporation and the entity owning
100% of the Common Stock of the Corporation.
"Voting Rights Triggering Event" shall have
the meaning ascribed to it in paragraph (f) (iv) (A)
hereof.
"Voting Stock" means, with respect to any
Person, securities of any class or classes of Capital
Stock or then voting security or ownership interest in
such Person entitling the holders thereof (whether at
all times or only so long as no senior class of stock
has voting power by reason of any contingency) to vote
in the election of members of the board of directors or
other governing body of such Person.
"Wholly Owned Subsidiary" means, with respect
to any Person, and Subsidiary of such Person all of the
outstanding shares of Capital Stock of which (other
than directors' qualifying shares) are owned directly
by such Person or a Wholly Owned Subsidiary of such
Person.
FIFTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the
Corporation, and for further definition, limitation and regulation
of the powers of the Corporation and of its directors and
stockholders:
(a) The business and affairs of the
Corporation shall be managed by or under the direction
of a Board of Directors.
(b) The directors shall have concurrent power
with the stockholders to make, alter, amend, change,
add to or repeal the By-Laws of the Corporation.
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(c) The number of directors of the Corporation
shall be as from time to time fixed by, or in the
manner provided in, the ByLaws of the Corporation.
Election of directors need not be by written ballot
unless the By-Laws so provide.
(d) No director shall be personally liable to
the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director,
except (i) for breaches of the director's duty of
loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation
of law, (iii) pursuant to Section 174 of the DGCL or
(iv) for any transaction from which the director
derived an improper personal benefit. Any repeal or
modification of this Article FIFTH by the stockholders
of the Corporation shall not adversely affect any right
or protection of any director of the Corporation
existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to
such repeal or modification.
(e) In addition to the powers and authority
hereinbefore or by statute expressly conferred upon
them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may
be exercised or done by the Corporation, subject to the
provisions of the DGCL, this Restated Certificate of
Incorporation, and any By-Laws adopted by the
stockholders; provided, however, that no By-Laws
hereafter adopted by the stockholders shall invalidate
any prior act of the directors which would have been
valid if such By-Laws had not been adopted.
SEVENTH: Meetings of stockholders may be held within or
without the State of Delaware, as the By-Laws may provide. The
books of the Corporation may be kept (subject to any provision
contained in the DGCL) outside the State of Delaware at such
place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Restated
Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
NINTH: Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them
and/or between the Corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of the
Corporation or of any creditor
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<PAGE>
or stockholder thereof or on the application of any receiver or
receivers appointed for the Corporation under Section 291 of
Title 8 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the
Corporation under Section 279 of Title 8 of the DGCL, order a
meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of the Corporation,
as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been
made, be binding on all the creditors or class of creditors,
and/or all the stockholders or class of stockholders, of the
Corporation, as the case may be, and also on the Corporation.
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<PAGE>
IN WITNESS WHEREOF, the Corporation, as authorized and
directed by its directors and adopted by its sole voting stockholder, has
caused this Restated Certificate of Incorporation to be executed by
Phillip M. Kane, its Senior Vice President, Chief Financial Officer and
Treasurer, and attested by Peggy A. Ford, its Secretary, this ___ day of
May, 1997.
LA PETITE ACADEMY, INC.
By: _____________________________
Name: Phillip M. Kane
Title: Senior Vice President, Chief
Financial Officer and Treasurer
Attest:
By: _______________________
Name: Peggy A. Ford
Title: Secretary
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<PAGE>
EX. 3.5
LA PETITE ACADEMY, INC.
(a Delaware corporation)
AMENDED AND RESTATED
------
BYLAWS
------
As adopted by the Board of Directors on March 1, 1991.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
OFFICES AND RECORDS
1. Registered Office and
Registered Agent ........................... 1
2. Corporate Offices ............................. 1
STOCKHOLDERS' MEETINGS
3. Place of Meetings ............................. 1
4. Annual Meetings ............................... 1
5. Special Meetings .............................. 1
6. Action by Consent in Lieu of Meeting .......... 2
7. Notice of Meetings ............................ 2
8. Quorum, Adjournments .......................... 3
9. Voting ........................................ 3
10. Stockholders' Lists ........................... 4
11. Presiding Officer, Order of Business .......... 4
DIRECTORS
12. Number, Tenure ................................ 5
13. Powers of the Board ........................... 5
14. Meetings of the Newly-Elected
Board, Notice .............................. 5
15. Regular Meetings, Notice ...................... 6
16. Special Meetings, Notice ...................... 6
17. Action in Lieu of Meeting ..................... 6
18. Meetings by Telephone or Similar
Communication Equipment .................... 7
19. Quorum, Adjournments .......................... 7
20. Waiver ........................................ 7
21. Vacancies ..................................... 7
22. Removal, Resignation .......................... 8
23. Compensation .................................. 8
COMMITTEES
24. Executive Committee ........................... 9
25. Powers ........................................ 9
26. Procedure, Meetings ........................... 9
27. Quorum ........................................ 9
28. Other Committees .............................. 9
29. Vacancies, Changes, Discharge ................. 10
30. Compensation .................................. 10
31. Action by Consent in Lieu of Meeting .......... 10
32. Meetings by Telephone or Similar
Communication Equipment .................... 10
NOTICES
33. Form, Delivery ................................ 10
34. Waiver ........................................ 10
OFFICERS
35. Designations .................................. 11
36. Term of Office ................................ 11
37. Removal ....................................... 11
38. Compensation .................................. 12
39. The Chairman of the Board ..................... 12
40. The Vice Chairman of the Board ................ 12
41. The President ................................. 12
42. Vice Presidents ............................... 13
43. The Secretary amd Assistant Secretaries ....... 13
44. The Treasurer and Assistant Treasurers ........ 14
INDEMNIFICATION
45. Indemnification of Directors,
Officers, Employees and Agents ............. 15
AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS
46. Affiliated Transactions ....................... 19
47. Determining Quorum ............................ 20
STOCK CERTIFICATES
48. Form, Signatures ............................... 20
49. Lost, Stolen or Destroyed Certificates ......... 20
50. Transfer of Shares, Transfer Agent,
Registrar ................................... 21
51. Record Date .................................... 22
GENERAL PROVISIONS
52. Dividends ...................................... 23
53. Reserves ....................................... 23
54. Checks ......................................... 23
55. Fiscal Year .................................... 23
56. Corporate Seal ................................. 24
AMENDMENTS
57. Amendments ..................................... 24
<PAGE>
AMENDED AND RESTATED
BY LAWS
OF
LA PETITE ACADEMY, INC.
(A Delaware Coporation)
OFFICES AND RECORDS
1. Registered Office and Registered Agent. The registered office of La
Petite Academy, Inc. (the "Corporation") shall be established and maintained at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, in the
County of New Castle, in the State of Delaware, and The Corporation Trust
Company shall be the registered agent of this Corporation in charge thereof.
2. Corporate Offices. The Corporation may also have such corporate
offices, anywhere within and without the State of Delaware as the Board of
Directors from time to time may appoint, or the business of the Corporation may
require.
STOCKHOLDERS' MEETINGS
3. Place of Meetings. All meetings of the stockholders shall be held
at the principal business office of the Corporation in Delaware, except such
meetings as the Board of Directors to the extent permissible by law expressly
determines shall be held elsewhere, in which case such meetings may be held,
upon notice thereof as hereinafter provided, at such other place or places,
within or without the State of Delaware, as said Board of Directors shall have
determined, and as shall be stated in such notice; and, unless specifically
prohibited by law, any meeting may be held at any place and time, and for any
purpose, if consented to in writing by all of the stockholders entitled to vote
thereat.
4. Annual Meetings. An annual meeting of stockholders shall be held on
the fourth Thursday in May of each year, if not a legal holiday, and if a legal
holiday, then on the next secular day following at 2:00 p.m., or such other date
established by the Board of Directors, when the stockholders shall elect a Board
of Directors and transact such other business as may properly be brought before
the meeting.
5. Special Meetings. Special meetings of the stockholders may be held
for any purpose or purposes. They may be called by the President, Secretary or
by resoltuion of the directors.
<PAGE>
The "call" and the "notice" of any such meeting shall be deemed to be
synonymous.
6. Action by Consent in Lieu of Meeting. Any action required or
permitted by law or the Certificate of Incorporation to be taken at any meeting
of stockholders may be taken without a meeting, without prior notice and without
a vote, if a written consent setting forth the action so taken is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present or represented by proxy and
voted. Written consents of stockholders shall bear the date of each
stockholder's signature, and no written consent will be effective unless written
consents, signed by a sufficient number of holders to take action, are delivered
to the Corporation within 60 days of the date of the earliest consent delivered
to the Corporation. Such written consent shall be filed with the minutes of
meetings of stockholders. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing thereto.
7. Notice of Meetings.
(a) Written or printed notice of each meeting of the stockholders,
whether annual or special, stating the place, date and hour of the meeting, and,
in case of a special meeting, the purpose or purposes thereof, shall be
delivered or given to each stockholder entitled to vote thereat, not less than
10 days nor more than 60 days prior to the meeting, unless, as to a particular
matter, other or further notice is required by law, in which case such other or
further notice shall be given. In addition to such written notice, published
notice shall be given in the manner then required by law.
Any notice of a stockholders' meeting sent by mail shall be deemed to be
delivered when deposited in the United States Mail with postage thereon prepaid
addressed to the stockholder at his address as it appears on the records of the
Corporation.
(b) Whenever any notice is required to be given under the provisions of
these Bylaws, or the Certificate of Incorporation of the Corporation or any law,
a waiver thereof in writing signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed the
equivalent to the giving of such notice.
To the extent provided by law, attendance at any meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business the meeting is not lawfully called or
convened.
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<PAGE>
8. Quorum, Adjournments. Except as otherwise may be provided by law or
by the Certificate of Incorporation or the Bylaws, the holders of a majority of
the voting shares issued and outstanding, and entitled to vote thereat, present
in person or by proxy, shall be requisite for and shall constitute a quorum, at
all meetings of the stockholders, for the transaction of business. The
affirmative vote of the majority in amount of shares of such quorum entitled to
vote on the subject matter shall be the act of the stockholders and valid as a
corporate act, except in those specific instances in which a larger vote is
required by law or by the Certificate of Incorporation or the Bylaws; provided,
however, the election of directors shall be by a plurality of the vote of shares
present in person or represented by proxy at the meeting and entitled to vote.
If, however, such quorum should not be present at any meeting, the stockholders
present and entitled to vote shall have power successively to adjourn the
meeting without notice other than announcement at the meeting of the time and
place of the adjourned meeting. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
9. Voting.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, each stockholder shall have one vote for each share of stock
entitled to vote under the provisions of the Certificate of Incorporation which
is registered in his name on the books of the Corporation.
(b) Each stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to corporate action in writing without a meeting
may authorize any person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
(c) All elections shall be determined by a plurality vote, and, except
as otherwise provided by law or the Certificate of Incorporation, all other
matters shall be determined by a vote of a majority of the shares present in
person or represented by proxy and voting in such matters.
(d) No person shall be admitted to vote on any shares belonging or
hypothecated to the Corporation.
10. Stockholders Lists. A complete list of the stockholders entitled
to vote at each meeting of the stockholders,
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<PAGE>
arranged in alphabetical order, with the address of, and the number of voting
shares registered in the name of each stockholder, shall be prepared at least 10
days before every meeting of the stockholders by the officer of the Corporation
having charge of the stock transfer books of the Corporation. Such list shall be
open for examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of 10 days prior to the meeting
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
11. Presiding Officer, Order of Business.
(a) Meetings of stockholders shall be presided over by the Chairman of
the Board (if any), or if he is not present (or, if there is none) by the Vice
Chairman of the Board, or if he is not present (or, if there is none) by the
President, or if he is not present by the Vice President, or if he is not
present by such person who may have been chosen by the Board of Directors, or if
none of such persons is present by a chairman to be chosen by the stockholders
owning a majority of the shares of stock of the Corporation issued and
outstanding and entitled to vote at the meeting and who are present in person or
represented by proxy. The Secretary of the Corporation, or, if he is not
present, the Assistant Secretary, or, if he is not present, such persons may be
chosen by the Board of Directors, shall act as secretary of stockholder meetings
or, if none of such persons is present, the stockholders owning a majority of
the shares of stock of the Corporation issued and outstanding and entitled to
vote at the meeting and who are present in person or represented by proxy shall
choose any person present to act as secretary of the meeting.
(b) The following order of business shall be observed as far as
practicable and consistent with the purposes of the meeting, unless otherwise
ordered at the meeting:
1. Call of the meeting to order.
2. Presentation of proof of mailing of the notice of the meeting, the
call thereof.
3. Presentation of proxies.
4. Announcement that a quorum is present.
5. Reading and approval of the minutes of the previous meeting.
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<PAGE>
6. Report of officers, if any.
7. Election of directors, if the meeting is an annual meeting or a
meeting called for that purpose.
8. Consideration of the specific purpose or purposes for which the
meeting has been called, other than the election of directors, if
the meeting is a special meeting.
9. Transaction of such other business as may properly come before the
meeting.
10. Adjournment.
DIRECTORS
12. Number, Tenure. The number of directors which shall constitute the
whole Board shall range from three to nine. The exact number shall be determined
by resolution of the Board of Directors, or by the stockholders. The directors
shall be elected at the annual meetings of stockholders, except as provided in
Sections 27 and 22 of these Bylaws, and each director shall hold office until
his successor is duly elected and qualified or until his earlier resignation or
removal. Directors need not be stockholders unless the Certificate of
Incorporation at any time so requires.
13. Power of the Board. The property and business of the Corporation
shall be managed by the directors, acting as a Board. The Board shall have and
is vested with all and unlimited powers and authorities, except as may be
expressly limited by law, the Certificate of Incorporation or by these Bylaws,
to do or cause to be done any and all lawful things for and in behalf of the
Corporation, to exercise or cause to be exercised any or all of its powers,
privileges and franchises, and to seek the effectuation of its objects and
purposes.
14. Meetings of the Newly Elected Board, Notice. The members of each
newly elected Board shall meet: (a) at such time and place, either within or
without the State of Delaware, as shall be suggested or provided for by
resolution of the stockholders at the annual meeting and no notice of such
meeting shall be necessary to the newly-elected directors in order legally to
constitute the meeting; provided, a quorum shall be present; or (b) if not so
suggested or provided for by resolution of the stockholders or if a quorum shall
not be present, the members of such Board may meet at such time and place as
shall be consented to in writing by a majority of the newly-elected directors;
provided that written or printed notice of such meeting shall be mailed, sent by
telegram or delivered to each of the other directors in the same manner as
provided in Section 16 of these Bylaws with respect to the giving of notice for
special meetings of the Board
5
<PAGE>
except that it shall not be necessary to state the purpose of the meeting in
such notice; or (c) regardless of whether or not the time and place of such
meeting shall be suggested or provided for by resolution of the stockholders at
the annual meeting, the members of such Board may meet at such time and place as
shall be consented to in writing by all of the newly-elected directors. Each
director, upon his election, shall qualify by accepting the office of director,
and his attendance at, or his written approval of the minutes of, any meeting of
the newly-elected directors shall constitute his acceptance of such office, or
he may execute such acceptance by a separate writing, which shall be placed in
the minute book.
15. Regular Meetings, Notice. Regular meetings of the Board may be held
without notice at such times and places either within or without the State of
Delaware as shall from time to time be fixed by resolution adopted by the Board
of Directors. Any business may be transacted at a regular meeting.
16. Special Meetings, Notice. Special meetings of the Board may be
called at any time by the Chairman of the Board, the President, any Vice
President or the Secretary. The place may be within or without the State of
Delaware as designated in the notice.
Written or printed notice of each special meeting of the Board, stating
the place, day and hour of the meeting and the purpose or purposes thereof,
shall be mailed to each director at least three days before the day on which the
meeting is to be held, or shall be sent to him by telegram, or be delivered, at
least two days before the day on which the meeting is to be held. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
Mail with postage thereon addressed to the director at his residence or usual
place of business. If notice be given by telegraph, such notice shall be deemed
to be delivered when the same is delivered to the telegraph company. The notice
may be given by any officer having authority to call the meeting or by any
director.
"Notice" and "call" with respect to such meeting shall be deemed to be
synonymous.
17. Action in Lieu of Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws or by law, any action required to
be taken at a meeting of the Board of Directors or any other action which may be
taken at a meeting of the Board of Directors or of any committee thereof, may be
taken without a meeting if a consent in writing setting forth the action so
taken shall be signed by all members of the Board or committee entitled to vote
with respect to the subject matter thereof, and the consent in writing is filed
with the minutes of the proceedings of the Board of Directors. Any such consent
6
<PAGE>
signed by all the directors shall have the same effect as a unanimous vote and
may be stated as such in any document describing the action taken by the Board
of Directors.
18. Meetings by Telephone or Similar Communication Equipment. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws or by
law, members of the Board of Directors of the Corporation, or any committee
designated by such Board, may participate in a meeting of such Board or
committee by means of conference telephone or similar communications equipment,
whereby all persons participating in the meeting can hear each other, and
participation in a meeting in such manners shall constitute presence in person
at such meeting.
19. Quorum, Adjournments. At all meetings of the Board of Directors,
a majority of the full Board of Directors shall, unless a greater number as to
any particular matter is required by statute, the Certificate of Incorporation
or these Bylaws, shall constitute a quorum for the transaction of business, and
the act of a majority of the directors present at any meeting at which there is
a quorum, except as may be otherwise specifically provided by statute, by the
Certificate of Incorporation, or by these Bylaws, shall be the act of the Board
of Directors.
If a quorum is not present at any meeting of the Board of Directors, the
directors present may adjourn the meeting successively until a quorum is
present, and no notice of adjournment shall be required other than announcement
at the meeting.
20. Waiver. Any notice provided or required to be given to the directors
may be waived in writing by any of them, whether before, at, or after the time
stated therein.
Attendance of a director at any meeting shall constitute a waiver of
notice of such meeting except where he attends for the express purpose, and so
states at the opening of the meeting, of objecting to the transaction of any
business because the meeting is not lawfully called or covenened.
21. Vacancies. Unless otherwise provided by the Certificate of
Incorporation these Bylaws or by law, vacancies and newly-created directorships
resulting from any increase in the number of authorized directors may be filled
by the vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. Each director so chosen shall hold
office until the next annual meeting of stockholders and until his successor is
duly elected and shall qualify. If there are no directors in office, any
officer, stockholder, or an executor, administrator, trustee, guardian or
similarly situated fiduciary of the stockholder may call a special meeting of
stockholders in accordance with the provisions of the Certificate of
Incorporation or these Bylaws, at which meeting such vacancies
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<PAGE>
shall be filled. If, at the time of filling any vacancies or any newly-created
directorship, the directors then in office shall constitute less than a majority
of the whole Board, as constituted immediately prior to any such increase, the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly-created directorship, or
to replace the directors chosen by the directors then in office, which election
shall be governed by the applicable provisions of the several corporation laws
of Delaware.
22. Removal, Resignation.
(a) Except as otherwise provided by law or the Certificate of Incorporation
or these Bylaws, any director, directors or the entire Board of Directors may be
removed with or without cause by the holders of a majority of the shares then
entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, the President, or the Secretary
of the Corporation. Unless otherwise specified in such written notice, a
resignation shall take effect upon delivery thereof to the Board of Directors or
the designated officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
(c) Unless otherwise provided in the Certificate of Incorporation or these
Bylaws or by law, when one or more directors shall resign from the Board,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided in this section in the filling of other vacancies.
23. Compensation. Directors shall be entitled to such compensation for
their services as directors and to such reimbursement for any reasonable
expenses incurred in attending directors' meetings as may from time to time be
fixed by the Board of Directors. Any director may waive compensation for any
meeting. Any director receiving compensation under these provisions shall not be
barred from serving the Corporation in any other capacity and receiving
compensation and reimbursement for reasonable expenses for such other services.
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<PAGE>
COMMITTEES
----------
24. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of such members of the Board as designated, one of whom shall be
designated as Chairman of the Executive Committee. Each member of the Executive
Committee shall continue as a member thereof until the expiration of his term
as a director, or his earlier resignation, unless sooner removed as a member or
as a director.
25. Powers. The Executive Committee shall have and may exercise those
rights, powers and authority of the Board of Directors as may from time to time
be granted to it by the Board of Directors and may authorize the seal of the
Corporation to be affixed to all papers which may require it.
26. Procedure, Meetings. The Executive Committee shall fix its own
rules of procedure and shall meet at such times and at such place or places as
may be provided by such rules or as the members of the Executive Committee
shall provide. The Executive Committee shall keep regular minutes of its
meetings and deliver such minutes to the Board of Directors.
The Chairman of the Executive Committee, or, in his absence, a member
of the Executive Committee chosen by a majority of the members present, shall
preside at meetings of the Executive Committee, and another member thereof
chosen by the Executive Committee.
27. Quorum. A majority of the Executive Committe shall constitute a
quorum for the transaction of business, and the affirmative vote of a majority
of the members thereof shall be required for any action of the Executive
Committee; provided, however, that when an Executive Committee of one member is
authorized under the provisions of Section 24, such one member shall constitute
a quorum.
28. Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate such other committees in
addition to the executive committee, any such other committee to consist of one
or more directors of the Corporation. Such other committees, to the extent
provided in said resolution or resolutions, shall have and may exercise all of
the authority of the Board of Directors in the management of the Corporation.
Each such committee shall keep regular meetings of its proceedings and
the same shall be reorded in the minute book of the corporation. The Secretary
or an Assistant Secretary of the Corporation may act as secretary for a
committee if the committee so requests.
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<PAGE>
29. Vacancies, Changes, Discharge. The Board of Directors shall have
the power at any time to fill vacancies in, to change the membership of, and to
discharge any committee.
30. Compensation. Members of any committee shall be entitled to such
compensation for their services as members of such committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any
member receiving compensation under these provisions shall not be barred from
serving the Corporation in any other capacity and from receiving compensation
and reimbursement of reasonable expenses for such other services.
31. Action by Consent in Lieu of Meeting. Any action required or
permitted to be taken at any meeting of any committee of the Board of Directors
may be taken without a meeting if a written consent to such action is signed by
all members of the committee and such written consent is filed with the
minutes of its proceedings.
32. Meetings by Telephone or Similar Communication Equipment. The
members of any committee designated by the Board of Directors may participate in
a meeting of such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other and participation in such meeting shall constitute
presence in person at such meeting.
NOTICES
-------
33. Form, Delivery. Whenever, under the provisions of law, the
Certificate of Incorporation or these Bylaws, notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice
unless otherwise specifically provided, but such notice may be given in writing,
by mail, addressed to such director or stockholder, at his address as it appears
on the records of the Corporation, with postage thereon prepaid. Such notices
shall be deemed to be given at the time they are deposited in the United States
Mail. Notice to a director may also be given personally or by telegram sent to
his address as it appears on the records of the Corporation.
34. Waiver. Whenever any notice is required to be given under the
provisions of law, the Certificate of Incorporation or these Bylaws, a written
waiver thereof, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any stockholder who attends at meeting of stockholders
in person, or is represented at such meeting by proxy, without protesting at the
commencement of the meeting the lack of
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<PAGE>
the meeting, such lack of notice, shall be conclusively deemed to have waived
notice of such meeting. Neither the business to be transacted at nor the purpose
of any regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the Certificate of Incorporation, the Bylaws or by law.
OFFICERS
35. Designations. The officers of the Corporation shall be chosen by the
Board of Directors. The Board of Directors may choose a Chairman of the Board, a
Vice Chairman of the Board, a President, one or more Vice Presidents, a
Secretary, a Treasurer, one or more Assistant Secretaries and one or more
Assistant Treasurers.
The Board from time to time may also appoint such other officers and agents
for the Corporation as it shall deem necessary or advisable. All appointed
officers and agents shall exercise such powers and perform such duties as shall
be determined from time to time by the Board, or by an elected officer empowered
by the Board to make such determination.
36. Term of Office. The Board shall elect or appoint a Chairman of the
Board or President and Secretary at its first meeting after each annual meeting
of the stockholders. The Board then or from time to time, may also elect or
appoint one or more of the other prescribed officers as it shall deem advisable,
but need not elect or appoint any officers other than a Chairman of the Board or
President and a Secretary. All officers of the Corporation shall hold their
offices at the pleasure of the Board or for such terms as the Board may specify,
for the term for which he was elected and until his successor is elected and
shall qualify, or until he resigns or is removed by the Board, whichever first
occurs. An officer shall be deemed qualified when he enters upon the duties of
the office to which he has been elected or appointed and furnishes any bond
required by the Board; but the Board may also require of such person his written
acceptance and promise faithfully to discharge the duties of such office.
37. Removal. Any officer or agent elected or appointed by the Board of
Directors, and any employee, may be removed or discharged by the Board, with or
without cause, at any time by the affimative vote of a majority of the directors
then in office. Such removal shall not prejudice the contract rights, if any, of
the person so removed. Any vacancy occurring in any office of the Corporation
may be filled for the unexpired portion of the term of the Board of Directors.
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38. Compensation. The salaries of all officers of the Corporation shall be
fixed from time to time by the Board of Directors. No officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the Corporation.
39. The Chairman of the Board. The Chairman of the Board, if any, shall be
the chief executive officer of the Corporation unless otherwise designated by
the Board of Directors and, subject to the direction of the Board of Directors,
shall perform such executive, supervisory and management functions and duties as
may be assigned to him from time to time by the Board of Directors, and shall
co-extensively have those powers and that authority of the President, as set
forth in Section 41 hereof. He shall, if present, preside at all meetings of
stockholders and of the Board of Directors.
40. The Vice Chairman of the Board. The Vice Chairman of the Board, if
any, shall, in the absence of the Chairman of the Board or in the event of his
disability, perform the duties and exercise the powers of the Chairman of the
Board and shall generally assist the Chairman of the Board and perform such
other duties and have such other powers as may from time to time be prescribed
by the Board of Directors.
41. The President. The President shall be the chief operating officer of
the Corporation unless otherwise designated by the Board of Directors, and
subject to the direction of the Board of Directors, shall have general charge of
the business, affairs, and property of the Corporation and general supervision
over its other duties incident to the office of President. As provided for in
Section 11 of these Bylaws, the President shall preside at all meetings of the
stockholders and directors in the absence of the Chairman of the Board and the
Vice-Chairman. The President shall have general and active management of the
business of the Corporation and shall carry into effect all directions and
resolutions of the Board.
He may execute all bonds, notes, debentures, mortgages, and other contracts
requiring a seal, under the seal of the Corporation, and may cause the seal to
be affixed thereto, and all other instruments for and in the name of the
Corporation.
He, when authorized so to do by the Board, may execute powers of attorney
from, for, and in the name of the Corporation, to such proper person or persons
as he may deem fit, in order that thereby the business of the Corporation may be
furthered or action taken as may be deemed by him necessary or advisable in
furtherance of the interests of the Corporation.
Unless otherwise prescribed by the Board of Directors, the President shall
have full power and authority, on behalf of the
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Corporation to attend, act and vote at any meeting of security holders of other
corporations in which the Corporation may hold securities. At such meeting the
President shall possess and may exercise any and all rights and powers incident
to the ownership of such securities which the Corporation might have possessed
and exercised if it had been present. The Board of Directors may from time to
time confer like powers upon other person or persons.
The President, shall, unless the Board otherwise provides, be ex officio
a member of all standing committees. He shall have such general (and concurrent)
executive powers and duties of supervision and management as are usually vested
in the office of the President of a corporation.
He shall have such other or further duties and authority as may be
prescribed elsewhere in these Bylaws or from time to time by the Board of
Directors, and the Board may from time to time divide the responsibilities,
duties, and authority between them to such extent as it may deem advisable.
42. Vice Presidents. The Vice Presidents in the order of their
seniority, as determined by the Board, shall, in the absence, disability or
inability to act of the President, perform the duties and exercise the powers of
the President, and shall perform such other duties as the Board of Directors
shall from time to time prescribe.
43. The Secretary and Assistant Secretaries. The Secretary shall
attend all meetings of the Board and, except as otherwise provided for in
Section 11 of these Bylaws, all meetings of the stockholders, and shall record
or cause to be recorded all votes taken and the minutes of all proceedings in a
minute book of the corporation to be kept for that purpose. He shall perform
like duties for the executive and other standing committees when requested by
the Board or such committee to do so.
His shall be the principal responsibility to give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, but
this shall not lessen the authority of others to give such notice as is
authorized elsewhere in these Bylaws.
He shall see that all books, records, lists and information, or
duplicates, required to be maintained at the registered or some office of the
Corporation in Delaware, or elsewhere, are so maintained.
He shall keep in safe custody the seal of the Corporation, and when duly
authorized to do so, shall affix the same to any instrument requiring it, and
when so affixed, he shall attest the same by his signature.
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He shall perform such other duties and have such other authority as may
be prescribed elsewhere in these Bylaws or from time to time by the Board of
Directors or the President, under whose direct supervision he shall be.
He shall have the general duties, powers and responsibilities of a
Secretary of a corporation.
The Assistant Secretaries, in the order of their seniority, in the
absence, disability or inability to act of the Secretary, shall perform the
duties and exercise the powers of the Secretary, and shall perform such other
duties as the Board may from time to time prescribe.
44. The Treasurer and Assistant Treasurers. The Treasurer shall have
responsibility for the safekeeping of the funds, and other valuable effects,
including securities, of the Corporation, and shall keep or cause to be kept
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation. He shall keep, or cause to be kept, all other books of account
and accounting records of the Corporation, and shall deposit or cause to be
deposited all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors.
He shall disburse, or permit to be disbursed, the funds of the
Corporation as may be ordered, or authorized generally, by the Board and shall
render to the chief executive officers of the Corporation and the directors,
whenever they may require it, an account of all his transactions as Treasurer
and of those under his jurisdiction, and of the financial condition of the
corporation.
He shall perform such other duties and shall have such other
responsibility and authority as may be prescribed elsewhere in these Bylaws or
from time to time by the Board of Directors.
He shall have the general duties, powers and responsibility of a
Treasurer of a Corporation, and shall be the chief financial and accounting
officer of the Corporation.
If required by the Board, he shall give the corporation a bond in a sum
and with one or more sureties satisfactory to the Board for the faithful
performance of the duties of his office, and for the restoration to the
corporation, in the case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control which belong to the corporation.
The Assistant Treasurers in the order of their seniority shall, in the
absence, disability or inability to act of the
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Treasurer, perform the duties and exercise the powers of the Treasurer, and
shall perform such other duties as the Board of Directors shall from time to
time prescribe.
INDEMNIFICATION
45. Indemnification of Directors, Officers, Employees and Agents.
(a) Directors. The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative, including an action by or in the right of the Corporation, by
reason of the fact that he is or was a director of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the defense or
settlement of such action, suit or proceeding, including attorneys' fees, to the
full extent permitted by Delaware General Corporation Law, as amended, Section
145.
(b) Officers, Employees and Agents. The Corporation may, at the
discretion of the Board of Directors, indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, by
reason of the fact that he is or was an officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the defense or settlement of such action, suit or proceeding, including
attorneys' fees, to the full extent permitted by Delaware General Corporation
Law, as amended, Section 145.
(c) Expenses.
(i) The Corporation shall pay the director, or such person or entity
as the director may designate, on a continuing and current basis, and in any
event not later than ten business days following receipt by the Corporation of
the director's request for reimbursement, all expenses, including attorneys'
fees, costs, settlements, fines and judgments incurred by or levied upon the
director in connection with any action, suit or proceeding referred to in
Section 45, subsection (a).
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(ii) To the extent that an officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 45, subsection (b) or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses actually and reasonably incurred by such person in connection
therewith, including attorneys' fees.
(iii) Expenses incurred by a director or officer in defending a civil
or criminal action, suit, or proceeding may be paid by the Corporation 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 is ultimately determined that the director or officer is not
entitled to be indemnified by the Corporation as authorized in these Bylaws.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
(d) Board Authorization. Any indemnification of directors, officers,
employees or agents pursuant to this Section 45, unless ordered by a court,
shall be made by the Corporation only as authorized in the specific case upon a
determination that such indemnification is proper in the circumstances because
such director, officer, employee or agent has met the applicable standard of
conduct set forth in Delaware General Corporation Law, as amended, Section 145.
Such determination shall be made by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to the action, suit, or
proceeding, or if such a quorum is not obtainable, or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the stockholders.
(e) Notification and Defense of Claim. Promptly after receipt by a
director, officer, employee or agent of notice of the commencement of any
action, suit or proceeding, the director, officer, employee or agent will, if a
claim in respect thereof is to be made against the Corporation, notify the
Corporation of the commencement thereof. The failure to promptly notify the
Corporation will not relieve the Corporation from any liability that it may have
to the director, officer, employee or agent hereunder, except to the extent the
Corporation is prejudiced in its defense of such claim as a result of such
failure. Unless otherwise requested by the Board of Directors, written
notification shall not be necessary if the director, officer, employee or agent
informs a majority of the Board of Directors of the commencement of any such
action, or, independent of such notification by the director, officer, employee
or agent, a majority of the Board of Directors has reason to believe such action
has been initiated or threatened. With respect to any such action, suit or
proceeding as to which the director, officer, employee or
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agent notified, or is deemed to have notified, the Corporation of the
commencement thereof; the following shall apply:
(i) The Corporation will be entitled to participate therein at its own
expense;
(ii) Except as otherwise provided below, to the extent that it may wish,
the Corporation, jointly with any other indemnifying party similarly notified,
will be entitled to assume the defense thereof with counsel reasonably
satisfactory to the director, officer, employee or agent. After notice from the
Corporation to the director, officer, employee or agent of its election so to
assume the defense thereof, the Corporation will not be liable to the director,
officer, employee or agent for any legal or other expenses subsequently incurred
by the director, officer, employee or agent in connection with the defense
thereof other than reasonable costs of investigation or unless: (A) the
employment of separate counsel by the director, officer, employee or agent has
been authorized by the Corporation; (B) the director, officer, employee or agent
reasonably concludes that there may be a conflict of interest between the
Corporation and the director, officer, employee or agent in the conduct of the
defense of such action and that such conflict may lead to exposure for the
director, officer, employee or agent not otherwise indemnifiable and the
director, officer, employee or agent notifies the Corporation of such conclusion
and decision to employ separate counsel; or (C) the Corporation fails to employ
counsel to assume the defense of such action. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which the director, officer, employee or
agent reasonably makes the conclusion provided for in (B) above; and
(iii) The Corporation shall not be liable to indemnify the director,
officer, employee or agent for any amount paid in settlement of any action or
claim effected without its written consent. The Corporation shall not settle any
action or claim in any manner which would impose any penalty or limitation on
the director, officer, employee or agent without the written consent of the
director, officer, employee or agent. Neither the Corporation nor the director,
officer, employee or agent will unreasonably withhold their consent to any
proposed settlement.
(f) Not Exclusive. The indemnification and advancement of expenses
provided by this Section 45 shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under the Certificate of Incorporation, as amended from time to time, or any
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director or officer and shall
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inure to the benefit of the heirs, executors and administrators of such person.
(g) Further Indemnity. The Corporation shall have the power to give any
further indemnity, in addition to the indemnity authorized or contemplated under
this Section 45, to any person who is or was a director, officer, employee or
agent or to any person who is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise; provided, no such indemnity shall
indemnify any person from or on account of such person's conduct which was
finally adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct, or if it is determined by a final judgment or other final
adjudication by a court of competent jurisdiction considering the question of
indemnification that such payment of indemnification is or would be in violation
of applicable law. The Corporation may enter into indemnification agreements
with each director and officer of the Corporation whom the Board of Directors
authorizes by vote of a majority of a quorum of disinterested directors.
(h) Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Section 45. When, and if, the
Corporation obtains such insurance coverage, the Corporation shall not be
required to maintain such insurance coverage in effect; provided, however, that
the Corporation notifies the covered person in writing within five business days
of the making of the decision to not renew or replace such insurance policy. The
maintenance of such insurance shall not diminish, relieve or replace the
Corporation's liability for indemnification under the provisions hereof. A claim
for reimbursement hereunder, shall not be denied on the basis that such amount
may or will be covered by such insurance policy, if such payments from the
insurance company will not be made to the covered person within 10 business days
of the claim for reimbursement.
(i) Definitions.
(i) For the purpose of this Section 45, references to "the
Corporation" include all constituent corporations absorbed in a consolidation or
merger as well as the resulting or surviving corporation, so that any person who
is or was a director or officer of such a constituent corporation or is or was
serving at the request of such constituent corporation as a director or
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officer of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this Section
45, with respect to the resulting or surviving corporation as he would if he had
served the resulting or surviving corporation in the same capacity.
(ii) For purposes of this Section 45, the following definitions shall
apply:
(A) The term "other enterprise" shall include employee benefit plans.
(B) The term "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan.
(C) The term "serving at the request of the Corporation" shall
include any service as a director or officer of the Corporation which imposes
duties on, or involves services by, such director or officer with respect to an
employee benefit plan, its participants, or beneficiaries.
(D) A person who acted in good faith and in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the Corporation".
AFFILIATED TRANSACTIONS AND INTERESTED DIRECTORS
46. Affiliated Transactions. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction or solely because his or their votes are
counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(b) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the
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contract or transaction is specifically approved in good faith by vote of the
stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders.
47. Determining Quorum. Common or interested directors may be counted
in determining the presence of a quorum at a meeting of the Board of Directors
or of a committee thereof which authorizes the contract or transaction.
STOCK CERTIFICATES
48. Form, Signatures.
(a) The certificates representing shares of stock of the Corporation
shall be numbered, shall be in such form as may be prescribed by the Board of
Directors in conformity with law, and shall be entered in the stock books of the
Corporation as they are issued, and such entries shall show the name and address
of the person, firm, partnership, corporation or association to whom each
certificate is issued. Each certificate shall have printed, typed or written
thereon the name of the person, firm, partnership, corporation or association to
whom it is issued, and number of shares represented thereby and shall be signed
by the Chairman of the Board, Vice Chairman of the Board, President or a Vice
President, and the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation and sealed with the seal of the
Corporation, which seal may be facsimile, engraved or printed. If the
Corporation has a registrar, a transfer agent, or a transfer clerk who actually
signs such certificates, the signature of any of the other officers above
mentioned may be facsimile, engraved or printed. In case any such officer who
has signed or whose facsimile signature has been placed upon any such
certificate shall have ceased to be such officer before such certificate is
issued, such certificate may nevertheless be issued by the Corporation with the
same effect as if such officer were an officer at the date of its issue.
(b) All stock certificates representing shares of stock which are
subject to restrictions on transfer or to other restrictions may have imprinted
thereon such notation to such effect as may be determined by the Board of
Directors.
49. Lost, Stolen or Destroyed Certificates. The Board of Directors may
direct a new certificate of stock to be issued in place of any certificate
theretofore issued by the Corporation which is claimed to have been lost, stolen
or destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing
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such issue of a new certificate, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate, or his legal representative, to advertise
the same in such manner as it shall require or to give the Corporation a bond in
such sum, or other security in such form as it may direct, as indemnity against
any claim that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen or destroyed.
50. Transfers of Shares, Transfer Agent, Registrar.
(a) Transfers of shares of stock shall be made on the stock record or
transfer books of the Corporation only by the person named in the stock
certificate, or by his attorney lawfully constituted in writing, and upon
surrender of the certificate therefor. The stock record book and other transfer
records shall be in the possession of the Secretary or of a transfer agent or
clerk for the Corporation. The Corporation, by resolution of the Board, may from
time to time appoint a transfer agent, and, if desired, a registrar, under such
arrangements and upon such terms and conditions as the Board deems advisable;
but until and unless the Board appoints some other person, firm or Corporation
as its transfer agent (and upon the revocation of any such appointment,
thereafter until a new appointment is similarly made), the Secretary of the
Corporation shall be the transfer agent or clerk of the Corporation shall be the
transfer agent or clerk of the Corporation, without the necessity of any formal
action of the Board, and the Secretary shall perform all of the duties thereof.
(b) Upon surrender to the Corporation or any transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation or its transfer agent to issue a new certificate to the
person entitled thereto, to cancel the old certificate and to record the
transaction upon its books.
(c) Except as otherwise provided by law, the Corporation shall be entitled
to recognize the exclusive right of a person who is registered on its books as
the owner of shares of its stock to receive dividends or other distributions, to
vote as such owner, and to hold liable for calls and assessments a person who is
registered on its books as the owner of shares of its stock. The Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
such shares on the part of any other person.
(d) If a stockholder desires that notice and/or dividends shall be sent to
a name or address other than the name or address appearing on the stock ledger
maintained by the Corporation (or by the transfer agent or registrar, if any),
such stockholder
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shall have the duty to notify the Corporation (or the transfer agent or
registrar, if any) in writing, of such desire. Such written notice shall specify
the alternate name or address to be used.
51. Record Date.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be less than 10 nor more than 60 days before the date of such meeting, nor
more than 60 days prior to any other action; provided, however, any record date
for determining stockholders entitled to consent to corporate actions in writing
without a meeting may not be more than 10 days after the date upon which the
resolution fixing the record date is adopted; provided, further, any record date
established by the Board of Directors may not precede the date upon which the
resolution fixing the record date is adopted.
(b) If no record date is fixed:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or, if notice
is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to express
written consent to corporate action without a meeting, shall be: (A) if no
prior action by the Board of Directors is necessary, the first date on
which a signed written consent setting forth the action taken is delivered
to the Corporation; and (B) if prior action by the Board of Directors is
required, the close of business on the day the Board of Directors adopts
the resolution taking the prior action.
(c) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
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GENERAL PROVISIONS
------------------
52. Dividends. Ordinary dividends upon the shares of the
corporation, subject to the provisions of the Certificate of
Incorporation, and of any applicable law or statute, may be declared by
the Board of Directors at any regular or special meeting. Dividends may
be paid in cash, in property, or in shares of its stock, and to the
extent and in the manner provided by law, out of any available earned
surplus or earnings of the corporation.
If the dividend is to be paid in shares of the Corporation's
theretofore unissued capital stock, the Board of Directors shall, by
resolution, direct that there be transferred from surplus to the capital
account in respect of such shares, an amount which is not less than the
par value of the shares being declared as a dividend. No transfer from
surplus to capital shall be necessary if shares are being distributed by
the Corporation pursuant to a split-up or division of its stock, rather
than as payment of a dividend declared payable in stock of the
Corporation.
Liquidating dividends or dividends representing a distribution of
paid-in surplus or a return of capital shall be made only when and in the
manner permitted by law.
53. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of Incorporation,
to determine whether any, and if so, what part, of the funds legally
available for the payment of dividends shall be declared as dividends and
paid to the stockholders of the Corporation. The Board of Directors, in
its sole discretion, may fix a sum which may be set aside or reserved
over and above the paid-in capital of the Corporation for working
capital or as a reserve for any proper purpose, and may from time to
time increase, diminish or vary such fund or funds.
54. Checks. All checks or instruments for the payment of money
and all notes of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board of Directors may
from time to time designate. If no such designation is made, and unless
and until the Board otherwise provides, the Chairman of the Board or
President and Secretary, or the Chairman of the Board or President and
Treasurer, shall have power to sign all such instruments for, in behalf
of and in the name of the corporation, which are executed or made in the
ordinary course of the corporation's business.
55. Fiscal Year. The Board of Directors shall have the paramount
power to fix, and from time to time, to change, the fiscal year of the
corporation.
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56. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the corporation, the year of incorporation and the
words: Corporate Seal Delaware. Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner
reproduced.
AMENDMENTS
----------
57. Amendments. The Bylaws of the Corporation may from time to
time to be repealed, amended or altered, or new Bylaws may be adopted,
in either of the following ways:
(a) By the vote of a majority of the stockholders entitled to
vote at any annual or special meeting thereof; or
(b) By resolution adopted by a majority of the members of the
Board of Directors then in office; provided, however, that the power of
the directors to suspend, repeal, amend or otherwise alter the Bylaws or
any portion thereof may be denied as to any Bylaws or portion thereof
enacted by the stockholders if at the time of such enactment the
stockholders shall so expressly provide.
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CERTIFICATE
We, the undersigned, hereby certify that the foregoing Amended and
Restated Bylaws were adopted by a Statement of Unanimous Consent of the Board of
Directors of the Corporation dated the 1st day of March, 1991.
Dated this 1st day of March, 1991.
/s/ Robert F. Brozman
-----------------------------------
Robert F. Brozman,
Chairman of the Board
/s/ Robert C. Surridge, III
-----------------------------------
Robert C. Surridge, III,
Secretary
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Exhibit D
Name Title Signature
James R. Kahl Chief Executive Officer and /s/ James R. Kahl
President ------------------------
Rebecca L. Perry Executive Vice President,
Operations ------------------------
David J. Anglewicz Senior Vice President, Facility
Operations ------------------------
Phillip M. Kane Senior Vice President, /s/ Phillip M. Kane
Finance, Chief Financial ------------------------
Officer and Assistant
Secretary
Mary Jean Wolf Senior Vice President,
Organizational Services ------------------------
Peggy A. Ford Secretary ------------------------
<PAGE>
EXECUTION COPY
================================================================================
LPA HOLDING CORP.
LA PETITE ACADEMY, INC.
10% Senior Notes due 2008
INDENTURE
Dated as of May 11, 1998
PNC BANK, NATIONAL ASSOCIATION,
Trustee
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TABLE OF CONTENTS
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ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions................................................... 1
SECTION 1.02. Other Definitions............................................. 17
SECTION 1.03. Incorporation by Reference of Trust Indenture Act............. 18
SECTION 1.04. Rules of Construction......................................... 18
ARTICLE 2
The Securities
SECTION 2.01 Amount of Securities; Issuable in Series...................... 19
SECTION 2.02. Form and Dating............................................... 20
SECTION 2.03. Execution and Authentication.................................. 20
SECTION 2.04. Registrar and Paying Agent.................................... 21
SECTION 2.05. Paying Agent to Hold Money in Trust........................... 21
SECTION 2.06. Securityholder Lists.......................................... 22
SECTION 2.07. Transfer and Exchange......................................... 22
SECTION 2.08. Replacement Securities........................................ 23
SECTION 2.09. Outstanding Securities........................................ 23
SECTION 2.10. Temporary Securities.......................................... 23
SECTION 2.11. Cancelation................................................... 24
SECTION 2.12. Defaulted Interest............................................ 24
SECTION 2.13. CUSIP Numbers................................................. 24
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee............................................ 24
SECTION 3.02. Selection of Securities To Be Redeemed........................ 25
SECTION 3.03. Notice of Redemption.......................................... 25
SECTION 3.04. Effect of Notice of Redemption................................ 26
SECTION 3.05. Deposit of Redemption Price................................... 26
SECTION 3.06. Securities Redeemed in Part................................... 26
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities......................................... 26
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SECTION 4.02. SEC Reports................................................... 26
SECTION 4.03. Limitation on Indebtedness.................................... 27
SECTION 4.04. Limitation on Restricted Payments............................. 28
SECTION 4.05. Limitation on Restrictions on Distributions from Restricted
Subsidiaries............................................. 31
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock............ 31
SECTION 4.07. Limitation on Transactions with Affiliates.................... 34
SECTION 4.08. Change of Control............................................. 35
SECTION 4.09. Compliance Certificate........................................ 36
SECTION 4.10. Further Instruments and Acts.................................. 36
SECTION 4.11. Future Guarantors............................................. 36
SECTION 4.12. Limitation on the Sale or Issuance of
Capital Stock of Restricted Subsidiaries................. 36
SECTION 4.13. Limitation on Liens........................................... 37
ARTICLE 5
Successor Company
SECTION 5.01. When Company May Merge or Transfer Assets..................... 37
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default............................................. 38
SECTION 6.02. Acceleration.................................................. 40
SECTION 6.03. Other Remedies................................................ 40
SECTION 6.04. Waiver of Past Defaults....................................... 41
SECTION 6.05. Control by Majority........................................... 41
SECTION 6.06. Limitation on Suits........................................... 41
SECTION 6.07. Rights of Holders to
Receive Payment.......................................... 41
SECTION 6.08. Collection Suit by Trustee.................................... 41
SECTION 6.09. Trustee May File Proofs of Claim.............................. 42
SECTION 6.10. Priorities.................................................... 42
SECTION 6.11. Undertaking for Costs......................................... 42
SECTION 6.12. Waiver of Stay or Extension Laws.............................. 42
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee............................................. 43
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SECTION 7.02. Rights of Trustee............................................. 44
SECTION 7.03. Individual Rights of Trustee.................................. 44
SECTION 7.04. Trustee's Disclaimer.......................................... 44
SECTION 7.05. Notice of Defaults............................................ 45
SECTION 7.06. Reports by Trustee to Holders................................. 45
SECTION 7.07. Compensation and Indemnity.................................... 45
SECTION 7.08. Replacement of Trustee........................................ 46
SECTION 7.09. Successor Trustee by Merger................................... 46
SECTION 7.10. Eligibility; Disqualification................................. 47
SECTION 7.11. Preferential Collection of Claims Against Company ............ 47
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance.............. 47
SECTION 8.02. Conditions to Defeasance...................................... 48
SECTION 8.03. Application of Trust Money.................................... 49
SECTION 8.04. Repayment to Company.......................................... 49
SECTION 8.05. Indemnity for Government Obligations.......................... 49
SECTION 8.06. Reinstatement................................................. 49
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders.................................... 50
SECTION 9.02. With Consent of Holders....................................... 50
SECTION 9.03. Compliance with Trust Indenture Act........................... 51
SECTION 9.04. Revocation and Effect of Consents and Waivers................. 51
SECTION 9.05. Notation on or Exchange of Securities......................... 52
SECTION 9.06. Trustee to Sign Amendments.................................... 52
ARTICLE 10
Guarantees
SECTION 10.01. Guarantees.................................................... 52
SECTION 10.02. Limitation on Liability....................................... 54
SECTION 10.03. Successors and Assigns........................................ 54
SECTION 10.04. No Waiver..................................................... 54
SECTION 10.05. Modification.................................................. 55
SECTION 10.06. Execution of Supplemental Indenture for Future
Guarantors .............................................. 55
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ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls.................................. 55
SECTION 11.02. Notices....................................................... 55
SECTION 11.03. Communication by Holders with Other Holders................... 56
SECTION 11.04. Certificate of Opinion as to Conditions Precedent............. 56
SECTION 11.05. Statements Required in Certificate or Opinion................. 56
SECTION 11.06. When Securities Disregarded................................... 57
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar.................. 57
SECTION 11.08. Legal Holidays................................................ 57
SECTION 11.09. Governing Law................................................. 57
SECTION 11.10. No Recourse Against Others.................................... 57
SECTION 11.11. Successors.................................................... 57
SECTION 11.12. Multiple Originals............................................ 57
SECTION 11.13. Table of Contents; Headings................................... 58
Appendix A - Provisions Relating to Original Securities, Additional
Securities, Private Exchange Securities and Exchange Securities
Exhibit A - Form of Initial Security
Exhibit B - Form of Exchange Security
Exhibit C - Form of Supplemental Indenture
Exhibit D - Form of Letter of Representation
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1
INDENTURE dated as of May 11, 1998, among LPA HOLDING CORP.,
a Delaware corporation ("Parent"), LA PETITE ACADEMY, INC., a
Delaware corporation (the "Company" and, together with Parent,
the "Issuers"), LPA SERVICES, INC., a Delaware corporation (the
"Guarantor"), and PNC BANK, NATIONAL ASSOCIATION, a national
banking association, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and for
the equal and ratable benefit of the Holders of (i) the Issuers' 10% Senior
Notes due 2008 issued on the date hereof (the "Original Securities"), (ii) any
Additional Securities (as defined herein) that may be issued on any Issue Date
(all such Securities in clauses (i) and (ii) being referred to collectively as
the "Initial Securities"), (iii) if and when issued as provided in a
Registration Agreement (as defined in Appendix A hereto (the "Appendix")), the
Issuers' 10% Senior Subordinated Notes due 2008 issued in the Registered
Exchange Offer (as defined in the Appendix) in exchange for any Initial
Securities (the "Exchange Securities") and (iv) if and when issued as provided
in the Registration Agreement, the Private Exchange Securities (as defined in
the Appendix) issued in the Private Exchange (as defined in the Appendix, and
together with the Initial Securities and any Exchange Securities issued
hereunder, the "Securities"). Except as otherwise provided herein, the
Securities will be limited to $245,000,000 in aggregate principal amount
outstanding, of which $145,000,000 in aggregate principal amount will be
initially issued on the date hereof. Subject to the conditions and the covenants
set forth herein, the Company may issue up to $100,000,000 aggregate principal
amount of Additional Securities.
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; provided, however, that any such Restricted Subsidiary described in
clauses (ii) or (iii) above is primarily engaged in a Related Business.
"Additional Securities" means up to $100,000,000 aggregate principal amount
of 10% Senior Notes due 2008 issued under the terms of this Indenture subsequent
to the Closing Date.
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"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, sale-leaseback transaction,
transfer or other disposition (or series of related sales, leases, transfers or
dispositions) by the Company or any Restricted Subsidiary, including any
disposition by means of a merger, consolidation or similar transaction (each
referred to for the purposes of this definition as a "disposition"), of (i) any
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares or shares required by applicable law to be held by a Person
other than the Company or a Restricted Subsidiary), (ii) all or substantially
all the assets of any division or line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any Restricted
Subsidiary other than property or equipment that has become worn out, obsolete,
damaged or otherwise unsuitable for use in connection with the business of the
Company or any Restricted Subsidiary, as the case may be (other than, in the
case of (i), (ii) and (iii) above, (w) a disposition by a Restricted Subsidiary
to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (x) for purposes of the provisions described under Section 4.06
only, a disposition subject to the covenant described under Section 4.04, (y)
the sale, lease, transfer or other disposition of all or substantially all the
assets of the Company as permitted by Article 5 and (x) a disposition of assets
with a fair market value of less than $100,000).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or Parent,
as applicable, or any committee thereof duly authorized to act on behalf of such
Board of Directors.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of, or
interests in (however
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designated), equity of such Person, including any Preferred Stock, but excluding
any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"CCP" means Chase Capital Partners and its Affiliates.
"Change of Control" means the occurrence of any of the following events:
(i) prior to the earlier to occur of (A) the first public offering of
common stock of Parent or (B) the first public offering of common stock of
the Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company, whether as a result of issuance of securities
of Parent or the Company, any merger, consolidation, liquidation or
dissolution of Parent or the Company, any direct or indirect transfer of
securities by any Permitted Holder or otherwise (for purposes of this
clause (i) and clause (ii) below, the Permitted Holders shall be deemed to
beneficially own any Voting Stock of an entity (the "specified entity")
held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
entity);
(ii) (A) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (i) above, except that
for purposes of this clause (ii) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of the Company and (B) the Permitted
Holders "beneficially own" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Company
(for the purposes of this clause (ii), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person is the beneficial owner (as defined in this
clause (ii)), directly or indirectly, of more than 35% of the voting power
of the Voting Stock of such parent entity and the Permitted Holders
"beneficially own" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent entity and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent entity);
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(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of the
Company or Parent, as the case may be (together with any new directors
whose election by such Board of Directors or whose nomination for election
by the stockholders of the Company or Parent, as applicable, was approved
(x) in accordance with the Stockholders Agreement, (y) by the Permitted
Holders or (z) by a vote of 66 2/3% of the directors of the Company or
Parent, as applicable, then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved), cease for any reason to constitute a majority
of the Board of Directors of the Company or Parent, as applicable, then in
office;
(iv) the adoption of a plan relating to the liquidation or dissolution
of the Company or Parent; or
(v) the merger or consolidation of the Company or Parent with or into
another Person or the merger of another Person with or into the Company or
Parent, or the sale of all or substantially all the assets of the Company
or Parent to another Person (other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation,
the securities of the Company or Parent, as the case may be, that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company or Parent,
as applicable, are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other consideration, securities
of the surviving Person or transferee that represent, immediately after
such transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving Person or transferee.
"Closing Date" means the date of this Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Company" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
indenture securities.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are available to
(ii) Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (B) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any
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Indebtedness since the beginning of such period or if any Indebtedness is to be
repaid, repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the date
of the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall
be calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if the Company or such Restricted Subsidiary has
not earned the interest income actually earned during such period in respect of
cash or Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness, (C) if since the beginning of such period
the Company or any Restricted Subsidiary shall have made any Asset Disposition,
the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (D) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (E) 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
Asset Disposition or any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (C) or (D) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition of assets
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto, including related cost savings measures,
and the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
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 expense on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term as at the date of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries, plus, to
the extent Incurred by the Company and its Subsidiaries in such period but not
included in such interest
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expense, (i) interest expense attributable to Capitalized Lease Obligations,
(ii) amortization of debt discount and debt issuance cost, (iii) capitalized
interest, (iv) non-cash interest expense, (v) commissions, discounts and other
fees and charges attributable to letters of credit and bankers' acceptance
financing, (vi) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is guaranteed by the Company or any Restricted
Subsidiary, (vii) net costs associated with Hedging Obligations (including
amortization of fees), (viii) dividends in respect of (A) all Preferred Stock of
the Company and any of the Subsidiaries of the Company and (B) Disqualified
Stock of the Company, in each of (A) and (B) to the extent held by Persons other
than the Company or a Wholly Owned Subsidiary, (ix) interest Incurred in
connection with investments in discontinued operations and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries for such period; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution made to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (or loss) of any person
acquired by the Company or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income (or
loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
made to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain or loss realized upon the sale or other disposition of
any asset of the Company or its Consolidated Subsidiaries that is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) any extraordinary gain or loss; (vi) the cumulative effect of a change in
accounting principles; (vii) any bonuses paid to members of the Management Group
in connection with the Transactions; and (viii) any expenses relating to cash
payments made in respect of the termination of outstanding options in connection
with the Transactions. Notwithstanding the foregoing, for the purpose of the
covenant described under Section 4.04 only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
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"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of May 11, 1998, as
amended, waived or otherwise modified from time to time (except to the extent
that any such amendment, waiver or other modification thereto would be
prohibited by the terms of the Indenture, unless otherwise agreed to by the
Holders of at least a majority in aggregate principal amount of Notes at the
time outstanding), among the Company, Parent, the financial institutions
signatory thereto, NationsBank, N.A., as Administrative Agent, and The Chase
Manhattan Bank, as Syndication Agent.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes; provided, however, that any Capital Stock that
would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the first anniversary of the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are not more favorable to
the holders of such Capital Stock than the provisions of Sections 4.06 and 4.08.
"Domestic Subsidiary" means any direct or indirect Subsidiary of the
Company that is organized and existing under the laws of the United States, any
state thereof or the District of Columbia.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense of the Company and its Consolidated Restricted
Subsidiaries, (ii) Consolidated Interest Expense, (iii) depreciation expense of
the Company and its Consolidated Restricted Subsidiaries, (iv) amortization
expense of the Company and its Consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period) and (v) all non-cash charges associated with the granting of New
Options during such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary of the Company shall be added
to Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all
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agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" means any Subsidiary of the Company that is not a
Domestic Subsidiary.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the Commission
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission. All ratios and computations based on GAAP contained in the Indenture
shall be computed in conformity with GAAP.
"guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "guarantee" used as a verb has a
corresponding meaning.
"Guarantee" means each guarantee of the obligations with respect to the
Notes issued by a Subsidiary of the Company pursuant to the terms of the
Indenture.
Guarantor" means any Person that has issued a Guarantee.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the registrar's books.
"Incur" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall be deemed the Incurrence
of Indebtedness.
<PAGE>
9
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except Trade Payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations of such Person; (vi) the amount of all obligations of such Person
with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vii) all
Indebtedness of other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person; provided, however,
that the amount of Indebtedness of such Person shall be the lesser of (A) the
fair market value of such asset at such date of determination and (B) the amount
of such Indebtedness of such other Persons; or (viii) to the extent not
otherwise included in this definition, Hedging Obligations of such Person; all
obligations of the type referred to in clauses (i) through (ii) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any guarantee. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and Section 4.04, (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of any 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 in 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
<PAGE>
10
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.
"Issue Date," with respect to any Initial Securities, means the date on
which such Initial Securities are originally issued.
"King Investor" means an entity a majority of the economic interests of
which are owned by CCP and a majority of the voting interests of which are owned
by (i) Robert E. King, his descendants or, in the event of the death or
incompetence of any of the foregoing individuals, such Person's estate,
executor, administrator, committee or other personal representative or (ii) any
other Person approved by CCP.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Group" means the group consisting of the directors and
executive officers of the Company.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) appropriate amounts to
be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the property or other assets disposed of in such
Asset Disposition and retained by the Company or any Restricted Subsidiary after
such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Options" means the options granted to certain members of management
pursuant to the New Option Plan.
"New Option Plan" means the New Option Plan adopted by Parent as part of
the Recapitalization.
<PAGE>
11
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company or Parent, as the case may be.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to
Parent, the Company or the Trustee.
"Parent" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision herein and required by the TIA, each other obligor on the indenture
securities.
"Permitted Holders" means CCP, the Management Group, the King Investor and
any Person acting in the capacity of an underwriter in connection with a public
or private offering of the Company's or Parent's Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary and
not exceeding $1,000,000 in the aggregate outstanding at any one time; (vii)
stock, obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) any Person to the extent such
Investment represents the non-cash portion of the consideration received for an
Asset Disposition that was made pursuant to and in compliance with Section 4.06;
(ix) Interest Rate Agreements entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' businesses and otherwise in compliance
with the Indenture; (x) additional Investments (including joint ventures) in an
amount that, when added to all other Investments made pursuant to this clause
(x), does not exceed 10% of the Total Assets as of the end of the most recent
fiscal quarter preceding the date of such Investment for which financial
statements are available; (xi) Investments in securities of trade debtors of
customers received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade debtors or customers; (xii)
Investments made by the Company or any Restricted Subsidiaries as a result of
consideration received in connection with an Asset Disposition made in
compliance with Section 4.06; and (xiii) Investments of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time such Person merges or consolidates with the
<PAGE>
12
Company or any Restricted Subsidiaries, in either case in compliance with the
Indenture; provided that such Investments were not made by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary or such merger or consolidation.
"Permitted Liens" means, with respect to any Person:
(a) Liens imposed by law for taxes or other governmental charges that
are not yet due or are being contested in good faith by appropriate
proceedings;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 60 days
or are being contested in good faith by appropriate proceedings;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature (other than for the payment of
Indebtedness), in each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under Section 6.01;
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of such Person;
(g) any interest of a landlord in or to property of the tenant imposed
by law, arising in the ordinary course of business and securing lease
obligations that are not overdue by more than 60 days or are being
contested in good faith by appropriate proceedings, or any possessory
rights of a lessee to the leased property under the provisions of any lease
permitted by the terms of the Indenture;
(h) Liens of a collection bank arising in the ordinary course of
business under Section 4-208 of the Uniform Commercial Code in effect in
the relevant jurisdiction;
(i) Liens to secure Indebtedness permitted pursuant to clause (b)(i)
of Section 4.03;
(j) Liens existing on the Closing Date provided, that (i) except as
permitted under subclause (D) of clause (l) of this definition such Lien
shall not apply to any other property or asset of such Person except assets
financed solely by the same financing source that provided the Indebtedness
secured by such Lien, and (ii) such Lien shall secure only those
obligations that it secures on the Closing Date and
<PAGE>
13
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;
(k) any Lien existing on any property or asset prior to the
acquisition thereof by such Person or existing on any property or asset of
another Person that becomes a Subsidiary after the date hereof prior to the
time such other Person becomes a Subsidiary, provided that (A) such Lien is
not created in contemplation of or in connection with such acquisition or
such other Person becoming a Subsidiary, as the case may be, (B) such Lien
shall not apply to any other property or assets of such Person except
assets financed solely by the same financing source in existence on the
date of such acquisition that provided the Indebtedness secured by such
Lien and (C) except as permitted under subclause (D) of clause (l) of this
definition such Lien shall secure only those obligations that it secures on
the date of such acquisition or the date such other Person becomes a
Subsidiary, as the case may be, and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof;
(l) Liens on fixed or capital assets acquired, constructed or improved
by such Person and extensions, renewals and replacements thereof that do
not increase the outstanding principal amount of the Indebtedness secured
thereby, provided that (A) such security interests secure Indebtedness
permitted under Section 4.03, (B) such security interests and the
Indebtedness secured thereby are incurred prior to or within 12 months
after such acquisition or the completion of such construction or
improvement, (C) the Indebtedness secured thereby does not exceed 100% of
the cost of acquiring, constructing or improving such fixed or capital
assets and other fixed or capital assets financed solely by the same
financing source and (D) such security interests shall not apply to any
other property or assets of such Person except assets financed solely by
the same financing source;
(m) licenses of intellectual property rights granted in the ordinary
course of business and not interfering in any material respect with the
conduct of the business;
(n) Liens securing Indebtedness or other obligations of a Restricted
Subsidiary owing to the Company or a Restricted Subsidiary;
(o) Liens securing Hedging Obligations so long as the related
Indebtedness is secured by a Lien on the same property securing such
Hedging Obligation;
(p) Liens securing the Notes pursuant to the covenants described under
Section 4.13;
(q) Liens securing Refinancing Indebtedness of any Indebtedness
secured by any Lien referred to in clauses (j), (k) and (l) above; and
(r) Liens (other than those permitted by paragraphs (a) through (r)
above) securing liabilities permitted under the Indenture in an aggregate
amount not exceeding $1,000,000 at any time outstanding.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
<PAGE>
14
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company or Parent pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 15% of the total issued and outstanding common
stock of the Company or Parent (as applicable) has been distributed by means of
an effective registration statement under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Subsidiary Incurred to finance the acquisition, construction or improvement of
any fixed or capital assets, including Capital Lease Obligations and any
Indebtedness assumed in connection with the acquisition of any such assets or
secured by a Lien on any such assets prior to the acquisition thereof, and
extensions, renewals and replacements of any such Indebtedness that do not
increase the outstanding principal amount thereof or result in an earlier
maturity date or decreased weighted average life thereof, provided that such
Indebtedness is incurred prior to or within 12 months after such acquisition or
the completion of such construction or improvement.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness in whole or in
part. "Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) any Indebtedness of the Company or any Restricted
Subsidiary existing on the Closing Date or Incurred in compliance with the
Indenture (including Indebtedness of the Company that Refinances Refinancing
Indebtedness); provided, however, that (i) the Refinancing Indebtedness has a
Stated Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced, (iii) such Refinancing
Indebtedness is Incurred in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being Refinanced
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing) and (iv)
if the Indebtedness being Refinanced is subordinated in right of payment to the
Notes, such Refinancing Indebtedness is subordinated in right of payment to the
Notes at least to the same extent as the Indebtedness being Refinanced; provided
further, however, that Refinancing
<PAGE>
15
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors of the Company) to the
businesses of the Company and the Restricted Subsidiaries on the Closing Date.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of Parent or a Guarantor has a correlative meaning.
"Securities" means the Securities issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" of the Company means the principal of, premium (if
any) and accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization of the Company,
regardless of whether or not a claim for post-filing interest is allowed in such
proceedings) on, and fees and other amounts owing in respect of, Bank
Indebtedness and all other Indebtedness of the Company, whether outstanding on
the Closing Date or thereafter incurred, unless in the instrument creating or
evidencing the same or pursuant to which the same is outstanding it is provided
that such obligations are subordinated in right of payment to the Notes. "Senior
Indebtedness" of Parent or any Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subordinated Obligation" of Parent or any Guarantor has a correlative meaning.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
<PAGE>
16
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company that is organized under the laws of the United
States of America, any state thereof or any foreign country recognized by the
United States of America having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act), (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank meeting the
qualifications described in clause (ii) above, (iv) investments in commercial
paper, maturing not more than one year after the date of acquisition, issued by
a corporation (other than an Affiliate of the Company) organized and in
existence under the laws of the United States of America or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Service, a division of The McGraw-Hill Companies, Inc. ("S&P"), (v)
investments in securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or "A" by Moody's Investors
Service, Inc. and (vi) investments in money market funds that invest
substantially all their assets in securities of the types described in clauses
(i) through (v) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-
77bbbb) as in effect on the date of the Indenture.
"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.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code as in
effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including
<PAGE>
17
any newly acquired or newly formed Subsidiary of the Company) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or owns or holds any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a Subsidiary
of the Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total Consolidated assets of $1,000 or less
or (B) if such Subsidiary has Consolidated assets greater than $1,000, then such
designation would be permitted under Section 4.04. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Company could Incur $1.00 of additional Indebtedness under paragraph (a) of
Section 4.03 and (y) no Default shall have occurred and be continuing. Any such
designation of a Subsidiary as a Restricted Subsidiary or Unrestricted
Subsidiary by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
SECTION 1.02. Other Definitions.
Defined in
Term Section
---- -------
"Affiliate Transaction"..................................... 4.08
"Bankruptcy Law"............................................ 6.01
"Blockage Notice"........................................... 10.03
"covenant defeasance option"................................ 8.01(b)
"Custodian"................................................. 6.01
"Event of Default".......................................... 6.01
"legal defeasance option"................................... 8.01(b)
"Legal Holiday"............................................. 13.08
"Offer"..................................................... 4.07(b)
"Offer Amount".............................................. 4.07(c)(2)
"Offer Period".............................................. 4.07(c)(2)
"pay the Securities"........................................ 10.03
"Paying Agent".............................................. 2.04
"Payment Blockage Period"................................... 10.03
<PAGE>
18
"protected purchaser"....................................... 2.08
"Registrar"................................................. 2.04
"Successor Company"......................................... 5.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"indenture securities" means the Securities and the Guarantees.
"indenture security holder" means a Holder or Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Issuers, any Guarantor and
any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemption or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
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ARTICLE 2
The Securities
SECTION 2.01. Amount of Securities; Issuable in Series. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is $245,000,000. The Securities may be issued in one or more
series. All Securities of any one series shall be substantially identical except
as to denomination.
With respect to any Additional Securities issued after the Closing Date
(except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section
2.07, 2.08, 2.09, 2.10 or 3.06 or the Appendix), there shall be (i) established
in or pursuant to a resolution of the Board of Directors of Parent and the
Company and (ii), (A) set forth or determined in the manner provided in an
Officers' Certificate or (B) established in one or more indentures supplemental
hereto, prior to the issuance of such Additional Securities:
(1) whether such Additional Securities shall be issued as part of a
new or existing series of Securities and the title of such Additional
Securities (which shall distinguish the Additional Securities of the series
from Securities of any other series);
(2) the aggregate principal amount of such Additional Securities which
may be authenticated and delivered under this Indenture, which shall be in
an aggregate principal amount not to exceed $100,000,000 (except for
Securities authenticated and delivered upon registration of transfer of, or
in exchange for, or in lieu of, other Securities of the same series
pursuant to Section 2.07, 2.08, 2.09, 2.10 or 3.06 or the Appendix and
except for Securities that, pursuant to Section 2.03, are deemed never to
have been authenticated and delivered hereunder);
(3) the issue price and issuance date of such Additional Securities,
including the date from which interest on such Additional Securities shall
accrue; provided; however, that no Additional Securities may be issued at a
price that would cause such Additional Securities to have "original issue
discount" within the meaning of Section 1273 of the Code;
(4) if applicable, that such Additional Securities shall be issuable
in whole or in part in the form of one or more Global Securities (as
defined in the Appendix) and, in such case, the respective depositaries for
such Global Securities, the form of any legend or legends that shall be
borne by such Global Securities in addition to or in lieu of those set
forth in Exhibit A hereto and any circumstances in addition to or in lieu
of those set forth in Section 2.3 of the Appendix in which any such Global
Security may be exchanged in whole or in part for Additional Securities
registered, or any transfer of such Global Security in whole or in part may
be registered, in the name or names of Persons other than the depositary
for such Global Security or a nominee thereof; and
(5) if applicable, that such Additional Securities shall not be issued
in the form of Initial Securities as set forth in Exhibit A, but shall be
issued in the form of Exchange Securities as set forth in Exhibit B.
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Concurrently with the execution and delivery of any Additional Securities,
the Issuers shall deliver to the Trustee an Officers' Certificate of each Issuer
and an Opinion of Counsel to the effect that such Additional Securities have
been duly authorized by the Issuers and, when executed, authenticated, issued
and delivered, will be validly issued and outstanding and will constitute valid
and legally binding obligations of the Issuers and the Guarantors, enforceable
against the Issuers and the Guarantors in accordance with their terms, except to
the extent enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws relating
to creditors' rights generally and by general equitable principles (whether
considered in a proceeding at law or in equity). If any of the terms of any
Additional Securities are established by action taken pursuant to a resolution
of the Board of Directors of Parent and the Company, a copy of an appropriate
record of such action shall be certified by the Secretary or any Assistant
Secretary of the Company and delivered to the Trustee at or prior to the
delivery of the Officers' Certificate or the indenture supplemental hereto
setting forth the terms of the Additional Securities.
SECTION 2.02. Form and Dating. Provisions relating to the Original
Securities, the Additional Securities, the Private Exchange Securities and the
Exchange Securities are set forth in the Appendix, which is hereby incorporated
in and expressly made a part of this Indenture. The (i) Original Securities and
the Trustee's certificate of authentication, (ii) Private Exchange Securities
and the Trustee's certificate of authentication and (iii) any Additional
Securities (if issued as Transfer Restricted Securities (as defined in the
Appendix)) and the Trustee's certificate of authentication shall each be
substantially in the form of Exhibit A hereto, which is hereby incorporated in
and expressly made a part of this Indenture. The Exchange Securities and any
Additional Securities issued other than as Transfer Restricted Securities and
the Trustee's certificate of authentication shall each be substantially in the
form of Exhibit B hereto, which is hereby incorporated in and expressly made a
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule, agreements to which the
Issuers or any Guarantor is subject, if any, or usage (provided that any such
notation, legend or endorsement is in a form acceptable to the Issuers). Each
Security shall be dated the date of its authentication. The Securities shall be
issued only in registered form without coupons and only in denominations of
$1,000 and integral multiples thereof.
SECTION 2.03. Execution and Authentication. One or more Officers of each
Issuer shall sign the Securities for such Issuer by manual or facsimile
signature.
If an Officer whose signature is on a Security no longer holds that office
at the time the Trustee authenticates the Security, the Security shall be valid
nevertheless.
A Security shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security. The signature
shall be con clusive evidence that the Security has been authenticated under
this Indenture.
The Trustee shall authenticate and make available for delivery Securities
as set forth in the Appendix.
The Trustee may appoint an authenticating agent reasonably acceptable to
the Issuers to authenticate the Securities. Any such appointment shall be
evidenced by an instrument signed by a Trust Officer, a copy of which shall be
furnished to the Issuers. Unless limited by the terms of such appointment, an
authenticating agent may authenticate
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21
Securities 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 Registrar, Paying Agent or agent
for service of notices and demands.
SECTION 2.04. Registrar and Paying Agent. The Issuers shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where Securities may
be presented for payment (the "Paying Agent"). The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Issuers may
have one or more co-registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent, and the term
"Registrar" includes any co-registrars. The Issuers initially appoint the
Trustee as (i) Registrar and Paying Agent in connection with the Securities and
(ii) the Securities Custodian (as defined in the Appendix) with respect to the
Global Securities.
The Issuers shall enter into an appropriate agency agreement with any
Registrar or Paying Agent not a party to this Indenture, which shall incorporate
the terms of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such agent. The Issuers shall notify the Trustee of the
name and address of any such agent. If the Issuers fail to maintain a Registrar
or Paying Agent, the Trustee shall act as such and shall be entitled to
appropriate compensation therefor pursuant to Section 7.07. The Issuers or any
domestically organized Wholly Owned Subsidiaries may act as Paying Agent or Reg
istrar.
The Issuers may remove any Registrar or Paying Agent upon written notice to
such Registrar or Paying Agent and to the Trustee; provided, however, that no
such removal shall become effective until (1) acceptance of an appointment by a
successor as evidenced by an appropriate agreement entered into by the Issuers
and such successor Registrar or Paying Agent, as the case may be, and delivered
to the Trustee or (2) notification to the Trustee that the Trustee shall serve
as Registrar or Paying Agent until the appointment of a successor in accordance
with clause (1) above. The Registrar or Paying Agent may resign at any time upon
written notice; provided, however, that the Trustee may resign as Paying Agent
or Registrar only if the Trustee also resigns as Trustee in accordance with
Section 7.08.
SECTION 2.05. Paying Agent To Hold Money in Trust. Prior to each due date
of the principal and interest on any Security, the Issuers shall deposit with
the Paying Agent (or if either Issuer or a Subsidiary of either Issuer is acting
as Paying Agent, segregate and hold in trust for the benefit of the Persons
entitled thereto) a sum sufficient to pay such principal and interest when so
becoming due. The Issuers shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Issuers in making any such payment. If the Issuers
or a Subsidiary of either Issuer acts as Paying Agent, it shall segregate the
money held by it as Paying Agent and hold it as a separate trust fund. The
Issuers at any time may require a Paying Agent to pay all money held by it to
the Trustee and to account for any funds disbursed by the Paying Agent. Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee.
SECTION 2.06. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names
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22
and addresses of Securityholders. If the Trustee is not the Registrar, the
Issuers shall furnish, or cause the Registrar to furnish, to the Trustee, in
writing at least five Business Days before each interest payment date and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of Securityholders.
SECTION 2.07. Transfer and Exchange. The Securities shall be issued in
registered form and shall be transferable only upon the surrender of a Security
for registration of transfer and in compliance with the Appendix. When a
Security is presented to the Registrar with a request to register a transfer,
the Registrar shall register the transfer as requested if the requirements of
Section 8-401(a)(l) of the Uniform Commercial Code are met. When Securities are
presented to the Registrar with a request to exchange them for an equal
principal amount of Securities of other denominations, the Registrar shall make
the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Issuers shall execute and the
Trustee shall authenticate Securities at the Registrar's request. The Issuers
may require payment of a sum sufficient to pay all taxes, assessments or other
governmental charges in connection with any transfer or exchange pursuant to
this Section. The Issuers shall not be required to make and the Registrar need
not register transfers or exchanges of (a) Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portion thereof
not to be redeemed) or (b) any Securities for a period of 15 days before a
selection of Securities to be redeemed.
Prior to the due presentation for registration of transfer of any Security,
the Issuers, the Guarantors, the Trustee, the Paying Agent and the Registrar may
deem and treat the Person in whose name a Security is registered as the absolute
owner of such Security for the purpose of receiving payment of principal of and
interest, if any, on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and none of the Issuers, any Guarantor,
the Trustee, the Paying Agent or the Registrar shall be affected by notice to
the contrary.
Any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interest in such Global Security
may be effected only through a book-entry system maintained by (i) the Holder of
such Global Security (or its agent) or (ii) any Holder of a beneficial interest
in such Global Security, and that ownership of a beneficial interest in such
Global Security shall be required to be reflected in a book entry.
All Securities issued upon any transfer or exchange pursuant to the terms
of this Indenture will evidence the same debt and will be entitled to the same
benefits under this Indenture as the Securities surrendered upon such transfer
or exchange.
SECTION 2.08. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Issuers shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met, such that the Holder (i)
satisfies the Issuers or the Trustee within a reasonable time after he has
notice of such loss, destruction or wrongful taking and the Registrar does not
register a transfer prior to receiving such notification, (ii) makes such
request to the Issuers or the Trustee prior to the Security being acquired by a
protected purchaser as defined in Section 8-303 of the Uniform Commercial Code
(a "protected purchaser") and (iii) satisfies any other reasonable requirements
of the Trustee. If required by the Trustee or
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23
the Issuers, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Trustee to protect the Issuers, the Trustee, the Paying Agent
and the Registrar from any loss that any of them may suffer if a Security is
replaced. The Issuers and the Trustee may charge the Holder for their expenses
in replacing a Security. In the event any such mutilated, lost, destroyed or
wrongfully taken Security has become or is about to become due and payable, the
Issuers in their discretion may pay such Security instead of issuing a new
Security in replacement thereof.
Every replacement Security is an additional obligation of the Issuers.
The provisions of this Section 2.08 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, lost, destroyed or wrongfully taken Securities.
SECTION 2.09. Outstanding Securities. Securities outstanding at any time
are all Securities authenticated by the Trustee except for those canceled by it,
those delivered to it for cancelation and those described in this Section as not
outstanding. A Security does not cease to be outstanding because either Issuer
or any of their Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.08, it ceases to be
outstanding unless the Trustee and the Issuers receive proof satisfactory to
them that the replaced Security is held by a protected purchaser.
If the Paying Agent segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date money sufficient to pay all
principal and interest payable on that date with respect to the Securities (or
portions thereof) to be redeemed or maturing, as the case may be, then on and
after that date such Securities (or portions thereof) cease to be outstanding
and interest on them ceases to accrue.
SECTION 2.10. Temporary Securities. In the event that Definitive Securities
(as defined in the Appendix) are to be issued under the terms of this Indenture,
until such Definitive Securities are ready for delivery, the Issuers may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of Definitive Securities but may have
variations that the Issuers consider appropriate for temporary Securities.
Without unreasonable delay, the Issuers shall prepare and the Trustee shall
authenticate Definitive Securities and deliver them in exchange for temporary
Securities upon surrender of such temporary Securities at the office or agency
of the Issuers, without charge to the Holder.
SECTION 2.11. Cancelation. The Issuers at any time may deliver Securities
to the Trustee for cancelation. The Registrar and the Paying Agent shall forward
to the Trustee any Securities surrendered to them for registration of transfer,
exchange or payment. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment or cancelation and
deliver canceled Securities to the Issuers pursuant to written direction by an
Officer of each Issuer. The Issuers may not issue new Securities to replace
Securities they have redeemed, paid or delivered to the Trustee for cancelation.
The Trustee shall not authenticate Securities in place of canceled Securities
other than pursuant to the terms of this Indenture.
SECTION 2.12. Defaulted Interest. If the Issuers default in a payment of
interest on the Securities, the Issuers shall pay the defaulted interest (plus
interest on such
<PAGE>
24
defaulted interest to the extent lawful) in any lawful manner. The Issuers may
pay the defaulted interest to the Persons who are Securityholders on a
subsequent special record date. In such case, the Issuers shall fix or cause to
be fixed any such special record date and payment date to the reasonable
satisfaction of the Trustee and shall promptly mail or cause to be mailed to
each Securityholder a notice that states the special record date, the payment
date and the amount of defaulted interest to be paid.
SECTION 2.13. CUSIP Numbers. The Issuers in issuing the Securities may use
"CUSIP" numbers (if then generally in use) and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Issuers elect to redeem Securities
pursuant to paragraph 5 of the Securities, they shall notify the Trustee in
writing of the redemption date, the principal amount of Securities to be
redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Issuers shall give each notice to the Trustee provided for in this
Section at least 45 days but not more than 60 days before the redemption date
unless the Trustee consents to a shorter period. Such notice shall be
accompanied by an Officers' Certificate from each Issuer and an Opinion of
Counsel to the effect that such redemption will comply with the conditions
herein. If fewer than all the Securities are to be redeemed, the record date
relating to such redemption shall be selected by the Issuers and given to the
Trustee, which record date shall be not fewer than 15 days after the date of
notice to the Trustee. Any such notice may be canceled at any time prior to
notice of such redemption being mailed to any Holder and shall thereby be void
and of no effect.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than all the
Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by a method that complies with applicable legal
and securities exchange requirements, if any, and that the Trustee in its sole
discretion shall deem to be fair and appropriate and in accordance with methods
generally used at the time of selection by fiduciaries in similar circumstances.
The Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of them the Trustee selects shall be in amounts of $1,000 or a
whole multiple of $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption. The Trustee shall notify the Issuers promptly of the Securities or
portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60
days before a date for redemption of Securities, the Issuers shall mail a notice
of
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25
redemption by first-class mail to each Holder of Securities to be redeemed at
such Holder's registered address.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price and the amount of accrued and unpaid
interest, if any, to the redemption date;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the certificate numbers and principal amounts of the particular Securities
to be redeemed;
(6) that, unless the Issuers default in making such redemption payment
or the Paying Agent is prohibited from making such payment pursuant to the
terms of this Indenture, interest on Securities (or portion thereof) called
for redemption ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued;
(9) the CUSIP number, if any, printed on the Securities being
redeemed; and
(10) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Issuers' request, the Trustee shall give the notice of redemption in
the Issuers' name and at the Issuers' expense. In such event, the Issuers shall
provide the Trustee with the information required by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is
mailed, Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon surrender
to the Paying Agent, such Securities shall be paid at the redemption price
stated in the notice, plus accrued interest, if any, to the redemption date;
provided, however, that if the redemption date is after a regular record date
and on or prior to the interest payment date, the accrued interest shall be
payable to the Securityholder of the redeemed Securities registered on the
relevant record date. Failure to give notice or any defect in the notice to any
Holder shall not affect the validity of the notice to any other Holder.
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26
SECTION 3.05. Deposit of Redemption Price. Prior to 11:00 a.m. on the
redemption date, the Issuers shall deposit with the Paying Agent in immediately
available funds (or, if either Issuer or a Subsidiary of either Issuer is the
Paying Agent, shall segregate and hold in trust) money sufficient to pay the
redemption price of and accrued interest on all Securities to be redeemed on
that date other than Securities or portions of Securities called for redemption
that have been delivered by the Issuers to the Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part, the Issuers shall execute and the Trustee shall
authenticate for the Holder (at the Issuers' expense) a new Security equal in
principal amount to the unredeemed portion of the Security surrendered.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Issuers shall promptly pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Issuers shall pay interest on overdue principal at the rate specified
therefor in the Securities, and they shall pay interest on overdue installments
of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. Notwithstanding that the Issuers may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Issuers shall file with the SEC, and provide the Trustee and
Securityholders within 15 days after it files them with the SEC, copies of its
annual report and the information, documents and other reports that are
specified in Section 13 and 15(d) of the Exchange Act. In addition, following a
Public Equity Offering, the Issuers shall furnish to the Trustee and the
Securityholders, promptly upon their becoming available, copies of the annual
report to shareholders and any other information provided by each Issuer to its
public shareholders generally. The Issuers also shall comply with the other
provisions of TIA ss. 314(a).
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not, and
shall not permit any Restricted Subsidiary to, Incur, directly or indirectly,
any Indebtedness; provided, however, that the Company or any Restricted
Subsidiary may Incur Indebtedness if on the date of such Incurrence and after
giving effect thereto, the Consolidated Coverage Ratio would be greater than
2.00 to 1.00.
(b) Notwithstanding Section 4.03(a), the Company and its Restricted
Subsidiaries may Incur the following Indebtedness:
(i) Bank Indebtedness Incurred pursuant to the Credit Agreement in an
aggregate principal amount not to exceed $65,000,000 less the aggregate
amount of all prepayments of principal applied permanently to reduce any
such Indebtedness;
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27
(ii) Indebtedness of the Company owed to, and held by, any Wholly
Owned Subsidiary or Indebtedness of a Restricted Subsidiary owed to, and
held by, the Company or any Wholly Owned Subsidiary; provided, however,
that (i) any subsequent issuance or transfer of any Capital Stock or any
other event that results in any such Wholly Owned Subsidiary ceasing to be
a Wholly Owned Subsidiary or any subsequent transfer of any such
Indebtedness (except to the Company or a Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness by
the issuer thereof and (ii) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the Securities;
(iii) Indebtedness (A) represented by the Securities (not including
any Additional Securities) and the Guarantees, (B) outstanding on the
Closing Date (other than the Indebtedness described in clauses (i) and (ii)
of this Section 4.03(b)), (C) consisting of Refinancing Indebtedness
Incurred in respect of any Indebtedness described in this clause (iii) or
clause (v) (including Indebtedness Refinancing, Refinancing Indebtedness)
or Section 4.03(a) or (D) consisting of guarantees of any Indebtedness
permitted under clauses (i) and (ii) of this Section 4.03(b);
(iv) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by the
Company and the Restricted Subsidiaries in the ordinary course of their
business and (B) under Interest Rate Agreements entered into for bona fide
hedging purposes of the Company in the ordinary course of business;
provided, however, that such Interest Rate Agreements do not increase the
Indebtedness of the Company outstanding at any time other than as a result
of fluctuations in interest rates or by reason of fees, indemnities and
compensation payable thereunder;
(v) Purchase Money Indebtedness (including Capitalized Lease
Obligations) in an aggregate principal amount not in excess of $10,000,000
at any time outstanding;
(vi) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two Business Days of its 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 of
the Company, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary of
the Company 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 (provided that contingent
obligations referred to in a footnote to financial statements and not
otherwise reflected on the balance sheet will be deemed not 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 it is
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28
received and without giving effect to any subsequent changes in value),
actually received by the Company and the Restricted Subsidiaries in
connection with such disposition; or
(viii) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to Section 4.03(a) or any other clause of this Section 4.03(b)) in
an aggregate principal amount on the date of Incurrence that, when added to
all other Indebtedness Incurred pursuant to this clause (viii) and then
outstanding, shall not exceed $10,000,000.
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to Section 4.03(b) above if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire, refund or
refinance any Subordinated Obligations unless such Indebtedness will be
subordinated to the Securities to at least the same extent as such Subordinated
Obligations.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this Section 4.03 shall not be deemed to be exceeded solely as a
result of fluctuations in the exchange rates of currencies. For purposes of
determining the outstanding principal amount of any particular Indebtedness
Incurred pursuant to this Section 4.03, (i) Indebtedness Incurred pursuant to
the Credit Agreement prior to or on the Closing Date shall be treated as
Incurred pursuant to clause (i) of paragraph (b) above, (ii) Indebtedness
permitted by this Section 4.03 need not be permitted solely by reference to one
provision permitting such Indebtedness but may be permitted in part by one such
provision and in part by one or more other provisions of this Section 4.03
permitting such Indebtedness and (iii) in the event that Indebtedness meets the
criteria of more than one of the types of Indebtedness described in this Section
4.03, the Company, in its sole discretion, shall classify such Indebtedness and
only be required to include the amount of such Indebtedness in one of such
clauses.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company shall not,
and shall not permit any Restricted Subsidiary, directly or indirectly, to (i)
declare or pay any dividend or make any distribution on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving the Company) or similar payment to the direct or
indirect holders of its Capital Stock except dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock) and except dividends
or distributions payable to the Company or another Restricted Subsidiary (and,
if such Restricted Subsidiary has shareholders other than the Company or other
Restricted Subsidiaries, to its other shareholders on a pro rata basis), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock of the
Company or any Restricted Subsidiary held by Persons other than the Company or
another Restricted Subsidiary, (iii) purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated Obligations (other
than the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition) or (iv) make any Investment (other than a Permitted Investment) in
any Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein referred to
as a "Restricted Payment") if at the time the Company or such Restricted
Subsidiary makes such Restricted Payment: (1) a Default will have occurred and
be continuing (or would result therefrom); (2) the Company could not
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29
Incur at least $1.00 of additional Indebtedness under Section 4.03(a); (3) the
aggregate amount of such Restricted Payment and all other Restricted Payments
(the amount so expended, if other than in cash, to be determined in good faith
by the Board of Directors, whose determination will be conclusive and evidenced
by a resolution of the Board of Directors) declared or made subsequent to the
Closing Date would exceed the sum of: (A) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from the beginning
of the fiscal quarter immediately following the fiscal quarter during which the
Closing Date occurs to the end of the most recent fiscal quarter ending at least
45 days prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income will be a deficit, minus 100% of such deficit); (B) the
aggregate Net Cash Proceeds received by the Company from the issue or sale of
its Capital Stock (other than Disqualified Stock) subsequent to the Closing Date
(other than an issuance or sale to (x) a Subsidiary of the Company or (y) an
employee stock ownership plan or other trust established by the Company or any
of its Subsidiaries); (C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent to
the Closing Date of any Indebtedness of the Company or its Restricted
Subsidiaries convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or the fair
market value of other property distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange); (D) 100% of the aggregate amount
of cash and marketable securities contributed to the capital of the Company
after the Closing Date; and (E) the amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from (i) payments of
dividends, repayments of the principal of loans or advances or other transfers
of assets to the Company or any Restricted Subsidiary from Unrestricted
Subsidiaries or (ii) the redesignation of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments.
(b) The provisions of Section 4.04(a) shall not prohibit: (i) any
Restricted Payment made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of the Company or an employee stock ownership plan or other trust established by
the Company or any of its Subsidiaries); provided, however, that (A) such
Restricted Payment will be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale applied in the
manner set forth in this clause (i) will be excluded from the calculation of
amounts under clause (3)(B) of Section 4.04(a); (ii) any purchase, repurchase
redemption, defeasance or other acquisition or retirement for value of
Subordinated Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the Company
that is permitted to be Incurred pursuant to Section 4.03(b); provided, however,
that such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value will be excluded in the calculation of the amount of
Restricted Payments; (iii) any purchase or redemption of Subordinated
Obligations from Net Available Cash to the extent permitted by the covenant
described under Section 4.06; provided, however, that such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments; (iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
this Section 4.04; provided, however, that such dividend will be included in the
calculation of the amount of Restricted Payments; (v) the repurchase or other
acquisition of shares of, or options to purchase shares of, common
<PAGE>
30
stock of the Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved by
the Board of Directors of the Company under which such individuals purchase or
sell or are granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases shall not
exceed $250,000 in any calendar year; provided further, however, that such
repurchases and other acquisitions shall be included in the calculation of the
amount of Restricted Payments; (vi) payment of dividends, other distributions or
other amounts by the Company for the purposes set forth in clauses (A) through
(C) below; provided, however, that such dividend, distribution or amount set
forth in clause (C) shall be included in the calculation of the amount of
Restricted Payments for the purposes of Section 4.04(a): (A) to Parent in
amounts equal to the amounts required for Parent to pay franchise taxes and
other fees required to maintain its corporate existence and provide for other
operating costs of up to $500,000 per fiscal year; (B) to Parent in amounts
equal to amounts required for Parent to pay Federal, state and local income
taxes to the extent such income taxes are attributable to the income of the
Company and its Restricted Subsidiaries (and, to the extent of amounts actually
received from its Unrestricted Subsidiaries, in amounts required to pay such
taxes to the extent attributable to the income of such Unrestricted
Subsidiaries); (C) to Parent in amounts equal to amounts expended by Parent to
repurchase Capital Stock of Parent owned by former employees of the Company or
its Subsidiaries or their assigns, estates and heirs; provided, however, that
the aggregate amount paid, loaned or advanced to Parent pursuant to this clause
(C) shall not, in the aggregate, exceed $1,500,000 per fiscal year of the
Company plus any unused amounts from any immediately preceding fiscal year, up
to a maximum aggregate amount of $5,000,000 during the term of the Indenture,
plus any amounts contributed by Parent to the Company as a result of resales of
such repurchased shares of Capital Stock; or (vii) the payment of dividends on
the Company's Common Stock, following the first public offering of the Company's
Common Stock after the Closing 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, provided,
however, that such dividends will be included in the calculation of the amount
of Restricted Payments for purposes of Section 4.04(a).
SECTION 4.05. Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to the Company, (ii)
make any loans or advances to the Company or (iii) transfer any of its property
or assets to the Company, except: (1) any encumbrance or restriction pursuant to
applicable law or an agreement in effect at or entered into on the Closing Date;
(2) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as consideration in,
in contemplation of, or to provide all or any portion of the funds or credit
support utilized to consummate the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or
was otherwise acquired by the Company) and outstanding on such date; (3) in the
case of clause (iii), any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any property or asset
that is subject to a lease, license or similar
<PAGE>
31
contract, (B) that is or was created by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or assets of
the Company or any Restricted Subsidiary not otherwise prohibited by Section
4.13 or (C) contained in security agreements securing Indebtedness of a
Restricted Subsidiary to the extent such encumbrance or restriction restricts
the transfer of the property subject to such security agreements; (4) with
respect to a Restricted Subsidiary, any restriction imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; (5) customary provisions in joint venture agreements
and other similar agreements entered into in the ordinary course of business; or
(6) an agreement governing Indebtedness incurred to Refinance the Indebtedness
issued, assumed or incurred pursuant to an agreement referred to in clauses (1)
through (5) above; provided, however, that the provisions relating to such
encumbrance or restriction contained in any agreement relating to such
Indebtedness are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Company in their reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in agreements relating to the Indebtedness being Refinanced.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock. (a) The
Company shall not, and shall not permit any Restricted Subsidiary to, make any
Asset Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value of the shares
and assets subject to such Asset Disposition, (ii) at least 85% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash, provided that with respect to the sale or other disposition
of an operational Academy, the Company shall be deemed to be in compliance with
this clause (ii) if the Consolidated Coverage Ratio after giving effect to such
sale or disposition and the application of proceeds received therefrom is
greater than or equal to the Consolidated Coverage Ratio immediately prior to
giving effect to such sale or disposition and (iii) an amount equal to 100% of
the Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent the
Company elects (or is required by the terms of any Indebtedness) to prepay,
repay, redeem or purchase Indebtedness of the Company outstanding under the
Credit Agreement within 18 months after the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (B) second, to the extent
of the balance of Net Available Cash after application in accordance with clause
(A), to the extent the Company or such Restricted Subsidiary elects, to reinvest
in Additional Assets (including by means of an Investment in Additional Assets
by a Restricted Subsidiary with Net Available Cash received by the Company or
another Restricted Subsidiary) within 18 months from the later of such Asset
Disposition or the receipt of such Net Available Cash; (C) third, to the extent
of the balance of such Net Available Cash after application in accordance with
clauses (A) and (B), to make an Offer to purchase Securities pursuant to and
subject to the conditions set forth in Section 4.06(b); provided, however, that
if the Company elects (or is required by the terms of any other Senior
Indebtedness), such Offer may be made ratably to purchase the Securities and
other Senior Indebtedness of the Company, and (D) fourth, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A), (B) and (C), to (x) acquire Additional Assets (other than Indebtedness and
Capital Stock) or (y) prepay, repay or purchase Indebtedness of the Company
(other than Indebtedness owed to an Affiliate of the Company and other than
Disqualified Stock of the Company) or Indebtedness of any Restricted Subsidiary
(other than Indebtedness owed to the Company or an Affiliate of the
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32
Company), in each case described in this clause (D) within 18 months from the
receipt of such Net Available Cash or, if the Company has made an Offer pursuant
to clause (C), six months from the date such Offer is consummated; provided,
however that in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this covenant, the Company and the Restricted Subsidiaries will
not be required to apply any Net Available Cash in accordance with this Section
4.06 except to the extent that the aggregate Net Available Cash from all Asset
Dispositions that is not applied in accordance with this covenant exceeds
$10,000,000.
For the purposes of clause (ii) of this Section 4.06(a), the following are
deemed to be cash: (x) the assumption of Indebtedness of the Company (other than
Disqualified Stock of the Company) or any Restricted Subsidiary and the release
of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Restricted Subsidiary from the transferee that
are promptly converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Securities (and other Senior Indebtedness) pursuant to Section 4.06 (a)(iii)(C),
the Company will be required to purchase Notes (and other Senior Indebtedness)
tendered pursuant to an offer by the Company for the Securities (and other
Senior Indebtedness) (the "Offer") at a purchase price of 100% of their
principal amount plus accrued and unpaid interest, if any, to the date of
purchase in accordance with the procedures (including prorationing in the event
of oversubscription) set forth in Section 4.06(c). If the aggregate purchase
price of Securities (and other Senior Indebtedness) tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of the
Securities (and other Senior Indebtedness), the Company will apply the remaining
Net Available Cash in accordance with Section 4.06(a)(iii)(D). The Company will
not be required to make an Offer for Securities (and other Senior Indebtedness)
pursuant to this covenant if the Net Available Cash available therefor (after
application of the proceeds as provided in clauses (A) and (B) of Section 4.06
(a)(iii)) is less than $10,000,000 for any particular Asset Disposition (which
lesser amount will be carried forward for purposes of determining whether an
Offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
(c)(1) Promptly, and in any event within 15 days after the Issuers become
obligated to make an Offer, the Issuers shall be obligated to deliver to the
Trustee and send, by first-class mail to each Holder, a written notice stating
that the Holder may elect to have his Securities purchased by the Issuers either
in whole or in part (subject to prorationing as hereinafter described in the
event the Offer is oversubscribed) in integral multiples of $1,000 of principal
amount, at the applicable purchase price. The notice shall specify a purchase
date not less than 30 days nor more than 60 days after the date of such notice
(the "Purchase Date") and shall contain such information concerning the business
of the Issuers that the Issuers in good faith believe will enable such Holders
to make an informed decision (which at a minimum shall include (i) the most
recently filed Annual Report on Form 10-K (including audited consolidated
financial statements) of the Issuers, the most recent subse quently filed
Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Issuers
filed subsequent to such Quarterly Report, other than Current Reports describing
Asset Dispositions otherwise described in the offering materials (or
corresponding successor
<PAGE>
33
reports), (ii) a description of material developments in the Issuers' business
subsequent to the date of the latest of such Reports, and (iii) if material,
appropriate pro forma financial information) and all instructions and materials
necessary to tender Securities pursuant to the Offer, together with the address
referred to in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided above, each Issuer shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.06(a). On such date, the
Issuers shall also irrevocably deposit with the Trustee or with a paying agent
(or, if either Issuer is acting as the paying agent, segregate and hold in
trust) an amount equal to the Offer Amount to be invested in Temporary Cash
Investments and to be held for payment in accordance with the provisions of this
Section 4.06. Upon the expiration of the period for which the Offer remains open
(the "Offer Period"), the Issuers shall deliver to the Trustee for cancelation
the Securities or portions thereof that have been properly tendered to and are
to be accepted by the Issuers. The Trustee (or the Paying Agent, if not the
Trustee) shall, on the date of purchase, mail or deliver payment to each
tendering Holder in the amount of the purchase price. In the event that the
aggregate purchase price of the Securities (and other Senior Indebtedness)
delivered by the Issuers to the Trustee is less than the Offer Amount applicable
to the Securities (and other Senior Indebtedness), the Trustee shall deliver the
excess to the Issuers immediately after the expiration of the Offer Period for
application in accordance with this Section 4.06.
(3) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the Issuers
at the address specified in the notice at least three Business Days prior to the
Purchase Date. Holders shall be entitled to withdraw their election if the
Trustee or the Issuers receive not later than one Business Day prior to the
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Security which was delivered
by the Holder for purchase and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities and any other Senior
Indebtedness included in the Offer surrendered by holders thereof exceeds the
Offer Amount, the Issuers shall select the Securities and other Senior
Indebtedness to be purchased on a pro rata basis (with such adjustments as may
be deemed appropriate by the Issuers so that only Securities and other Senior
Indebtedness in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part will be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
(4) At the time the Issuers deliver Securities to the Trustee that are to
be accepted for purchase, each Issuer shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Issuers
pursuant to and in accordance with the terms of this Section 4.06. A Security
shall be deemed to have been accepted for purchase at the time the Trustee,
directly or through an agent, mails or delivers payment therefor to the
surrender ing Holder.
(d) The Issuers shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the
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34
Issuers shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Section by
virtue thereof.
SECTION 4.07. Limitation on Transactions with Affiliates. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, directly or
indirectly, enter into or conduct any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") (i) on terms that are less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (ii) if such Affiliate
Transaction involves an aggregate amount in excess of $1,000,000, such terms (1)
are set forth in writing and (2) have been approved by a majority of the members
of the Board of Directors of the Company having no personal stake in such
Affiliate Transaction and (iii) if such Affiliate Transaction involves an amount
in excess of $5,000,000, such terms have also been determined by a nationally
recognized appraisal or investment banking firm to be fair, from a financial
standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of Section 4.07(a) shall not prohibit (i) any Restricted
Payment permitted to be paid pursuant to Section 4.04, (ii) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with past practices of the
Company, but in any event not to exceed $1,000,000 in the aggregate outstanding
at any one time, (v) any transaction between the Company and a Wholly Owned
Subsidiary or between Wholly Owned Subsidiaries, (vi) reasonable fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees, consultants or agents of the Company or any Restricted Subsidiary of
the Company as determined in good faith by the Company's Board of Directors;
(vii) any transactions undertaken pursuant to any contractual obligations in
existence on the Closing Date (as in effect on the Closing Date); (viii) the
provision by Persons who may be deemed Affiliates of the Company of investment
banking, commercial banking, trust lending or financing, investment,
underwriting, placement agent, financial advisory or similar services to the
Company or its Subsidiaries; (ix) 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 no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's-length dealings with a Person who is not
an Affiliate; and (x) any contribution to the capital of the Company by Parent
or any purchase of common stock of the Company by Parent.
SECTION 4.08. Change of Control. (a) Upon a Change of Control, each Holder
shall have the right to require the Issuers to purchase all or any part of such
Holder's Securities at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), in accordance with
the terms contemplated in Section 4.08(b); provided, however, that
notwithstanding the occurrence of a Change in Control, the Issuers shall not be
obligated to purchase the Securities pursuant to this Section 4.08 in the event
that it has exercised its right
<PAGE>
35
to redeem all the Securities under paragraph 5 of the Securities. In the event
that at the time of such Change of Control the terms of the Bank Indebtedness
restrict or prohibit the repurchase of Securities pursuant to this Section 4.08,
then prior to the mailing of the notice to Holders provided for in Section
4.08(b) below but in any event within 30 days following any Change of Control,
the Issuers shall obtain the requisite consent under the agreements governing
the Bank Indebtedness to permit the repurchase of the Securities as provided for
in Section 4.08(b).
(b) Within 30 days following any Change of Control (except as provided in
the proviso to the first sentence of Section 4.08(a)), the Issuers shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control Offer")
stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Issuers to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive
interest due on the relevant interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Issuers, consistent with this
Section 4.08, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased shall be required to
surrender the Security, with an appropriate form duly completed, to the Issuers
at the address specified in the notice at least three Business Days prior to the
purchase date. Holders shall be entitled to withdraw their election if the
Trustee or the Issuers receive not later than one Business Day prior to the
purchase date a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Security which was delivered
for purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Issuers under
this Section 4.08 shall be delivered to the Trustee for cancelation, and the
Issuers shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) Notwithstanding the foregoing provisions of this Section 4.08, the
Issuers will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in Section
4.08(b) applicable to a Change of Control Offer made by the Issuers and
purchases all Securities validly tendered and not withdrawn under such Change of
Control Offer.
(f) The Issuers shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the
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36
Issuers shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this Section by
virtue thereof.
SECTION 4.09. Compliance Certificate. The Issuers shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Issuers an
Officers' Certificate of each Issuer stating whether in the course of the
performance by the signers of their duties as Officers of Parent or the Company,
as the case may be, they know of any Default that occurred during such period.
If they do, the certificate shall describe the Default, its status and what
action the Issuers are taking or proposes to take with respect thereto. The
Issuers also shall comply with Section 314(a)(4) of the TIA.
SECTION 4.10. Further Instruments and Acts. Upon request of the Trustee,
the Issuers shall execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.11. Future Guarantors. The Company shall cause each Domestic
Subsidiary to become a Guarantor, and, if applicable, execute and deliver to the
Trustee a supplemental indenture in the form of Exhibit C pursuant to which such
Restricted subsidiary will guarantee payment of the Securities. Each Guarantee
will be limited to an amount not to exceed the maximum amount that can be
guaranteed by that Restricted Subsidiary without rendering the Guarantee, as it
relates to such Restricted Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
SECTION 4.12. Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries. The Company shall not sell or otherwise dispose of any
shares of Capital Stock of a Restricted Subsidiary, and shall not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise
dispose of any shares of its Capital Stock except: (i) to the Company or a
Wholly Owned Subsidiary; (ii) if, immediately after giving effect to such
issuance, sale or other disposition, neither the Company nor any of its
Subsidiaries own any Capital Stock of such Restricted Subsidiary or (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect thereto would have been permitted
to be made under Section 4.04 if made on the date of such issuance, sale or
other disposition. The proceeds of any sale of such Capital Stock permitted
hereby shall be treated as Net Available Cash from an Asset Disposition and
shall be applied in accordance with Section 4.06.
SECTION 4.13. Limitation on Liens. The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, Incur or permit to
exist any Lien of any nature whatsoever on any of its property or assets
(including Capital Stock of a Restricted Subsidiary), whether owned at the
Closing Date or thereafter acquired, other than Permitted Liens, without
effectively providing that the Securities shall be secured equally and ratably
with (or prior to) the obligations so secured equally and ratably with (or prior
to) the oblations so secured for so long as such obligations are so secured.
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ARTICLE 5
Successor Company
SECTION 5.01. (a) When the Company or Parent May Merge or Transfer Assets.
Neither the Company nor Parent shall consolidate with or merge with or into, or
convey, transfer or lease all or substantially all its assets to, any Person,
unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia
and the Successor Company (if not the Company or Parent, as the case may
be) shall expressly assume, by an indenture supplemental hereto, executed
and delivered to the Trustee, in form satis factory to the Trustee, all the
obligations of the Company or Parent, as the case may be, under the
Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness that becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); and
(iv) the Company or Parent, as applicable, 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 this Indenture.
The Successor Company shall succeed to, and be substituted for, and may
exercise every right and power of, the Company or Parent, as applicable, under
this Indenture, but the predecessor company in the case of a conveyance,
transfer or lease of all or substantially all its assets shall not be released
from the obligation to pay the principal of and interest on the Securities.
(b) Neither Parent nor the Company shall permit any Guarantor to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or series of transactions, all or substantially all of its assets to
any Person unless: (i) the resulting, surviving or transferee Person (if not
such Guarantor) shall be a Person organized and existing under the laws of the
jurisdiction under which such Guarantor was organized or under the laws of the
United States of America, or any State hereof or the District of Columbia, and
such Person shall expressly assume, by an amendment to this Indenture, in a form
acceptable to the Trustee, all the obligations of such Guarantor, if any, under
its Guarantee; (ii) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which becomes
an obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been issued by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and (iii) the
Issuers deliver to the Trustee an Officers' Certificate of each Issuer and an
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Opinion of Counsel, each stating that such consolidation, merger or transfer and
such amendment to this Indenture, if any, complies with this Indenture.
Notwithstanding the foregoing clauses (ii), (iii) and (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 jurisdiction to realize tax or other benefits.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Issuers default in any payment of interest on any Security
when the same becomes due and payable, and such default continues for a
period of 30 days;
(2) the Issuers (i) default in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
redemption, upon declaration or otherwise, or (ii) fail to redeem or
purchase Securities when required pursuant to this Indenture or the
Securities;
(3) the Company or Parent fails to comply with Section 5.01;
(4) the Company or Parent fails to comply with Section 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.12 or 4.13 (other than a failure to
purchase Securities when required under Section 4.06 or 4.08) and such
failure continues for 30 days after the notice specified below;
(5) the Company or Parent fails to comply with any of its agreements
in the Securities or this Indenture (other than those referred to in (1),
(2), (3) or (4) above) and such failure continues for 60 days after the
notice specified below;
(6) Indebtedness of the Company, Parent or any Significant Subsidiary
is not paid within any applicable grace period after final maturity or the
acceleration by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10,000,000 or
its foreign currency equivalent at the time and such failure continues for
10 days after the notice specified below;
(7) the Company, Parent or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
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(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company, Parent or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company, Parent or any
Significant Subsidiary or for any substantial part of its property; or
(C) orders the winding up or liquidation of the Company, Parent
or any Significant Subsidiary;
or any similar relief is granted under any foreign laws and the order
or decree remains unstayed and in effect for 60 days;
(9) any judgment or decree for the payment of money in excess of
$10,000,000 or its foreign currency equivalent at the time is entered
against the Company, Parent or any Significant Subsidiary and is not
discharged, waived or stayed and either (A) an enforcement proceeding has
been commenced by any creditor upon such judgment or decree or (B) there is
a period of 60 days following the entry of such judgment or decree during
which such judgment or decree is not discharged, waived or the execution
thereof stayed; or
(10) any Guarantee shall cease to be in full force and effect (except
as contemplated by the terms thereof) or any Guarantor or Person acting by
or on behalf of such Guarantor shall deny or disaffirm its obligations
under this Indenture or any Guarantee and such Default continues for 10
days after the notice specified below.
The foregoing shall constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
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.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4), (5) or (9) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the outstanding
Securities notify the Issuers of the Default and the Issuers do not cure such
Default within the time specified in such clauses after receipt of such notice.
Such notice must specify the Default, demand that it be remedied and state that
such notice is a "Notice of Default".
The Issuers shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
each Issuer of any Event of Default under clause (6) or (10) and any event which
with the giving of notice or the lapse
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of time would become an Event of Default under clause (4), (5) or (9), its
status and what action the Issuers are taking or propose to take with respect
thereto.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 6.01(7) or (8) with respect to either Issuer)
occurs and is continuing, the Trustee by written notice to the Issuers that
specifies the Event of Default, or the Holders of at least 25% in principal
amount of the outstanding Securities by written notice to the Issuers and the
Trustee that specifies the Event of Default, may declare the principal of and
accrued but unpaid interest on all the Securities to be due and payable. Upon
such a declaration, such principal and interest shall be due and payable
immediately. If an Event of Default specified in Section 6.01(7) or (8) with
respect to the Issuers occurs, the principal of and interest on all the
Securities shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Securityholders.
The Holders of a majority in principal amount of the Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Securities by notice to the Trustee may waive an
existing Default and its consequences except (i) a Default in the payment of the
principal of or interest on a Security (ii) a Default arising from the failure
to redeem or purchase any Security when required pursuant to the terms of this
Indenture or (iii) a Default in respect of a provision that under Section 9.02
cannot be amended without the consent of each Securityholder affected. When a
Default is waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in principal
amount of the Securities may direct the time, method and place of conducting any
proceed ing for any remedy available to the Trustee or of exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or, subject to Section 7.01,
that the Trustee determines is unduly prejudicial to the rights of other
Securityholders or would involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper by the Trustee
that is not inconsistent with such direction. Prior to taking any action
hereunder, the Trustee shall be entitled to indemnification satisfactory to it
in its sole discretion against all losses and expenses caused by taking or not
taking such action.
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SECTION 6.06. Limitation on Suits. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Securityholder
may pursue any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the Securities
make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the Securities do
not give the Trustee a direction inconsistent with the request during such
60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
principal of and liquidated damages and interest on the Securities held by such
Holder, on or after the respective due dates expressed in the Securities, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default specified
in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Issuers
for the whole amount then due and owing (together with interest on any unpaid
interest to the extent lawful) and the amounts provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Securityholders allowed in
any judicial proceedings relative to any of the Issuers, the Subsidiaries of the
foregoing or the Guarantors, their creditors or their property and, unless
prohibited by law or applicable regulations, may vote on behalf of the Holders
in any election of a trustee in bankruptcy or other Person performing similar
functions, and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make 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 to the Trustee any amount due it for the reasonable
compensation, expenses, disburse ments and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.07.
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SECTION 6.10. Priorities. If the Trustee collects any money or property
pursuant to this Article 6, it shall pay out the money or property in the
following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, and any liquidated damages
without preference or priority of any kind, according to the amounts due
and payable on the Securities for principal, any liquidated damages and
interest, respectively; and
THIRD: to the Issuers.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Trustee shall mail to each Securityholder and each Issuer a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. 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 or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section does not apply to a suit by the Trustee, a suit
by a Holder pursuant to Section 6.07 or a suit by Holders of more than 10% in
principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. None of the Issuers or any
Guarantor (to the extent it may lawfully do so) shall 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 may affect the covenants or the performance of this Indenture; and
each of the Issuers and the Guarantors (to the extent that it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and shall
not hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has occurred
and is continuing, the Trustee shall exercise 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
such Person's own affairs.
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43
(b) Except during the continuance of an Event of Default:
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44
(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 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 require ments of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own wilful misconduct, except
that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Issuers.
(f) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur 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 to believe that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
(h) 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 and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any document
believed by it to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
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(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) 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, consent, order, approval, bond, debenture,
note or other paper or document unless requested in writing to do so by the
Holders of not less than a majority in principal amount of the Securities at the
time outstanding, but the Trustee, in its 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 Issuers,
personally or by agent or attorney.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual
or any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Issuers or their Affiliates with the same rights it
would have if it were not Trustee. Any Paying Agent, Registrar or co-paying
agent may do the same with like rights. However, the Trustee must comply with
Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this Indenture
or the Secur ities, it shall not be accountable for the Issuers' use of the
proceeds from the Securities, and it shall not be responsible for any statement
of the Issuers in this Indenture or in any document issued in connection with
the sale of the Securities or in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to each Securityholder
notice of the Default within the earlier of 90 days after it occurs or 30 days
after it is known to a trust officer. Except in the case of a Default in payment
of principal of or interest on any Security (including payments pursuant to the
mandatory redemption provisions of such Security, if any), the Trustee may
withhold the notice if and so long as a committee of its Trust Officers in good
faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as practicable
after each March 1 beginning with the March 1 following the date of this
Indenture, and in any event prior to May 1 in each year, the Trustee shall mail
to each Securityholder a brief report dated as of March 1 that complies with
Section 313(a) of the TIA. The Trustee shall also comply with Section 313(b) of
the TIA.
A copy of each report at the time of its mailing to Securityholders shall
be filed with the SEC and each stock exchange (if any) on which the Securities
are listed. The
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46
Issuers agree to notify promptly the Trustee whenever the Securities become
listed on any stock exchange and of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Issuers shall pay to the
Trustee from time to time reasonable compensation for its services. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuers shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. Each of the Issuers and the Guarantors, jointly and severally, shall
indemnify the Trustee against any and all loss, liability or expense (including
reasonable attorneys' fees) incurred by or in connection with the administration
of this trust and the performance of its their duties hereunder. The Trustee
shall notify the Issuers of any claim for which it may seek indemnity promptly
upon obtaining actual knowledge thereof; provided, however, that any failure so
to notify the Issuers shall not relieve any of the Issuers or the Guarantors of
its indemnity obligations hereunder. The Issuers shall defend the claim and the
indemnified party shall provide reasonable cooperation at the Issuers' expense
in the defense. Such indemnified parties may have separate counsel and the
Issuers and the Guarantors, as applicable shall pay the fees and expenses of
such counsel; provided, however, that the Issuers shall not be required to pay
such fees and expenses if it assumes such indemnified parties' defense and, in
such indemnified parties' reasonable judgment, there is no conflict of interest
between the Issuers and the Guarantors, as applicable, and such parties in
connection with such defense. The Issuers need not reimburse any expense or
indemnify against any loss, liability or expense incurred by an indemnified
party through such party's own wilful misconduct, negligence or bad faith.
To secure the Issuers' payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of and interest and any liquidated damages on particular Securities.
The Issuers' payment obligations pursuant to this Section shall survive the
satisfaction or discharge of this Indenture, any rejection or termination of
this Indenture under any bankruptcy law or the resignation or removal of the
Trustee. When the Trustee incurs expenses after the occurrence of a Default
specified in Section 6.01(7) or (8) with respect to either Issuer, the expenses
are intended to constitute expenses of administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any time by
so notifying the Issuers. The Holders of a majority in principal amount of the
Securities may remove the Trustee by so notifying the Trustee and may appoint a
successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
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(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Issuers or by the Holders of a
majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Issuers shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Issuers. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appoint ment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section,
the Issuers' obligations under Section 7.07 shall continue for the benefit of
the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times
satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined
capital and surplus of at least $100,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA ss.
310(b); provided, however, that there shall be excluded from the operation of
TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of either Issuer
are outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
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SECTION 7.11. Preferential Collection of Claims Against Issuers. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities; Defeasance. (a) When
(i) the Issuers deliver to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.08) for cancelation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof and
the Issuers irrevocably deposit with the Trustee funds or U.S. Government
Obligations on which payment of principal and interest when due will be
sufficient to pay at maturity or upon redemption all outstanding Securities,
including interest thereon to maturity or such redemption date (other than
Securities replaced pursuant to Section 2.08), and if in either case the Issuers
pay all other sums payable hereunder by the Issuers, then this Indenture shall,
subject to Section 8.01(c), cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Issuers accompanied by an Officers' Certificate of each Issuer and an Opinion of
Counsel and at the cost and expense of the Issuers.
(b) Subject to Sections 8.01(c) and 8.02, the Issuers at any time may
terminate (i) all of its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12 and 4.13 and the operation
of Section 5.01(a)(iii), 6.01(4), 6.01(6), 6.01(7) (with respect to Significant
Subsidiaries of the Company only), 6.01(8) (with respect to Significant
Subsidiaries of the Company only) and 6.01(9) ("covenant defeasance option").
The Issuers may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. In the event that the Issuers
terminate all of their obligations under the Securities and this Indenture by
exercising their legal defeasance option, the obligations under the Guarantees
shall each be terminated simultaneously with the termination of such
obligations.
If the Issuers exercise their legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the Issuers
exercise their covenant defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in Section 6.01(4),
6.01(6), 6.01(7) (with respect to Significant Subsidiaries of the Company only),
6.01(8) (with respect to Significant Subsidiaries of the Company only) and
6.01(9) or because of the failure of Parent or the Company, as the case may be,
to comply with clauses (iii) and (iv) of Section 5.01(a).
Upon satisfaction of the conditions set forth herein and upon request of
the Issuers, the Trustee shall acknowledge in writing the discharge of those
obligations that the Issuers terminate.
(c) Notwithstanding clauses (a) and (b) above, the Issuers' obligations in
Sections 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 7.07, 7.08 and in this Article 8
shall survive until
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the Securities have been paid in full. Thereafter, the Issuers' obligations in
Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Issuers' may exercise their
legal defeasance option or their covenant defeasance option only if:
(1) the Issuers irrevocably deposit in trust with the Trustee money or
U.S. Government Obligations for the payment of principal, premium (if any)
and interest on the Securities to maturity or redemption, as the case may
be;
(2) the Issuers deliver to the Trustee a certificate from a nationally
recognized firm of independent accountants expressing their opinion that
the payments of principal and interest when due and without reinvestment on
the deposited U.S. Government Obligations plus any deposited money without
investment will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Securities to
maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Section 6.01(7) or (8) with respect to
either Issuer occurs that is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on either Issuer and is not prohibited by Article 10;
(5) the Issuers deliver to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Issuers shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Issuers
have received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Issuers shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant defeasance and will be subject to
Federal income 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; and
(8) the Issuers deliver to the Trustee an Officers' Certificate of
each Issuer and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities as contemplated
by this Article 8 have been complied with.
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Before or after a deposit, the Issuers may make arrangements satisfactory
to the Trustee for the redemption of Securities at a future date in accordance
with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in trust
money or U.S. Government Obligations deposited with it pursuant to this Article
8. It shall apply the deposited money and the money from U.S. Government
Obligations through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent shall
promptly turn over to the Issuers upon request any excess money or securities
held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Issuers upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Issuers for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Issuers shall pay
and shall indemnify the Trustee against any tax, fee or other charge imposed on
or assessed against deposited U.S. Government Obligations or the principal and
interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to
apply any money or U.S. Government Obligations in accordance with this Article 8
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 Issuers' obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article 8 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with this Article 8; provided, however, that, if the Issuers have made any
payment of interest on or principal of any Securities because of the
reinstatement of its obligations, the Issuers shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Issuers and the Trustee may
amend this Indenture or the Securities without notice to or consent of any
Security holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued
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in registered form for purposes of Section 163(f) of the Code or in a
manner such that the uncertificated Securities are described in Section
163(f)(2)(B) of the Code;
(4) to add additional Guarantees with respect to the Securities or to
secure the Securities;
(5) to add to the covenants of the Issuers for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Issuers;
(6) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA;
(7) to make any change that does not adversely affect the rights of
any Securityholder; or
(8) to provide for the issuance of the Exchange Securities, Private
Exchange Securities or Additional Securities, which shall have terms
substantially identical in all material respects to the Original Securities
(except that the transfer restrictions contained in the Original Securities
shall be modified or eliminated, as appropriate), and which shall be
treated, together with any outstanding Original Securities, as a single
issue of securities.
After an amendment under this Section becomes effective, the Issuers shall
mail to Securityholders a notice briefly describing such amendment. The failure
to give such notice to all Securityholders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Issuers, the Guarantors and the
Trustee may amend this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least a
majority in principal amount of the Securities then outstanding (including
consents obtained in connection with a tender offer or exchange for the
Securities). However, without the consent of each Securityholder affected, an
amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest or
any liquidated damages on any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) make any change in Section 6.04 or 6.07 or the second sentence of
this Section 9.02; or
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52
(7) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligation of any Guarantor for the due and punctual
payment of the principal of or any liquidated damages or interest on the
Securities.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Issuers shall
mail to Securityholders a notice briefly describing such amendment. The failure
to give such notice to all Securityholders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to this
Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A consent to
an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent or waiver is not made on the Security. However, any such Holder or
subsequent Holder may revoke the consent or waiver as to such Holder's Security
or portion of the Security if the Trustee receives the notice of revocation
before the date the amendment or waiver becomes effective. After an amendment or
waiver becomes effective, it shall bind every Securityholder. An amendment or
waiver becomes effective once both (i) the requisite number of consents have
been received by the Issuers or the Trustee and (ii) such amendment or waiver
has been executed by the Issuers and the Trustee.
The Issuers may, but shall not be obligated to, fix a record date for the
purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Issuers or the Trustee so determines, the Issuers
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.01) shall be fully
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53
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permitted by this Indenture and
that such amendment is the legal, valid and binding obligation of the Issuers
and the Guarantors enforceable against them in accordance with its terms,
subject to customary exceptions, and complies with the provisions hereof
(including Section 9.03).
ARTICLE 10
Guarantees
SECTION 10.01. Guarantees. Each Guarantor hereby jointly and severally
unconditionally and irrevocably guarantees, as a primary obligor and not merely
as a surety, to each Holder and to the Trustee and its successors and assigns
(a) the full and punctual payment of principal of and interest on and liquidated
damages in respect of the Securities when due, whether at Stated Maturity, by
acceleration, by redemption or otherwise, and all other monetary obligations of
the Company under this Indenture (including obligations to the Trustee) and the
Securities and (b) the full and punctual performance within applicable grace
periods of all other obligations of the Issuers whether for expenses,
indemnification or otherwise under this Indenture and the Securities (all the
foregoing being hereinafter collectively called the "Guaranteed Obligations").
Each Guarantor further agrees that the Guaranteed Obligations may be extended or
renewed, in whole or in part, without notice or further assent from each such
Guarantor, and that each such Guarantor shall remain bound under this Article 10
notwithstanding any extension or renewal of any Guaranteed Obligation.
Each Guarantor waives presentation to, demand of, payment from and protest
to the Issuers of any of the Guaranteed Obligations and also waives notice of
protest for nonpayment. Each Guarantor waives notice of any default under the
Securities or the Guaranteed Obligations. The obligations of each Guarantor
hereunder shall not be affected by (a) the failure of any Holder or the Trustee
to assert any claim or demand or to enforce any right or remedy against the
Company or any other Person under this Indenture, the Securities or any other
agreement or otherwise; (b) any extension or renewal of any thereof; (c) any
rescission, waiver, amendment or modification of any of the terms or provisions
of this Indenture, the Securities or any other agreement; (d) the release of any
security held by any Holder or the Trustee for the Guaranteed Obligations or any
of them; (e) the failure of any Holder or Trustee to exercise any right or
remedy against any other guarantor of the Guaranteed Obligations; or (f) any
change in the ownership of such Guarantor, except as provided in Section
10.02(b).
Each Guarantor hereby waives any right to which it may be entitled to have
its obligations hereunder divided among the Guarantors, such that such
Guarantor's obligations would be less than the full amount claimed. Each
Guarantor hereby waives any right to which it may be entitled to have the assets
of the Issuers first be used and depleted as payment of the Issuers' or such
Guarantor's obligations hereunder prior to any amounts being claimed from or
paid by such Guarantor hereunder. Each Guarantor hereby waives any right to
which it may be entitled to require that the Issuers be sued prior to an action
being initiated against such Guarantor.
Each Guarantor further agrees that its Guarantee herein constitutes a
guarantee of payment, performance and compliance when due (and not a guarantee
of collection) and
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54
waives any right to require that any resort be had by any Holder or the Trustee
to any security held for payment of the Guaranteed Obligations.
Except as expressly set forth in Sections 8.01(b), the obligations of each
Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense of setoff, counterclaim, recoupment or termination whatsoever or by
reason of the invalidity, illegality or unenforceability of the Guaranteed
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor herein shall not be discharged or impaired or
otherwise affected by the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any remedy under this Indenture, the Securities or
any other agreement, by any waiver or modification of any thereof, by any
default, failure or delay, wilful or otherwise, in the performance of the
obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
any Guarantor or would otherwise operate as a discharge of any Guarantor as a
matter of law or equity.
Each Guarantor agrees that its Guarantee shall remain in full force and
effect until payment in full of all the Guaranteed Obligations. Each Guarantor
further agrees that its Guarantee herein shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
principal of or interest on any Guaranteed Obligation is rescinded or must
otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of the Issuers or otherwise.
In furtherance of the foregoing and not in limitation of any other right
which any Holder or the Trustee has at law or in equity against any Guarantor by
virtue hereof, upon the failure of the either Issuer to pay the principal of or
interest on any Guaranteed Obligation when and as the same shall become due,
whether at maturity, by acceleration, by redemption or otherwise, or to perform
or comply with any other Guaranteed Obligation, each Guarantor hereby promises
to and shall, upon receipt of written demand by the Trustee, forthwith pay, or
cause to be paid, in cash, to the Holders or the Trustee an amount equal to the
sum of (i) the unpaid principal amount of such Guaranteed Obligations, (ii)
accrued and unpaid interest on such Guaranteed Obligations (but only to the
extent not prohibited by law) and (iii) all other monetary obligations of the
Issuers to the Holders and the Trustee.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any Guaranteed Obligations
guaranteed hereby until payment in full of all Guaranteed Obligations. Each
Guarantor further agrees that, as between it, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the Guaranteed
Obligations guaranteed hereby may be accelerated as provided in Article 6 for
the purposes of any Guarantee herein, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the Guaranteed
Obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such Guaranteed Obligations as provided in Article 6, such
Guaranteed Obligations (whether or not due and payable) shall forthwith become
due and payable by such Guarantor for the purposes of this Section 10.01.
Each Guarantor also agrees to pay any and all costs and expenses (including
reasonable attorneys' fees and expenses) incurred by the Trustee or any Holder
in enforcing any rights under this Section 10.01.
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55
Upon request of the Trustee, each Guarantor shall execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.
SECTION 10.02. Limitation on Liability. (a) Any term or provision of this
Indenture to the contrary notwithstanding, the maximum, aggregate amount of the
Guaranteed Obligations guaranteed hereunder by any Guarantor shall not exceed
the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to such Guarantor, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
(b) This Guarantee as to any Guarantor shall terminate and be of no further
force or effect and such Guarantor shall be deemed to be released from all
obligations under this Article 10 upon (i) the merger or consolidation of such
Guarantor with or into any Person other than the Company or a Subsidiary or
Affiliate of the Company where such Guarantor is not the surviving entity of
such or merger or (ii) the sale by the Issuers or any Subsidiary of the Issuers
(or any pledgee of the Issuers) of the Capital Stock of such Guarantor, where,
after such sale, such Guarantor is no longer a Subsidiary of the Issuers;
provided, however, that each such merger, consolidation or sale (or, in the case
of a sale by such a pledgee, the disposition of the proceeds of such sale) shall
comply with Section 4.06. At the request of the Issuers, the Trustee shall
execute and deliver an appropriate instrument evidencing such release.
SECTION 10.03. Successors and Assigns. This Article 10 shall be binding
upon each Guarantor and its successors and assigns and shall inure to the
benefit of the successors and assigns of the Trustee and the Holders and, in the
event of any transfer or assignment of rights by any Holder or the Trustee, the
rights and privileges conferred upon that party in this Indenture and in the
Securities shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this Indenture.
SECTION 10.04. No Waiver. Neither a failure nor a delay on the part of
either the Trustee or the Holders in exercising any right, power or privilege
under this Article 10 shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Article 10 at law,
in equity, by statute or otherwise.
SECTION 10.05. Modification. No modification, amendment or waiver of any
provision of this Article 10, nor the consent to any departure by any Guarantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Trustee, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on any Guarantor in any case shall entitle such Guarantor to any other
or further notice or demand in the same, similar or other circumstances.
SECTION 10.06. Execution of Supplemental Indenture for Future Guarantors.
Each Subsidiary which is required to become a Guarantor pursuant to Section 4.11
shall promptly execute and deliver to the Trustee a supplemental indenture in
the form of Exhibit C hereto pursuant to which such Subsidiary shall become a
Guarantor under this Article 10 and shall guarantee the Guaranteed Obligations.
Concurrently with the
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56
execution and delivery of such supplemental indenture, the Issuers shall deliver
to the Trustee an Opinion of Counsel and an Officers' Certificate to the effect
that such supplemental indenture has been duly authorized, executed and
delivered by such Subsidiary and that, subject to the application of bankruptcy,
insolvency, moratorium, fraudulent conveyance or transfer and other similar laws
relating to creditors' rights generally and to the principles of equity, whether
considered in a proceeding at law or in equity, the Guarantee of such Guarantor
is a legal, valid and binding obligation of such Guarantor, enforceable against
such Guarantor in accordance with its terms.
ARTICLE 11
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. Notices. Any notice or communication shall be in writing and
delivered in person or mailed by first-class mail addressed as follows:
if to the Issuers:
14 Corporate Woods
8717 West 110th Street
Suite 300
Overland Park, KS 66201
Attention of: President
if to the Trustee:
PNC Bank, National Association
Two Tower Center Boulevard, 20th Floor
East Brunswick, New Jersey 08816
Attention of: Corporate Trust Department
The Issuers or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed to
the Securityholder at the Securityholder's address as it appears on the
registration books of the Registrar and shall be sufficiently given if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
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57
SECTION 11.03. Communication by Holders with Other Holders. Securityholders
may communicate pursuant to TIA ss. 312(b) with other Securityholders with
respect to their rights under this Indenture or the Securities. The Issuers, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon any
request or application by the Issuers to the Trustee to take or refrain from
taking any action under this Indenture, the Issuers shall furnish to the
Trustee:
(1) an Officers' Certificate of each Issuer in form and substance
reasonably satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(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 such individual, he has made
such examination or investigation as is necessary to enable him 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 or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.06. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by either Issuer, any Guarantor
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with either Issuer or any Guarantor shall be
disregarded and deemed not to be outstanding, except that, for the purpose of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities which the Trustee knows are so
owned shall be so disregarded. Subject to the foregoing, only Securities
outstanding at the time shall be considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and Registrar. The Trustee
may make reasonable rules for action by or a meeting of Securityholders. The
Registrar and the Paying Agent may make reasonable rules for their functions.
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SECTION 11.08. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or
a day on which banking institutions are not required to be open in the State of
New York or the State of New Jersey. If a payment date is a Legal Holiday,
payment shall be made on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period. If a regular record
date is a Legal Holiday, the record date shall not be affected.
SECTION 11.09. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE
EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 11.10. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of either Issuer or any Guarantor shall not have any
liability for any obligations of the Issuers under the Securities or this
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Security, each Securityholder
shall waive and release all such liability. The waiver and release shall be part
of the consideration for the issue of the Securities.
SECTION 11.11. Successors. All agreements of the Issuers and each Guarantor
in this Indenture and the Securities shall bind its successors. All agreements
of the Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
SECTION 11.13. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
<PAGE>
59
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
LPA HOLDING CORP.,
by ___________________________
Name:
Title:
LA PETITE ACADEMY, INC.,
by ___________________________
Name:
Title:
LPA SERVICES, INC.,
by ___________________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Trustee
by ___________________________
Name:
Title:
<PAGE>
APPENDIX A
PROVISIONS RELATING TO ORIGINAL SECURITIES,
ADDITIONAL SECURITIES, PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions
1.1 Definitions
For the purposes of this Appendix A the following terms shall have the
meanings indicated below:
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Temporary Regulation S Global Security or beneficial interest
therein, the rules and procedures of the Depositary for such Global Security,
Euroclear and Cedel, in each case to the extent applicable to such transaction
and as in effect from time to time.
"Cedel" means Cedel Bank, S.A., or any successor securities clearing
agency.
"Definitive Security" means a certificated Initial Security or Exchange
Security (bearing the Restricted Securities Legend if the transfer of such
Security is restricted by applicable law) that does not include the Global
Securities Legend.
"Depositary" means The Depository Trust Company, its nominees and their
respective successors.
"Euroclear" means the Euroclear Clearance System or any successor
securities clearing agency.
"Global Securities Legend" means the legend set forth under that caption in
Exhibit A to this Indenture.
"IAI" means an institutional "accredited investor" as described in Rule
501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" means Chase Securities Inc. and NationsBanc Montgomery
Securities LLC.
"Private Exchange" means an offer by the Issuers, pursuant to a
Registration Agreement, to issue and deliver to certain purchasers, in exchange
for the Initial Securities held by such purchasers as part of their initial
distribution, a like aggregate principal amount of Private Exchange Securities.
"Private Exchange Securities" means the Securities of the Issuers issued in
exchange for Initial Securities pursuant to this Indenture in connection with a
Private Exchange pursuant to a Registration Agreement.
"Purchase Agreement" means (i) the Purchase Agreement dated May [7], 1998,
among the Issuers, the Guarantor and the Initial Purchasers and (ii) any other
similar Purchase Agreement relating to Additional Securities.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
<PAGE>
2
"Registered Exchange Offer" means an offer by the Issuers, pursuant to a
Registration Agreement, to certain Holders of Initial Securities, to issue and
deliver to such Holders, in exchange for their Initial Securities, a like
aggregate principal amount of Exchange Securities registered under the
Securities Act.
"Registration Agreement" means (i) the Exchange and Registration Rights
Agreement dated May [11], 1998, among the Issuers, the Guarantors and the
Initial Purchasers and (ii) any other similar Exchange and Registration Rights
Agreement relating to Additional Securities.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Securities" means all Initial Securities offered and sold
outside the United States in reliance on Regulation S.
"Restricted Period", with respect to any Securities, means the period of 40
consecutive days beginning on and including the later of (i) the day on which
such Securities are first offered to persons other than distributors (as defined
in Regulation S under the Securities Act) in reliance on Regulation S and (ii)
the Issue Date with respect to such Securities.
"Restricted Securities Legend" means the legend set forth in Section
2.3(e)(i) herein.
"Rule 501" means Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Securities" means all Initial Securities offered and sold to
QIBs in reliance on Rule 144A.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depositary) or any successor person thereto, who
shall initially be the Trustee.
"Shelf Registration Statement" means a registration statement filed by the
Company in connection with the offer and sale of Initial Securities pursuant to
a Registration Agreement.
"Transfer Restricted Securities" means Definitive Securities and any other
Securities that bear or are required to bear the Restricted Securities Legend.
<PAGE>
3
1.2 Other Definitions
Term: Defined in Section:
"Agent Members"......................................................2.1(b)
"IAI Global Security.................................................2.1(a)
"Global Security"....................................................2.1(a)
"Rule 144A Global Security"..........................................2.1(a)
2. The Securities
2.1 Form and Dating
The Initial Securities issued on the date hereof will be (i) offered and
sold by the Issuers pursuant to a Purchase Agreement and (ii) resold, initially
only to (A) QIBs in reliance on Rule 144A and (B) Persons other than U.S.
Persons (as defined in Regulation S) in reliance on Regulation S. Such Initial
Securities may thereafter be transferred to, among others, QIBs, purchasers in
reliance on Regulation S and, except as set forth below, IAIs in accordance with
Rule 501. Additional Securities offered after the date hereof may be offered and
sold by the Issuers from time to time pursuant to one or more Purchase
Agreements in accordance with applicable law.
(a) Global Securities. Rule 144A Securities shall be issued initially in
the form of one or more permanent global Securities in definitive, fully
registered form (collectively, the "Rule 144A Global Security") and Regulation S
Securities shall be issued initially in the form of one or more global
Securities (collectively, the "Regulation S Global Security"), in each case
without interest coupons and bearing the Global Securities Legend and Restricted
Securities Legend, which shall be deposited on behalf of the purchasers of the
Securities represented thereby with the Securities Custodian, and registered in
the name of the Depositary or a nominee of the Depositary, duly executed by the
Issuers and authenticated by the Trustee as provided in this Indenture. One or
more global securities in definitive, fully registered form without interest
coupons and bearing the Global Securities Legend and the Restricted Securities
Legend (collectively, the "IAI Global Security") shall also be issued on the
Closing Date, deposited with the Securities Custodian, and registered in the
name of the Depositary or a nominee of the Depositary, duly executed by the
Issuers and authenticated by the Trustee as provided in this Indenture to
accommodate transfers of beneficial interests in the Securities to IAIs
subsequent to the initial distribution. Beneficial ownership interests in the
Regulation S Global Security will not be exchangeable for interests in the Rule
144A Global Security, the IAI Global Security or any other Security without a
Restricted Securities Legend until the expiration of the Restricted Period. The
Rule 144A Global Security, the IAI Global Security and the Regulation S Global
Security are each referred to herein as a "Global Security" and are collectively
referred to herein as "Global Securities." The aggregate principal amount of the
Global Securities may from time to time be increased or decreased by adjustments
made on the records of the Trustee and the Depositary or its nominee as
hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a Global
Security deposited with or on behalf of the Depositary.
The Issuers shall execute and the Trustee shall, in accordance with this
Section 2.1(b) and pursuant to an order of the Issuers, authenticate and deliver
initially one or
<PAGE>
4
more Global Securities that (a) shall be registered in the name of the
Depositary for such Global Security or Global Securities or the nominee of such
Depositary and (b) shall be delivered by the Trustee to such Depositary or
pursuant to such Depositary's instructions or held by the Trustee as Securities
Custodian.
Members of, or participants in, the Depositary ("Agent Members") shall have
no rights under this Indenture with respect to any Global Security held on their
behalf by the Depositary or by the Trustee as Securities Custodian or under such
Global Security, and the Depositary may be treated by the Issuers, the Trustee
and any agent of the Issuers or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Issuers, the Trustee or any agent of the Issuers or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices of such Depositary
governing the exercise of the rights of a holder of a beneficial interest in any
Global Security.
(c) Definitive Securities. Except as provided in Section 2.3 or 2.4, owners
of beneficial interests in Global Securities will not be entitled to receive
physical delivery of certificated Securities.
2.2 Authentication. The Trustee shall authenticate and make available for
delivery upon a written order of the Issuers signed by one Officer of each
Issuer (1) Original Securities for original issue on the date hereof in an
aggregate principal amount of $145,000,000, (2) subject to the terms of this
Indenture, Additional Securities in an aggregate principal amount of up to
$100,000,000 and (3) the (A) Exchange Securities for issue only in a Registered
Exchange Offer and (B) Private Exchange Securities for issue only in a Private
Exchange, in the case of each of (A) and (B) pursuant to a Registration
Agreement and for a like principal amount of Initial Securities exchanged
pursuant thereto. Such order shall specify the amount of the Securities to be
authenticated, the date on which the original issue of Securities is to be
authenticated and whether the Securities are to be Initial Securities, Exchange
Securities or Private Exchange Securities. The aggregate principal amount of
Securities outstanding at any time may not exceed $245,000,000 except as
provided in Section 2.08 of this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive
Securities. When Definitive Securities are presented to the Registrar with a
request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; provided, however,
that the Definitive Securities surrendered for transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Issuers and the Registrar,
duly executed by the Holder thereof or his attorney duly authorized in
writing; and
<PAGE>
5
(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act, pursuant to clause (A),
(B) or (C) below, and are accompanied by the following additional
information and documents, as applicable:
(A) if such Definitive Securities are being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect (in
the form set forth on the reverse side of the Initial Security); or
(B) if such Definitive Securities are being transferred to either
Issuer, a certification to that effect (in the form set forth on the
reverse side of the Initial Security); or
(C) if such Definitive Securities are being transferred pursuant
to an exemption from registration in accordance with Rule 144 under
the Securities Act or in reliance upon another exemption from the
registration requirements of the Securities Act, (i) a certification
to that effect (in the form set forth on the reverse side of the
Initial Security) and (ii) if the Issuers so request, an opinion of
counsel or other evidence reasonably satisfactory to them as to the
compliance with the restrictions set forth in the legend set forth in
Section 2.3(d)(i).
(b) Restrictions on Transfer of a Definitive Security for a Beneficial
Interest in a Global Security. A Definitive Security may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Security, duly endorsed or accompanied by a written instrument of transfer in
form reasonably satisfactory to the Issuers and the Registrar, together with:
(i) certification (in the form set forth on the reverse side of the
Initial Security) that such Definitive Security is being transferred (A) to
a QIB in accordance with Rule 144A, (B) to an IAI that has furnished to the
Trustee a signed letter substantially in the form of Exhibit D or (C)
outside the United States in an offshore transaction within the meaning of
Regulation S and in compliance with Rule 904 under the Securities Act; and
(ii) written instructions directing the Trustee to make, or to direct
the Securities Custodian to make, an adjustment on its books and records
with respect to such Global Security to reflect an increase in the
aggregate principal amount of the Securities represented by the Global
Security, such instructions to contain information regarding the Depositary
account to be credited with such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased by the aggregate principal amount of the Definitive Security to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Security
equal to the principal amount of the Definitive Security so canceled. If no
Global Securities are then outstanding and the Global Security has not been
previously exchanged for certificated securities pursuant to Section 2.4, the
Issuers shall issue and the Trustee shall authenticate, upon written order of
the Issuers in the form of an Officers' Certificate, a new Global Security in
the appropriate principal amount.
<PAGE>
6
(c) Transfer and Exchange of Global Securities. (i) The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depositary, in accordance with this Indenture (including applicable
restrictions on transfer set forth herein, if any) and the procedures of the
Depositary therefor. A transferor of a beneficial interest in a Global Security
shall deliver a written order given in accordance with the Depositary's
procedures containing information regarding the participant account of the
Depositary to be credited with a beneficial interest in such Global Security or
another Global Security and such account shall be credited in accordance with
such order with a beneficial interest in the applicable Global Security and the
account of the Person making the transfer shall be debited by an amount equal to
the beneficial interest in the Global Security being transferred. Transfers by
an owner of a beneficial interest in the Rule 144A Global Security or the IAI
Global Security to a transferee who takes delivery of such interest through the
Regulation S Global Security, whether before or after the expiration of the
Restricted Period, will be made only upon receipt by the Trustee of a
certification from the transferor to the effect that such transfer is being made
in accordance with Regulation S or (if available) Rule 144 under the Securities
Act and that, if such transfer is being made prior to the expiration of the
Restricted Period, the interest transferred will be held immediately thereafter
through Euroclear or Cedel. In the case of a transfer of a beneficial interest
in either the Regulation S Global Security or the Rule 144A Global Security for
an interest in the IAI Global Security, the transferee must furnish a signed
letter substantially in the form of Exhibit D to the Trustee.
(ii) If the proposed transfer is a transfer of a beneficial interest
in one Global Security to a beneficial interest in another Global Security,
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Global Security to which such
interest is being transferred in an amount equal to the principal amount of
the interest to be so transferred, and the Registrar shall reflect on its
books and records the date and a corresponding decrease in the principal
amount of Global Security from which such interest is being transferred.
(iii) Notwithstanding any other provisions of this Appendix (other
than the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(iv) In the event that a Global Security is exchanged for Definitive
Securities pursuant to Section 2.4 prior to the consummation of a
Registered Exchange Offer or the effectiveness of a Shelf Registration
Statement with respect to such Securities, such Securities may be exchanged
only in accordance with such procedures as are substantially consistent
with the provisions of this Section 2.3 (including the certification
requirements set forth on the reverse of the Initial Securities intended to
ensure that such transfers comply with Rule 144A, Regulation S or such
other applicable exemption from registration under the Securities Act, as
the case may be) and such other procedures as may from time to time be
adopted by the Company.
(d) Restrictions on Transfer of Regulation S Global Security. (i) Prior to
the expiration of the Restricted Period, interests in the Regulation S Global
Security may only be held through Euroclear or Cedel. During the Restricted
Period, beneficial ownership interests in the Regulation S Global Security may
only be sold, pledged or transferred through Euroclear or Cedel in accordance
with the Applicable Procedures and only (A) to either Issuer, (B) so long
<PAGE>
7
as such security is eligible for resale pursuant to Rule 144A, to a person whom
the selling holder reasonably believes is a QIB that purchases for its own
account or for the account of a QIB to whom notice is given that the resale,
pledge or transfer is being made in reliance on Rule 144A, (C) in an offshore
transaction in accordance with Regulation S, (D) pursuant to an exemption from
registration under the Securities Act provided by Rule 144 (if applicable) under
the Securities Act, (E) to an IAI purchasing for its own account, or for the
account of such an IAI, in a minimum principal amount of Securities of $250,000
or (F) pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States. Prior to the expiration of the Restricted Period, transfers
by an owner of a beneficial interest in the Regulation S Global Security to a
transferee who takes delivery of such interest through the Rule 144A Global
Security or the IAI Global Security will be made only in accordance with
Applicable Procedures and upon receipt by the Trustee of a written certification
from the transferor of the beneficial interest in the form provided on the
reverse of the Initial Security to the effect that such transfer is being made
to (i) a person whom the transferor reasonably believes is a QIB within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or
(ii) an IAI purchasing for its own account, or for the account of such an IAI,
in a minimum principal amount of the Securities of $250,000. Such written
certification will no longer be required after the expiration of the Restricted
Period. In the case of a transfer of a beneficial interest in the Regulation S
Global Security for an interest in the IAI Global Security, the transferee must
furnish a signed letter substantially in the form of Exhibit D to the Trustee.
(ii) Upon the expiration of the Restricted Period, beneficial
ownership interests in the Regulation S Global Security will be
transferable in accordance with applicable law and the other terms of this
Indenture.
(e) Legend.
(i) Except as permitted by the following paragraphs (ii), (iii) or
(iv), each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or in
substitution thereof) shall bear a legend
<PAGE>
8
in substantially the following form (each defined term in the legend being
defined as such for purposes of the legend only):
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION. 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,
SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH EITHER ISSUER OR ANY
OF THEIR AFFILIATES WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
SUCH SECURITY), ONLY (A) TO EITHER ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C)
FOR SO LONG AS THE SECURITIES ARE 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 THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
"ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE
SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE
SECURITIES OF $250,000, 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 TO THE ISSUERS'
AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT
TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
<PAGE>
9
Each Definitive Security will also bear the following additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION
AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE
TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS."
(ii) Upon any sale or transfer of a Transfer Restricted Security that
is a Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Security that
does not bear the legends set forth above and rescind any restriction on
the transfer of such Transfer Restricted Security if the Holder certifies
in writing to the Registrar that its request for such exchange was made in
reliance on Rule 144 (such certification to be in the form set forth on the
reverse of the Initial Security).
(iii) After a transfer of any Original or Additional Securities or
Private Exchange Securities during the period of the effectiveness of a
Shelf Registration Statement with respect to such Original or Additional
Securities or Private Exchange Securities, as the case may be, all
requirements pertaining to the Restricted Securities Legend on such
Original or Additional Securities or such Private Exchange Securities will
cease to apply and the requirements that any such Original or Additional
Securities or such Private Exchange Securities be issued in global form
will continue to apply.
(iv) Upon the consummation of a Registered Exchange Offer with respect
to the Original or Additional Securities pursuant to which Holders of such
Original or Additional Securities are offered Exchange Securities in
exchange for their Original or Additional Securities, all requirements
pertaining to Original or Additional Securities that Original or Additional
Securities be issued in global form will continue to apply, and Exchange
Securities in global form without the Restricted Securities Legend will be
available to Holders that exchange such Initial Securities in such
Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect to the
Original or Additional Securities pursuant to which Holders of such
Original or Additional Securities are offered Private Exchange Securities
in exchange for their Original or Additional Securities, all requirements
pertaining to such Original or Additional Securities that Original or
Additional Securities be issued in global form will continue to apply, and
Private Exchange Securities in global form with the Restricted Securities
Legend will be available to Holders that exchange such Original or
Additional Securities in such Private Exchange.
(vi) Upon a sale or transfer after the expiration of the Restricted
Period of any Initial Security acquired pursuant to Regulation S, all
requirements that such Initial Security bear the Restricted Securities
Legend will cease to apply and the requirements requiring any such Initial
Security be issued in global form will continue to apply.
(vii) Any Additional Securities sold in a registered offering shall
not be required to bear the Restricted Securities Legend.
<PAGE>
10
(f) Cancelation or Adjustment of Global Security. At such time as all
beneficial interests in a Global Security have either been exchanged for
Definitive Securities, transferred, redeemed, repurchased or canceled, such
Global Security shall be returned by the Depositary to the Trustee for
cancelation or retained and canceled by the Trustee. At any time prior to such
cancelation, if any beneficial interest in a Global Security is exchanged for
Definitive Securities, transferred in exchange for an interest in another Global
Security, redeemed, repurchased or canceled, the principal amount of Securities
represented by such Global Security shall be reduced and an adjustment shall be
made on the books and records of the Trustee (if it is then the Securities
Custodian for such Global Security) with respect to such Global Security, by the
Trustee or the Securities Custodian, to reflect such reduction.
(g) Obligations with Respect to Transfers and Exchanges of Securities.
(i) To permit registrations of transfers and exchanges, the Issuers
shall execute and the Trustee shall authenticate, Definitive Securities and
Global Securities at the Registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Issuers may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable
in connection therewith (other than any such transfer taxes, assessments or
similar governmental charge payable upon exchange or transfer pursuant to
Section 3.06, 4.06, 4.08 and 9.05).
(iii) Prior to the due presentation for registration of transfer of
any Security, the Issuers, the Trustee, the Paying Agent or the Registrar
may deem and treat the person in whose name a Security is registered as the
absolute owner of such Security for the purpose of receiving payment of
principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the
Issuers, the Trustee, the Paying Agent or the Registrar shall be affected
by notice to the contrary.
(iv) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(h) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, a member of, or a participant in the
Depositary or any other Person with respect to the accuracy of the records
of the Depositary or its nominee or of any participant or member thereof,
with respect to any ownership interest in the Securities or with respect to
the delivery to any participant, member, beneficial owner or other Person
(other than the Depositary) of any notice (including any notice of
redemption or repurchase) or the payment of any amount, under or with
respect to such Securities. All notices and communications to be given to
the Holders and all payments to be made to Holders under the Securities
shall be given or made only to the registered Holders (which shall be the
Depositary or its nominee in the case of a Global Security). The rights of
beneficial owners in any Global Security shall be exercised only through
the Depositary subject to the applicable rules and procedures of the
Depositary. The Trustee may rely and shall be fully protected in relying
upon information furnished by the Depositary with respect to its members,
participants and any beneficial owners.
<PAGE>
11
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depositary participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4 Definitive Securities
(a) A Global Security deposited with the Depositary or with the Trustee as
Securities Custodian pursuant to Section 2.1 shall be transferred to the
beneficial owners thereof in the form of Definitive Securities in an aggregate
principal amount equal to the principal amount of such Global Security, in
exchange for such Global Security, only if such transfer complies with Section
2.3 and (i) the Depositary notifies the Issuers that it is unwilling or unable
to continue as a Depositary for such Global Security or if at any time the
Depositary ceases to be a "clearing agency" registered under the Exchange Act,
and a successor depositary is not appointed by the Issuers within 90 days of
such notice, or (ii) an Event of Default has occurred and is continuing or (iii)
the Issuers, in their sole discretion, notify the Trustee in writing that they
elect to cause the issuance of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section 2.4 shall be surrendered by the Depositary to
the Trustee, to be so transferred, in whole or from time to time in part,
without charge, and the Trustee shall authenticate and deliver, upon such
transfer of each portion of such Global Security, an equal aggregate principal
amount of Definitive Securities of authorized denominations. Any portion of a
Global Security transferred pursuant to this Section shall be executed,
authenticated and delivered only in denominations of $1,000 and any integral
multiple thereof and registered in such names as the Depositary shall direct.
Any certificated Initial Security in the form of a Definitive Security delivered
in exchange for an interest in the Global Security shall, except as otherwise
provided by Section 2.3(e), bear the Restricted Securities Legend.
(c) Subject to the provisions of Section 2.4(b), the registered Holder of a
Global Security 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
Securities.
(d) In the event of the occurrence of any of the events specified in
Section 2.4(a)(i), (ii) or (iii), the Issuers will promptly make available to
the Trustee a reasonable supply of Definitive Securities in fully registered
form without interest coupons.
<PAGE>
EXHIBIT A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS 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 DTC 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 THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. 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, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH EITHER ISSUER OR ANY OF THEIR AFFILIATES WAS
THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO
EITHER ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
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 THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
<PAGE>
2
ACT THAT IS AN INSTITUTIONAL INVESTOR ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN
A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, 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 TO THE ISSUERS' AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE.
Each Definitive Security will also bear the following additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING
RESTRICTIONS."
<PAGE>
No. $__________
10% Senior Note due 2008
CUSIP No. ______
LPA HOLDING CORP., a Delaware corporation, and LA PETITE ACADEMY, INC., a
Delaware corporation, promise, jointly and severally, to pay to Cede & Co., or
registered assigns, the principal sum [of Dollars] [listed on the Schedule of
Increases or Decreases in Global Security attached hereto](1) on May 15, 2008.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
- --------
(1) Use the Schedule of Increases and Decreases language if Note is in Global
Form.
<PAGE>
2
Additional provisions of this Security are set forth on the other side of
this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
LPA HOLDING CORP.,
by ________________________________
Name:
Title:
LA PETITE ACADEMY, INC.,
by ________________________________
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
PNC BANK, NATIONAL ASSOCIATION,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
By:_________________________
Authorized Signatory
<PAGE>
3
[FORM OF REVERSE SIDE OF SECURITY]
10% Senior Note due 2008
1. Interest
(a) LPA HOLDING CORP., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called "Parent"), and LA PETITE ACADEMY, INC., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture, being herein
called the "Company" and, together with Parent, the "Issuers"), promise, jointly
and severally, to pay interest on the principal amount of this Security at the
rate per annum shown above. The Issuers will pay interest semiannually on May 15
and November 15 of each year, commencing on November 15, 1998. Interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from May 11, 1998. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. The Issuers shall pay
interest on overdue principal at the rate borne by the Securities plus 1% per
annum, and it shall pay interest on overdue installments of interest at the same
rate to the extent lawful.
(b) Liquidated Damages. The holder of this Security is entitled to the
benefits of an Exchange and Registration Rights Agreement, dated as of May 11,
1998, among the Issuers, LPA Services, Inc. (the "Guarantor") and the Initial
Purchasers named therein (the "Registration Agreement"). Capitalized terms used
in this paragraph (b) but not defined herein have the meanings assigned to them
in the Registration Agreement. If (i) the Shelf Registration Statement or
Exchange Offer Registration Statement, as applicable under the Registration
Agreement, is not filed with the Commission on or prior to 60 days after the
Issue Date, (ii) the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is not declared effective within 120
days after the Issue Date, (iii) the Registered Exchange Offer is not
consummated on or prior to 180 days after the Issue Date, or (iv) the Shelf
Registration Statement is filed and declared effective within 180 days after the
Issue Date but shall thereafter cease to be effective (at any time that the
Company is obligated to maintain the effectiveness thereof) without being
succeeded within 60 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the Company shall pay liquidated damages to each holder
of Transfer Restricted Securities, during the period of such Registration
Default, in an amount equal to $0.192 per week per $1,000 principal amount of
the Securities constituting Transfer Restricted Securities held by such holder
until the applicable Registration Statement is filed or declared effective, the
Registered Exchange Offer is consummated or the Shelf Registration Statement
again becomes effective, as the case may be. All accrued liquidated damages
shall be paid to holders in the same manner as interest payments on the
Securities on semi-annual payment dates which correspond to interest payment
dates for the Securities. Following the cure of all Registration Defaults, the
accrual of liquidated damages will cease. The Trustee shall have no
responsibility with respect to the determination of the amount of any such
liquidated damages. For purposes of the foregoing, "Transfer Restricted
Securities" means (i) each Initial Security until the date on which such Initial
Security has been exchanged for a freely transferable Exchange Security in the
Registered Exchange Offer, (ii) each Initial Security or Private Exchange
Security until the date on which such Initial Security or Private Exchange
Security has been effectively registered under the Securities Act and disposed
of in accordance with a Shelf Registration Statement or (iii) each Initial
Security or Private Exchange Security until the date on which
<PAGE>
4
such Initial Security or Private Exchange Security is distributed to the public
pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule
144(k) under the Securities Act.
2. Method of Payment
The Issuers will pay interest on the Securities (except defaulted interest)
to the Persons who are registered holders of Securities at the close of business
on the May 1 or November 1 next preceding the interest payment date even if
Securities are canceled after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Issuers will pay principal and interest in money of the
United States of America that at the time of payment is legal tender for payment
of public and private debts. Payments in respect of the Securities represented
by a Global Security (including principal, premium and interest) will be made by
wire transfer of immediately available funds to the accounts specified by The
Depository Trust Company. The Issuers will make all payments in respect of a
certificated Security (including principal, premium and interest), by mailing a
check to the registered address of each Holder thereof; provided, however, that
payments on the Securities may also be made, in the case of a Holder of at least
$1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S.
dollar account maintained by the payee with a bank in the United States if such
Holder elects payment by wire transfer by giving written notice to the Trustee
or the Paying Agent to such effect designating such account no later than 30
days immediately preceding the relevant due date for payment (or such other date
as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, PNC Bank, National Association, a national banking association
(the "Trustee"), will act as Paying Agent and Registrar. The Issuers may appoint
and change any Paying Agent, Registrar or co-registrar without notice to the
Holders. The Issuers or any of their domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Issuers issued the Securities under an Indenture dated as of May 11,
1998 (the "Indenture"), among the Issuers, the Guarantor and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA").
Terms defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are senior unsecured obligations of the Issuers limited to
$245,000,000 aggregate principal amount at any one time outstanding (subject to
Sections 2.01 and 2.08 of the Indenture). This Security is one of the
[Original][Additional] Securities referred to in the Indenture issued in an
aggregate principal amount of $[ ]. The Securities include the Initial
Securities and any Exchange Securities issued in exchange for Initial
Securities. The Initial Securities and the Exchange Securities are treated as a
single class of securities under the Indenture. The Indenture imposes certain
limitations on the ability of the Issuers and their Restricted Subsidiaries to,
among other things, make certain Investments and other Restricted Payments, pay
dividends and other distributions, incur Indebtedness, enter into consensual
restrictions upon the payment of certain dividends and
<PAGE>
5
distributions by such Restricted Subsidiaries, issue or sell shares of capital
stock of such Restricted Subsidiaries, enter into or permit certain transactions
with Affiliates, create or incur Liens and make asset sales. The Indenture also
imposes limitations on the ability of the Issuers to consolidate or merge with
or into any other Person or convey, transfer or lease all or substantially all
of the property of the Issuers.
To guarantee the due and punctual payment of the principal and interest on
the Securities and all other amounts payable by the Issuers under the Indenture
and the Securities when and as the same shall be due and payable, whether at
maturity, by acceleration or otherwise, according to the terms of the Securities
and the Indenture, the Guarantors have jointly and severally unconditionally
guaranteed the Guaranteed Obligations on a senior basis pursuant to the terms of
the Indenture.
5. Optional Redemption
Except as set forth in the following paragraph, the Securities will not be
redeemable at the option of the Issuers prior to May 15, 2003. Thereafter, the
Securities will be redeemable at the option of the Issuers, in whole or in part,
on not less than 30 nor more than 60 days prior notice, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest (if any) to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on May 15 of the years set forth below:
Redemption
Year Price
-----------------------------------------------------------
2003 105.000%
2004 103.333%
2005 101.667%
2006 and thereafter 100.000%
In addition, prior to May 15, 2001, the Issuers may redeem up to a maximum
of 35% of the original aggregate principal amount of the Securities (calculated
giving effect to any issuance of Additional Securities) with the proceeds of one
or more Public Equity Offerings by the Company or Parent following which there
is a Public Market, at a redemption price equal to 110% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that after giving effect to any such redemption, at least 65% of the original
aggregate principal amount of the Securities (calculated giving effect to any
issuance of Additional Securities) remains outstanding. Any such redemption
shall be made within 60 days of such Public Equity Offering upon not less than
30 nor more than 60 days, notice mailed to each holder of Notes being redeemed
and otherwise in accordance with the procedures set forth in the Indenture.
6. Sinking Fund
The Securities are not subject to any sinking fund.
<PAGE>
6
7. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Repurchase of Securities at the Option of Holders upon Change of Control
Upon a Change of Control, any Holder of Securities will have the right,
subject to certain conditions specified in the Indenture, to cause the Issuers
to repurchase all or any part of the Securities of such Holder at a purchase
price equal to 101% of the principal amount of the Securities to be repurchased
plus accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date that is on or prior to the date of
purchase) as provided in, and subject to the terms of, the Indenture.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations of
$1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required by
law or permitted by the Indenture. The Regis trar need not register the transfer
of or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or to transfer or exchange any Securities for a period of 15 days prior to a
selection of Securities to be redeemed.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of it
for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Issuers at
their written request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Issuers and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Issuers at any time may terminate some
of or all their obligations under the Securities and the Indenture if the
Issuers deposit with the
<PAGE>
7
Trustee money or U.S. Government Obligations for the payment of principal and
interest on the Securities to redemption or maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Securities may be amended without prior notice to any Securityholder but
with the written consent of the Holders of at least a majority in aggregate
principal amount of the outstanding Securities and (ii) any default or
noncompliance with any provision may be waived with the written consent of the
Holders of at least a majority in principal amount of the outstanding
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder of Securities, the Company and the Trustee may amend
the Indenture or the Securities (i) to cure any ambiguity, omission, defect or
inconsistency; (ii) to comply with Article 5 of the Indenture; (iii) to provide
for uncertificated Securities in addition to or in place of certificated
Securities; (iv) to add additional Guarantees with respect to the Securities;
(v) to secure the Securities; (vi) to add additional covenants or to surrender
rights and powers conferred on the Issuers; (vii) to comply with the
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA; (viii) to make any change that does not adversely
affect the rights of any Securityholder; or (ix) to provide for the issuance of
the Exchange Notes, Private Exchange Notes or Additional Notes.
14. Defaults and Remedies
If an Event of Default occurs (other than an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of Parent or the
Company) and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the outstanding Securities may declare the principal of and
accrued but unpaid interest on all the Securities to be due and payable. If an
Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of Parent or the Company occurs, the principal of and interest on
all the Securities will become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
outstanding Securities may rescind any such acceleration with respect to the
Securities and its consequences.
If an Event of Default occurs and is continuing, the Trustee will be under
no obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the Holders unless such Holders have offered to
the Trustee reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of principal, premium
(if any) or interest when due, no Holder may pursue any remedy with respect to
the Indenture or the Securities unless (i) such Holder has previously given the
Trustee notice that an Event of Default is continuing, (ii) Holders of at least
25% in principal amount of the outstanding Securities have requested the Trustee
in writing to pursue the remedy, (iii) such Holders have offered the Trustee
reasonable security or indemnity against any loss, liability or expense, (iv)
the Trustee has not complied with such request within 60 days after the receipt
of the request and the offer of security or indemnity and (v) the Holders of a
majority in principal amount of the outstanding Securities have not given the
Trustee a direction inconsistent with such request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Securities are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that
<PAGE>
8
conflicts with law or the Indenture or that the Trustee determines is unduly
prejudicial to the rights of any other Holder or that would involve the Trustee
in personal liability. Prior to taking any action under the Indenture, the
Trustee will be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
15. Trustee Dealings with the Issuers
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by either Issuer or any of their Affiliates and may otherwise deal with
the Issuers or their Affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of either Issuer or
any Guarantor shall not have any liability for any obligations of the Issuers
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK BUT WITH OUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Issuers have caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
<PAGE>
9
The Issuers will furnish to any Holder of Securities upon written request
and without charge to the Holder a copy of the Indenture that has in it the text
of this Security.
<PAGE>
10
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _______________ agent to transfer this Security on the
books of the Issuers. The agent may substitute another to act for him.
Date: _________________________ Your Signature: ________________________
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
<PAGE>
11
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF
TRANSFER RESTRICTED SECURITIES
This certificate relates to $_________ principal amount of Securities held in
(check applicable space) ____ book-entry or _____ definitive form by the
undersigned.
The undersigned (check one box below):
|_| has requested the Trustee by written order to deliver in exchange for its
beneficial interest in the Global Security held by the Depositary a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial
interest in such Global Security (or the portion thereof indicated above);
|_| has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act, the undersigned confirms that such Securities
are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) |_| to either Issuer; or
(2) |_| pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) |_| inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A, in each case pursuant to and
in compliance with Rule 144A under the Securities Act of 1933; or
(4) |_| outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act of 1933; or
(5) |_| to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that
has furnished to the Trustee a signed letter containing certain
representations and agreements; or
(6)
|_| pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any Person
other than the registered holder thereof; provided, however, that if box
(4), (5) or (6) is checked, the
<PAGE>
12
Trustee may require, prior to registering any such transfer of the
Securities, such legal opinions, certifications and other information as
the Issuers have reasonably requested to confirm that such transfer is
being made pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act of 1933.
___________________________
Your Signature
Signature Guarantee:
Date: ___________________ __________________________
Signature must be guaranteed Signature of Signature
by a participant in a Guarantee
recognized signature guaranty
medallion program or other
signature guarantor acceptable
to the Trustee
_____________________________________________
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
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, 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 Issuers 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>
13
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The initial principal amount of this Global Security is $_________________.
The following increases or decreases in this Global Security have been made:
<TABLE>
<CAPTION>
Date of Amount of decrease in Amount of increase in Principal amount of this Signature of authorized
Exchange Principal Amount of this Principal Amount of this Global Security following signatory of Trustee or
Global Security Global Security such decrease or increase Securities Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
14
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Issuers
pursuant to Section 4.06 (Asset Sale) or 4.08 (Change of Control) of the
Indenture, check the box:
Asset Sale |_| Change of Control |_|
If you want to elect to have only part of this Security purchased by the
Issuers pursuant to Section 4.06 or 4.08 of the Indenture, state the amount:
$
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears on the other
side of the Security)
Signature Guarantee:_______________________________________
Signature must be guaranteed by a participant in
a recognized signature guaranty medallion program
or other signature guarantor acceptable to the
Trustee
<PAGE>
EXHIBIT B
[FORM OF FACE OF EXCHANGE SECURITY]
No. $__________
10% Senior Note due 2008
CUSIP No. ______
LPA HOLDING CORP., a Delaware corporation, and LA PETITE ACADEMY, INC., a
Delaware corporation, promise, jointly and severally, to pay to Cede & Co., or
registered assigns, the principal sum [of Dollars] [listed on the Schedule of
Increases or Decreases in Global Security attached hereto](2) on May 15, 2008.
Interest Payment Dates: May 15 and November 15.
Record Dates: May 1 and November 1.
- --------
(2) Use the Schedule of Increases and Decreases language if Note is in Global
Form.
<PAGE>
2
Additional provisions of this Security are set forth on the other side of
this Security.
IN WITNESS WHEREOF, the parties have caused this instrument to be duly
executed.
LPA HOLDING CORP.,
by ______________________________
Name:
Title:
LA PETITE ACADEMY, INC.,
by ______________________________
Name:
Title:
Dated:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
PNC BANK, NATIONAL ASSOCIATION,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by ______________________________
Authorized Signatory
*/ If the Security is to be issued in global form, add the Global Securities
Legend and the attachment from Exhibit A captioned "TO BE ATTACHED TO GLOBAL
SECURITIES SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY".
<PAGE>
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
10% Senior Note due 2008
1. Interest.
LPA HOLDING CORP., a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called "Parent"), and LA PETITE ACADEMY, INC., a Delaware corporation (such
corporation, and its successors and assigns under the Indenture, being herein
called the "Company" and, together with Parent, the "Issuers"), promise, jointly
and severally, to pay interest on the principal amount of this Security at the
rate per annum shown above. The Issuers will pay interest semiannually on May 15
and November 15 of each year, commencing on November 15, 1998. Interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from May 11, 1998. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. The Issuers shall pay
interest on overdue principal at the rate borne by the Securities plus 1% per
annum, and it shall pay interest on overdue installments of interest at the same
rate to the extent lawful.
2. Method of Payment
The Issuers will pay interest on the Securities (except defaulted interest)
to the Persons who are registered holders of Securities at the close of business
on the May 1 or November 1 next preceding the interest payment date even if
Securities are canceled after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Issuers will pay principal and interest in money of the
United States of America that at the time of payment is legal tender for payment
of public and private debts. Payments in respect of the Securities represented
by a Global Security (including principal, premium and interest) will be made by
wire transfer of immediately available funds to the accounts specified by The
Depository Trust Company. The Issuers will make all payments in respect of a
certificated Security (including principal, premium and interest), by mailing a
check to the registered address of each Holder thereof; provided, however, that
payments on the Securities may also be made, in the case of a Holder of at least
$1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S.
dollar account maintained by the payee with a bank in the United States if such
Holder elects payment by wire transfer by giving written notice to the Trustee
or the Paying Agent to such effect designating such account no later than 30
days immediately preceding the relevant due date for payment (or such other date
as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
Initially, PNC Bank, National Association, a national banking association
(the "Trustee"), will act as Paying Agent and Registrar. The Issuers may appoint
and change any Paying Agent, Registrar or co-registrar without notice to the
Holders. The Issuers or any of their domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
<PAGE>
4
4. Indenture
The Issuers issued the Securities under an Indenture dated as of May 11,
1998 (the "Indenture"), among the Issuers, the Guarantors and the Trustee. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA").
Terms defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms.
The Securities are senior unsecured obligations of the Issuers limited to
$245,000,000 aggregate principal amount at any one time outstanding, of which
$145,000,000 in aggregate principal amount will be initially issued on the
Closing Date. Subject to the conditions set forth in the Indenture, the Issuers
may issue up to an additional $100,000,000 aggregate principal amount of
Additional Securities. This Security is one of the Initial Securities referred
to in the Indenture. The Securities include the Original Securities, the
Additional Securities and any Exchange Securities and Private Exchange
Securities issued in exchange for the Initial Securities pursuant to the
Indenture. The Original Securities, the Additional Securities, the Exchange
Securities and the Private Exchange Securities are treated as a single class of
securities under the Indenture. The Indenture imposes certain limitations on the
ability of the Issuers and their Restricted Subsidiaries to, among other things,
make certain Investments and other Restricted Payments, pay dividends and other
distributions, incur Indebtedness, enter into consensual restrictions upon the
payment of certain dividends and distributions by such Restricted Subsidiaries,
issue or sell shares of capital stock of such Restricted Subsidiaries, enter
into or permit certain transactions with Affiliates, create or incur Liens and
make Asset Sales. The Indenture also imposes limitations on the ability of the
Issuers to consolidate or merge with or into any other Person or convey,
transfer or lease all or substantially all of the property of the Issuers.
To guarantee the due and punctual payment of the principal and interest, if
any, on the Securities and all other amounts payable by the Issuers under the
Indenture and the Securities when and as the same shall be due and payable,
whether at maturity, by acceleration or otherwise, according to the terms of the
Securities and the Indenture, the Guarantors have, jointly and severally,
unconditionally guaranteed the Guaranteed Obligations on a senior basis pursuant
to the terms of the Indenture.
5. Optional Redemption
Except as set forth in the following paragraph, the Securities will not be
redeemable at the option of the Issuers prior to May 15, 2003. Thereafter, the
Securities will be redeemable at the option of the Issuers, in whole or in part,
on not less than 30 nor more than 60 days prior notice, at the following
redemption prices (expressed as percentages of principal amount), plus accrued
and unpaid interest (if any) to the redemption date (subject to
<PAGE>
5
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period commencing on May 15 of the years set forth below:
Redemption
Year Price
---------------------------------------------------------------
2003 105.000%
<PAGE>
6
2004 103.333%
2005 101.667%
2006 and thereafter 100.000%
In addition, prior to May 15, 2001, the Issuers may redeem up to a maximum
of 35% of the original aggregate principal amount of the Securities (calculated
giving effect to any issuance of Additional Securities) with the proceeds of one
or more Public Equity Offerings by the Company or Parent following which there
is a Public Market, at a redemption price equal to 110% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that after giving effect to any such redemption, at least 65% of the original
aggregate principal amount of the Securities (calculated giving effect to any
issuance of Additional Securities) remains outstanding. Any such redemption
shall be made within 60 days of such Public Equity Offering upon not less than
30 nor more than 60 days' notice mailed to each holder of Notes being redeemed
and otherwise in accordance with the procedures set forth in the Indenture.
6. Sinking Fund
The Securities are not subject to any sinking fund.
7. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his or her registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
8. Repurchase of Securities at the Option of Holders upon Change of Control
Upon a Change of Control, any Holder of Securities will have the right,
subject to certain conditions specified in the Indenture, to cause the Issuers
to repurchase all or any part of the Securities of such Holder at a purchase
price equal to 101% of the principal amount of the Securities to be repurchased
plus accrued and unpaid interest, if any, to the date of purchase (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date that is on or prior to the date of
purchase) as provided in, and subject to the terms of, the Indenture.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations of
$1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required by
law or permitted by the Indenture. The Regis trar need not register the transfer
of or exchange any Securities selected for redemption (except,
<PAGE>
7
in the case of a Security to be redeemed in part, the portion of the Security
not to be redeemed) or to transfer or exchange any Securities for a period of 15
days prior to a selection of Securities to be redeemed or 15 days before an
interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of it
for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Issuers at
their written request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Issuers and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Issuers at any time may terminate some
of or all their obligations under the Securities and the Indenture if the
Issuers deposit with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Securities may be amended without prior notice to any Securityholder but
with the written consent of the Holders of at least a majority in aggregate
principal amount of the outstanding Securities and (ii) any default or
noncompliance with any provision may be waived with the written consent of the
Holders of at least a majority in principal amount of the outstanding
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder of Securities, the Company and the Trustee may amend
the Indenture or the Securities (i) to cure any ambiguity, omission, defect or
inconsistency; (ii) to comply with Article 5 of the Indenture; (iii) to provide
for uncertificated Securities in addition to or in place of certificated
Securities; (iv) to add Guarantees with respect to the Securities; (v) to secure
the Securities; (vi) to add additional covenants or to surrender rights and
powers conferred on the Issuers; (vii) to comply with the requirements of the
SEC in order to effect or maintain the qualification of the Indenture under the
TIA; (viii) to make any change that does not adversely affect the rights of any
Securityholder; or (ix) to provide for the issuance of the Exchange Notes,
Private Exchange Notes or Additional Notes.
14. Defaults and Remedies
If an Event of Default occurs (other than an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of Parent or the
Company) and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the outstanding Securities may declare the principal of and
accrued but unpaid interest on all the Securities to be due and payable. If an
Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of Parent or the Company occurs, the principal of and interest on
all the Securities will become immediately due and payable without any
declaration or
<PAGE>
8
other act on the part of the Trustee or any Holders. Under certain
circumstances, the Holders of a majority in principal amount of the outstanding
Securities may rescind any such acceleration with respect to the Securities and
its consequences.
If an Event of Default occurs and is continuing, the Trustee will be under
no obligation to exercise any of the rights or powers under the Indenture at the
request or direction of any of the Holders unless such Holders have offered to
the Trustee reasonable indemnity or security against any loss, liability or
expense. Except to enforce the right to receive payment of principal, premium
(if any) or interest when due, no Holder may pursue any remedy with respect to
the Indenture or the Securities unless (i) such Holder has previously given the
Trustee notice that an Event of Default is continuing, (ii) Holders of at least
25% in principal amount of the outstanding Securities have requested the Trustee
in writing to pursue the remedy, (iii) such Holders have offered the Trustee
reasonable security or indemnity against any loss, liability or expense, (iv)
the Trustee has not complied with such request within 60 days after the receipt
of the request and the offer of security or indemnity and (v) the Holders of a
majority in principal amount of the outstanding Securities have not given the
Trustee a direction inconsistent with such request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Securities are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability. Prior to taking
any action under the Indenture, the Trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
15. Trustee Dealings with the Issuers
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by either Issuer or any of their Affiliates and may otherwise deal with
the Issuers or their Affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of either Issuer or
any Guarantor shall not have any liability for any obligations of the Issuers
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
<PAGE>
9
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
19. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK BUT WITH OUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Issuers have caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Issuers will furnish to any Holder of Securities upon written request
and without charge to the Holder a copy of the Indenture that has in it the text
of this Security.
<PAGE>
9
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint _______________________ agent to transfer this Security
on the books of the Issuers. The agent may substitute another to act for him.
Date: _________________________ Your Signature: ____________________________
________________________________________________________________________________
Sign exactly as your name appears on the other side of this Security. Signature
must be guaranteed by a participant in a recognized signature guaranty medallion
program or other signature guarantor acceptable to the Trustee.
<PAGE>
11
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Issuers
pursuant to Section 4.06 (Asset Sale) or 4.08 (Change of Control) of the
Indenture, check the box:
Asset Sale |_| Change of Control |_|
If you want to elect to have only part of this Security purchased by the
Issuers pursuant to Section 4.06 or 4.08 of the Indenture, state the amount:
$
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:_______________________________________
Signature must be guaranteed by a participant in a
recognized signature guaranty medallion program or
other signature guarantor acceptable to the
Trustee.
<PAGE>
EXHIBIT C
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") dated
as of , among [GUARANTOR] (the "New Guarantor"), LPA HOLDING
CORP. (or its successor), a Delaware Corporation ("Parent"), LA
PETITE ACADEMY, INC. (or its successor), a Delaware corporation
(the "Company" and together with Parent, the "Issuers") and PNC
BANK, NATIONAL ASSOCIATION, a national banking association, as
trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H :
WHEREAS the Issuers and [OLD GUARANTORS] (the "Existing Guarantors") have
heretofore executed and delivered to the Trustee an Indenture (the "Indenture")
dated as of May 11, 1998, providing for the issuance of an aggregate principal
amount of up to $245,000,000 of 10% Senior Notes due 2008 (the "Securities");
WHEREAS Section 4.11 of the Indenture provides that under certain
circumstances the Company is required to cause the New Guarantor to execute and
deliver to the Trustee a supplemental indenture pursuant to which the New
Guarantor shall unconditionally guarantee all the Company's obligations under
the Securities pursuant to a Guarantee on the terms and conditions set forth
herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Issuers
and the Existing Guarantors are authorized to execute and deliver this
Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor, the Issuers, the Existing Guarantors and the Trustee mutually
covenant and agree for the equal and ratable benefit of the holders of the
Securities as follows:
1. Agreement to Guarantee. The New Guarantor hereby agrees, jointly and
severally with all the Existing Guarantors, to unconditionally guarantee the
Issuers' obligations under the Securities on the terms and subject to the
conditions set forth in Article 10 of the Indenture and to be bound by all other
applicable provisions of the Indenture and the Securities.
2. Ratification of Indenture; Supplemental Indentures Part of Indenture.
Except as expressly amended hereby, the Indenture is in all respects ratified
and confirmed and all the terms, conditions and provisions thereof shall remain
in full force and effect. This Supplemental Indenture shall form a part of the
Indenture for all purposes, and every holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby.
<PAGE>
2
3. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
4. Trustee Makes No Representation. The Trustee makes no representation as
to the validity or sufficiency of this Supplemental Indenture.
5. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience only
and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NEW GUARANTOR],
by _______________________________
Name:
Title:
LPA HOLDING CORP.,
by _______________________________
Name:
Title:
LA PETITE ACADEMY, INC.,
by _______________________________
Name:
Title:
<PAGE>
3
[EXISTING GUARANTORS],
by _______________________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION, as
Trustee,
by _______________________________
Name:
Title:
<PAGE>
EXHIBIT D
Form of
Transferee Letter of Representation
LPA HOLDING CORP.
LA PETITE ACADEMY, INC.
In care of
PNC Bank, National Association
2 Tower Center Boulevard, 22nd Floor
Brunswick, New Jersey 08816
Ladies and Gentlemen:
This certificate is delivered to request a transfer of $___________
principal amount of the 10% Senior Notes due 2008 (the "Securities") of LPA
Holding Corp. and La Petite Academy, Inc. (collectively, the "Issuers").
Upon transfer, the Securities would be registered in the name of the new
beneficial owner as follows:
Name: ___________________________________________
Address: ________________________________________
Taxpayer ID Number: _____________________________
The undersigned represents and warrants to you that:
1. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) 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" at least $250,000 principal amount of the
Securities, and we are acquiring the Securities not with a view to, or for offer
or sale in connection with, any distribution in violation of the Securities Act.
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 Securities,
and we invest in or purchase securities similar to the Securities in the normal
course of our business. 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 that the Securities have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Securities to offer, sell or otherwise
transfer such Securities prior to the date that is two years after the later of
the date of original issue and the last date on which either Issuer or any of
their affiliates was the owner of such Securities (or any predecessor thereto)
(the "Resale Restriction Termination Date") only (a) to either Issuer, (b)
pursuant
<PAGE>
2
to a registration statement that has been declared effective under the
Securities Act, (c) in a transaction complying with the requirements of Rule
144A under the Securities Act ("Rule 144A"), to a person we reasonably believe
is a qualified institutional investor under Rule 144A (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 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 Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is
purchasing for its own account or for the account of such an institutional
"accredited investor," in each case in a minimum principal amount of Notes of
$250,000, 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 in 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 a letter from the transferee substantially in
the form of this letter to the Issuers and the Trustee, which shall provide,
among other things, that the transferee is an institutional "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the
Securities Act and that it is acquiring such Securities for investment purposes
and not for distribution in violation of the Securities Act. Each purchaser
acknowledges that the Issuers and the Trustee reserve the right prior to the
offer, sale or other transfer prior to the Resale Termination Date of the
Securities pursuant to clause (d), (e) or (f) above to require the delivery of
an opinion of counsel, certifications or other information satisfactory to the
Issuers and the Trustee.
TRANSFEREE: _____________________,
by: _____________________________
<PAGE>
[Draft--5/6/98]
LA PETITE ACADEMY, INC.
VESTAR/LPA INVESTMENT CORP.
$145,000,000
10% Senior Notes due 2008
PURCHASE AGREEMENT
May 6, 1998
CHASE SECURITIES INC.
NATIONSBANC MONTGOMERY
SECURITIES LLC
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Vestar/LPA Investment Corp., a Delaware corporation ("Parent"), and La
Petite Academy, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent (the "Company" and, together with Parent, the "Issuers"), propose to
issue and sell $145,000,000 aggregate principal amount of their 10% Senior Notes
due 2008 (the "Securities"). The Securities will be issued pursuant to an
Indenture to be dated as of May 11, 1998 (the "Indenture") among the Issuers ,
LPA Services, Inc. (the "Guarantor") and PNC Bank, National Association, as
trustee (the "Trustee") and will be guaranteed on an unsecured senior basis by
the Guarantor. The Issuers and the Guarantor hereby confirm their agreement with
Chase Securities Inc. ("CSI") and NationsBanc Montgomery Securities LLC
(together with CSI, the "Initial Purchasers") concerning the purchase of the
Securities from the Issuers by the several 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 upon an exemption therefrom. The Issuers have prepared a
preliminary offering memorandum dated April 24, 1998 (the "Preliminary Offering
Memorandum"), and an offering memorandum dated the date hereof (the "Offering
Memorandum") setting forth information concerning the Issuers and the
Securities. Copies of the Preliminary Offering Memorandum have been, and copies
of the Offering Memorandum will be, delivered by the Issuers 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
Issuers hereby confirm that they have authorized the use of the Preliminary
Offering Memorandum and the Offering Memorandum in connection with the offering
and resale of the Securities by the Initial Purchasers in accordance with
Section 2.
<PAGE>
2
Holders of the Securities (including the Initial Purchasers and their
direct and indirect transferees) will be entitled to the benefits of an Exchange
and Registration Rights Agreement, substantially in the form attached hereto as
Annex A (the "Registration Rights Agreement"), pursuant to which the Issuers and
the Guarantor 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 senior notes of
the Issuers (the "Exchange Securities") that are identical in all material
respects to the Securities (except that the Exchange Securities will not contain
terms with respect to transfer restrictions or liquidated damages) and (ii)
under certain circumstances, a shelf registration statement pursuant to Rule 415
under the Securities Act (the "Shelf Registration Statement").
Capitalized terms used but not defined herein shall have the meanings given
to such terms in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Company. Each of the
Issuers and the Guarantor represents and warrants to, and agrees with, the
several Initial Purchasers on and as of the date hereof and the Closing Date (as
defined in Section 3) that:
(a) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, did not, and on the Closing Date the
Offering Memorandum will not, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except for untrue
statements in or omissions from the Preliminary Offering Memorandum that
were corrected in the Offering Memorandum; provided that the Issuers and
the Guarantor make no representation or warranty as to information
contained in or omitted from the Preliminary Offering Memorandum or the
Offering Memorandum in reliance upon and in conformity with written
information relating to the Initial Purchasers furnished to the Issuer by
or on behalf of any Initial Purchaser specifically for use therein (the
"Initial Purchasers' Information").
(b) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, contains all of the information
that, if requested by a prospective purchaser of the Securities, would be
required to be provided to such prospective purchaser pursuant to Rule
144A(d)(4) under the Securities Act.
(c) Assuming (i) that the Securities are issued, sold and delivered
under the circumstances contemplated by the Offering Memorandum and this
Agreement (ii) the accuracy of the representations and warranties of the
Initial Purchasers contained in Section 2 and their compliance with the
agreements set forth therein and (iii) that each purchaser within the
United States that buys the Securities from the Initial Purchasers is a
Qualified Institutional Buyer (as defined) and that each purchaser outside
the United States who buys the Securities from the Initial Purchasers is
not a U.S. Person (as defined), it is not necessary, in connection with the
issuance and sale of the Securities to the Initial Purchasers and the
offer, resale and delivery of the Securities by the Initial Purchasers 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 of 1939, as amended (the "Trust
Indenture Act").
(d) Parent, the Company and the Guarantor have been duly incorporated
and are validly existing as corporations in good standing under the laws of
their respective
<PAGE>
3
jurisdictions of incorporation, are duly qualified to do business as
foreign corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such qualification, and have the power and authority
necessary to own or hold their respective properties and to conduct the
businesses in which they are engaged, except where the failure so to
qualify or have such power or authority would not, singularly or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise), results of operations, business or prospects of Parent, the
Company and the Guarantor taken as a whole (a "Material Adverse Effect").
(e) As of the Closing Date, the Company will have an authorized
capitalization as set forth in the Offering Memorandum under the heading
"Capitalization"; and all of the outstanding shares of capital stock of
Parent have been duly and validly authorized and issued and are fully paid
and non-assessable. All of the outstanding shares of capital stock of the
Company and the Guarantor have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned directly or indirectly by
Parent, free and clear of any lien, charge, encumbrance, security interest,
restriction upon voting or transfer or any other claim of any third party
other than as contemplated by the Credit Agreement.
(f) Each of the Issuers and the Guarantor has the requisite, power and
authority to execute and deliver this Agreement, the Indenture, the
Registration Rights Agreement and the Securities (in the case of the
Issuers only) (collectively, the "Transaction Documents") and to perform
its obligations hereunder and thereunder; and all corporate action required
to be taken for the due and proper authorization, execution and delivery of
each of the Transaction Documents and the consummation of the transactions
contemplated thereby has been duly and validly taken.
(g) This Agreement has been duly authorized, executed and delivered by
the each of the Issuers and the Guarantor and constitutes a valid and
binding agreement of each of the Issuers and the Guarantor, enforceable
against each of the Issuers in accordance with its terms, except to the
extent that (i) such enforceability may be subject to (A) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally and (B) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law)
and (ii) the enforceability of rights to indemnification and contribution
hereunder may be limited by Federal or state securities laws or regulations
or the public policy underlying such laws or regulations.
(h) The Registration Rights Agreement has been duly authorized by each
of the Issuers and the Guarantor and, when duly executed and delivered in
accordance with its terms by each of the parties thereto, will constitute a
valid and binding agreement of each of the Issuers and the Guarantor
enforceable against each of the Issuers and the Guarantor in accordance
with its terms, except to the extent that (i) such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and by general
equitable principles (whether considered in a proceeding in equity or at
law) and (ii) the enforceability of rights to indemnification and
contribution thereunder may be limited by Federal or state securities laws
or regulations or the public policy underlying such laws or regulations.
<PAGE>
4
(i) The Indenture has been duly authorized by each of the Issuers and
the Guarantor and, when duly executed and delivered in accordance with its
terms by each of the parties thereto, will constitute a valid and binding
agreement of each of the Issuers and the Guarantor enforceable against each
of the Issuers and the Guarantor in accordance with its terms, except to
the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and by general equitable principles (whether
considered in a proceeding in equity or at law). On the Closing Date, the
Indenture will conform in all material respects to the requirements of the
Trust Indenture Act and the rules and regulations of the Commission
applicable to an indenture that is qualified thereunder.
(j) The Securities have been duly authorized by each of the Issuers
and the Guarantor and, when duly executed, authenticated, issued and
delivered as provided in the Indenture and paid for as provided herein,
will be duly and validly issued and outstanding and will constitute valid
and binding obligations of each of the Issuers, as joint and several
obligors, and the Guarantor, as guarantor, entitled to the benefits of the
Indenture and enforceable against each of the Issuers, as joint and several
obligors, and the Guarantor, as guarantor, in accordance with their terms,
except to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and by general equitable principles (whether
considered in a proceeding in equity or at law).
(k) Each Transaction Document conforms in all material respects to the
description thereof contained in the Offering Memorandum.
(l) The execution, delivery and performance by each of the Issuers and
the Guarantor of each of the Transaction Documents to which it is a party,
the issuance, authentication, sale and delivery of the Securities and
compliance by each of the Issuers and the Guarantor with the terms thereof
and the consummation of the transactions contemplated by the Transaction
Documents 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 of Parent, the Company or the Guarantor pursuant to, any
material indenture, mortgage, deed of trust, loan agreement or other
material agreement or instrument to which Parent, the Company or the
Guarantor is a party or by which Parent, the Company or the Guarantor is
bound or to which any of the property or assets of Parent, the Company or
the Guarantor is subject except for such conflicts, breaches, violations or
defaults that would not have a Material Adverse Effect or a material
adverse effect on the ability of Parent, the Company or the Guarantor to
perform their respective obligations under the Transaction Documents, nor
will such actions result in any violation of the provisions of the charter
or by-laws of Parent, the Company or the Guarantor or any statute or any
judgment, order, decree, rule or regulation of any court or arbitrator or
governmental agency or body having jurisdiction over Parent, the Company or
the Guarantor or any of their 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 under any such
statute, judgment, order, decree, rule or regulation is required for the
execution, delivery and performance by each of the Issuers and the
Guarantor of each of the Transaction Documents to which it is a party, the
issuance, authentication, sale and delivery of the Securities and
compliance by each of the Issuers and the Guarantor with the terms thereof
and the consummation of the transactions contemplated by the Transaction
<PAGE>
5
Documents, except for such consents, approvals, authorizations, filings,
registrations or qualifications (i) that shall have been obtained or made
prior to the Closing Date, (ii) as may be required to be obtained or made
under the Securities Act and applicable state securities laws as provided
in the Registration Rights Agreement or (iii) the failure of which to
obtain would not restrain, prevent or impose burdensome conditions on the
transactions contemplated by the Transaction Documents.
(o) Deloitte & Touche LLP are independent certified public accountants
with respect to Parent, the Company and the Guarantor 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 rulings
thereunder. The historical financial statements (including the related
notes) contained in the Offering Memorandum have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods covered thereby and fairly present the
financial position of the entities purported to be covered thereby at the
respective dates indicated and the results of their operations and their
cash flows for the respective periods indicated; and the financial
information contained in the Offering Memorandum under the headings
"Summary--Summary Historical and Unaudited Pro Forma Consolidated Financial
Data", "Capitalization", "Selected Historical Consolidated Financial and
Other Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Management--Compensation of Directors and
Executive Officers" are derived from the accounting records of Parent, the
Company and the Guarantor and fairly present the information purported to
be shown thereby. The pro forma financial information contained in the
Offering Memorandum has been prepared on a basis consistent with the
historical financial statements contained in the Offering Memorandum
(except for the pro forma adjustments specified therein), includes all
material adjustments to the historical financial information required by
Rule 11-02 of Regulation S-X under the Securities Act and the Exchange Act
to reflect the transactions described in the Offering Memorandum, and are
based on good faith estimates and assumptions believed by the Company to be
reasonable and the adjustments used therein are appropriate to give effect
to the transactions contemplated by the Offering Memorandum. The other
historical financial and statistical information and data included in the
Offering Memorandum are, in all material respects, fairly presented.
(p) There are no legal or governmental proceedings pending to which
Parent, the Company or the Guarantor is a party or of which any property or
assets of Parent, the Company or the Guarantor is the subject that, (A)
singularly or in the aggregate, if determined adversely to Parent, the
Company or the Guarantor, could reasonably be expected to have a Material
Adverse Effect or (B) question the validity or enforceability of any of the
Transaction Documents or any action taken or to be taken pursuant thereto;
and to the best knowledge of Parent and the Company, no such proceedings
are threatened or contemplated by governmental authorities or threatened by
others.
(q) To the best knowledge of the Issuers and the Guarantor, no action
has been taken and no statute, rule, regulation or order has been enacted,
adopted or issued by any governmental agency or body that prevents the
issuance of the Securities or suspends the sale of the Securities in any
jurisdiction; no injunction, restraining order or order of any nature by
any federal or state court of competent jurisdiction has been issued with
respect to Parent, the Company or the Guarantor that would prevent or
suspend the issuance or sale of the Securities or the use of the
Preliminary Offering Memorandum or the Offering Memorandum in any
jurisdiction; no action, suit or proceeding is pending against or, to the
best knowledge
<PAGE>
6
of Parent, the Company and the Guarantor, threatened against or affecting
Parent, the Company or the Guarantor before any court or arbitrator or any
governmental agency, body or official, domestic or foreign, that could
reasonably be expected to interfere with or adversely affect the issuance
of the Securities or in any manner draw into question the validity or
enforceability of any of the Transaction Documents or any action taken or
to be taken pursuant thereto; and Parent and the Company have complied with
any and all requests by any securities authority in any jurisdiction for
additional information to be included in the Preliminary Offering
Memorandum and the Offering Memorandum.
(r) None of Parent, the Company or the Guarantor is (i) in violation
of its charter or by-laws, (ii) in default in any material respect, and no
event has occurred that, 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 material indenture, mortgage,
deed of trust, loan agreement or other material agreement or instrument to
which it is a party or by which it is bound or to which any of its property
or assets is subject or (iii) in violation in any material respect of any
law, ordinance, governmental rule, regulation or court decree to which it
or its property or assets may be subject.
(s) Each of Parent, the Company and the Guarantor possesses all
material licenses, certificates, authorizations and permits issued by, and
has made all declarations and filings with, the appropriate federal or
state regulatory agencies or bodies that are necessary or desirable for the
ownership of its properties or the conduct of its business as described in
the Offering Memorandum, except where the failure to possess or make the
same would not, singularly or in the aggregate, have a Material Adverse
Effect, and none of Parent, the Company or the Guarantor has received
notification of any revocation or modification of any such license,
certificate, authorization or permit or has any reason to believe that any
such license, certificate, authorization or permit will not be renewed in
the ordinary course.
(t) Each of Parent, the Company and the Guarantor has filed all
federal, state and local income and franchise tax returns required to be
filed through the date hereof and has paid all taxes due thereon, and no
tax deficiency has been determined adversely to Parent, the Company or the
Guarantor that has had (nor does Parent, the Company or the Guarantor have
any knowledge of any tax deficiency that, if determined adversely to
Parent, the Company or the Guarantor, could reasonably be expected to have)
a Material Adverse Effect.
(u) None of Parent, the Company or the Guarantor is (i) an "investment
company" or a company "controlled by" 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
or (ii) a "holding company" or a "subsidiary company" of a holding company
or an "affiliate" thereof within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(v) Each of Parent, the Company and the Guarantor maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in
<PAGE>
7
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(w) Each of Parent, the Company and the Guarantor has insurance
covering its properties, operations, personnel and businesses, which
insurance is in amounts and insures against such losses and risks as are
adequate to protect it and its businesses. None of Parent, the Company or
the Guarantor has received notice from any insurer or agent of such insurer
that capital improvements or other expenditures are required or necessary
to be made in order to continue such insurance.
(x) Each of Parent, the Company and the Guarantor owns or possesses
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations, service
mark registrations, copyrights, licenses and know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) necessary for the conduct
of its businesses; and the conduct of its businesses will not conflict
with, and it has not received any notice of any claim of conflict with, any
such rights of others, except for any such conflicts or claims that would
not, individually or in the aggregate, have a Material Adverse Effect.
(y) Each of Parent, the Company and the Guarantor has good and
marketable title in fee simple to, or has valid rights to lease or
otherwise use, all items of real and personal property that are material to
its business, free and clear of all liens, encumbrances, claims and defects
and imperfections of title except such as (i) do not materially interfere
with the use made and proposed to be made of such property by it or (ii)
could not reasonably be expected to have a Material Adverse Effect.
(z) No labor disturbance by or dispute with the employees of Parent,
the Company or the Guarantor exists or, to the best knowledge of Parent or
the Company, is contemplated or threatened.
(aa) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or Section
4975 of the Internal Revenue Code of 1986, as amended from time to time
(the "Code")) or "accumulated funding deficiency" (as defined in Section
302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA
(other than events with respect to which the 30-day notice requirement
under Section 4043 of ERISA has been waived) has occurred with respect to
any employee benefit plan of Parent, the Company or the Guarantor that
could reasonably be expected to have a Material Adverse Effect; each such
employee benefit plan is in compliance in all material respects with
applicable law, including ERISA and the Code; Parent, the Company and the
Guarantor have not incurred and do not expect to incur material liability
under Title IV of ERISA with respect to the termination of, or withdrawal
from, any pension plan for which Parent, the Company or the Guarantor would
have any liability; and each such pension plan that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which could reasonably be expected to have a Material Adverse Effect.
<PAGE>
8
(bb) 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
Parent, the Company or the Guarantor (or, to the best knowledge of Parent
or the Company, any other entity (including any predecessor) for whose acts
or omissions Parent, the Company or the Guarantor is or could reasonably be
expected to be liable) upon any of the property now or previously owned or
leased by Parent, the Company or the Guarantor, or upon any other property,
in violation of any statute or any ordinance, rule, regulation, order,
judgment, decree or permit or 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 for any
violation or liability that could not reasonably be expected to have,
singularly or in the aggregate with all such violations and liabilities, a
Material Adverse Effect; and 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 Parent, the Company or the
Guarantor has knowledge, except for any such disposal, discharge, emission
or other release of any kind that could not reasonably be expected to have,
singularly or in the aggregate with all such discharges and other releases,
a Material Adverse Effect.
(cc) None of Parent, the Company, the Guarantor or, to the best
knowledge of Parent, the Company and the Guarantor, any director, officer,
agent, employee or other person associated with or acting on behalf of
Parent, the Company or the Guarantor has (i) used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
(dd) On and immediately after the Closing Date, each of Parent and the
Company (after giving effect to the issuance of the Securities and to the
other transactions related thereto as described in the Offering Memorandum)
will be Solvent. As used in this paragraph, the term "Solvent" means, with
respect to a particular date, that on such date (i) the present fair market
value (or present fair saleable value) of the assets of Parent or the
Company, as the case may be, is not less than the total amount required to
pay the probable liabilities of Parent or the Company, as applicable, on
its total existing debts and liabilities (including contingent liabilities)
as they become absolute and matured, (ii) Parent or the Company, as
applicable, is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and commitments as they mature and
become due in the normal course of business, (iii) assuming the sale of the
Securities as contemplated by this Agreement and the Offering Memorandum,
neither Parent nor the Company is incurring debts or liabilities beyond its
ability to pay as such debts and liabilities mature and (iv) neither Parent
nor the Company is engaged in any business or transaction, and is about to
engage in any business or transaction, for which its property would
constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which it is engaged. In computing
the amount of such contingent liabilities at any time, it is intended that
such liabilities will be computed at the amount that, in the light of all
the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
<PAGE>
9
(ee) None of the proceeds from the sale of the Securities will be
used, whether directly or indirectly, and whether immediately, incidentally
or ultimately, for any purpose that entails a violation of, or that is
inconsistent with, the provisions of the Regulations of the Board of
Governors of the Federal Reserve Board, including Regulation T, U or X.
(ff) None of Parent, the Company or the Guarantor is a party to any
contract, agreement or understanding with any person that would give rise
to a valid claim against Parent, the Company or the Initial Purchasers for
a brokerage commission, finder's fee or like payment in connection with the
offering and sale of the Securities, other than the Initial Purchasers'
discount set forth in Section 2.
(gg) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(hh None of Parent, the Company, any of their affiliates or any person
acting on their behalf has engaged or will engage in any directed selling
efforts (as such term is defined in Regulation S under the Securities Act
("Regulation S")), and all such persons have complied and will comply with
the offering restrictions requirement of Regulation S to the extent
applicable.
(ii) Assuming the accuracy of the representations and warranties of
the initial Purchasers contained in Section 2 and their compliance with the
agreements set forth therein, none of Parent, the Company or their
affiliates has, directly or through any agent (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any security
(as such term is defined in the Securities Act), which is or will be
integrated with the sale of the Securities in a manner that would require
registration of the Securities under the Securities Act or (ii) 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.
(jj) After giving effect to the consummation of the Transactions,
there are no securities of Parent or the Company 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 other than the Senior Notes and the Exchange
Debentures.
(kk) None of Parent, the Company or the Guarantor has taken or will
take, directly or indirectly, any action prohibited by Regulation M under
the Exchange Act in connection with the offering of the Securities.
(mm) No forward-looking statement (within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act) contained in the
Preliminary Offering Memorandum or the Offering Memorandum has been made or
reaffirmed without a reasonable basis or has been disclosed other than in
good faith other than any statement in the Preliminary Offering Memorandum
that was corrected in the Offering Memorandum.
(nn) None of Parent, the Company or the Guarantor does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Florida Statutes Section 517.075.
<PAGE>
10
(oo) To the best knowledge of Parent and the Company, any
reprogramming required to permit the proper functioning, in and following
the year 2000, of (i) the computer systems of the Company and the Guarantor
and (ii) equipment containing embedded microchips (including systems and
equipment supplied by others or with which systems of the Company and the
Guarantor interface) and the testing of all such systems and equipment, as
so reprogrammed, will be completed in all material respects by August 31,
1999. To the best knowledge of Parent and the Company, the cost to the
Company and the Guarantor of such reprogramming and testing and of the
reasonably foreseeable consequences of the year 2000 to the Company and the
Guarantor (including reprogramming errors and the failure of others'
systems or equipment) will not have a Material Adverse Effect.
(pp) Since the date as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (i) there has been no
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs, management or business prospects of Parent, the
Company or the Guarantor, whether or not arising in the ordinary course of
business, (ii) none of Parent, the Company or the Guarantor has incurred
any material liability or obligation, direct or contingent, other than in
the ordinary course of business, (iii) none of Parent, the Company or the
Guarantor has entered into any material transaction other than in the
ordinary course of business and (iv) there has not been any change in the
capital stock or long-term debt of Parent, the Company or the Guarantor, or
any dividend or distribution of any kind declared, paid or made by Parent,
the Company or the Guarantor on any class of their respective capital
stock.
2. Purchase and Resale of the Securities. (a) On the basis of the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the Issuers agree to issue and sell to
each of the Initial Purchasers, severally and not jointly, and each of the
Initial Purchasers, severally and not jointly, agrees to purchase from the
Issuers, the principal amount of Securities set forth opposite the name of such
Initial Purchaser on Schedule 1 hereto at a purchase price equal to 97% of the
principal amount thereof. The Issuers shall not be obligated to deliver any of
the Securities except upon payment for all of the Securities to be purchased as
provided herein.
(b) The Initial Purchasers have advised the Issuers that they propose to
offer the Securities for resale upon the terms and subject to the conditions set
forth herein and in the Offering Memorandum. Each Initial Purchaser, severally
and not jointly, represents, warrants and agrees that (i) it is a Qualified
Institutional Buyer, (ii) it is purchasing the Securities pursuant to a private
sale exempt from registration under the Securities Act, (iii) it has not
solicited offers for, or offered or sold, and will not solicit offers for, or
offer or sell, the Securities by means of any form of general solicitation or
general advertising within the meaning of Rule 502(c) of Regulation D under the
Securities Act ("Regulation D") or in any manner involving a public offering
within the meaning of Section 4(2) of the Securities Act and (iv) it has
solicited and will solicit offers for the Securities only from, and has offered
or sold and will offer, sell or deliver the Securities, as part of their initial
offering, only (A) within the United States to persons whom it reasonably
believes to be qualified institutional buyers ("Qualified Institutional
Buyers"), as defined in Rule 144A under the Securities Act ("Rule 144A"), or if
any such person is buying for one or more institutional accounts for which
<PAGE>
11
such person is acting as fiduciary or agent, only when such person has
represented to it that each such account is a Qualified Institutional Buyer to
whom notice has been given that such sale or delivery is being made in reliance
on Rule 144A and in each case, in transactions in accordance with Rule 144A and
(B) outside the United States to persons other than U.S. persons in reliance on
Regulation S under the Securities Act ("Regulation S").
(c) In connection with the offer and sale of Securities in reliance on
Regulation S, each Initial Purchaser, severally and not jointly, represents,
warrants and agrees that:
(i) the Securities have not been registered under the Securities Act
and may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except pursuant to an exemption from,
or in transactions not subject to, the registration requirements of the
Securities Act.
(ii) such Initial Purchaser has offered and sold the Securities, and
will offer and sell the Securities, (A) as part of its distribution at any
time and (B) otherwise until 40 days after the later of the commencement of
the offering of the Securities and the Closing Date, only in accordance
with Regulation S or Rule 144A or any other available exemption from
registration under the Securities Act.
(iii) none of such Initial Purchaser or any of its affiliates or any
other person acting on its or their behalf has engaged or will engage in
any directed selling efforts with respect to the Securities, and all such
persons have complied and will comply with the offering restriction
requirements of Regulation S.
(iv) at or prior to the confirmation of sale of any Securities sold in
reliance on Regulation S, it will have sent to each distributor, dealer or
other person receiving a selling concession, fee or other remuneration that
purchases Securities from it during the restricted period a confirmation or
notice to substantially the following effect:
"The Securities covered hereby have not been registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and may not
be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of their distribution at any
time or (ii) otherwise until 40 days after the later of the
commencement of the offering of the Securities and the date of
original issuance of the Securities, except in accordance with
Regulation S or Rule 144A or any other available exemption from
registration under the Securities Act. Terms used above have the
meanings given to them by Regulation S."
(v) it has not and will not enter into any contractual arrangement
with any distributor with respect to the distribution of the Securities,
except with its affiliates or with the prior written consent of the
Issuers.
Terms used in this Section 2(c) have the meanings given to them by Regulation S.
(d) Each Initial Purchaser, severally and not jointly, represents, warrants
and agrees that (i) it has not offered or sold and prior to the date six months
after the Closing Date will not offer or sell any Securities to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances that have not
resulted and
<PAGE>
12
will not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995; (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the Public Offers of Securities Regulations 1995 with
respect to anything done by it in relation to the Securities in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received by
it in connection with the issue of the Securities to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document may
otherwise lawfully be issued or passed on.
(e) Each Initial Purchaser, severally and not jointly, agrees that, prior
to or simultaneously with the confirmation of sale by such Initial Purchaser to
any purchaser of any of the Securities purchased by such Initial Purchaser from
the Issuers pursuant hereto, such Initial Purchaser shall furnish to that
purchaser a copy of the Offering Memorandum (and any amendment or supplement
thereto that the Issuers shall have furnished to such Initial Purchaser prior to
the date of such confirmation of sale). In addition to the foregoing, each
Initial Purchaser acknowledges and agrees that the Issuers and, for purposes of
the opinions to be delivered to the Initial Purchasers pursuant to Sections 5(d)
and (e), counsel for the Issuers and for the Initial Purchasers, respectively,
may rely upon the accuracy of the representations and warranties of the Initial
Purchasers and their compliance with their agreements contained in this Section
2, and each Initial Purchaser hereby consents to such reliance.
(f) Each of the Issuers and the Guarantor acknowledge and agree 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 an Initial
Purchaser.
3. Delivery of and Payment for the Securities. (a) Delivery of and payment
for the Securities shall be made at the offices of O'Sullivan Graev and
Karabell, LLP, 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 May 11, 1998, 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 Issuers (such date and time of payment and delivery being referred to herein
as the "Closing Date").
(b) On the Closing Date, payment of the purchase price for the Securities
shall be made to the Issuers by wire or book-entry transfer of same-day funds to
such account or accounts as the Issuers 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 Issuers agree 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 Issuers and the Guarantor. Each of the Issuers
and the Guarantor agrees with each of the several Initial Purchasers:
(a) to advise the Initial Purchasers promptly and, if requested,
confirm such advice in writing, of the happening of any event that makes
any statement of a material fact made
<PAGE>
13
in the Offering Memorandum untrue or that 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
the light of the circumstances under which they were made, not misleading;
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 its 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;
(c) 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 Issuers after a reasonable period to review, unless the
Company is advised by counsel that such amendment or supplement is legally
required;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchasers, any event shall occur or condition
exist as a result of which it is necessary, in the opinion of counsel for
the Initial Purchasers or counsel for the Issuers, to amend or supplement
the Offering Memorandum in order that the Offering Memorandum will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Offering
Memorandum to comply with applicable law, promptly to prepare such
amendment or supplement as may be necessary to correct such untrue
statement or omission or so that the Offering Memorandum, as so amended or
supplemented, will comply with applicable law;
(e) for so long as the Securities are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
to furnish to holders of the Securities and prospective purchasers of the
Securities designated by such holders, upon request of such holders or such
prospective purchasers, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, unless the Issuers are then
subject to and in compliance with Section 13 or 15(d) of the Exchange Act
(the foregoing agreement being for the benefit of the holders from time to
time of the Securities and prospective purchasers of the Securities
designated by such holders);
(f) for a period of two years following the Closing Date, to furnish
to the Initial Purchasers copies of any annual reports, quarterly reports
and current reports filed by either of the Issuers with the Commission on
Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated
by the Commission, and such other documents, reports and information as
shall be furnished by the Issuers to the Trustee or to the holders of the
Securities pursuant to the Indenture or the Exchange Act or any rule or
regulation of the
<PAGE>
14
Commission thereunder;
(g) to promptly take from time to time such actions 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 designate and to continue such qualifications in
effect for so long as required for the resale of the Securities; provided
that none of Parent, the Company and the Guarantor shall be obligated to
qualify as foreign corporations in any jurisdiction in which they are not
so qualified to file a general consent to service of process in any
jurisdiction or to subject themselves to the payment of taxes in any
jurisdiction in which they are not otherwise subject;
(h) to assist the Initial Purchasers in arranging for the Securities
to be designated Private Offerings, Resales and Trading through Automated
Linkages ("PORTAL") Market securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
("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) not to, and to cause its affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as such term is defined in the Securities Act) that could be integrated
with the sale of the Securities in a manner that would require registration
of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may
be, not to, and to cause its affiliates not to, and not to authorize or
knowingly permit any person acting on 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 within the meaning of Regulation D or
in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act; and not to 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 offering and sale of the Securities as contemplated by
this Agreement and the Offering Memorandum;
(k) for a period of 90 days from the date of the Offering Memorandum,
not to offer for sale, 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 Parent, the Company or the Guarantor (other than
the Securities) without the prior written consent of the Initial
Purchasers;
(l) during the period from the Closing Date until two years after the
Closing Date, without the prior written consent of the Initial Purchasers,
not to, 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 Parent, the Company
or any of their affiliates and resold in a transaction registered under the
Securities Act and except for Securities purchased and resold by CSI in
connection with its market making activities, if any;
(m) not to, for so long as the Securities are outstanding, be or
become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount
<PAGE>
15
certificate company that is or is required to be registered under Section 8
of the Investment Company Act, and to not be or become, or be or become
owned by, a closed-end investment company required to be registered, but
not registered thereunder;
(n) in connection with the offering of the Securities, until CSI on
behalf of the Initial Purchasers shall have notified the Issuers of the
completion of the resale of the Securities, not to, and to cause their
affiliated purchasers (as defined in Regulation M under the Exchange Act)
not to, either alone or with one or more other persons, bid for or
purchase, for any account in which their or any of their affiliated
purchasers has a beneficial interest, any Securities, or attempt to induce
any person to purchase any Securities; and not to, and to cause their
affiliated purchasers not to, make bids or purchase for the purpose of
creating actual, or apparent, active trading in or of raising the price of
the Securities provided, however, that the Issuers shall not be responsible
for any such activities by CSI;
(o) 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;
(p) 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;
(q) to not take any action prior to the execution and delivery of the
Indenture that, if taken after such execution and delivery, would have
violated any of the covenants contained in the Indenture;
(r) to not take any action prior to the Closing Date that would
require the Offering Memorandum to be amended or supplemented pursuant to
Section 4(d);
(s) prior to the Closing Date, not to issue any press release or other
communication directly or indirectly or hold any press conference with
respect to Parent or the Company, their condition, financial or otherwise,
or earnings, business affairs or business prospects (except for routine
oral marketing communications in the ordinary course of business and
consistent with the past practices of Parent and the Company and of which
the Initial Purchasers are notified), without the prior written consent of
the Initial Purchasers, unless in the judgment of Parent, the Company and
their counsel, and after notification to the Initial Purchasers, such press
release or communication is reasonably necessary or advisable; and
(t) to apply the net proceeds from the sale of the Securities as set
forth in the Offering Memorandum under the heading "Use of Proceeds".
5. Conditions of Initial Purchasers' Obligations. The respective
obligations of the several Initial Purchasers hereunder are subject to the
accuracy, on and as of the date hereof and the Closing Date, of the
representations and warranties of each of the Issuers and the Guarantor
contained herein, to the accuracy of the statements of each of the Issuers and
the Guarantor and their respective officers made in any certificates delivered
pursuant hereto, to the performance by each of the Issuers and the Guarantor of
their respective obligations hereunder, and to each of the following additional
terms and conditions:
(a) The Offering Memorandum (and any amendments or supplements
thereto) shall
<PAGE>
16
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 proceeding for that purpose shall have been
commenced or shall be pending or threatened.
(b) None of the Initial Purchasers shall have discovered and disclosed
to the Issuers on or prior to the Closing Date that the Offering Memorandum
or any amendment or supplement thereto contains an untrue statement of a
fact that, in the opinion of counsel for the Initial Purchasers, is
material or omits to state any fact that, in the opinion of such counsel,
is material and is required to be stated therein or is necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of each of the Transaction Documents and
the Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby, shall be
satisfactory in all material respects to the Initial Purchasers, and the
Issuers 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.
(d) O'Sullivan Graev & Karabell, LLP shall have furnished to the
Initial Purchasers their 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, substantially
to the effect set forth in Annex B hereto.
(e) The Initial Purchasers shall have received from Cravath, Swaine &
Moore, counsel for the Initial Purchasers, such opinion or opinions, dated
the Closing Date, with respect to such matters as the Initial Purchasers
may reasonably require, and the Issuers shall have furnished to such
counsel such documents and information as they request for the purpose of
enabling them to pass upon such matters.
(f) The Issuers shall have furnished to the Initial Purchasers a
letter (the "Initial Letter") of Deloitte & Touche LLP, addressed to the
Initial Purchasers and dated the date hereof, in form and substance
satisfactory to the Initial Purchasers, substantially to the effect set
forth in Annex C hereto.
(g) The Issuers shall have furnished to the Initial Purchasers a
letter (the "Bring-Down Letter") of Deloitte & Touche LLP, addressed to the
Initial Purchasers and dated the Closing Date (i) confirming that they are
independent public accountants with respect to Parent, the Company and the
Guarantor within the meaning of Rule 101 of the Code of Professional
Conduct of the AICPA and its interpretations and rulings thereunder, (ii)
stating, 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 business days prior to the date of the
Bring-Down Letter), that the conclusions and findings of such accountants
with respect to the financial information and other matters covered by the
Initial Letter are accurate and (iii) confirming in all material respects
the conclusions and findings set forth in the Initial Letter.
(h) Each of the Issuers shall have furnished to the Initial Purchasers
a certificate,
<PAGE>
17
dated the Closing Date, of its chief executive officer and its chief
financial officer stating that (A) such officers have carefully examined
the Offering Memorandum, (B) as of the Closing Date, the representations
and warranties of each of the Issuers and the Guarantor in this Agreement
are true and correct in all material respects (including, without
limitation, the representation and warranty set forth in Section 1(a)),
each of the Issuers and Guarantor have complied in all material respects
with all agreements and satisfied all conditions on its part to be
performed or satisfied hereunder on or prior to the Closing Date, and (C)
subsequent to the date of the most recent financial statements contained in
the Offering Memorandum, there has been no material adverse change in the
financial position or results of operation of Parent, the Company or the
Guarantor, or any change, or any development including a prospective
change, in or affecting the condition (financial or otherwise), results of
operations, business or prospects of Parent, the Company and the Guarantor
taken as a whole.
(i) The Initial Purchasers shall have received a counterpart of the
Registration Rights Agreement which shall have been executed and delivered
by a duly authorized officer of each of the Issuers and the Guarantor.
(j) The Indenture shall have been duly executed and delivered by
Parent, the Company, the Guarantor and the Trustee, and the Securities
shall have been duly executed and delivered by the Issuers and duly
authenticated by the Trustee.
(k) If any event shall have occurred that requires the Issuers under
Section 4(d) to prepare an amendment or supplement to the Offering
Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchasers shall have been given a reasonable opportunity to
comment thereon, and copies thereof shall have been delivered to the
Initial Purchasers reasonably in advance of the Closing Date.
(l) 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 change in the capital stock or long-term debt or any
change, or any development involving a prospective change, in or affecting
the condition (financial or otherwise), results of operations, business or
prospects of Parent, the Company and the Guarantor taken as a whole, the
effect of which, in any such case described above, is, in the reasonable
judgment of the Initial Purchasers, so material and adverse as to make it
impracticable or inadvisable to proceed with the sale or delivery of the
Securities on the terms and in the manner contemplated by this Agreement
and the Offering Memorandum (exclusive of any amendment or supplement
thereto).
(m) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency or body that would, as of the Closing Date, prevent the issuance or
sale of the Securities; and no injunction, restraining order or order of
any other nature by any federal or state court of competent jurisdiction
shall have been issued as of the Closing Date that would prevent the
issuance or sale of the Securities.
(n) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Securities or
any of Parent's or the Company's other debt securities or preferred stock
by any "nationally recognized statistical rating organization", as such
term is defined by the Commission for purposes of Rule 436(g)(2) of
<PAGE>
18
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 (other than an announcement with positive
implications of a possible upgrading), its rating of the Securities or any
of Parent's or the Company's other debt securities or preferred stock.
(o) 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 market
by the Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any securities of
Parent or 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).
(p) All conditions to the consummation of each of the Transactions
(including, without limitation, the execution of the Credit Agreement and
the consummation of the transactions contemplated by the Merger Agreement),
other than the offering of the Securities, shall have been satisfied and
each of such Transactions shall be consummated substantially concurrently
with the sale of the Securities hereunder.
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
to counsel for the Initial Purchasers.
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 Issuers prior to delivery of and payment for the
Securities if, prior to that time, any of the events described in Section 5(m),
(n), (o), (p) or (q) 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 Issuers and the non-defaulting
Initial Purchasers, but if no such arrangements are made within 36 hours after
such default, this Agreement shall terminate without liability on the part of
the non-defaulting Initial Purchasers or the Issuers, except that the Issuers
and the Guarantor will continue to be liable for the payment of expenses to the
extent set forth in Sections 8 and 12 and 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 Purchasers" includes, for all purposes of this
Agreement unless the context otherwise requires, any party not listed in
Schedule 1 hereto that, pursuant to this Section 7, purchases Securities that a
defaulting Initial Purchaser agreed but failed to purchase.
<PAGE>
19
(b) Nothing contained herein shall relieve a defaulting Initial Purchaser
of any liability it may have to the Issuers 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 Issuers 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 Issuers or counsel for the Initial Purchasers may be
necessary in the Offering Memorandum or in any other document or arrangement,
and the Issuers agree promptly to prepare any amendment or supplement to the
Offering Memorandum that effects any such changes.
8. Reimbursement of Initial Purchasers' Expenses. If (a) this Agreement
shall have been terminated pursuant to Section 6 or 7, (b) the Issuers shall
fail to tender the Securities for delivery to the Initial Purchasers for any
reason permitted under this Agreement or (c) the Initial Purchasers shall
decline to purchase the Securities for any reason permitted under this
Agreement, the Issuers and the Guarantor shall reimburse the Initial Purchasers
for such out-of-pocket expenses (including reasonable fees and disbursements of
counsel) as shall have been reasonably incurred by the Initial Purchasers in
connection with this Agreement and the proposed purchase and resale of the
Securities. If this Agreement is terminated pursuant to Section 7 by reason of
the default of one or more of the Initial Purchasers, none of the Issuers and
the Guarantor shall be obligated to reimburse any defaulting Initial Purchaser
on account of such expenses.
9. Indemnification. (a) Each of the Issuers and the Guarantor shall jointly
and severally indemnify and hold harmless each Initial Purchaser, its
affiliates, its officers, directors, employees, representatives and agents, and
each person, if any, who controls each Initial Purchaser within the meaning of
the Securities Act or the Exchange Act (collectively referred to for purposes of
this Section 9(a) and Section 10 as an Initial Purchaser), from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, without limitation, any loss, claim, damage, liability or
action relating to purchases and sales of the Securities), to which that Initial
Purchaser may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any 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 a material fact contained in the Preliminary
Offering Memorandum or the Offering Memorandum or in any amendment or supplement
thereto or in any information provided by the Issuers 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 in order to make the statements
therein, in the 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 defending or preparing to defend against or
appearing as a third party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that none of the Issuers and the Guarantor shall 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, an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with any Initial Purchasers' Information; and provided, further, that
with respect to any such untrue statement in or omission from the Preliminary
Offering Memorandum, the indemnity agreement contained in this Section 9(a)
shall not inure to the benefit of any such Initial Purchaser to the extent that
the sale to the person asserting any such loss, claim, damage, liability or
action was an initial resale by such Initial Purchaser and any such loss, claim,
damage, liability or action of or with respect to such Initial Purchaser results
from the fact that both (A) 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 (B) the
untrue statement
<PAGE>
20
in or omission from 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 Issuers with Section 4(b).
(b) Each Initial Purchaser, severally and not jointly, shall indemnify and
hold harmless the Issuers, their affiliates, their respective officers,
directors, employees, representatives and agents, and each person, if any, who
controls the Issuers within the meaning of the Securities Act or the Exchange
Act (collectively referred to for purposes of this Section 9(b) and Section 10
as the Issuers), from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Issuers may become
subject, whether commenced or threatened, under the Securities Act, the Exchange
Act, any 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 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 in order to make the statements therein, in the light of the
circumstances under 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 any Initial
Purchasers' Information, and shall reimburse the Issuers for any legal or other
expenses reasonably incurred by the Issuers in connection with investigating or
defending or preparing to defend against or appearing as a third party witness
in connection with any such loss, claim, damage, liability or action as such
expenses are incurred.
(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
that 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 that 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 shall 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 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
<PAGE>
21
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 for 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 each of the Issuers, the Guarantor and the Initial
Purchasers in this Section 9 and in Section 10 are in addition to any other
liability that each of the Issuers, the Guarantor 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 9(b), 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 Issuers and the Guarantor 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 Issuers and
the Guarantor 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 Issuers and the
Guarantor 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 Issuers and the
Guarantor, on the one hand, and the total discounts and commissions received by
the Initial Purchasers with respect to the Securities purchased under this
Agreement, on the other, bear to the total gross proceeds from the sale of the
Securities 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 the Issuers or information supplied by the Issuers and the Guarantor
on the one hand or to any 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. Each of the
Issuers, the Guarantor 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 (even if the Initial Purchasers were treated
<PAGE>
22
as one entity for such purpose) 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 or preparing to defend 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 total discounts and commissions received by such Initial Purchaser
with respect to the Securities purchased by it under this Agreement exceeds the
amount of any damages that 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 Issuers, the
Guarantor and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except as
provided in Sections 9 and 10 with respect to affiliates, officers, directors,
employees, representatives, agents and controlling persons of the Issuers, the
Guarantor and the Initial Purchasers and in Section 4(e) with respect to holders
and prospective purchasers of the Securities. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 11, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
12. Expenses. Each of the Issuers and the Guarantor agree with the Initial
Purchasers to pay (a) the costs incident to the authorization, issuance, sale,
preparation and delivery of the Securities and any taxes payable in that
connection; (b) the costs incident to the preparation, printing and distribution
of the Preliminary Offering Memorandum, the Offering Memorandum and any
amendments or supplements thereto; (c) the costs of reproducing and distributing
each of the Transaction Documents; (d) the costs incident to the preparation,
printing and delivery of the certificates evidencing the Securities, including
stamp duties, stock exchange taxes, value added taxes, withholding taxes or
similar duties or taxes, if any, payable upon authorization, issuance, sale or
delivery of the Securities; (e) the fees and expenses of the Issuers' counsel
and independent accountants; (f) the fees and expenses of qualifying the
Securities under the securities laws of the several jurisdictions as provided in
Section 4(h) and of preparing, printing and distributing Blue Sky Memoranda
(including related fees and expenses of counsel for the Initial Purchasers); (g)
any fees charged by rating agencies for rating the Securities; (h) the fees and
expenses of the Trustee and any paying agent (including related fees and
expenses of any counsel to such parties); (i) all expenses and application fees
incurred in connection with the application for the inclusion of the Securities
on the PORTAL Market, the approval of the Securities for book-entry transfer
through DTC, Euroclear and Cedel and the listing of the Securities on any
securities exchange; (j) 50% of the expenses incurred by the Issuers and the
Initial Purchasers in connection with the airplane used during the "road show";
and (k) all other costs and expenses incident to the performance of the
obligations of the Issuers under this Agreement that are not otherwise
specifically provided for in this Section 12; provided, however, that except as
provided in this Section 12 and Section 8, the Initial Purchasers shall pay
their own costs and expenses.
13. Survival. The respective indemnities, rights of contribution,
representations,
<PAGE>
23
warranties and agreements of each of the Issuers, the Guarantor and the Initial
Purchasers contained in this Agreement or made by or on behalf of each of the
Issuers, the Guarantor or the Initial Purchasers pursuant to this Agreement or
any certificate delivered pursuant hereto shall survive the delivery of and
payment for the Securities and shall remain in full force and effect, regardless
of any termination or cancelation of this Agreement or any investigation made by
or on behalf of any of them or any of their respective affiliates, officers,
directors, employees, representatives, agents or controlling persons.
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
or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New
York, New York 10017, Attention: Mr. David Fass (telecopier no.: (212)
270-0994); or
(b) if to the Issuers, shall be delivered or sent by mail or telecopy
transmission to the address of the Company set forth in the Offering
Memorandum, Attention: Mr. James R. Kahl, 14 Corporate Woods, 8717 West
110th Street, Suite 300, Overland Park, KS 66201 (telecopier no.: (913)
345-9601);
provided that any notice to an Initial Purchaser pursuant to Section 9(c) shall
also be delivered or sent by mail to such Initial Purchaser at its address set
forth on the signature page hereof. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Issuers shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Initial Purchasers by CSI.
15. Definition of Terms. For purposes of this Agreement, (a) the term
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405
under the Securities Act and (c) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 under the Securities Act.
16. Initial Purchasers' Information. The parties hereto acknowledge and
agree that, for all purposes of this Agreement, the Initial Purchasers'
Information consists solely of the following information in the Preliminary
Offering Memorandum and the Offering Memorandum: (i) the last paragraph on the
front cover page concerning the terms of the offering by the Initial Purchasers;
(ii) the first paragraph on page "i" concerning over-allotment and trading
activities by the Initial Purchasers; and (iii) the statements concerning the
Initial Purchasers contained in the third, fourth, fifth, seventh, ninth and
eleventh paragraphs under the heading "Plan of Distribution".
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
18. Counterparts. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
19. Amendments. No amendment or waiver of any provision of this Agreement,
nor
<PAGE>
24
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.
20. 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.
<PAGE>
25
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us a counterpart hereof, whereupon this instrument
will become a binding agreement among each of the Issuers, the Guarantor and the
Initial Purchasers in accordance with its terms.
Very truly yours,
LA PETITE ACADEMY, INC.,
By______________________________
Name:
Title:
VESTAR/LPA INVESTMENT CORP.,
By_______________________________
Name:
Title:
<PAGE>
26
LPA SERVICES INC.,
By_______________________________
Name:
Title:
Accepted:
CHASE SECURITIES INC.
By____________________________
Authorized Signatory
Address for notices pursuant to Section 9(c):
1 Chase Plaza, 25th floor
New York, New York 10081
Attention: Legal Department
NATIONSBANC MONTGOMERY SECURITIES LLC
By____________________________
Authorized Signatory
Address for notices pursuant to Section 9(c):
Attention:
<PAGE>
SCHEDULE 1
Initial Purchasers Principal Amount of Securities
Chase Securities $116,000,000
NationsBanc Montgomery
Securities LLC $29,000,000
-----------
Total $145,000,000
<PAGE>
ANNEX A
[Form of Exchange and Registration Rights Agreement]
<PAGE>
ANNEX B
Form of Opinion of O'Sullivan Graev & Karabell, LLP
O'Sullivan Graev & Karabell, LLP shall have furnished to the Initial
Purchasers their written opinion, as counsel to the Issuers, addressed to the
Initial Purchasers and dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchasers, substantially to the effect set forth
below:
(i) Parent, the Company and the Guarantor have been duly incorporated
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are duly qualified to do
business as foreign corporations in each jurisdiction set forth opposite
the name of each entity on Schedule I attached hereto, which Schedule I
contains all locations identified to us in the attached Officers'
Certificate as locations in which the Company or the Guarantor operates
Academics;
(ii) as of the Closing Date, the Company will have an authorized
capitalization as set forth in the Offering Memorandum, and all of the
outstanding shares of capital stock of Parent and the Company have been
duly and validly authorized and issued and are fully paid and
non-assessable;
(iii) the descriptions in the Offering Memorandum of statutes, legal
and governmental proceedings and contracts and other documents and the
statements in the Offering Memorandum under the heading "Certain United
States Federal Income Tax Considerations", to the extent that they
constitute summaries of matters of law or regulation or legal conclusions,
are accurate summaries and fairly present, in all material respects, the
information called for with respect to such matters;
(iv) the Indenture conforms in all material respects with the
requirements of the Trust Indenture Act and the rules and regulations of
the Commission applicable to an indenture which is qualified thereunder;
(v) each of the Issuers and the Guarantor has the requisite corporate
power to execute and deliver each of the Transaction Documents to which it
a party and to perform its obligations thereunder; and all corporate action
required to be taken for the due and proper authorization, execution and
delivery of each of the Transaction Documents and the consummation of the
transactions contemplated thereby have been duly and validly taken;
(vi) the Purchase Agreement has been duly authorized, executed and
delivered by each of the Issuers and the Guarantor;
(vii) the Registration Rights Agreement has been duly authorized,
executed and delivered by each of the Issuers and the Guarantor and
constitutes a valid and binding agreement of each of the Issuers and the
Guarantor enforceable against each of the Issuers and the Guarantor in
accordance with its terms;
(viii) the Indenture has been duly authorized, executed and delivered
by each of the Issuers and the Guarantor and, assuming due authorization,
execution and delivery thereof
<PAGE>
2
by the Trustee, constitutes a valid and binding agreement of each of the
Issuers and the Guarantor, enforceable against each of the Issuers and the
Guarantor in accordance with its terms;
(ix) the Securities have been duly authorized by each of the Issuers
and the Guarantor and, assuming due authentication thereof by the Trustee
and upon payment therefor by the Initial Purchasers in accordance with the
Purchase Agreement, will constitute valid and legally binding obligations
of each of the Issuers, as joint and several obligors, and the Guarantor,
as guarantor, entitled to the benefits of the Indenture and enforceable
against each of the Issuers, as joint and several obligors, and the
Guarantor, as guarantor, in accordance with their terms;
(x) each Transaction Document conforms in all material respects to the
description thereof contained in the Offering Memorandum;
(xi) the execution, delivery and performance by each of the Issuers
and the Guarantor of each of the Transaction Documents to which it is a
party, the issuance, authentication, sale and delivery of the Securities
and compliance by each of the Issuers and the Guarantor with the terms
thereof and the consummation of the transactions contemplated by the
Transaction Documents do not and will not (A) result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or, with notice or lapse of time or both, constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of either of the Issuers or the
Guarantor pursuant to, any agreement or instruments listed on Schedule II
attached hereto, which Schedule II contains all agreements and instruments
of the Issuers and the Guarantor identified to us in the attached Officer's
Certificate as material to either of the Issuers or the Guarantor or (B)
result in any violation of the provisions of the certificate of
incorporation or bylaws of either of the Issuers or the Guarantor or (C)
our actual knowledge and other than with respect to the federal securities
laws (as to which we express no opinion in this paragraph (xi) and as to
which we express certain opinions in paragraph (xvi) below), result in any
violation of any statute or any judgment, order, decree, rule or regulation
of any court or arbitrator or governmental agency or body having
jurisdiction over either Issuer or the Guarantor or any of their properties
or assets, except for such violations that would not, individually or in
the aggregate, have a Material Adverse Effect or restrain, prevent or
impose burdensome conditions on the transactions contemplated by the
Transaction Documents;
(xii) Except for such consents, approvals or authorizations of, or
registrations or qualifications with, Governmental Authorities as may be
required under the Securities Act and the rules and regulations thereunder
or applicable state securities or Blue Sky laws in connection with the
purchase and distribution of the Securities by the Initial Purchasers and
as set forth in the Registration Rights Agreement, no consent, approval,
authorization or order of, or filing or registration with, any Governmental
Authority, is required in connection with the execution and delivery by the
Issuers and the Guarantor of the Purchase Agreement, the Indenture and the
Registration Rights Agreement, the consummation by the Issuers and the
Guarantors of the transactions contemplated thereby, and the issuance and
sale of the Securities by the Issuers.
(xiii) to our actual knowledge, there are no legal or governmental
proceedings pending or threatened to which Parent, the Company or the
Guarantor is a party or of which any property or assets of Parent, the
Company or the Guarantor is the subject that (A) would
<PAGE>
3
be required under the Securities Act to be described in a registration
statement or a prospectus delivered at the time of the confirmation of the
sale of an offering of securities registered under the Securities Act and
are not described in the Offering Memorandum, (B) question the validity or
enforceability of any of the Transaction Documents or any action taken or
to be taken pursuant thereto or (C) singularly or in the aggregate, if
determined adversely to Parent, the Company or the Guarantor, could
reasonably be expected to have a Material Adverse Effect;
(xiv) None of Parent, the Company or the Guarantor is (A) subject to
registration and regulation as an "investment company" or a company
"controlled by" an "investment company" within the meaning of the
Investment Company Act and the rules and regulations of the Commission
thereunder or (B) a "holding company" or a "subsidiary company" of a
holding company or an "affiliate" thereof within the meaning of the Public
Utility Holding Company Act of 1935, as amended;
(xv) neither the issuance or sale of the Securities nor the
application of the net proceeds thereof as set forth in the Offering
Memorandum will violate Regulation T, U or X of the Federal Reserve Board;
and
(xvi) Assuming, without independent investigation, (A) that the
Securities are sold to the Initial Purchasers, and initially resold by the
Initial Purchasers, in accordance with the terms of, and in the manner
contemplated by, the Purchase Agreement and the Offering Memorandum, (B)
the accuracy of the representations and warranties of the Issuers and the
Guarantor set forth in the Purchase Agreement and in those certain
certificates delivered at the Closing, (C) the accuracy of the Initial
Purchasers' representations and warranties set forth in the Purchase
Agreement, (D) the due performance by the Issuers, the Guarantor and the
Initial Purchasers of their respective covenants and agreements set forth
in the Purchase Agreement, (E) the Initial Purchasers' compliance with the
Offering Memorandum and the transfer procedures and restriction described
in the Offering Memorandum, (F) the accuracy of any representations and
warranties made in accordance with the Purchase Agreement, if any, and in
the Offering Memorandum by each purchaser to whom the Initial Purchasers
initially resell the Securities and (G) that each Purchaser to whom the
Initial Purchasers initially resell Securities receives a copy of the
Offering Memorandum, if required by such purchaser prior to such sale, the
offer, issuance, sale and delivery of the Securities to the Initial
Purchasers, and the resale and delivery of the Securities by the Initial
Purchasers, in each case as contemplated by the Purchase Agreement and the
Offering Memorandum, do not require registration under the Act, or
qualification of the Indenture under the Trust Indenture Act, it being
understood that no opinion is expressed is to any subsequent resale of
Securities or any resale of Securities by any person other than the Initial
Purchasers.
In the course of the preparation of the Offering Memorandum, we have
participated in conferences with certain officers and other representatives of
the Issuers, representatives of the independent public accountants for the
Issuers, representatives of the Initial Purchasers and counsel for the Initial
Purchasers, at which conferences we made inquiries of such officers,
representatives, accountants and counsel and discussed the contents of the
Offering Memorandum and related matters and, although we are not passing upon
and do not assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Offering Memorandum and have not made any
independent verification thereof, on the basis of the foregoing, in the course
of our examination of the Offering Memorandum and our discussions in the
above-referenced conferences, no facts have come to our attention that lead us
to believe
<PAGE>
4
that either the Offering Memorandum 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 to make the statements therein, in the light
of the circumstances under which they were made, not misleading (it being
understood that we express no opinion and make no statement of belief with
respect to the financial statements and schedules and other financial and
statistical data included therein).
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent such counsel deems proper, on certificates of responsible officers of
the Issuers and the Guarantor and public officials which are furnished to the
Initial Purchasers.
<PAGE>
ANNEX C
[Form of Initial Comfort Letter]
<PAGE>
[Draft--5/8/98]
LA PETITE ACADEMY, INC.
LPA HOLDING CORP.
$145,000,000
10% Senior Notes due 2008
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
May 11, 1998
CHASE SECURITIES INC.
NATIONSBANC MONTGOMERY
SECURITIES LLC
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
LPA Holding Corp., a Delaware corporation ("Parent"), and La Petite
Academy, Inc., a Delaware corporation and a wholly owned subsidiary of Parent
(the "Company" and, together with Parent, the"Issuers"), propose to issue and
sell $145,000,000 aggregate principal amount of their 10% Senior Notes due 2008
(the "Securities"). The Securities will be issued pursuant to an Indenture to be
dated as of May 11, 1998 (the "Indenture") among the Issuers, LPA Services, Inc.
(the "Guarantor") and PNC Bank, National Association, as trustee (the "Trustee")
and will be guaranteed on an unsecured senior basis by the Guarantor.
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Purchase Agreement.
As an inducement to the Initial Purchasers to enter into the Purchase
Agreement and in satisfaction of a condition to the obligations of the Initial
Purchasers thereunder, each of the Issuers and the Guarantor agree with the
Initial Purchasers, for the benefit of the holders (including the Initial
Purchasers and the Market-Maker (as defined below)) of the Securities, the
Exchange Securities (as defined herein) and the Private Exchange Securities (as
defined herein) (collectively, the "Holders"), as follows:
1. Registered Exchange Offer. The Issuers and the Guarantor shall (i)
prepare and, not later than 60 days following the date of original issuance of
the Securities (the "Issue Date"), file with the Commission a registration
statement (the "Exchange Offer Registration Statement") on an appropriate form
under the Securities Act with respect to a proposed offer to the Holders of the
Securities (the "Registered Exchange Offer") to issue and deliver to such
Holders, in exchange for the Securities, a like aggregate principal amount of
debt securities of the Issuers (the "Exchange Securities") that are identical in
all material respects to the Securities, except for the transfer restrictions
relating to the Securities, (ii) use their reasonable best efforts to cause the
Exchange Offer Registration Statement to become effective under the Securities
Act no later than 120 days after the Issue Date and the Registered Exchange
Offer to be consummated no later than 180 days after the Issue Date and (iii)
keep the Exchange Offer Registration Statement effective for not less than 30
days (or longer, if required by applicable law) after the date on which notice
of the Registered Exchange Offer is mailed to the Holders (such period being
called the "Exchange Offer Registration Period"). The Exchange Securities will
be issued under the Indenture or an indenture (the "Exchange Securities
Indenture") among the Issuers, the Guarantor and the Trustee or such other bank
or trust company that is reasonably satisfactory to the Initial Purchasers, as
trustee (the "Exchange Securities Trustee"), such
<PAGE>
2
indenture to be identical in all material respects to the Indenture, except for
the transfer restrictions relating to the Securities (as described above). All
references in this Agreement to "prospectus" and "Registration Statement" shall,
except where the context otherwise requires, include any prospectus (or
amendment or supplement thereto) and Registration Statement (or amendment
thereto), respectively, filed with the Commission pursuant to Section 6 of this
Agreement.
Upon the effectiveness of the Exchange Offer Registration Statement, the
Issuers shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder electing to
exchange Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Issuers or an Exchanging Dealer (as defined herein) not
complying with the requirements of the next sentence, (b) is not an Initial
Purchaser holding Securities that have, or that are reasonably likely to have,
the status of an unsold allotment in an initial distribution, (c) acquires the
Exchange Securities in the ordinary course of such Holder's business and (d) has
no arrangements or understandings with any person to participate in the
distribution of the Exchange Securities) and to trade such Exchange Securities
from and after their receipt without any limitations or restrictions under the
Securities Act and without material restrictions under the securities laws of
the several states of the United States. The Issuers, the Guarantor, the Initial
Purchasers and each Exchanging Dealer acknowledge that, pursuant to current
interpretations by the Commission's staff of Section 5 of the Securities Act,
each Holder that is a broker-dealer electing to exchange Securities, acquired
for its own account as a result of market-making activities or other trading
activities, for Exchange Securities (an "Exchanging Dealer"), is required to
deliver a prospectus containing substantially the information set forth in Annex
A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures"
section and the "Purpose of the Exchange Offer" section and in Annex C hereto in
the "Plan of Distribution" section of such prospectus in connection with a sale
of any such Exchange Securities received by such Exchanging Dealer pursuant to
the Registered Exchange Offer.
If, prior to the consummation of the Registered Exchange Offer, any Holder
holds any Securities acquired by it that have, or that are reasonably likely to
be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Registered
Exchange Offer, the Issuers shall, upon the request of any such Holder,
simultaneously with the delivery of the Exchange Securities in the Registered
Exchange Offer, issue and deliver to any such Holder, in exchange for the
Securities held by such Holder (the "Private Exchange"), a like aggregate
principal amount of debt securities of the Issuers (the "Private Exchange
Securities") that are identical in all material respects to the Exchange
Securities, except for the transfer restrictions relating to such Private
Exchange Securities. The Private Exchange Securities will be issued under the
same indenture as the Exchange Securities, and the Issuers shall use their
reasonable best efforts to cause the Private Exchange Securities to bear the
same CUSIP number as the Exchange Securities.
In connection with the Registered Exchange Offer, the Issuers shall:
(a) 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;
(b) keep the Registered Exchange Offer open for not less than 30 days
(or longer, if required by applicable law) after the date on which notice
of the Registered Exchange Offer is mailed to the Holders;
(c) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
<PAGE>
3
(d) permit Holders to withdraw tendered Securities at any time prior
to the close of business, New York City time, on the last business day on
which the Registered Exchange Offer shall remain open; and
(e) otherwise comply in all respects with all laws that are applicable
to the Registered Exchange Offer.
As soon as practicable after the close of the Registered Exchange Offer and
any Private Exchange, as the case may be, the Issuers shall:
(a) accept for exchange all Securities tendered and not validly
withdrawn pursuant to the Registered Exchange Offer and the Private
Exchange;
(b) deliver to the Trustee for cancelation all Securities so accepted
for exchange; and
(c) cause the Trustee or the Exchange Securities Trustee, as the case
may be, promptly to authenticate and deliver to each Holder, Exchange
Securities or Private Exchange Securities, as the case may be, equal in
principal amount to the Securities of such Holder so accepted for exchange.
The Issuers shall use their reasonable best efforts to keep the Exchange
Offer Registration Statement effective and to amend and supplement the
prospectus contained therein in order to permit such prospectus to be used by
all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Securities; provided that (i) in the case where
such prospectus and any amendment or supplement thereto must be delivered by an
Exchanging Dealer, such period shall be the lesser of 180 days and the date on
which all Exchanging Dealers have sold all Exchange Securities held by them and
(ii) the Issuers shall make such prospectus and any amendment or supplement
thereto available to any broker-dealer for use in connection with any resale of
any Exchange Securities for a period of not less than 90 days after the
consummation of the Registered Exchange Offer.
The Indenture or the Exchange Securities Indenture, as the case may be,
shall provide that the Securities, the Exchange Securities and the Private
Exchange Securities shall vote and consent together on all matters as one class
and that none of the Securities, the Exchange Securities or the Private Exchange
Securities will have the right to vote or consent as a separate class on any
matter.
Interest on each Exchange Security and Private Exchange Security issued
pursuant to the Registered Exchange Offer and in the Private Exchange will
accrue from the last interest payment date on which interest was paid on the
Securities surrendered in exchange therefor or, if no interest has been paid on
the Securities, from the Issue Date.
Each Holder participating in the Registered Exchange Offer shall be
required to represent to the Issuers that at the time of the consummation of the
Registered Exchange Offer (i) any Exchange Securities received by such Holder
will be acquired in the ordinary course of business, (ii) such Holder will have
no arrangements or understandings with any person to participate in the
distribution of the Securities or the Exchange Securities within the meaning of
the Securities Act and (iii) such Holder is not an affiliate of the Issuers or,
if it is such an affiliate, such Holder will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable.
Notwithstanding any other provisions hereof, the Issuers and the Guarantor
will use their reasonable best efforts to ensure that (i) any Exchange Offer
Registration Statement and any amendment thereto and any prospectus forming part
thereof and any supplement thereto
<PAGE>
4
complies in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder, (ii) any Exchange Offer 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 therein not misleading
and (iii) any prospectus forming part of any Exchange Offer Registration
Statement, and any supplement to such prospectus, does not, as of the
consummation of the Registered Exchange Offer, include an untrue statement of a
material fact or omit 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.
2. Shelf Registration. If (i) because of any change in law or applicable
interpretations thereof by the Commission's staff the Issuers are not permitted
to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or
(ii) any Securities validly tendered pursuant to the Registered Exchange Offer
are not exchanged for Exchange Securities within 180 days after the Issue Date,
or (iii) any Initial Purchaser so requests with respect to Securities or Private
Exchange Securities not eligible to be exchanged for Exchange Securities in the
Registered Exchange Offer and held by it following the consummation of the
Registered Exchange Offer, or (iv) any applicable law or interpretations do not
permit any Holder to participate in the Registered Exchange Offer, or (v) any
Holder that participates in the Registered Exchange Offer does not receive
freely transferable Exchange Securities in exchange for tendered Securities, or
(vi) the Issuers so elect, then the following provisions shall apply:
(a) The Issuers and the Guarantor shall use their reasonable best
efforts to file as promptly as practicable (but in no event more than 30
days after so required or requested pursuant to this Section 2) with the
Commission, and thereafter shall use their reasonable best efforts to cause
to be declared effective, a shelf registration statement on an appropriate
form under the Securities Act relating to the offer and sale of the
Transfer Restricted Securities (as defined below) by the Holders thereof
from time to time in accordance with the methods of distribution set forth
in such registration statement (hereafter, a "Shelf Registration Statement"
and, together with any Exchange Offer Registration Statement, a
"Registration Statement").
(b) The Issuers and the Guarantor shall use their reasonable best
efforts to keep the Shelf Registration Statement continuously effective in
order to permit the prospectus forming part thereof to be used by Holders
of Transfer Restricted Securities for a period ending on the earlier of (i)
two years from the Issue Date or such shorter period that will terminate
when all the Transfer Restricted Securities covered by the Shelf
Registration Statement have been sold pursuant thereto and (ii) the date on
which the Securities become eligible for resale without volume restrictions
pursuant to Rule 144 under the Securities Act (in any such case, such
period being called the "Shelf Registration Period"). The Issuers and the
Guarantor shall be deemed not to have used their reasonable best efforts to
keep the Shelf Registration Statement effective during the requisite period
if any of them voluntarily take any action that would result in Holders of
Transfer Restricted Securities covered thereby not being able to offer and
sell such Transfer Restricted Securities during that period, unless (i)
such action is required by applicable law or (ii) such action is taken by
the Issuers in good faith and for valid business reasons (not including
avoidance of their obligations hereunder), provided that the Issuers within
120 days thereafter comply with the requirements of Section 4(j) hereof.
Any such period during which the Issuers fail to keep the registration
statement effective and usable for offers and sales of Securities, Private
Exchange Securities and Exchange Securities is referred to as a "Suspension
Period." A Suspension Period shall commence on and include the date the
Issuers give notice that the Shelf Registration Statement is no longer
effective or the prospectus included therein is no longer usable for offers
and sales of Securities, Private Exchange Securities and Exchange
Securities and shall end on the date when each Holder of Securities,
Private Exchange Securities and Exchange Securities covered by such
registration statement either receives the copies of
<PAGE>
5
the supplemented or amended prospectus contemplated by Section 4(j) hereof
or is advised in writing by the Issuers that use of the prospectus may be
resumed. If one or more Suspension Periods occur, the two-year time period
referenced above shall be extended by the number of days included in each
such Suspension Period.
(c) Notwithstanding any other provisions hereof, the Issuer and the
Guarantor will use their reasonable best efforts to ensure that (i) any
Shelf Registration Statement and any amendment thereto and any prospectus
forming part thereof and any supplement thereto complies in all material
respects with the Securities Act and the rules and regulations of the
Commission thereunder, (ii) any Shelf Registration Statement and any
amendment thereto (in either case, other than with respect to information
included therein in reliance upon or in conformity with written information
furnished to the Issuers by or on behalf of any Holder specifically for use
therein (the "Holders' Information")) does not 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 therein not misleading and
(iii) any prospectus forming part of any Shelf Registration Statement, and
any supplement to such prospectus (in either case, other than with respect
to Holders' Information), does not include an untrue statement of a
material fact or omit 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.
3. Liquidated Damages. (a) The parties hereto agree that the Holders of
Transfer Restricted Securities will suffer damages if the Issuers and the
Guarantor fail to fulfill their obligations under Section 1 or Section 2, as
applicable, and that it would not be feasible to ascertain the extent of such
damages. Accordingly, if (i) the applicable Registration Statement is not filed
with the Commission on or prior to 60 days after the Issue Date, (ii) the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is not declared effective within 120 days after the Issue Date
(or in the case of a Shelf Registration Statement required to be filed in
response to a change in law or the applicable interpretations of Commission's
staff, if later, within 45 days after publication of the change in law or
interpretation), (iii) the Registered Exchange Offer is not consummated on or
prior to 180 days after the Issue Date, or (iv) the Shelf Registration Statement
is filed and declared effective within 120 days after the Issue Date (or in the
case of a Shelf Registration Statement required to be filed in response to a
change in law or the applicable interpretations of Commission's staff, if later,
within 45 days after publication of the change in law or interpretation) but
shall thereafter cease to be effective (at any time that the Issuers are
obligated to maintain the effectiveness thereof) without being succeeded within
30 days by an additional Registration Statement filed and declared effective
(each such event referred to in clauses (i) through (iv), a "Registration
Default"), the Issuers and the Guarantor will be jointly and severally obligated
to pay liquidated damages to each Holder of Transfer Restricted Securities,
during the period of one or more such Registration Defaults, in an amount equal
to $ 0.192 per week per $1,000 principal amount of Transfer Restricted
Securities held by such Holder until (i) the applicable Registration Statement
is filed, (ii) the Exchange Offer Registration Statement is declared effective
and the Registered Exchange Offer is consummated, (iii) the Shelf Registration
Statement is declared effective or (iv) the Shelf Registration Statement again
becomes effective, as the case may be. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease. As used herein, the term
"Transfer Restricted Securities" means (i) each Security until the date on which
such Security has been exchanged for a freely transferable Exchange Security in
the Registered Exchange Offer, (ii) each Security or Private Exchange Security
until the date on which it has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iii)
each Security or Private Exchange Security until the date on which it is
distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding
anything to the contrary in this Section 3(a), the Issuers shall not be required
to pay liquidated damages to a Holder of Transfer Restricted Securities if such
Holder failed to comply with its obligations to make the
<PAGE>
6
representations set forth in the second to last paragraph of Section 1 or failed
to provide the information required to be provided by it, if any, pursuant to
Section 4(n).
(b) The Issuers shall notify the Trustee and the Paying Agent under the
Indenture within two business days after the happening of each and every
Registration Default. The Issuers and the Guarantor shall pay the liquidated
damages due on the Transfer Restricted Securities by depositing with the Paying
Agent (which may not be the Company for these purposes), in trust, for the
benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the
next interest payment date specified by the Indenture and the Securities, sums
sufficient to pay the liquidated damages then due. The liquidated damages due
shall be payable on each interest payment date specified by the Indenture and
the Securities to the record holder entitled to receive the interest payment to
be made on such date. Each obligation to pay liquidated damages shall be deemed
to accrue from and including the date of the applicable Registration Default.
(c) The parties hereto agree that the liquidated damages provided for in
this Section 3 constitute a reasonable estimate of and are intended to
constitute the sole damages that will be suffered by Holders of Transfer
Restricted Securities by reason of the failure of (i) the Shelf Registration
Statement or the Exchange Offer Registration Statement to be filed, (ii) the
Shelf Registration Statement to remain effective or (iii) the Exchange Offer
Registration Statement to be declared effective and the Registered Exchange
Offer to be consummated, in each case to the extent required by this Agreement.
4. Registration Procedures. In connection with any Registration Statement,
the following provisions shall apply:
(a) The Issuers shall (i) furnish to each Initial Purchaser, prior to
the filing thereof with the Commission, a copy of the Registration
Statement and each amendment thereof and each supplement, if any, to the
prospectus included therein and shall use its reasonable best efforts to
reflect in each such document, when so filed with the Commission, such
comments as any Initial Purchaser may reasonably propose; (ii) include the
information set forth in Annex A hereto on the cover, in Annex B hereto in
the "Exchange Offer Procedures" section and the "Purpose of the Exchange
Offer" section and in Annex C hereto in the "Plan of Distribution" section
of the prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto in the
Letter of Transmittal delivered pursuant to the Registered Exchange Offer;
and (iii) if requested by any Initial Purchaser, include the information
required by Items 507 or 508 of Regulation S-K, as applicable, in the
prospectus forming a part of the Exchange Offer Registration Statement.
(b) The Issuers shall advise each Initial Purchaser, and in case of a
Shelf Registration Statement, the Holders (if applicable), and, if
requested by any such person, confirm such advice in writing (which advice
pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction
to suspend the use of the prospectus until the requisite changes have been
made):
(i) when any Registration Statement and any amendment thereto has
been filed with the Commission and when such Registration Statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to any Registration Statement or the prospectus included
therein or for additional information;
<PAGE>
7
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any Registration Statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Issuers of any notification with
respect to the suspension of the qualification of the Securities, the
Exchange Securities or the Private Exchange Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose; and
(v) of the happening of any event that requires the making of any
changes in any Registration Statement or the prospectus included
therein in order that the statements therein are not misleading and do
not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(c) The Issuers and the Guarantor will make every reasonable effort to
obtain the withdrawal at the earliest possible time of any order suspending
the effectiveness of any Registration Statement.
(d) The Issuers will furnish to each Holder of Transfer Restricted
Securities included within the coverage of any Shelf Registration
Statement, without charge, at least one conformed copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if any such Holder so requests in
writing, all exhibits thereto (including those, if any, incorporated by
reference).
(e) The Issuers will, during the Shelf Registration Period, promptly
deliver to each Holder of Transfer Restricted Securities included within
the coverage of any Shelf Registration Statement, without charge, as many
copies of the prospectus (including each preliminary prospectus) included
in such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Issuers consent to
the use of such prospectus or any amendment or supplement thereto by each
of the selling Holders of Transfer Restricted Securities in connection with
the offer and sale of the Transfer Restricted Securities covered by such
prospectus or any amendment or supplement thereto.
(f) The Issuers will furnish to each Initial Purchaser and each
Exchanging Dealer, and to any other Holder who so requests in writing,
without charge, at least one conformed copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules and, if any Initial Purchaser or
Exchanging Dealer or any such Holder so requests in writing, all exhibits
thereto (including those, if any, incorporated by reference).
(g) The Issuers will, during the Exchange Offer Registration Period or
the Shelf Registration Period, as applicable, promptly deliver to each
Initial Purchaser, each Exchanging Dealer and such other persons that are
required to deliver a prospectus following the Registered Exchange Offer,
without charge, as many copies of the final prospectus included in the
Exchange Offer Registration Statement or the Shelf Registration Statement
and any amendment or supplement thereto as such Initial Purchaser,
Exchanging Dealer or other persons may reasonably request; and the Issuers
and the Guarantor consent to the use of such prospectus or any amendment or
supplement thereto by any such Initial Purchaser, Exchanging Dealer or
other persons, as applicable, as aforesaid.
(h) Prior to the effective date of any Registration Statement, the
Issuers and the Guarantor will use their reasonable best efforts to
register or qualify, or cooperate with
<PAGE>
8
the Holders of Securities, Exchange Securities or Private Exchange
Securities included therein and their respective counsel in connection with
the registration or qualification of, such Securities, Exchange Securities
or Private Exchange Securities for offer and sale under the securities or
blue sky laws of such jurisdictions as any such Holder reasonably requests
in writing and do any and all other acts or things necessary or advisable
to enable the offer and sale in such jurisdictions of the Securities,
Exchange Securities or Private Exchange Securities covered by such
Registration Statement; provided that the Issuers and the Guarantor will
not be required to qualify generally to do business in any jurisdiction
where they are not then so qualified or to take any action which would
subject them to general service of process or to taxation in any such
jurisdiction where they are not then so subject.
(i) The Issuers and the Guarantor will cooperate with the Holders of
Securities, Exchange Securities or Private Exchange Securities to
facilitate the timely preparation and delivery of certificates representing
Securities, Exchange Securities or Private Exchange Securities to be sold
pursuant to any Registration Statement free of any restrictive legends and
in such denominations and registered in such names as the Holders thereof
may request in writing prior to sales of Securities, Exchange Securities or
Private Exchange Securities pursuant to such Registration Statement.
(j) If (i) any event contemplated by Section 4(b)(ii) through (v)
occurs during the period for which the Issuers and the Guarantor are
required to maintain an effective Registration Statement or (ii) any
Suspension Period remains in effect for more than 120 days after the
occurrence thereof, the Issuers and the Guarantor will promptly prepare and
file with the Commission a post-effective amendment to the Registration
Statement or a supplement to the related prospectus or file any other
required document so that, as thereafter delivered to purchasers of the
Securities, Exchange Securities or Private Exchange Securities from a
Holder, the prospectus will not include an untrue statement of a material
fact or omit 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.
(k) Not later than the effective date of the applicable Registration
Statement, the Issuers will provide a CUSIP number for the Securities, the
Exchange Securities and the Private Exchange Securities, as the case may
be, and provide the applicable trustee with printed certificates for the
Securities, the Exchange Securities or the Private Exchange Securities, as
the case may be, in a form eligible for deposit with The Depository Trust
Company.
(l) The Issuers and the Guarantor will comply with all applicable
rules and regulations of the Commission and the Issuers will make generally
available to its security holders as soon as practicable after the
effective date of the applicable Registration Statement an earning
statement satisfying the provisions of Section 11(a) of the Securities Act;
provided that in no event shall such earning statement be delivered later
than 45 days after the end of a 12-month period (or 90 days, if such period
is a fiscal year) beginning with the first month of the Issuers' first
fiscal quarter commencing after the effective date of the applicable
Registration Statement, which statement shall cover such 12-month period.
(m) The Issuers and the Guarantor will cause the Indenture or the
Exchange Securities Indenture, as the case may be, to be qualified under
the Trust Indenture Act as required by applicable law in a timely manner.
(n) The Issuers may require each Holder of Transfer Restricted
Securities to be registered pursuant to any Shelf Registration Statement to
furnish to the Issuers such information concerning the Holder and the
distribution of such Transfer Restricted
<PAGE>
9
Securities as the Issuers may from time to time reasonably require for
inclusion in such Shelf Registration Statement, and the Issuers may exclude
from such registration the Transfer Restricted Securities of any Holder
that fails to furnish such information within a reasonable time after
receiving such request.
(o) In the case of a Shelf Registration Statement, each Holder of
Transfer Restricted Securities to be registered pursuant thereto agrees by
acquisition of such Transfer Restricted Securities that, upon receipt of
any notice from the Issuers pursuant to Section 4(b)(ii) through (v), such
Holder will discontinue disposition of such Transfer Restricted Securities
until such Holder's receipt of copies of the supplemental or amended
prospectus contemplated by Section 4(j) or until advised in writing (the
"Advice") by the Issuers that the use of the applicable prospectus may be
resumed. If the Issuers shall give any notice under Section 4(b)(ii)
through (v) during the period that the Issuers are required to maintain an
effective Registration Statement (the "Effectiveness Period"), such
Effectiveness Period shall be extended by the number of days during such
period from and including the date of the giving of such notice to and
including the date when each seller of Transfer Restricted Securities
covered by such Registration Statement shall have received (x) the copies
of the supplemental or amended prospectus contemplated by Section 4(j) (if
an amended or supplemental prospectus is required) or (y) the Advice (if no
amended or supplemental prospectus is required).
(p) In the case of a Shelf Registration Statement, the Issuers and the
Guarantor shall enter into such customary agreements (including, if
requested, an underwriting agreement in customary form) and take all such
other action, if any, as Holders of a majority in aggregate principal
amount of the Securities, Exchange Securities and Private Exchange
Securities being sold or the managing underwriters (if any) shall
reasonably request in order to facilitate any disposition of Securities,
Exchange Securities or Private Exchange Securities pursuant to such Shelf
Registration Statement.
(q) In the case of a Shelf Registration Statement, the Issuers shall
(i) make reasonably available for inspection by a representative of, and
Special Counsel (as defined below) acting for, Holders of a majority in
aggregate principal amount of the Securities, Exchange Securities and
Private Exchange Securities being sold and any underwriter participating in
any disposition of Securities, Exchange Securities or Private Exchange
Securities pursuant to such Shelf Registration Statement, all relevant
financial and other records, pertinent corporate documents and properties
of the Company and its subsidiaries and (ii) use its reasonable best
efforts to have its officers, directors, employees, accountants and counsel
supply all relevant information reasonably requested by such
representative, Special Counsel or any such underwriter (an "Inspector") in
connection with such Shelf Registration Statement.
(r) In the case of a Shelf Registration Statement, the Issuers shall,
if requested by Holders of a majority in aggregate principal amount of the
Securities, Exchange Securities and Private Exchange Securities being sold,
their Special Counsel or the managing underwriters (if any) in connection
with such Shelf Registration Statement, use their reasonable best efforts
to cause (i) their counsel to deliver an opinion relating to the Shelf
Registration Statement and the Securities, Exchange Securities or Private
Exchange Securities, as applicable, in customary form, (ii) their officers
to execute and deliver all customary documents and certificates requested
by Holders of a majority in aggregate principal amount of the Securities,
Exchange Securities and Private Exchange Securities being sold, their
Special Counsel or the managing underwriters (if any) and (iii) their
independent public accountants to provide a comfort letter or letters in
customary form, subject to receipt of appropriate documentation as
contemplated, and only if permitted, by Statement of Auditing Standards No.
72.
<PAGE>
10
5. Registration Expenses. The Issuers and the Guarantor will jointly and
severally bear all expenses incurred in connection with the performance of its
obligations under Sections 1, 2, 3 and 4 and the Issuers will reimburse the
Initial Purchasers and the Holders for the reasonable fees and disbursements of
one firm of attorneys (in addition to any local counsel) chosen by the Holders
of a majority in aggregate principal amount of the Securities, the Exchange
Securities and the Private Exchange Securities to be sold pursuant to each
Registration Statement (the "Special Counsel") acting for the Initial Purchasers
or Holders in connection therewith.
6. Market Making. (a) The Issuers will, for the sole benefit of Chase
Securities Inc. (the "Market-Maker"), and for so long as any of the Securities,
Exchange Securities or Private Exchange Securities are outstanding and the
Market-Maker or any of its affiliates owns any equity securities of Parent or
the Company and proposes to make a market in the Securities, Exchange Securities
or Private Exchange Securities as part of its business in the ordinary course:
(i) (A) On the date that the Exchange Offer Registration Statements is
filed with the Commission, the Issuers shall file a Registration Statement
(which may be the Exchange Offer Registration Statement or the Shelf
Registration Statement if permitted by the rules and regulations of the
Commission) and shall use its best efforts to cause such Registration
Statement to be declared effective by the Commission on or prior to the
consummation of the Exchange Offer; (B) periodically amend such
Registration Statement so that the information contained therein complies
with the requirements of Section 10(a) under the Securities Act; (C) within
45 days following the end of each of the Issuers' fiscal quarters file a
supplement to the prospectus contained in the Registration Statement that
sets forth the financial results of the Issuers for such quarter; (D) amend
the Registration Statement or supplement the related prospectus when
necessary to reflect any material changes in the information provided
therein; and (E) amend the Registration Statement when required to do so in
order to comply with Section 10(a)(3) of the Securities Act; provided,
however, that (1) prior to filing any post-effective amendment to the
Registration Statement or any supplement to the related prospectus, the
Issuers will furnish to the Market-Maker copies of all such documents
proposed to be filed, which documents will be subject to the review of the
Market-Maker and its counsel, (2) the Issuers will not file any
post-effective amendment to the Registration Statement or any supplement to
the related prospectus to which the Market-Maker and its counsel shall
reasonably object unless the Issuers are advised by counsel that such
post-effective amendment or supplement is required to be filed and (3) the
Issuers will provide the Market-Maker and its counsel with copies of each
amendment or supplement filed.
(ii) If at any time the Issuers become no longer eligible to use Form
S-3 under the Securities Act with respect to sales of the Securities,
Exchange Securities or Private Exchange Securities, file a post-effective
amendment to the Registration Statement to convert it to a Form S-1
registration statement as soon as practicable.
(iii) Notify the Market-Maker, and (if requested by the Market-Maker)
confirm such advice in writing, (A) when any post-effective amendment to
the Registration Statement or any amendment or supplement to the related
prospectus has been filed, and, with respect to any post-effective
amendment, when the same has become effective; (B) of any request by the
Commission for any post-effective amendment to the Registration Statement,
any supplement or amendment to the related prospectus or for additional
information; (C) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (D) of the receipt by the
Issuers 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 proceedings for such purpose; (E) of the
happening of any event that makes any statement made in the Registration
Statement, the related
<PAGE>
11
prospectus or any amendment or supplement thereto untrue or that requires
the making of any changes in the Registration Statement, such prospectus or
any amendment or supplement thereto, in order to make the statements
therein not misleading; and (F) of any advice from a nationally recognized
statistical rating organization that such organization has placed Parent or
the Company under surveillance or review with negative implications or has
determined to downgrade the rating of the Securities, Exchange Securities
or Private Exchange Securities or any other debt obligation of Parent or
the Company whether or not such downgrade shall have been publicly
announced.
(iv) Furnish to the Market-Maker, without charge, (i) at least one
conformed copy of any post-effective amendment to the Registration
Statement; and (ii) as many copies of the related prospectus and any
amendment or supplement thereto as the Market-Maker may reasonably request.
(v) Consent to the use of the prospectus contained in the Registration
Statement or any amendment or supplement thereto by the Market-Maker in
connection with the offering and sale of the Securities.
(vi) For so long as the Securities, Exchange Securities or Private
Exchange Securities shall be outstanding, furnish to the Market-Maker (A)
as soon as practicable after the end of each of the Issuers' fiscal years,
the number of copies reasonably requested by the Market-Maker of the
Issuers' annual report to stockholders for such year, (B) as soon as
available, the number of copies reasonably requested by the Market-Maker of
each report (including, without limitation, Reports on Forms 10-K, 10-Q,
and 8-K) or definitive proxy statements of the Issuers filed under the
Exchange Act or mailed to stockholders and (C) all public reports and all
reports and financial statements furnished by the Issuers to the Nasdaq
National Market System or any U.S. national securities exchange or
quotation service upon which the Securities or Exchange Securities may be
listed pursuant to requirements of or agreements with such exchange or
quotation service or to the Commission pursuant to the Exchange Act or any
rule or regulation of the Commission thereunder.
(vii)In the event of the issuance of any stop order suspending the
effectiveness of the Registration Statement or of any order suspending the
qualification of the Securities, Exchange Securities or Private Exchange
Securities for sale in any jurisdiction, to use promptly its best efforts
to obtain its withdrawal.
(b) The Issuers represent that any post-effective amendments to the
Registration Statement, any amendments or supplements to the related prospectus
and any documents filed by them under the Exchange Act will, when they become
effective or are filed with the Commission, as the case may be, conform in all
respects to the requirements of the Securities Act and the Exchange Act and the
rules and regulations of the Commission thereunder and will not, as of the
effective date of such post-effective amendments and as of the filing date of
amendments or supplements to such prospectus or filings under the Exchange Act,
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 therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
related prospectus in reliance upon and in conformity with written information
furnished to the Issuers by the Market-Maker specifically for inclusion therein,
which information the parties hereto agree will be limited to the statements
concerning the Market-Making activities of the Market-Maker to be set forth on
the cover page and in the "Plan of Distribution" section of the prospectus.
(c) Each time that the Registration Statement or the related prospectus
shall be amended or such prospectus shall be supplemented, each Issuer shall (if
requested by the
<PAGE>
12
Market-Maker), concurrently which such amendment or supplement, furnish the
Market-Maker and its counsel with a certificate of its Chairman of the Board or
its President and its chief financial officer to the effect that:
(i) The Registration Statement has been declared effective and such
amendment has become effective under the Securities Act as of the date and
time specified in such certificate, if applicable, such amendment to the
prospectus (or such supplement to the prospectus, as the case may be) was
filed with the Commission pursuant to the subparagraph of Rule 424(b) under
the Securities Act specified in such certificate on the date specified
therein; and, to the knowledge of such officers, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceeding for that purpose is pending or threatened by the Commission; and
(ii) Such officers have carefully examined the Registration Statement
and the prospectus and such amendment or supplement thereto and as of the
date of such amendment or supplement, the Registration Statement and the
prospectus, as amended or supplemented, as the case may be, did not include
any untrue statement of a material fact and did not omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(d) Each time that the Registration Statement or the related prospectus
shall be amended or such prospectus shall be supplemented, the Issuers shall (if
requested by the Market-Maker), concurrently with such amendment or supplement,
furnish the Market-Maker and its counsel with the written opinion of counsel for
the Issuers satisfactory to the Market-Maker to the effect that;
(i) The Registration Statement has been declared effective and such
amendment has become effective under the Securities Act as of the date and
time specified in such certificate, if applicable, such amendment to the
prospectus (or such supplement to the prospectus, as the case may be) was
filed with the Commission pursuant to the subparagraph Rule 424(b) under
the Securities Act specified in such opinion on the date specified therein;
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose is pending or threatened by the Commission; and
(ii) Counsel for the Issuers has reviewed such amendment or supplement
and participated with officers of the Issuers and independent public
accountants for the Issuers in the preparation of such amendment or
supplement and has no reason to believe that the Registration Statement (or
any post-effective amendment thereto), at the time of its effective date,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the prospectus contains any
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,
in the light of the circumstances under which they were made, not
misleading.
(e) Each time that the Registration Statement or the related prospectus
shall be amended or such prospectus shall be supplemented to include audited
annual financial information, the Issuers shall (if requested by the
Market-Maker), concurrently with such amendment or supplement, furnish the
Market-Maker and its counsel with a letter of Deloitte & Touche LLP (or other
independent public accountants for the Issuers of nationally recognized
standing), in form satisfactory to the Market-Maker, addressed to the
Market-Maker and dated the date of delivery of such letter, (i) confirming that
they are independent public accountants within the meaning of the Securities Act
and are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the Commission
and (ii) a letter substantially in the form of the letter delivered to the
Initial
<PAGE>
13
Purchasers pursuant to Section 5(f) of the Purchase Agreement with such changes
as may be necessary to reflect the amended or supplemented financial
information.
(f) The Issuers hereby agree to indemnify the Market-Maker, and, if
applicable, contribute to the Market-Maker, in accordance with Section 7 and 8
of this Agreement.
(g) The Issuers will comply with the provisions of this Section 6 at their
own expense and will reimburse the Market-Maker for its expenses associated with
this Section 6 (including fees of counsel).
(h) The agreements contained in this Section 6 and the representations,
warranties and agreements contained in this Agreement shall survive all offers
and sales of the Securities and shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of any indemnified party.
(i) For purposes of this Section 6, any reference to the terms "amend",
"amendment" or "supplement" with respect to the Registration Statement or the
prospectus contained therein shall be deemed to refer to and include the filing
under the Exchange Act of any document deemed to be incorporated therein by
reference.
7. Indemnification. (a) In the event of a Shelf Registration Statement or
in connection with any prospectus delivery pursuant to an Exchange Offer
Registration Statement by an Initial Purchaser or Exchanging Dealer, as
applicable, or in connection with any prospectus delivery by the Market-Maker,
the Issuers and the Guarantor shall jointly and severally indemnify and hold
harmless each Holder (including, without limitation, any such Initial Purchaser,
the Market-Maker or any such Exchanging Dealer), its affiliates, its officers,
directors, employees, representatives and agents, and each person, if any, who
controls such Holder within the meaning of the Securities Act or the Exchange
Act (collectively referred to for purposes of this Section 7 and Section 8 as a
Holder) from and against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, without limitation, any loss,
claim, damage, liability or action relating to purchases and sales of
Securities, Exchange Securities or Private Exchange Securities), to which that
Holder may become subject, whether commenced or threatened, under the Securities
Act, the Exchange Act, any 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 a material fact contained in any such Registration Statement
or any prospectus forming part thereof or in any amendment or supplement
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or (iii) in the case of the Market-Maker, any material breach by the
Issuers of their representations, warranties and agreements contained in Section
6, and shall reimburse each Holder promptly upon demand for any legal or other
expenses reasonably incurred by that Holder in connection with investigating or
defending or preparing to defend against or appearing as a third party witness
in connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Issuers and the Guarantor
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, an untrue statement
or alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with any Holders' Information; and
provided, further, that with respect to any such untrue statement in or omission
from any related preliminary prospectus, the indemnity agreement contained in
this Section 7(a) shall not inure to the benefit of any Holder from whom the
person asserting any such loss, claim, damage, liability or action received
Securities, Exchange Securities or Private Exchange Securities to the extent
that such loss, claim, damage, liability or action of or with respect to such
Holder results from the fact that both (A) a copy of the final prospectus was
not sent or given to such person at or prior to the written confirmation of the
sale of such Securities, Exchange Securities or Private Exchange Securities to
such person and (B) the untrue statement in or omission from the related
<PAGE>
14
preliminary prospectus was corrected in the final prospectus unless, in
either case, such failure to deliver the final prospectus was a result of
non-compliance by the Issuers with Section 4(d), 4(e), 4(f) or 4(g).
(b) In the event of a Shelf Registration Statement or in connection with
any prospectus delivery by the Market-Maker, each Holder (including, if
applicable, the Market-Maker) shall indemnify and hold harmless the Issuers,
their affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls the Issuers
within the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 7(b) and Section 8 as the Issuers),
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Issuers may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any 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 a material
fact contained in any such Registration Statement or any prospectus forming part
thereof 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 in order to make the statements therein, in the light of the
circumstances under 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 any
Holders' Information furnished to the Issuers by such Holder, and shall
reimburse the Issuers for any legal or other expenses reasonably incurred by the
Issuers in connection with investigating or defending or preparing to defend
against or appearing as a third party witness in connection with any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that no such Holder shall be liable for any indemnity claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale of
Securities, Exchange Securities or Private Exchange Securities pursuant to such
Shelf Registration Statement.
(c) Promptly after receipt by an indemnified party under this Section 7 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 7(a) or 7(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
that it may have under this Section 7 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 that it may have to
an indemnified party otherwise than under this Section 7. 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 7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than the reasonable costs of investigation; provided, however,
that an indemnified party shall 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 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
<PAGE>
15
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 7(a) and 7(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 for 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.
8. Contribution. If the indemnification provided for in Section 7 is
unavailable or insufficient to hold harmless an indemnified party under Section
7(a) or 7(b), 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 Issuers and the Guarantor from the offering and sale of
the Securities, on the one hand, and a Holder with respect to the sale by such
Holder of Securities, Exchange Securities or Private Exchange Securities, on the
other, 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 Issuers and the Guarantor, on the one hand, and such Holder, 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 Issuers and the
Guarantor, on the one hand, and a Holder, on the other, with respect to such
offering and such sale shall be deemed to be in the same proportion as the total
net proceeds from the offering of the Securities (before deducting expenses)
received by or on behalf of the Issuers as set forth in the table on the cover
of the Offering Memorandum, on the one hand, bear to the total proceeds received
by such Holder with respect to its sale of Securities, Exchange Securities or
Private Exchange Securities, on the other. 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 the Issuers and the Guarantor or information supplied
by the Issuers and the Guarantor, on the one hand, or to any Holders'
Information supplied by such Holder, 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 parties hereto agree that it
would not be just and equitable if contributions pursuant to this Section 8 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 8 shall be deemed to include, for purposes of this Section 8, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending or preparing to defend any such
action or claim. Notwithstanding the provisions of this Section 8, an
indemnifying party that is a Holder of Securities, Exchange Securities or
Private Exchange Securities shall not be required to contribute any amount in
excess of the amount by which the total price at which the Securities, Exchange
Securities or Private Exchange Securities sold by
<PAGE>
16
such indemnifying party to any purchaser exceeds the amount of any damages which
such indemnifying party 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.
9. Rules 144 and 144A. The Issuers shall use their reasonable best efforts
to file the reports required to be filed by them under the Securities Act and
the Exchange Act in a timely manner and, if at any time the Issuers are not
required to file such reports, they will, upon the written request of any Holder
of Transfer Restricted Securities or the Market-Maker, make publicly available
other information so long as necessary to permit sales of such Holder's
securities pursuant to Rules 144 and 144A. The Issuers and the Guarantor
covenant that they will take such further action as any Holder of Transfer
Restricted Securities or the Market-Maker may reasonably request, all to the
extent required from time to time to enable such Holder or Market-Maker to sell
Transfer Restricted Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rules 144 and 144A
(including, without limitation, the requirements of Rule 144A(d)(4)).
Notwithstanding the foregoing, nothing in this Section 9 shall be deemed to
require the Issuers to register any of its securities pursuant to the Exchange
Act.
10. Underwritten Registrations. If any of the Transfer Restricted
Securities covered by any Shelf Registration Statement are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in aggregate principal amount of such Transfer Restricted Securities
included in such offering, subject to the consent of the Issuers (which shall
not be unreasonably withheld or delayed), and such Holders shall be responsible
for all underwriting commissions and discounts in connection therewith.
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Securities on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
11. Miscellaneous. (a) Amendments and Waivers. No failure or delay by any
Holder or the Market-Maker in exercising any right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or any abandonment or discontinuance of steps to enforce any such
right preclude any other or further exercise thereof or the exercise of any
other right. The provisions of this Agreement 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 a majority in aggregate principal amount of the Securities, the Exchange
Securities and the Private Exchange Securities, taken as a single class (and,
with respect to the provisions of Section 6, the written consent of the
Market-Maker). Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose Securities, Exchange Securities or Private Exchange
Securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of a majority in aggregate principal amount of the Securities, the
Exchange Securities and the Private Exchange Securities being sold by such
Holders pursuant to such Registration Statement.
(b) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier or air courier guaranteeing next-day delivery:
<PAGE>
17
(1) if to a Holder, at the most current address given by such Holder
to the Company in accordance with the provisions of this Section 11(b),
which address initially is, with respect to each Holder, the address of
such Holder maintained by the Registrar under the Indenture, with a copy in
like manner to Chase Securities Inc. and NationsBanc Montgomery Securities
LLC;
(2) if to an Initial Purchaser, initially at its address set forth in
the Purchase Agreement; and
(3) if to the Issuers, initially at the address of the Company set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; one business day after
being delivered to a next-day air courier; five business days after being
deposited in the mail; and when receipt is acknowledged by the recipient's
telecopier machine, if sent by telecopier.
(c) Successors And Assigns. This Agreement shall be binding upon each of
the parties hereto and their successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts (which may be delivered in original form or by telecopier) 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.
(e) Definition of Terms. For purposes of this Agreement, (a) the term
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405
under the Securities Act and (c) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 under the Securities Act.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(h) Remedies. In the event of a breach by the Issuers, the Guarantor or by
any Holder of any of their obligations under this Agreement, each Holder, the
Issuers or the Guarantor, as the case may be, in addition to being entitled to
exercise all rights granted by law, including recovery of damages (other than
the recovery of damages for a breach by the Issuers or the Guarantor of their
obligations under Sections 1 or 2 hereof for which liquidated damages have been
paid pursuant to Section 3 hereof), will be entitled to specific performance of
its rights under this Agreement. The Issuers, the Guarantor and the Holders
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by each such person of any of the provisions of
this Agreement and hereby further agree that, in the event of any action for
specific performance in respect of such breach, each such person shall waive the
defense that a remedy at law would be adequate.
(i) No Inconsistent Agreements. Each of the Issuers and the Guarantor
represents, warrants and agrees that (i) it has not entered into, shall not, on
or after the date of this Agreement, enter into any agreement that is
inconsistent in any material respect with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof and (ii) (with
respect to the Issuers) without limiting the generality of the foregoing,
without the written consent of the Holders of a majority in aggregate principal
amount of the then
<PAGE>
18
outstanding Transfer Restricted Securities and the Market-Maker, it shall not
grant to any person the right to request the Issuers to register any of their
debt securities under the Securities Act unless the rights so granted are not
inconsistent in any material respect with, or conflict with, the provisions of
this Agreement.
(j) No Piggyback on Registrations. None of the Issuers or any of their
security holders (other than the Holders of Transfer Restricted Securities in
such capacity) shall have the right to include any securities of the Issuers in
any Shelf Registration or Registered Exchange Offer other than Transfer
Restricted Securities, other than any such right existing on the date hereof.
(k) Severability. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
<PAGE>
19
Please confirm that the foregoing correctly sets forth the agreement among
the Issuers, the Guarantor and the Initial Purchasers.
Very truly yours,
LA PETITE ACADEMY, INC.,
by
-------------------------------
Name:
Title:
LPA HOLDING CORP.,
by
-------------------------------
Name:
Title:
LPA SERVICES, INC.,
by
-------------------------------
Name:
Title:
Accepted:
CHASE SECURITIES INC.,
by
---------------------------------
Authorized Signatory
NAITONSBANC MONTGOMERY
SECURITIES LLC,
by
---------------------------------
Authorized Signatory
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Securities. 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 resales of Exchange Securities received in exchange for
Securities where such Securities were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution".
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Securities for its own account in
exchange for Securities, where such Securities 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 Securities. See "Plan of Distribution".
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Securities. 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 Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until [ ] 199[ ], all dealers
effecting transactions in the Exchange Securities may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of Exchange
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Registered 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
Securities or a combination of such methods of resale, at market prices
prevailing 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 of any such Exchange Securities. Any broker-dealer that resells
Exchange Securities that were received by it for its own account pursuant to the
Registered Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Securities may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Securities and any commission 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.
For a period of 180 days after the Expiration Date the Company 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 has agreed to pay all expenses
incident to the Registered Exchange Offer (including the expenses of one counsel
for the Holders of the Securities) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Securities (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
<PAGE>
ANNEX D
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
Address:
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
Securities. If the undersigned is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Securities; 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 Securities Act.
<PAGE>
AGREEMENT AND PLAN OF MERGER
dated as of March 17, 1998
by and between
LPA INVESTMENT LLC
AND
VESTAR/LPA INVESTMENT CORP.
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TABLE OF CONTENTS
Page
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ARTICLE I - THE MERGER............................................................................................1
1.1. The Merger. .....................................................................................1
1.2. Effective Time....................................................................................2
1.3. Closing...........................................................................................2
ARTICLE II - CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION....................................................................................2
2.1. Certificate of Incorporation......................................................................2
2.2. The Bylaws........................................................................................2
ARTICLE III - DIRECTORS AND OFFICERS OF
THE SURVIVING CORPORATION.......................................................................................3
3.1. Directors.........................................................................................3
3.2. Officers..........................................................................................3
ARTICLE IV - MERGER CONSIDERATION; CONVERSION OR
CANCELLATION OF SHARES IN THE MERGER............................................................................3
4.1. Consideration for the Merger; Conversion or Cancellation of Shares
in the Merger.....................................................................................3
4.2. Payment for Shares and Options in the Merger......................................................8
4.3. Dissenting Shares................................................................................10
4.4. Closing of Stock Transfer Books..................................................................11
ARTICLE V - REPRESENTATIONS AND WARRANTIES.......................................................................11
5.1. Representations and Warranties of the Company....................................................11
(a) Corporate Organization and Qualification...................................................11
(b) Capitalization.............................................................................11
(c) Director and Stockholder Approvals.........................................................13
(d) Authority Relative to This Agreement.......................................................13
(e) Consents and Approvals; No Violation.......................................................14
(f) Litigation.................................................................................14
(g) Financial Statements.......................................................................15
(h) Absence of Certain Changes or Events.......................................................16
(i) Employment Agreements......................................................................16
(j) Brokers and Finders........................................................................16
(k) Taxes......................................................................................17
(l) Employee Benefits..........................................................................18
(m) Intellectual Property......................................................................20
(n) Certain Contracts..........................................................................20
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(o) Compliance with Applicable Law.............................................................21
(p) Title to Properties; Encumbrances..........................................................21
(q) Insurance..................................................................................23
(r) Environmental Matters......................................................................23
(s) Change in Control..........................................................................24
(t) SEC Documents..............................................................................24
(u) Management Consulting Agreement............................................................24
(v) State Takeover Statutes....................................................................24
(w) Disclaimer.................................................................................25
(x) Conflicts of Interest......................................................................25
5.2. Representations and Warranties of Investor.......................................................25
(a) Corporate Organization and Qualification...................................................25
(b) Authority Relative to This Agreement.......................................................26
(c) Consents and Approvals; No Violation.......................................................26
(d) Brokers and Finders........................................................................27
(e) No Prior Activities........................................................................27
(f) Litigation.................................................................................27
(g) Purchase for Investment....................................................................27
(h) Adequate Funds.............................................................................27
(i) Closing Date Capitalization of Investor/Surviving Corporation..............................27
ARTICLE VI - ADDITIONAL COVENANTS AND AGREEMENTS.................................................................28
6.1. Conduct of Business by the Company...............................................................28
6.2. Meeting of Stockholders..........................................................................29
6.3. Reasonable Efforts...............................................................................30
6.4. Notices and Consents.............................................................................30
6.5. Access to Information............................................................................31
6.6. Publicity........................................................................................31
6.7. Directors' and Officers' Indemnification and Insurance...........................................31
6.8. Representations and Warranties...................................................................32
6.9. Further Assurances...............................................................................32
6.10. Books and Records; Personnel...................................................................32
6.11. Litigation Support.............................................................................32
6.12. Stockholders Agreement.........................................................................33
6.13. Acquisition Proposals..........................................................................33
6.14. Cancellation of Stockholders' Agreement and Subscription Agreements............................33
6.15. Delivery of Financial Statements...............................................................33
6.16. Joinder Agreement. ...........................................................................34
6.17. Participation in Certain Resales...............................................................34
(a) Payment of Additional Consideration........................................................34
(b) Termination of Obligations.................................................................34
(c) Defined Terms..............................................................................34
6.18. Cancellation of Outstanding Debt...............................................................35
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ARTICLE VII - CONDITIONS.........................................................................................35
7.1. Conditions to the Obligations of Investor and Newco..............................................35
(a) Certificate................................................................................35
(b) Injunction.................................................................................36
(c) Applicable Law.............................................................................36
(d) Governmental Filings and Consents..........................................................36
(e) Third Party Consents.......................................................................36
(f) Consent of Option Holders..................................................................36
(g) Opinion of Counsel to the Company..........................................................37
(h) Resignations of Directors..................................................................37
(i) Paying Agent Agreement.....................................................................37
(j) Material Adverse Change. .................................................................37
(k) Transaction Related Expenses...............................................................37
(l) Dissenters Shares..........................................................................37
7.2. Conditions to the Obligations of the Company.....................................................37
(a) Certificate................................................................................37
(b) Injunction.................................................................................38
(c) Governmental Filings and Consents..........................................................38
(d) Opinion of Counsel to Investor and Newco..................................................38
ARTICLE VIII - TERMINATION.......................................................................................38
8.1. Termination by Mutual Consent....................................................................38
8.2. Termination by Either Parent or the Company......................................................38
8.3. Effect of Termination............................................................................39
ARTICLE IX - MISCELLANEOUS.......................................................................................39
9.1. Payment of Expenses..............................................................................39
9.2. Survival of Representations and Warranties.......................................................40
9.3. Modification or Amendment........................................................................40
9.4. Waiver of Conditions.............................................................................40
9.5. Counterparts.....................................................................................40
9.6. Governing Law....................................................................................40
9.7. Notices..........................................................................................40
9.8. Entire Agreement; Assignment.....................................................................42
9.9. Parties in Interest..............................................................................42
9.10. Transfer Taxes.................................................................................42
9.11. Certain Definitions............................................................................43
9.12. Captions.......................................................................................44
Exhibit A Amended and Restated Certificate of Incorporation of Surviving Corporation
Exhibit B Bylaws of Surviving Corporation
Exhibit C Form of Stockholders Agreement
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March 17,
1998, is made by and between LPA INVESTMENT LLC, a Delaware limited liability
company ("Investor"), and VESTAR/LPA INVESTMENT CORP., a Delaware corporation
("Company").
RECITALS
WHEREAS, the Board of Directors of Company has approved the acquisition of
a significant equity interest in Company by Investor, pursuant to a merger of a
corporation to be formed and wholly-owned by Investor with and into Company upon
the terms and subject to the conditions set forth in this Agreement;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Investor to enter into this Agreement, Investor and certain
stockholders of the Company, owning an amount sufficient for stockholder
approval of this Agreement and the transactions contemplated hereby under
applicable law and the Company's Restated Certificate of Incorporation, are
entering into a Stockholders Agreement (the "Stockholders Agreement"), pursuant
to which such stockholders are agreeing to vote their shares in favor of all
actions necessary to consummate the transactions contemplated by this Agreement,
upon the terms and subject to the conditions set forth in the Stockholders
Agreement; and
WHEREAS, Investor and Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger (as
hereinafter defined in Section 1.1).
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, Investor and Company hereby agree as
follows:
ARTICLE I
THE MERGER
1.1. The Merger. Prior to the Effective Time (as hereinafter defined in
Section 1.2), Investor shall form a new corporation to be called LPA Acquisition
Corp. ("Newco") in accordance with the relevant provisions of the General
Corporation Law of the State of Delaware (the "DGCL"). Upon the terms and
subject to the conditions of this Agreement, at the Effective Time, Company and
Newco shall consummate a merger (the "Merger") in which (a) Newco shall
<PAGE>
be merged with and into Company and the separate corporate existence of Newco
shall thereupon cease, (b) Company shall be the successor or surviving
corporation in the Merger and shall continue to be governed by the laws of the
State of Delaware, and (c) the separate corporate existence of Company with all
its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger. The corporation surviving the Merger is sometimes
hereinafter referred to as the "Surviving Corporation." The Merger shall be
consummated in accordance with and shall have the effects set forth in the DGCL.
1.2. Effective Time. Investor, Newco and Company will cause an appropriate
Certificate of Merger (the "Certificate of Merger") to be executed and filed on
the date of the Closing (as hereinafter defined in Section 1.3) with the
Secretary of State of the State of Delaware in the manner provided in the DGCL.
The Merger shall become effective on the date on which the Certificate of Merger
has been duly filed with the Secretary of State of the State of Delaware, and
such time is hereinafter referred to as the "Effective Time" and such date is
hereinafter referred to as the "Effective Date."
1.3. Closing. The closing of the Merger (the "Closing") shall take place
(a) at the offices of O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza,
New York, New York 10112, at 10 a.m., local time, on the first business day
following the date on which the last of the conditions set forth in Article VII
hereof shall be fulfilled or waived in accordance with this Agreement or (b) at
such other place, time and date as Investor and Company may agree. The date and
time of such Closing are referred to herein as the "Closing Date."
ARTICLE II
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
2.1. Certificate of Incorporation. At the Effective Time and in accordance
with the DGCL, the Restated Certificate of Incorporation of Company shall be
amended in its entirety in the Merger by adoption of the Amended and Restated
Certificate of Incorporation attached as Exhibit A hereto, and such Amended and
Restated Certificate of Incorporation shall become the Certificate of
Incorporation of the Surviving Corporation.
2.2. The Bylaws. At the Effective Time and without any further action on
the part of Company, Investor, Newco or the Surviving Corporation, the Bylaws of
Newco, substantially in the form attached as Exhibit B hereto shall become the
Bylaws of the Surviving Corporation and thereafter may be amended or repealed in
accordance with their terms, the Amended and Restated Certificate of
Incorporation of the Surviving Corporation and as provided by Law (as defined in
Section 9.11(c) hereof).
2
<PAGE>
ARTICLE III
DIRECTORS AND OFFICERS OF
THE SURVIVING CORPORATION
3.1. Directors. The directors of Newco at the Effective Time shall, from
and after the Effective Time, be the directors of the Surviving Corporation and
shall hold office from the Effective Time until their respective successors are
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Amended
and Restated Certificate of Incorporation and Bylaws, or as otherwise provided
by Law.
3.2. Officers. The officers of the Company at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving Corporation
and shall hold office from the Effective Time until their respective successors
are duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Amended
and Restated Certificate of Incorporation and Bylaws, or as otherwise provided
by Law.
ARTICLE IV
MERGER CONSIDERATION; CONVERSION OR
CANCELLATION OF SHARES IN THE MERGER
4.1. Consideration for the Merger; Conversion or Cancellation of Shares in
the Merger. The manner of converting or canceling the shares of Company and
Newco in the Merger shall be as set forth below. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof:
(a) Each share, if any, of the capital stock of the Company which is owned
by the Company as a treasury share or which is owned by any Subsidiary (as
defined in Section 5.1(a) below) shall be canceled and retired without any
payment therefor.
(b) Each share of the Company's Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), and each share of the Company's Class B
Common Stock, par value $.01 par share (the "Class B Common Stock"), if any,
issued and outstanding immediately prior to the Effective Time (other than the
Dissenting Shares, as defined in Section 4.3 below) which does not constitute
Retained Shares (as defined in Section 4.1(j)(vii) below) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into the right to receive from the Surviving Corporation an amount in
cash (the "Per Share Common Merger Consideration")
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<PAGE>
equal to the quotient obtained by dividing (i) the sum of (A) $283 million minus
(B) the Debt Amount (as defined in Section 4.1(j)(i) below) (provided, that any
Capitalized Lease and Letter of Credit Amounts (as defined in Section 4.1(j)(i)
below) shall be excluded from the Debt Amount), minus (C) all Transaction
Related Expenses (as defined in Section 4.1(j)(ii) below) to the extent not paid
as of the close of business on the business day immediately preceding the
Closing Date, minus (D) the aggregate Non-Convertible Preferred Stock Merger
Consideration (as defined in Section 4.1(d) below), minus (E) the aggregate
Junior Preferred Stock Merger Consideration (as defined in Section 4.1(e)
below), plus (F) the Company Cash (as defined in Section 4.1(j)(iv) below), as
of the close of business on the business day immediately preceding the Closing
Date, plus (G) the aggregate exercise price of the canceled Options and the
Rollover Options (both as defined in Section 4.1(g) below), minus (H) the La
Petite Preferred Stock Amount (as defined in Section 4.1(j)(v) below), by (ii)
the sum of (x) the number of shares of Class A Common Stock and Class B Common
Stock, if any, outstanding immediately prior to the Effective Time, plus (y) the
number of Class A Equivalents (as defined in Section 4.1(j)(iii)), if any,
outstanding immediately prior to the Effective Time, plus (z) the number of
shares of Class A Common Stock issuable upon exercise of the Options, whether or
not presently exercisable.
(c) Each share, if any, of the Company's 10% Cumulative Convertible
Preferred Stock, par value $.01 per share (the "Convertible Preferred Stock"),
outstanding immediately prior to the Effective Time (other than Dissenting
Shares) shall be converted into the right to receive cash in an amount (the
"Convertible Preferred Stock Merger Consideration") equal to (i) the Per Share
Common Merger Consideration, multiplied by (ii) the number of shares of Class A
Common Stock which would be issuable upon conversion of such share of
Convertible Preferred Stock, in accordance with the conversion procedures set
forth in the Convertible Preferred Stock Certificate of Designation filed with
the Delaware Secretary of State on July 22, 1993 (the "Convertible Preferred
Certificate of Designation").
(d) Each share of the Company's 10% Cumulative Non-Convertible Preferred
Stock, par value $.01 per share (the "Non-Convertible Preferred Stock"),
outstanding immediately prior to the Effective Time (other than Dissenting
Shares) shall be converted into the right to receive cash in an amount equal to
$100.00 per share plus all accrued and unpaid dividends, whether or not declared
(including an amount equal to a prorated dividend from the last dividend payment
date to the Closing Date) to the Closing Date and any premiums or penalties
payable in respect thereof (the "Non-Convertible Preferred Stock Merger
Consideration").
(e) Each share of the Company's 10% Junior Preferred Stock, par value $.01
per share (the "Junior Preferred Stock") outstanding immediately prior to the
Effective Time (other than Dissenting Shares) shall be converted into the right
to receive cash in an amount equal to $100.00 per share plus all accrued and
unpaid dividends, whether or not declared (including an amount equal to a
prorated dividend from the last dividend payment date to the Closing Date) to
the
4
<PAGE>
Closing Date and any premiums or penalties payable in respect thereof (the
"Junior Preferred Stock Merger Consideration").
(f) At the Effective Time, each share of common stock of Newco issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of Newco or Investor, be converted
into such number of shares of common stock of the Surviving Corporation as shall
be equal to $72.5 million divided by the Per Share Common Merger Consideration
(equal to 90.625% of the shares of common stock of the Surviving Corporation
outstanding immediately after the Effective Time, with the Retained Shares
representing the remaining 9.375% of such shares based upon a roll-over value of
$7.5 million). The cash to be invested by Investor in Newco shall be reduced by
the Option Settlement Amount in respect of the Rollover Options, and the number
of shares to be received by the Investor in the Merger shall be reduced by an
amount equal to the Option Settlement Amount in respect of the Rollover Options
divided by the Per Share Common Merger Consideration. At the Effective Time,
each warrant to purchase shares of common stock of Newco issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of Newco or Investor, be converted into a warrant
to purchase that number of shares of common stock of the Surviving Corporation
as the holder thereof would have received in respect of such warrant by virtue
of the merger if such warrant had been exercised immediately prior to the
Effective Time. At the Effective Time, each share of redeemable preferred stock
of Newco shall, by virtue of the Merger and without any action on the part of
Newco or Investor, be converted into one share of redeemable preferred stock of
the Surviving Corporation.
(g) As soon as practicable following the date hereof but in no event later
than the Effective Time, the Company (or, if appropriate, the Board of Directors
of the Company) shall take action, including by adopting resolutions or taking
any other actions, subject to and contingent upon receiving approval by the
Company's stockholders if required for compliance with Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), (i) to accelerate as of
the Effective Time each option to purchase shares of Class A Common Stock issued
by the Company (each, an "Option"), outstanding immediately prior to the
Effective Time, and (ii) to cancel as of the Effective Time, such number of
Options outstanding immediately prior to the Effective Time as are mutually
agreed to by Investor and such Option holder, whether or not such Options to be
canceled are then exercisable. In exchange for each canceled Option, a holder
shall be entitled to receive cash (the "Option Settlement Amount") equal to the
difference (less applicable withholding Taxes (as defined in Section 5.1(k))
between (i) the number of shares of Class A Common Stock covered by any such
Option, whether or not presently exercisable, multiplied by the Per Share Common
Merger Consideration, and (ii) the aggregate exercise price payable upon
exercise of such Option; provided, that the foregoing shall be subject to the
obtaining of any necessary consents of the holders of such Options. The Company
agrees that it will use all reasonable efforts to obtain all consents of holders
of Options as shall be necessary to effectuate the foregoing and the above
payment to any Option holder may be withheld by the Surviving
5
<PAGE>
Corporation in respect of any Option until all necessary consents with respect
to the cancellation of such Option upon payment of the Option Settlement Amount
have been obtained.
Any Option not canceled in accordance with the provisions of the preceding
paragraph (a "Rollover Option") shall remain in effect after the Effective Time,
subject to the terms and conditions that existed with respect to such Rollover
Option prior to the Effective Time, except that the parties hereto agree and
acknowledge that, for each holder of Rollover Options, (i) the exercise price
for each Rollover Option (i.e., each option to purchase one share of Common
Stock in the Surviving Corporation) shall be adjusted such that (a) the ratio of
the adjusted exercise price of the Rollover Option to the New Per Share Amount,
is equal to (b) the ratio of the old exercise price of the existing Option to
the Per Share Common Merger Consideration; and (ii) the number of shares of
Common Stock subject to such Rollover Option is equal to the quotient obtained
by dividing (a) the Per Share Common Merger Consideration, by (b) the New Per
Share Amount. The term "New Per Share Amount" shall mean an amount to be
mutually agreed upon by the parties hereto prior to the Effective Time (but
shall reflect the price per share of common stock in the Surviving Corporation
paid by the Investor in connection with the transactions contemplated by this
Agreement).
(h) At the Effective Time, each Retained Share shall be retained by the
holder thereof, shall remain outstanding and shall represent one share of Class
A Common Stock of the Surviving Corporation.
(i) At the Effective Time, all rights in respect of outstanding shares of
any of the Class A Common Stock (other than Retained Shares), the Class B Common
Stock (other than Retained Shares), the Convertible Preferred Stock, the
Non-Convertible Preferred Stock and the Junior Preferred Stock shall cease to
exist, other than the right to receive cash as described above or in Section
4.2.
(j) The following terms used in this Section 4.1 shall be defined as
follows:
(i) The term "Debt Amount" shall mean the aggregate principal amount
of, and accrued interest on, and unamortized discounts, prepayment premiums
or penalties on Debt and other expenses required to prepay, defease or
otherwise retire the Debt on or prior to Closing, as mutually determined in
good faith by the parties hereto prior to Closing in accordance with
Section 6.18 hereof. The term "Debt" shall mean, with respect to the
Company and any Subsidiary, without duplication, (A) indebtedness or
liability for borrowed money, (B) obligations evidenced by bonds,
debentures, notes or other similar instruments, (C) obligations with
respect to capitalized leases and letters of credit (the capitalized lease
on Schedule 4.1(j)(i) and the letters of credit issued exclusively as
collateral for the
6
<PAGE>
Company's insurance program shall be referred to herein as "Capitalized
Lease and Letter of Credit Amounts"), (D) obligations under any interest
rate protection agreements or similar agreements, and (E) guarantees of or
other assurances of payment with respect to any obligations described in
subparts (A) through (D) immediately above of another person or entity
(excluding endorsements of checks or other instruments for deposit or
collection in the ordinary course of business). The Debt is listed on
Schedule 4.1(j)(i) attached hereto.
(ii) The term "Transaction Related Expenses" shall mean all fees and
expenses incurred by or on behalf of the Company or any Subsidiary,
including the aggregate amount of fees and expenses of Vestar Capital
Partners, PaineWebber Incorporated, Shook, Hardy & Bacon L.L.P., Kirkland &
Ellis, Deloitte & Touche, LLP and any other persons retained by Company or
its affiliates, in each case relating to the preparation, negotiation,
execution and delivery of this Agreement and all aspects of the
consummation of the Merger (including the printing, distribution, legal,
accounting and other fees and expenses arising out of or relating to any
change-in-control offers required in respect of the outstanding
indebtedness listed on Schedule 4.1(j)(i) and the outstanding La Petite
Preferred Stock). Without limiting the generality of the foregoing,
Transaction Related Expenses shall include all amounts paid or payable to
any of the Company's officers, directors, employees, consultants,
stockholders, agents or other representatives in connection with or arising
out of the transactions contemplated by this Agreement (other than any such
amount paid solely in consideration for stock held by any such person),
including any such amounts set forth in Schedule 5.1(i)(ii); provided,
however, notwithstanding the foregoing, Transaction Related Expenses shall
not include any expenses associated with the cancellation of the Options or
the payment of the Option Settlement Amount (including any tax expenses
associated therewith), other than any bonus payments made in connection
with the cancellation of the Options or the payment of the Option
Settlement Amount (including any tax expenses associated therewith);
provided, further, that the Transaction Related Expenses shall include only
one-half of the transfer taxes described in Section 9.10 hereof.
(iii) The term "Class A Equivalents" shall mean the number of shares
of Class A Common Stock which would be issuable upon the conversion of any
Convertible Preferred Stock outstanding immediately prior to the Effective
Date, as determined in accordance with the conversion procedures set forth
in the Convertible Preferred Certificate of Designation.
(iv) The term "Company Cash" shall mean (A) all of the cash, cash
equivalents, restricted cash (other than restricted cash held by Reliance
National Insurance Company as of the close of business on the business day
immediately
7
<PAGE>
preceding the Closing Date), cash on hand, as determined in accordance with
generally accepted accounting principles, and pre-paid rent of the Company
and the Subsidiaries as of the close of business on the business day
immediately preceding the Closing Date, minus (B) checks of the Company and
the Subsidiaries outstanding as of the close of business on the business
day immediately prior to the Closing Date, plus (C) the amount of the
capital expenditures made in connection with the new facilities, as listed
on Attachment 1 to Schedule 6.1(b) hereto, which in accordance with past
practices, will be refunded once permanent financing has been obtained.
(v) The term "La Petite Preferred Stock Amount" shall mean the amount
of money required to be deposited as of the Closing Date in order to
defease all of the issued and outstanding shares of Class A Cumulative
Redeemable Exchangeable Preferred Stock, par value $.01 per share (the "La
Petite Preferred Stock") of La Petite Academy, Inc. ("La Petite") for
redemption as of the August 1, 1998, redemption date, in accordance with
the terms of the Restated Certificate of Incorporation (the "La Petite
Restated Certificate") of La Petite. The La Petite Preferred Stock Amount
shall be mutually agreed upon by the parties hereto.
(vi) The term "Shares" shall mean, collectively, the Class A Common
Stock, the Class B Common Stock, if any, the Convertible Preferred Stock,
the Non-Convertible Preferred Stock and the Junior Preferred Stock.
(vii) The term "Retained Shares" shall mean the shares of Class A
Common Stock and Class B Common Stock which the holders thereof have agreed
to retain in accordance with the terms of the Stockholders Agreement.
4.2. Payment for Shares and Options in the Merger. The manner of making
payment for Shares (as defined in Section 4.1(j)(vi) above) and Options in the
Merger shall be as follows:
(a) Mercantile Bank, a Kansas banking corporation, or such other bank as
the parties hereto shall mutually agree, shall act as paying agent (the "Paying
Agent") for distribution of the aggregate Per Share Common Merger Consideration,
the aggregate Convertible Preferred Stock Merger Consideration, the aggregate
Non-Convertible Preferred Stock Merger Consideration, the aggregate Junior
Preferred Stock Merger Consideration and the aggregate Option Settlement Amount
(collectively, the "Aggregate Merger Consideration"). At the Effective Time,
Investor will take all steps necessary to enable and cause the Paying Agent to
pay the Per Share Common Merger Consideration, the Convertible Preferred Stock
Merger Consideration, the NonConvertible Preferred Stock Merger Consideration,
the Junior Preferred Stock Merger Consideration and the Option Settlement Amount
as and when described below.
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(b) At the Effective Time, Investor shall cause the Surviving Corporation
to deposit with the Paying Agent an amount in cash equal to the sum of (i) the
Aggregate Merger Consideration, and (ii) the Transaction Related Expenses (such
amount being collectively referred to herein as the "Merger Payment Fund"). The
Merger Payment Fund shall be invested by the Paying Agent, as directed by the
Surviving Corporation, so long as such directions do not impair the rights of
holders of Shares or Options in direct obligations of the United States of
America, obligations for which the full faith and credit of the United States of
America is pledged to provide for the payment of principal and interest,
commercial paper rated the highest quality by Moody's Investors Services or
Standard & Poor's Corporation, or certificates of deposit issued by a commercial
bank having at least $1,000,000,000 of positive net worth; and any net earnings
with respect thereto shall be paid to the Surviving Corporation as and when
requested by the Surviving Corporation. The Paying Agent shall, pursuant to
irrevocable instructions from the Company, make the payments provided for in
Section 4.1, and pay Transaction Related Expenses in accordance with invoices
received at Closing, out of the Merger Payment Fund. At any time after the
Effective Time, upon notice from the Surviving Corporation that a stockholder
has properly dissented, demanded payment of the fair value of his Shares and
otherwise properly perfected his appraisal rights under Section 262 of the DGCL,
the Paying Agent shall promptly repay to the Surviving Corporation from the
Merger Payment Fund an amount equal to the product of (x) the number of
Dissenting Shares (as defined in Section 4.3 below) held by such stockholder and
(y) the pro rata share of the Aggregate Merger Consideration payable to a holder
in respect of each Dissenting Share owned by such holder. The Merger Payment
Fund shall not be used for any purpose other than as described herein.
(c) On the first business day following the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each holder of record, as of
the Effective Time, of a certificate representing any Class A Common Stock,
Convertible Preferred Stock, NonConvertible Preferred Stock or Junior Preferred
Stock (each, a "Certificate" and collectively, the "Certificates") (i) a form
letter of transmittal (which shall contain customary representations and
warranties as to title and shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Paying Agent) and (ii) instructions for use in
effecting the surrender of the Certificates for payment therefor. Upon surrender
to the Paying Agent of a Certificate, together with such letter of transmittal
duly executed and completed in accordance with the instructions thereto, and any
other required documents, the holder of such Certificate shall be entitled to
receive for each of the Shares represented by such Certificate his portion of
the Aggregate Merger Consideration payable pursuant to Section 4.1 (which shall
be paid or issued by the Paying Agent (by wire transfer if requested) daily upon
its receipt of such documents) and such Certificate shall forthwith be canceled.
The Paying Agent shall establish a procedure pursuant to which transmittal
letters are available to shareholders prior to the Effective Date for completion
and delivery to the Paying Agent, so that persons entitled to receive payment
under this Section 4.2 can receive payment for their Shares on the Effective
Date by wire transfer. Until so surrendered, such Certificates shall represent
solely the right to receive such
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shareholder's pro rata portion of the Aggregate Merger Consideration payable
pursuant to Section 4.1 with respect to each of the Shares represented thereby.
No interest shall be paid or accrue on the pro rata portion of the Aggregate
Merger Consideration payable upon surrender of the Certificates. If any payment
of Aggregate Merger Consideration is to be made to a person other than the one
in whose name the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such payment that the Certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such payment shall pay to the Paying Agent any applicable
transfer or other similar taxes, or shall establish to the satisfaction of the
Paying Agent that any such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
shall be liable to a holder of Shares for any portion of the Aggregate Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.
(d) Any portion of the Merger Payment Fund (including any interest thereon
or earnings or profits with respect thereto) which remains unclaimed by the
former stockholders of the Company for six months after the Effective Time shall
be delivered to the Surviving Corporation, and any former stockholders of the
Company shall thereafter look only to the Surviving Corporation for payment of
their portion of the Aggregate Merger Consideration for the Shares.
(e) The Surviving Corporation shall cause the Paying Agent to pay to the
holders of the canceled Options, who are entitled to receive payment of the
Option Settlement Amount in accordance with Section 4.1(g), the Option
Settlement Amount on the Effective Date by wire transfer. From and after the
Effective Time, each holder of a canceled Option shall cease to have any rights
with respect to such Option, except the right to receive a cash payment in an
amount determined in accordance with Section 4.1(g).
4.3. Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, Shares which immediately prior to the Effective Time are held by
stockholders who have properly exercised and perfected appraisal rights under
Section 262 of the DGCL (the "Dissenting Shares") shall not be converted into
the right to receive a portion of the Aggregate Merger Consideration as provided
in Section 4.1 hereof, but the holders of Dissenting Shares shall be entitled to
receive such consideration as shall be determined pursuant to Section 262 of the
DGCL; provided, however, that if any such holder shall have failed to perfect or
shall withdraw or lose his right to appraisal and payment under the DGCL, such
holder's shares shall thereupon be deemed to have been converted as of the
Effective Time into the right to receive his portion of the Aggregate Merger
Consideration, without any interest thereon, as provided in Section 4.1 and such
shares shall no longer be Dissenting Shares.
4.4. Closing of Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of Shares shall
thereafter be made.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to Investor that:
(a) Corporate Organization and Qualification. Each of the Company and its
subsidiaries listed on Schedule 5.1(a) attached hereto (each a "Subsidiary," and
together, the "Subsidiaries") is a corporation duly organized, validly existing
and in good standing under the laws of its state of jurisdiction and is
qualified and in good standing as a foreign corporation in each jurisdiction
where the properties owned, leased or operated, or the business conducted, by it
require such qualification, except where failure to so qualify or be in good
standing would not have a Material Adverse Effect (as defined in Section 9.11
hereof) on the Company. The Company is a holding company with no operations,
other than its ownership of the stock of La Petite and it has never engaged in
any other operations. The Company has no subsidiaries or investments in any
person (as defined in Section 9.11 hereof) other than those listed on Schedule
5.1(a). Each of the Company and the Subsidiaries has corporate power and
authority to own its properties and to carry on its business as it is now being
conducted. The Company has heretofore made available to Investor complete and
correct copies of its and its Subsidiaries' Certificates of Incorporation and
Bylaws.
(b) Capitalization.
(i) The authorized capital stock of the Company consists of two
million seven hundred thirty thousand (2,730,000) shares, consisting of
1,500,000 shares of Class A Common Stock, 350,000 shares of Class B Common
Stock, 80,000 shares of Convertible Preferred Stock, 150,000 shares of
Non-Convertible Preferred Stock and 650,000 shares of Junior Preferred
Stock. As of the date hereof, 825,900 shares of Class A Common Stock,
80,000 shares of Convertible Preferred Stock, 41,019.48 shares of
Non-Convertible Preferred Stock, and 213,750 shares of Junior Preferred
Stock are issued and outstanding, and 26,260 shares of Class A Common Stock
are held in treasury. Schedule 5.1(b) sets forth a schedule of the holders
of the Class A Common Stock, Class B Common Stock, Convertible Preferred
Stock, NonConvertible Preferred Stock, Junior Preferred Stock and Options,
which schedule shall identify the number of shares of each such stock held
by each such holder and the number of shares of Class A Common Stock
issuable upon the conversion of the Convertible Preferred Stock or upon the
exercise of Options (and the applicable exercise price with respect to each
such Option). All of the outstanding shares have
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been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth on Schedule 5.1(b) hereto, none of the
shares is subject to any option, warrant, right or call, preemptive right
or commitment of any kind or character to which the Company or the
Subsidiaries is a party. No shares of capital stock of the Company or any
Subsidiary are owned by any Subsidiary. All outstanding shares of capital
stock or other equity interests of the Subsidiaries are owned by the
Company, free and clear of all liens, charges, encumbrances, claims and
options of any nature. Except as set forth in Schedule 5.1(b) hereto,
neither the Company nor any of the Subsidiaries owns, directly or
indirectly, any capital stock or other equity or ownership, voting interest
(whether controlling or not) or other securities in any person. Except as
set forth in Schedule 5.1(b) hereto, there are not as of the date hereof,
and there will not be at the Effective Time, any outstanding or authorized
options, warrants, puts, calls, rights, subscriptions, commitments or any
other agreements or understandings of any character which any of the
Company or any Subsidiary is a party to, or may be bound by, requiring it
to buy, issue, transfer, sell, purchase, redeem or acquire any shares of
capital stock or any securities or rights convertible into, exchangeable
for, or evidencing the right to subscribe for any shares of capital stock
of the Company or any Subsidiary. There are not as of the date hereof
(except as set forth on Schedule 5.1(b) hereto), and there will not be at
the Effective Time, any stockholder agreements, voting trusts or other
agreements or understandings to which the Company or, to the Company's
knowledge, any holder of the Company's capital stock, is a party or to
which it is bound relating in any way to any shares of the capital stock or
other securities of the Company. There are no stock appreciation rights,
phantom stock rights or similar rights or arrangements to which the Company
or any Subsidiary is a party or by which it is bound.
(ii) The authorized capital stock of La Petite consists of two million
one thousand (2,001,000) shares, consisting of 1,000 shares of Common
Stock, par value $.01 per share (the "La Petite Common Stock") and
2,000,000 shares of La Petite Preferred Stock. As of the date hereof, 100
shares of La Petite Common Stock and 800,000 shares of La Petite Preferred
Stock are issued and outstanding, and no shares are held in treasury. All
of the issued and outstanding shares of La Petite Common Stock are held by
the Company.
(iii) The authorized capital stock of LPA Services, Inc. ("LPA")
consists of one thousand (1,000) shares of common stock, par value $.01 per
share ("LPA Common Stock"). As of the date hereof, 1,000 shares of LPA
Common Stock are issued and outstanding, and no shares are held in
treasury. All of the issued and outstanding shares of LPA Common Stock are
held by La Petite.
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(iv) During the period from August 26, 1995, to the date of this
Agreement, neither the Company nor any Subsidiary has violated the
Securities Act of 1933, as amended (the "Securities Act"), or any
applicable state securities or "blue sky" laws in connection with the
issuance of any of its securities, except such violation, if any, as would
not alone or in the aggregate be reasonably likely to have a Material
Adverse Effect on the Company.
(c) Director and Stockholder Approvals. The Board of Directors of the
Company has approved the Merger and this Agreement and declared the Merger to be
fair to and in the best interests of the holders of the Company's capital stock.
Except for the approval of the following stockholders of the Company, no other
approval of the stockholders of the Company or any Subsidiary is required in
order to consummate the transactions contemplated by this Agreement. The Merger
must be approved by the affirmative vote of a majority of the holders of the
Class A Common Stock and the Convertible Preferred Stock, voting together as a
single class, and the Convertible Preferred Stock and the Junior Preferred
Stock, each voting separately as a class.
(d) Authority Relative to This Agreement. The Company has the requisite
corporate power and authority to approve, authorize, execute and deliver this
Agreement and to consummate the transactions contemplated hereby (subject to the
requisite approval of the Merger by the stockholders of the Company). This
Agreement and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of the
Company, and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (other than the requisite approval of the Merger by the
stockholders of the Company and other than in connection with the actions to be
taken pursuant to Section 4.1(g)). This Agreement has been duly and validly
executed and delivered by the Company and constitutes the valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, subject, as to enforceability, to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting creditors'
rights and to general principles of equity.
(e) Consents and Approvals; No Violation. Except as set forth in Schedule
5.1(e), neither the execution and delivery of this Agreement by the Company nor
the consummation by the Company of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the Certificate of
Incorporation (or other similar document) or Bylaws (or other similar document)
of the Company or any Subsidiary; (ii) require any consent, approval,
authorization or Permit (as defined in Section 5.1(o)) of, or filing with or
notification to, any Governmental Authority (as defined in Section 9.11(b)),
except (A) in connection with the applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (B) pursuant to the applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder
(the "Exchange Act"), (C) the filing of the Certificate of Merger pursuant to
the DGCL and appropriate documents in other
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states in respect of the Company's qualification or authority to do business as
a foreign corporation in such states, or (D) where the failure to obtain such
consent, approval, authorization or Permit, or to make such filing or
notification, would not alone or in the aggregate be reasonably likely to have a
Material Adverse Effect on the Company or materially adversely affect the
ability of the Company to consummate the transactions contemplated hereby; (iii)
result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any right of contingent
payment, termination, cancellation or acceleration or lien or other charge or
encumbrance) under any of the terms, conditions or provisions of any note,
license, lease, agreement or other instrument or obligation to which the Company
or any Subsidiary is a party or by which any of their respective assets are
bound, except for such violations, breaches and defaults (or rights of
contingent payment, termination, cancellation or acceleration or lien or other
charge or encumbrance) as to which alone or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect on the Company or materially
adversely affect or delay the ability of the Company to consummate the
transactions contemplated hereby; or (iv) assuming the consents, approvals,
authorizations or Permits and filings or notifications referred to in this
Section 5.1(e) are duly and timely obtained or made, violate any order, writ,
injunction, decree or Law applicable to the Company or any Subsidiary or to any
of their respective assets, except for violations which would not alone or in
the aggregate be reasonably likely to have a Material Adverse Effect on the
Company or materially adversely affect or delay the ability of the Company to
consummate the transactions contemplated hereby.
(f) Litigation. Except as disclosed in Schedule 5.1(f)(i) hereto, there are
no actions, suits or proceedings or, to the Company's knowledge, any
investigations pending or threatened against the Company or any Subsidiary that,
if adversely determined, would be reasonably likely to result in any claims
against or obligations or liabilities of the Company or the Subsidiaries that,
alone or in the aggregate, would have or be reasonably likely to have a Material
Adverse Effect on the Company. Schedule 5.1(f)(ii) sets forth a true, correct
and complete list of each action, suit, investigation or proceeding that was in
existence within the last three years that resulted in any criminal sanctions or
payments in excess of $100,000 by the Company or any Subsidiary (whether as a
result of a judgment, civil fine, settlement or otherwise).
(g) Financial Statements.
(i) Schedule 5.1(g)(i) contains true, correct and complete copies of
(A) the audited balance sheet of the Company as of August 30, 1997, and the
related audited statements of income, stockholders' equity and cash flows
of the Company for the fiscal year then ended, including the footnotes
thereto, and (B) the audited balance sheet of La Petite for the fiscal
years ended as of August 30, 1997, August 31, 1996 and August 26, 1995, and
the related audited statements of income, stockholders' equity and cash
flows of La Petite for the fiscal years then ended, including the footnotes
thereto, as audited by (and together with the report of their audit)
Deloitte & Touche LLP (collectively, the "Audited Financial Statements").
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(ii) Schedule 5.1(g)(ii) contains true, correct and complete copies of
(A) the unaudited consolidated balance sheets of the Company as of December
20, 1997, and the related unaudited consolidated statements of operation,
stockholders' equity and cash flows for the Company (including the related
notes thereto) for the 16-week period then ended and (B) the unaudited
consolidated balance sheets of La Petite as of December 20, 1997, and the
related unaudited consolidated statements of income and cash flows for La
Petite (and the related notes thereto) for the 16-week period then ended
(collectively, the "Unaudited Financial Statements" and collectively with
the Audited Financial Statements, the "Financial Statements").
(iii) The Financial Statements comply as to form in all material
respects with applicable accounting requirements, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied
on a basis consistent with prior periods except as otherwise noted therein,
and present fairly in all material respects the consolidated financial
position of the Company and its Subsidiaries as of their respective dates,
and the consolidated results of their operations and their cash flows for
the periods presented therein (subject, in the case of the Unaudited
Financial Statements, to normal year-end adjustments, which would not alone
or in the aggregate be material, and except that the Unaudited Financial
Statements do not contain all of the footnote disclosure required by
generally accepted accounting principles).
(iv) Except as and to the extent set forth in Schedule 5.1(g) (iv) and
except for liabilities incurred since December 20, 1997, in the ordinary
course of business and consistent with past practice, since December 20,
1997, none of the Company or any Subsidiary has incurred any material
liabilities (absolute, accrued, contingent or otherwise) that would be
required by GAAP to be set forth on a balance sheet or in the notes
thereto.
(v) Schedule 4.1(j)(i) identifies all Debt and specifically identifies
the lender or lenders for such Debt, the aggregate principal amount
outstanding, any prepayment penalty or premiums relating thereto, the
accrued interest that will be owed at the end of each of the next three
months and the Encumbrances created in respect of such Debt. Except as set
in Schedule 4.1(j)(i), such Debt may be prepaid without premium or penalty.
(h) Absence of Certain Changes or Events. Except as disclosed in Schedule
5.1(h), since December 20, 1997, (i) the business of each of the Company and
each Subsidiary has been carried on only in the ordinary and usual course and
there has not been any event or condition affecting its business, operations,
properties, assets, liabilities or financial condition
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which, alone or in the aggregate, resulted in or is reasonably likely to result
in a Material Adverse Effect with respect to the Company and (ii) the Company
has not taken any action that would have been prohibited by Section 6.1(a) or
6.1(b) if such action had been taken after the date hereof.
(i) Employment Agreements. Except as disclosed in Schedule 5.1(i)(i), there
exist no employment, consulting, non-competition, severance, bonus or
indemnification agreements or understandings between the Company or the
Subsidiaries and any current or former director or officer of the Company or the
Subsidiaries or other employee or agent. Schedule 5.1(i)(ii) sets forth a true,
correct and complete list of all amounts payable or that will become payable to
each present or former director, officer, consultant or employee of the Company
or any Subsidiary pursuant to any agreement or understanding set forth in
Schedule 5.1(i)(i) as a result of the execution and delivery of this Agreement
and/or the consummation of the transactions contemplated hereby, which schedule
shall separately identify the person to whom such amount is or will become
payable.
(j) Brokers and Finders. Except for the fees and expenses payable to
PaineWebber Incorporated and Vestar Capital Partners (which fees and expenses
are included in the Transaction Related Expenses and shall be satisfied at or
prior to the Effective Time) neither the Company nor any Subsidiary has employed
any investment banker, broker, finder, consultant or intermediary in connection
with the transactions contemplated by this Agreement which would be entitled to
any investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
(k) Taxes. Each of the Company, each Subsidiary and each other corporation
included in any consolidated or combined Tax Return (as defined below) that
included the Company or any Subsidiary (a "Tax Affiliate") has (i) filed, or
caused to be filed in a timely and proper manner, all returns, declarations,
reports, information returns and statements of whatsoever kind ("Tax Returns")
in respect of all federal, state, local, foreign and other taxes, including,
without limitation, all gross receipts, sales, use, ad valorem, transfer,
withholding, payroll, stamp and other taxes, fees, assessments or charges of any
kind, together with all interest, penalties and additions to tax imposed by any
taxing authority (including any such liability imposed as a result of being a
transferee of another person or being a member of an affiliated, combined or
consolidated group) ("Taxes") that they shall be required to file through the
date hereof and (ii) paid all Taxes shown to be due on such Tax Returns and paid
all Taxes due and owing as of the date hereof, except in either case as
disclosed in Schedule 5.1(k). The Company and each Subsidiary is and will be, as
of the Closing Date, members of an affiliated group as defined in Section 1504
of the Code, of which the Company is the common parent and which is and has been
eligible to, and has filed consolidated federal income Tax Returns. Except as
set forth on Schedule 5.1(k), neither the Company nor any Subsidiary has any
liability in respect of any Tax sharing agreements with any person and all Tax
sharing agreements to which the Company or any Subsidiary has been bound have
terminated. Neither the Company nor any Subsidiary has incurred any liability to
make any payments either alone or in conjunction with any other payments
required to be made as of the date of this Agreement
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(including any payments to be made in connection with the transaction
contemplated in this Agreement or any other payments deemed to be made by reason
of the acceleration of vesting or removal of other restrictions in connection
with the transaction contemplated in this Agreement) that may be non-deductible
under or Section 280G of the Code, or could otherwise constitute a "parachute
payment" within the meaning of Section 280G of the Code (or any corresponding
provision of state, local or foreign laws) or are or may be subject to the
imposition of an excise Tax under Section 4999 of the Code. Neither the Company
nor any Subsidiary has agreed to, nor are any of them required, under existing
Law, to make any adjustments or changes either on, before or after the Closing
Date, to its accounting methods or would be subject to an adjustment in taxable
income by reason of Section 481 of the Code and the Internal Revenue Service has
not proposed any such adjustment or changes. No claim has been made in writing,
within the last three years by any taxing authority in a jurisdiction in which
the Company or any Subsidiary does not file Tax Returns that such Company or
Subsidiary, as the case may be, is or may be subject to taxation by that
jurisdiction. True copies of all federal, state, local and foreign income Tax
Returns relating to the Company's last three taxable years ended May 27, 1995,
May 25, 1996, and May 25, 1997, have been delivered to Investor. Except as
otherwise set forth on Schedule 5.1(k), as of the date hereof, none of the
Company, any Tax Affiliate or any of the Subsidiaries has been audited by the
Internal Revenue Service or any state, local or foreign Tax jurisdiction since
the year ended May 27, 1995, there are no pending Tax audits (of which the
audited entity has been advised in writing), and no agreements or consents
extending the period during which any Taxes of the Company, any Tax Affiliate or
any Subsidiary may be assessed or collected are now in force. As of the date
hereof, except as disclosed in Schedule 5.1(k), no material adjustments have
been proposed by the Internal Revenue Service or by any other taxing authority
with respect to any open Tax years or Tax Returns.
(l) Employee Benefits.
(i) Schedule 5.1(l) contains a true and complete list of all Company
Benefit Plans (as defined below). Neither the Company nor any ERISA
Affiliate (as defined below) (A) within the five-year period immediately
preceding the date hereof has maintained, sponsored or contributed to any
"employee pension benefit plan" (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA or Section 412 of the Code, or (B) has
contributed to or been obligated to contribute to a "multiemployer plan" as
defined in Section 3(37) of ERISA since September 26, 1980.
(ii) (A) Except as listed on Schedule 5.1(l), each Company Benefit
Plan that is intended to be qualified under Section 401(a) of the Code and
the related trust of which is intended to be exempt from federal income
taxation under Section 501(a) of the Code has received a determination
letter from the IRS that such plan is so qualified and that its related
trust is so exempt and, to the knowledge of the Company, nothing has
occurred with respect to such plan which could reasonably be
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expected to cause the loss of such qualification or exemption; (B) true and
correct copies of the following documents, with respect to each of the
Company Benefit Plans, have been made available to the Parent by the
Company: (1) any plan documents and amendments thereto, (2) the most recent
Forms 5500 and any financial statements attached thereto, and (3) summary
plan descriptions; (C) except as set forth on Schedule 5.1(l), the Company
Benefit Plans have been maintained in substantial compliance with their
terms and with all provisions of the Code and ERISA (including rules and
regulations thereunder), including but not limited to the Consolidated
Omnibus Budget Reconciliation Act of 1985, the Health Insurance Portability
and Accountability Act, Section 125 of the Code, and all reporting and
disclosure obligations imposed under ERISA and the Code, except where a
failure to so maintain the Plans in accordance with such provisions would
not reasonably be expected to have a Material Adverse Effect on the
Company; (D) except as set forth on Schedule 5.1(l), neither the Company
nor the Subsidiaries, nor any "party in interest" or "disqualified person"
with respect to the Company Benefit Plans has engaged in a "prohibited
transaction" within the meaning of Section 4975 of the Code or Title I,
Part 4 of ERISA, except for such transactions which would not reasonably be
expected to have a Material Adverse Effect on the Company; (E) neither the
Company nor the Subsidiaries maintains retiree life insurance or retiree
health plans which are "welfare benefit plans" within the meaning of
Section 3(1) of ERISA and which provide for continuing benefits or coverage
for any participant or any beneficiary of a participant after such
participant's termination of employment where such participant was an
employee of the Company or the Subsidiaries, other than as required by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; (F)
except as set forth on Schedule 5.1(l), neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated
hereby will (1) except as otherwise provided herein, result in any payment
(including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any employee of the Company
under any Company Benefit Plan or otherwise, (2) increase any benefits
otherwise payable under any Company Benefit Plan, or (3) result in the
acceleration of the time of payment or vesting of any such benefits; (G)
except as set forth on Schedule 5.1(l), there are no pending, or, to the
knowledge of the Company, threatened or anticipated claims or litigation by
or on behalf of any Company Benefit Plan, by any employee or beneficiary
covered under any such plan (other than routine claims for benefits and
appeals of denied routine claims) except for such claims or litigation
which would not reasonably be expected to have a Material Adverse Effect on
the Company; (H) except as set forth on Schedule 5.1(l), all amounts due
and payable by the Company prior to the Effective Time under the terms of
each Company Benefit Plan have been paid or will be paid prior to the
Effective Time; and (I) except as set forth on Schedule 5.1(l) neither the
Company nor the Subsidiaries
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has any formal plan or commitment, whether legally binding or not, to
create any additional Company Benefit Plan or modify or change any existing
Company Benefit Plan other than its normal year-end review of rates.
(iii) Except as set forth in Schedule 5.1(l), (A) as of the date
hereof, none of the employees of the Company or the Subsidiaries is
represented in his or her capacity as an employee of such company by any
labor organization; (B) none of the Company nor the Subsidiaries has
recognized any labor organization nor has any labor organization been
elected as the collective bargaining agent of any of their employees, nor
has any of the Company or the Subsidiaries signed any collective bargaining
agreement or union contract recognizing any labor organization as the
bargaining agent of any of their employees; and (C) as of the date hereof,
to the knowledge of the Company, there is no active or current union
organization activity involving the employees of the Company or any
Subsidiary.
(iv) "Company Benefit Plan" means any "employee benefit plan" (as such
term is defined in Section 3(3) of ERISA) maintained by the Company or the
Subsidiaries, as well as any other employee plan, program or arrangement
whether or not subject to ERISA, under which the Company, or any entity
that is a member of a "controlled group of corporations" with or is under
"common control" with the Company as defined in Section 414(b), (c), (m) or
(o) of the Code ("ERISA Affiliate"), has any present or future obligations
or liability on behalf of its employees or former employees, contractual
employees or their dependents or beneficiaries. "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended.
(m) Intellectual Property. Schedule 5.1(m)(i) sets forth a list of all
trade names, trade marks, services marks, patents and copyrights licensed by or
registered by the Company or any Subsidiary. The Company or its Subsidiaries
own, or hold a valid license for, or otherwise have the right to use all items
of intangible property presently used in their respective businesses, including,
without limitation, trade names, unregistered or registered trademarks, service
marks, brand names, patents, trade dress, logos and designs, copyrights,
know-how, trade secrets, confidential information, franchises, licenses,
inventions, manuals, memoranda and records (collectively, "Intellectual Property
Rights"), except where the failure to own or have a valid license with respect
to such property has not had and is not reasonably likely to have a Material
Adverse Effect on the Company. Except as disclosed on Schedule 5.1(m)(ii), (i)
there are no claims pending or, to the Company's knowledge, threatened, against
the Company or any Subsidiary regarding any violation of any such Intellectual
Property Right of any third party which claims, if adversely determined, alone
or in the aggregate, would be reasonably likely to have a Material Adverse
Effect on the Company, (ii) the Company has taken reasonable and practicable
steps designed to safeguard and maintain the secrecy and confidentiality of
confidential or proprietary information and the
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proprietary rights of the Company and its Subsidiaries' owned Intellectual
Property Rights and (iii) neither the Company nor any Subsidiary has, to the
Company's knowledge, infringed upon or misappropriated any Intellectual Property
Rights of any person or committed any acts of unfair competition.
(n) Certain Contracts. The Company has made available to Investor each
contract, agreement, lease, note, instrument, understanding, commitment or
arrangement listed on Schedule 5.1(n) attached hereto (each, a "Contract"). The
Contracts listed on Schedule 5.1(n) include, but are not limited to, each
contract that (i) involves a non-cancelable, fixed payment over the remaining
term of such Contract of more than $250,000 or requires the Company or any
Subsidiary to provide goods or services with a value of more than $250,000, (ii)
evidences or provides for Debt or any Encumbrance (as defined in Section
5.1(p)(v)) securing such Debt, (iii) guarantees the performance, liabilities or
obligations of any other person, (iv) restricts the Company from engaging in any
line of business, (v) relates to the distribution or marketing of products or
services which are material to the business of the Company or any Subsidiary,
(vi) is with any current officer, director, Affiliate or "associate" (as defined
in Rule 12b-2 under the Exchange Act), (vii) relates to Real Property and is
material to the business of the Company or any Subsidiary or any Intellectual
Property Right, or (viii) is otherwise material to the business, financial
condition or results of operations of the Company and its Subsidiaries, taken as
a whole. Except for breaches or defaults which, alone or in the aggregate, do
not and would not be reasonably likely to have a Material Adverse Effect on the
Company, none of the Company nor any Subsidiary (i) is in breach or default (and
no condition or circumstance exists and no event has occurred which upon the
passage of time or the giving of notice or both would reasonably be expected to
cause such a breach or default) under any material Contract or (ii) has any
knowledge of any other breach or default under any material Contract by any
other party thereto or by any other person or entity bound thereby.
(o) Compliance with Applicable Law. Except as set forth on Schedule 5.1(o)
hereto, the businesses of the Company and the Subsidiaries have not been and are
not being conducted in violation of any applicable Law, including all Laws
relating to wages, hours, Company Benefit Plans, equal employment opportunity,
harassment, immigration, workers' compensation and the payment of social
security and other Taxes, except for such violations which, alone or in the
aggregate, do not and would not be reasonably likely to have a Material Adverse
Effect on the Company. Schedule 5.1(o) sets forth a list of all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Authorities (the "Permits") held by the Company and each Subsidiary which are
material to the Company and its Subsidiaries taken as a whole, including without
limitation all necessary state, county and municipal child care operating
licenses and other Permits necessary for the conduct of their respective
businesses. Except as set forth on Schedule 5.1(o), the Company and the
Subsidiaries hold all Permits necessary for the lawful conduct of their
respective businesses as presently conducted and the Company and the
Subsidiaries are in compliance with the terms of the Permits, except for
failures to comply or hold such Permits
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which would not, alone or in the aggregate, be reasonably likely to have a
Material Adverse Effect on the Company. To the Company's knowledge, there is no
proposed change in any applicable Law which would require the Company or any
Subsidiary to obtain any Permits not set forth in Schedule 5.1(o) in order to
conduct their respective businesses as presently conducted. To the Company's
knowledge, each party to each Contract (other than the Company and its
Subsidiaries) to which the Company or any Subsidiary is a party or by which any
of their respective assets are bound and each person who provides services on
behalf of or in the name of the Company or any Subsidiary, has all Permits
necessary or advisable for the conduct of its business and there are no adverse
claims, suits, actions, proceedings or investigations pending or threatened
against such person, in each case, relating to such Contract or services.
(p) Title to Properties; Encumbrances.
(i) Schedule 5.1(p)(i) hereto contains a complete and accurate list of
all of the owned real property of the Company or the Subsidiaries (the
"Owned Property").
(ii) Schedule 5.1(p)(ii) hereto contains a complete and accurate list
of all real property leased by the Company or the Subsidiaries pursuant to
one or more leases (the "Leased Premises"). The Owned Property and the
Leased Premises (together, the "Real Property") constitute all real
property used or occupied by the Company and the Subsidiaries as of the
date hereof.
(iii) With respect to the Real Property, except as set forth on
Schedule 5.1(p)(iii), (A) to the knowledge of the Company, without
investigation, no portion thereof is subject to any pending condemnation,
fire, health, safety, building, environmental, hazardous substances,
pollution control, zoning or other land use regulatory proceedings or
proceeding by any public or quasi-public authority; (B) the physical
condition thereof is sufficient to permit the conduct of the business of
the Company and its Subsidiaries as presently conducted; (C) there are no
written Contracts to which the Company or any of the Subsidiaries is a
party, granting to any party or parties the right of use or occupancy of
the Real Property; (D) to the knowledge of the Company, without
investigation, there is no assessment pertaining to any of the Real
Property nor has the Company received any written notice of a violation or
claimed violation of any real property law.
(iv) All licenses, Permits, easements and rights of way including
proof of dedication, required from all Governmental Authorities having
jurisdiction over the Real Property for the use and operation of the Real
Property by the Company and its Subsidiaries for their respective
businesses as presently conducted and to provide vehicular and pedestrian
ingress to and egress from the Real Property have
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been obtained, except where the failure to obtain any such license, Permit,
easement or right of way would not be reasonably expected to have a
Material Adverse Effect with respect to the Company.
(v) Except as disclosed in Schedule 5.1(p)(v), each of the Company and
the Subsidiaries have good and valid title to or a valid leasehold interest
in all Real Property and the material tangible personal properties
reflected on the Company's balance sheet included in the Unaudited
Financial Statements (except for Company property sold, consumed or
otherwise disposed of since December 20, 1997, in the ordinary course of
business and consistent with past practice), in each case free and clear of
all title defects or objections, liens, claims, charges, pledges,
mortgages, security interests or other encumbrances of any nature
whatsoever ("Encumbrances"), except for Encumbrances which would not be
reasonably likely to have a Material Adverse Effect on the Company.
(q) Insurance. All material insurance policies are listed on Schedule
5.1(q) hereto and are in full force and effect and, as of the date hereof, no
written notice of termination of any such policy has been received by the
Company or its Subsidiaries, and neither the Company nor its Subsidiaries has
knowledge of any pending termination of any such policy, any material increase
in the cost of any such insurance or any material change in the availability of
such insurance, except for failures to be in full force and effect,
terminations, increases in cost and changes in availability which have not had
and would not be reasonably likely to have a Material Adverse Effect on the
Company. Neither the Company nor its Subsidiaries have received notice of
cancellation of any such insurance, except for any such defaults or notices of
cancellation which are not reasonably likely to have a Material Adverse Effect
on the Company. Except as disclosed in Schedule 5.1(q), none of the material
insurance policies of the Company or its Subsidiaries will terminate or lapse by
reason of the transactions contemplated by this Agreement. The Audited Financial
Statements and the Unaudited Financial Statements reflect adequate reserves for
any insurance programs which require (or have required) the Company or its
Subsidiaries to retain a portion of each loss, including deductible and
self-insurance programs.
(r) Environmental Matters. Except as otherwise set forth in Schedule 5.1(r)
hereto or as would not be reasonably likely to result in a Material Adverse
Effect on the Company, each of the Company and the Subsidiaries is in compliance
with the terms and conditions of all Permits, licenses, reporting or disclosure
requirements, authorizations and all applicable Laws and regulations relating to
the protection of the environment, including Laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants or
hazardous or toxic substances, petroleum, natural gas or radon in to the air,
surface water, ground water or land or otherwise relating to the storage,
disposal, transport or handling of pollutants, contaminants, hazardous or toxic
substances, petroleum, natural gas or radon or wastes which are applicable to
the Company or the Subsidiaries. Except as otherwise set forth in Schedule
5.1(r) or as would not be
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reasonably likely to result in a Material Adverse Effect on the Company, none of
the Company nor the Subsidiaries has spilled, discharged, leaked, dumped or
released any pollutants, contaminants or hazardous or toxic substance,
petroleum, natural gas or radon during the period that any of the Company or the
Subsidiaries was the owner or lessee of the assets of the Company and the
Subsidiaries or, to the Company's knowledge, prior thereto, to any environmental
medium, including but not limited to, air, land, surface water or ground water.
Except as otherwise set forth in Schedule 5.1(r) or as would not be reasonably
likely to result in a Material Adverse Effect on the Company, there has been no
spill, discharge, leak, dumping, or release of any hazardous or toxic substance
resulting from any generation, transportation, treatment, storage, or disposal
by the Company of any such hazardous or toxic substances. All environmental
impact reports and environmental studies relating to any Real Property or Leased
Premises of which any of the Company or the Subsidiaries has possession have
been made available to Investor.
(s) Change in Control. Except (i) as set forth in Schedule 5.1(s), or (ii)
as would not be reasonably likely to result in a Material Adverse Effect on the
Company, none of the Company nor the Subsidiaries is a party to any Contract
which terminates, gives rise to a right of termination, requires any payment,
gives rise to any liability or obligation, accelerates the vesting of any rights
or obligations or the maturity of any indebtedness or otherwise adversely
affects the Company or the Surviving Corporation as a result of a "change in
control" or "potential change in control" of the Company.
(t) SEC Documents. The Company has furnished Investor with a true, correct
and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by La Petite (or its predecessor) with the
Securities and Exchange Commission ("SEC") on or after August 26, 1995 (the "SEC
Documents"), which are all the documents (other than preliminary material) that
La Petite (or its predecessor) was required to file (or otherwise did file) with
the SEC on or after such date. As of their respective dates, none of the SEC
Documents (including all exhibits and schedules thereto and documents
incorporated by reference therein) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made, not misleading, and the SEC Documents complied when
filed in all material respects with the then applicable requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations promulgated by the SEC thereunder. The financial statements of La
Petite (or its predecessor) as of the fiscal years ended August 26, 1995, August
31, 1996 and August 30, 1997, included in the SEC Documents complied as to form
in all material respects with the then applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with GAAP during the periods involved (except as may have
been indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Form 10-Q promulgated by the SEC) and fairly present (subject,
in the case of the unaudited statements to normal audit adjustments) the
financial position of La Petite as at the dates thereof and its results of
operations and cash flows for the periods then ended.
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(u) Management Consulting Agreement. The parties to the Management
Consulting Agreement, dated as of July 23, 1993, between La Petite and Vestar
Management Partners have agreed to terminate such agreement without further
liability or obligation of the Company or any Subsidiary, effective as of the
Effective Time.
(v) State Takeover Statutes. The Board of Directors of the Company has
approved this Agreement and the transactions contemplated hereby and thereby
(including the Merger) and such approval is sufficient to render inapplicable to
such agreements and transactions the provisions of any "fair price,"
"moratorium," "control share," "interested shareholder," "affiliated
transaction" or other anti-takeover statute or regulation and any applicable
anti-takeover or other restrictive provisions of the Restated Certificate of
Incorporation, by-laws or other governing instruments.
(w) Disclaimer. Except as set forth in this Agreement, none of the Company,
any Subsidiary or any officer, director, employee, agent, stockholder, or
affiliate of, or advisor or counsel to, the Company or any Subsidiary (such
officers, directors, employees, agents, stockholders, affiliates, advisors, and
counsel being collectively referred to herein as the "Company Released Parties")
makes any representation or warranty, express or implied, at law or in equity,
(a) in respect of the Company, the Subsidiaries or any of their respective
assets, liabilities or operations, including, without limitation, with respect
to merchantability or fitness for any particular purpose, and any such other
representations or warranties are hereby expressly disclaimed, or (b) in respect
of the accuracy or completeness of any projections or estimates of future
financial and operating performance of the Company or its Subsidiaries,
including but not limited to the projected income statement, cash flow statement
and balance sheet of La Petite for the fiscal year ending August 29, 1998,
previously provided to Investor.
(x) Conflicts of Interest. None of the Company, any Subsidiary or, to the
knowledge of the Company, any officer, employee, agent or other person acting on
behalf of the Company or any Subsidiary has, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any Governmental Authority or other person who was or is in a position to
help or hinder the business of the Company or any Subsidiary (or assist in
connection with any actual or proposed transaction) that (i) might subject the
Company to any damage or penalty in any material action, suit, proceeding or, to
the knowledge of the Company, investigation, (ii) if not given in the past,
would have resulted in a Material Adverse Effect on the Company or (iii) if not
continued in the future, could reasonably be expected to result in a Material
Adverse Effect on the Company. There is not now, and, to the knowledge of the
Company, there has not been any employment by the Company or any Subsidiary of,
or to the knowledge of the Company, beneficial ownership in the Company by,
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any governmental or political official in any jurisdiction in which the Company
has conducted business.
5.2. Representations and Warranties of Investor. The Investor represents
and warrants to the Company that:
(a) Corporate Organization and Qualification. The Investor is and Newco,
upon its formation, will be duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization and qualified and in
good standing in each jurisdiction where the properties owned, leased or
operated, or the business conducted, by it require such qualification, except
where the failure to so qualify or be in such good standing would not materially
adversely affect the ability of any of Investor or Newco to consummate the
transactions contemplated hereby. The Investor has made, and Newco will make,
available to the Company complete and correct copies of its Certificate of
Incorporation (or similar document) and Bylaws (or similar document).
(b) Authority Relative to This Agreement. The Investor has, and upon its
formation, Newco will have, the requisite power and authority to approve,
authorize, execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement and the consummation by each of Investor and
Newco of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors and stockholders of Investor, and no other
proceedings on the part of Investor are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Investor and, assuming this Agreement
constitutes the valid and binding agreement of the Company, constitutes the
valid and binding agreement of Investor, enforceable against Investor in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general principles of equity.
(c) Consents and Approvals; No Violation. Except as set forth in Schedule
5.2(c), neither the execution and delivery of this Agreement by Investor, nor
the consummation by Investor of the transactions contemplated hereby, will (i)
conflict with or result in any breach of any provision of the Investor's
certificate of formation or Newco's certificate of incorporation or bylaws, (ii)
require any consent, approval, authorization or Permit of, or filing with or
notification to, any Governmental Authority, except (A) in connection with the
applicable requirements, if any, of the HSR Act, (B) pursuant to the applicable
requirements of the Exchange Act, (C) the filing of the Certificate of Merger
pursuant to the DGCL and appropriate documents with the relevant authorities of
other states in which Newco will be authorized to do business, (D) such filing
as may be required under any environmental, health, child care or safety Law or
regulation or (E) where the failure to obtain such consent, approval,
authorization or Permit, or to make such filing or notification, would not
materially adversely affect the ability of Investor or Newco to consummate the
transactions contemplated hereby; (iii) result in a violation or breach of,
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or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration or lien
or other charge or encumbrance) under any of the terms, conditions or provisions
of any note, license, agreement, lease or other instrument or obligation to
which each of Investor or Newco or any of its assets may be bound, except for
such violations, breaches and defaults (or rights of termination, cancellation,
or acceleration or lien or other charge or encumbrance) as to which requisite
waivers or consents have been obtained or which, in the aggregate, would not
materially adversely affect the ability of Investor or Newco to consummate the
transactions contemplated hereby; or (iv) assuming the consents, approvals,
authorizations or Permits and filings or notifications referred to in this
Section 5.2(c) are duly and timely obtained or made, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Investor or Newco
or to any of their assets, except for violations which would not materially
adversely affect the ability of Investor or Newco to consummate the transactions
contemplated hereby.
(d) Brokers and Finders. Except for fees and expenses for which neither the
Company nor any Subsidiary will have any liability if the transactions
contemplated hereby are not consummated, Investor has not employed any
investment banker, broker, finder, consultant or intermediary in connection with
the transactions contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
(e) No Prior Activities. Newco will be formed solely for the purpose of the
Merger and engaging in the transactions contemplated hereby. As of the Effective
Date, except for obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated hereby, Newco
will not have incurred, directly or indirectly through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business or
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person or entity.
(f) Litigation. No litigation is pending or, to the knowledge of Investor,
is threatened which seeks to delay, prevent, adversely affect or restrict the
consummation of the transactions contemplated hereby.
(g) Purchase for Investment. Investor is acquiring the Company for
investment and not with a view to any public resale or other distribution
thereof in violation of the Securities Act or any applicable state securities
laws.
(h) Adequate Funds. Investor has delivered to the Company true and correct
copies of signed letters received by Investor with respect to the financing (the
"Financing Letters") required for the consummation of the transactions
contemplated hereby. A copy of each Financing Letter is set forth in Schedule
5.2(h). Assuming satisfaction of all applicable conditions set forth in the
Financing Letters and full funding thereunder, such financing will provide
sufficient
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funds to pay the Aggregate Merger Consideration and effect the Merger as set
forth in Article I hereof.
(i) Closing Date Capitalization of Investor/Surviving Corporation. The
Closing Date capitalization of the Surviving Corporation will be substantially
as described in the Financing Letters.
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
6.1. Conduct of Business by the Company. The Company covenants and agrees
that, during the period from the date of this Agreement to the Effective Time
(unless Investor shall otherwise agree in writing and except as otherwise
contemplated by this Agreement):
(a) Except as set forth on Schedule 6.1(a) hereto, the Company will and
will cause each of the Subsidiaries to conduct its operations according to its
ordinary and usual course of business consistent with past practice, seek to
preserve intact its current business organizations, and, to the extent
consistent with the foregoing, seek to keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers and others having business dealings with it. Without limiting the
generality of the foregoing, and except as otherwise permitted in this
Agreement, prior to the Effective Time, none of the Company nor the Subsidiaries
will, without the prior written consent of Investor, which consent shall not be
unreasonably withheld, (i) except as otherwise provided in this Agreement,
issue, deliver, sell, dispose of, pledge or otherwise encumber, or authorize or
propose the issuance, sale, disposition or pledge or other encumbrance of (A)
any additional shares, or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for any shares, or any
rights, warrants, options, calls, commitments or any other agreements of any
character to purchase or acquire any shares or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for,
any shares, or (B) any other securities in respect of, in lieu of, or in
substitution for, shares outstanding on the date hereof, (ii) redeem, purchase
or otherwise acquire, or propose to redeem, purchase or otherwise acquire, any
of its outstanding securities, (iii) split, combine, subdivide or reclassify any
shares of its capital stock or declare, set aside of payment or pay any
dividend, or make any other actual, constructive or deemed distribution in
respect of any shares or otherwise make any payments to stockholders in their
capacity as such, (iv) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization (other than the Merger), (v) adopt any amendments to its Restated
Certificate of Incorporation or Bylaws or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate structure or
ownership of the Subsidiaries, (vi) change any of the accounting principles or
practices used by it, or (vii) authorize, recommend, propose or announce any
intention to do any of
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the foregoing, or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing.
(b) Except as set forth on Schedule 6.1(b), none of the Company nor the
Subsidiaries shall (without the prior written consent of Investor, which consent
shall not be unreasonably withheld) (i) grant any increases in the compensation
of any of its directors, officers or employees, except in the ordinary course of
business and in accordance with its customary past practices, (ii) pay or agree
to pay any pension, retirement allowance or other employee benefit not required
or contemplated by any of the Company's benefit, severance, pension or
employment plans, agreements or arrangements as in effect on the date hereof
except as may be required to comply with applicable Law, (iii) enter into any
new or materially amend any existing employment, consulting or severance
agreement with any director, officer, consultant or employee (except that the
Company may hire replacement employees in the ordinary course of business and
consistent with past practice), (iv) except as may be required to comply with
applicable Law, become obligated under any new pension plan, welfare plan,
multi-employer plan, employee benefit plan, severance plan, benefit arrangement,
or similar plan or arrangement, which was not in existence on the date hereof,
or amend any such plan or arrangement in existence on the date hereof if such
amendment would have the effect of enhancing any benefits thereunder, (v) make,
by means of merger, consolidation or otherwise, any acquisition or disposition
of securities or other assets (other than (1) in connection with cash management
procedures in the ordinary course of business, (2) acquisitions or dispositions
of assets not exceeding $500,000 in the aggregate or (3) capital expenditures of
no more than $500,000 in the aggregate), (vi) make any commitment to make any
capital expenditures or enter into any lease (other than sale/leaseback or
build-to-suit transactions and renewals or extensions of leases executed in the
ordinary course of the Company's business) requiring payments in excess of
$500,000 in the aggregate, (vii) other than under the Company's existing lines
or letters of credit, or in the ordinary course of business consistent with past
practice, incur any indebtedness or enter into any letters of credit or
capitalized leases in excess of $500,000 in the aggregate or make any loans,
advances or capital contributions to, or investments in, any other person,
(viii) make any material tax election or settle or compromise any material Tax
liability, (ix) modify, amend or terminate any material Contract to which the
Company or any Subsidiary is a party or by which their respective assets are
bound or waive, release or assign any rights or claims, other than in the
ordinary course of business, (x) enter into any material Contract relating to
the provision of services by the Company or the sale or marketing by third
parties of the Company's or any Subsidiary's services other than in the ordinary
course of business, (xi) accelerate the collection of receivables or delay the
payment of payables, or (xii) authorize, recommend, propose or announce any
intention to do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
(c) The Company will cause its Subsidiaries to use reasonable efforts to
maintain in full force and effect all of their presently existing policies of
insurance or insurance comparable to the coverage afforded by such policies;
provided, the Company shall not be required
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to consent to premium increases which the Board of Directors of the Company
considers unreasonable, in which event the Company shall cause the Subsidiaries
to substitute therefor policies with substantially similar terms and conditions.
6.2. Meeting of Stockholders. The Company will take all action necessary in
accordance with applicable Law and its Restated Certificate of Incorporation and
Bylaws to convene a meeting of its stockholders (the "Stockholder Meeting") to
consider and vote upon the approval of the Merger as promptly as practicable.
Except as otherwise required by its fiduciary duties under applicable law, the
Board of Directors of the Company shall recommend and declare advisable such
approval and the Company shall take all lawful action to solicit, and use its
reasonable best efforts to obtain such approval.
The Merger must be approved by the affirmative vote of a majority of the
holders of the Class A Common Stock and the Convertible Preferred Stock, voting
together as a single class, and the Convertible Preferred Stock and the Junior
Preferred Stock, each voting separately as a class. If the holders of the
Convertible Preferred Stock do not vote to approve the Merger, the Company will
cause all such Convertible Preferred Stock to be redeemed prior to the Closing
Date.
6.3. Reasonable Efforts.
(a) The Company and Investor shall: (i) promptly make their respective
filings and thereafter make any other submissions required under all applicable
laws with respect to the Merger and the other transactions contemplated hereby
and (ii) use their respective reasonable efforts to promptly take, or cause to
be taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. Investor will cooperate with and
assist the Company in obtaining any federal or state regulatory approvals to the
Merger. In addition, in the event of any action, suit, proceeding or
investigation relating thereto or to the transactions contemplated by this
Agreement, whether before or after the Effective Time, the parties hereto agree
to cooperate and use all reasonable efforts to vigorously defend against and
respond thereto.
(b) The Company and its Subsidiaries shall cooperate with all sources of
financing to Investor in connection with the Merger and the other transactions
contemplated hereby, and shall take all reasonable steps as may be necessary or
advisable with such sources of financing, including participating in "road
shows" with respect to the issuance of securities in one or more private
placements or transactions registered under the Securities Act and taking
reasonable actions as may be necessary or advisable to consummate such financing
transactions as contemplated by the Financing Letters.
6.4. Notices and Consents. Without limiting the generality of the
foregoing, each of the parties to this Agreement will file any notification and
report forms and related material that
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it may be required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the HSR Act, will use
all commercially reasonable efforts to obtain early termination of the
applicable waiting period, and will make any further filings pursuant thereto
that may be necessary in connection therewith.
6.5. Access to Information. Upon reasonable notice and during reasonable
business hours, the Company shall (and shall cause the Subsidiaries to) afford
to officers, employees, counsel, accountants and other authorized
representatives of Investor ("Representatives"), in order to evaluate the
transactions contemplated by this Agreement, reasonable access, during normal
business hours throughout the period prior to the Effective Time, to its
properties, books and records (including, without limitation, the work papers of
independent accountants) and, to its officers, accountants and agents. During
such period, the Company shall (and shall cause the Subsidiaries to) furnish
promptly to such Representatives all information concerning its business,
properties and personnel as may reasonably be requested. Investor agrees that it
will, and will cause its Representatives to keep any information obtained
pursuant to this Section 6.5 confidential in accordance with the terms of the
confidentiality agreement dated as of November 21, 1997, between the Company and
Chase Capital Partners (the "Confidentiality Agreement").
6.6. Publicity. Except as required by applicable Law, the parties hereto
agree that they will consult with each other concerning any proposed press
release or public announcement pertaining to the Merger and agree upon the text
of any such press release or the making of such public announcement.
6.7. Directors' and Officers' Indemnification and Insurance.
(a) The Restated Certificate of Incorporation and Bylaws of the Company and
its Subsidiaries shall not be amended, repealed or otherwise modified for a
period of six (6) years from the Closing Date in any manner that would adversely
affect the indemnification rights thereunder of individuals who at the Closing
Date were directors, officers, agents or employees of either the Company or the
Subsidiaries or otherwise entitled to indemnification pursuant to the Restated
Certificate of Incorporation and/or Bylaws of the Company or its Subsidiaries
(collectively, the "Indemnified Parties"). To the fullest extent required or
permitted by applicable law, the Company or the Subsidiaries, as applicable,
shall indemnify and hold harmless (and shall advance expenses to) the
Indemnified Parties against and from all liability, losses, demands, claims,
actions or causes of action, suits, proceedings, investigations, deficiencies,
fines, penalties, costs, damages and expenses whatsoever, whether foreseeable or
unforeseeable, including without limitation, all legal, accounting and other
professional fees, or other amounts otherwise in connection with any matter
above (a "Claim") based in whole or in part on the fact that such person is or
was a director or officer of any of the Company or the Subsidiaries or arising
out of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the transactions contemplated by this
Agreement), in each case to the fullest extent permitted by the DGCL. Any
determination required
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to be made with respect to whether an Indemnified Party's conduct complies with
the standards set forth under the foregoing provisions shall be made by
independent legal counsel acceptable to both the Surviving Corporation and such
Indemnified Party.
(b) For a period of six (6) years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company and/or
the Subsidiaries (provided that the Surviving Corporation may substitute
therefor policies of insurers with at least equal rating with at least the same
coverage and amounts containing terms and conditions which are no less favorable
to the beneficiaries thereof) with respect to claims arising from facts or
events which occurred before the Effective Time; provided, however, that in no
event shall the Surviving Corporation be required to expend annually pursuant to
this Section 6.7(b) more than an amount equal to 200% of the current annual
premiums paid by each of the Company and the Subsidiaries for such insurance.
(c) This Section 6.7 is intended to benefit the Indemnified Parties and
shall be binding on all successors and assigns of Investor, Newco, the Company
and the Surviving Corporation.
6.8. Representations and Warranties. Neither the Company, on the one hand,
nor Investor and Newco on the other, will take any action (without the prior
written consent of the other party hereto) that would cause any of the
representations and warranties set forth in Section 5.1 or 5.2, as the case may
be, not to be true and correct in all material respects at and as of the
Effective Time.
6.9. Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company or Newco, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
the Company or Newco, any other actions and things to vest, perfect or confirm
of record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets of the Company
and Newco or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
6.10. Books and Records; Personnel. For a period of seven (7) years from
the Closing, Investor shall, and shall cause the Surviving Corporation to,
provide to any stockholder of the Company or the Subsidiaries ("Stockholders")
for any purpose relating to such Stockholder's ownership of any securities of
the Company or the Subsidiaries, access to the books and records of the Company
or the Subsidiaries upon reasonable advance written notice during regular
business hours for the sole purpose of obtaining information for use as
aforesaid and will permit such Stockholder to make such extracts and copies
thereof as may be necessary. Such Stockholder shall reimburse the Surviving
Corporation for the reasonable out-of-pocket expenses incurred by it in
performing the covenants contained in this Section 6.10.
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6.11. Litigation Support. In the event and for so long as any party
actively is contesting or defending against any litigation against a third party
in connection with (a) any transaction contemplated under this Agreement, or (b)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or prior
to the Closing Date involving any of the Company and the Subsidiaries, each of
the other parties shall cooperate with the defending or contesting party and its
counsel in the defense or contest, all at the sole cost and expense of the
defending or contesting party (unless the defending or contesting party is
otherwise entitled to indemnification from the other party).
6.12. Stockholders Agreement. Investor and the holders of the Retained
Shares shall enter into the Stockholders Agreement in the form attached hereto
as Exhibit C.
6.13. Acquisition Proposals. From the date hereof until the Closing Date
(or the earlier termination of this Agreement), the Company and its Subsidiaries
will not, directly or indirectly through any officer, director, representative
or agent of the Company or its Subsidiaries, or otherwise, (i) solicit, initiate
or encourage the submission of inquiries, proposals or offers from any person or
group relating to any acquisition or purchase of assets of, or any equity
interest in, the Company or its Subsidiaries or any tender or exchange offer,
merger, consolidation, business combination, recapitalization, restructuring,
spin-off, liquidation, dissolution or similar transaction, involving, directly
or indirectly, the Company or its Subsidiaries (each an "Acquisition Proposal"),
(ii) continue, initiate or participate in any discussions or negotiations
regarding any Acquisition Proposal or, other than furnishing information
concerning the Company to (x) existing lenders to the Company and its
Subsidiaries as required by existing agreements with such persons and (y)
Investor or Newco or their representatives, furnish to any person information
concerning the Company, any Subsidiary or any Acquisition Proposal, (iii)
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to make or enter into an
Acquisition Proposal or (iv) accept, approve or authorize, or enter into any
agreement, arrangement or understanding concerning, any Acquisition Proposal or
dispose of any equity interest in the Company. The Company shall cause all of
its agents, officers, directors, representatives and affiliates to abide by the
terms of this Section 6.13.
6.14. Cancellation of Stockholders' Agreement and Subscription Agreements.
The Company shall use its commercially reasonable efforts to cause the parties
to the Stockholders' Agreement (as described in Schedule 5.1(b)) to cancel such
agreement (including the registration rights granted thereunder), and the
Company shall cancel the Common Stock Subscription Agreements, the Management
Common Stock Subscription Agreements, the Convertible Preferred Stock
Subscription Agreement, and the Junior Preferred Stock Subscription Agreement
(all as described in Schedule 5.1(b)), effective as of the Effective Time.
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6.15. Delivery of Financial Statements. The Company will use its reasonable
best efforts to deliver the Company's March 1998 quarterly financial statements
to Investor as soon as possible after the date hereof.
6.16. Joinder Agreement. The Investor agrees to cause Newco to become a
party to this Merger Agreement by executing and delivering the Joinder Agreement
set forth in Schedule 6.16 prior to the Effective Time.
6.17. Participation in Certain Resales.
(a) Payment of Additional Consideration. If, on or prior to the first
anniversary of the Closing Date, the Surviving Corporation shall consummate a
Sale Transaction with a Designated Party, then the Surviving Corporation shall
pay to the Paying Agent for distribution to the holders of the Company's Class A
Common Stock, Convertible Preferred Stock and Options outstanding immediately
prior to the Effective Time, the Applicable Percentage of the aggregate Investor
Profit. Such amount shall be considered an increase in the Aggregate Merger
Consideration, and shall be paid in the same form as the consideration received
by the Company and/or the Investor in the Sale Transaction.
(b) Termination of Obligations. The Surviving Corporation's obligations
under this Section 6.17 shall terminate if the Surviving Corporation shall
default under any of the financial covenants contained in the financing
documents contemplated by the Financing Letters.
(c) Defined Terms.
(i) "Applicable Percentage" means (i) 50% if a Sale Transaction to a
Designated Party is undertaken pursuant to an executed definitive purchase
agreement within six months after the Closing Date and (ii) 33% if a Sale
Transaction to a Designated Party is undertaken pursuant to an executed
definitive purchase agreement after the six-month anniversary of the
Closing Date and prior to the twelve-month anniversary of the Closing Date.
(ii) "Sale Transaction" means a sale by the Surviving Corporation of
all or substantially all of its assets or a sale of a majority of the
outstanding common stock, by way of merger or otherwise, of the Surviving
Corporation to one person or a group of related persons in a single
transaction.
(iii) "Designated Party" means any person that, as of the date in
question, had aggregate revenues in such person's most recently completed
52-week period that are derived from the child care business in excess of
the aggregate
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revenues of the Surviving Corporation in the Surviving Corporation's most
recently completed 52-week period.
(iv) "Investor Profit" means (i) the Per Share Sale Consideration less
the Per Share Cost Basis, multiplied by (ii) the number of shares of common
stock of the Surviving Corporation owned by the Investor immediately after
the Effective Time.
(v) "Per Share Sale Consideration" means the aggregate cash
consideration plus the aggregate fair market value of all non-cash
consideration (determined in good faith by the Board of Directors of the
Surviving Corporation) which would have been received by the Investor in a
Sale Transaction in respect of a share of common stock of the Surviving
Corporation owned by the Investor but for the provisions of this Section
6.17.
(vi) "Per Share Cost Basis" means the aggregate per share purchase
price paid by the Investor in respect of a share of the Surviving
Corporation's common stock, less all cash distributions received by the
Investor prior to the consummation of any Sale Transaction in respect of a
share of the Surviving Corporation's common stock.
6.18. Cancellation of Outstanding Debt. Unless otherwise requested by
Investor, the Company will cause all of the outstanding Debt to be redeemed,
repaid, defeased, canceled or otherwise provided for on or prior to the
Effective Time. Investor agrees that it shall cooperate with the Company to
determine the most cost-efficient method for repaying, redeeming, defeasing,
canceling or otherwise providing for such Debt.
ARTICLE VII
CONDITIONS
7.1. Conditions to the Obligations of Investor and Newco. The obligations
of Investor and Newco to consummate the Merger are subject to the fulfillment at
or prior to the Effective Time of the following conditions, any or all of which
may be waived in whole or in part by Investor or Newco to the extent permitted
by applicable law.
(a) Certificate. The representations and warranties of the Company set
forth in this Agreement shall be true and correct in all material respects
(other than those representations and warranties that are subject to "material
adverse effect" qualifications or are
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otherwise qualified as to materiality, which shall be true and correct in all
respects as stated)) when made and on and as of the Effective Time with the same
force and effect as though the same had been made on and as of the Effective
Time (except for (i) changes contemplated by this Agreement and the schedules
hereto and (ii) those representations and warranties that address matters only
as of a particular date (which will remain true and correct in all material
respects as of that date)), the Company shall have performed in all material
respects all of its obligations under this Agreement theretofore to be
performed, and Investor and Newco shall have received at the Effective Time a
certificate to that effect dated the Effective Time and executed by the
President of the Company.
(b) Injunction. There shall be no action, suit or proceeding pending, or to
the knowledge of the Company, investigation pending which seeks to restrain,
prohibit or invalidate any material transaction provided for in this Agreement
or to recover substantial damages or other substantial relief with respect
thereto. There shall be in effect no preliminary or permanent injunction or
other order of a Governmental Authority of competent jurisdiction directing that
the transactions contemplated herein not be consummated.
(c) Applicable Law. No Law shall have been enacted, entered or promulgated
or enforced by any Governmental Authority that prohibits or restricts the
consummation of the transactions contemplated hereby.
(d) Governmental Filings and Consents. All notices and filings required to
be made prior to the Effective Time by the Company or any Subsidiary with, and
all governmental consents, approvals, authorizations or Permits required to be
obtained prior to the Effective Time by the Company or any Subsidiary from,
Governmental Authorities in connection with the execution and delivery of this
Agreement by the Company and the consummation of the transactions contemplated
hereby shall have been made or obtained except for such filings and consents
where the failure to make such filing or obtain such consent would not (either
individually or in the aggregate) be reasonably likely to have a Material
Adverse Effect on the Company or the Surviving Corporation (assuming the Merger
had taken place), and the waiting periods under the HSR Act shall have expired
or been terminated.
(e) Third Party Consents. All required authorizations, consents and
approvals of, and any required notices to, any third party (other than a
Governmental Authority or holders of Options referred to in Section 4.1(g))
shall have been made or obtained, other than the failure of which (either
individually or in the aggregate) to obtain would not be reasonably likely to
have a Material Adverse Effect on the Company or the Surviving Corporation
(assuming the Merger had taken place).
(f) Consent of Option Holders. The Board of Directors of the Company shall
have taken all necessary action to terminate the canceled Options in accordance
with the terms of this Agreement, and the holders of canceled Options shall have
consented to such termination.
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(g) Opinion of Counsel to the Company. Investor shall have received opinion
of counsel to the Company dated the Closing Date and addressed to Investor,
substantially in the form of Schedule 7.1(g) attached hereto.
(h) Resignations of Directors. All of the directors of the Company and its
Subsidiaries shall have resigned in writing, except as otherwise requested by
Investor not less than ten (10) days prior to Closing.
(i) Paying Agent Agreement. Investor shall have received the agreement, to
be entered into by the Paying Agent and the parties hereto dated as of or prior
to the Effective Date (the "Paying Agent Agreement") and duly executed by the
Company and the Paying Agent.
(j) Material Adverse Change. There shall not have occurred any event, and
no condition or circumstance shall exist which has had or is reasonably likely
to have a Material Adverse Effect on the Company or on the Surviving
Corporation.
(k) Transaction Related Expenses. The Company shall have delivered to
Investor evidence reasonably satisfactory to Investor that all Transaction
Related Expenses have been paid or are being paid simultaneously with the
Closing.
(l) Dissenters Shares. Holders of less than 5% of the outstanding Shares
shall have validly elected to demand appraisal of their Shares pursuant to the
DGCL.
(m) Financing Letters. The conditions set forth in the Financing Letters
shall have been satisfied or waived and the funding referred to therein shall be
available to Investor on terms not materially less favorable to Investor than
are set forth in such Financing Letters.
(n) Cancellation of Stockholders' Agreement and Subscription Agreements.
The Stockholders' Agreement and the Subscription Agreements referred to in
Section 6.14 hereof shall have been canceled as of the Effective Time.
7.2. Conditions to the Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the fulfillment at or prior to
the Effective Time of the following conditions, any or all of which may be
waived in whole or in part by the Company to the extent permitted by applicable
law.
(a) Certificate. The representations and warranties of Investor set forth
in this Agreement shall be true and correct in all material respects on and as
of the Effective Time with the same force and effect as though the same had been
made on and as of the Effective Time (except for (i) changes contemplated by
this Agreement and the schedules hereto and (ii) those
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representations and warranties that address matters only as of a particular date
(which will remain true and correct as of that date)), Investor and Newco shall
have performed in all material respects all of their obligations under this
Agreement theretofore to be performed, and the Company shall have received at
the Effective Time a certificate to that effect dated as of Effective Date and
executed by an officer of Investor.
(b) Injunction. There shall be no action or proceeding pending which seeks
to restrain, prohibit or invalidate any material transaction provided for in
this Agreement or to recover substantial damages or other substantial relief
with respect thereto, which in the opinion of counsel satisfactory to the other
party or parties hereto is likely to result in an order restraining, prohibiting
or invalidating such material transaction or providing for the recovery of
substantial damages or other substantial relief from the Company's stockholders.
There shall be in effect no preliminary or permanent injunction or other order
of a court or governmental or regulatory agency of competent jurisdiction
directing that the transactions contemplated herein not be consummated.
(c) Governmental Filings and Consents. All governmental filings required to
be made prior to the Effective Time by Investor or Newco with, and all
governmental consents required to be obtained prior to the Effective Time by
Investor or Newco from, governmental and regulatory authorities in connection
with the execution and delivery of this Agreement by Investor and Newco and the
consummation of the transactions contemplated hereby shall have been made or
obtained except where the failure to make such filing or obtain such consent
would not prevent the consummation of the transactions contemplated hereby, and
the waiting periods under the HSR Act shall have expired or been terminated.
(d) Opinion of Counsel to Investor and Newco. The Company shall have
received the opinion of counsel to Investor and Newco dated the Closing Date and
addressed to the Company and its stockholders, substantially in the form of
Schedule 7.2(d) attached hereto.
ARTICLE VIII
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by stockholders of the Company, either by the mutual written
consent of Investor, on the one hand, and the Company, on the other hand.
8.2. Termination by Either Parent or the Company. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of Investor, on the one hand, or the Company, on the other hand, if:
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(i) the Closing shall not have been consummated by May 15, 1998,
without liability to the terminating party on account of such termination;
provided, that the right to terminate this Agreement under this Section
8.2(i) shall not be available to a party whose willful breach or violation
of any representation, warranty or covenant under this Agreement has been a
cause of or has resulted in the failure of the Closing to occur on or
before such date;
(ii) a court of competent jurisdiction or other governmental body
shall have issued a final nonappealable order having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger; or
(iii) (A) the other party has breached in any material respect any
representation or warranty contained in this Agreement, or (B) there has
been a material breach of a covenant or agreement set forth in this
Agreement on the part of the other party, which shall not have been cured
(to the extent that such breach may be cured) within 15 business days
following receipt by the breaching party of written notice of such material
breach from the other party.
Any termination pursuant to this Section 8.2 shall be effected by written notice
from the party so terminating to the other party, which notice shall specify the
section of this Agreement pursuant to which this Agreement is being terminated
and the basis therefor.
8.3. Effect of Termination. In the event of the termination of this
Agreement pursuant to this Article VIII, this Agreement shall immediately become
void and have no effect, and there shall be no liability or obligation on the
part of any party hereto or its affiliates, directors, officers or stockholders
arising from the execution and delivery of this Agreement or its termination,
except as otherwise expressly set forth in this Agreement; provided, however,
that nothing herein shall relieve any party from liability for any material
breach of this Agreement prior to termination.
ARTICLE IX
MISCELLANEOUS
9.1. Payment of Expenses. If the Merger is not consummated, each party
hereto shall pay its own fees and expenses incident to preparing for, entering
into and carrying out this Agreement and the consummation of the transactions
contemplated hereby. If the Merger is consummated, the Surviving Corporation
shall pay all the fees and expenses incurred by Investor in connection with the
preparation, negotiation, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
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9.2. Survival of Representations and Warranties. The representations and
warranties made herein shall not survive beyond the Effective Time or a
termination of this Agreement. This Section 9.2 shall not limit any covenant or
agreement of the parties hereto which by its terms contemplates performance
after the Effective Time or termination hereof, including, without limitation,
those provided for in Article IV or in Sections 6.6, 6.7, 6.9, 6.10, 6.11, 6.12,
6.17, 6.18, 8.3, 9.1 and 9.2.
9.3. Modification or Amendment. Subject to the applicable provisions of the
DGCL, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement by written agreement executed and delivered by duly
authorized officers of the respective parties; provided, however, that after
approval of the Merger by the stockholders of the Company, no amendment shall be
made which adversely changes the consideration payable in the Merger or
adversely affects the rights of the Company's stockholders hereunder without the
approval of the Company's stockholders in accordance with the Company's Restated
Certificate of Incorporation and the DGCL.
9.4. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.
9.5. Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
9.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
9.7. Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other parties shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
or by facsimile transmission (with a confirming copy sent by overnight courier),
as follows:
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(a) If to the Company, to
Vestar/LPA Investment Corp.
1225 17th Street
Suite 1660
Denver, CO 80202
Attention: James P. Kelley, Managing Director
Facsimile: (303) 292-6639
and
La Petite Academy, Inc.
14 Corporate Woods
8717 West 110th Street, Suite 300
Overland Park, KS 66210
Attention: James R. Kahl, President
Facsimile: (913) 345-9601
with a copy to counsel to the Company:
Shook, Hardy & Bacon L.L.P.
1200 Main Street
Suite 3100
Kansas City, Missouri 64105
Attn: Jennings J. Newcom, Esq.
Facsimile: (816) 421-5547
and
Kirkland & Ellis
655 15th Street, N.W., Suite 1200
Washington, D.C. 20005-5793
Attention: Jack M. Feder, Esq.
Facsimile: (202) 879-5200
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(b) If to Investor:
LPA Investment LLC
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10017
Attention: Stephen Murray
Facsimile: (212) 622-3101
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Attention: John J. Suydam, Esq.
Facsimile: (212) 728-5950
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
9.8. Entire Agreement; Assignment. This Agreement and the other agreements
referred to herein (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all other prior agreements
and understandings, both written or oral, among the parties or any of them with
respect to the subject matter hereof, and (ii) shall not be assigned by
operation of Law or otherwise, except that Investor may assign this Agreement to
one of its Affiliates with the prior written consent of the Company.
9.9. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of the parties hereto and their respective successors and
assigns. Nothing in this Agreement, express or implied, other than the right to
receive the consideration payable in the Merger pursuant to Article IV hereof,
is intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement;
provided, however, that the provisions of Section 6.7 shall inure to the benefit
of and be enforceable by the Indemnified Parties.
9.10. Transfer Taxes. The Surviving Corporation shall pay: (a) any and all
stock transfer or stamp taxes or similar charges required (or which may, in the
future, be required) by federal, state or local authorities upon, or by virtue
of, the cancellation or conversion of Shares or Options pursuant to this
Agreement, and (b) any and all real or personal property transfer or sales
taxes, gains taxes or similar charges (other than taxes or charges based on, or
measured by, income) required (or which may, in the future, be required) by
federal, state or local authorities solely upon,
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or by virtue of, the cancellation or conversion of Shares or Options pursuant to
this Agreement. Investor or Newco shall timely prepare and file all returns and
reports with respect to such taxes or charges and shall cause all such taxes or
charges due and owing to be paid to the appropriate taxing authorities.
9.11. Certain Definitions. As used herein:
(a) The term "subsidiary" shall mean, when used with reference to any
entity, any person, any other person a majority of the outstanding voting
securities of which are owned directly or indirectly by such person.
(b) "Governmental Authority" shall mean any federal, state or local
government and any court, tribunal, administrative agency, arbitrative agency,
commission or other governmental or regulatory authority or agency.
(c) "Law" shall mean any applicable federal, state or local law, statute,
treaty, rule, directive, regulation, ordinances, restrictions and similar
provisions having the force or effect of law or an order, decree, injunction or
writ of any Governmental Authority.
(d) The term "to the Company's knowledge" shall mean the knowledge of the
executive officers of the Company and its Subsidiaries.
(e) "Material Adverse Effect" with respect to the Company shall mean any
change in or effect on the Company and the Subsidiaries that would be materially
adverse to the business, operations, properties, assets, liabilities or
financial condition of the Company and the Subsidiaries taken as a whole other
than such effects attributable to general economic conditions.
(f) "Material Adverse Effect" with respect to the Surviving Corporation
shall mean any change in or effect on the Surviving Corporation and its
subsidiaries that would be materially adverse to the business, operations,
properties, assets, liabilities or financial condition of the Surviving
Corporation and its subsidiaries (assuming consummation of the Merger) taken as
a whole other than such effects attributable to general economic conditions.
(g) "person" shall mean an individual, corporation, general, limited or
limited liability partnership, limited liability company, joint venture,
association, trust, unincorporated organization or, as applicable, any other
entity.
9.12. Captions. The Article, Section and paragraph captions
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto and shall be
effective as of the date first hereinabove written.
LPA INVESTMENT LLC
By:
---------------------------------
Name:
Title:
VESTAR/LPA INVESTMENT CORP.
By:
---------------------------------
Name:
Title:
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LPA HOLDING CORP.
(a Delaware corporation)
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STOCKHOLDERS AGREEMENT
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May 11, 1998
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ATTACHMENTS
EXHIBITS
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Exhibit A Joinder Agreement
Exhibit B Amended and Restated
Certificate of Incorporation
Exhibit C Rollover Option Amendments
SCHEDULES
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Schedule I Stockholders
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STOCKHOLDERS AGREEMENT dated as of
May 11, 1998, among LPA HOLDING
CORP., a Delaware corporation (the
"Corporation"), VESTAR/LPT LIMITED
PARTNERSHIP, a Delaware limited
partnership ("Vestar"), LPA
INVESTMENT LLC, a Delaware limited
liability company ("LPA Investment"),
and the management stockholders
listed on Schedule I hereto (the
"Management Stockholders").
It is deemed to be in the best interests of the
Corporation and the Stockholders that provision be made for the
continuity and stability of the business and policies of the Corporation,
and, to that end, the Corporation and the Stockholders hereby set forth
their agreement with respect to the Shares owned by them.
ACCORDINGLY, in consideration of the mutual covenants
and agreements contained in this Agreement, the sufficiency of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
1.1. Definitions.
Capitalized terms used in this Agreement have the
meanings ascribed to them below. Capitalized terms used but not defined
in this Agreement have the meanings ascribe to them in the Merger
Agreement:
"Affiliate" means, with respect to any Person, (i) a
director or executive officer of such Person, (ii) a spouse, parent,
sibling or descendant of such Person (or a spouse, parent, sibling or
descendant of any director or executive officer of such Person), and
(iii) any other Person that, directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with
such Person. For purposes of this Agreement, the term "control"
(including, with correlative meaning, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to
any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or
otherwise. When such term is used in the context of a Regulatory Problem,
it
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shall have also the meaning ascribed to it under any Applicable Law.
"Applicable Law" means, as to any Person, all
provisions of laws, statutes, ordinances, rules, regulations, permits,
certificates or orders of any Governmental Authority applicable to such
Person or any of its assets or property and all judgments applicable to
such Person.
"Approved Sale" has the meaning ascribed to it in
Section 3.3(a).
"Bylaws" means the Bylaws of the Corporation as
amended, modified supplemented and restated and in effect from time to
time.
"Certificate of Incorporation" means the Second Amended
and Restated Certificate of Incorporation of the Corporation as filed
with the Secretary of State of Delaware immediately after the Effective
Time.
"Common Stock" means, collectively, the Class A Common
Stock, $.01 par value, of the Corporation and the Class B Common Stock,
$.01 par value, of the Corporation.
"Common Stock Equivalent" means the right to acquire,
whether or not immediately exercisable, one share of Common Stock,
whether evidenced by an option, warrant, convertible security or other
instrument or agreement.
"Common Stock Percentage" means, with respect to a
Stockholder, the fraction, expressed as a percentage, the numerator of
which is the total number of shares of Common Stock held by such
Stockholder (including Common Stock issuable upon exercise or conversion
of Securities held by such Stockholder which are convertible or
exercisable at the time in question) and the denominator of which is the
total number of shares of Common Stock outstanding and Common Stock
issuable upon exercise or conversion of Securities then outstanding and
exercisable or convertible.
"Control Person" means, with respect to any Person, any
Person that, directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with such Person.
"Corporation" has the meaning ascribed to it in the
Caption.
"Excluded Securities" has the meaning ascribed to it in
Section 4.2.
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"Independent Director" has the meaning ascribed to it
in Section 2.2(c).
"Joinder Agreement" has the meaning ascribed to it in
Section 3.1.
"LPA Investment" has the meaning ascribed to it in the
Caption.
"LPA Investment Stockholders" means LPA Investment and
any direct or indirect transferee thereof that shall become a party to
this Agreement in accordance with the terms hereof.
"LPA Investment Directors" has the meaning ascribed to
it in Section 2.2(a).
"Management Director" has the meaning ascribed to it in
Section 2.2(b).
"Management Stockholders" has the meaning set forth in
the Caption to this Agreement and shall include any other Person who is a
full-time employee of the Corporation or any Subsidiary of the
Corporation and who has become a party to this Agreement.
"Management Stock Option Plan" means any stock option
plan approved by the Board of Directors of the Corporation or a committee
thereof.
"Notice of Acceptance" has the meaning ascribed to it
in Section 4.1(b).
"Offer" has the meaning ascribed to it in Section
4.1(a).
"Offered Securities" has the meaning ascribed to it in
Section 4.1(a).
"Permitted Transfer" has the meaning ascribed to it in
Section 3.1(b).
"Person" shall be construed broadly and shall include
an individual, a partnership, a corporation, an association, a joint
stock company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department,
agency or political subdivision thereof.
"Public Offering" means the closing of a public
offering of Securities pursuant to a registration statement declared
effective under the Securities Act, except that a Public Offering shall
not include an offering made in connection with a business acquisition or
an employee benefit plan.
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"Public Sale" means any sale, occurring simultaneously
with or after a Public Offering, of Securities to the public pursuant to
an offering registered under the Securities Act or to the public through
a broker, dealer or market maker pursuant to the provisions of Rule 144.
"Qualified Public Offering" means the sale by one or
more Persons in an underwritten Public Offering registered under the
Securities Act of equity Securities of the Corporation (or its successor)
which results in the aggregate gross proceeds to the Corporation from
such sales (before underwriters' discounts and selling commissions)
greater than or equal to $25,000,000.
"Qualified Stockholder" means any Stockholder which, at
the time in question, has a Common Stock Percentage of 2% or more.
"Refused Securities" has the meaning ascribed to it in
Section 4.1(c).
"Registration Rights Agreement" means the Registration
Rights Agreement dated as of the date hereof entered into simultaneously
with the execution and delivery of this Agreement between the Corporation
and the parties named therein.
"Regulated Holder" has the meaning ascribed to it in
Section 6.1(a).
"Regulatory Problem" means, with respect to any
Stockholder or any member of the Investor, (i) any set of facts or
circumstance wherein it has been asserted by any governmental regulatory
agency (or such Stockholder or member, as applicable, believes that there
is a substantial risk of such assertion) that such Stockholder or member,
as applicable, is not entitled to hold, or exercise any significant right
with respect to, the Securities of the Corporation or the Investor,
respectively, which it holds or (ii) a Voting Regulatory Problem.
"Requisite LPA Investment Stockholders" means those LPA
Investment Stockholders who hold in the aggregate in excess of 50 percent
of the outstanding shares of Common Stock (including shares of Common
Stock issuable upon exercise or conversion of Securities) held by the LPA
Investment Stockholders.
"Requisite Management Stockholders" means the
Management Stockholders who hold in the aggregate in excess of 50 percent
of the outstanding shares of Common Stock (including shares of Common
Stock issuable
upon exercise or conversion of Securities) held by Management
Stockholders.
"Requisite Stockholders" means the Stockholders who
hold in the aggregate in excess of 50 percent of the outstanding shares
of Common Stock (including shares of Common Stock issuable
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upon exercise or conversion of Securities) held by all Stockholders.
"Requisite Vestar Stockholders" means those Vestar
Stockholders who hold in the aggregate in excess of 50 percent of the
outstanding shares of Common Stock (including shares of Common Stock
issuable upon exercise or conversion of Securities) held by Vestar
Stockholders.
"Restricted Shares" shall mean the Shares, options, and
any shares of capital stock received in respect thereof, in each case
which have not theretofore been transferred in a Public Sale.
"Rule 144" means Rule 144 promulgated by the Securities
and Exchange Commission under the Securities Act, as such rule may be
amended from time to time, or any similar rule then in force.
"Sale of the Corporation" means (i) the sale or
transfer by the Corporation of all or substantially all of its assets,
(ii) any merger or consolidation of the Corporation in which its capital
stock is exchanged for cash, stock, debt or other marketable securities
of another entity, or (iii) any sale of Stock of the Corporation or any
merger or consolidation of the Corporation in which the holders of the
Corporation's outstanding capital Stock possessing the authority to
elect, nominate or designate a majority of the Corporation's Board of
Directors immediately prior to the merger do not continue to own the
Corporation's outstanding capital stock possessing the authority to
elect, nominate or designate a majority of the surviving entity's Board
of Directors immediately after such transaction.
"Sale Notice" has the meaning ascribed to it in Section 3.2.
"Securities" means "securities" as defined in Section
2(1) of the Securities Act and includes, with respect to any Person, such
Person's capital stock or other equity interests or any options, warrants
or other securities that are directly or indirectly convertible into, or
exercisable or exchangeable for, such Person's capital stock or other
equity interests. Whenever a reference herein to Securities is referring
to any derivative Securities, the rights of a Stockholder shall apply to
such derivative Securities and all underlying Securities directly or
indirectly issuable upon conversion, exchange or exercise of such
derivative Securities.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar federal law then in force.
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"Securities and Exchange Commission" means the
Securities and Exchange Commission and includes any governmental body or
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange
Act of 1934, as amended, or any similar federal law then in force.
"Shares" means collectively, shares of Common Stock and
Common Stock Equivalents.
"Stock" means the Common Stock and any and all other
equity Securities (including derivative Securities therefor) of the
Corporation.
"Stockholders" means the Management Stockholders, the
Vestar Stockholders and the LPA Investment Stockholders and shall include
any Person who hereafter becomes a party to this Agreement as a
Stockholder pursuant to a Joinder Agreement executed and delivered
pursuant to Section 3.1.
"Subsidiary" means, with respect to any Person, any
corporation of which the shares of stock having a majority of the general
voting power in electing the board of directors of such corporation are,
at the time as of which any determination is being made, owned by such
Person either directly or indirectly through Subsidiaries.
"Tag-Along Notice" has the meaning ascribed to it in
Section 3.2.
"Transfer" shall be construed broadly and shall include
any transfer (whether voluntary, involuntary or by operation of law) of
securities or any interest therein, including without limitation, by way
of issuance, sale, participation, pledge, gift, bequeath, intestate
transfer, distribution, liquidation, merger or consolidation.
"Transferring Stockholder" has the meaning ascribed to
it in Section 3.2.
"Vestar" has the meaning ascribed to it in the Caption.
"Vestar Stockholder" means Vestar and any direct or
indirect transferee thereof that shall become a party to this Agreement
in accordance with the terms hereof.
"Voting Regulatory Problem" shall exist when a Person
and such Person's Affiliates would own, control or have the power
(including voting rights) over a greater quantity of Securities of any
kind issued by the Corporation or any other Person than are permitted
under any Applicable Law.
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1.2 Rules of Construction.
(a) The use in this Agreement of the term "including"
means "including, without limitation." The words "herein," "hereof,"
"hereunder" and other words of similar import refer to this Agreement as
a whole, including the schedules and exhibits, as the same may from time
to time be amended or supplemented, and not to any particular section,
subsection, paragraph, subparagraph or clause contained in this
Agreement. All references to sections, schedules and exhibits mean the
sections of this Agreement and the schedules and exhibits attached to
this Agreement.
(b) Unless otherwise expressly set forth herein,
whenever the term "best efforts" is used, such efforts shall not include
any obligation to incur substantial expenses or liabilities.
(c) The title of and the section and paragraph headings
in this Agreement are for convenience of reference only and shall not
govern the interpretation of any of the terms or provisions of this
Agreement.
(d) The use herein of the masculine, feminine or neuter
forms shall also denote the other forms, as in each case the context may
require.
(e) Where specific language is used to clarify by
example a general statement contained herein, such specific language
shall not be deemed to modify, limit or restrict in any manner the
construction of the general statement to which it relates. The language
used in this Agreement has been chosen by the parties to express their
mutual intent, and no rule of strict construction shall be applied
against any party.
ARTICLE II
BOARD OF DIRECTORS
2.1. Number of Directors.
Each Stockholder, shall from time to time take such
action, in his capacity as a stockholder of the Corporation and including
the voting of the Shares owned or controlled by such Stockholder, as may
be necessary to cause the Corporation to be managed by a Board consisting
of between five and seven Directors, as such number is designated from
time to time by the Requisite LPA Investment Stockholders. Each Director
shall have the right to cast one vote on all actions of the Board, except
that the director nominated by LPA Investment in respect of the shares of
Class B Common Stock held by LPA Investment shall be entitled to three
votes on all actions of the Board.
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2.2. Election of Directors.
Each Stockholder in his capacity as a stockholder of
the Corporation, shall, promptly after the execution of this Agreement
and at any time and from time to time thereafter that Directors of the
Corporation are to be elected, take such action as may be necessary to
provide for the election of the Directors nominated as follows:
(a) three Directors to be nominated by LPA Investment
in respect of the Class A Common Stock held by LPA Investment (the "LPA
Investment Class A Directors"), who initially shall be Mitchell J. Blutt,
M.D., Stephen P. Murray and Brian J. Richmand.
(b) one Director to be nominated by LPA Investment in
respect of the Class B Common Stock held by LPA Investment (the "LPA
Investment Class B Director" and, collectively with the LPA Investment
Class A Directors, the "LPA Investment Directors"), who initially shall
be Robert E. King;
(c) one Director to be nominated by the Requisite
Management Stockholders, which Director shall serve only for so long as
such Person is an employee of the Corporation or one of its Subsidiaries
(the "Management Director"), who initially shall be James R. Kahl; and
(d) if the Board consists of more than five persons,
the remaining Directors shall be individuals who are not employees,
directors, officers or Affiliates of the Corporation or any Stockholder
thereof (the "Independent Director") to be mutually selected by the
Requisite LPA Investment Stockholders and the Requisite Management
Stockholders.
The execution and delivery of this Agreement by those
Stockholders entitled to vote for the election of Directors of the
Corporation constitutes such Stockholders' approval by written consent of
the election of the Directors of the Corporation of the nominees set
forth in this Section 2.2.
2.3. Meetings of the Board of Directors.
The Board of Directors of the Corporation shall call,
and use their best efforts to have, regular meetings not less than
quarterly. The Corporation shall pay the reasonable out-of-pocket
expenses incurred by each Board member designated pursuant to Section 2.2
in connection with attending the meetings of the Board and any committees
thereof.
2.4. Covenant to Vote.
Each of the Stockholders agrees to vote, in person or
by proxy, all of the Stock issued by the Corporation and owned by such
Stockholder and entitled to vote at any annual or special
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meeting of the stockholders of the Corporation called for the purpose of
voting on the election of Directors, or to execute a written consent in
lieu thereof, in favor of the election of the Directors nominated in
accordance with Section 2.2 hereof.
2.5. Removal of Directors.
(a) At all times (i) the Requisite LPA Investment
Stockholders shall have the right to remove, without cause, all or any of
the LPA Investment Directors, (ii) the Requisite Management Stockholders
shall have the right to remove, without cause, the Management Director,
(iii) the Requisite LPA Investment Stockholders or the Requisite
Management Stockholders each shall have the right to remove, without
cause, all or any of the Independent Directors and (iv) any Management
Director who is an employee and who ceases to be employed by the
Corporation or its Subsidiaries shall be removed upon the termination of
such Management Director's employment.
(b) In the event that any Stockholders acting as
described in Section 2.5(a) above shall, in accordance with their rights
specified herein, remove any Director or Directors with respect to whom
they have such right, then each of the other Stockholders hereby agrees
to join with such acting Stockholders in such removal as described above,
and in causing the Corporation either to promptly hold a special meeting
of stockholders and to vote, in person or by proxy, all of his securities
issued by the Corporation and entitled to vote at such meeting or to
execute a written consent in lieu thereof, as the case may be, in favor
of such removal.
2.6. Vacancies.
In the event a vacancy is created on the Board by
reason of the death, removal or resignation of any Director, each of the
Stockholders hereby agrees, in its capacity as a stockholder of the
Corporation, to elect, or to use its best efforts to cause the remaining
Directors to elect, a Director to fill such vacancy in accordance with
the selection procedures set forth in Section 2.2 hereof. Such election
shall occur upon the earlier of (i) the first meeting of the Board, or
the next presentation of a written consent of the Board in lieu of a
meeting, after such vacancy occurs or (ii) the first meeting of the
stockholders or the next presentation of a written consent of the
stockholders in lieu of a meeting, after such vacancy occurs. Each
Stockholder also hereby agrees to vote all of the Securities issued by
the Corporation and owned by such Stockholder and entitled to vote at
such first meeting of stockholders, in person or by proxy, or pursuant to
such first written consent of stockholders, if necessary, in favor of
removing any Director elected to fill such vacancy other than in
accordance with the selection procedures of Section 2.2 hereof.
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2.7. Subsidiaries.
The Corporation agrees that the Management Director and
at least two LPA Investment Directors shall be entitled to serve as
directors of each Subsidiary of the Corporation and on each committee of
the Board and each committee of each Subsidiary.
2.8. No Inconsistent Agreements.
Each Stockholder represents that he has not granted and
is not a party to any proxy, voting trust or other agreement which is
inconsistent with or conflicts with the provisions of this Agreement, and
no Stockholder shall grant any proxy or become party to any voting trust
or other agreement which is inconsistent with or conflicts with the
provisions of this Agreement.
2.9. Approval of Certificate of Incorporation.
The execution and delivery of this Agreement by each of
the Stockholders shall constitute its approval as the stockholders of the
Corporation of the Certificate of Incorporation.
ARTICLE III
TRANSFER OF STOCK
3.1. General.
(a) The provisions regarding Transfers of Stock
contained in this Article III shall apply to all Shares now owned or
hereafter acquired by a Stockholder, including Shares acquired by reason
of dividend, distribution, exchange or conversion, additional issuances
of Shares, and acquisitions of outstanding Shares from another Person,
and such provisions shall apply to any Shares obtained by a Stockholder
upon the exercise, exchange or conversion of any option, warrant or other
Share. Without the consent of the Requisite Stockholders, no Stockholder
shall Transfer any Shares (i) if such Transfer (x) is either (A) to the
Company, an Affiliate of the Company, any Stockholder or any holder of
Stock prior to the date hereof or (B) prior to the end of the sixth month
immediately following the date hereof and (y) in the opinion of the
Corporation's accountants, such Transfer would adversely affect the
ability of the Corporation to use recapitalization accounting with
respect to the transactions contemplated by the Merger Agreement, (ii) if
such Transfer is to a Person, or an Affiliate of a Person, engaged in the
child care or early education business or (iii) if such Transfer is to a
Person not already a party to this Agreement as a Stockholder, unless and
until such Person executes and delivers to the
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Corporation a Joinder Agreement in substantially the form set forth in
Exhibit A hereto or in form and substance reasonably acceptable to the
Corporation pursuant to which such Person shall agree to become a party
to, and to be bound by and to comply with the provisions of, this
Agreement and the Registration Rights Agreement, in each case in the same
capacity and to the same extent as the Stockholder Transferring such
Shares. Any Transfer of Shares that is not made in compliance with the
provisions of this Article III shall be void ab initio.
(b) Except for Permitted Transfers and Transfers made
pursuant to Sections 3.2 or 3.3 hereof, no Transfer by a Stockholder of
any Shares of the Corporation will be valid, and the Corporation will not
be required to record any such Transfer on its books, without the prior
written consent of the Company's Board of Directors, which consent shall
not be unreasonably withheld. As used herein, a "Permitted Transfer"
shall mean any Transfer by a Management Stockholder (i) to the spouse or
lineal descendant (including adopted children) of such Person, (ii) to
any trust solely for the benefit of any of the foregoing or (iii) to the
estate of such Person; provided, however, that in each case such
Permitted Transfer is made in accordance with Section 3.1(a) and (x) such
Transferee agrees in writing to be bound by the Stockholders Agreement in
the same capacity and to the same extent as the Transferor and (y) the
Transferor retains all power to vote the transferred Shares.
3.2. Co-Sale Rights.
If at any time after the date hereof one or more LPA
Investment Stockholders, or any of its or their Control Persons acting
together (the "Transferring Stockholder"), proposes to Transfer, directly
or indirectly, Shares representing more than 15% of the outstanding
Common Stock of the Corporation (including Common Stock Equivalents), in
one transaction or a series of related transactions, to a person who is
not a Control Person of such Investor, then at least fifteen (15) days
prior to the closing of such Transfer, such Transferring Stockholder
shall deliver a written notice (the "Sale Notice") to the other
Stockholders (the Stockholders receiving a Sale Notice pursuant to this
sentence being collectively referred to herein as the "Other
Stockholders"). Such Sale Notice shall specify in reasonable detail the
identity of the prospective transferee(s) and the terms and conditions of
the Transfer. Any such Other Stockholder may, within 10 days of the
receipt of the Sale Notice, give written notice (each, a "Tag-Along
Notice") to the Transferring Stockholder that such Other Stockholder
wishes to participate in such proposed Transfer and specifying the amount
and class of Common Stock such Other Stockholder desires to include in
such proposed Transfer. Any Other Stockholder desiring to participate in
such proposed Transfer must include Shares of the same class as the
Shares proposed to be transferred in the Sale Notice. Any Shares included
in any Tag-Along Notice
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shall be transferred upon the terms and conditions set forth in the Sale
Notice. If none of the Other Stockholders gives the Transferring
Stockholder a timely Tag-Along Notice with respect to the Transfer
proposed in the Sale Notice, the Transferring Stockholder may thereafter
transfer the Shares specified in the Sale Notice on substantially the
same terms and conditions set forth in the Sale Notice. If one or more
Other Stockholders give the Transferring Stockholder a timely Tag-Along
Notice, then the Transferring Stockholder shall use all reasonable
efforts to cause each prospective transferee to agree to acquire all
Shares identified in all Tag-Along Notices that are timely given to the
Transferring Stockholder, upon the same terms and conditions as
applicable to the Transferring Stockholder's Shares. If such prospective
transferee is unwilling or unable to acquire all of such additional
Shares upon such terms, then the Transferring Stockholder may elect
either to cancel such proposed Transfer or to allocate the maximum number
of Shares that each prospective transferee is willing to purchase among
the Transferring Stockholder and the Other Stockholders giving timely
Tag-Along Notices in the proportion that each such Stockholder's
(including the Transferring Stockholder's) Common Stock Percentage bears
to the total Common Stock Percentages of the Transferring Stockholder and
all Other Stockholders giving a timely Tag-Along Notice with respect to
such Transfer (e.g., if the Sale Notice contemplated a sale of a 20%
Common Stock Percentage by the Transferring Stockholder, and if the
Transferring Stockholder at such time owns a 30% Common Stock Percentage
and one Other Stockholder who owns a 20% Common Stock Percentage elects
to participate, then the Transferring Stockholder would be entitled to
sell 12% Common Stock Percentage (30%/50% x the 20% Common Stock
Percentage) and the Other Stockholder would be entitled to sell an 8%
Common Stock Percentage (20%/50% x the 20% Common Stock Percentage).
3.3. Drag-Along Rights.
(a) If the LPA Investment Stockholders approve a Sale
of the Corporation (an "Approved Sale"), all Stockholders shall consent
to and raise no objections against the Approved Sale, and if the Approved
Sale is structured as (A) a merger or consolidation of the Corporation,
or a sale of all or substantially all of the Corporation's assets, each
Stockholder shall waive any dissenters rights, appraisal rights or
similar rights in connection with such merger, consolidation or asset
sale, or (B) a sale of the Stock of the Corporation, the Stockholders
shall agree to sell their Shares on the terms and conditions approved by
the LPA Investment Stockholders. Subject to the satisfaction or waiver of
the other conditions set forth herein, the Stockholders shall take all
necessary and desirable actions approved by the LPA Investment
Stockholders as the case may be, in connection with the consummation of
the Approved Sale, including the execution of such agreements and such
instruments and other actions reasonably necessary to (1) provide the
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representations, warranties, indemnities, covenants, conditions,
non-compete agreements (the terms of which shall not exceed three years
from the date of the closing of such transaction), escrow agreements and
other provisions and agreements relating to such Approved Sale and (2)
effectuate the allocation and distribution of the aggregate consideration
upon the Approved Sale as set forth below. The Stockholders shall be
permitted to sell their Shares pursuant to an Approved Sale without
complying with the provisions of Sections 3.1 and 3.2 of this Agreement.
(b) The obligations of the Stockholders pursuant to
this Section 3.3(b) are subject to the satisfaction of the following
conditions:
(i) Upon the consummation of the Approved Sale, all of
the Stockholders shall receive the same proportion of the aggregate
consideration from such Approved Sale that such holders would have
received if such aggregate consideration had been distributed by the
Corporation in complete liquidation pursuant to the rights and
preferences set forth in the Certificate of Incorporation as in effect
immediately prior to such Approved Sale (giving effect to applicable
orders of priority);
(ii) If any Stockholders of a class are given an option
as to the form and amount of consideration to be received, all
holders of such class will be given the same option;
(iii) No Stockholder shall be obligated to make any
out-of-pocket expenditure prior to the consummation of the
Approved Sale and no Stockholder shall be obligated to pay more
than his pro rata share (based upon the amount of consideration
received) of reasonable expenses incurred in connection with a
consummated Approved Sale to the extent such costs are incurred
for the benefit of all Stockholders and are not otherwise paid
by the Corporation or the acquiring party (costs incurred by or
on behalf of a Stockholder for its or his sole benefit will not
be considered costs of the transaction hereunder), provided that
a Stockholder's liability for such expenses shall be capped at
the total purchase price received by such Stockholder for his
Shares and no Stockholder shall be obligated to pay any expenses
in cash in excess of the cash proceeds received by such
Stockholder in connection with the Approved Sale;
(iv) In the event that the Stockholders are required
to provide any representations or indemnities in connection with
the Approved Sale (other than representations and indemnities on
a several basis concerning each Stockholder's valid ownership of
his Shares, free of all liens and encumbrances (other than those
arising under applicable
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securities laws), and each Stockholder's authority, power, and
right to enter into and consummate such purchase or merger
agreement without violating any other agreement), then each
Stockholder shall not be liable for more than his pro rata share
(based upon the amount of consideration received) of any
liability for misrepresentation or indemnity and such liability
shall not exceed the total purchase price received by such
Stockholder for his Shares, such liability shall be first
satisfied solely out of any funds escrowed for such purpose and
no Stockholder shall be obligated to pay any amount in cash
pursuant to any such indemnity in excess of the cash proceeds
received by such Stockholder from time to time in connection
with the Approved Sale; and
(v) If the Corporation or the LPA Investment
Stockholders, or their representatives, enter into any
negotiation or transaction for which Rule 506 under the
Securities Act (or any similar rule then in effect) may be
available with respect to such negotiation or transaction
(including a merger, consolidation or other reorganization),
each Stockholder who is not an accredited investor (as such term
is defined in Rule 501 under the Securities Act) will, at the
request of the Corporation or the LPA Investment Stockholders,
appoint a purchaser representative (as such term is defined in
Rule 501 under the Securities Act) reasonably acceptable to the
Corporation and such Stockholders.
3.4. Termination of Transfer Limitations.
Notwithstanding the foregoing provisions of this Article
III, the provisions of this Article III shall terminate upon consummation
of a Qualified Public Offering or a Sale of the Corporation.
ARTICLE IV
RIGHTS TO SUBSCRIBE FOR SECURITIES
4.1. General.
(a) Except in the case of Excluded Securities (as
hereinafter defined), the Corporation shall not issue, sell or exchange,
agree to issue, sell or exchange, or reserve or set aside for issuance,
sale or exchange, any (i) shares of Common Stock, (ii) any other equity
security of the Corporation, (iii) any debt security of the Corporation
which by its terms is convertible into or exchangeable for any equity
security of the Corporation or has an equity kicker or other
participation rights, (iv) any security of the Corporation that is a
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combination of debt and equity or (v) any option, warrant or other right
to subscribe for, purchase or otherwise acquire any equity security or
any such debt security of the Corporation (subsections (i) through (v),
collectively, the "Offered Securities"), unless in each case, the
Corporation shall have first offered to sell such Offered Securities to
each Qualified Stockholder up to such Qualified Stockholder's Common
Stock Percentage of such securities, at a price and on such other terms
as shall have been specified by the Corporation in writing delivered to
such Stockholder (the "Offer"), which Offer by its terms shall remain
open (but may be modified or revoked) for a period of 5 business days
from the date it is delivered by the Corporation (the "Offer Period").
(b) Notice of each Qualified Stockholder's intention to
accept, in whole or in part, an Offer shall be evidenced by a writing
signed by such Qualified Stockholder and delivered to the Corporation
prior to the end of the Offer Period, setting forth such portion of the
Offered Securities as such Qualified Stockholder elects to purchase (the
"Notice of Acceptance"); provided, however, that if any Qualified
Stockholder chooses to purchase a portion, but not all, of the Offered
Securities, such Qualified Stockholder must purchase a ratable portion of
each class of the Offered Securities (if more than one class is offered).
(c) In the event the Corporation materially amends the
terms of the Offer at any time, the Offer Period shall be extended for a
period of not less than 3 business days.
(d) In the event that Notices of Acceptance are not
given by the Qualified Stockholders in respect of all the Offered
Securities, the Corporation shall have 90 days from the expiration of the
Offer Period to sell all or any part of such Offered Securities as to
which Notices of Acceptance have not been given by the Qualified
Stockholders (the "Refused Securities") to any other Person(s), but only
upon terms and conditions in all respects, including, without limitation,
unit price and interest rates, which are no more favorable, in the
aggregate, to such other Person(s) or less favorable to the Corporation
than those set forth in the Offer. Upon the closing, which shall include
full payment to the Corporation, of the sale to such other Person(s) of
all the Refused Securities, the Qualified Stockholders shall purchase
from the Corporation, and the Corporation shall sell to the Qualified
Stockholders, the Offered Securities in respect of which Notices of
Acceptance were delivered to the Corporation by the Qualified
Stockholders, at the terms specified in the Offer.
(e) In each case, any Offered Securities not purchased
by the Stockholders or any other Person(s) in accordance with Section
4.1(d) may not be sold or otherwise disposed of until
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they are again offered to the Stockholders under the procedures specified
in Sections 4.1(a), 4.1(b) and 4.1(d).
(f) Notwithstanding anything to the contrary contained
in this Section 4.1, the Corporation shall not be obligated to offer any
Offered Securities to a Qualified Stockholder who is not an "accredited
investor" as such term is defined in Rule 501 of the Securities Act if,
in the reasonable judgment of the Corporation (i) inclusion of such
Qualified Stockholder would result in unnecessary delay or (ii) a sale to
such Qualified Stockholder would violate any rule of, or regulation or
provision promulgated under, the Securities Act.
4.2. Excluded Securities.
The rights of the Stockholders under this Article IV
shall not apply to the following securities (the "Excluded Securities"):
(i) shares of Common Stock issued to, or upon
exercise of, options granted to officers, employees or Directors
of, or consultants to, the Corporation pursuant to any
Management Stock Option Plan;
(ii) any Securities issued by the Corporation as an
"equity kicker" in connection with a debt financing and any
securities issued upon conversion or exercise thereof;
(iii) any Securities issued by the Corporation in
connection with an acquisition;
(iv) any Securities issued by the Corporation in
a public offering or a Rule 144A transaction;
(v) Shares issued as a stock dividend or upon any
stock split or other subdivision or combination of the Common
Stock;
(vi) shares of redeemable preferred stock issued to
LPA Investment in connection with the financing of the Merger;
(vii) Shares of Class A Common Stock issued in exchange
for Shares of Class B Common Stock;
(viii) Shares of Class B Common Stock issued in exchange
for Shares of Class A Common Stock; and
(ix) Securities issued in a transaction in which the
Requisite LPA Investment Stockholders and the Requisite Vestar
Stockholders have agreed in writing to waive their
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rights under this Article IV and do not purchase such Securities
in such transaction.
4.3. Termination.
Notwithstanding the foregoing provisions of this
Article IV, the provision of this Article IV shall terminate upon the
consummation of a Qualified Public Offering or a Sale of the Corporation.
ARTICLE V
INFORMATION RIGHTS; COVENANTS
5.1. Access to Records.
The Corporation shall afford each Qualified
Stockholder, and their respective employees, counsel and other authorized
representatives, during normal business hours, reasonable access, upon
reasonable advance notice, to all of the books, records and properties of
the Corporation and to all officers and employees of the Corporation;
provided, however, that such investigation shall not unreasonably
interfere with the operations of the Corporation. Each Qualified
Stockholder shall use its best efforts to maintain the confidentiality of
any confidential and proprietary information regarding the Company and
its subsidiaries; provided, however, that the foregoing shall in no way
limit or otherwise restrict the ability of such Qualified Stockholder or
such authorized representatives to disclose any such information
concerning the Corporation which it may be required to disclose (i) to
its partners or limited partners to the extent required to satisfy its
fiduciary obligations to such Persons, or (ii) otherwise pursuant to or
as required by law.
5.2. Financial Reports.
The Corporation shall furnish each Qualified
Stockholder with the following:
(a) Quarterly Reports. As soon as available, but not
later than 45 days after the end of each quarterly accounting period, (i)
an unaudited consolidated financial report of the Corporation, prepared
in accordance with generally accepted accounting principles consistently
applied, except that such financial statements contained in such report
need not include footnotes and may be subject to normal year-end audit
adjustments, including, a statement of cash flows and a statement of
operations for such quarterly accounting period and (ii) a report by
management of the Corporation of the operating and financial highlights
of the Corporation and its Subsidiaries for
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the three prior monthly accounting periods, which shall include (A) a
comparison between operating and financial results and budget and (B) an
analysis of the operations of the Corporation and its Subsidiaries for
the prior quarter.
(b) Annual Audit. As soon as available, but not later
than 90 days after the end of each fiscal year of the Corporation,
audited consolidated financial statements of the Corporation, which shall
include a statement of cash flows and a statement of operations for such
fiscal year and a balance sheet as of the last day thereof, each prepared
in accordance with generally accepted accounting principles, consistently
applied, and accompanied by the report of a "Big 5" firm of independent
certified public accountants selected by the Board of Directors of the
Corporation (the "Accountants"). The Corporation and its Subsidiaries
shall maintain a system of accounting sufficient to enable its
Accountants to render the report referred to in this Section 5.2(b).
(c) Miscellaneous. Promptly upon becoming available:
(i) upon request, copies of all financial statements,
reports, press releases, notices, proxy statements and other
documents sent by the Corporation or its Subsidiaries to its
stockholders generally or released to the public and copies of
all regular and periodic reports, if any, filed by the
Corporation or its Subsidiaries with the Securities and Exchange
Commission or any securities exchange;
(ii) upon request, copies of all reports prepared for
or delivered to the management of the Corporation or its
Subsidiaries by its Accountants; and
(iii) any other routinely collected financial or other
information available to management of the Corporation or its
Subsidiaries (including, without limitation, routinely collected
statistical data).
ARTICLE VI
REGULATORY MATTERS
6.1. Regulatory Compliance Cooperation.
(a) If a Regulated Holder determines that it has a
Regulatory Problem, the Corporation agrees to take all such actions as
are reasonably requested by such Regulated Holder (i) to effectuate and
facilitate any transfer by such Regulated Holder of any Securities of the
Corporation then held by such Regulated Holder to any Person designated
by such Regulated
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Holder, (ii) to permit such Regulated Holder (or any Affiliate of such
Regulated Holder) to exchange all or any portion of the voting Securities
then held by such Person on a share-for-share basis for shares of a class
of nonvoting Securities of the Corporation, which nonvoting Securities
shall be identical in all respect to such voting Securities, except that
such new Securities shall be nonvoting and shall be convertible into
voting Securities on such terms as are requested by such Regulated Holder
in light of regulatory considerations then prevailing and (iii) to
continue and preserve the respective allocation of the voting interests
with respect to the Corporation provided for in the Certificate of
Incorporation and this Agreement and with respect to such Regulated
Holder's ownership of the Corporation's voting Securities. Such actions
may include, without limitation, (x) entering into such additional
agreements as are reasonably requested by such Regulated Holder to permit
any Person(s) designated by such Regulated Holder to exercise any voting
power which is relinquished by such Regulated Holder upon any exchange of
voting Securities for nonvoting Securities of the Corporation; and (y)
entering into such additional agreements, adopting such amendments to
this Agreement, the Certificate of Incorporation and the Bylaws of the
Corporation and taking such additional actions as are reasonably
requested by such Regulated Holder in order to effectuate the intent of
the foregoing. As used herein, "Regulated Holder" means any Stockholder
that is, directly or indirectly, (i) a "small business investment
company" licensed by the United States Small Business Administration
under the Small Business Investment Act of 1958, as amended, (ii) a
Regulation Y Holder (as defined below), (iii) subject to any similar,
related or successor laws and regulations regulating banks, bank holding
companies, small business investment companies and their respective
subsidiaries and/or (iv) any Person who owns a majority of the interests
of any Person described in clauses (i) through (iii) above. The
Corporation shall be entitled to assume that no Stockholder, other than
LPA Investment, is a Regulated Holder unless the Corporation receives
written notice to the contrary from any Regulated Holder.
(b) If a Regulated Holder elects to Transfer Securities
of the Corporation to an Affiliate who is, or upon such Transfer would
become, a Regulation Y Holder (as defined below) in order to avoid or
cure a Regulatory Problem, the Corporation and the other Stockholders
shall enter into such agreements with such Regulated Holder and its
Affiliates as it may reasonably request in order to assist such Regulated
Holder and its Affiliates in complying with all Applicable Laws. Such
agreements may include restrictions on the conversion, redemption,
repurchase or retirement of Securities of the Corporation that would
result or be reasonably expected to result in such Regulated Holder or
its Affiliates holding more voting securities or total Securities (debt
and equity) than it is permitted to hold under such Applicable Laws. As
used herein, "Regulation Y Holder" means any
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Stockholder that is (or that is a subsidiary of a bank holding company
that is) subject to the various provisions of Regulation Y of the Board
of Governors of the Federal Reserve Systems, 12 C.F.R., Part 225 (or any
successor to Regulation Y), so long as such Regulation Y Holder shall
hold such Securities.
(c) If a Regulated Holder has the right or opportunity
to acquire any of the Corporation's Securities from the Corporation, any
other Regulated Holder or any other Person (as the result of a preemptive
offer, pro rata offer or otherwise), at such Regulated Holder's request
the Corporation will offer to sell (or if the Corporation is not the
seller, to cooperate with the seller and such Regulated Holder to permit
such seller to sell) such non-voting Securities on the same terms as
would have existed had such Regulated Holder acquired the Securities so
offered and immediately requested their exchange for non-voting
Securities pursuant to Section 6.1(a) above.
(d) Before the Corporation redeems, purchases or
otherwise acquires, directly or indirectly, or converts or takes any
action with respect to the voting rights of, any Securities, the
Corporation shall give written notice of such pending action to each
Regulated Holder. Upon the written request of any Regulated Holder made
within 10 days after its receipt of such notice stating that after giving
effect to such action such Regulated Holder would have a Voting
Regulatory Problem, the Corporation shall defer taking such action for
such period (not to extend beyond 45 days after such Regulated Holder's
receipt of the Corporation's original notice) as such Regulated Holder
requests to permit it and its Affiliates to reduce the quantity of the
Corporation's Securities they own or take other appropriate action in
order to avoid the Voting Regulatory Problem. In addition, the
Corporation shall not be a party to any merger, consolidation,
recapitalization or other transaction pursuant to which any Regulated
Holder would be required to take any voting Securities, or any Securities
convertible into, or exchangeable or exercisable for, voting Securities,
which might reasonably be expected to cause such Regulated Holder to have
a Voting Regulatory Problem.
6.2. Cooperation of Other Stockholders.
Each Stockholder agrees to cooperate with the
Corporation in complying with Section 6.1 above, including without
limitation, voting to approve amending the Certificate of Incorporation,
this Agreement or the Bylaws in a manner reasonably requested by the
Stockholder requesting such amendment.
6.3. Covenant Not to Amend.
The Corporation and each Stockholder agree not to amend
or waive the voting or other provisions of the Certificate of
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Incorporation, this Agreement or the Bylaws if such amendment or waiver
would cause any Stockholder to have a Regulatory Problem, provided that
any such Stockholder notifies the Corporation that it would have a
Regulatory Problem promptly after it has notice of such amendment or
waiver.
6.4. Certain Information Rights and Related Covenants.
(a) Upon the request of any Regulated Holder, the
Corporation will promptly:
(i) provide to such Person and the U.S. Small Business
Administration (the "SBA") access to its books and
records for the purpose of confirming the use of the
proceeds of such Person's financing and for all other
purposes required by the SBA;
(ii) provide to such Person and the SBA a certificate of
its chief financial officer (1) verifying the use of such
proceeds and (2) certifying compliance by the Corporation with
the provisions of this Agreement (provided that such certificate
may be truthfully given);
(iii) provide to such Person an assessment, in form and
substance satisfactory to such Person, of the economic impact of
such Person's financing, specifying the full-time equivalent
jobs created or retained, the impact of the financing on the
Corporation's business in terms of expanded revenue and taxes
and other appropriate economic benefits, including, but not
limited to, technology development or commercialization,
minority business development, urban or rural business
development, expansion of exports and assistance to
manufacturing firms;
(iv) provide to such Person such financial statements
and other information as such Person may from time to time
reasonably request for the purpose of assessing the
Corporation's financial condition; and
(v) furnish to such Person all information requested
by it in order for it to prepare and file SBA Form 468 or to
prepare an assessment of the economic impact of such Person's
financing, and any other information requested or required by
any governmental agency asserting jurisdiction over such Person.
(b) For a period of one year following the date hereof,
neither the Corporation nor any of its Subsidiaries will change its
business activity if such change would render the Corporation ineligible
as a "Small Concern" under the Small Business Investment Act and the
regulations thereunder.
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(c) The Corporation will at all times comply with the
non-discrimination requirements of 13 C.F.R., Parts 112, 113 and 117.
(d) The Corporation will promptly notify each Regulated
Holder from time to time if the number of shareholders increases above or
decreases below 50.
ARTICLE VII
SECURITIES LAW COMPLIANCE; LEGENDS
7.1. Restriction on Transfer.
In addition to any other restrictions on the Transfer
of any Stock contained in this Agreement, the Stockholders shall not
Transfer Restricted Shares except in compliance with the conditions
specified in this Article VII.
7.2. Restrictive Legends.
Each certificate for the Restricted Shares shall
(unless otherwise provided by the provisions of Section 7.4) be stamped
or otherwise imprinted with a legend in substantially the following
terms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933 OR ANY STATE SECURITIES OR BLUE SKY LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT OR LAWS."
7.3. Notice of Transfer.
The holder of any Restricted Shares, by its acceptance
or purchase thereof, agrees, prior to any Transfer of any such Restricted
Shares (except pursuant to an effective registration statement), to give
written notice to the Corporation of such holder's intention to effect
such transfer and agrees to comply in all other respects with the
provisions of this Article VII. Each such notice shall describe the
manner and circumstances of the proposed Transfer and, unless waived by
the Corporation, shall be accompanied by the written opinion, addressed
to the Corporation, of counsel for the holder of such Restricted Shares
(which counsel shall be reasonably satisfactory to the Corporation),
stating that in the opinion of such counsel (which opinion shall be
reasonably satisfactory to the Corporation) such proposed Transfer does
not involve a transaction requiring registration or qualification of such
Restricted Shares under the
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Securities Act or the securities laws of any state of the United States.
Subject to complying with the other applicable provisions hereof, such
holder of Restricted Shares shall be entitled to consummate such Transfer
in accordance with the terms of the notice delivered by it to the
Corporation if the Corporation does not object (on the basis that such
transfer violates the provisions of this Article VII) to such transfer
within five days after the delivery of such notice. Each certificate or
other instrument evidencing the securities issued upon the transfer of
any Restricted Shares (and each certificate or other instrument
evidencing any untransferred balance of such securities) shall bear the
legend set forth in Section 7.2 unless (i) in such opinion of such
counsel registration of future transfer is not required by the applicable
provisions of the Securities Act or the securities laws of any state of
the United States or (ii) the Corporation shall have waived the
requirement of such legend.
7.4. Removal of Legends, Etc.
Notwithstanding the foregoing provisions of this
Article VII, the restrictions imposed by Sections 7.1, 7.2, and 7.3 upon
the transferability of any Restricted Shares shall cease and terminate
when (i) any such Restricted Shares are sold or otherwise disposed of in
accordance with the intended method of disposition by the seller or
sellers thereof set forth in a registration statement or are sold or
otherwise disposed of in a transaction contemplated by Section 7.3 which
does not require that the securities transferred bear the legend set
forth in Section 7.2, or (ii) the holder of such Restricted Shares has
met the requirement of transfer of such Restricted Shares pursuant to
subparagraph (k) of Rule 144. Whenever the restrictions imposed by
Sections 7.1, 7.2 and 7.3 shall terminate, as herein provided, the holder
of any Restricted Shares shall be entitled to receive from the
Corporation, without expense, a new certificate not bearing the
restrictive legend set forth in Section 7.2 and not containing any other
reference to the restrictions imposed by Sections 7.1, 7.2 and 7.3.
7.5. Additional Legend.
Each certificate evidencing Shares and each certificate
issued in exchange for or upon the Transfer of any Shares (if such Shares
remain Shares as defined herein after such Transfer) shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
ALSO SUBJECT TO A STOCKHOLDERS AGREEMENT DATED AS OF
MAY 11, 1998, AMONG THE ISSUER OF SUCH SECURITIES (THE
"CORPORATION") AND CERTAIN OF THE CORPORATION'S
STOCKHOLDERS AND A REGISTRATION RIGHTS AGREEMENT DATED
MAY 11, 1998 AMONG THE
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CORPORATION AND THE OTHER PARTIES NAMED THEREIN. THE
TERMS OF SUCH STOCKHOLDERS AGREEMENT AND REGISTRATION
RIGHTS AGREEMENTS INCLUDE, AMONG OTHER THINGS, VOTING
AGREEMENTS, REPURCHASE AGREEMENTS AND RESTRICTIONS ON
TRANSFERS. COPIES OF SUCH AGREEMENTS WILL BE FURNISHED
WITHOUT CHARGE BY THE CORPORATION TO THE HOLDER HEREOF
UPON WRITTEN REQUEST."
The Corporation shall imprint such legends on certificates evidencing
Shares outstanding prior to the date hereof. The legend set forth above
shall be removed from the certificates evidencing any Shares which cease
to be Shares in accordance with the terms of this Agreement.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1. Representations and Warranties of the Corporation.
The Corporation hereby represents and warrants to the
Stockholders that as of the date of this Agreement:
(a) it is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, it
has full corporate power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby,
and the execution, delivery and performance by it of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action;
(b) this Agreement has been duly and validly executed
and delivered by the Corporation and constitutes a legal and binding
obligation of the Corporation, enforceable against the Corporation in
accordance with its terms; and
(c) the execution, delivery and performance by the
Corporation of this Agreement and the consummation by the Corporation of
the transactions contemplated hereby will not, with or without the giving
of notice or lapse of time, or both (i) violate any provision of law,
statute, rule or regulation to which the Corporation is subject, (ii)
violate any order, judgment or decree applicable to the Corporation, or
(iii) conflict with, or result in a breach or default under, any term or
condition of the Corporation's Certificate of Incorporation or Bylaws or
any agreement or instrument to which the Corporation is a party or by
which it is bound.
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8.2. Representation and Warranties of the Stockholders.
Each Stockholder (as to himself or itself only)
represents and warrants to the Corporation and the other Stockholders
that, as of the time such Stockholder becomes a party to this Agreement:
(a) this Agreement (or the Joinder Agreement executed
by such Stockholder, as the case may be) has been duly and validly
executed and delivered by such Stockholder and constitutes a legal and
binding obligation of such Stockholder, enforceable against such
Stockholder in accordance with its terms; and
(b) the execution, delivery and performance by such
Stockholder of this Agreement and the consummation by such Stockholder of
the transactions contemplated hereby will not, with or without the giving
of notice or lapse of time, or both (i) violate any provision of law,
statute, rule or regulation to which the Stockholder is subject, (ii)
violate any order, judgment or decree applicable to such Stockholder, or
(iii) conflict with, or result in a breach or default under, any term or
condition of any agreement or other instrument to which such Stockholder
is a party or by which such Stockholder is bound, except for such
violations, conflicts, breaches or defaults that would not, in the
aggregate, materially affect the Stockholder's ability to perform its
obligations hereunder.
ARTICLE IX
MISCELLANEOUS
9.1. Severability.
Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other
jurisdiction, and such invalid, void or otherwise unenforceable
provisions shall be null and void. It is the intent of the parties,
however, that any invalid, void or otherwise unenforceable provisions be
automatically replaced by other provisions which are as similar as
possible in terms to such invalid, void or otherwise unenforceable
provisions but are valid and enforceable to the fullest extent permitted
by law.
9.2. Entire Agreement.
This related agreement embodies the complete agreement
and understanding among the parties hereto with respect to the
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subject matter hereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in
any way.
9.3. Successors and Assigns.
Except as otherwise provided herein, this Agreement
will bind and inure to the benefit of and be enforceable by the
Corporation and its successors and assigns and the Stockholders and any
subsequent holders of Shares and the respective successors and assigns of
each of them, so long as they hold Shares. None of the provisions hereof
shall create, or be construed or deemed to create, any right to
employment in favor of any Person by the Corporation or any of its
Subsidiaries. This Agreement is not intended to create any third party
beneficiaries.
9.4 Counterparts.
This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together will
constitute one and the same agreement. It shall not be necessary in
making proof of this Agreement to produce or account for more than one
such counterpart.
9.5. Remedies.
(a) Each Stockholder shall have all rights and remedies
reserved for such Stockholder pursuant to this Agreement, the Certificate
of Incorporation and Bylaws and all rights and remedies which such holder
has been granted at any time under any other agreement or contract and
all of the rights which such holder has under any law or equity. Any
Person having any rights under any provision of this Agreement will be
entitled to enforce such rights specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise
all other rights granted by law or equity.
(b) The parties hereto agree that if any parties seek
to resolve any dispute arising under this Agreement pursuant to a legal
proceeding, the prevailing parties to such proceeding shall be entitled
to receive reasonable fees and expenses (including reasonable attorneys'
fees and expenses) incurred in connection with such proceedings.
(c) It is acknowledged that it will be impossible to
measure in money the damages that would be suffered if the parties fail
to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved Person will be irreparably
damaged and will not have an adequate
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remedy at law. Any such person shall, therefore, be entitled to
injunctive relief, including specific performance, to enforce such
obligations, and if any action should be brought in equity to enforce any
of the provisions of this Agreement, none of the parties hereto shall
raise the defense that there is an adequate remedy at law.
9.6. Notices.
All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given (a) when
delivered personally to the recipient, (b) one business day after being
sent by reputable overnight courier (charges prepaid) (regardless of
whether the recipient refuses to accept delivery), (c) five business days
after being sent to the recipient by certified or registered mail, return
receipt requested and postage prepaid (regardless of whether the
recipient refuses to accept delivery) or (d) when sent to the recipient
by facsimile (followed promptly by personal, courier or certified or
registered mail delivery). The address for each Stockholder is set forth
on Schedule I attached hereto. The Corporation's address is:
LPA Holding Corp.
14 Corporate Woods
8717 West 110th Street, Suite 300
Overland Park, KS 66210
Fax: (913) 345-9601
Phone: (913) 345-1250
Attention: James R. Kahl
President
9.7. Amendment and Waiver.
(a) Except as expressly set forth herein, the
provisions of this Agreement may only be amended or waived with the prior
written consent of the Requisite Stockholders; provided, however, that
any amendment or waiver which adversely affects the rights of the Vestar
Stockholders hereunder must be approved by the Requisite Vestar
Stockholders and any amendment or waiver which adversely affects the
rights of the Management Stockholders must be approved by the Requisite
Management Investors.
(b) No course of dealing between the Corporation, its
Subsidiaries and the Stockholders (or any of them) or any delay in
exercising any rights hereunder will operate as a waiver of any rights of
any party to this Agreement.
(c) For purposes of this Agreement, Shares held by the
Corporation or any Subsidiaries (whether for issuance under the
Management Stock Option Plan or otherwise) will not be deemed to be
outstanding.
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(d) The failure of any party to enforce any of the
provisions of this Agreement will in no way be construed as a waiver of
such provisions and will not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its
terms.
9.8. Governing Law.
All questions concerning the construction,
interpretation and validity of this Agreement shall be governed by and
construed and enforced in accordance with the domestic laws of the State
of Delaware, without giving effect to any choice or conflict of law
provision or rule (whether in the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware. In furtherance of the
foregoing, the internal law of the State of Delaware will control the
interpretation and construction of this Agreement, even if under such
jurisdiction's choice of law or conflict of law analysis, the substantive
law of some other jurisdiction would ordinarily apply.
9.9. Further Assurances.
Each party hereto shall do and perform or cause to be
done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments, and
documents as any other party hereto reasonably may request in order to
carry out the provisions of this Agreement and the consummation of the
transactions contemplated hereby.
9.10. Jurisdiction; Venue; Process.
Each party to this Agreement agrees that jurisdiction
and venue in any action brought by any party hereto pursuant to this
Agreement shall properly (but not exclusively) lie in any state court
located in the State of Delaware or any federal court located in the
State of New York. By execution and delivery of this Agreement, each
party hereto irrevocably submits to the jurisdiction of such courts for
himself and in respect of his property with respect to such action. Each
party hereto irrevocably agrees that venue would be proper in such court,
and hereby waives any objection that such court is an improper or
inconvenient forum for the resolution of such action. Each party further
agrees that the mailing by certified or registered mail, return receipt
requested, of any process required by any such court shall constitute
valid and lawful service of process against him, without necessity for
service by any other means provided by statute or rule of court.
28
<PAGE>
9.11. Conflicting Agreements.
No Stockholder shall enter into any stockholder
agreements or arrangements of any kind with any Person with respect to
any Securities of the Corporation on terms inconsistent with the
provisions of this Agreement (whether or not such agreements or
arrangements are with other Stockholders or with Persons that are not
parties to this Agreement), including but not limited to, agreements or
arrangements with respect to the acquisition or disposition of Securities
of the Corporation in a manner which is inconsistent with this Agreement.
9.12. Mutual Waiver of Jury Trial.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE
THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE
JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR
DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS
RELATED HERETO.
9.13. Rollover Option Amendments.
Each Stockholder agrees that to the extent that such
Stockholder owns Rollover Options, Sections 3.3 and 3.4 of each
Non-Qualified Stock Option Agreement relating to such Rollover Options is
hereby amended to read in its entirety as set forth in Exhibit C hereto.
To the extent of any conflict between this Agreement and the
Non-Qualified Stock Option Agreement, this Agreement shall control.
* * * * *
29
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed
this Stockholders Agreement as of the date set forth above.
LPA HOLDING CORP.
By:
--------------------------------------
Name:
Title:
VESTAR/LPT LIMITED PARTNERSHIP
By: VESTAR/LP Investment
Limited Partnership
By:
--------------------------------------
Name:
Title:
LPA INVESTMENT LLC
By:
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
Joinder Agreement
By executing and delivering this Joinder Agreement to
the Corporation, the undersigned hereby agrees to become a party to, to
be bound by, and to comply with the provisions of the Stockholders
Agreement (the "Stockholders Agreement") and the Registration Rights
Agreement (the "Registration Rights Agreement"), each dated as of May 11,
1998, among the Corporation and the Stockholders named therein, as a
"Stockholder" (as such term is used therein), in the same manner as if
the undersigned were an original signatory to the Stockholders Agreement
and the Registration Rights Agreement. In connection therewith, effective
as of the date hereof the undersigned hereby makes the representations
and warranties contained in Section 8.2 of the Stockholders Agreement and
represents and warrants that such person is not a person which itself is,
or would cause the Corporation to be, disqualified under Rule 262
promulgated under the Securities Act of 1933.
Accordingly, the undersigned has executed and delivered
this Joinder Agreement as of the __ day of ____________, 199__.
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
See attached.
<PAGE>
Schedule I
Stockholders Shares of
- ------------ Common Stock
------------
Vestar/LPT Limited Partnership
c/o Vestar Capital Partners
1227 17th Street, Suite 1660
Denver, CO 80202
Phone: (303) 292-6300
Fax: (303) 292-6639
Attention: James P. Kelley
Investor
LPA Investment LLC
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, N.Y. 10017
Attention: Stephen Murray
Fax: (212) 622-3101
<PAGE>
LPA HOLDING CORP.
1998 STOCK OPTION PLAN
(Adopted by the Board of Directors of LPA Holding Corp. as of May 18, 1998)
1. PURPOSE OF THE PLAN.
The purpose of the LPA HOLDING CORP. 1998 STOCK OPTION PLAN
(the "Plan") is (i) to further the growth and success of LPA Holding Corp., a
Delaware corporation (the "Company") and its subsidiaries, by permitting
employees of the Company and its subsidiaries to acquire shares (the "Shares")
of Class A Common Stock, $.01 par value (the "Class A Common Stock"), of the
Company, thereby increasing such employees' personal interest in such growth and
success and (ii) to provide a means of rewarding outstanding contribution by
such persons to the Company and its subsidiaries. Options granted under this
Plan (the "Options") may be either "incentive stock options" under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options.
2. DEFINITIONS.
As used in this Plan, the following capitalized terms shall
have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other
Person that is controlled by, controlling or under common control with, such
Person. Notwithstanding anything to the contrary contained herein, with respect
to the Company, the term "Affiliate" shall include LPA Investment LLC and each
of its members and each Person in which LPA Investment LLC or such members hold
or have the right to acquire, collectively, more than 25% of the voting Equity
Interests.
"Board" has the meaning set forth in Section 3(a).
"Capital Stock" means any and all shares, interests,
participation or other equivalents (however designated) of corporate stock,
including all Common Stock and preferred stock.
"Cause" shall have the meaning defined in an employment or
similar agreement between the Company and the Optionee, or, if there is no
employment or similar agreement between the Company and the Optionee that
defines what constitutes a termination for cause for purposes of such agreement,
what constitutes "Cause" shall be determined by the Committee in good faith.
"Change-in-Control" means the occurrence of one or more of
the following:
<PAGE>
(a) a sale to any Person (or group of related Persons) other
than an Affiliate or Affiliates of the Company of all or substantially all of
the assets of the Company or of La Petite Academy, Inc.;
(b) a sale by the Company of Capital Stock (whether by merger
or otherwise), if any such sale is made to a Person (or group of related
Persons) other than an Affiliate or Affiliates of the Company, which Person or
Persons, after giving effect to such sale, will own more than 50% of the
outstanding Capital Stock of the Company or
(c) a sale by the stockholders of the Company of Capital
Stock, if any such sale is made to a Person (or group of related Persons) other
than an Affiliate or Affiliates of the Company, which Person or Persons, after
giving effect to such sale, will own more than 50% of the outstanding Capital
Stock of the Company.
"Code" has the meaning set forth in Section 1.
"Committee" has the meaning set forth in Section 3(a). In the
event that a Committee has not been established pursuant to Section 3(a), all
references to "Committee" shall mean the Board.
"Common Stock" means the Class A Common Stock and the Class B
Common Stock, par value $.01, of the Company.
"Company" has the meaning set forth in Section 1.
"Drag-Along Grantees" has the meaning set forth in Section
12(a).
"Effective Date" means the date the Plan is approved by the
stockholders of the Company.
"Equity Interest" means (a) with respect to a corporation,
any and all Capital Stock or warrants, options or other rights to acquire
Capital Stock (but excluding any debt security which is convertible into, or
exchangeable for, Capital Stock) and (b) with respect to a partnership, limited
liability company or similar Person, any and all units, interests, rights to
purchase, warrants, options or other equivalents of, or other ownership
interests in, any such Person.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Expiration Date" has the meaning set forth in Section 8.
"Fair Market Value" means the fair value of Shares or other
property on the date of any determination as reasonably determined in good faith
by the Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, in respect of Shares, recent sale
and offer prices of the Shares in private transactions negotiated at arms'
length.
2
<PAGE>
"Internal Rate of Return" means, with respect to a Share, the
pre-tax compounded annual internal rate of return realized thereon assuming such
Share was purchased by one Person on the Original Issue Date at a price equal to
the Investor's Buy-In Price and such Share was held continuously by such Person
from the Original Issue Date through the date of calculation of the internal
rate of return and including, as a return on such Share, any cash dividends,
distributions or redemptions made by the Company or any Subsidiary in respect of
Share during such period.
"Investor's Buy-In Price" means, with respect to the Option
Price, $133.83.
"Merger Agreement" means the Agreement and Plan of Merger
dated as of March 17, 1998 among LPA Investment LLC and Vestar/LPA Investment
Corp., as it may be amended, supplemented or restated from time to time.
"Minimum Return" means, in respect of a Share, the greater of
(i) a total return equal to 150% of the Investor's Buy-In Price and (ii) an
Internal Rate of Return of 20%.
"Notice" has the meaning set forth in Section 13(b).
"Option" has the meaning set forth in Section 1.
"Option Agreement" has the meaning set forth in Section 4(c).
"Option Price" has the meaning set forth in Section 5(a).
"Optioned Shares" has the meaning set forth in Section 13(b).
"Optionees" has the meaning set forth in Section 4(a).
"Original Issue Date" means the Closing Date (as defined in
the Merger Agreement).
"Person" is to be construed in the broadest sense and means
and includes any natural person, company, limited liability company,
partnership, joint venture, corporation, business trust, or unincorporated
organization or any national, federal, state, municipal, local, territorial,
foreign or other government or any department, commission, board, bureau,
agency, regulatory authority or instrumentality thereof, or any court, judicial,
administrative or arbitral body or public or private tribunal.
"Pro Rata Portion" has the meaning set forth in Section
12(a).
"Qualified Change-in-Control" means a Change-in-control in
which the aggregate consideration (including all cash and the Fair Market Value
of other property) received by the Company or its stockholders would provide a
holder of Shares as of the Effective Date with at least the Minimum Return in
respect of such Shares.
"Qualified Public Offering" means an underwritten, registered
public offering of Common Stock of the Company in which the median of the range
of the per Share prices
3
<PAGE>
estimated by the lead underwriter for such public offering at the time that the
preliminary prospectus is filed with the SEC would provide a selling stockholder
that owned Shares as of the Effective Date with at least the Minimum Return in
respect of such Shares.
"Recapitalization" has the meaning set forth in Section
14(a).
"Repurchase Right" has the meaning set forth in Section
10(a).
"Rule 16b-3" has the meaning set forth in Section 3(a).
"SEC" means the Securities and Exchange Commission.
"Shares" has the meaning set forth in Section 1.
"Securities Act" means the Securities Act of 1933, as
amended.
"Stockholders Agreement" means the Stockholders Agreement,
dated as of May 11, 1998 among LPA Holdings Corp., Vestar/LPT Limited
Partnership, LPA Investment LLC and the other parties thereto, as the same may
be amended, supplemented or modified from time to time.
"Tag-Along Grantors" has the meaning set forth in Section
12(a).
"Tranche A Options" has the meaning set forth in Section
4(d).
"Tranche B Options" has the meaning set forth in Section
4(d).
"Tranche B Option Vesting Event" means the occurrence of the
earlier of (i) the consummation of a Qualified Change-in-Control and (ii) the
consummation of a Qualified Public Offering.
"Transfer" means, with respect to any security (including any
Option), a sale, transfer, assignment, encumbrance, pledge or other disposition
of such security either voluntarily or involuntarily and with or without
consideration (including, without limitation, by way of foreclosure or other
acquisition by any lender with respect to any shares pledged to such lender by
an Optionee).
"Vested Option" means an option which has vested in
accordance with this Agreement, or pursuant to an Option Agreement, as the case
may be.
3. ADMINISTRATION OF THE PLAN
(a) Stock Option Committee. This Plan shall be administered
by a three-person committee (the "Committee") comprised of three members of the
Board of Directors of the Company (the "Board"), appointed from time to time by
the Board. The Committee shall have the power and authority to grant Options
under this Plan; provided, however, that, so long as the Company shall be
required to comply with Rule 16b-3 promulgated by the SEC under the Exchange Act
("Rule 16b-3") in order to permit officers and directors of the Company to be
4
<PAGE>
exempt from the provisions of Section 16(b) of the Exchange Act with respect to
transactions effected pursuant to this Plan, each member of the Committee, at
the effective date of his or her appointment to the Committee and at all times
thereafter while serving on the Committee, shall be a "disinterested person"
within the meaning of Rule 16b-3.
(b) Procedures. The members of the Committee shall from time
to time select a Chairman from among the members of the Committee. The Committee
shall adopt such rules and regulations as it shall deem appropriate concerning
the holding of meetings and the administration of this Plan. A majority of the
entire Committee shall constitute a quorum and the actions of a majority of the
members of the Committee present at a meeting at which a quorum is present, or
actions approved in writing by all of the members of the Committee shall be the
actions of the Committee.
(c) Administration. Except as may otherwise be expressly
reserved to the Board as provided herein, and, with respect to any Option,
except as may otherwise be provided in the Option Agreement evidencing such
Option, the Committee shall have all powers with respect to the administration
of this Plan, including the interpretation of the provisions of this Plan and
any Option Agreement, and all decisions of the Committee, shall be conclusive
and binding on all participants in this Plan.
4. GRANT OF OPTIONS; SHARES SUBJECT TO THIS PLAN.
(a) Power to Grant Options. Subject to the provisions of this
Plan, the Committee shall have the power and authority, in its sole discretion,
to determine:
(i) the persons (from among the class of persons eligible
to receive Options under this Plan) to whom Options shall be granted
(the "Optionees");
(ii) the time or times at which Options shall be granted;
and
(iii) the number of Shares subject to such Option.
(b) Eligibility. Options may be granted under this Plan at
any time and from time to time on or prior to the tenth anniversary of the
Effective Date to any person who is an employee of the Company or any of its
Subsidiaries at the time of grant. Notwithstanding anything contained in Section
4(a) to the contrary, Options which are "incentive stock options" may not be
granted to any Person in any one taxable year of the Company in excess of 25% of
the Options issued or issuable under this Plan.
(c) Option Agreements. Each Option shall be evidenced by a
written agreement (an "Option Agreement"), in substantially the form of Exhibit
A hereto, with such changes thereto as are consistent with this Plan as the
Committee shall deem appropriate. Each Option Agreement shall be executed by the
Company and the Optionee. Notwithstanding any other provision of this Plan to
the contrary, the Committee may, in its discretion, provide that, with respect
to any Option, the terms of the Option Agreement evidencing such Option shall
control any conflicts between provisions of this Plan and provisions of such
Option Agreement.
5
<PAGE>
(d) Tranche A Options and Tranche B Options. Three-quarters
of the Options granted on the Effective Date to each Optionee shall vest in
accordance with Section 6 ("Tranche A Options") and one-quarter of the options
granted to each Optionee on the Effective Date shall vest in accordance with
Section 7 ("Tranche B Options"). Options granted after the Effective Date shall
vest as determined by the Committee, in its sole and absolute discretion, and as
set forth in the applicable Option Agreement.
(e) Date of Grant. The date of grant of an Option under this
Plan shall be the date as of which the Committee approves the grant.
(f) Number of Shares. Subject to any equitable adjustments
for Recapitalizations pursuant to Section 14 and subject to the vesting
provisions set forth herein, each Option shall be exercisable for one Share.
Subject to any equitable adjustments for Recapitalizations pursuant to Section
14, the number of Shares subject at any one time to Options granted under this
Plan, and the number of Shares theretofore issued and delivered pursuant to the
exercise of Options granted under this Plan, shall be 60,074 Shares. If and to
the extent that Options granted under this Plan terminate, expire or are
canceled without having been fully exercised, new Options may be granted under
this Plan with respect to the Shares covered by the unexercised portion of such
terminated, expired or canceled Options.
(g) Character of Shares. The Shares issuable upon exercise of
Options granted under this Plan shall be (i) authorized but unissued Shares,
(ii) Shares held in the Company's treasury or (iii) a combination of the
foregoing.
(h) Reservation of Shares. The Company shall use commercially
reasonable efforts to ensure that the number of Shares reserved for issuance
under this Plan shall at all times be equal to the maximum number of Shares
which may be purchased at such time pursuant to outstanding Options.
5. OPTION PRICE
(a) General. The exercise price (the "Option Price") for each
Share subject to an Option shall be determined by the Committee and set forth in
the Option Agreement, except that (i) the exercise price for the Tranche A
Options granted on the Effective Date shall be 50% of the Investor's Buy-In
Price (subject to equitable adjustment for Recapitalizations affecting the Class
A Common Stock) and (ii) the exercise price for the Tranche B Options granted on
the Effective Date shall be 100% of the Investor's Buy-In Price (subject to
equitable adjustment for Recapitalizations affecting the Class A Common Stock).
(b) Incentive Stock Options. No incentive stock option may be
granted under the Plan to an employee who owns, directly or indirectly (within
the meaning of Sections 422(b)(6) and 424(d) of the Code), Capital Stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its subsidiaries, unless (i) the Option Price of
the Shares of Class A Common Stock subject to such incentive stock option is
fixed at not less than 110% of the Fair Market Value on the date of grant of
such Shares and (ii) such
6
<PAGE>
incentive stock option by its terms is not exercisable after the expiration of
five years from the date it is granted.
(c) Repricing of Options. Subsequent to the date of grant of
any Option, the Committee may (i) in its sole discretion, establish a new Option
Price for such Option so as to decrease the Option Price of such Option or (ii)
with the consent of the Optionee, establish a new Option Price for such Option
so as to increase the Option Price of such Option.
6. EXERCISABILITY AND VESTING OF TRANCHE A OPTIONS
(a) All Tranche A Options granted on the Effective Date shall
be subject to vesting as set forth in this Section 6, and all Options granted
after the Effective Date shall be subject to vesting as determined by the
Committee and set forth in the applicable Option Agreement.
(b) One-forty-eighth of the Tranche A Options shall become
Vested Options on the last day of each month following the date of grant if the
Optionee is employed by the Company on such date.
(c) All of the Tranche A Options shall become Vested Options
immediately prior to a Change-in-Control if the Optionee is employed by the
Company or one of its subsidiaries at such time.
(d) Notwithstanding anything to the contrary contained in
this Plan, each Tranche A Option shall cease vesting as of the time that an
Optionee's employment with the Company and/or its subsidiaries is terminated for
any reason (including a termination by resignation, death, disability or without
Cause) and no Tranche A Option which is not a Vested Option as of such time
shall become a Vested Option thereafter. All decisions by the Committee with
respect to any calculations pursuant to this Section (absent manifest error)
shall be final and binding on all Optionees.
7. EXERCISABILITY AND VESTING OF TRANCHE B OPTIONS
(a) If a Tranche B Option Vesting Event shall occur, then all
of the Tranche B Options shall immediately become Vested Options if the Optionee
is employed by the Company or one of its subsidiaries at the time of such
Tranche B Option Vesting Event.
(b) Notwithstanding anything to the contrary contained in
this Plan, each Tranche B Option shall cease vesting as of the time that an
Optionee's employment with the Company and/or its subsidiaries is terminated for
any reason (including a termination by resignation, death, disability or without
Cause) and no Tranche B Option which is not a Vested Option as of such time
shall become a Vested Option thereafter. All decisions by the Committee with
respect to any calculations pursuant to this Section (absent manifest error)
shall be final and binding on all Optionees.
7
<PAGE>
8. AUTOMATIC TERMINATION OF OPTION
Each Option granted under this Plan shall automatically
terminate and shall become null and void and be of no further force or effect
upon the first of the following to occur (the "Expiration Date"):
(a) the tenth anniversary on which such Option is granted;
(b) subject to Section 8(e), if an Optionee terminates his
employment with the Company other than due to death or disability, or the
Company terminates the Optionee's employment for Cause, the tenth day following
the date of such termination;
(c) subject to Section 8(e), if an Optionee's employment with
the Company is terminated by the Company for any reason other than for Cause,
death or disability, the sixtieth day following the date of such termination;
(d) subject to Section 8(e), if an Optionee's employment with
the Company is terminated due to the death or disability of the Optionee, six
months after the date of such death or disability;
(e) with respect to Options granted after the Effective Date,
the expiration of such other period of time or the occurrence of such other
event as the Committee, in its discretion, may provide in the Option Agreement
governing such Option; or
(f) in the case of Tranche B Options, the earlier of (i) a
consummation of a Change-in-Control which is not a Qualified Change-in-Control
and (ii) the consummation of a public offering of Common Stock which is not a
Qualified Public Offering.
9. REGISTRATION ON FORM S-8.
On or prior to the first anniversary of a public offering by
the Company of Capital Stock, the Company will file or cause to be filed, and
will use commercially reasonable efforts to cause to be effective, a
registration statement on Form S-8 with respect to the sale of Shares purchased
upon the exercise of Options; provided that the Company may delay such filing on
one or more occasions for up to 180 days if the Company determines that the
filing of a Form S-8 would require disclosure that the Company deems advisable
to defer.
10. REPURCHASE OF SHARES
(a) If an Optionee ceases to be employed by the Company for
any reason, the Company shall have the right, but not the obligation, to
repurchase each Vested Option (or portion thereof) and each Share owned by such
Optionee (the "Repurchase Right") beginning on the day of termination of the
Optionee's employment with the Company.
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<PAGE>
(b) The Repurchase Right may be exercised by delivery of a
notice of exercise to the Optionee, at the address of such Optionee set forth in
the Company's records, specifying the number of Vested Options and Shares to be
repurchased.
(c) The repurchase price for Vested Options and Shares shall
be the Fair Market Value thereof.
(d) The Company shall have the right to assign its Repurchase
Rights to any Affiliate of the Company.
11. DRAG-ALONG RIGHT
(a) If, prior to the consummation of a Qualified Public
Offering, (i) stockholders of the Company holding more than 50% of the
outstanding shares of Common Stock (assuming all Options are exercised) (the
"Drag-Along Grantees") enter into an agreement with any Person or Persons, to
Transfer (pursuant to a merger or otherwise) all shares of Common Stock then
held by such Drag-Along Grantees, the Drag-Along Grantees shall be entitled, at
their option, to require each Optionee to sell all Shares held by such Optionee
(together with all Options then outstanding and held by such Optionee), by
providing such Optionee with notice at least fifteen days prior to consummation
of the proposed transaction, setting forth in reasonable detail the material
terms and conditions of the proposed transaction or offering, and the price per
share at which such Optionee shall be required to sell all of his or her Shares
(which price per share shall be equal to the same price per share that the
Drag-Along Grantees shall receive pursuant to the proposed transaction) and/or
Options.
(b) Immediately prior to the closing of the proposed
transaction (notice of the date, place and time of which shall be designated by
the Company and provided to such Optionee in writing at least five business days
prior thereto), if requested by the Drag-Along Grantees, such Optionee shall
exercise all Vested Options. To the extent that Vested Options are not
exercised, such Optionee shall be entitled to receive the consideration that
would have been received had the Option been exercised less the Option Price in
respect of all such Vested Options. At such closing, the Optionee shall deliver
certificates evidencing all Shares then held by such Optionee, duly endorsed for
transfer to the proposed transferee, against the purchase price therefor and all
Option Agreements to which the Optionee is a party. Such Shares and Options
shall be delivered free and clear of all liens, charges, encumbrances and other
security interests. None of the Drag-Along Grantees nor the Company shall have
any liability or obligation to deliver the purchase price payable pursuant to
this Section, except to the extent that any such Drag-Along Grantees or the
Company receive the consideration thereof from the proposed purchaser. All
consideration payable pursuant to this Section shall be payable in the same form
as the consideration received by the Drag-Along Grantees.
(c) The Drag-Along Optionees shall have the right to assign
its rights pursuant to this Section to the Company or any Affiliate of the
Company.
(d) The rights granted pursuant to this Section shall
terminate upon consummation of a Qualified Public Offering.
9
<PAGE>
12. TAG-ALONG RIGHT
(a) If stockholders of the Company holding more than 50% of
the outstanding shares of Common Stock (assuming all Options are exercised) (the
"Tag-Along Grantors") enter into an agreement with any Person or Persons to
Transfer Shares (pursuant to a merger or otherwise) representing more than 25%
of the outstanding shares of Common Stock, then each Optionee shall have the
right to include a Pro Rata Portion of Shares owned by such Optionee in the
proposed transaction by providing a notice of exercise to the Company at any
time on or before five business days following the last day that a Drag-Along
Notice may be given. The term "Pro Rata Portion" means the total number of
Shares held by such Optionee multiplied by a fraction, the numerator of which is
the total number of shares of Common Stock proposed to be disposed of by the
Tag-Along Grantors in the proposed transaction and the denominator of which is
the total number of shares of Common Stock outstanding on a fully-diluted basis.
(b) At the closing of the proposed transaction (notice of the
date, place and time of which shall be designated by the Company and provided to
each such Optionee in writing at least five business days prior thereto), such
Optionee shall deliver certificates evidencing the Pro Rata Portion of the
Shares owned by such Optionee, duly endorsed for transfer to the proposed
purchaser, against delivery of the purchase price therefor. Such Shares shall be
delivered free and clear of all liens, charges, encumbrances and other security
interests. None of the Tag-Along Grantors or the Company shall have any
liability or obligation to deliver the purchase price payable pursuant to this
Section, except to the extent that any such Tag-Along Grantors or the Company
receive the consideration thereof from the proposed purchaser. All consideration
payable pursuant to this Section shall be payable in the same form as the
consideration received by the Tag-Along Grantors.
(c) The rights granted pursuant to this Section shall
terminate upon consummation of a public offering of Shares that is registered
under the Securities Act.
13. PROCEDURE FOR EXERCISE
(a) Payment. At the time an Option is granted under this
Plan, the Committee shall, in its discretion, specify one or more of the
following forms of payment which may be used by an Optionee upon exercise of his
Option:
(i) cash or personal or certified check payable to the
Company in an amount equal to the aggregate Option Price of the Shares
with respect to which the Option is being exercised and the
aforementioned form of payment shall be the only form available on or
after a Qualified Public Offering;
(ii) stock certificates (in negotiable form) representing
Shares having a Fair Market Value on the date of exercise equal to the
aggregate Option Price of the Shares with respect to which the Option
is being exercised;
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<PAGE>
(iii) Vested Options, valued for such purposes at the Fair
Market Value per share of Class A Common Stock on the date of exercise,
net of the Option Price for each such Share; or
(iv) a combination of the methods set forth in clauses
(i), (ii) and (iii) above.
(b) Notice. An Optionee (or other person, as provided in
Section 15(c)) may exercise a Vested Option granted under this Plan in whole or
in part (but for the purchase of whole Shares only), as provided in the Option
Agreement evidencing his Option, by delivering a written notice (the "Notice")
to the Secretary of the Company. The Notice shall include:
(i) a statement that the Optionee elects to exercise the
Vested Option;
(ii) the number of Shares with respect to which the Vested
Option is being exercised (the "Optioned Shares");
(iii) the method of payment for the Optioned Shares (which
method must be available to the Optionee under the terms of his or
her Option Agreement);
(iv) the date upon which the Optionee desires to
consummate the purchase (which date must be prior to the termination of
such Option);
(v) a copy of any election filed by the Optionee pursuant
to Section 83(b) of the Code; and
(vi) such further provisions consistent with this Plan as
the Committee may from time to time require.
The exercise date of a Vested Option shall be the date on which the Company
receives the Notice from the Optionee.
(c) Issuance of Certificates. The Company shall issue a stock
certificate in the name of the Optionee (or such other person exercising the
Option in accordance with the provisions of the Plan) for the Shares purchased
upon exercise of an Option as soon as practicable after receipt of the Notice
and payment of the aggregate Option Price for such Shares. Neither the Optionee
nor any person exercising a Vested Option in accordance with the provisions of
the Plan shall have any privileges as a stockholder of the Company with respect
to any Shares of stock subject to an Option granted under this Plan until the
date of issuance of a stock certificate pursuant to this Section 13(c).
14. ADJUSTMENTS
(a) Changes in Capital Structure. If the Class A Common Stock
is changed by reason of a stock split, reverse stock split or stock combination,
stock dividend or distribution, or recapitalization, or converted into or
exchanged for other securities as a result of a merger, consolidation or
reorganization (each such event being a "Recapitalization"), the Committee shall
make such adjustments in the number and class of shares of stock available under
this Plan
11
<PAGE>
as shall be necessary to preserve to an Optionee rights substantially
proportionate to his rights existing immediately prior to such transaction or
event (but subject to the limitations and restrictions on such rights),
including, without limitation, a corresponding adjustment changing the number
and class of shares allocated to, and the Option Price of, each Option or
portion thereof outstanding at the time of such change and the number of shares
that vest pursuant to this Plan.
(b) Special Rules. The following rules shall apply in
connection with Section 14(a) above:
(i) no adjustment shall be made for cash dividends or the
issuance to stockholders of rights to subscribe for additional Shares;
and
(ii) any adjustments referred to in Section 14(a) shall be
made by the Committee in its sole and absolute discretion, and shall be
conclusive and binding on all persons holding any Options granted under
this Plan.
15. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES.
(a) No Options shall be granted under this Plan, and no
Shares shall be issued and delivered upon the exercise of Options granted under
this Plan, unless and until the Company and/or the Optionee shall have complied
with all applicable Federal or state registration, listing and/or qualification
requirements and all other requirements of law or of any regulatory agencies
having jurisdiction.
(b) The Committee in its sole and absolute discretion may, as
a condition to the exercise of any Vested Option granted under this Plan,
require an Optionee (i) to represent in writing that the Shares received upon
exercise of a Vested Option are being acquired for investment and not with a
view to distribution and (ii) to make such other representations and warranties
as are reasonably deemed appropriate by the Company to satisfy the requirements
of applicable law, including, without limitation, an applicable private
placement exemption of the Securities Act as determined by the Committee. Stock
certificates representing Shares acquired upon the exercise of Vested Options
that have not been registered under the Securities Act shall, if required by the
Committee, bear the following legend and such additional legends as may be
required by the Option Agreement evidencing a particular Option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES
UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE ISSUER HEREOF THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT."
(c) No Option granted under this Plan may be Transferred by
the Optionee, except by will or by the laws of descent and distribution. A
Vested Option may be exercised during the
12
<PAGE>
lifetime of the Optionee only by the Optionee. If an Optionee dies, his or her
Vested Options shall thereafter be exercisable, during the period specified in
Section 8(d) or the applicable Option Agreement (as the case may be), by his or
her executors or administrators to the full extent (but only to such extent) to
which such Options were exercisable by the Optionee at the time of his or her
death.
(d) No Share issued upon the exercise of an Option may be
Transferred except (i) as otherwise provided by this Plan, (ii) by will, (iii)
by the laws of descent and distribution or (iv) to the Company or any Affiliate
of the Company.
16. EFFECTIVE DATE AND TERMINATION OF THE PLAN.
(a) This Plan shall become effective on the Effective Date.
(b) No Options may be granted after the tenth anniversary of
the Effective Date.
(c) Any Option outstanding as of the tenth anniversary of the
Effective Date shall remain in effect until the earlier of the exercise thereof
and the Expiration Date with respect to such Option.
17. WITHHOLDING TAXES.
Whenever under this Plan, Shares are to be delivered to an
Optionee, the Company shall be entitled to require as a condition of delivery
that the Optionee remit or, in appropriate cases, agree to remit when due, an
amount sufficient to satisfy all current or estimated future Federal, state and
local withholding taxes and employment taxes relating thereto.
18. MISCELLANEOUS
(a) Each Option granted under this Plan may contain such
other terms and conditions not inconsistent with this Plan as may be determined
by the Committee, in its sole and absolute discretion.
(b) Number and Gender. With respect to words used in this
Plan, the singular form shall include the plural form, the masculine gender
shall include the feminine gender, and vice-versa, as the context requires.
(c) Captions. The use of captions in this Plan is for
convenience. The captions are not intended to provide substantive rights.
(d) Amendment of Plan. This Plan may be modified or amended
in any respect by the Board.
(e) Governing Law. All questions concerning the construction,
interpretation and validity of this Plan and the instruments evidencing the
Options granted hereunder shall be
13
<PAGE>
governed by and construed and enforced in accordance with the domestic laws of
the State of New York, without giving effect to any choice or conflict of law
provision or rule (whether in the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York. In furtherance of the foregoing, the internal law of the
State of New York will control the interpretation and construction of this Plan,
even if under such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
(f) Exchange Act Compliance. The Corporation will use its
commercially reasonable efforts to cause the exemption from Section 16 of the
Exchange Act afforded by such Rule 16b-3 to be available at the time the Company
has a class of equity securities registered under Section 12 of the Exchange
Act.
(g) No Evidence of Employment or Service Nothing contained in
this Plan or in any Option Agreement shall confer upon any Optionee any right
with respect to the continuation of his or her employment by or service with the
Company or any of its Affiliates or interfere in any way with the right of the
Company or any such Affiliate (subject to the terms of any separate agreement to
the contrary) at any time to terminate such employment or service or to increase
or decrease the compensation of the Optionee from the rate in existence at the
time of the grant of an Option.
(h) Status of Optionees. Any Optionee who receives Shares
under this Plan shall be a "Management Stockholder" for purposes of the
Stockholders Agreement. If any conflict exists between this Plan and the
Stockholders Agreement, this Plan shall control with respect to any Options and
Optioned Shares, and the Stockholder Agreement shall control with respect to any
other securities.
* * * * *
14
<PAGE>
EXHIBIT A
OPTION AGREEMENT
<PAGE>
Exhibit A
STOCK OPTION AGREEMENT
dated as of the date set forth
on the signature page hereto,
between LPA HOLDING CORP.,
a Delaware corporation
(the "Company"), and the
optionee set forth on the
signature page hereto (the
"Optionee").
The Company, whether acting through its Board of Directors
(the "Board") or a committee thereof (the "Committee") has granted to the
Optionee, effective as of the date of this Agreement, an option under the
Company's 1998 Stock Option Plan (the "Plan") to purchase up to the number of
shares of the Class A Common Stock, $.01 par value, of the Company (the "Class A
Common Stock") set forth on the signature page hereto, on the terms and subject
to the conditions set forth in this Agreement and the Plan.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements contained in this Agreement, the parties hereto agree as
follows:
1. The Plan.
The terms and provisions of the Plan are hereby incorporated
into this Agreement as if set forth herein in their entirety. In the event of a
conflict between any provision of this Agreement and the Plan, the provisions of
this Agreement shall control. A copy of the Plan is attached hereto as Exhibit
A. Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Plan.
2. Option; Option Price.
On the terms and subject to the conditions of this Agreement,
the Optionee is hereby granted Tranche A Options and Tranche B Options
(collectively, the "Option") to purchase Shares at the Option Price set forth on
the signature page hereto. The Option is not intended to qualify for federal
income tax purposes as an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
3. Term.
The term of the Option (the "Option Term") shall commence on
the date hereof and expire on the tenth anniversary of the date hereof, unless
the Option shall have sooner been terminated in accordance with the terms of the
Plan or this Agreement.
4. Restriction on Transfer.
The Option may not be Transferred, pledged, assigned,
hypothecated or otherwise disposed of in any way by the Optionee and may be
exercised during the
<PAGE>
lifetime of the Optionee only by the Optionee or in accordance with the
provisions of the Plan. The Option shall not be subject to execution, attachment
or similar process. Any attempted Transfer of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
5. Optionee's Employment.
Nothing in the Option shall confer upon the Optionee any
right to continue to be employed by the Company or any Affiliate of the Company
or interfere in any way with the right of the Company or any Affiliate of the
Company or stockholders, as the case may be, to terminate the Optionee's
employment or retention by the Company or any Affiliate of the Company or to
increase or decrease the Optionee's compensation at any time.
6. Notices.
All notices, claims, certificates, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given and delivered if personally delivered or if sent by
nationally-recognized overnight courier guaranteeing next day delivery, by
telecopy, or by registered or certified mail, return receipt requested and
postage prepaid, addressed as follows:
(a) if to the Company, to it at:
LPA Holding Corp.
c/o La Petite Academy, Inc.
14 Corporate Wood
8717 West 110th Street
Suite 300
Overland Park, KS 66201
Attention: President
Telecopier: (913) 345-9601
Telephone: (913) 345-1250
with a copy to:
LPA Investment LLC
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
Attention: Stephen Murrey
Telecopier: (212) 622-3101
Telephone: (212) 622-3100
and a copy to:
2
<PAGE>
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
41st Floor
New York, NY 10112
Attention: John J. Suydam
Telecopier: (212) 728-5950
Telephone: (212) 408-2400 and
(b) if to the Optionee, to him at his address set forth in the Company's
records.
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (i) in the case of
personal delivery, on the date of such delivery (or if such date is not a
business day, on the next business after the date sent), (ii) in the case of
nationally-recognized overnight courier, on the next business day after the date
sent, (iii) in the case of telecopy transmission, when received (or if not sent
on a business day, on the next business day after the date sent), and (iv) in
the case of mailing, on the third business day following that on which the piece
of mail containing such communication is posted.
7. Waiver of Breach.
The waiver by either party of a breach of any provision of
this Agreement must be in writing and shall not operate or be construed as a
waiver of any other or subsequent breach.
8. Optionee's Undertaking.
The Optionee hereby agrees to take whatever additional
actions and execute whatever additional documents the Company may in its
reasonable judgment deem necessary or advisable in order to carry out or effect
one or more of the obligations or restrictions imposed on the Optionee pursuant
to the express provisions of this Agreement and the Plan.
9. Modification of Rights.
Anything contained in this Agreement or the Plan to the
contrary notwithstanding, no provision of this Agreement may be modified or
amended without the prior written consent of the Company and the Optionee, and
no interpretation, modification, amendment or termination of any provision of
the Plan that would adversely affect the rights of the Optionee under or with
respect to the Plan or this Agreement shall be effective as to the Optionee
without the Optionee's prior written consent.
3
<PAGE>
10. Governing Law.
All questions concerning the construction, interpretation and
validity of this Agreement shall be governed by and construed and enforced in
accordance with the domestic laws of the State of New York, without giving
effect to any choice or conflict of law provision or rule (whether in the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York. In furtherance of the
foregoing, the internal law of the State of New York will control the
interpretation and construction of this Agreement, even if under such
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
11. Counterparts.
This Agreement may be executed in one or more counterparts,
and each such counterpart shall be deemed to be an original, but all such
counterparts together shall constitute but one agreement.
12. Entire Agreement.
This Agreement and the Plan (and the other writings referred
to herein) constitute the entire agreement between the parties with respect to
the subject matter hereof and thereof and supersede all prior written or oral
negotiations, commitments, representations and agreements with respect thereto.
13. Severability.
It is the desire and intent of the parties hereto that the
provisions of this Agreement be enforced to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which enforcement
is sought. Accordingly, if any particular provision of this Agreement shall be
adjudicated by a court of competent jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
* * * *
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written below.
LPA INVESTMENT CORP.
By:
---------------------------------
Name:
Title:
---------------------------------
Optionee:
Number of Shares
of Class A Common Stock
for Tranche A Options:
----------------
Number of Shares
of Class A Common Stock
for Tranche B Options:
----------------
Option Price
for Tranche A
Options: $
----------------
Option Price
for Tranche B
Options: $
----------------
Date:
---------------------
<PAGE>
================================================================================
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
dated May 11, 1998
between
LPA HOLDING CORP.
and
LPA INVESTMENT LLC
================================================================================
<PAGE>
TABLE OF CONTENTS
SECTION 1. Definitions.................................................... 1
SECTION 2. Demand Registration............................................ 3
SECTION 3. Expenses....................................................... 4
SECTION 4. Preparation and Filing......................................... 4
SECTION 5. Indemnification................................................ 7
SECTION 6. Underwriting Agreement......................................... 10
SECTION 7. Information by Stockholder..................................... 11
SECTION 8. Exchange Act Compliance........................................ 11
SECTION 9. No Conflict of Rights.......................................... 11
SECTION 10. Restriction on Transfer....................................... 11
SECTION 11. Termination................................................... 11
SECTION 12. Severability.................................................. 12
SECTION 13. Entire Agreement.............................................. 12
SECTION 14. Successors and Assigns........................................ 12
SECTION 15. Counterparts.................................................. 12
SECTION 16. Remedies...................................................... 12
SECTION 17. Notices....................................................... 13
SECTION 18. Governing Law; Jurisdiction; Venue; Process................... 14
SECTION 19. Further Assurances............................................ 14
SECTION 20. Modifications; Amendments; Waivers............................ 15
SECTION 21. Headings...................................................... 15
SECTION 22. Waiver........................................................ 15
SECTION 23. Mutual Waiver of Jury Trial................................... 15
<PAGE>
PREFERRED STOCK
REGISTRATION RIGHTS AGREEMENT
dated as of May 11, 1998,
between LPA HOLDING CORP., a
Delaware corporation (the
"Company"), and LPA INVESTMENT
LLC, a Delaware limited
liability company (the
"Stockholder").
The Stockholder currently owns (or has the right to acquire)
the number of shares of Series A Redeemable Preferred Stock (the "Preferred
Stock") of the Company set forth opposite the name of such Stockholder on
Schedule I. The parties hereto deem it to be in their best interests to set
forth their rights and obligations in connection with public offerings and sales
of shares of Preferred Stock. Accordingly, the parties agree as follows:
SECTION 1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
"Class A Common Stock" shall mean the Class A Common Stock,
par value $.01 per share, of the Company.
"Class B Common Stock" shall mean the Class B Common Stock,
par value $.01 per share, of the Company.
"Commission" means the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
"Common Stock" means the Class A Common Stock and the Class B
Common Stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, and
the rules and regulations of the Commission promulgated thereunder, all as the
same shall be in effect from time to time.
"Initial Public Offering" means the first underwritten public
offering of Common Stock for sale to the public for the account of the Company
and offered on a "firm commitment" or "best efforts" basis pursuant to an
offering registered under the Securities Act with the Commission on Form S-1 or
its then equivalent.
"LPA Investment" means LPA Investment LLC, a Delaware limited
liability company.
"Other Shares" means at any time those shares of Common Stock
which do not constitute Primary Shares.
<PAGE>
"Preferred Stock" shall have the meaning set forth in the
preamble to this Agreement.
"Primary Shares" means at any time the authorized but unissued
shares of Common Stock or shares of Common Stock held by the Company in its
treasury.
"Registrable Shares" means at any time, with respect to any
Stockholder, the Restricted Shares held by such Stockholder which constitute
Preferred Stock.
"Requisite Stockholders" means at any time, the Stockholders
holding not less than 50% (by number of shares) of the then outstanding
Registrable Shares.
"Restricted Shares" means at any time, with respect to any
Stockholder, the shares of Preferred Stock which are held by such Stockholder
and which have not previously been sold to the public pursuant to a registration
statement under the Securities Act or pursuant to Rule 144 or which are not (or
would not be, upon any such exercise, exchange or conversion) eligible for sale
by the holder thereof under Rule 144(k) or any successor rule thereto or any
complementary rule thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act
or any successor rule thereto or any complementary rule thereto.
"Securities Act" means the Securities Act of 1933, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
"Securities Purchase Agreement" means the Securities Purchase
Agreement dated the date hereof, among the Company, LPA Investment and the other
parties thereto, as the same may be amended or modified.
"Selling Stockholder" shall have the meaning set forth in
Section 5(b).
"Selling Stockholders' Counsel" shall have the meaning set
forth in Section 5(b).
"Stockholders" means LPA Investment and any person or entity
that acquires Restricted Shares directly or indirectly from LPA Investment in
accordance with Section 14.
"Transfer" means any disposition of any Restricted Shares or
of any interest therein which constitutes a sale within the meaning of the
Securities Act, other than any disposition pursuant to an effective registration
statement under the Securities Act and complying with all applicable state
securities and "blue sky" laws.
SECTION 2. Demand Registration.
(a) If the Company shall be requested by the Requisite
Stockholders to effect a registration under the Securities Act of Registrable
Shares in accordance with this Section, then the Company shall promptly give
written notice of such proposed registration to all holders of Restricted Shares
and shall offer to include in such proposed registration any Registrable Shares
-2-
<PAGE>
requested to be included in such proposed registration by such holders who
respond in writing to the Company's notice within 15 days after delivery of such
notice (which response shall specify the number of Registrable Shares proposed
to be included in such registration). The Company shall promptly use its best
efforts to effect such registration on an appropriate form, including Form S-2
or S-3, if available, under the Securities Act of the Registrable Shares which
the Company has been so requested to register; provided, however, that the
Company shall not be obligated to effect any registration under the Securities
Act except in accordance with the following provisions:
(i) the Company shall not be obligated to file more than
one registration statement in total pursuant to this Section which
registration statement was initiated pursuant to this Section and
becomes effective or which is rescinded by the Requisite Stockholders
without reimbursement as specified in the last paragraph of this
Section;
(ii) the Company shall not be obligated to file any
registration statement during any period in which any other
registration statement (other than on Form S-4 or Form S-8 promulgated
under the Securities Act or any successor forms thereto) pursuant to
which Primary Shares are to be or were sold has been filed and not
withdrawn or has been declared effective within the prior 90 days;
(iii) with respect to the registration pursuant to this
Section, the Company may include in such registration any Primary
Shares or Other Shares; provided, however, that if the managing
underwriter advises the Company that the inclusion of all Registrable
Shares, Primary Shares and Other Shares proposed to be included in such
registration would interfere with the successful marketing (including
pricing) of all such securities, then the number of Registrable Shares,
Primary Shares and Other Shares proposed to be included in such
registration shall be included in the following order:
(A) First, the Registrable Shares held by all
Stockholders, pro rata based upon the number of Restricted
Shares owned by each such Stockholder at the time of such
registration;
(B) Second, the Primary Shares; and
(C) Third, the Other Shares.
(b) A requested registration under this Section may be
rescinded by written notice to the Company by the Requisite Stockholders; such
rescinded registration shall not count as a registration statement initiated
pursuant to this Section for purposes of paragraph (a) above if such
registration statement is rescinded prior to the effective date thereof and if
the Requisite Stockholders shall have reimbursed the Company for all
out-of-pocket expenses incurred by the Company in connection with such rescinded
registration. A registration shall not count as a registration statement
initiated pursuant to this Section for purposes of paragraph (a) above
-3-
<PAGE>
unless it becomes effective and the Requisite Stockholders are able to sell at
least 80% of the Registrable Shares sought to be included in such registration
statement.
SECTION 3. Piggyback Registration.
If at any time after an Initial Public Offering the Company
proposes for any reason to register Primary Shares or Other Shares under the
Securities Act (other than on Form S-4 or Form S-8 promulgated under the
Securities Act or any successor forms thereto or other than in connection with
an exchange offer or offering solely to the Company's stockholders), it shall
promptly give written notice to each Stockholder of its intention to so register
the Primary Shares or Other Shares and, upon the written request, given within
15 days after delivery of any such notice by the Company, of any Stockholder to
include in such registration Registrable Shares held by such Stockholder (which
request shall specify the number of Registrable Shares proposed to be included
in such registration), the Company shall use its best efforts to cause all such
Registrable Shares to be included in such registration on the same terms and
conditions as the securities otherwise being sold in such registration;
provided, however, that if the managing underwriter advises the Company that the
inclusion of all Registrable Shares or Other Shares proposed to be included in
such registration would interfere with the successful marketing (including
pricing) of the Primary Shares proposed to be registered by the Company, then
the number of Primary Shares, Registrable Shares and Other Shares proposed to be
included in such registration shall be included in the following order:
(a) first, the Primary Shares;
(b) second, the Other Shares (other than those shares of
Common Stock which are not subject to any registration rights agreement); and
(c) third, the Registrable Shares held by the Selling
Stockholders (as defined below), pro rata based upon the number of Restricted
Shares (based upon Common Stock Equivalents) owned by each such Stockholder at
the time of such registration.
SECTION 4. Expenses.
The Company shall bear the expense of any registrations
effected pursuant to Sections 2 and 3 including, without limitation, all
registration and filing fees (including all expenses incident to filing with the
NASD), fees and expenses of complying with securities and blue sky laws,
printing expenses, and fees and expenses of the Company's counsel and
accountants, and the fees and expenses of the Selling Stockholders' Counsel (as
defined below), but excluding any underwriters' or brokers' discounts or
commissions and the fees of any counsel to any Selling Stockholder, other than
the Selling Stockholders' Counsel.
SECTION 5. Preparation and Filing.
If and whenever the Company is under an obligation pursuant to
the provisions of this Agreement to use its best efforts to effect the
registration of any Registrable Shares, the Company shall, as expeditiously as
practicable:
-4-
<PAGE>
(a) with respect to a registration under Sections 2 and 3, use
its best efforts to cause a registration statement that registers such
Registrable Shares to become and remain effective for a period of 180 days or
until all of such Registrable Shares have been disposed of (if earlier);
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Shares, a prospectus
relating thereto or any amendments or supplements relating to such a
registration statement or prospectus, to each holder of Registrable Shares, to
any counsel to any seller of Registrable Shares (the "Selling Stockholder") and
to one counsel selected by the holders of a majority of such Registrable Shares
(the "Selling Stockholders' Counsel"), copies of all such documents proposed to
be filed (it being understood that such five-business-day period need not apply
to successive drafts of the same document proposed to be filed so long as such
successive drafts are supplied to such counsel in advance of the proposed filing
by a period of time that is customary and reasonable under the circumstances);
(c) prepare and file with the Commission 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
at least the periods set forth in Section 5(a) or until all of such Registrable
Shares have been disposed of (if earlier) and to comply with the provisions of
the Securities Act with respect to the sale or other disposition of such
Registrable Shares;
(d) notify in writing any counsel to any Selling Stockholder
and the Selling Stockholders' Counsel promptly (i) of the receipt by the Company
of any notification with respect to any comments by the Commission with respect
to such registration statement or prospectus or any amendment or supplement
thereto or any request by the Commission for the amending or supplementing
thereof or for additional information with respect thereto, (ii) of the receipt
by the Company of any notification with respect to the issuance by the
Commission of any stop order suspending the effectiveness of such registration
statement or prospectus or any amendment or supplement thereto or the initiation
or threatening of any proceeding for that purpose and (iii) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of such Registrable Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purposes;
(e) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Shares reasonably requests and do any
and all other acts and things which may be reasonably necessary or advisable to
enable such seller of Registrable Shares to consummate the disposition in such
jurisdictions of the Registrable Shares owned by such seller; provided, however,
that the Company will not be required to qualify generally to do business,
subject itself to general taxation or consent to general service of process in
any jurisdiction where it would not otherwise be required so to do but for this
paragraph (e);
(f) furnish to each seller of such Registrable Shares such
number of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with
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<PAGE>
the requirements of the Securities Act, and such other documents as such seller
of Registrable Shares may reasonably request in order to facilitate the public
sale or other disposition of such Registrable Shares;
(g) use its best efforts to cause such Registrable Shares to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company to enable the seller or sellers thereof to consummate the disposition of
such Registrable Shares;
(h) notify on a timely basis each seller of such Registrable
Shares at any time when a prospectus relating to such Registrable Shares is
required to be delivered under the Securities Act within the appropriate period
mentioned in paragraph (a) of this Section, of the happening of any event as a
result of which 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 light of the circumstances then existing and, at the
request of such seller, prepare and furnish to such seller a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the offerees of such shares, 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 light of the circumstances then existing;
(i) make available for inspection by any counsel to any
Selling Stockholder and the Selling Stockholders' Counsel or any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such underwriter
(collectively, the "Inspectors"), all pertinent financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information (together with the Records, the
"Information") reasonably requested by any such Inspector in connection with
such registration statement. Any of the Information which the Company determines
in good faith to be confidential, and of which determination the Inspectors are
so notified, shall not be disclosed by the Inspectors unless (i) the disclosure
of such Information is necessary to avoid or correct a misstatement or omission
in the registration statement, (ii) the release of such Information is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction or
(iii) such Information has been made generally available to the public. The
seller of Registrable Shares agrees that it will, upon learning that disclosure
of such Information is sought in a court of competent jurisdiction, give notice
to the Company and allow the Company, at the Company's expense, to undertake
appropriate action to prevent disclosure of the Information deemed confidential;
(j) use its best efforts to obtain from its independent
certified public accountants "comfort" letters in customary form and at
customary times and covering matters of the type customarily covered by comfort
letters;
-6-
<PAGE>
(k) use its best efforts to obtain from its counsel an opinion
or opinions in customary form;
(l) provide a transfer agent and registrar (which may be the
same entity and which may not be the Company) for such Registrable Shares;
(m) issue to any underwriter to which any seller of
Registrable Shares may sell shares in such offering certificates evidencing such
Registrable Shares; provided, however, that the Company shall have the right to
approve any such underwriter with such approval not to be unreasonably withheld;
(n) list such Registrable Shares on any national securities
exchange on which any shares of the Preferred Stock are listed or, if the
Preferred Stock is not listed on a national securities exchange, use its best
efforts to qualify such Registrable Shares for inclusion on the automated
quotation system of the National Association of Securities Dealers, Inc. (the
"NASD") or such national securities exchange as the holders of a majority of
such Registrable Shares shall request;
(o) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make available to its
securityholders, as soon as reasonably practicable, earnings statements (which
need not be audited) covering a period of 12 months beginning within three
months after the effective date of the registration statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(p) use its best efforts to take all other steps necessary to
effect the registration of such Registrable Shares contemplated hereby.
SECTION 6. Indemnification.
In connection with any registration of any Registrable Shares
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless the seller of such Registrable Shares, its officers and
directors, each underwriter, broker or any other person acting on behalf of such
seller and each other person, if any, who controls any of the foregoing persons
within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, (or actions in respect thereof) to which any of
the foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse such seller, such officer or
director, such underwriter, such broker or such other person acting on behalf of
such seller and each such controlling person for any legal or other expenses
reasonably incurred by any of them in connection with investigating
-7-
<PAGE>
or defending any such loss, claim, damage, liability or action; 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 an untrue statement or alleged untrue statement or omission or alleged
omission made in said registration statement, preliminary prospectus, final
prospectus, amendment, supplement or document incident to registration or
qualification of any Registrable Shares in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such seller or underwriter specifically for use in the preparation thereof;
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity shall not inure to the benefit of (a) any underwriter or, in
the case of a registration statement filed with respect to an offering which is
not an underwritten offering, any Selling Stockholder, from who the person
asserting any losses, claims, damages and liabilities and judgments purchased
Registrable Shares or (b) any person controlling such underwriter or Selling
Stockholder, if (i) a copy of the prospectus (as then amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) was
required by law to have been delivered by such underwriter or Selling
Stockholder (as applicable), (ii) the prospectus had not been sent or given by
or on behalf of such underwriter or Selling Stockholder (as applicable) to such
person with or prior to a written confirmation of the sale of the Registrable
Shares to such person, (iii) the prospectus (as so amended and supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or judgment and (iv) such failure to deliver the prospectus (as so amended and
supplemented) was not the result of noncompliance by the Company with Section
5(f) hereof.
In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares shall indemnify and hold harmless (in the same manner and to the same
extent as set forth in the preceding paragraph of this Section) the Company,
each director of the Company, each officer of the Company who shall sign such
registration statement, each underwriter, broker or other person acting on
behalf of such seller, each person who controls any of the foregoing persons
within the meaning of the Securities Act and each other seller of Registrable
Shares under such registration statement with respect to any statement or
omission from such registration statement, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Commission, any
amendment or supplement thereto or any document incident to registration or
qualification of any Registrable Shares, if such statement or omission was made
in reliance upon and in conformity with written information furnished to the
Company or such underwriter through an instrument duly executed by such seller
specifically for use in connection with the preparation of such registration
statement, preliminary prospectus, final prospectus, amendment, supplement or
document; provided, however, that the obligation to indemnify will be several,
not joint and several, among such sellers of Registrable Shares, and the maximum
amount of liability in respect of such indemnification shall be in proportion to
and limited to, in the case of each seller of Registrable Shares, an amount
equal to the net proceeds actually received by such seller from the sale of
Registrable Shares effected pursuant to such registration.
The indemnification required by this Section 6 will be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses
-8-
<PAGE>
incurred, subject to prompt refund in the event any such payments are determined
not to have been due and owing hereunder.
Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action (it being understood that no delay in
delivering or failure to deliver such notice shall relieve the indemnifying
persons from any liability or obligation hereunder unless (and then solely to
the extent that) the indemnifying person is prejudiced by such delay and/or
failure). In case any such action is brought against an indemnified party, 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 shall not be responsible for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof;
provided, however, that if any indemnified party shall have reasonably concluded
that there may be one or more legal or equitable defenses available to such
indemnified party which are additional to or conflict with those available to
the indemnifying party, or that such claim or litigation involves or could have
an effect upon matters beyond the scope of the indemnity agreement provided in
this Section, the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party and such indemnifying
party shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section.
The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and will survive the transfer of securities.
If the indemnification provided for in this Section 6 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim, damage or
liability as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party 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 indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the sellers of Registrable Shares agree that it would not be
just and equitable if contributions pursuant to this paragraph were determined
by pro rata allocation or by any other
-9-
<PAGE>
method of allocation which did not take into account the equitable
considerations referred to herein. The amount paid or payable to an indemnified
party as a result of the losses, claims, damages, liabilities or expenses
referred to above shall be deemed to include, subject to the limitation set
forth in the fourth paragraph of this Section 6, any legal or other expenses
reasonably incurred in connection with investigating or defending the same.
Notwithstanding the foregoing, in no event shall the amount contributed by a
seller of Registrable Shares exceed the aggregate net offering proceeds received
by such seller from the sale of its Registrable Shares.
SECTION 7. Underwriting Agreement.
Notwithstanding the provisions of Sections 5 and 6, to the
extent that the Company and the holders selling Registrable Shares in a proposed
registration shall enter into an underwriting or similar agreement, which
agreement contains provisions covering one or more issues addressed in such
Sections, the provisions contained in such Sections addressing such issue or
issues shall be superseded with respect to such registration by such other
agreement.
SECTION 8. Information by Stockholder.
Each Stockholder selling Registrable Shares in a proposed
registration shall furnish to the Company such written information regarding
such Stockholder and the distribution proposed by such Stockholder as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement.
SECTION 9. Exchange Act Compliance.
From and after the date that a registration statement filed by
the Company pursuant to the Securities Act relating to any class of the
Company's securities shall have become effective, the Company shall comply with
all of the reporting requirements of the Exchange Act and with all other public
information reporting requirements of the Commission which are conditions to the
availability of Rule 144 for the sale of the Common Stock. The Company shall
cooperate with each Stockholder in supplying such information as may be
necessary for such Stockholder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of Rule 144.
SECTION 10. No Conflict of Rights.
The Company represents and warrants to the Stockholders that
the registration rights granted to the Stockholders hereby do not conflict with
any other registration rights granted by the Company. The Company shall not,
after the date hereof, grant any registration rights which conflict with the
registration rights granted hereby.
SECTION 11. Restriction on Transfer.
The Restricted Shares shall not be transferable except upon
the conditions specified in the Securities Purchase Agreement.
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<PAGE>
SECTION 12. Termination.
This Agreement shall terminate and be of no further force or
effect on the date on which there remains no Restricted Shares outstanding.
SECTION 13. Severability.
Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, and such invalid, void or
otherwise unenforceable provisions shall be null and void. It is the intent of
the parties, however, that any invalid, void or otherwise unenforceable
provisions be automatically replaced by other provisions which are as similar as
possible in terms to such invalid, void or otherwise unenforceable provisions
but are valid and enforceable to the fullest extent permitted by law.
SECTION 14. Entire Agreement.
This Agreement, together with the Securities Purchase
Agreement, contains the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior arrangements or understandings
with respect hereto.
SECTION 15. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the
Company and the Stockholders and their respective successors and permitted
assigns; provided, however, that each such person or entity shall, as a
condition to the effectiveness of such assignment, be required to execute a
counterpart to this Agreement whereupon such person or entity shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement with respect to such Restricted Shares.
SECTION 16. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart. The failure of any
Stockholder to execute this Agreement does not make it invalid as against any
other Stockholder.
SECTION 17. Remedies.
(a) Each Stockholder shall have all rights and remedies
reserved for such Stockholder pursuant to this Agreement and the Articles of
Incorporation and the By-laws of the Company and all rights and remedies which
such Stockholder has been granted at any time under any other agreement or
contract and all of the rights which such holder has under any law or
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<PAGE>
equity. Any person having any rights under any provision of this Agreement will
be entitled to enforce such rights specifically, to recover damages by reason of
any breach of any provision of this Agreement and to exercise all other rights
granted by law or equity.
(b) The parties hereto agree that if any parties seek to
resolve any dispute arising under this Agreement pursuant to a legal proceeding,
the prevailing parties to such proceeding shall be entitled to receive
reasonable fees and expenses (including reasonable attorneys' fees and expenses)
incurred in connection with such proceedings.
(c) It is acknowledged that it will be impossible to measure
in money the damages that would be suffered if the parties fail to comply with
any of the obligations herein imposed on them and that in the event of any such
failure, an aggrieved person will be irreparably damaged and will not have an
adequate remedy at law. Any such person shall, therefore, be entitled to
injunctive relief, including specific performance, to enforce such obligations,
and if any action should be brought in equity to enforce any of the provisions
of this Agreement, none of the parties hereto shall raise the defense that there
is an adequate remedy at law.
SECTION 18. Notices.
All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument and shall be deemed to have been duly given when delivered in
person, by telecopy, by nationally-recognized overnight courier, or by first
class registered or certified mail, postage prepaid, addressed to such party at
the address set forth below or such other address as may hereafter be designated
in writing by the addressee to the addressor:
(i) if to the Company, to:
LPA Holding Corp.
14 Corporate Woods
8717 West 110th Street, Suite 300
Overland Park, KS 66210
Phone: (913) 345-1250
Fax: (913) 345-9601
Attention: Chief Executive Officer
with copies to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Phone: (212) 408-2400
Fax: (212) 408-2420
Attention: John J. Suydam
(ii) if to the Investor, to:
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<PAGE>
LPA Investment LLC
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, N.Y. 10017
Phone:
Fax: (212) 622-3101
Attention: Stephen Murray and Richard Waters
with copies to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Phone: (212) 408-2400
Fax: (212) 408-2420
Attention: John J. Suydam
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of nationally-recognized
overnight courier, on the next business day and (c) in the case of mailing, on
the third business day following such mailing if sent by certified mail, return
receipt requested.
SECTION 19. Governing Law; Jurisdiction; Venue; Process.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed in the State of Delaware and shall be construed without
regard to (i) any choice of law or conflict of law provision or rule (whether of
the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware and
(ii) any presumption or other rule requiring the construction of an agreement
against the party causing it to be drafted. Any legal action in a proceeding
brought in accordance with this Section shall be brought in the courts of the
State of Delaware or of the United States District Court for the Southern
District of New York, and by execution and delivery of this Agreement, the
parties hereby accept for themselves and in respect of their property, generally
and unconditionally, the exclusive jurisdiction of the aforesaid courts. The
parties hereby irrevocably waive any objection which they may now or hereafter
have to laying of venue of any actions or proceedings arising out of or in
connection with this Agreement brought in the courts referred to above and
hereby further irrevocably waive and agree, not to plead or claim in any such
court that any such action or proceeding has been brought in an inconvenient
forum. The parties further agree that the mailing by certified or registered
mail, return receipt requested, of any process required by any such court shall
constitute valid and lawful service of process against them, without necessity
for service by any other means provided by statute or rule of court.
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<PAGE>
SECTION 20. Further Assurances.
Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
SECTION 21. Modifications; Amendments; Waivers.
The terms and provisions of this Agreement may not be
modified, amended or waived, except pursuant to a writing signed by the Company
and the Requisite Stockholders.
SECTION 22. Headings.
The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
SECTION 23. Waiver.
No course of dealing between the Company and the Stockholders
(or any of them) or any delay in exercising any rights hereunder will operate as
a waiver of any rights of any party to this Agreement. The failure of any party
to enforce any of the provisions of this Agreement will in no way be construed
as a waiver of such provisions and will not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
SECTION 24. Mutual Waiver of Jury Trial.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT OR ANY DOCUMENTS RELATED HERETO.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement on the date first written above.
LPA HOLDING CORP.
By:
--------------------------------------
Name:
Title:
LPA INVESTMENT LLC
By:
--------------------------------------
Name:
Title:
<PAGE>
Schedule I
Investor Shares of
- -------- Preferred Stock
---------------
LPA Investment LLC 30,000
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, N.Y. 10017
Attention: Stephen Murray and
Richard D. Waters, Jr.
Fax: (212) 622-3101
<PAGE>
REGISTRATION RIGHTS AGREEMENT
dated May 11, 1998
among
LPA HOLDING CORP.
and the
OTHER PARTIES LISTED HEREIN
<PAGE>
REGISTRATION RIGHTS
AGREEMENT dated as of May 11, 1998 among
LPA HOLDING CORP., a Delaware corporation
(the "Company"), VESTAR/LPT LIMITED PARTNERSHIP,
a Delaware limited partnership ("Vestar"),
the stockholders of the Company listed
on Schedule I (the "Management Stockholders")
and LPA INVESTMENT LLC, a Delaware limited
liability company (the "Investor").
Each Stockholder currently owns (or has the right to acquire)
the number of shares of Common Stock of the Company set forth opposite the name
of such Stockholder on Schedule I. The parties hereto deem it to be in their
best interests to set forth their rights and obligations in connection with
public offerings and sales of shares of Common Stock. Accordingly, the parties
agree as follows:
SECTION 1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
"Commission" means the Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
"Common Stock" means the Class A Common Stock, par value $.01
per share, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, and
the rules and regulations of the Commission promulgated thereunder, all as the
same shall be in effect from time to time.
"Initial Public Offering" means the first underwritten public
offering of Common Stock for sale to the public for the account of the Company
and offered on a "firm commitment" or "best efforts" basis pursuant to an
offering registered under the Securities Act with the Commission on Form S-1 or
its then equivalent.
"Investor" means LPA Investment and each person or entity that
acquires shares of Common Stock directly or indirectly from LPA Investment.
"Other Shares" means at any time those shares of Common Stock
which do not constitute Primary Shares or Registrable Shares.
<PAGE>
"Primary Shares" means at any time the authorized but unissued
shares of Common Stock or shares of Common Stock held by the Company in its
treasury.
"Registrable Shares" means at any time, with respect to any
Stockholder, the Restricted Shares held by such Stockholder which constitute
Common Stock.
"Requisite Stockholders" means at any time, the Stockholders
holding not less than 50% (by number of shares) of the then outstanding
Registrable Shares on a fully diluted basis.
"Restricted Shares" means at any time, with respect to any
Stockholder, the shares of Common Stock, any other securities which by their
terms are exercisable or exchangeable for or convertible into Common Stock or
other securities which are so exercisable or convertible and any securities
received in respect thereof, which are held by such Stockholder and which have
not previously been sold to the public pursuant to a registration statement
under the Securities Act or pursuant to Rule 144 or which are not (or would not
be, upon any such exercise, exchange or conversion) eligible for sale by the
holder thereof under Rule 144(k) or any successor rule thereto or any
complementary rule thereto.
"Rule 144" means Rule 144 promulgated under the Securities Act
or any successor rule thereto or any complementary rule thereto.
"Securities Act" means the Securities Act of 1933, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
"Stockholders" means Vestar, the Management Stockholders, the
Investor and any person or entity that acquires Restricted Shares directly or
indirectly from any Stockholder in accordance with Section 14.
"Stockholders Agreement" means the Stockholders Agreement
dated the date hereof, among the Company and the Stockholders as the same may be
amended or modified.
"Transfer" means any disposition of any Restricted Shares or
of any interest therein which constitutes a sale within the meaning of the
Securities Act, other than any disposition pursuant to an effective registration
statement under the Securities Act and complying with all applicable state
securities and "blue sky" laws.
"Vestar" means Vestar/LPT Limited Partnership, a Delaware
limited partnership.
2
<PAGE>
SECTION 2. Demand Registration.
(a) If the Company shall be requested by the Requisite
Stockholders to effect a registration under the Securities Act of
Registrable Shares in accordance with this Section, then the Company
shall promptly give written notice of such proposed registration to all
holders of Restricted Shares and shall offer to include in such
proposed registration any Registrable Shares requested to be included
in such proposed registration by such holders who respond in writing to
the Company's notice within 15 days after delivery of such notice
(which response shall specify the number of Registrable Shares proposed
to be included in such registration). The Company shall promptly use
its best efforts to effect such registration on an appropriate form,
including Form S-2 or S-3, if available, under the Securities Act of
the Registrable Shares which the Company has been so requested to
register; provided, however, that the Company shall not be obligated to
effect any registration under the Securities Act except in accordance
with the following provisions:
(i) the Company shall not be obligated to (A) file more
than five registration statements in total pursuant to this Section
(in addition to any registration statements filed pursuant to
Section 3) or (B) file more than one registration statement
pursuant to this Section within any consecutive 180-day period,
which registration statement(s) were initiated pursuant to this
Section and become effective or which are rescinded by the
Requisite Stockholders without reimbursement as specified in the
last paragraph of this Section;
(ii) the Company shall not be obligated to file any
registration statement during any period in which any other
registration statement (other than on Form S-4 or Form S-8
promulgated under the Securities Act or any successor forms
thereto) pursuant to which Primary Shares are to be or were sold
has been filed and not withdrawn or has been declared effective
within the prior 90 days;
(iii) with respect to any registration pursuant to this
Section, the Company may include in such registration any Primary
Shares or Other Shares; provided, however, that if the managing
underwriter advises the Company that the inclusion of all
Registrable Shares, Primary Shares and Other Shares proposed to be
included in such registration would interfere with the successful
marketing (including pricing) of all such securities, then the
number of Registrable Shares, Primary Shares and Other Shares
proposed to be included in such registration shall be included in
the following order:
(A) first, the Primary Shares;
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(B) Second, the Registrable Shares held by all
Stockholders, pro rata based upon the number of Restricted
Shares (based upon Common Stock Equivalents) owned by each
such Stockholder at the time of such registration; and
(C) Third, the Other Shares.
(b) A requested registration under this Section may be
rescinded by written notice to the Company by the Requisite
Stockholders; such rescinded registration shall not count as a
registration statement initiated pursuant to this Section for purposes
of paragraph (a) above if such registration statement is rescinded
prior to the effective date thereof and if the Requisite Stockholders
shall have reimbursed the Company for all out-of-pocket expenses
incurred by the Company in connection with such rescinded registration.
A registration shall not count as a registration statement initiated
pursuant to this Section for purposes of paragraph (a) above unless it
becomes effective and the Requisite Stockholders are able to sell at
least 80% of the Registrable Shares sought to be included in such
registration statement.
SECTION 3. Registrations on Form S-3.
Anything contained in Section 2 to the contrary
notwithstanding, at such time as the Company shall have qualified for the use of
Form S-3 or any successor form promulgated under the Securities Act, if the
Company shall be requested by the Investor to effect a registration under the
Securities Act of Registrable Shares in accordance with this Section, then the
Company shall promptly give written notice of such proposed registration to all
holders of Restricted Shares and shall offer to include in such proposed
registration any Registrable Shares requested to be included in such proposed
registration by such holders who respond in writing to the Company's notice
within 30 days after delivery of such notice (which response shall specify the
number of Registrable Shares proposed to be included in such registration). The
Company shall promptly use its best efforts to effect such registration on Form
S-3 of the Registrable Shares which the Company has been so requested to
register; provided, however, that the Company shall not be obligated to file any
registration statement pursuant to this Section if the Company shall reasonably
conclude that the anticipated gross offering price of all Registrable Shares to
be included therein would be less than $5,000,000.
SECTION 4. Shelf Registration
On any date after the expiration of the holdback period set
forth in Section 7(a) hereof, if the Company shall be requested by Vestar to
file a shelf registration statement for an offering to be made on a continuous
basis pursuant to Rule 415
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promulgated under the Securities Act covering the Registrable Shares held by
Vestar, then:
(a) the Company shall, as expeditiously as practicable, file
with the Commission a shelf registration statement permitting
registration of the Registrable Shares held by Vestar for resale by
Vestar in the manner or manners designated by it (including, without
limitation, one underwritten offering).
(b) The Company shall use its best efforts to keep such shelf
registration statement continuously effective under the Securities Act
until the earliest to occur of (i) the date which is six months from
the effective date of such shelf registration statement, (ii) the date
that Vestar qualifies to sell such shares under Section (k) of Rule
144, (iii) the date that Vestar shall own less than 10% of the Common
Stock held by Vestar on the date hereof and (iv) the period ending when
all the Registrable Shares held by Vestar and covered by such shelf
registration statement have been sold in the manner set forth and as
contemplated in the shelf registration statement. The Company shall not
be required to file a shelf registration statement hereunder if, prior
to any request by Vestar, the dates specified in (ii) or (iii) of this
paragraph (b) shall have passed.
(c) The Company shall promptly supplement and amend the shelf
registration statement if required by the rules, regulations or
instructions applicable to the registration form used for such shelf
registration statement, if required by the Securities Act, or if
reasonably requested by Vestar or by any underwriter of the Registrable
Shares registered thereunder.
(d) The Company shall not be obligated to effect more than one
shelf registration pursuant to this Section 4, nor shall it be
obligated to file a shelf registration during any period in which any
other registration statement (other than on Form S-4 or Form S-8
promulgated under the Securities Act or any successor forms thereto)
pursuant to which Primary Shares or Registrable Shares are to be or
were sold has been filed and not withdrawn or has been declared
effective within the prior 90 days. The Company may, by notice to
Vestar suspend, from time to time, the effectiveness of the shelf
registration if in the good faith determination of the Company's Board
of Directors such suspension is advisable in light of events occurring
or transactions contemplated by or with respect to the Company;
provided, however, that if a registration is suspended by application
of this provision, the time period during which the shelf registration
statement is required to be kept effective shall be extended for a
period equal to the term of such suspension.
SECTION 5. Piggyback Registration.
If at any time after an Initial Public Offering the Company
proposes for any reason (including a registration
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pursuant to Section 2 hereof) to register Primary Shares or Other Shares under
the Securities Act (other than on Form S-4 or Form S-8 promulgated under the
Securities Act or any successor forms thereto or other than in connection with
an exchange offer or offering solely to the Company's stockholders), it shall
promptly give written notice to each Stockholder of its intention to so register
the Primary Shares or Other Shares and, upon the written request, given within
15 days after delivery of any such notice by the Company, of any Stockholder to
include in such registration Registrable Shares held by such Stockholder (which
request shall specify the number of Registrable Shares proposed to be included
in such registration), the Company shall use its best efforts to cause all such
Registrable Shares to be included in such registration on the same terms and
conditions as the securities otherwise being sold in such registration;
provided, however, that if the managing underwriter advises the Company that the
inclusion of all Registrable Shares or Other Shares proposed to be included in
such registration would interfere with the successful marketing (including
pricing) of the Primary Shares proposed to be registered by the Company, then
the number of Primary Shares, Registrable Shares and Other Shares proposed to be
included in such registration shall be included in the following order:
(a) first, the Primary Shares;
(b) second, the Registrable Shares held by the Stockholders,
pro rata based upon the number of Restricted Shares (based upon Common
Stock Equivalents) owned by each such Stockholder at the time of such
registration; and
(c) third, the Other Shares.
SECTION 6. Expenses.
The Company shall bear the expense of any registrations
effected pursuant to Sections 2, 3, 4 and 5, including, without limitation, all
registration and filing fees (including all expenses incident to filing with the
NASD), fees and expenses of complying with securities and blue sky laws,
printing expenses, and fees and expenses of the Company's counsel and
accountants, and the fees and expenses of the Selling Stockholders' Counsel (as
defined below), but excluding any underwriters' or brokers' discounts or
commissions and the fees of any counsel to any Selling Stockholder, other than
the Selling Stockholders' Counsel.
SECTION 7. Holdback Agreement.
(a) If the Company at any time shall register shares of Common
Stock under the Securities Act pursuant to an Initial Public Offering
and the managing underwriter for such registration shall request, the
Stockholders shall not sell, make
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any short sale of, grant any option for the purchase of, or otherwise
dispose of any Restricted Shares (other than those shares of Common
Stock included in such registration) without the prior written consent
of the Company for a period designated by the Company in writing to the
Stockholders, which period shall not begin more than 10 days prior to
the effectiveness of the registration statement pursuant to which such
public offering shall be made and shall not last more than 180 days
after the effective date of such registration statement.
(b) If the Company at any time shall register shares of Common
Stock under the Securities Act (including any registration pursuant to
Sections 2, 3, 4 or 5) for sale to the public after the Initial Public
Offering and the managing underwriter for such registration shall
request, the Stockholders shall not sell, make any short sale of, grant
any option for the purchase of, or otherwise dispose of any Restricted
Shares (other than those shares of Common Stock included in such
registration) without the prior written consent of the Company for a
period designated by the Company in writing to the Stockholders, which
period shall not begin more than 10 days prior to the effectiveness of
the registration statement pursuant to which such public offering shall
be made and shall not last more than 90 days after the effective date
of such registration statement.
SECTION 8. Preparation and Filing.
If and whenever the Company is under an obligation pursuant to
the provisions of this Agreement to use its best efforts to effect the
registration of any Registrable Shares, the Company shall, as expeditiously as
practicable:
(a) with respect to a registration under Section 2, 3 or 5
hereof) use its best efforts to cause a registration statement that
registers such Registrable Shares to become and remain effective for a
period of 180 days or until all of such Registrable Shares have been
disposed of (if earlier) and with respect to a registration under
Section 4, as set forth therein;
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Shares, a
prospectus relating thereto or any amendments or supplements relating
to such a registration statement or prospectus, to each holder of
Registrable Shares, to any counsel to any Selling Stockholder and to
one counsel selected by the holders of a majority of such Registrable
Shares (the "Selling Stockholders' Counsel"), copies of all such
documents proposed to be filed (it being understood that such
five-business-day period need not apply to successive drafts of the
same document proposed to be filed so long as such successive drafts
are supplied to such counsel in advance of the proposed filing by a
period of time that is customary and reasonable under the
circumstances);
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(c) prepare and file with the Commission 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 at least the periods set forth in Section 8(a)
or until all of such Registrable Shares have been disposed of (if
earlier) and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of such Registrable Shares;
(d) notify in writing any counsel to any Selling Stockholder
and the Selling Stockholders' Counsel promptly (i) of the receipt by
the Company of any notification with respect to any comments by the
Commission with respect to such registration statement or prospectus or
any amendment or supplement thereto or any request by the Commission
for the amending or supplementing thereof or for additional information
with respect thereto, (ii) of the receipt by the Company of any
notification with respect to the issuance by the Commission of any stop
order suspending the effectiveness of such registration statement or
prospectus or any amendment or supplement thereto or the initiation or
threatening of any proceeding for that purpose and (iii) of the receipt
by the Company of any notification with respect to the suspension of
the qualification of such Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purposes;
(e) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Shares reasonably requests
and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller of Registrable Shares to
consummate the disposition in such jurisdictions of the Registrable
Shares owned by such seller; provided, however, that the Company will
not be required to qualify generally to do business, subject itself to
general taxation or consent to general service of process in any
jurisdiction where it would not otherwise be required so to do but for
this paragraph (e);
(f) furnish to each seller of such Registrable Shares such
number of copies of a summary prospectus or other prospectus, including
a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such seller of Registrable
Shares may reasonably request in order to facilitate the public sale or
other disposition of such Registrable Shares;
(g) use its best efforts to cause such Registrable Shares to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Company to enable the seller or sellers thereof to
consummate the disposition of such Registrable Shares;
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(h) notify on a timely basis each seller of such Registrable
Shares at any time when a prospectus relating to such Registrable
Shares is required to be delivered under the Securities Act within the
appropriate period mentioned in paragraph (a) of this Section, of the
happening of any event as a result of which 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 light of the circumstances then existing and, at the
request of such seller, prepare and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the offerees of
such shares, 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
light of the circumstances then existing;
(i) make available for inspection by any counsel to any
Selling Stockholder and the Selling Stockholders' Counsel or any
underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent
retained by any such underwriter (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records"), as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information (together with the Records, the
"Information") reasonably requested by any such Inspector in connection
with such registration statement. Any of the Information which the
Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, shall not be disclosed by
the Inspectors unless (i) the disclosure of such Information is
necessary to avoid or correct a misstatement or omission in the
registration statement, (ii) the release of such Information is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) such Information has been made generally
available to the public. The seller of Registrable Shares agrees that
it will, upon learning that disclosure of such Information is sought in
a court of competent jurisdiction, give notice to the Company and allow
the Company, at the Company's expense, to undertake appropriate action
to prevent disclosure of the Information deemed confidential;
(j) use its best efforts to obtain from its independent
certified public accountants "comfort" letters in customary form and at
customary times and covering matters of the type customarily covered by
comfort letters;
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(k) use its best efforts to obtain from its counsel an opinion
or opinions in customary form;
(l) provide a transfer agent and registrar (which may be the
same entity and which may not be the Company) for such Registrable
Shares;
(m) issue to any underwriter to which any seller of
Registrable Shares may sell shares in such offering certificates
evidencing such Registrable Shares; provided, however, that the Company
shall have the right to approve any such underwriter with such approval
not to be unreasonably withheld;
(n) list such Registrable Shares on any national securities
exchange on which any shares of the Common Stock are listed or, if the
Common Stock is not listed on a national securities exchange, use its
best efforts to qualify such Registrable Shares for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc. (the "NASD") or such national securities exchange as the
holders of a majority of such Registrable Shares shall request;
(o) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make available
to its securityholders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months
beginning within three months after the effective date of the
registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(p) use its best efforts to take all other steps necessary to
effect the registration of such Registrable Shares contemplated hereby.
SECTION 9. Indemnification.
In connection with any registration of any Registrable Shares
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless the seller of such Registrable Shares, its officers and
directors, each underwriter, broker or any other person acting on behalf of such
seller and each other person, if any, who controls any of the foregoing persons
within the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, (or actions in respect thereof) to which any of
the foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or
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otherwise filed with the Commission, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable Shares, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse such seller, such officer
or director, such underwriter, such broker or such other person acting on behalf
of such seller and each such controlling person for any legal or other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action; 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 an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification of
any Registrable Shares in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller or underwriter specifically for use in the preparation thereof; provided,
further, that, with respect to any preliminary prospectus, the foregoing
indemnity shall not inure to the benefit of (a) any underwriter or, in the case
of a registration statement filed with respect to an offering which is not an
underwritten offering, any Selling Stockholder, from who the person asserting
any losses, claims, damages and liabilities and judgments purchased Registrable
Shares or (b) any person controlling such underwriter or Selling Stockholder, if
(i) a copy of the prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was required by law
to have been delivered by such underwriter or Selling Stockholder (as
applicable), (ii) the prospectus had not been sent or given by or on behalf of
such underwriter or Selling Stockholder (as applicable) to such person with or
prior to a written confirmation of the sale of the Registrable Shares to such
person, (iii) the prospectus (as so amended and supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or judgment and
(iv) such failure to deliver the prospectus (as so amended and supplemented) was
not the result of noncompliance by the Company with Section 8(f) hereof.
In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each seller of Registrable
Shares shall indemnify and hold harmless (in the same manner and to the same
extent as set forth in the preceding paragraph of this Section) the Company,
each director of the Company, each officer of the Company who shall sign such
registration statement, each underwriter, broker or other person acting on
behalf of such seller, each person who controls any of the foregoing persons
within the meaning of the Securities Act and each other seller of Registrable
Shares under such
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registration statement with respect to any statement or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein or otherwise filed with the Commission, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, if such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company or such
underwriter through an instrument duly executed by such seller specifically for
use in connection with the preparation of such registration statement,
preliminary prospectus, final prospectus, amendment, supplement or document;
provided, however, that the obligation to indemnify will be several, not joint
and several, among such sellers of Registrable Shares, and the maximum amount of
liability in respect of such indemnification shall be in proportion to and
limited to, in the case of each seller of Registrable Shares, an amount equal to
the net proceeds actually received by such seller from the sale of Registrable
Shares effected pursuant to such registration.
The indemnification required by this Section 9 will be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred, subject to prompt refund in the event
any such payments are determined not to have been due and owing hereunder.
Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action (it being understood that no delay in
delivering or failure to deliver such notice shall relieve the indemnifying
persons from any liability or obligation hereunder unless (and then solely to
the extent that) the indemnifying person is prejudiced by such delay and/or
failure). In case any such action is brought against an indemnified party, 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 shall not be responsible for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof;
provided, however, that if any indemnified party shall have reasonably concluded
that there may be one or more legal or equitable defenses available to such
indemnified party which are additional to or conflict with those available to
the indemnifying party, or that such claim or litigation involves or could have
an effect upon matters beyond the scope of the indemnity agreement provided in
this Section, the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party and
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such indemnifying party shall reimburse such indemnified party and any person
controlling such indemnified party for that portion of the fees and expenses of
any counsel retained by the indemnified party which is reasonably related to the
matters covered by the indemnity agreement provided in this Section.
The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and will survive the transfer of securities.
If the indemnification provided for in this Section 9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim, damage or
liability as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party 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 indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the sellers of Registrable Shares agree that it would not be
just and equitable if contributions pursuant to this paragraph were determined
by pro rata allocation or by any other method of allocation which did not take
into account the equitable considerations referred to herein. The amount paid or
payable to an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to above shall be deemed to include, subject to
the limitation set forth in the fourth paragraph of this Section 9, any legal or
other expenses reasonably incurred in connection with investigating or defending
the same. Notwithstanding the foregoing, in no event shall the amount
contributed by a seller of Registrable Shares exceed the aggregate net offering
proceeds received by such seller from the sale of its Registrable Shares.
SECTION 10. Underwriting Agreement.
Notwithstanding the provisions of Sections 7, 8 and 9, to the
extent that the Company and the holders selling Registrable Shares in a proposed
registration shall enter into an underwriting or similar agreement, which
agreement contains
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provisions covering one or more issues addressed in such Sections, the
provisions contained in such Sections addressing such issue or issues shall be
superseded with respect to such registration by such other agreement.
SECTION 11. Information by Stockholder.
Each Stockholder selling Registrable Shares in a proposed
registration shall furnish to the Company such written information regarding
such Stockholder and the distribution proposed by such Stockholder as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement.
SECTION 12. Exchange Act Compliance.
From and after the date that a registration statement filed by
the Company pursuant to the Securities Act relating to any class of the
Company's securities shall have become effective, the Company shall comply with
all of the reporting requirements of the Exchange Act and with all other public
information reporting requirements of the Commission which are conditions to the
availability of Rule 144 for the sale of the Common Stock. The Company shall
cooperate with each Stockholder in supplying such information as may be
necessary for such Stockholder to complete and file any information reporting
forms presently or hereafter required by the Commission as a condition to the
availability of Rule 144.
SECTION 13. No Conflict of Rights.
The Company represents and warrants to the Stockholders that
the registration rights granted to the Stockholders hereby do not conflict with
any other registration rights granted by the Company. The Company shall not,
after the date hereof, grant any registration rights which conflict with the
registration rights granted hereby.
SECTION 14. Restriction on Transfer.
The Restricted Shares shall not be transferable except upon
the conditions specified in the Stockholders Agreement.
SECTION 15. Termination.
This Agreement shall terminate and be of no further force or
effect on the date on which there remains no Restricted Shares outstanding.
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SECTION 16. Severability.
Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, and such invalid, void or
otherwise unenforceable provisions shall be null and void. It is the intent of
the parties, however, that any invalid, void or otherwise unenforceable
provisions be automatically replaced by other provisions which are as similar as
possible in terms to such invalid, void or otherwise unenforceable provisions
but are valid and enforceable to the fullest extent permitted by law.
SECTION 17. Entire Agreement.
This Agreement, together with the Stockholders' Agreement,
contains the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior arrangements or understandings with
respect hereto. In the event of any inconsistency between this Agreement and the
Stockholders' Agreement, the Stockholders' Agreement shall control.
SECTION 18. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the
Company and the Stockholders and their respective successors and permitted
assigns; provided, however, that each such person or entity shall, as a
condition to the effectiveness of such assignment, be required to execute a
counterpart to this Agreement whereupon such person or entity shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement with respect to such Restricted Shares.
SECTION 19. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart. The failure of any
Stockholder to execute this Agreement does not make it invalid as against any
other Stockholder.
SECTION 20. Remedies.
(a) Each Stockholder shall have all rights and remedies
reserved for such Stockholder pursuant to this Agreement and the
Articles of Incorporation and the By-laws of the Company and all rights
and remedies which such Stockholder has been granted at
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any time under any other agreement or contract and all of the rights
which such holder has under any law or equity. Any person having any
rights under any provision of this Agreement will be entitled to
enforce such rights specifically, to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other
rights granted by law or equity.
(b) The parties hereto agree that if any parties seek to
resolve any dispute arising under this Agreement pursuant to a legal
proceeding, the prevailing parties to such proceeding shall be entitled
to receive reasonable fees and expenses (including reasonable
attorneys' fees and expenses) incurred in connection with such
proceedings.
(c) It is acknowledged that it will be impossible to measure
in money the damages that would be suffered if the parties fail to
comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved person will be irreparably
damaged and will not have an adequate remedy at law. Any such person
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be
brought in equity to enforce any of the provisions of this Agreement,
none of the parties hereto shall raise the defense that there is an
adequate remedy at law.
SECTION 21. Notices.
All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument and shall be deemed to have been duly given when delivered in
person, by telecopy, by nationally-recognized overnight courier, or by first
class registered or certified mail, postage prepaid, addressed to such party at
the address set forth below or such other address as may hereafter be designated
in writing by the addressee to the addressor:
(i) if to the Company, to:
LPA Holding Corp.
14 Corporate Woods
8717 West 110th Street, Suite 300
Overland Park, KS 66210
Phone: (913) 345-1250
Fax: (913) 345-9601
Attention: James R. Kahl
President
(ii) if to the Investor, at the address set
forth in Schedule I;
16
<PAGE>
with copies to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Fax: (212) 408-2420
Tel.: (212) 408-2400
Attention: John J. Suydam; and
(iii) if to Vestar, at the address set forth in
Schedule I;
with copies to:
Kirkland & Ellis
655 Fifteenth Street, NW, Suite 1200
Washington, DC 20005-5793
Phone: 202-879-5000
Fax: 202-879-5200
Attention: Jack M. Feder, Esq.
(iv) If the Management Stockholders:
to the address set forth for each such
Stockholder on Schedule I,
All such notices, requests, consents and other communications shall be deemed to
have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of nationally-recognized
overnight courier, on the next business day and (c) in the case of mailing, on
the third business day following such mailing if sent by certified mail, return
receipt requested.
SECTION 22. Governing Law; Jurisdiction; Venue; Process.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed in the State of Delaware and shall be construed without
regard to (i) any choice of law or conflict of law provision or rule (whether of
the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware and
(ii) any presumption or other rule requiring the construction of an agreement
against the party causing it to be drafted. Any legal action in a proceeding
brought in accordance with this Section shall be brought in the courts of the
State of Delaware or of the United States District Court for the Southern
District of New York, and by execution and delivery of this Agreement, the
parties hereby accept for themselves and in
17
<PAGE>
respect of their property, generally and unconditionally, the exclusive
jurisdiction of the aforesaid courts. The parties hereby irrevocably waive any
objection which they may now or hereafter have to laying of venue of any actions
or proceedings arising out of or in connection with this Agreement brought in
the courts referred to above and hereby further irrevocably waive and agree, not
to plead or claim in any such court that any such action or proceeding has been
brought in an inconvenient forum. The parties further agree that the mailing by
certified or registered mail, return receipt requested, of any process required
by any such court shall constitute valid and lawful service of process against
them, without necessity for service by any other means provided by statute or
rule of court.
SECTION 23. Further Assurances.
Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
SECTION 24. Modifications; Amendments; Waivers.
The terms and provisions of this Agreement may not be
modified, amended or waived, except pursuant to a writing signed by the Company
and the Requisite Stockholders provided, however, that (i) any such amendment,
modification, or waiver that would adversely affect the rights hereunder of
Vestar shall require the written consent of Vestar and (ii) any such amendment,
modification, or waiver that would adversely affect the rights hereunder of any
Management Stockholders shall require the consent of Management Stockholders
owning a majority of the Restricted Shares held by all Management Stockholders.
SECTION 25. Headings.
The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
SECTION 26. Waiver.
No course of dealing between the Company and the Stockholders
(or any of them) or any delay in exercising any rights hereunder will operate as
a waiver of any rights of any party to this Agreement. The failure of any party
to enforce any of the provisions of this Agreement will in no way be construed
as a waiver of such provisions and will not affect the right of such party
thereafter to enforce each and every provision of this Agreement in accordance
with its terms.
18
<PAGE>
SECTION 27. Mutual Waiver of Jury Trial.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY
(RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE
RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE
BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT OR ANY DOCUMENTS RELATED HERETO.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement on the date first written above.
LPA HOLDING CORP.
By:
-------------------------------------
Name:
Title:
LPA INVESTMENT LLC
By:
-------------------------------------
Name:
Title:
VESTAR/LPT LIMITED
PARTNERSHIP
By: Vestar/LP Investment
Limited Partnership
By:
-------------------------------------
Name:
Title:
<PAGE>
Schedule I
Shares of
Stockholders Common Stock
- ------------ ------------
Vestar/LPT Limited Partnership
c/o Vestar Capital Partners
1227 17th Street, Suite 1660
Denver, CO 80202
Phone: (303) 292-6300
Fax: (303) 292-6639
Attention: James P. Kelley
Investor
- --------
LPA Investment LLC
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, N.Y. 10017
Attention: Stephen Murray
Fax: (212) 622-3101
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 11, 1998 by and among LPA
HOLDING CORP., a Delaware corporation ("LPA Holdings"), LA PETITE ACADEMY,
INC., a Delaware corporation (the "Company") and James R. Kahl ("Executive").
RECITALS
In order to induce Executive to agree to serve as Chief Executive
Officer and President of the Company, LPA Holdings and the Company desire to
provide Executive with compensation and other benefits on the terms and
conditions set forth in this Agreement.
Executive is willing to enter into such employment and perform
services for the Company on the terms and conditions set forth in this
Agreement.
It is therefore hereby agreed by and among the parties as follows:
1. Employment.
(a) Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as Chief
Executive Officer and President. In his capacity as Chief Executive
Officer and President of the Company, Executive shall have all of
the customary powers, responsibilities and authorities of presidents
and chief executive officers of corporations of the size, type and
nature of the Company, as they exist from time to time, including,
without limitation, supervision of the preparation of an operating
budget with respect to each fiscal year of the Company, which budget
(the "Annual Budget") (i) shall set forth target goals for the
Company for each such Fiscal Year and (ii) shall be submitted to the
Board of Directors of the Company (the "Board") for its approval. As
used herein, "Fiscal Year" shall mean the fiscal year ending on the
Saturday closest to the last day of August of each year. Executive's
principal office shall be at the principal executive offices of the
Company in the Kansas City Metropolitan Area.
(b) The Company shall, during the term hereof, use its best
efforts to cause the election and retention of Executive to the
position of Chairman of the Board.
(c) Subject to the terms and conditions of this Agreement,
Executive hereby accepts employment as Chief Executive Officer and
President of the Company and agrees to devote his full working time
and efforts, to the best of his ability, experience and talent, to
the performance of services, duties and responsibilities in
connection therewith. Nothing in this Agreement shall preclude
Executive from engaging, consistent with his duties and
responsibilities hereunder, in charitable and community affairs,
from managing his personal investments or, except as otherwise
provided in Section 12 hereof, from serving as a member of boards of
directors or as a trustee of other companies, associations or
entities.
2. Term of Employment. Executive's term of employment under this
Agreement shall commence on May 11, 1998 (the "Commencement Date") and,
subject to the terms hereof, shall
<PAGE>
terminate on the last day of the Fiscal Year ending in August 2002 (the
"Termination Date"); provided, however, that on the last day of the Fiscal
Year ending in August 2002 and on each subsequent Fiscal Year end, the
Termination Date shall automatically be extended for a period of one year,
unless either party shall have given written notice to the other party not
less than ninety days prior to the Termination Date that the Termination Date
shall not be so extended.
3. Compensation.
(a) Initial Base Salary. The Company shall pay Executive a base
salary ("Base Salary") at the annual rate of $297,500 with the Base
Salary from the Commencement Date through August 29, 1998 to be the
product of $297,500 multiplied by a fraction, the numerator of which
is the number of calendar days from the Commencement Date through
August 29, 1998 and the denominator of which is 365. The Base Salary
shall be payable in accordance with the ordinary payroll practices
of the Company.
(b) Adjustments to Base Salary. Executive's annual rate of Base
Salary shall be increased on the first day of each Fiscal Year
during the term of Executive's employment hereunder (each such day
being referred to as an "Adjustment Date") by (i) a percentage equal
to the percentage increase in the Consumer Price Index for the
Kansas City metropolitan area from the first day of the Fiscal Year
preceding the Adjustment Date to the Adjustment Date, and (ii) any
such additional amount as may be specified by the Board. Once so
increased, the increased amount shall constitute Executive's Base
Salary hereunder.
(c) Annual Bonus. In addition to his Base Salary, Executive
shall be entitled to receive a cash bonus (the "Bonus") with respect
to each Fiscal Year (commencing with the Fiscal Year ending August
28, 1999). The Bonus shall be paid from the Company's two bonus
pools (the "First Bonus Pool" and the "Second Bonus Pool",
respectively) as follows:
(i) First Bonus Pool. Prior to the end of each Fiscal
Year, the Board shall determine the target EBITDA for the
immediately succeeding Fiscal Year (the "Plan EBITDA") and the
aggregate size of the bonus pool for all participants in the
First Bonus Pool based on the achievement of 95% of Plan
EBITDA, 100% of Plan EBITDA and 115% Plan EBITDA. For purposes
hereof, EBITDA shall be as defined in the Indenture dated as of
May 11, 1998, among the Company, PNC Bank, as Trustee, and the
other parties thereto. The Executive shall be entitled to a
Bonus from the First Bonus Pool in an amount up to 180% of Base
Salary as follows:
(A) On November 1, 1999 and on each succeeding
November 1 through and including the November 1 following
the termination of Executive's employment under Section
6(a) hereof, the Company shall pay to Executive in cash up
to one-quarter of the Bonus from the First Bonus Pool
based on the achievement by the Executive of his personal
management by objectives ("MBO"), as established by the
Compensation Committee of the Board (the "Committee"); and
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<PAGE>
(B) On November 1, 1999, and on each succeeding
November 1 through and including the November 1 following
the termination of Executive's employment under Section
6(a) hereof, the Company shall pay to Executive a cash
bonus based upon the attainment of a specified percentage
of the actual EBITDA in relation to Plan EBITDA. No Bonus
will be payable in the event that actual EBITDA is less
than 95% of Plan EBITDA and the maximum bonus of
three-quarters of 180% of Base Salary is payable only when
actual EBITDA is 115% or more of Plan EBITDA. If actual
EBITDA as a percentage of Plan EBITDA falls within one of
the gradations specified below, three quarters of the
percentage of Base Salary specified below will be earned
in even increments within the relevant gradation.
Actual EBITDA As % of Base Salary
% of Plan EBITDA Earned as Bonus
---------------- ---------------
95.0%-100.0% 0.0%-60.0%
100.1%-115.0% 60.1%-180.0%
(ii) Second Bonus Pool. The aggregate amount of the Second
Bonus Pool for all its participants will be equal to 10% of the
aggregate amount of the First Bonus Pool for all its
participants. The Executive will be entitled to receive a bonus
out of the Second Bonus Pool in an amount to be determined by
the Committee based on the Executive's individual performance.
(d) Pro Rata Bonus. In the event of the termination of
Executive's employment under Section 6(a) hereof prior to the end of
a Fiscal Year, his Bonus in respect of such Fiscal Year shall be
reduced to equal the product of the amount which would otherwise be
payable to him in respect of such Fiscal Year pursuant to the
preceding subparagraph (A) multiplied by a fraction of which the
numerator is the number of calendar days from the first day of such
Fiscal Year to the date of termination of Executive's employment
hereunder and the denominator is 365.
(e) 1998 Bonus. Notwithstanding anything to the contrary
contained herein, with respect to the Bonus to be paid for Fiscal
Year 1998, Executive shall participate in the La Petite Academy
Senior Management Bonus Plan - 1998 Fiscal Year; provided, however,
that the allocations of payments to be made out of the First Bonus
Pool shall be allocated 75% based on Consolidated EBITDA and 25%
based on personal MBO.
(f) Compensation Plans and Programs. Executive shall
participate in any compensation plan or program, annual or
long-term, maintained by the Company on terms no less favorable than
those applicable to other senior management personnel of the
Company.
4. Employee Benefits.
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<PAGE>
(a) Employee Benefit Programs, Plans and Practices. During the
term of his employment hereunder, the Company shall provide to
Executive coverage under any employee benefit programs, plans and
practices (commensurate with his positions in the Company and to the
extent possible under any employee benefit plan), in accordance with
the terms hereof, which the Company makes available to its senior
executive officers, including but not limited to (i) retirement,
pension and profit-sharing, and (ii) medical, dental,
hospitalization, life insurance, short and long-term disability,
accidental death and dismemberment and travel accident coverage.
(b) Vacation and Fringe Benefits.
(i) Executive shall be entitled to a paid vacation each
Fiscal Year of no less than four weeks (consisting of seven
calendar days each). The Company may, in its sole discretion,
grant additional vacation time to Executive.
(ii) In addition, Executive shall be entitled to all of
the perquisites and fringe benefits normally accorded the chief
executive officer of the Company, including, without
limitation, a car to be provided by the Company for Executive's
use and the expenses of a country club of Executive's choice.
5. Expenses. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement,
including without limitation, expenses for travel and similar items
related to such duties and responsibilities. The Company will reimburse
Executive for all such expenses upon presentation by Executive from time
to time of an itemized account of such expenditures.
6. Termination of Employment.
(a) Termination Not for Cause or Termination for Good Reason.
(i) (A) The Company may terminate Executive's employment
at any time, and Executive may terminate his employment at any
time. If Executive's employment is terminated by the Company
other than for Cause (as defined in Section 6(e)(ii) hereof) or
due to Executive's death or Permanent Disability (as defined in
Section 6(c) hereof) or Executive terminates his employment for
Good Reason (as defined in Section 6(a)(ii) hereof) in any of
the foregoing cases prior to the last day of the Fiscal Year
ending in August 2002, Executive shall be entitled to receive
from the Company, in lieu of any other cash compensation
provided for herein but not in substitution for compensation
already paid or earned, 26 equal bi-weekly payments (except as
provided below with respect to the Bonus) the sum of which is
equal to the sum of (A) Executive's Base Salary at its then
current annual rate and (B) the Bonus paid to or accrued by the
Company hereunder for the benefit of Executive in respect of
the Fiscal Year preceding the Fiscal Year in which such
termination occurs; provided, however, that if a termination
under this Section 6(a) occurs after February 28 of any Fiscal
Year, Executive shall instead be entitled to receive the Bonus
in respect of such Fiscal Year payable as follows: On the
November 1 following the date of termination,
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<PAGE>
Executive shall be entitled to receive a lump sum payment in an
amount equal to the product of the Bonus amount for the Fiscal
Year in which the termination occurred multiplied by a fraction
the numerator of which is the number of months from the date of
termination to the November 1 following the date of termination
and the denominator of which is 12 and, thereafter until the
one year anniversary of Executive's termination in an amount
equal to the amount of the Bonus for the Fiscal Year in which
the termination occurred, divided by twelve, payable during
such period in accordance with the Company's then existing
payroll practices; provided, further, that in no event shall
the sum of the lump sum and monthly payments in respect of the
Bonus exceed the amount of the Bonus for the Fiscal Year in
which the termination occurred.
(B) In addition, Executive shall (1) be entitled to
receive, within a reasonable period of time after the date of
termination, a cash lump sum equal to (x) any compensation
payments deferred by Executive, together with any applicable
interest or other accruals thereon; and (y) any unpaid amounts,
as of the date of such termination, in respect of the Bonus for
the Fiscal Year ending before the Fiscal Year in which such
termination occurs; (2) for the period from the date of
termination of Executive's employment until the one year
anniversary of the Termination Date (as then in effect),
continue to be covered under and participate in the Company's
employee benefit programs, plans and practices described in
Section 4(a) hereof or under such other plans of the Company
which provide for equivalent coverage to the extent and on the
terms in effect on Executive's date of termination (other than
any disability plan for which coverage cannot be maintained
after such termination); (3) have such rights to payments under
applicable plans or programs, including but not limited to
those described in Section 3(d) hereof, as may be determined
pursuant to the terms of such plans or programs; and (4) have
provided to him at the Company's expense outplacement services,
suitable office space, secretarial services and the use of an
automobile for a period of one year from the date of
termination.
(ii) For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following events without
Executive's express prior written consent and which event shall
not have been cured within a reasonable period after notice
from the Executive:
(A) the assignment to Executive by the Company of
duties substantially inconsistent with Executive's
positions, duties, responsibilities, authorities, titles
and offices as set forth in Section 1 hereof, or any
material reduction by the Company of Executive's duties or
responsibilities or any removal of Executive as the Chief
Executive Officer or President of the Company, except in
connection with the termination of Executive's employment
for any other reason;
(B) a reduction by the Company in Executive's Base
Salary or Bonus (other than by reason of the terms of
Section 3(c) hereof) as in
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<PAGE>
effect at the commencement of employment hereunder or as
the same may be increased from time to time during the
terms of this Agreement;
(C) any material breach by the Company of any material
provision of this Agreement;
(D) a relocation of the Company's executive offices
to a location more than fifty miles outside of the
Kansas City Metropolitan Area.
(b) (i) For purposes of this Agreement, "Change of Control"
shall mean the occurrence of any of the following events:
(A) the occurrence of both (A) the acquisition by an
entity of more than 30% of the outstanding capital stock
or assets of the Company, other than (x) an entity which
is an affiliate of the Company on the date hereof, or (y)
an entity in which Executive owns at least 5% of the
outstanding capital stock on a fully diluted basis
("Excluded Entities") or (B) the sale of more than 50% of
the outstanding capital stock of the Company owned by LPA
Holdings and its affiliates in the aggregate; or
(B) the approval by the shareholders of the Company,
of the merger or consolidation of the Company with any
other corporation, the sale of substantially all the
assets of the Company to any third party or the
liquidation or dissolution of the Company, other than such
a merger or consolidation with, sale to or liquidation
into a company more than 50% of whose outstanding capital
stock on a fully diluted basis is owned, after
consummation of such transaction, by the stockholders of
the Company, such stockholders' affiliates and/or any
Excluded Entity.
(ii) In the event of a Change in Control, the failure of
the Company to obtain the specific assumption of this Agreement
by any successor of the Company, or in the event of a
Termination Not for Cause or a Termination for Good Reason
following a Change in Control, Executive shall receive two
times the amounts specified in Section 6(a)(i)(A) hereunder
payable in a lump sum and shall also receive the amounts
specified in Section 6(a)(i)(B)(2) and (4) hereunder for a
period of two years from the date on which a Change of Control
occurs. For purposes of this Section 6(b)(ii), the term
"Termination Not for Cause" shall include a failure to extend
the Termination Date pursuant to Section 2.
(iii) (A) Notwithstanding anything in this Agreement to
the contrary, in the event that the provisions of the Deficit
Reduction Act of 1984 ("DEFRA") relating to "excess parachute
payments" shall be applicable to any payment or benefit
received or to be received by Executive in connection with a
Change-in-Control of the Company, then the total amount of
payments or benefits payable to Executive which are deemed to
constitute parachute payments shall be reduced to the largest
amount such that provisions of DEFRA relating to "excess
parachute payment" shall no longer be applicable. Should such a
reduction be required, the Executive shall determine, in the
exercise of his sole
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<PAGE>
discretion, which payment or benefit to reduce or eliminate.
Pending such determination, the Company shall continue to make
all other required payments to Executive at the time and in the
manner provided herein and shall pay the largest portion of any
parachute payments such that the provisions of DEFRA relating
to "excess parachute payments" shall no longer be applicable.
(B) Due to the complexity in the application of Section
280(G) of the Code, it is possible that payments made or
benefits received hereunder should not have been made under
subparagraph (ii)(a) above (an "Overpayment"). In the event
that it is determined in writing by the Company's outside
auditors in their reasonable good faith judgment or by any
court of competent jurisdiction that an Overpayment has been
made resulting in an "Excess Parachute Payment" as defined in
Section 280G(b)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), then any such Overpayment shall be
treated for all purposes as an unsecured, long-term loan from
the Company to the Executive, his personal representative, his
successors or assigns, as the case may be, that is payable,
together with accrued interest from the date of the making of
the Overpayment at the rate of 8% per annum on the later to
occur of the third anniversary of the payment of such
Overpayment, or 6 months following the date upon which it is
determined an Overpayment was made. Should it be determined
that such an Overpayment has been made, the Executive shall
determine, in the exercise of his sole discretion, which
payments or benefits shall be deemed to constitute the
Overpayment.
(c) Permanent Disability. If (i) Executive shall fail for
a period of six consecutive months during the term of his
employment hereunder, because of illness, physical or mental
disability or other incapacity, to render the services provided
for by this Agreement or (ii) at such earlier time as Executive
or the Company submits satisfactory medical evidence that
Executive has an illness, physical or mental disability or
other incapacity which is expected to prevent him from
returning to the performance of his work duties for six months
or longer ("Permanent Disability"), the Company or Executive
may terminate Executive's employment upon written notice
thereof, setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
Executive's employment under this Section 6(c), and Executive
shall receive or continue to receive, as the case may be:
(i) as soon as practicable after the date of
termination of Executive's employment pursuant to this
Section 6(c), a cash lump sum equal to any compensation
payments deferred by Executive, together with any
applicable interest or other accruals thereon;
(ii) any unpaid amounts, as of the date of such
termination, in respect of the Bonus for the Fiscal Year
ending before such termination, which shall be payable on
the date on which such Bonus is payable as specified in
Section 3(c)(i)(A) hereof;
(iii) on the November 1 following the end of the
Fiscal Year during which the termination of Executive's
employment pursuant to this Section 6(c)
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<PAGE>
occurs, an amount in respect of the Bonus for such Fiscal
Year calculated on the basis specified in Section
3(c)(i)(B) hereof;
(iv) until the end of the term contemplated by this
Agreement (or, if earlier, the end of Executive's
Permanent Disability or upon his death), annual amounts
equal to no less than 60% of Executive's then annual Base
Salary, reduced by any amounts received by Executive under
any disability insurance policies with respect to which
the Company paid the premiums; and
(v) such rights to payments under applicable plans or
programs, including but not limited to those described in
Section 3(d) hereof, as may be appropriate pursuant to the
terms of such plans or programs.
(d) Death. In the event of Executive's death during the
term of his employment hereunder, Executive's estate or
designated beneficiaries shall receive:
(i) payments of Base Salary for a period of twelve
months after his date of death;
(ii) as soon as practicable after the date of
Executive's death, a cash lump sum equal to any
compensation payments deferred by Executive, together with
any applicable interest or other accruals thereon;
(iii) any unpaid amounts, as of the date of
Executive's death, in respect of the Bonus for the Fiscal
Year ending before his death, which shall be payable on
the date on which such Bonus is payable as specified in
Section 3(c)(i)(A) hereof;
(iv) on the November 1 following the end of the
Fiscal Year during which Executive's death occurs, an
amount in respect of the Bonus for such Fiscal Year
calculated on the basis specified in Section 3(c)(i)(B)
hereof;
(v) any death benefits provided under the employee
benefit programs, plans and practices described in Section
4(a) hereof, in accordance with their terms; and
(vi) such other payments under applicable plans or
programs, including but not limited to those described in
Section 3(d) hereof, as may be appropriate pursuant to the
terms of such plans or programs.
(e) Voluntary Termination by Executive: Discharge for
Cause.
(i) In the event that Executive's employment is
terminated by the Company for Cause, as hereinafter
defined, or by Executive other than for Good Reason or
other than as a result of Permanent Disability or death,
prior to the Termination Date, Executive shall be entitled
to receive all salary and benefits to which Executive is
entitled up to and including the date of Executive's
termination of employment hereunder, including, without
limitation, compensation payments deferred by Executive.
The obligations of the Company
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<PAGE>
under this Agreement to make any further payments, or
provide any benefits specified herein, to Executive shall
cease and terminate on the date on which Executive's
employment is terminated by the Company for Cause or by
Executive other than for Good Reason or other than as a
result of Permanent Disability or death. Termination of
Executive in accordance with this Section 6(e) shall be
communicated to Executive pursuant to a notice of a
resolution of a majority of the Board determining that
Executive is subject to Discharge for Cause as defined
herein.
(ii) As used herein, the term "Cause" shall be
limited to (A) action by Executive involving willful
malfeasance in connection with his employment having a
material adverse effect on the Company, (B) material
breach by Executive of this Agreement or any other
agreement entered into between Executive and the Company,
(C) continuing refusal by Executive in willful breach of
this Agreement to perform the duties ordinarily performed
by a chief executive officer (other than any such failure
resulting from his reasonably documented incapacity due to
physical or mental illness) after a written demand for
substantial performance is delivered to him by the Board
which demand specifically identifies the manner in which
the Board believes that he has not substantially performed
his duties or (D) Executive being convicted of any felony
(or any misdemeanor involving the property or assets of
the Company) under the laws of the United States or any
State. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for Cause unless and
until there shall have been delivered to him a copy of a
resolution duly adopted by the affirmative vote of not
less than a majority of the entire Board at a meeting of
the Board (after reasonable notice to Executive and
opportunity for him, together with counsel, to be heard
before the Board), finding that the Executive was guilty
of conduct set forth above in this subsection.
7. Notices. All notices or communications hereunder shall be in writing,
addressed as follows:
To the Company and LPA Holdings
La Petite Academy, Inc.
14 Corporate Woods
8717 W. 110th Street, Suite 300
Overland Park, Kansas 66210
with a copy to:
LPA Investment LLC
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, N.Y. 10017
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<PAGE>
To Executive:
James R. Kahl
12324 El Monte
Leawood, Kansas 66209
Any such notice or communication shall be sent certified or registered mail,
return receipt requested, postage prepaid, addressed as above (or to such
other address as such party may designate in a notice duly delivered as
described above), and the actual date of mailing shall constitute the time at
which notice was given.
8. Separability; Legal Fees; Arbitration. If any provision of this
Agreement shall be declared to be invalid or unenforceable, in whole or in
part, such invalidity or unenforceability shall not affect the remaining
provisions hereof, which shall remain in full-force and effect. In addition,
the Company shall bear, or reimburse Executive for, all legal fees incurred in
connection with entering into this Agreement and any other agreements being
simultaneously entered into by the Company and Executive. Any controversy or
claim arising out of or relating to this Agreement or the breach of this
Agreement (other than Section 12 hereof) that cannot be resolved by Executive
on the one hand and the Company on the other, including any dispute as to the
calculation of Executive's benefits or any payments hereunder, shall be
submitted to arbitration in Chicago, Illinois in accordance with Delaware law
and the procedures of the American Arbitration Association. The determination
of the arbitrators shall be conclusive and binding on the Company and
Executive, and judgment may be entered on the arbitrators' award in any court
having jurisdiction.
9. No Obligation to Mitigate Damages. Executive shall not be required to
mitigate damages or the amount of any payment provided for under this
Agreement by seeking other employment or otherwise, nor will any payments
under Section 6 hereof be subject to offset in respect of any claims which the
Company have against Executive.
10. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of LPA Holdings and the Company, but neither this nor any rights
hereunder shall be assignable or otherwise subject to hypothecation by
Executive (except by will or by operation of the laws of intestate succession)
or by LPA Holdings or by the Company, except that LPA Holdings and the Company
may assign this Agreement to any successor (whether by merger, purchase or
otherwise) to all or substantially all of the stock, assets or businesses of
LPA Holdings or the Company.
11. Amendment. This Agreement may only be amended by written agreement of
the parties hereto.
12. Nondisclosure of Confidential Information; Non-Competition.
(a) Executive shall not, without the prior written consent of the
Company, divulge, disclose or make accessible to any other person, firm,
partnership, corporation or other entity any Confidential Information
pertaining to the business of the Company, except (i) while employed by
the Company, in the business of and for the benefit of the Company, or
(ii) when required to do so by a court of competent jurisdiction, by any
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<PAGE>
governmental agency having supervisory authority over the business of the
Company, or by any administrative body or legislative body (including a
committee thereof) with purported or apparent jurisdiction to order
Executive to divulge, disclose or make accessible such information. For
purposes of this Section 12(a), "Confidential Information" shall mean
non-public information concerning the Company's financial data, strategic
business plans, product development (or other proprietary product data),
customer lists, marketing plans and other non-public, proprietary and
confidential information of the Company that is not otherwise available
to the public.
(b) For a period of one year commencing on Executive's date of
termination for any reason, Executive agrees that, without the prior
written consent of the Company, he shall not, directly or indirectly, (i)
either as principal, manager, agent, consultant, officer, stockholder,
partner, investor, lender or employee or in any other capacity, carry on,
be engaged in or have any financial interest in, any business which is in
material competition with the business of the Company and/or its
affiliates or (ii) solicit any employees of the Company and/or its
affiliates.
(c) For purposes of Section 12(b) hereof, a business shall be deemed
to be in competition with the Company if it is significantly involved in
the rendering of any service significantly purchased, sold, dealt in or
rendered by the Company and/or its affiliates. As used in the preceding
sentence, the term "significantly" shall be deemed to refer to activities
generating gross annual sales of at least $25 million. Nothing in this
Section 12 shall be construed so as to preclude Executive from investing
in any publicly held company provided Executive's beneficial ownership of
any class of such company's securities does not exceed 5% of the
outstanding securities of such class.
(d) Executive and the Company agree that the foregoing covenant not
to compete is a reasonable covenant under the circumstances, and further
agree that if in the opinion of any court of competent jurisdiction such
restraint is not reasonable in any respect, such court shall have the
right, power and authority to excise or modify such provision or
provisions of such covenant as to the court shall appear not reasonable
and to enforce the remainder of the covenant as so amended. Executive
agrees that any breach of the covenants contained in this Section 12
would irreparably injure the Company. Accordingly, the Company may, in
addition to pursuing any other remedies they may have in law or in
equity, obtain an injunction against Executive from any court having
jurisdiction over the matter, restraining any further violation of this
Section 12 by Executive.
13. Beneficiaries; References. Executive shall be entitled to select (and
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder
following Executive's death, and may change such election, in either case by
giving the Company written notice thereof. In the event of Executive's death
or a judicial determination of his incompetence, reference in this Agreement
to Executive shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative. Any reference to the masculine gender in
this Agreement shall include, where appropriate, the feminine.
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<PAGE>
14. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 14 are in addition to the survivorship provisions
of any other section of this Agreement.
15. Governing Law. This Agreement shall be construed, interpreted and
governed in accordance with the laws of the State of Delaware, without
reference to rules relating to conflict of laws.
16. Withholding. The Company shall be entitled to withhold from any
payment hereunder any amount required by law to be withheld.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
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<PAGE>
18. Entire Agreement. This Agreement reflects the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and replaces and supercedes any prior employment agreements, including without
limitation, that certain Employment Agreement dated as of July 23, 1993, by
and among La Petite Acquisition Corp., the Company and the Executive, as the
same may have been amended, supplemented or modified from time to time.
* * * * *
LA PETITE ACADEMY, INC.
By:
---------------------------------
Name:
Title:
LPA HOLDING CORP.
By:
---------------------------------
Name:
Title:
---------------------------------
Executive
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 11, 1998 by and among LPA
HOLDING CORP., a Delaware corporation ("LPA Holdings"), LA PETITE
ACADEMY, INC., a Delaware corporation (the "Company"), and Rebecca L.
Perry ("Executive").
RECITALS
In order to induce Executive to agree to serve as Executive Vice
President - Operations of the Company, LPA Holdings and the Company
desire to provide Executive with compensation and other benefits on the
terms and conditions set forth in this Agreement.
Executive is willing to enter into such employment and perform
services for the Company on the terms and conditions set forth in this
Agreement.
It is therefore hereby agreed by and among the parties as follows:
1. Employment.
(a) Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as
Executive Vice President - Operations. In her capacity as Executive
Vice President - Operations of the Company, Executive shall have all
of the customary powers, responsibilities and authorities of
officers of corporations of the size, type and nature of the
Company, as they exist from time to time. Executive's principal
office shall be in Odessa, Florida. However, Executive shall spend a
minimum of one week each fiscal four week period at the principal
executive office of the Company.
(b) Subject to the terms and conditions of this Agreement,
Executive hereby accepts employment as Executive Vice President -
Operations of the Company and agrees to devote her full working time
and efforts, to the best of her ability, experience and talent, to
the performance of services, duties and responsibilities in
connection therewith. Nothing in this Agreement shall preclude
Executive from engaging, consistent with her duties and
responsibilities hereunder, in charitable and community affairs or
from managing her personal investments.
2. Term of Employment. Executive's term of employment under this
Agreement shall commence on May 11, 1998 (the "Commencement Date") and,
subject to the terms hereof, shall terminate on the last day of the
Fiscal Year in August1999 (the "Termination Date"); provided, however,
that on the last day of the Fiscal Year in August 1999 and on each
subsequent Fiscal Year end, the Termination Date shall automatically be
extended for a period of one year, unless either party shall have given
written notice to the other party not less than thirty days prior to the
Termination Date that the Termination Date shall not be so extended.
3. Compensation.
(a) Base Salary. The Company shall pay Executive a base salary
("Base Salary") at the annual rate of $172,500 with the Base Salary
from the Commencement
<PAGE>
Date through August 29, 1998 to be the product of $172,500
multiplied by a fraction, the numerator of which is the number of
calendar days from the Commencement Date through August 29, 1998 and
the denominator of which is 365. The Base Salary shall be payable in
accordance with the ordinary payroll practices of the Company.
(b) Adjustments to Base Salary. Executive's annual rate of Base
Salary shall be adjusted at the discretion of the Chief Executive
Officer, subject to the approval of the Board of Directors of the
Company (the "Board") on the first day of each Fiscal Year. As used
herein, "Fiscal Year" shall mean the fiscal year ending on the
Saturday closest to the last day of August each year. If increased
in accordance with the provisions hereof, the increased amount shall
constitute Executive's Base Salary hereunder.
(c) Annual Bonus. In addition to her Base Salary, Executive
shall be entitled to receive a cash bonus (the "Bonus") with respect
to each Fiscal Year (commencing with the Fiscal Year ending August
28, 1999). The Bonus shall be paid from the Company's two bonus
pools (the "First Bonus Pool" and the "Second Bonus Pool",
respectively) as follows:
The Bonus shall be paid from the Company's two bonus pools (the "First
Bonus Pool" and the "Second Bonus Pool", respectively) as follows:
(i) First Bonus Pool. Prior to the end of each Fiscal
Year, the Board shall determine the target EBITDA for the
immediately succeeding Fiscal Year (the "Plan EBITDA") and the
aggregate size of the bonus pool for all participants in the
First Bonus Pool based on the achievement of 95% of Plan
EBITDA, 100% of Plan EBITDA and 115% Plan EBITDA. For purposes
hereof, EBITDA shall be as defined in the Indenture dated as of
May 11, 1998, among the Company, PNC Bank, as Trustee, and the
other parties thereto. The Executive shall be entitled to a
Bonus from the First Bonus Pool in an amount up to 75% of Base
Salary as follows:
(A) Subject to Section 6, on November 1, 1999, and on
each succeeding November 1, the Company shall pay to
Executive up to one quarter of the Bonus from the First
Bonus Pool based on the achievement by the Executive of
his personal management by objectives ("MBO"), as
established by the Compensation Committee of the Board
(the "Committee"); and
(B) Subject to Section 6, on November 1, 1999, and on
each succeeding November 1, the Company shall pay to
Executive a cash bonus based upon the attainment of a
specified percentage of the actual EBITDA of the Company
and its subsidiaries in relation to Plan EBITDA. No Bonus
will be payable in the event that actual EBITDA is less
than 95% of Plan EBITDA and the maximum bonus of
three-quarters of 75% of Base Salary is payable only when
actual EBITDA is 115% or more of Plan EBITDA. If actual
EBITDA as a percentage of Plan EBITDA falls within one of
the gradations specified below, three-quarters of the
percentage of
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<PAGE>
Base Salary specified below will be earned in even
increments within the relevant gradation:
Actual EBITDA As % of Base Salary
% of Plan EBITDA Earned as Bonus
---------------- ---------------
95.0%-100.0% 0.0%-25.0%
100.1%-115.0% 25.1%-75.0%
(ii) Second Bonus Pool. The aggregate amount of the Second
Bonus Pool for all its participants will be equal to 10% of the
aggregate amount of the First Bonus Pool for all its
participants. The Executive will be entitled to receive a bonus
out of the Second Bonus Pool in an amount to be determined by
the Chief Executive Officer based on the Executive's individual
performance.
(d) 1998 Bonus. Notwithstanding anything to the contrary
contained herein, with respect to the Bonus to be paid for Fiscal
Year 1998, Executive shall participate in the La Petite Academy
Senior Management Bonus Plan - 1998 Fiscal Year; provided, however,
that the allocations of payments out of the First Bonus Pool shall
be allocated 75% based on Consolidated EBITDA and 25% based on
personal MBO.
(e) Compensation Plans and Programs. Executive shall
participate in any compensation plan or program, annual or
long-term, maintained by the Company on terms no less favorable than
those applicable to other senior management personnel of the
Company.
4. Employee Benefits.
(a) Employee Benefit Programs, Plans and Practices. During the
term of her employment hereunder, the Company shall provide to
Executive coverage under any employee benefit programs, plans and
practices (commensurate with her position in the Company and to the
extent possible under any employee benefit plan), in accordance with
the terms hereof, which the Company makes available to its senior
executive officers, including but not limited to (i) retirement,
pension and profit-sharing and (ii) medical, dental,
hospitalization, life insurance, short and long-term disability,
accidental death and dismemberment and travel accident coverage.
(b) Vacation and Fringe Benefits.
(i) Executive shall be entitled to a paid vacation each
calendar year in accordance with the Company's vacation policy.
(ii) In addition, Executive shall be entitled to all of
the perquisites and fringe benefits normally accorded a senior
executive officer of the Company (other than the Chief
Executive Officer).
-3-
<PAGE>
5. Expenses. Executive is authorized to incur reasonable expenses in
carrying out her duties and responsibilities under this Agreement,
including without limitation, expenses for travel and similar items
related to such duties and responsibilities. The Company will reimburse
Executive for all such expenses upon presentation by Executive from time
to time of an itemized account of such expenditures.
6. Termination of Employment.
(a) Termination Not for Cause or Termination for Good Reason.
(i) The Company may terminate Executive's employment at
any time, and Executive may terminate her employment at any
time. If Executive's employment is terminated by the Company
other than for Cause (as defined in Section 6(d)(ii) hereof) or
due to Executive's death or Permanent Disability (as defined in
Section 6(b) hereof) or Executive terminates her employment for
Good Reason (as defined in Section 6(a)(ii) hereof) (x) prior
to the last day of the Fiscal Year ending in August 1999,
Executive shall be entitled to receive from the Company, in
lieu of any other cash compensation provided for herein but not
in substitution for compensation already earned, the sum of (A)
Executive's Base Salary at its then current annual rate and (B)
any Bonus accrued by the Company hereunder for the benefit of
Executive in respect of the Fiscal Year preceeding the Fiscal
Year in which such termination occurred and (y) after the last
day of the Fiscal Year ending in August 1999, Executive shall
be entitled to receive, in lieu of any other cash compensation
provided for herein but not in substitution for compensation
already earned, Executive's Base Salary at its then current
rate for the remainder of the contract term then in effect. All
payments made by the Company under this subsection shall be
payable in accordance with the ordinary payroll practices of
the Company.
(ii) For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following events without
Executive's express prior written consent:
(A) the assignment to Executive by the Company of
duties substantially inconsistent with Executive's
positions, duties, responsibilities, titles and offices as
set forth in Section 1 hereof, or any material reduction
by the Company of Executive's duties or responsibilities
or any removal of Executive as the Executive Vice
President - Operations of the Company, except in
connection with the termination of Executive's employment
for any other reason;
(B) a reduction by the Company in Executive's Base
Salary or Bonus (other than by reason of the terms of
Section 3(c) hereof) as in effect at the commencement of
employment hereunder or as the same may be increased from
time to time during the terms of this Agreement;
-4-
<PAGE>
(C) any material breach by the Company of any
material provision of this Agreement
(b) Permanent Disability. If (i) Executive shall fail for a
period of six consecutive months during the term of her employment
hereunder, because of illness, physical or mental disability or
other incapacity, to render the services provided for by this
Agreement or (ii) at such earlier time as Executive submits
satisfactory medical evidence that she has an illness, physical or
mental disability or other incapacity which is expected to prevent
her from returning to the performance of her work duties for six
months or longer ("Permanent Disability"), the Company or Executive
may terminate Executive's employment upon written notice thereof,
setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under this Section 6(b) and Executive shall receive or continue to
receive, as the case may be:
(i) as soon as practicable after the date of termination
of Executive's employment pursuant to this Section 6(b), a cash
lump sum equal to any compensation payments deferred by
Executive, together with any applicable interest or other
accruals thereon;
(ii) any unpaid amounts, as of the date of such
termination, in respect of the Bonus for the Fiscal Year ending
before such termination, which shall be payable on the date on
which such Bonus is payable as specified in Section 3(c)(i)
hereof; and
(iii) such rights to payments under applicable plans or
programs, including but not limited to those described in
Section 3(d) hereof, as may be appropriate pursuant to the
terms of such plans or programs.
(c) Death. In the event of Executive's death during the term of
her employment hereunder, Executive's estate or designated
beneficiaries shall receive:
(i) as soon as practicable after the date of Executive's
death, a cash lump sum equal to any compensation payments
deferred by Executive, together with any applicable interest or
other accruals thereon;
(ii) any death benefits provided under the employee
benefit programs, plans and practices described in Section 4(a)
hereof, in accordance with their terms; and
(iii) such other payments under applicable plans or
programs, including but not limited to those described in
Section 3(d) hereof, as may be appropriate pursuant to the
terms of such plans or programs.
(d) Voluntary Termination by Executive: Discharge for Cause.
(i) In the event that Executive's employment is terminated
by the Company for Cause, as hereinafter defined, or by
Executive other than for Good
-5-
<PAGE>
Reason or other than as a result of Permanent Disability or
death, prior to the Termination Date, Executive shall be
entitled to receive all salary and benefits to which Executive
is entitled up to and including the date of Executive's
termination of employment hereunder, including, without
limitation, compensation payments deferred by Executive. The
obligations of the Company under this Agreement to make any
further payments, or provide any benefits specified herein, to
Executive shall cease and terminate on the date on which
Executive's employment is terminated by the Company for Cause
or by Executive other than for Good Reason or other than as a
result of Permanent Disability or death. Termination of
Executive in accordance with this Section 6(d) shall be
communicated to Executive pursuant to a notice from the Chief
Executive Officer, after obtaining a resolution of a majority
of the Board of Directors of the Company determining that
Executive is subject to Discharge for Cause as defined herein.
(ii) As used herein, the term "Cause" shall be limited to
(A) action by Executive involving willful malfeasance in
connection with her employment having a material adverse effect
on the Company, (B) material breach by Executive of this
Agreement or any other agreement entered into between Executive
and the Company, (C) continuing refusal by Executive in willful
breach of this Agreement to perform the duties ordinarily
performed by the Executive Vice President - Operations (other
than any such failure resulting from her reasonably documented
incapacity due to physical or mental illness) after a written
demand for substantial performance is delivered to her by the
Board, which demand specifically identifies the manner in which
the Board believes that she has not substantially performed her
duties or (D) Executive being convicted of any felony (or any
misdemeanor involving the property or assets of the Company)
under the laws of the United States or any State.
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there
shall have been delivered to her a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of
the entire Board at a meeting of the Board (after reasonable
notice to Executive and opportunity for her, together with
counsel, to be heard before the Board), finding that the
Executive was guilty of conduct set forth above in this
subsection.
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company and LPA Holdings Corp.
La Petite Academy, Inc.
14 Corporate Woods
8717 W. 110th Street, Suite 300
Overland Park, Kansas 66210
Attention: Chairman of the Board
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<PAGE>
with a copy to:
LPA Investment LLC
c/o Chase Capital Partners
380 Madison Avenue
New York, N.Y. 10017
To Executive:
Rebecca L. Perry
c/o the Company at the above address
Any such notice or communication shall be sent certified or registered
mail, return receipt requested, postage prepaid, addressed as above (or
to such other address as such party may designate in a notice duly
delivered as described above), and the actual date of mailing shall
constitute the time at which notice was given.
8. Separability; Arbitration. If any provision of this Agreement
shall be declared to be invalid or unenforceable, in whole or in part,
such invalidity or unenforceability shall not affect the remaining
provisions hereof, which shall remain in full force and effect. Any
controversy or claim arising out of or relating to this Agreement or the
breach of this Agreement (other than Section 12 hereof) that cannot be
resolved by Executive on the one hand and the Company on the other,
including any dispute as to the calculation of Executive's benefits or
any payments hereunder, shall be submitted to arbitration in Chicago,
Illinois in accordance with Delaware law and the procedures of the
American Arbitration Association. The determination of the arbitrators
shall be conclusive and binding on the Company and Executive, and
judgment may be entered on the arbitrators' award in any court having
jurisdiction.
9. No Obligation to Mitigate Damages. Executive shall not be
required to mitigate damages or the amount of any payment provided for
under this Agreement by seeking other employment or otherwise, nor will
any payments under Section 6 hereof be subject to offset in respect of
any claims which the Company may have against Executive.
10. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of LPA Holdings and the Company, but neither this nor any
rights hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by LPA Holdings or by the Company, except that
LPA Holdings and the Company may assign this Agreement to any successor
(whether by merger, purchase or otherwise) to all or substantially all of
the stock, assets or businesses of LPA Holdings or the Company.
11. Amendment. This Agreement may only be amended by written
agreement of the parties hereto.
12. Nondisclosure of Confidential Information; Non-Competition.
(a) Executive shall not, without the prior written consent of
the Company, divulge, disclose or make accessible to any other
person, firm, partnership, corporation or
-7-
<PAGE>
other entity any Confidential Information pertaining to the business
of the Company, except (i) while employed by the Company, in the
business of and for the benefit of the Company, or (ii) when
required to do so by a court of competent jurisdiction, by any
governmental agency having supervisory authority over the business
of the Company, or by any administrative body or legislative body
(including a committee thereof) with purported or apparent
jurisdiction to order Executive to divulge, disclose or make
accessible such information. For purposes of this Section 12(a),
"Confidential Information" shall mean non-public information
concerning the Company's financial data, strategic business plans,
product development (or other proprietary product data), customer
lists, marketing plans and other non-public, proprietary and
confidential information of the Company that is not otherwise
available to the public.
(b) For a period of one year commencing on Executive's date of
termination for any reason, Executive agrees that, without the prior
written consent of the Company, she shall not, directly or
indirectly, (i) either as principal, manager, agent, consultant,
officer, stockholder, partner, investor, lender or employee or in
any other capacity, carry on, be engaged in or have any financial
interest in, any business which is in material competition with the
business of the Company and/or its affiliates or (ii) solicit any
employees of the Company or any of its affiliates.
(c) For purposes of Section 12(b) hereof, a business shall be
deemed to be in competition with the Company if it is significantly
involved in the purchase, sale or other dealing in any property or
the rendering of any service significantly purchased, sold, dealt in
or rendered by the Company and/or its affiliates. As used in the
preceding sentence, the term "significantly" shall be deemed to
refer to activities generating gross annual sales of at least $25
million. Nothing in this Section 12 shall be construed so as to
preclude Executive from investing in any publicly held company
provided Executive's beneficial ownership of any class of such
company's securities does not exceed 5% of the outstanding
securities of such class.
(d) Executive and the Company agree that the foregoing covenant
not to compete is a reasonable covenant under the circumstances, and
further agree that if in the opinion of any court of competent
jurisdiction such restraint is not reasonable in any respect, such
court shall have the right, power and authority to excise or modify
such provision or provisions of such covenant as to the court shall
appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants
contained in this Section 12 would irreparably injure the Company.
Accordingly, the Company may, in addition to pursuing any other
remedies they may have in law or in equity, obtain an injunction
against Executive from any court having jurisdiction over the
matter, restraining any further violation of this Section 12 by
Executive.
13. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a
beneficiary or beneficiaries to receive any compensation or benefit
payable hereunder following Executive's death, and may change such
election, in either case by giving the Company written notice thereof. In
the event of Executive's death or a judicial determination of her
incompetence, reference in this Agreement to Executive
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<PAGE>
shall be deemed, where appropriate, to refer to her beneficiary, estate
or other legal representative. Any reference to the masculine gender in
this Agreement shall include, where appropriate, the feminine.
14. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and
obligations. The provisions of this Section 14 are in addition to the
survivorship provisions of any other section of this Agreement.
15. Governing Law. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the State of Delaware,
without reference to rules relating to conflict of laws.
16. Withholding. The Company shall be entitled to withhold from any
payment hereunder any amount required by law to be withheld.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
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<PAGE>
18. Entire Agreement. This Agreement reflects the entire agreement
and understanding of the parties hereto with respect to the subject
matter hereof and replaces and supercedes any prior agreements, including
any prior employment agreements, with respect to the subject matter
hereof.
LA PETITE ACADEMY, INC.
By:_______________________________________
Name:
Title:
LPA HOLDINGS CORP.
By:_______________________________________
Name:
Title:
__________________________________________
Executive
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 11, 1998 by and among LPA
HOLDING CORP., a Delaware corporation ("LPA Holdings"), LA PETITE
ACADEMY, INC., a Delaware corporation (the "Company"), and Phillip M.
Kane ("Executive").
RECITALS
In order to induce Executive to agree to serve as Chief
Financial Officer of the Company, LPA Holding Corp. and the Company
desire to provide Executive with compensation and other benefits on the
terms and conditions set forth in this Agreement.
Executive is willing to enter into such employment and perform
services for the Company on the terms and conditions set forth in this
Agreement.
It is therefore hereby agreed by and among the parties as
follows:
1. Employment.
(a) Subject to the terms and conditions of this Agreement,
the Company agrees to employ Executive during the term hereof
as Chief Financial Officer. In his capacity as Chief Financial
Officer of the Company, Executive shall have all of the
customary powers, responsibilities and authorities of chief
financial officers of corporations of the size, type and nature
of the Company, as they exist from time to time. Executive's
principal office shall be at the principal executive offices of
the Company in the Kansas City Metropolitan Area.
(b) Subject to the terms and conditions of this Agreement,
Executive hereby accepts employment as Chief Financial Officer
of the Company and agrees to devote his full working time and
efforts, to the best of his ability, experience and talent, to
the performance of services, duties and responsibilities in
connection therewith. Nothing in this Agreement shall preclude
Executive from engaging, consistent with his duties and
responsibilities hereunder, in charitable and community affairs
or from managing his personal investments.
2. Term of Employment. Executive's term of employment under this
Agreement shall commence on May 11, 1998 (the "Commencement Date") and,
subject to the terms hereof, shall terminate on the last day of the
Fiscal Year in August 1999 (the "Termination Date"); provided, however,
that on the last day of the Fiscal Year in August 1999 and on each
subsequent Fiscal Year end, the Termination Date shall automatically be
extended for a period of one year, unless either party shall have given
written notice to the other party not less than thirty days prior to the
Termination Date that the Termination Date shall not be so extended.
3. Compensation.
(a) Initial Base Salary. The Company shall pay Executive a
base salary ("Base Salary") at the annual rate of $170,000 with
the Base Salary from the Commencement Date through August 29,
1998 to be the product of $170,000 multiplied by a fraction,
the
<PAGE>
numerator of which is the number of calendar days from the
Commencement Date through August 29, 1998 and the denominator
of which is 365. The Base Salary shall be payable in accordance
with the ordinary payroll practices of the Company.
(b) Adjustments to Base Salary. Executive's annual rate of
Base Salary shall be adjusted at the discretion of the Chief
Executive Officer, subject to the approval of the Board of
Directors of the Company (the "Board") on the first day of each
Fiscal Year. As used herein, "Fiscal Year" shall mean the
fiscal year ending on the Saturday closest to the last day of
August of each year. If increased in accordance with the
provisions hereof, the increased amount shall constitute
Executive's Base Salary hereunder.
(c) Annual Bonus. In addition to his Base Salary,
Executive shall be entitled to receive a cash bonus (the
"Bonus") with respect to each Fiscal Year (commencing with the
Fiscal Year ending August 28, 1999). The Bonus shall be paid
from the Company's two bonus pools (the "First Bonus Pool" and
the "Second Bonus Pool", respectively) as follows: The Bonus
shall be paid from the Company's two bonus pools (the "First
Bonus Pool" and the "Second Bonus Pool", respectively) as
follows:
(i) First Bonus Pool. Prior to the end of each Fiscal
Year, the Board shall determine the target EBITDA for the
immediately succeeding Fiscal Year ( the "Plan EBITDA")
and the aggregate size of the bonus pool for all
participants in the First Bonus Pool based on the
achievement of 95% of Plan EBITDA and 115% Plan EBITDA.
For purposes hereof, EBITDA shall be as defined in the
Indenture dated as of May 11, 1998, among the Company, PNC
Bank, as Trustees, and the other parties thereto. The
Executive shall be entitled to a Bonus from the First
Bonus Pool in an amount up to 75% of Base Salary as
follows:
(A) Subject to Section 6, on November 1, 1999,
and on each succeeding November 1, the Company shall
pay to Executive a bonus in cash of up to one quarter
of the Bonus from the First Bonus Pool based on the
achievement by the Executive of his personal
management by objectives ("MBO"), as established by
the Compensation Committee of the Board (the
"Committee"), and will be payable at the same time as
the remaining seventy-five percent; and
(B) Subject to Section 6, on November 1, 1999,
and on each succeeding November 1, the Company shall
pay to Executive a cash bonus based upon the
attainment of a specified percentage of the actual
EBITDA in relation to Plan EBITDA. No Bonus will be
payable in the event that actual EBITDA is less than
95% of Plan EBITDA and the maximum bonus of
three-quarters of 75% of Base Salary is payable only
when actual EBITDA is 115% or more of Plan EBITDA. If
actual EBITDA as a percentage of Plan EBITDA falls
within one of the gradations specified below, three
quarters of the percentage of Base Salary specified below
will be earned in even increments within the relevant
gradation.
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<PAGE>
Actual EBITDA As % of Base Salary
% of Plan EBITDA Earned as Bonus
---------------- ---------------
95.0%-100.0% 0.0%-25.0%
100.1%-115.0% 25.1%-75.0%
(ii) Second Bonus Pool. The aggregate amount of the
Second Bonus Pool for all its participants will be equal
to 10% of the aggregate amount of the First Bonus Pool for
all its participants. The Executive will be entitled to
receive a bonus out of the Second Bonus Pool in an amount
to be determined by the Chief Executive Officer based on
the Executive's individual performance.
(d) 1998 Bonus. Notwithstanding anything to the contrary
contained herein with respect to the Bonus to be paid in
respect of Fiscal Year 1998, Executive shall participate in the
La Petite Academy Senior Management Bonus Plan - 1998 Fiscal
Year; provided, however, that the allocations of payments out
of the First Bonus Pool shall be allocated 75% based on
Consolidated EBITDA and 25% based on personal MBO.
(e) Compensation Plans and Programs. Executive shall
participate in any compensation plan or program, annual or
long-term, maintained by the Company on terms no less favorable
than those applicable to other senior management personnel of
the Company.
4. Employee Benefits.
(a) Employee Benefit Programs, Plans and Practices. During
the term of his employment hereunder, the Company shall provide
to Executive coverage under any employee benefit programs,
plans and practices (commensurate with his positions in the
Company and to the extent possible under any employee benefit
plan), in accordance with the terms hereof, which the Company
makes available to its senior executive officers, including but
not limited to (i) retirement, pension and profit-sharing and
(ii) medical, dental, hospitalization, life insurance, short
and long-term disability, accidental death and dismemberment
and travel accident coverage.
(b) Vacation and Fringe Benefits.
(i) Executive shall be entitled to a paid vacation
each calendar year in accordance with the Company's
vacation policy.
(ii) In addition, Executive shall be entitled to all
of the perquisites and fringe benefits normally accorded
senior executives of the Company (other than the Chief
Executive Officer).
5. Expenses. Executive is authorized to incur reasonable expenses in
carrying out his duties and responsibilities under this Agreement,
including without limitation expenses for travel and similar items
related to such duties and responsibilities. The Company will reimburse
Executive for all such expenses upon presentation by Executive from time
to time of an itemized account of such expenditures.
-3-
<PAGE>
6. Termination of Employment.
(a) Termination Not for Cause or Termination for Good Reason.
(i) The Company may terminate Executive's employment at
any time, and Executive may terminate his employment at any
time. If Executive's employment is terminated by the Company
other than for Cause (as defined in Section 6(d)(ii) hereof) or
due to Executive's death or Permanent Disability (as defined in
Section 6(b) hereof) or Executive terminates his employment for
Good Reason (as defined in Section 6(a)(ii) hereof) (x) prior
to the last day of the Fiscal Year ending in August 1999,
Executive shall be entitled to receive from the Company, in
lieu of any other cash compensation provided for herein but not
in substitution for compensation already earned, the sum of (A)
Executive's Base Salary at its then current annual rate and (B)
any Bonus accrued by the Company hereunder for the benefit of
Executive in respect of the Fiscal Year preceding the Fiscal
Year in which such termination occurred and (y) after the last
day of the Fiscal Year ending in August 1999, Executive shall
be entitled to receive in lieu of any other cash compensation
provided for herein but not in substitution for compensation
already earned, Executive's Base Salary at its then current
rate for the remainder of the contract term then in effect. All
payments made by the Company under this subsection shall be
payable in accordance with the ordinary payroll practices of
the Company.
(ii) For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following events without
Executive's express prior written consent:
(A) the assignment to Executive by the Company of
duties substantially inconsistent with Executive's
positions, duties, responsibilities, titles and offices as
set forth in Section 1 hereof, or any material reduction
by the Company of Executive's duties or responsibilities
or any removal of Executive as the Chief Financial Officer
of the Company, except in connection with the termination
of Executive's employment for any other reason;
(B) a reduction by the Company in Executive's Base
Salary or Bonus (other than by reason of the terms of
Section 3(c) hereof) as in effect at the commencement of
employment hereunder or as the same may be increased from
time to time during the terms of this Agreement;
(C) any material breach by the Company of any
material provision of this Agreement;
(D) a relocation of the Company's executive offices
to a location more than fifty miles outside of the Kansas
City Metropolitan Area.
(b) Permanent Disability. If (i) Executive shall fail for a
period of six consecutive months during the term of his employment
hereunder, because of illness,
-4-
<PAGE>
physical or mental disability or other incapacity, to render the
services provided for by this Agreement or (ii) at such earlier time
as Executive submits satisfactory medical evidence that he has an
illness, physical or mental disability or other incapacity which is
expected to prevent him from returning to the performance of his
work duties for six months or longer ("Permanent Disability"), the
Company or Executive may terminate Executive's employment upon
written notice thereof, setting forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of
Executive's employment under this Section 6(b), and Executive shall
receive or continue to receive, as the case may be:
(i) as soon as practicable after the date of termination
of Executive's employment pursuant to this Section 6(b), a cash
lump sum equal to any compensation payments deferred by
Executive, together with any applicable interest or other
accruals thereon;
(ii) any unpaid amounts, as of the date of such
termination, in respect of the Bonus for the Fiscal Year ending
before such termination, which shall be payable on the date on
which such Bonus is payable as specified in Section 3(c)(i)
hereof; and
(iii) such rights to payments under applicable plans or
programs, including but not limited to those described in
Section 3(d) hereof, as may be appropriate pursuant to the
terms of such plans or programs.
(c) Death. In the event of Executive's death during the term of
his employment hereunder, Executive's estate or designated
beneficiaries shall receive:
(i) as soon as practicable after the date of Executive's
death, a cash lump sum equal to any compensation payments
deferred by Executive, together with any applicable interest or
other accruals thereon;
(ii) any death benefits provided under the employee
benefit programs, plans and practices described in Section 4(a)
hereof, in accordance with their terms; and
(iii) such other payments under applicable plans or
programs, including but not limited to those described in
Section 3(d) hereof, as may be appropriate pursuant to the
terms of such plans or programs.
(d) Voluntary Termination by Executive: Discharge for Cause.
(i) In the event that Executive's employment is terminated
by the Company for Cause, as hereinafter defined, or by
Executive other than for Good Reason or other than as a result
of Permanent Disability or death, prior to the Termination
Date, Executive shall be entitled to receive all salary and
benefits to which Executive is entitled up to and including the
date of Executive's termination of employment hereunder,
including, without limitation, compensation payments deferred
by Executive. The obligations of the Company
-5-
<PAGE>
under this Agreement to make any further payments, or provide
any benefits specified herein, to Executive shall cease and
terminate on the date on which Executive's employment is
terminated by the Company for Cause or by Executive other than
for Good Reason or other than as a result of Permanent
Disability or death. Termination of Executive in accordance
with this Section 6(d) shall be communicated to Executive
pursuant to a notice from the Chief Executive Officer, after
obtaining a resolution of a majority of the Board determining
that Executive is subject to Discharge for Cause as defined
herein.
(ii) As used herein, the term "Cause" shall be limited to
(A) action by Executive involving willful malfeasance in
connection with his employment having a material adverse effect
on the Company, (B) material breach by Executive of this
Agreement or any other agreement entered into between Executive
and the Company, (C) continuing refusal by Executive in willful
breach of this Agreement to perform the duties ordinarily
performed by a chief financial officer (other than any such
failure resulting from his reasonably documented incapacity due
to physical or mental illness) after a written demand for
substantial performance is delivered to him by the Board, which
demand specifically identifies the manner in which the Board
believes that he has not substantially performed his duties or
(D) Executive being convicted of any felony (or any misdemeanor
involving the property or assets of the Company) under the laws
of the United States or any State. Notwithstanding the
foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire
Board at a meeting of the Board (after reasonable notice to
Executive and opportunity for him, together with counsel, to be
heard before the Board), finding that the Executive was guilty
of conduct set forth above in this subsection.
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company and LPA Holdings Corp.
La Petite Academy, Inc.
14 Corporate Woods
8717 W. 110th Street, Suite 300
Overland Park, Kansas 66210
Attention: Chairman of the Board
with a copy to:
LPA Investment LLC
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, N.Y. 10017
-6-
<PAGE>
To Executive:
Phillip M. Kane
c/o the Company at the above address
Any such notice or communication shall be sent certified or registered
mail, return receipt requested, postage prepaid, addressed as above (or
to such other address as such party may designate in a notice duly
delivered as described above), and the actual date of mailing shall
constitute the time at which notice was given.
8. Separability; Arbitration. If any provision of this Agreement
shall be declared to be invalid or unenforceable, in whole or in part,
such invalidity or unenforceability shall not affect the remaining
provisions hereof, which shall remain in full force and effect. Any
controversy or claim arising out of or relating to this Agreement or the
breach of this Agreement (other than Section 12 hereof) that cannot be
resolved by Executive on the one hand and the Company on the other,
including any dispute as to the calculation of Executive's benefits or
any payments hereunder, shall be submitted to arbitration in Chicago,
Illinois in accordance with Delaware law and the procedures of the
American Arbitration Association. The determination of the arbitrators
shall be conclusive and binding on the Company and Executive, and
judgment may be entered on the arbitrators' award in any court having
jurisdiction.
9. No Obligation to Mitigate Damages. Executive shall not be
required to mitigate damages or the amount of any payment provided for
under this Agreement by seeking other employment or otherwise, nor will
any payments under Section 6 hereof be subject to offset in respect of
any claims which the Company may have against Executive.
10. Assignment. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of LPA Holdings and the Company, but neither this nor any
rights hereunder shall be assignable or otherwise subject to
hypothecation by Executive (except by will or by operation of the laws of
intestate succession) or by LPA Holdings or by the Company, except that
LPA Holdings and the Company may assign this Agreement to any successor
(whether by merger, purchase or otherwise) to all or substantially all of
the stock, assets or businesses of LPA Holdings or the Company.
11. Amendment. This Agreement may only be amended by written
agreement of the parties hereto.
12. Nondisclosure of Confidential Information; Non-Competition.
(a) Executive shall not, without the prior written consent of
the Company, divulge, disclose or make accessible to any other
person, firm, partnership, corporation or other entity any
Confidential Information pertaining to the business of the Company,
except (i) while employed by the Company, in the business of and for
the benefit of the Company, or (ii) when required to do so by a
court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company, or by any
administrative body or legislative body (including a committee
thereof) with purported or apparent jurisdiction to order Executive
to divulge, disclose or make accessible such information. For
purposes of this Section 12(a), "Confidential
-7-
<PAGE>
Information" shall mean non-public information concerning the
Company's financial data, strategic business plans, product
development (or other proprietary product data), customer lists,
marketing plans and other non-public, proprietary and confidential
information of the Company that is not otherwise available to the
public.
(b) For a period of one year commencing on Executive's date of
termination for any reason, Executive agrees that, without the prior
written consent of the Company, he shall not, directly or
indirectly, (ii) either as principal, manager, agent, consultant,
officer, stockholder, partner, investor, lender or employee or in
any other capacity, carry on, be engaged in or have any financial
interest in, any business which is in material competition with the
business of the Company and/or its affiliates or (ii) solicit any
employees of the Company and/or its affiliates.
(c) For purposes of Section 12(b) hereof, a business shall be
deemed to be in competition with the Company if it is significantly
involved in the purchase, sale or other dealing in any property or
the rendering of any service significantly purchased, sold, dealt in
or rendered by the Company and/or its affiliates. As used in the
preceding sentence, the term "significantly" shall be deemed to
refer to activities generating gross annual sales of at least $25
million. Nothing in this Section 12 shall be construed so as to
preclude Executive from investing in any publicly held company
provided Executive's beneficial ownership of any class of such
company's securities does not exceed 5% of the outstanding
securities of such class.
(d) Executive and the Company agree that the foregoing covenant
not to compete is a reasonable covenant under the circumstances, and
further agree that if in the opinion of any court of competent
jurisdiction such restraint is not reasonable in any respect, such
court shall have the right, power and authority to excise or modify
such provision or provisions of such covenant as to the court shall
appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants
contained in this Section 12 would irreparably injure the Company.
Accordingly, the Company may, in addition to pursuing any other
remedies they may have in law or in equity, obtain an injunction
against Executive from any court having jurisdiction over the
matter, restraining any further violation of this Section 12 by
Executive.
13. Beneficiaries; References. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a
beneficiary or beneficiaries to receive any compensation or benefit
payable hereunder following Executive's death, and may change such
election, in either case by giving the Company written notice thereof. In
the event of Executive's death or a judicial determination of his
incompetence, reference in this Agreement to Executive shall be deemed,
where appropriate, to refer to his beneficiary, estate or other legal
representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
14. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the
extent necessary to the intended preservation of
-8-
<PAGE>
such rights and obligations. The provisions of this Section 14 are in
addition to the survivorship provisions of any other section of this
Agreement.
15. Governing Law. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the State of Delaware,
without reference to rules relating to conflict of laws.
16. Withholding. The Company shall be entitled to withhold from any
payment hereunder any amount required by law to be withheld.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
-9-
<PAGE>
18.Entire Agreement. This Agreement reflects the entire agreement
and understanding of the parties hereto with respect to the subject
matter hereof and replaces and supercedes any prior agreements, including
any prior employment agreements, with respect to the subject matter
hereof.
LA PETITE ACADEMY, INC.
By:________________________________________
Name:
Title:
LPA HOLDING CORP.
By:________________________________________
Name:
Title:
___________________________________________
Executive
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<PAGE>
EXECUTION COPY
EX-10.12
================================================================================
CREDIT AGREEMENT
dated as of
May 11, 1998
among
LA PETITE ACADEMY, INC.,
as Borrower
LPA HOLDING CORP.,
as Parent
The Lenders Party Hereto,
NATIONSBANK, N.A.,
as Administrative Agent, Documentation Agent
and Collateral Agent
and
THE CHASE MANHATTAN BANK,
as Syndication Agent
---------------------------
CHASE SECURITIES INC.,
as Arranger
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
SECTION 1.01. Defined Terms.................................................2
SECTION 1.02. Classification of Loans and Borrowings.......................22
SECTION 1.03. Terms Generally..............................................23
SECTION 1.04. Accounting Terms; GAAP.......................................23
ARTICLE II
The Credits
SECTION 2.01. Commitments..................................................23
SECTION 2.02. Loans and Borrowings.........................................23
SECTION 2.03. Requests for Borrowings......................................24
SECTION 2.04. Swingline Loans..............................................25
SECTION 2.05. Letters of Credit............................................26
SECTION 2.06. Funding of Borrowings........................................29
SECTION 2.07. Interest Elections...........................................29
SECTION 2.08. Termination and Reduction of Commitments.....................30
SECTION 2.09. Repayment of Loans, Evidence of Debt.........................31
SECTION 2.10. Amortization of Term Loans...................................32
SECTION 2.11. Prepayment of Loans..........................................33
SECTION 2.12. Fees.........................................................34
SECTION 2.13. Interest.....................................................35
SECTION 2.14. Alternate Rate of Interest...................................35
SECTION 2.15. Increased Costs..............................................36
SECTION 2.16. Break Funding Payments.......................................36
SECTION 2.17. Taxes........................................................37
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs..38
SECTION 2.19. Mitigation Obligations; Replacement of Lenders...............39
ARTICLE III
Representations and Warranties
SECTION 3.01. Organization; Powers.........................................40
SECTION 3.02. Authorization; Enforceability................................40
SECTION 3.03. Governmental Approvals; No Conflicts.........................40
SECTION 3.04. Financial Condition; No Material Adverse Change..............41
SECTION 3.05. Properties...................................................41
SECTION 3.06. Litigation and Environmental Matters.........................42
SECTION 3.07. Compliance with Laws and Agreements..........................42
SECTION 3.08. Investment and Holding Company Status........................42
SECTION 3.09. Taxes........................................................42
SECTION 3.10. ERISA........................................................43
<PAGE>
2
SECTION 3.11. Disclosure...................................................43
SECTION 3.12. Subsidiaries.................................................43
SECTION 3.13. Insurance....................................................43
SECTION 3.14. Labor Matters................................................43
SECTION 3.15. Solvency.....................................................44
SECTION 3.16. Security Documents...........................................44
SECTION 3.17. Federal Reserve Regulations..................................44
SECTION 3.18. Year 2000 Compliance.........................................45
ARTICLE IV
Conditions
SECTION 4.01. Effective Date...............................................45
SECTION 4.02. Each Credit Event............................................48
ARTICLE V
Affirmative Covenants
SECTION 5.01. Financial Statements and Other Information...................49
SECTION 5.02. Notices of Material Events...................................50
SECTION 5.03. Information Regarding Collateral.............................50
SECTION 5.04. Existence; Conduct of Business...............................51
SECTION 5.05. Payment of Obligations.......................................51
SECTION 5.06. Maintenance of Properties....................................51
SECTION 5.07. Insurance....................................................51
SECTION 5.08. Casualty and Condemnation....................................51
SECTION 5.09. Books and Records; Inspection and Audit Rights...............52
SECTION 5.10. Compliance with Laws.........................................52
SECTION 5.11. Use of Proceeds and Letters of Credit........................52
SECTION 5.12. Additional Subsidiaries......................................52
SECTION 5.13. Further Assurances...........................................52
SECTION 5.14. Real Estate..................................................53
SECTION 5.15. Existing Convertible Debentures..............................53
ARTICLE VI
Negative Covenants
SECTION 6.01. Indebtedness; Certain Equity Securities......................53
SECTION 6.02. Liens........................................................55
SECTION 6.03. Fundamental Changes..........................................56
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions....56
SECTION 6.05. Asset Sales..................................................58
SECTION 6.06. Sale and Lease-Back Transactions.............................58
SECTION 6.07. Hedging Agreements...........................................59
SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness........59
SECTION 6.09. Transactions with Affiliates.................................60
SECTION 6.10. Restrictive Agreements.......................................60
SECTION 6.11. Amendment of Material Documents..............................61
SECTION 6.12. Capital Expenditures.........................................61
SECTION 6.13. Leverage Ratio...............................................62
<PAGE>
3
SECTION 6.14. Consolidated Fixed Charge Coverage Ratio.....................62
SECTION 6.15. Minimum Consolidated EBITDA..................................62
SECTION 6.16. Changes in Fiscal Periods....................................62
ARTICLE VII
Events of Default ...........................................62
ARTICLE VIII
The Administrative Agent.....................................65
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices......................................................66
SECTION 9.02. Waivers; Amendments..........................................67
SECTION 9.03. Expenses; Indemnity; Damage Waiver...........................68
SECTION 9.04. Successors and Assigns.......................................69
SECTION 9.05. Survival.....................................................71
SECTION 9.06. Counterparts; Integration; Effectiveness.....................71
SECTION 9.07. Severability.................................................72
SECTION 9.08. Right of Set-off.............................................72
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process...72
SECTION 9.10. Waiver of Jury Trial.........................................72
SECTION 9.11. Headings.....................................................73
SECTION 9.12. Confidentiality..............................................73
SECTION 9.13. Interest Rate Limitation.....................................73
SCHEDULES:
Schedule 1.01(a) -- Mortgaged Properties
Schedule 2.01 -- Commitments
Schedule 3.05 -- Properties
Schedule 3.06 -- Disclosed Matters
Schedule 3.07 -- Compliance with Laws and Agreements
Schedule 3.12 -- Subsidiaries
Schedule 3.13 -- Insurance
Schedule 6.01 -- Existing Indebtedness
Schedule 6.02 -- Existing Liens
Schedule 6.09 -- Transactions with Affiliates
Schedule 6.10 -- Existing Restrictions
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Borrower's Counsel
Exhibit C -- Form of Opinion of Local Counsel
Exhibit D -- Form of Parent Guarantee Agreement
Exhibit E -- Form of Subsidiary Guarantee Agreement
Exhibit F -- Form of Indemnity, Subrogation and Contribution Agreement
<PAGE>
4
Exhibit G -- Form of Pledge Agreement
Exhibit H -- Form of Security Agreement
<PAGE>
CREDIT AGREEMENT dated as of May 11, 1998,
among LA PETITE ACADEMY, INC. (the "Borrower"), a
Delaware corporation, LPA HOLDING CORP. ("Holdings"),
a Delaware corporation, the Lenders party hereto,
NATIONSBANK, N.A., as Administrative Agent (such term
and each other capitalized term used but not defined
herein having the meaning provided in Article I),
Documentation Agent and Collateral Agent, and THE
CHASE MANHATTAN BANK, as Syndication Agent.
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated
as of March 17, 1998, between (a) LPA Investment LLC ("Investor"), a Delaware
limited liability company owned, through its affiliate, CB Capital Investors,
L.P., by Chase Capital Partners ("Sponsor") and certain other investors (such
investors, together with Sponsor, the "Investor Group"), and (b) Holdings, LPA
Acquisition Corp. ("Sub"), a Delaware corporation that is a wholly owned
subsidiary of Investor, will be merged (the "Merger") with and into Holdings,
with Holdings being the surviving corporation in the Merger.
In connection with the Merger, (a) the Investor Group will contribute,
directly or indirectly, an aggregate amount of not less than $110,000,000 (less
the amount of Roll-Over Equity (as defined below)) in cash (the "Equity
Contribution") to Sub in exchange for the issuance (i) to Investor of all the
outstanding capital stock of Sub and (ii) to the Investor Group of the Preferred
Stock, (b) the holders of shares of Common Stock that are outstanding
immediately prior to the Merger, subject to clause (d) of this paragraph, will
be entitled to receive in the Merger an aggregate amount not to exceed (i)
$283,000,000 in cash less (ii) amounts payable in connection with the
Transactions described in clauses (c) and (e) of this paragraph and (iii)
subject to certain other adjustments, (c) each of (i) the options to purchase
shares of Common Stock (the "Options"), subject to clause (d) of this paragraph,
and (ii) the shares of Existing Holdings Preferred Stock that are outstanding
immediately prior to the Merger will be canceled and each holder thereof will be
entitled to receive cash in an amount determined in accordance with the terms of
the Merger Agreement, (d) Vestar Capital Partners, Inc., directly or indirectly,
together with existing management of the Borrower, will continue to hold
sufficient Common Stock and Options to result in the Transactions being treated
as a recapitalization for accounting purposes ("Roll-Over Equity"), (e) the
Borrower will (i) defease all its issued and outstanding 12.125% Subordinated
Exchange Debentures due 2003 (the "Existing Exchange Debentures"), (ii) defease
all its issued and outstanding 95/8% Senior Secured Notes due 2001 (the
"Existing Senior Notes") in an aggregate principal amount of $85,000,000, (iii)
repurchase or redeem all its issued and outstanding Convertible Debentures due
2011 (the "Existing Convertible Debentures") in an aggregate principal amount of
approximately $900,000 and (iv) repay all amounts outstanding, if any, under the
Amended and Restated Credit Agreement among the Borrower, the lenders named
therein and Bankers Trust Company, as administrative agent, and Mercantile Bank,
as co-agent (the "Existing Credit Agreement"), (f) the Borrower will obtain
Loans hereunder, (g) the Borrower will issue not less than $145,000,000 in
aggregate principal amount of its Senior Unsecured Notes in a public offering or
in a Rule 144A or other private placement and (h) fees and expenses incurred in
connection with the Transactions that are the responsibility of Holdings or the
Borrower in an aggregate amount not to exceed $16,500,000 will be paid (the
"Transaction Costs"). The transactions described in this paragraph, together
with the Merger, are collectively referred to herein as the "Transactions".
The Borrower has requested (a) the Lenders to extend credit in the form of
Term Loans to the Borrower on the Effective Date in an aggregate principal
amount of $40,000,000, (b) the Lenders to extend credit in the form of Revolving
Loans to the Borrower at any time and from time to time prior to the Maturity
Date, in an aggregate principal amount at any time outstanding not in excess of
the difference between $25,000,000 and the Revolving Exposure at such time, (c)
the Issuing Bank to issue Letters of Credit at any time and from time to time
prior
<PAGE>
2
to the Maturity Date, in an aggregate stated amount at any time outstanding not
in excess of the lesser of (i) $10,000,000 and (ii) the difference between
$25,000,000 and the Revolving Exposure at such time and (d) the Swingline Lender
to make Swingline Loans to the Borrower at any time and from time to time prior
to the Maturity Date, in an aggregate principal amount at any time outstanding
not in excess of the lesser of (i) $5,000,000 and (ii) the difference between
$25,000,000 and the Revolving Exposure at such time.
The proceeds of the Term Facility will be used, together with (a) initial
borrowings under the Revolving Facility not to exceed $2,000,000, (b) the net
proceeds of the issuance of the Senior Unsecured Notes and (c) the proceeds from
the Equity Contribution, solely (i) to pay the cash consideration payable in
accordance with the Merger Agreement (including the cash consideration payable
to holders of Options and Existing Holdings Preferred Stock), (ii) to defease
the Existing Exchange Debentures (including the payment of any premiums in
connection therewith), (iii) to defease the Existing Senior Notes (including the
payment of any premiums in connection therewith), (iv) to repurchase or redeem
the Existing Convertible Debentures (including the payment of any premiums in
connection therewith), (v) to repay all principal, interest, fees and other
amounts, if any, outstanding under the Existing Credit Agreement and (vi) to pay
the Transaction Costs. The proceeds of loans under the Revolving Facility (other
than as set forth above) will be used by the Borrower for general corporate
purposes. Letters of Credit and Swingline Loans will be used by the Borrower for
general corporate purposes.
The Lenders and the Swingline Lender are willing to extend such credit to
the Borrower and the Issuing Bank is willing to issue Letters of Credit for the
account of the Borrower, in each case on the terms and subject to the conditions
set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following terms
have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Alternate Base Rate.
"Academy" means any facility primarily providing for the education, care or
development of children, or part of such facility (including 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 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.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
<PAGE>
3
"Administrative Agent" means NationsBank, N.A. in its capacity as
Administrative Agent with respect to this Agreement and any successor appointed
pursuant hereto.
"Administrative Questionnaire" means an Administrative Questionnaire in a
form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Agents" means the collective reference to the Administrative Agent, the
Documentation Agent, the Collateral Agent and the Syndication Agent.
"Alternate Base Rate" means, for any day, a rate per annum 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 Alternate Base Rate due to a change
in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively,
without notice to the Borrower.
"Applicable Percentage" means, with respect to any Revolving Lender, the
percentage of the total Revolving Commitments represented by such Lender's
Revolving Commitment. If the Revolving Commitments have terminated or expired,
the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day with respect to any ABR Loan or
Eurodollar Loan, or with respect to the commitment fees payable hereunder, as
the case may be, the applicable rate per annum set forth below under the caption
"ABR Spread", "Eurodollar Spread" or "Commitment Fee Rate", as the case may be,
based upon the Leverage Ratio as of the relevant determination date, provided
that until the delivery to the Administrative Agent of Holdings' consolidated
financial statements for the first full fiscal quarter ending after the
Effective Date, the "Applicable Rate" shall be the applicable rate per annum set
forth below in Category 1:
================================================================================
ABR Eurodollar Commitment Fee
Leverage Ratio: Spread Spread Rate
--------------- ------ ------ ----
- --------------------------------------------------------------------------------
Category 1
Greater than or equal to
5.25 to 1.00 2.25% 3.25% 0.500%
- --------------------------------------------------------------------------------
Category 2
Greater than or equal to
5.00 to 1.00 and
less than 5.25 to 1.00 2.00% 3.00% 0.500%
- --------------------------------------------------------------------------------
Category 3
Greater than or equal to
4.25 to 1.00 and
less than 5.00 to 1.00 1.75% 2.75% 0.500%
================================================================================
<PAGE>
4
================================================================================
ABR Eurodollar Commitment Fee
Leverage Ratio: Spread Spread Rate
--------------- ------ ------ ----
- --------------------------------------------------------------------------------
Category 4
----------
Less than 4.25 to 1.00 1.50% 2.50% 0.375%
================================================================================
For purposes of the foregoing, (a) the Leverage Ratio shall be determined
as of the end of each fiscal quarter of Holdings' fiscal year based upon
Holdings' consolidated financial statements delivered pursuant to Section
5.01(a) or (b) and (b) each change in the Applicable Rate resulting from a
change in the Leverage Ratio shall be effective during the period commencing on
and including the date of delivery to the Administrative Agent of such
consolidated financial statements indicating such change and ending on the date
immediately preceding the effective date of the next such change, provided that
the Leverage Ratio shall be deemed to be in Category 1 (i) at any time that an
Event of Default has occurred and is continuing or (ii) if the Borrower fails to
deliver the consolidated financial statements required to be delivered by it
pursuant to Section 5.01(a) or (b), during the period from the expiration of the
time for delivery thereof until such consolidated financial statements are
delivered.
"Applicable Rate Determination Date" has the meaning assigned to such term
in the definition of the term "Applicable Rate".
"Assessment Rate" means, for any day, the annual assessment rate in effect
on such day that is payable by a member of the Bank Insurance Fund classified as
"well-capitalized" and within supervisory subgroup "B" (or a comparable
successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any
successor provision) to the Federal Deposit Insurance Corporation for insurance
by such Corporation of time deposits made in dollars at the offices of such
member in the United States, provided that if, as a result of any change in any
law, rule or regulation, it is no longer possible to determine the Assessment
Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall
be determined by the Administrative Agent to be representative of the cost of
such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System of the
United States of America.
"Borrower" has the meaning assigned to such term in the introductory
paragraph of this Agreement.
"Borrowing" means (a) Loans of the same Class and Type, made, converted or
continued on the same date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect, or (b) a Swingline Loan.
"Borrowing Request" means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City or Charlotte, North Carolina are
authorized or
<PAGE>
5
required by law to remain closed, provided that, when used in connection with a
Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Expenditures" means, for any period, without duplication, (a) the
additions to property, plant and equipment and other capital expenditures of the
Borrower and its consolidated Subsidiaries that are (or would be) set forth in a
consolidated statement of cash flows of the Borrower for such period prepared in
accordance with GAAP and (b) Capital Lease Obligations (other than any Capital
Lease Obligation resulting from a Permitted New Academy Sale Leaseback) incurred
by the Borrower and its consolidated Subsidiaries during such period, provided
that the term "Capital Expenditures" shall not include, for purposes of Section
6.12 and 6.14, expenditures set forth in clauses (i) through (iv) below, and for
purposes of the definition of the term "Excess Cash Flow", expenditures set
forth in clauses (i) and (ii) below: (i) expenditures made in connection with
the repair, replacement or restoration of assets (A) to the extent financed from
insurance proceeds paid on account of the loss of or damage to the assets being
repaired, replaced or restored or (B) with awards of compensation arising from
the taking by eminent domain or condemnation of the assets being replaced, (ii)
expenditures in connection with the reinvestment of Net Proceeds of any asset
sale within eighteen months after receipt thereof as contemplated by the
definition of the term "Net Proceeds", (iii) expenditures that constitute a
Permitted Acquisition and (iv) expenditures made in connection with the
construction of any Academy if the Borrower or any of its Subsidiaries intends
to consummate a Permitted New Academy Sale Leaseback with respect to such
Academy within twelve months after receipt of the Certificate of Occupancy with
respect thereto, provided that, with respect to this clause (iv), (A) if the
Borrower or any of its Subsidiaries fails to consummate a Permitted New Academy
Sale Leaseback with respect to such Academy within such twelve-month period, the
entire amount of such expenditures shall be deemed to be a Capital Expenditure
as of the expiration of such twelve-month period and (B) if the amount of such
expenditures exceeds the Net Proceeds of such Permitted New Academy Sale
Leaseback, the entire amount of such excess shall be deemed to be a Capital
Expenditure as of the date of receipt of such Net Proceeds.
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. ss. 9601 et seq.
"Certificate of Designations" means the Certificate of Designations,
Preferences and Rights of the Preferred Stock, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with Section
6.11.
"Change of Control" means an event or series of events by which
(a) prior to any initial public offering of equity interests in Holdings:
(i) Investor or an entity controlled by Sponsor or Investor ceases to
be the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the
Securities Exchange Act), directly or indirectly, of at least 40% (or 33%
if the reduction below 40% is attributable solely to dilution as a result
of the issuance of stock in connection with a Permitted Acquisition) of the
capital stock or other equity interests of Holdings ordinarily having the
right to vote at an election of directors;
<PAGE>
6
(ii) Holdings ceases to be the "beneficial owner" (as defined in Rule
13d-3 and 13d-5 under the Securities Exchange Act), directly or indirectly,
of 100% of the combined voting power of the capital stock or other equity
interests of the Borrower ordinarily having the right to vote at an
election of directors;
(iii) Investor or an entity controlled by Sponsor or Investor,
together with members of management of Holdings and its subsidiaries, cease
to be the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the
Securities Exchange Act), directly or indirectly, of at least 51% of the
capital stock or other equity interests of Holdings ordinarily having the
right to vote at an election of directors;
(iv) any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 and 13d-5 under the Securities Exchange Act, except
that for purposes of this clause (iv), such person or group shall be deemed
to have "beneficial ownership" of all shares that it has the right to
acquire whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of an equal percentage or greater
percentage of the capital stock or other equity interests of Holdings
ordinarily having the right to vote at an election of directors than that
percentage beneficially owned by Investor or an entity controlled by
Sponsor or Investor;
(v) Continuing Directors shall not constitute a majority of the Board
of Directors of Holdings; or
(vi) there shall occur a Change of Control (as defined in the Senior
Unsecured Notes Indenture); and
(b) after any initial public offering of equity interests in Holdings:
(i) Investor or an entity controlled by Sponsor or Investor ceases to
be the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the
Securities Exchange Act), directly or indirectly, of at least 30% (or 25%
if the reduction below 30% is attributable solely to dilution as a result
of the issuance of stock in connection with a Permitted Acquisition) of the
capital stock or other equity interests of Holdings ordinarily having the
right to vote at an election of directors;
(ii) Holdings ceases to be the "beneficial owner" (as defined in Rule
13d-3 and 13d-5 under the Securities Exchange Act), directly or indirectly,
of 100% of the combined voting power of the capital stock or other equity
interests of Investor ordinarily having the right to vote at an election of
managers;
(iii) Investor or an entity controlled by Sponsor or Investor,
together with members of management of Holdings and its Subsidiaries, cease
to be the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the
Securities Exchange Act), directly or indirectly, of at least 35% on a
fully diluted basis of the capital stock or other equity interests of
Holdings ordinarily having the right to vote at an election of directors;
(iv) any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 and 13d-5 under the Securities Exchange Act, except
that for purposes of this clause (iv), such person or group shall be deemed
to have "beneficial ownership" of all shares that it has the right to
acquire whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of an equal or greater percentage
of the capital stock or other equity interests of Holdings ordinarily
having the right to vote
<PAGE>
7
at an election of directors than that percentage beneficially owned by
Investor or an entity controlled by Sponsor or Investor;
(v) Continuing Directors shall not constitute a majority of the Board
of Directors of Holdings; or
(vi) there shall occur a Change of Control (as defined in the Senior
Unsecured Notes Indenture).
"Charges" has the meaning assigned to such term in Section 9.13.
"Change in Law" means (a) the adoption of any law, rule or regulation after
the date of this Agreement, (b) any change in any law, rule or regulation or in
the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by any Lender or the Issuing Bank
(or, for purposes of Section 2.15(b), by any lending office of such Lender or by
such Lender's or the Issuing Bank's holding company, if any)
with any request, guideline or directive (whether or not having the force of
law) of any Governmental Authority made or issued after the date of this
Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Term
Loans or Swingline Loans and, when used in reference to any Commitment, refers
to whether such Commitment is a Revolving Commitment or Term Commitment.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means any and all "Collateral" as defined in any applicable
Security Document.
"Collateral Agent" means the "Collateral Agent" as defined in the Security
Agreement.
"Commitment" means a Revolving Commitment or Term Commitment, or any
combination thereof (as the context requires).
"Common Stock" means common stock, par value $0.01 per share, of Holdings.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for
such period, plus, without duplication and to the extent deducted from revenues
in determining Consolidated Net Income for such period, the sum of (a) the
aggregate amount of Consolidated Interest Expense for such period, (b) the
aggregate amount of letter of credit fees paid during such period, (c) the
aggregate amount of income tax expense for such period, (d) all amounts
attributable to depreciation, amortization and other non-cash charges or losses
for such period, (e) non-cash expenses resulting from the grant of stock options
to any director, officer or employee or Holdings, the Borrower or any Subsidiary
pursuant to a written plan or agreement, (f) all amounts attributable to
compensation expense related to transaction bonuses incurred in connection with
the Merger, (g) all expenses relating to cash payments made in respect of the
termination of outstanding options in connection with the Transactions, (h) all
amounts attributable to the management and board fees of Vestar Partners and (i)
all extraordinary charges (including expenses related to the management
conference held in September 1997 in an aggregate amount not to exceed
$1,200,000) during such period, and minus, without duplication and to the extent
added to revenues in determining Consolidated Net Income for such period, all
extraordinary gains during such period, all as determined on a consolidated
basis with respect to Holdings, the Borrower and the Subsidiaries in accordance
with GAAP.
<PAGE>
8
"Consolidated EBITDAR" means, for any period, the sum of Consolidated
EBITDA for such period and Consolidated Lease Expense for such period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
period, the ratio of (a) Consolidated EBITDAR for such period to (b)
Consolidated Fixed Charges for such period.
"Consolidated Fixed Charges" means, with respect to any period, the sum
(without duplication) of (a) Consolidated Lease Expense (excluding interest
expense, if any, associated with Capital Lease Obligations) for such period, (b)
Consolidated Interest Expense for such period, (c) scheduled principal payments
of Indebtedness made by the Borrower or any Subsidiary to any person other than
the Borrower or any wholly owned Subsidiary of the Borrower during such period,
(d) Capital Expenditures (excluding Capital Expenditures to the extent financed
by third parties) and (e) cash dividends paid by Holdings during such period
(less the amount of any Indebtedness incurred by Holdings or any of its
subsidiaries to fund such dividends) on the Preferred Stock after the fifth
anniversary of the Effective Date as permitted under this Agreement.
"Consolidated Interest Expense" means, for any period, (a) the interest
expense, both expensed and capitalized (including the interest component in
respect of Capital Lease Obligations), accrued by Holdings, the Borrower and the
Subsidiaries during such period and payable in cash (b) net of interest income,
in each case determined on a consolidated basis in accordance with GAAP.
"Consolidated Lease Expense" means, for any period, all payment obligations
of Holdings, the Borrower and the Subsidiaries during such period under
agreements for the lease, hire or use of any real or personal property,
including Capital Lease Obligations and obligations in the nature of operating
leases (including the interest expense, if any, associated therewith), as
determined on a consolidated basis for Holdings, the Borrower and the
Subsidiaries in accordance with GAAP.
"Consolidated Net Income" means, for any period, net income or loss of
Holdings, the Borrower and the Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, provided that there shall be
excluded from such net income or loss the income of any Person in which any
other Person (other than the Borrower or any of the Subsidiaries or any director
holding qualifying shares in compliance with applicable law) has a majority
interest, except to the extent of the amount of dividends or other distributions
actually paid to Holdings, the Borrower or any of the Subsidiaries by such
Person during such period.
"Continuing Director" shall mean, at any date, an individual (a) who, as at
such date, has been a member of such Board of Directors for at least the 12
preceding months, (b) who has been nominated to be a member of such Board of
Directors, directly or indirectly, by Sponsor or Persons nominated by Sponsor,
(c) who has been nominated to be a member of such Board of Directors by a
majority of the other Continuing Directors then in office or (d) who has been
nominated to be a member of such Board of Directors pursuant to the terms of the
Stockholders Agreement.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. The
terms "Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any event or condition that constitutes an Event of Default
or that upon notice, lapse of time or both would, unless cured or waived, become
an Event of Default.
<PAGE>
9
"Disclosed Matters" means the actions, suits and proceedings and the
environmental matters disclosed in Schedule 3.06.
"Documentation Agent" means NationsBank, N.A. in its capacity as
Documentation Agent with respect to this Agreement and any successor appointed
pursuant hereto.
"dollars" or "$" refers to lawful money of the United States of America.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Effective Date Academy" means any Academy owned, leased or operated by the
Borrower or any of its Subsidiaries on the Effective Date excluding Academies
for which construction is in progress or for which construction has been
completed but operation has not otherwise commenced as of the Effective Date.
"Environmental Laws" means all laws, rules, regulations, codes, ordinances,
orders, decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by or with any Governmental Authority, relating in
any way to the environment, preservation or reclamation of natural resources,
handling, treatment, storage, disposal, Release or threatened Release of any
Hazardous Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, natural resource damage, costs of
environmental remediation, administrative oversight costs, fines, penalties or
indemnities), of Holdings, the Borrower or any Subsidiary directly or indirectly
resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of any
Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any
contract, agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.
"Equity Contribution" has the meaning assigned to such term in the preamble
of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that, together with the Borrower, is treated as a single employer under 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.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043
of ERISA or the regulations issued thereunder with respect to a Plan (other than
an event for which the 30-day notice period is waived); (b) the existence with
respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with
<PAGE>
respect to the withdrawal or partial withdrawal from any Plan or Multiemployer
Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice,
or the receipt by any Multiemployer Plan from the Borrower or any ERISA
Affiliate of any notice, concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article VII.
"Excess Cash Flow" means, for any period, the sum (without duplication) of:
(a) the Consolidated Net Income for such period, adjusted to exclude
any gains or losses attributable to Prepayment Events or dispositions that
would constitute Prepayment Events but for clauses (a)(i) through (a)(iii)
and clause (b) of the definition of the term "Prepayment Event"; plus
(b) depreciation, amortization and other non-cash charges or losses
deducted in determining such consolidated net income (or loss) for such
period; plus
(c) the sum of (i) the amount, if any, by which Net Working Capital
decreased during such period plus (ii) the amount, if any, by which the
consolidated deferred revenues of Holdings and its consolidated
subsidiaries (not recorded as a current liability) increased during such
period plus (iii) the aggregate principal amount of Capital Lease
Obligations and other Indebtedness incurred during such period to finance
Capital Expenditures and Permitted Acquisitions, to the extent that
mandatory principal payments in respect of such Indebtedness would not be
excluded from clause (f) below when made, plus (iv) the aggregate Net
Proceeds during such period attributable to Permitted New Academy Sale
Leasebacks, except to the extent that such Net Proceeds relate to
expenditures made prior to the last day of the Holdings' 1998 fiscal year
in respect of the Academies that are the subject of such Permitted New
Academy Sale Leasebacks; minus
(d) the sum of (i) any non-cash income or gains included in
determining such consolidated net income (or loss) for such period plus
(ii) the amount, if any, by which Net Working Capital increased during such
period plus (iii) the amount, if any, by which the consolidated deferred
revenues of Holdings and its consolidated subsidiaries (not recorded as a
current liability) decreased during such period; minus
(e) Capital Expenditures for such period; minus
(f) the aggregate principal amount of Indebtedness repaid or prepaid
by Holdings and its consolidated subsidiaries during such period, excluding
(i) Indebtedness in respect of Revolving Loans and Letters of Credit, (ii)
Term Loans prepaid pursuant to Section 2.11(b) or (c), (iii) repayments or
prepayments of Indebtedness financed by incurring other Indebtedness, to
the extent that mandatory principal payments in respect of such other
Indebtedness would, pursuant to this clause (f), be deducted in determining
Excess Cash Flow when made and (iv) Indebtedness referred to in clauses
(iv) and (v) of Section 6.01(a) and Indebtedness (other than term
Indebtedness) referred to in clause (viii) of Section 6.01(a).
"Excluded Taxes" means, with respect to the Administrative Agent, the
Swingline Lender, any Lender, the Issuing Bank or any other recipient of any
payment to be
<PAGE>
11
made by or on account of any obligation of the Borrower hereunder, (a) income or
franchise taxes imposed on (or measured by) its net income or net capital by the
United States of America, or by the jurisdiction (or any political subdivision
thereof or taxing authority therein) under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located (provided, however,
that no Lender shall be deemed to be located in any jurisdiction solely as a
result of taking any action related to this loan), (b) any branch profits taxes
imposed by the United States of America or any similar tax imposed by any other
jurisdiction described in clause (a) above and (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.19(b)), any withholding tax (i) that is in effect and would apply to
amounts payable to such Foreign Lender at the time such Foreign Lender becomes a
party to this Agreement (or designates a new lending office), except to the
extent that such Foreign Lender (or its assignor, if any) would have been
entitled, at the time of designation of a new lending office (or assignment), to
receive additional amounts from the Borrower with respect to any withholding tax
pursuant to Section 2.17(a) or (ii) that is attributable to such Foreign
Lender's failure to comply with Section 2.17(e).
"Existing Convertible Debentures" has the meaning assigned to such term in
the preamble of this Agreement.
"Existing Credit Agreement" has the meaning assigned to such term in the
preamble of this Agreement.
"Existing Exchange Debentures" has the meaning assigned to such term in the
preamble of the Agreement.
"Existing Holdings Preferred Stock" means the Series A Cumulative
Redeemable Preferred Stock, par value $0.01 per share, of Holdings.
"Existing Senior Notes" has the meaning assigned to such term in the
preamble of this Agreement.
"Federal Funds Effective Rate" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the 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 (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal accounting
officer, treasurer or controller of the Borrower.
"Foreign Lender" means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is organized under the laws
of a jurisdiction other than the United States of America or any State thereof
or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America.
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12
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation, provided that the term "Guarantee" shall not include endorsements
for collection or deposit in the ordinary course of business.
"Guarantee Agreements" means, collectively, the Parent Guarantee Agreement
and the Subsidiary Guarantee Agreement.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law, including any material listed as a hazardous substance under
Section 101(14) of CERCLA.
"Hedging Agreement" means any interest rate protection agreement, foreign
currency exchange agreement, commodity price protection agreement or other
interest or currency exchange rate or commodity price hedging arrangement.
"Holdings" has the meaning assigned to such term in the introductory
paragraph of this Agreement.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (d) all obligations of
such Person in respect of the deferred purchase price of property or services
(excluding current accounts payable incurred in the ordinary course of
business), (e) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person
of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty and (i) all obligations,
contingent or otherwise, of such Person in respect of bankers' acceptances. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such Person is not liable therefor.
<PAGE>
13
"Indemnified Taxes" means Taxes other than Excluded Taxes.
"Indemnity, Subrogation and Contribution Agreement" means the Indemnity,
Subrogation and Contribution Agreement, substantially in the form of Exhibit F,
among Holdings, the Borrower, the Subsidiary Loan Parties and the Administrative
Agent.
"Information Memorandum" means the Confidential Information Memorandum
dated April 1998 relating to the Borrower and the Transactions.
"Interest Election Request" means a request by the Borrower to convert or
continue a Revolving Borrowing or Term Borrowing in accordance with Section
2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan (other than
a Swingline Loan), the last day of each May, August, November and February, (b)
with respect to any Eurodollar Loan, the last day of the Interest Period
applicable to the Borrowing of which such Loan is a part and, in the case of a
Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of such Interest Period
and (c) with respect to any Swingline Loan, the day that such Loan is required
to be repaid.
"Interest Period" means, with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect, provided that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of
such Interest Period) shall end on the last Business Day of the last calendar
month of such Interest Period. For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and thereafter shall
be the effective date of the most recent conversion or continuation of such
Borrowing.
"Investor" has the meaning assigned to such term in the preamble of this
Agreement.
"Investor Group" has the meaning assigned to such term in the preamble of
this Agreement.
"Issuing Bank" means The Chase Manhattan Bank, in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.05(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term "Issuing Bank" shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate.
"Joint Venture" means, as to a Person, any corporation, partnership or
other legal entity or arrangement in which such Person has any direct or
indirect equity interest and that is not a subsidiary of such Person.
"LC Availability Period" means the period from and including the Effective
Date to but excluding the earlier of (a) the date that is five Business Days
prior to the Maturity Date and (b) the date of termination of the Revolving
Commitments.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to a
Letter of Credit.
<PAGE>
14
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Revolving Lender at any
time shall be its Applicable Percentage of the total LC Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any other Person
that shall have become a party hereto pursuant to an Assignment and Acceptance,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Acceptance. Unless the context otherwise requires, the term
"Lenders" includes the Swingline Lender.
"Letter of Credit" means any letter of credit issued pursuant to this
Agreement.
"Leverage Ratio" means, with respect to any period, the ratio of (a) Total
Debt as of the last day of such period to (b) Consolidated EBITDA for the
four-fiscal-quarter period ending on the last day of such period, all determined
on a consolidated basis in accordance with GAAP.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period (and if the Administrative Agent shall not have a London office,
then the principal London office of the Syndication Agent).
"Lien" means, with respect to any asset, (a) any mortgage,
deed of trust, lien, pledge, hypothecation, encumbrance, charge or security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the Letters of Credit, the Guarantee
Agreements, the Indemnity, Subrogation and Contribution Agreement and the
Security Documents.
"Loan Parties" means Holdings, the Borrower and the Subsidiary Loan
Parties.
"Loans" means the loans made by the Lenders to the Borrower pursuant to
this Agreement.
"Management Agreement" means a financial advisory agreement between the
Borrower and Chase Capital Partners (or any of its Affiliates) providing for
customary expense reimbursement and such other terms as are reasonably
acceptable to the Agents.
"Margin Stock" has the meaning assigned to such term in Regulation U.
<PAGE>
15
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, properties, assets, liabilities or financial condition of
Holdings, the Borrower and the Subsidiaries taken as a whole, (b) the ability of
the Loan Parties to perform any material obligations under any Loan Document or
(c) the rights of or benefits available to the Lenders under any Loan Document.
"Material Indebtedness" means Indebtedness (other than the Loans and
Letters of Credit), or obligations in respect of one or more Hedging Agreements,
of any one or more of Holdings, the Borrower and the Subsidiaries in an
aggregate principal amount exceeding $2,500,000. For purposes of determining
Material Indebtedness, the "principal amount" of the obligations of Holdings,
the Borrower or any Subsidiary in respect of any Hedging Agreement at any time
shall be the maximum aggregate amount (giving effect to any netting agreements)
that Holdings, the Borrower or such Subsidiary would be required to pay if such
Hedging Agreement were terminated at such time.
"Maturity Date" means May 11, 2005.
"Maximum Rate" has the meaning assigned to such term in Section 9.13.
"Merger" has the meaning assigned to such term in the preamble of this
agreement
"Merger Agreement" has the meaning assigned to such term in the preamble of
this Agreement.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means a mortgage, deed of trust, assignment of leases and rents,
leasehold mortgage or other security document granting a Lien on any Mortgaged
Property to secure the Obligations. Each Mortgage shall be satisfactory in form
and substance to the Collateral Agent.
"Mortgaged Property" means, initially, each parcel of real property and the
improvements thereto owned by a Loan Party and identified on Schedule 1.01(a),
and includes each other parcel of real property and improvements thereto with
respect to which a Mortgage is granted pursuant to Section 5.12 or 5.13.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any event, (a) the cash proceeds
received in respect of such event, including (i) any cash (other than amounts
representing interest) received in respect of any non-cash proceeds, but only as
and when received, (ii) in the case of a casualty, insurance proceeds, and (iii)
in the case of a condemnation or similar event, condemnation awards and similar
payments, net of (b) the sum of (i) all reasonable fees and out-of-pocket
expenses paid by Holdings, the Borrower and the Subsidiaries to third parties in
connection with such event, (ii) in the case of a sale, transfer or other
disposition of an asset (including pursuant to a Sale Leaseback or a casualty or
other insured damage or condemnation or similar proceeding), the amount of all
payments required to be made by Holdings, the Borrower and the Subsidiaries as a
result of such event to repay Indebtedness (other than Loans) secured by such
asset or otherwise subject to mandatory prepayment as a result of such event
(including in order to obtain consent required therefor), and (iii) the amount
of all taxes paid (or reasonably estimated to be payable) by Holdings, the
Borrower and the Subsidiaries, and the amount of any reserves established by
Holdings, the Borrower and the Subsidiaries to fund contingent liabilities
reasonably estimated to be payable, and that are directly attributable to such
<PAGE>
16
event (as determined reasonably and in good faith by the chief financial officer
of the Borrower); provided, however, that with respect to any sale, transfer or
other disposition of an asset (including, subject to Section 6.06(b)(iii),
pursuant to a Permitted Existing Academy Sale Leaseback or, subject to Section
5.08, a casualty or other insured damage or condemnation or similar proceeding),
if the Borrower shall deliver a certificate (a "Reinvestment Certificate") of a
Financial Officer to the Administrative Agent at the time of such sale, transfer
or other disposition setting forth the Borrower's intent to use the proceeds of
such sale, transfer or other disposition to fund expenditures for other assets
to be used in the same line of business or in a Related Business prior to the
date that is 18 months after receipt of such proceeds and no Default or Event of
Default shall have occurred and shall be continuing at the time of such
certificate or at the proposed time of the application of such proceeds, such
proceeds shall not constitute Net Proceeds except to the extent not so used at
the end of such 18-month period, at which time such proceeds shall be deemed to
be Net Proceeds.
"Net Working Capital" means, at any date, (a) the consolidated current
assets of Holdings and its consolidated subsidiaries as of such date (excluding
cash and Permitted Investments) minus (b) the consolidated current liabilities
of Holdings and its consolidated subsidiaries as of such date (excluding current
liabilities in respect of checks issued but not yet paid and Indebtedness). Net
Working Capital at any date may be a positive or negative number. Net Working
Capital increases when it becomes more positive or less negative and decreases
when it becomes less positive or more negative.
"Obligations" has the meaning assigned to such term in the Security
Agreement.
"Options" has the meaning assigned to such term in the preamble of this
Agreement.
"Other Taxes" means any and all current or future recording, stamp,
documentary, excise, transfer, sales or property or similar taxes, charges or
levies arising from any payment made under any Loan Document or from the
execution, delivery or enforcement of, or otherwise with respect to, any Loan
Document.
"Parent Guarantee Agreement" means the Parent Guarantee Agreement,
substantially in the form of Exhibit D, made by Holdings in favor of the
Collateral Agent for the benefit of the Secured Parties.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in the form of Annex 1 to the
Security Agreement or any other form approved by the Collateral Agent.
"Permitted Acquisition" means the acquisition, by merger or otherwise, by
the Borrower or any Subsidiary of assets located in the United States or capital
stock or other equity interests so long as (a) immediately after giving effect
thereto, no Default or Event of Default shall have occurred and be continuing or
would result therefrom, (b) all transactions related thereto shall be
consummated in accordance in all material respects with applicable laws, (c) in
the case of any acquisition of capital stock of other equity interests in any
Person, such acquisition is an acquisition of 100% of the capital stock or other
equity interests of such Person, (d) in case of an acquisition of assets, such
assets (other than assets to be retired or disposed of) are to be used, and in
the case of an acquisition of capital stock or other equity interests, the
Person so acquired is engaged, in the same line of business or a Related
Business, (e) the Borrower shall be in compliance, on a pro forma basis after
giving effect to such acquisition (including any cost savings to the extent
approved by the Required Lenders and Indebtedness assumed or permitted to exist
in connection with such acquisition), with the covenants set forth
<PAGE>
17
in Sections 6.13, 6.14 and 6.15, and shall deliver to the Administrative Agent a
certificate of a Financial Officer of the Borrower to such effect and (f)
simultaneously with any such acquisition, the Administrative Agent for the
benefit of the Secured Parties shall be granted a first-priority security
interest in all real and personal property (including capital stock and other
securities or interests but excluding leasehold interests), subject to customary
and reasonable exceptions and permitted encumbrances) acquired by the Borrower
as part as such acquisition, and the Borrower shall, and shall cause any
applicable Subsidiary to, execute any documents (including supplements to the
Subsidiary Guarantee Agreement, the Security Agreement, the Pledge Agreement and
the Indemnity, Subrogation and Contribution Agreement, if applicable), financing
statements, agreements and instruments, and take all action (including filing
financing statements and obtaining and providing consents, title insurance,
surveys and legal opinions) that may be required under applicable law or as the
Administrative Agent may request, in order to grant, preserve, protect and
perfect such security interest; provided, however, that the aggregate amount
paid (including any Indebtedness assumed in connection therewith) in connection
with (i) any such Permitted Acquisition shall not exceed $10,000,000 and (ii)
all such Permitted Acquisitions shall not exceed $30,000,000 during the term of
this Agreement.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes or other governmental charges that
are not yet due or are being contested in compliance with Section 5.05;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 60 days
or are being contested in compliance with Section 5.05;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory obligations, surety and appeal bonds, performance bonds
and other obligations of a like nature, in each case in the ordinary course
of business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII;
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Borrower or any Subsidiary;
(g) any interest of a landlord in or to property of the tenant imposed
by law, arising in the ordinary course of business and securing lease
obligations that are not overdue by more than 60 days or are being
contested in compliance with Section 5.05, or any possessory rights of a
lessee to the leased property under the provisions of any lease permitted
by the terms of this Agreement; and
(h) Liens of a collection bank arising in the ordinary course of
business under ss. 4-208 of the Uniform Commercial Code in effect in the
relevant jurisdiction,
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
<PAGE>
18
"Permitted Existing Academy Sale Leaseback" means any Sale Leaseback
consummated by the Borrower or any of its Subsidiaries after the Effective Date
with respect to one or more Effective Date Academies, 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 and (b) the
proceeds of such Permitted Existing Academy Sale Leaseback are reinvested or
applied to the prepayment of Term Loans as required by this Agreement.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the
highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof that
has a combined capital and surplus and undivided profits of not less than
$500,000,000;
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in clause
(c) above; and
(e) shares of funds registered under the Investment Company Act of
1940, as amended, that have assets of at least $500,000,000 and invest
substantially all their assets in obligations described in clauses (a)
through (d) above to the extent that such shares are rated by Moody's or
S&P in one of the two highest rating categories assigned by such agency for
shares of such nature.
"Permitted New Academy Sale Leaseback" means any Sale Leaseback consummated
by the Borrower or any of its Subsidiaries after the Effective Date with respect
to one or more Academies that is not an Effective Date Academy, 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 and (b)
the proceeds of such Permitted New Academy Sale Leaseback are applied to the
repayment of Revolving Loans as required by Section 6.06.
"Person" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which the Borrower or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement, substantially in the form of
Exhibit G, among Holdings, the Borrower, the Subsidiary Loan Parties and the
Collateral Agent for the benefit of the Secured Parties.
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19
"Preferred Stock" means the Series A Redeemable Preferred Stock, par value
$.01 per share, of Holdings.
"Prepayment Event" means:
(a) any sale, transfer or other disposition (including pursuant to a
Permitted Existing Academy Sale Leaseback but excluding pursuant to a
Permitted New Academy Sale Leaseback) of any property or asset of Holdings,
the Borrower or any Subsidiary, other than (i) dispositions described in
clauses (a) and (b) of Section 6.05, (ii) dispositions to which clause (b)
of this definition applies and (iii) other dispositions resulting in
aggregate Net Proceeds not exceeding $250,000 during any fiscal year of the
Borrower;
(b) subject to Section 5.08, any casualty or other insured damage to,
or any taking under power of eminent domain or by condemnation or similar
proceeding of, any property or asset of Holdings, the Borrower or any
Subsidiary, other than casualties, insured damage or takings resulting in
aggregate Net Proceeds not exceeding $250,000 during any fiscal year of the
Borrower;
(c) the issuance by Holdings, the Borrower or any Subsidiary of any
equity securities, or the receipt by Holdings, the Borrower or any
Subsidiary of any capital contribution, other than (i) any such issuance of
equity securities by or to, or receipt of any such capital contribution
from, Holdings, the Borrower or a Subsidiary for the sole purpose of
financing a Permitted Acquisition (including any issuance to one or more
sellers in a Permitted Acquisition) or Capital Expenditures, (ii) the
issuance of equity securities of Holdings to employees of the Borrower or
any of the Subsidiaries in their capacity as such pursuant to employee
benefit plans, employment agreements or other written employment-related
arrangements or (iii) the purchase of equity securities of a Subsidiary, or
the contribution of capital to a Subsidiary, by the Borrower from funds
obtained in a manner not otherwise constituting a Prepayment Event; and
(d) the incurrence by Holdings, the Borrower or any Subsidiary of any
Indebtedness, other than Indebtedness permitted by Section 6.01(a).
"Prime Rate" means the rate of interest per annum publicly announced from
time to time by the Administrative Agent as its prime rate in effect at its
principal office in Charlotte, North Carolina; each change in the Prime Rate
shall be effective from and including the date such change is publicly announced
as being effective.
"Register" has the meaning set forth in Section 9.04.
"Regulation T" means Regulation T of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation U" means Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Regulation X" means Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.
"Reinvestment Certificate" has the meaning set forth in the definition of
the term "Net Proceeds".
"Reinvestment Temporary Repayment" has the meaning set forth in Section
2.11(f).
<PAGE>
20
"Related Business" means any business providing goods or services related
to childhood education, care or development.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Release" has the meaning set forth in Section 101(22) of CERCLA.
"Required Lenders" means, at any time, Lenders having Revolving Exposures,
Term Loans and unused Commitments representing more than 50% of the sum of the
total Revolving Exposures, outstanding Term Loans and unused Commitments at such
time.
"Restricted Payment" means any dividend or other distribution (whether in
cash, securities or other property) with respect to any shares of any class of
capital stock of Holdings, the Borrower or any Subsidiary, or any payment
(whether in cash, securities or other property), including any sinking fund or
similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancelation or termination of any such shares of capital stock of
Holdings, the Borrower or any Subsidiary or any option, warrant or other right
to acquire any such shares of capital stock of Holdings, the Borrower or any
Subsidiary.
"Revolving Availability Period" means the period from and including the
Effective Date to but excluding the earlier of the Maturity Date and the date of
termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the commitment,
if any, of such Lender to make Revolving Loans and to acquire participations in
Letters of Credit and Swingline Loans hereunder, expressed as an amount
representing the maximum aggregate amount of such Lender's Revolving Exposure
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.08 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 9.04. The initial amount of
each Lender's Revolving Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Revolving Commitment, as applicable. The initial aggregate amount of the
Lenders' Revolving Commitments is $25,000,000.
"Revolving Exposure" means, with respect to any Lender at any time, the sum
of the outstanding principal amount of such Lender's Revolving Loans and its LC
Exposure and Swingline Exposure at such time.
"Revolving Lender" means a Lender with a Revolving Commitment or, if the
Revolving Commitments have terminated or expired, a Lender with Revolving
Exposure.
"Revolving Loan" means a Loan made pursuant to clause (b) of Section 2.01.
"Roll-Over Equity" has the meaning assigned to such term in the preamble of
this Agreement.
"S&P" means Standard & Poor's Rating Service.
"Sale Leaseback" means any arrangement, directly or indirectly, with any
Person pursuant to which the Borrower or any of its Subsidiaries sells or
transfers any property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rents or leases such
property or other property that it intends to use for substantially the same
purpose or purposes as the property being sold or transferred.
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21
"Secured Parties" has the meaning assigned to such term in the Security
Agreement.
"Security Agreement" means the Security Agreement, substantially in the
form of Exhibit H, among Holdings, the Borrower, the Subsidiary Loan Parties and
the Collateral Agent for the benefit of the Secured Parties.
"Security Documents" means the Security Agreement, the Pledge Agreement,
the Mortgages and each other security agreement, mortgage or other instrument or
document executed and delivered pursuant to Section 5.12 or 5.13 to secure any
of the Obligations.
"Senior Unsecured Notes" means the 10% Senior Unsecured Notes due 2008
issued on the Effective Date by the Borrower and Holdings, as joint and several
obligors, in accordance with Section 4.01(l) (and shall include any
substantially identical senior unsecured notes of the Borrower in the same
aggregate principal amount issued after the Effective Date in exchange therefor
pursuant to a registered exchange offer or shelf registration statement in
accordance with the Senior Unsecured Notes Indenture).
"Senior Unsecured Notes Indenture" means the indenture to be entered into
by Holdings, the Borrower and the Borrower's existing Subsidiary in connection
with the issuance of the Senior Unsecured Notes, together with all instruments
and other agreements entered into by Holdings, the Borrower and such Subsidiary
in connection therewith, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with Section 6.11.
"Sponsor" has the meaning assigned to such term in the preamble of this
Agreement.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months and
(b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
"Stockholders Agreement" means the Stockholders Agreement dated as of May
11, 1998, among Holdings, the Investor and the other stockholders of Holdings
named therein.
"Sub" has the meaning assigned to such term in the preamble of this
Agreement.
"subsidiary" means, with respect to any Person (the "parent") at any date,
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50%
of the
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22
equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date, otherwise
Controlled, by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
"Subsidiary Guarantee Agreement" means the Subsidiary Guarantee Agreement,
substantially in the form of Exhibit E, made by the Subsidiary Loan Parties in
favor of the Collateral Agent for the benefit of the Secured Parties.
"Subsidiary Loan Party" means any Subsidiary other than a Foreign
Subsidiary that, if it were to Guarantee the Obligations, would result in
adverse tax consequences to Holdings or the Borrower.
"Swingline Exposure" means, at any time, the aggregate principal amount of
all Swingline Loans outstanding at such time. The Swingline Exposure of any
Lender at any time shall be its Applicable Percentage of the total Swingline
Exposure at such time.
"Swingline Lender" means The Chase Manhattan Bank or any of its Affiliates,
in its capacity as lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
"Syndication Agent" means The Chase Manhattan Bank in its capacity as
Syndication Agent with respect to this Agreement.
"Taxes" means any and all current or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
"Term Commitment" means, with respect to each Lender, the commitment, if
any, of such Lender to make a Term Loan hereunder on the Effective Date,
expressed as an amount representing the maximum principal amount of the Term
Loan to be made by such Lender hereunder, as such commitment may be (a) reduced
from time to time pursuant to Section 2.08 and (b) reduced or increased from
time to time pursuant to assignments by or to such Lender pursuant to Section
9.04. The initial amount of each Lender's Term Commitment is set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender
shall have assumed its Term Commitment, as applicable. The initial aggregate
amount of the Lenders' Term Commitments is $40,000,000.
"Term Loans" means Loans made pursuant to clause (a) of Section 2.01.
"Three-Month Secondary CD Rate" means, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day is not 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 is not 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 City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
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"Total Debt" means, as of any date of determination, without duplication,
(a) the aggregate principal amount of Indebtedness of Holdings, the Borrower and
the Subsidiaries as of such date, determined on a consolidated basis in
accordance with GAAP (other than (i) Indebtedness of the type referred to in
clause (h) of the definition of the term "Indebtedness", except to the extent of
any unreimbursed drawings thereunder and Indebtedness of the type referred to in
Section 6.01(a)(x), and (ii) the aggregate principal amount of Revolving Loans
and Swingline Loans outstanding as of such date), plus (b) the average daily
principal amount of Revolving Loans and Swingline Loans outstanding during the
four-fiscal-quarter period immediately preceding such date.
"Term Lender" means a Lender with a Term Commitment or an outstanding Term
Loan.
"Transaction Costs" has the meaning assigned to such term in the preamble
of this Agreement.
"Transactions" has the meaning assigned to such term in the preamble of
this Agreement.
"Type", when used in reference to any Loan or Borrowing, refers to whether
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of this
Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving
Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., a
"Eurodollar Revolving Loan"). Borrowings also may be classified and referred to
by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar
Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time, provided
that, if the Borrower notifies the
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24
Administrative Agent that the Borrower requests an amendment to any provision
hereof to eliminate the effect of any change occurring after the date hereof in
GAAP or in the application thereof on the operation of such provision (or if the
Administrative Agent notifies the Borrower that the Required Lenders request an
amendment to any provision hereof for such purpose), regardless of whether any
such notice is given before or after such change in GAAP or in the application
thereof, then such provision shall be interpreted on the basis of GAAP as in
effect and applied immediately before such change shall have become effective
until such notice shall have been withdrawn or such provision amended in
accordance herewith.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and conditions set forth
herein, each Lender agrees (a) to make a Term Loan to the Borrower on the
Effective Date in a principal amount not exceeding its Term Commitment, and (b)
to make Revolving Loans to the Borrower from time to time during the Revolving
Availability Period in an aggregate principal amount that will not result in
such Lender's Revolving Exposure exceeding such Lender's Revolving Commitment.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Amounts
repaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a Swingline
Loan) shall be made as part of a Borrowing consisting of Loans of the same Class
and Type made by the Lenders ratably in accordance with their respective
Commitments of the applicable Class. The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder, provided that the Commitments of the Lenders are several and no
Lender shall be responsible for any other Lender's failure to make Loans as
required.
(b) Subject to Section 2.14, each Revolving Borrowing and Term Borrowing
shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may
request in accordance herewith. Notwithstanding anything to the contrary
contained herein, all Borrowings made on the Effective Date shall be ABR
Borrowings. Each Swingline Loan shall be an ABR Loan. Each Lender at its option
may make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan, provided that any exercise of such
option shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $100,000 and not less than $2,000,000. At the time that each ABR
Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral multiple of $100,000 and not less than $2,000,000, provided that
an ABR Revolving Borrowing may be in an aggregate amount that is equal to the
entire unused balance of the total Revolving Commitments or that is required to
finance the reimbursement of an LC Disbursement as contemplated by Section
2.05(e). Each Swingline Loan shall be in an amount that is an integral multiple
of $50,000 and not less than $250,000. Borrowings of more than one Type and
Class may be outstanding at the same time, provided that there shall not at any
time be more than a total of eight Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
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25
SECTION 2.03. Requests for Borrowings. To request a Revolving Borrowing or
Term Borrowing, the Borrower shall notify the Administrative Agent of such
request by telephone (a) in the case of a Eurodollar Borrowing, not later than
11:00 a.m., New York City time, three Business Days before the date of the
proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00
a.m., New York City time, one Business Day before the date of the proposed
Borrowing, provided that any such notice of an ABR Revolving Borrowing to
finance the reimbursement of an LC Disbursement as contemplated by Section
2.05(e) may be given not later than 10:00 a.m., New York City time, on the date
of the proposed Borrowing. Each such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the
Administrative Agent and signed by the Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:
(i) whether the requested Borrowing is to be a Revolving Borrowing or
Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) subject to the second sentence of Section 2.02(b), whether such
Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial Interest Period
to be applicable thereto, which shall be a period contemplated by the
definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of Section
2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall
be deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Swingline Loans. (a) Subject to the terms and conditions set
forth herein, the Swingline Lender agrees to make Swingline Loans to the
Borrower from time to time during the Revolving Availability Period, in an
aggregate principal amount at any time outstanding that will not result in (i)
the aggregate principal amount of outstanding Swingline Loans exceeding
$5,000,000 or (ii) the sum of the total Revolving Exposures exceeding the total
Revolving Commitments, provided that the Swingline Lender shall not be required
to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent and the Swingline Lender of such request by telephone
(confirmed by telecopy), not later than 12:00 noon, New York City time, on the
day of a proposed Swingline Loan. Each such notice shall be irrevocable and
shall specify the requested date (which shall be a Business Day) and amount of
the requested Swingline Loan. The Swingline Lender shall make each Swingline
Loan available to the Borrower by means of a credit to the general deposit
account of the Borrower with the Swingline Lender (or, in the case of a
Swingline Loan made to finance the
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reimbursement of an LC Disbursement as provided in Section 2.06(e), by
remittance to the Issuing Bank) by 3:00 p.m., New York City time, on the
requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the Administrative
Agent not later than 10:00 a.m., New York City time on any Business Day require
the Revolving Lenders to acquire participations on such Business Day in all or a
portion of the Swingline Loans outstanding. Such notice shall specify the
aggregate amount of Swingline Loans in which Revolving Lenders will participate.
Promptly upon receipt of such notice, the Administrative Agent will give notice
thereof to each Revolving Lender, specifying in such notice such Lender's
Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender
hereby absolutely and unconditionally agrees, upon receipt of notice as provided
above, to pay to the Administrative Agent, for the account of the Swingline
Lender, such Lender's Applicable Percentage of such Swingline Loan or Loans.
Each Revolving Lender acknowledges and agrees that its obligation to acquire
participations in Swingline Loans pursuant to this paragraph is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever. Each Revolving
Lender shall comply with its obligation under this paragraph by wire transfer of
immediately available funds, in the same manner as provided in Section 2.06 with
respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis
mutandis, to the payment obligations of the Revolving Lenders), and the
Administrative Agent shall promptly pay to the Swingline Lender the amounts so
received by it from the Revolving Lenders. The Administrative Agent shall notify
the Borrower of any participations in any Swingline Loan acquired pursuant to
this paragraph, and thereafter payments in respect of such Swingline Loan shall
be made to the Administrative Agent and not to the Swingline Lender. Any amounts
received by the Swingline Lender from the Borrower (or other party on behalf of
the Borrower) in respect of a Swingline Loan after receipt by the Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Revolving Lenders that shall have made their payments pursuant to this
paragraph and to the Swingline Lender, as their interests may appear. The
purchase of participations in a Swingline Loan pursuant to this paragraph shall
not relieve the Borrower of any default in the payment thereof.
SECTION 2.05. Letters of Credit. (a) General. Subject to the terms and
conditions set forth herein, the Borrower may request the issuance of Letters of
Credit for its own account, in a form reasonably acceptable to the
Administrative Agent and the Issuing Bank, at any time and from time to time
during the LC Availability Period. In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower to,
or entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
To request the issuance of a Letter of Credit (or the amendment, renewal or
extension of an outstanding Letter of Credit), the Borrower shall hand deliver
or telecopy (or transmit by electronic communication, if arrangements for doing
so have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) a notice requesting the issuance of a Letter of
Credit, or identifying the Letter of Credit to be amended, renewed or extended,
and specifying the date of issuance, amendment, renewal or extension (which
shall be a Business Day), the date on which such Letter of Credit is to expire
(which shall comply with paragraph (c) of this Section), the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare, amend, renew or extend such Letter
of Credit. If requested by the Issuing Bank, the Borrower also shall submit a
letter of credit
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application on the Issuing Bank's standard form in connection with any request
for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or
extended only if (and upon issuance, amendment, renewal or extension of each
Letter of Credit the Borrower shall be deemed to represent and warrant that),
after giving effect to such issuance, amendment, renewal or extension (i) the LC
Exposure shall not exceed $10,000,000 and (ii) the total Revolving Exposures
shall not exceed the total Revolving Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or prior to the
close of business on the earlier of (i) the date one year after the date of the
issuance of such Letter of Credit (or, in the case of any renewal or extension
thereof, one year after such renewal or extension) and (ii) the date that is
five Business Days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an amendment
to a Letter of Credit increasing the amount thereof) and without any further
action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby
grants to each Revolving Lender, and each Revolving Lender hereby acquires from
the Issuing Bank, a participation in such Letter of Credit equal to such
Lender's Applicable Percentage of the aggregate amount available to be drawn
under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to
pay to the Administrative Agent, for the account of the Issuing Bank, such
Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank
and not reimbursed by the Borrower on the date due as provided in paragraph (e)
of this Section, or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Lender acknowledges and agrees that its obligation
to acquire participations pursuant to this paragraph in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any
Letter of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in
respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement
by paying to the Administrative Agent an amount equal to such LC Disbursement
not later than 12:00 noon, New York City time, on the date that such LC
Disbursement is made, if the Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such
notice has not been received by the Borrower prior to such time on such date,
then not later than 12:00 noon, New York City time, on (i) the Business Day that
the Borrower receives such notice, if such notice is received prior to 10:00
a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt, provided that
the Borrower may, subject to the conditions to borrowing set forth herein,
request in accordance with Section 2.03 or 2.04 that such payment be financed
with an ABR Revolving Borrowing or Swingline Loan in an equivalent amount and,
to the extent so financed, the Borrower's obligation to make such payment shall
be discharged and replaced by the resulting ABR Revolving Borrowing or Swingline
Loan. If the Borrower fails to make such payment when due, the Administrative
Agent shall notify each Revolving Lender of the applicable LC Disbursement, the
payment then due from the Borrower in respect thereof and such Lender's
Applicable Percentage thereof. Promptly following receipt of such notice, each
Revolving Lender shall pay to the Administrative Agent its Applicable Percentage
of the payment then due from the Borrower, in the same manner as provided in
Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall
apply, mutatis mutandis, to the payment obligations of the Revolving Lenders),
and the Administrative Agent shall promptly pay to the Issuing Bank the amounts
so received by it from the Revolving Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Revolving Lenders have made payments pursuant to
this paragraph to reimburse the Issuing Bank, then to such Lenders
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and the Issuing Bank as their interests may appear. Any payment made by a
Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for
any LC Disbursement (other than the funding of ABR Revolving Loans or a
Swingline Loan as contemplated above) shall not constitute a Loan and shall not
relieve the Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of set-off against, the Borrower's obligations hereunder. None
of the Administrative Agent, the Lenders, the Issuing Bank or any of their
Related Parties shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment
or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank, provided that the foregoing shall not be construed to excuse the
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by
the Borrower that are caused by the Issuing Bank's failure to exercise care when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or wilful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such determination.
In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented that appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following its
receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or will make an LC
Disbursement thereunder, provided that any failure to give or delay in giving
such notice shall not relieve the Borrower of its obligation to reimburse the
Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC Disbursement,
then, unless the Borrower shall reimburse such LC Disbursement in full on the
date such LC Disbursement is made, the unpaid amount thereof shall bear
interest, for each day from and including the date such LC Disbursement is made
to but excluding the date that the Borrower reimburses such LC Disbursement, at
the rate per annum then applicable to ABR Revolving Loans, provided that, if the
Borrower fails to reimburse such LC Disbursement when due
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29
pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at
any time by written agreement among the Borrower, the Administrative Agent, the
replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent
shall notify the Lenders of any such replacement of the Issuing Bank. At the
time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 2.12(b). From and after the effective date of any such replacement, (i)
the successor Issuing Bank shall have all the rights and obligations of the
Issuing Bank under this Agreement with respect to Letters of Credit to be issued
thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the
replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain
a party hereto and shall continue to have all the rights and obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit issued by it
prior to such replacement, but shall not be required to issue additional Letters
of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be
continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Lenders with LC Exposure representing greater
than 50% of the total LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to 105% of the LC Exposure as of
such date plus any accrued and unpaid interest thereon, provided that the
obligation to deposit such cash collateral shall become effective immediately,
and such deposit shall become immediately due and payable, without demand or
other notice of any kind, upon the occurrence of any Event of Default with
respect to the Borrower described in clause (h) or (i) of Article VII. Each such
deposit shall be held by the Administrative Agent as collateral for the payment
and performance of the obligations of the Borrower under this Agreement. The
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest earned
on the investment of such deposits, which investments (if requested by the
Borrower) shall be made at the option and sole discretion of the Administrative
Agent and at the Borrower's risk and expense, such deposits shall not bear
interest. Interest or profits, if any, on such investments shall accumulate in
such account. Moneys in such account shall be applied by the Administrative
Agent to reimburse the Issuing Bank for LC Disbursements for which it has not
been reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrower for the LC
Exposure at such time or, if the maturity of the Loans has been accelerated (but
subject to the consent of Revolving Lenders with LC Exposure representing
greater than 50% of the total LC Exposure), be applied to satisfy other
obligations of the Borrower under this Agreement. If the Borrower is required to
provide an amount of cash collateral hereunder as a result of the occurrence of
an Event of Default, such amount (to the extent not applied as aforesaid) shall
be returned to the Borrower within three Business Days after all Events of
Default have been cured or waived.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make each Loan
to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders, provided that Swingline Loans shall be made as provided
in Section 2.04. The Administrative Agent will make such Loans available to the
Borrower by promptly crediting the amounts so received, in like funds, to
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30
an account designated by the Borrower in the applicable Borrowing Request,
provided that ABR Revolving Loans made to finance the reimbursement of an LC
Disbursement as provided in Section 2.05(e) shall be remitted by the
Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing and Term
Borrowing initially shall be of the Type specified in the applicable Borrowing
Request and, in the case of a Eurodollar Borrowing, shall have an initial
Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
may elect to convert such Borrowing to a different Type or to continue such
Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods
therefor, all as provided in this Section. The Borrower may elect different
options with respect to different portions of the affected Borrowing, in which
case each such portion shall be allocated ratably among the Lenders holding the
Loans comprising such Borrowing, and the Loans comprising each such portion
shall be considered a separate Borrowing. This Section shall not apply to
Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall notify
the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall specify the
following information in compliance with Section 2.02 and paragraph (f) of this
Section:
(i) the Borrowing to which such Interest Election Request applies and,
if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing
(in which case the information to be specified pursuant to clauses (iii)
and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
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(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request
with respect to a Eurodollar Borrowing prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such Interest Period such Borrowing shall be converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default
has occurred and is continuing and the Administrative Agent, at the request of
the Required Lenders, so notifies the Borrower, then, so long as an Event of
Default is continuing (i) no outstanding Borrowing may be converted to or
continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
(f) A Borrowing of any Class may not be converted to or continued as a
Eurodollar Borrowing if after giving effect thereto (i) the Interest Period
therefor would commence before and end after a date on which any principal of
the Loans of such Class is scheduled to be repaid and (ii) the sum of the
aggregate principal amount of outstanding Eurodollar Borrowings of such Class
with Interest Periods ending on or prior to such scheduled repayment date plus
the aggregate principal amount of outstanding ABR Borrowings of such Class would
be less than the aggregate principal amount of Loans of such Class required to
be repaid on such scheduled repayment date.
SECTION 2.08. Termination and Reduction of Commitments. (a) Unless
previously terminated, (i) the Term Commitments shall terminate at 5:00 p.m.,
New York City time, on the Effective Date and (ii) the Revolving Commitments
shall terminate on the Maturity Date.
(b) The Borrower may at any time terminate, or from time to time reduce,
the Commitments of any Class, provided that (i) each reduction of the
Commitments of any Class shall be in an amount that is an integral multiple of
$1,000,000 and not less than $2,000,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with Section 2.11,
the sum of the Revolving Exposures would exceed the total Revolving Commitments.
(c) The Borrower shall notify the Administrative Agent of any election to
terminate or reduce the Commitments under paragraph (b) of this Section at least
three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Borrower pursuant
to this Section shall be irrevocable, provided that a notice of termination of
the Revolving Commitments delivered by the Borrower may state that such notice
is conditioned upon the effectiveness of other credit facilities, an initial
public offering of equity interests in Holdings or the Borrower or a sale of all
or substantially all the assets or capital stock of the Borrower or Holdings
(whether by merger or otherwise), in which case such notice may be revoked by
the Borrower (by notice to the Administrative Agent on or prior to the specified
effective date) if such condition is not satisfied. Any termination or reduction
of the Commitments of any Class
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32
shall be permanent. Each reduction of the Commitments of any Class shall be made
ratably among the Lenders in accordance with their respective Commitments of
such Class.
SECTION 2.09. Repayment of Loans, Evidence of Debt. (a) The Borrower hereby
unconditionally promises to pay (i) to the Administrative Agent for the account
of each Lender the then unpaid principal amount of each Revolving Loan of such
Lender on the Maturity Date, (ii) to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Term Loan of such Lender as
provided in Section 2.10 and (iii) to the Swingline Lender the then unpaid
principal amount of each Swingline Loan on the earlier of the Maturity Date and
the first date after such Swingline Loan is made that is the 15th or last day of
a calendar month and is at least two Business Days after such Swingline Loan is
made, provided that on each date that a Revolving Borrowing is made, the
Borrower shall repay all Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender, including the amounts of principal
and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Class and Type thereof
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 hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b)
or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein, provided that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it be evidenced
by a promissory note. In such event, the Borrower shall prepare, execute and
deliver to such Lender a promissory note payable to the order of such Lender
(or, if requested by such Lender, to such Lender and its registered assigns) and
in a customary form reasonably satisfactory to the Administrative Agent.
Thereafter, the Loans evidenced by such promissory note and interest thereon
shall at all times (including after assignment pursuant to Section 9.04) be
represented by one or more promissory notes in such form payable to the order of
the payee named therein (or, if such promissory note is a registered note, to
such payee and its registered assigns).
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33
SECTION 2.10. Amortization of Term Loans. (a) Subject to adjustment
pursuant to paragraph (c) of this Section, the Borrower shall repay Term
Borrowings on the last day of each month set forth below in the aggregate
principal amount set forth opposite such month:
Date Amount
---- ------
November 1998 $250,000
February 1999 250,000
May 1999 250,000
August 1999 250,000
November 1999 250,000
February 2000 250,000
May 2000 250,000
August 2000 250,000
November 2000 250,000
February 2001 250,000
May 2001 250,000
August 2001 250,000
November 2001 250,000
February 2002 250,000
May 2002 250,000
August 2002 250,000
November 2002 250,000
February 2003 250,000
May 2003 250,000
August 2003 250,000
November 2003 2,500,000
February 2004 2,500,000
May 2004 2,500,000
August 2004 2,500,000
November 2004 5,000,000
February 2005 5,000,000
Maturity Date 15,000,000
(b) To the extent not previously paid, all Term Loans shall be due and
payable on the Maturity Date.
(c) If the initial aggregate amount of the Lenders' Term Commitments
exceeds the aggregate principal amount of Term Loans that are made on the
Effective Date, then the scheduled repayments of Term Borrowings to be made
pursuant to this Section shall be reduced ratably by an aggregate amount equal
to such excess. Any prepayment of a Term Borrowing shall be applied to reduce
the subsequent scheduled repayments of the Term Borrowings to be made pursuant
to this Section ratably.
(d) Prior to any repayment of any Term Borrowings hereunder, the Borrower
shall select the Borrowing or Borrowings to be repaid and shall notify the
Administrative Agent by telephone (confirmed by telecopy) of such selection not
later than 11:00 a.m., New York City time, three Business Days before the
scheduled date of such repayment, provided that each
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34
repayment of Term Borrowings shall be applied to repay any outstanding ABR
Borrowings before any Eurodollar Borrowings. Each repayment of a Borrowing shall
be applied ratably to the Loans included in the repaid Borrowing. Repayments of
Term Borrowings shall be accompanied by accrued interest on the amount repaid.
SECTION 2.11. Prepayment of Loans. (a) The Borrower shall have the right at
any time and from time to time to prepay any Borrowing in whole or in part,
subject to the requirements of this Section.
(b) Subject to the provisions of Section 5.08(b), in the event and on each
occasion that any Net Proceeds are received by or on behalf of Holdings, the
Borrower or any Subsidiary in respect of any Prepayment Event, the Borrower
shall, promptly after such Net Proceeds are received, prepay Term Borrowings in
an aggregate amount equal to 100% of such Net Proceeds.
(c) Following the end of each fiscal year of the Borrower, commencing with
the fiscal year ending August 1999, the Borrower shall prepay Term Borrowings in
an aggregate amount equal to 75% of Excess Cash Flow for such fiscal year,
provided that such percentage shall be reduced from 75% to 50% in respect of any
fiscal year if the Leverage Ratio following the end of such fiscal year is less
than 4.00 to 1.00. Each prepayment pursuant to this paragraph shall be made on
or before the date that is three days after the date on which financial
statements are delivered pursuant to Section 5.01 with respect to the fiscal
year for which Excess Cash Flow is being calculated (and in any event within 100
days after the end of such fiscal year).
(d) Prior to any optional or mandatory prepayment of Borrowings hereunder,
the Borrower shall select the Borrowing or Borrowings to be prepaid and shall
specify such selection in the notice of such prepayment pursuant to paragraph
(e) of this Section, provided that each prepayment shall be applied to prepay
ABR Borrowings before any Eurodollar Borrowings.
(e) The Borrower shall notify the Administrative Agent (and, in the case of
prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by
telecopy) of any prepayment hereunder (i) in the case of prepayment of a
Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three
Business Days before the date of prepayment, (ii) in the case of prepayment of
an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business
Day before the date of prepayment or (iii) in the case of prepayment of a
Swingline Loan, not later than 12:00 noon, New York City time, on the date of
prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date, the principal amount of each Borrowing or portion thereof to be
prepaid and, in the case of a mandatory prepayment, a reasonably detailed
calculation of the amount of such prepayment, provided that, if a notice of
optional prepayment is given in connection with a conditional notice of
termination of the Revolving Commitments as contemplated by Section 2.08, then
such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.08. Promptly following receipt of any such
notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.02, except as necessary to apply fully the required amount of a
mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to
the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.13.
(f) In the event the Borrower specifies in the applicable Reinvestment
Certificate that the Borrower will apply the Net Proceeds of any asset sale or
other disposition to the temporary repayment of Revolving Loans pursuant to this
Section 2.11(f), the Borrower shall apply such Net Proceeds to the repayment of
Revolving Loans as provided in this Section, without giving effect to any
minimum repayment amounts set forth herein. Any such repayment
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35
is referred to herein as a "Reinvestment Temporary Repayment" (it being
understood that such term shall not include any prepayment of Revolving Loans
with Net Proceeds from a Permitted New Academy Sale Leaseback). The Borrower may
from time to time reborrow all or a portion of the amount repaid pursuant to any
Reinvestment Temporary Repayment if (i) such borrowing complies with all the
procedures for a Revolving Borrowing set forth in Section 2.03 and (ii) promptly
upon the receipt of the proceeds of such Revolving Borrowing, the Borrower (A)
reinvests such proceeds in accordance with the terms of the proviso in the
definition of the term "Net Proceeds" or (B) applies such proceeds to the
prepayment of Term Loans as provided in Section 2.11(b). So long as any portion
of any Reinvestment Temporary Repayment has not been reborrowed, the Borrower
shall not be entitled to borrow, and no Lender shall be entitled to make,
Revolving Loans or Swingline Loans if after giving effect thereto the aggregate
Revolving Exposure at such time would exceed an amount equal to (i) the
aggregate amount of the Revolving Commitments at such time minus (ii) the
aggregate amount of all Reinvestment Temporary Repayments that have not been
reborrowed at such time.
SECTION 2.12. Fees. (a) The Borrower agrees to pay to the Administrative
Agent for the account of each Revolving Lender a commitment fee, which shall
accrue at the Applicable Rate on the average daily unused amount of the
Revolving Commitment of such Lender during the period from and including the
Effective Date to but excluding the date on which such Revolving Commitment
terminates. Accrued commitment fees shall be payable in arrears on the last day
of May, August, November and February of each year and on the date on which the
Revolving Commitments terminate, commencing on the first such date to occur
after the date hereof. All commitment fees shall be computed on the basis of a
year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). For purposes of computing
commitment fees with respect to Revolving Commitments, a Revolving Commitment of
a Lender shall be deemed to be used to the extent of the outstanding Revolving
Loans and LC Exposure of such Lender (and the Swingline Exposure of such Lender
shall be disregarded for such purpose).
(b) The Borrower agrees to pay (i) to the Administrative Agent for the
account of each Revolving Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate as interest on Eurodollar Revolving Loans on the average daily amount of
such Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which such Lender's
Revolving Commitment terminates and the date on which such Lender ceases to have
any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue
at the rate of 1/4 of 1% per annum on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date of termination of the Revolving Commitments and
the date on which there ceases to be any LC Exposure, as well as the Issuing
Bank's standard fees with respect to the issuance, amendment, renewal or
extension of any Letter of Credit or processing of drawings thereunder. Accrued
participation fees and fronting fees shall be payable on the last day of May,
August, November and February of each year, commencing on the first such date to
occur after the Effective Date, provided that all such fees shall be payable on
the date on which the Revolving Commitments terminate and any such fees accruing
after the date on which the Revolving Commitments terminate shall be payable on
demand. Any other fees payable to the Issuing Bank pursuant to this paragraph
shall be payable within 10 days after demand. All participation fees and
fronting fees shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
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36
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing
(including each Swingline Loan) shall bear interest at the Alternate Base Rate
plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest at
the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus
the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on any
Loan or any fee or other amount payable by the Borrower hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Revolving Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Revolving Commitments, provided that (A) interest accrued
pursuant to paragraph (c) of this Section shall be payable on demand, (B) in the
event of any repayment or prepayment of any Loan (other than a prepayment of an
ABR Revolving Loan prior to the end of the Revolving Availability Period),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment and (C) in the event of any conversion
of any Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.
(e) All interest hereunder shall be computed on the basis of a year of 360
days, except that interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate is based on the Prime Rate shall be computed
on the basis of a year of 365 days (or 366 days in a leap year), and in each
case shall be payable for the actual number of days elapsed (including the first
day but excluding the last day). The applicable Alternate Base Rate or Adjusted
LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.14. Alternate Rate of Interest. If prior to the commencement of
any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders (or Lender) of making or
maintaining their Loans (or its Loan) included in such Borrowing for such
Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
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37
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.15. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London interbank
market any other condition affecting this Agreement or Eurodollar Loans
made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank in respect thereof (whether of principal, interest or otherwise),
then the Borrower will pay to such Lender or the Issuing Bank, as the case may
be, such additional amount or amounts as will compensate such Lender or the
Issuing Bank, as the case may be, for such additional costs incurred or
reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender's or the Issuing Bank's capital or on the capital of
such Lender's or the Issuing Bank's holding company, if any, as a consequence of
this Agreement or the Loans made by, or participations in Letters of Credit held
by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level
below that which such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company could have achieved but for such Change in Law (taking
into consideration such Lender's or the Issuing Bank's policies and the policies
of such Lender's or the Issuing Bank's holding company with respect to capital
adequacy), then from time to time the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the amount
or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the
case may be, the amount shown as due on any such certificate within 10 days
after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation, provided
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 180 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; and, provided further that, if the
Change in Law giving rise to such increased costs or reductions is retroactive,
then the 180-day period referred to above shall be extended to include the
period of retroactive effect thereof.
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38
SECTION 2.16. Break Funding Payments. In the event of (a) the payment of
any principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b)
the conversion of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto, (c) the failure to borrow, convert, continue or
prepay any Revolving Loan or Term Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice may be revoked
under Section 2.11(e) and is revoked in accordance therewith), or (d) the
assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.19, then, in any such event, the Borrower shall compensate each Lender
for the loss, cost and expense incurred by such Lender attributable to such
event. In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest that would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest that would accrue on such principal amount for such period at the
interest rate that such Lender would bid were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other
banks in the Eurodollar market. A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 days after receipt thereof.
SECTION 2.17. Taxes. (a) Any and all payments by or on account of any
obligation of the Borrower hereunder or under any other Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes, provided that if the Borrower shall be required to deduct any Indemnified
Taxes or Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the
Administrative Agent, Lender or Issuing Bank (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant Governmental Authority in accordance
with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each Lender and
the Issuing Bank, within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent,
such Lender or the Issuing Bank, as the case may be, on or with respect to any
payment by or on account of any obligation of the Borrower hereunder or under
any other Loan Document (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its
own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive
absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to
the Administrative Agent the original or a certified copy of a receipt issued by
such Governmental
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39
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
(e) Each Foreign Lender, and any Issuing Bank that is not a "United States
person" within the meaning of Section 7701(a)(30) of the Code (together with the
Foreign Lenders, the "Non-U.S. Lenders"), shall deliver to the Borrower (with a
copy to the Administrative Agent) two copies of either United States Internal
Revenue Service Form 1001 or Form 4224, or, in the case of a 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 or any other Loan Document. Such forms shall be delivered by each
Non-U.S. Lender on or before the date it becomes a party to this Agreement or
designates a new lending office. In addition, each Non-U.S. Lender shall deliver
such forms (i) promptly upon the obsolescence, expiration or invalidity of any
form previously delivered by such Non-U.S. Lender or (ii) upon the Borrower's
reasonable request after the occurrence of any event requiring the delivery of
Form 1001 or Form 4224 (or successor forms) in addition to or in replacement of
the forms previously delivered. Notwithstanding any other provision of this
Section 2.17, a Non-U.S. Lender shall not be required to deliver any form
pursuant to this Section 2.17(e) that such Non-U.S. Lender is not legally able
to deliver.
(f) If the Administrative Agent or a Lender (or transferee) determines, in
its sole discretion, that it has received a refund of any Taxes or Other Taxes
as to which it has been indemnified by the Borrower or with respect to which the
Borrower has paid additional amounts pursuant to this Section 2.17, it shall pay
over such refund to the Borrower (but only to the extent of indemnity payments
made, or additional amounts paid, by the Borrower under this Section 2.17 with
respect to the Taxes or Other Taxes giving rise of such refund), net of all
out-of-pocket expenses of the Administrative Agent or such Lender (or
transferee) and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund); provided, however, that the
Borrower, upon the request of the Administrative Agent or such Lender (or
transferee), agrees to repay the amount paid over to the Borrower (plus any
penalties, interest or other charges imposed by the relevant Governmental
Authority) to the Administrative Agent or such Lender (or transferee) in the
event the Administrative Agent or such Lender (or transferee) is required to
repay such refund to such Governmental Authority. Nothing contained in this
Section 2.17(f) shall require the Administrative Agent or any Lender to make
available its tax returns (or any other information relating to its taxes which
it deems confidential) to the Borrower or any other Person.
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
(a) The Borrower shall make each payment required to be made by it hereunder or
under any other Loan Document (whether of principal, interest, fees or
reimbursement of LC Disbursements, or of amounts payable under Section 2.15,
2.16 or 2.17, or otherwise) prior to 12:00 noon, New York City time, on the date
when due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices set forth in Section
9.01 except payments to be made directly to the Issuing Bank or Swingline Lender
as expressly provided herein and except that payments pursuant to Sections 2.15,
2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto and
payments pursuant to other Loan Documents shall be made to the Persons specified
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40
therein. The Administrative Agent shall distribute any such payments received by
it for the account of any other Person to the appropriate recipient promptly
following receipt thereof. If any payment under any Loan Document shall be due
on a day that is not a Business Day, the date for payment shall be extended to
the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension.
All payments under each Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, unreimbursed LC
Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
and unreimbursed LC Disbursements then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed LC
Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or counterclaim
or otherwise, obtain payment in respect of any principal of or interest on any
of its Revolving Loans, Term Loans or participations in LC Disbursements or
Swingline Loans or any other payment due hereunder resulting in such Lender
receiving payment of a greater proportion of the aggregate amount of its
Revolving Loans, Term Loans and participations in LC Disbursements and Swingline
Loans and accrued interest thereon than the proportion received by any other
Lender, then the Lender receiving such greater proportion shall purchase (for
cash at face value) participations in the Revolving Loans, Term Loans and
participations in LC Disbursements and Swingline Loans of other Lenders to the
extent necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Revolving Loans, Term Loans and
participations in LC Disbursements and Swingline Loans, provided that (i) if any
such participations are purchased and all or any portion of the payment giving
rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions
of this paragraph shall apply). The Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the
greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation.
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41
(e) If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.18(d) or 9.03(c), then
the Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a) If any
Lender requests compensation under Section 2.15, or if the Borrower is required
to pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.17, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the reasonable judgment
of such Lender, such designation or assignment (i) would eliminate or reduce
amounts payable pursuant to Section 2.15 or 2.17, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment), provided that (i) the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Revolving Commitment is being assigned, the Issuing Bank and Swingline
Lender), which consent shall not unreasonably be withheld, (ii) such Lender
shall have received payment of an amount equal to the outstanding principal of
its Loans and participations in LC Disbursements and Swingline Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts) and (iii)
in the case of any such assignment resulting from a claim for compensation under
Section 2.15 or payments required to be made pursuant to Section 2.17, such
assignment will result in a material reduction in such compensation or payments.
A Lender shall not be required to make any such assignment and delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply.
ARTICLE III
Representations and Warranties
Each of Holdings and the Borrower represents and warrants to the Lenders
that:
SECTION 3.01. Organization; Powers. Each of Holdings, the Borrower and the
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions to be entered
into by each Loan Party are within such Loan Party's corporate powers and have
been duly
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42
authorized by all necessary corporate and, if required, stockholder action. This
Agreement has been duly executed and delivered by each of Holdings and the
Borrower and constitutes, and each other Loan Document to which any Loan Party
is to be a party, when executed and delivered by such Loan Party, will
constitute, a legal, valid and binding obligation of Holdings, the Borrower or
such Loan Party (as the case may be), enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do
not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect or, if not obtained or made, would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect and except filings necessary to perfect Liens created under the
Loan Documents, (b) will not violate any applicable law or regulation or the
charter, by-laws or other organizational documents of Holdings, the Borrower or
any of the Subsidiaries or any order of any Governmental Authority, except, with
respect to any violation of applicable law or regulation or any order of any
Governmental Authority, to the extent any such violation would not, individually
or in the aggregate, be reasonably likely to have a Material Adverse Effect, (c)
will not violate or result in a default under any indenture, agreement or other
instrument binding upon Holdings, the Borrower or any of the Subsidiaries or its
assets, or give rise to a right thereunder to require any payment to be made by
Holdings, the Borrower or any of the Subsidiaries, except to the extent any such
violation, default or right would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect, and (d) will not result in
the creation or imposition of any Lien (other than any Lien expressly permitted
by Section 6.02) on any asset of Holdings, the Borrower or any of the
Subsidiaries, except Liens created under the Loan Documents.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The
Borrower has heretofore furnished to the Lenders its consolidated balance sheet
and statement of income, stockholders equity and cash flows (i) as of and for
the year ending August 30, 1997, reported on by Deloitte & Touche LLP,
independent public accountants, and (ii) as of and for the period and the
portion of the fiscal year ending March 14, 1998, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year end audit adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.
(b) The Borrower has heretofore furnished to the Lenders its pro forma
consolidated balance sheet as of March 14, 1998, prepared giving effect to the
Transactions as if the Transactions had occurred on such date. Such pro forma
consolidated balance sheet (i) has been prepared in good faith based on the same
assumptions used to prepare the pro forma financial statements included in the
Offering Memorandum for the Senior Unsecured Notes (which assumptions are
believed by Holdings and the Borrower to be reasonable), (ii) is based on the
best information available to Holdings and the Borrower after due inquiry, (iii)
accurately reflects all adjustments necessary to give effect to the Transactions
and (iv) presents fairly, in all material respects, the pro forma financial
position of the Borrower and its consolidated Subsidiaries as of March 14, 1998
as if the Transactions had occurred on such date.
(c) Except as disclosed in the financial statements referred to above or
the notes thereto or in the Information Memorandum and except for the Disclosed
Matters, after giving effect to the Transactions, none of Holdings, the Borrower
or any of the Subsidiaries has, as of the Effective Date, any contingent
liabilities, unusual long-term commitments or unrealized losses that could
reasonably be expected to have a Material Adverse Effect.
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(d) Since August 30, 1997, there has not occurred any event, condition or
circumstance that has had or could reasonably be expected to result in a
Material Adverse Effect.
SECTION 3.05. Properties. (a) Each of Holdings, the Borrower and the
Subsidiaries has good title to, or valid leasehold interests in, all its real
and personal property material to its business (including its Mortgaged
Properties), except for minor defects in title that do not interfere with its
ability to conduct its business as currently conducted or to utilize such
properties for their intended purposes.
(b) Each of the Borrower and the Subsidiaries has complied with all
material obligations under all leases to which it is a party and that are
material to the Borrower and the Subsidiaries taken as a whole and all such
leases are in full force and effect. Each of the Borrower and the Subsidiaries
enjoys peaceful and undisturbed possession under all such material leases in
which a Borrower or a Subsidiary is a lessee.
(c) Each of Holdings, the Borrower and the Subsidiaries owns, or is
licensed or otherwise permitted to use, all trademarks, trade names, copyrights,
patents and other intellectual property material to its business, and the use
thereof by Holdings, the Borrower and the Subsidiaries does not infringe upon
the rights of any other Person, except for any such infringements that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
(d) Schedule 3.05 sets forth the address of each real property that is
owned or leased by the Borrower or any of the Subsidiaries as of the Effective
Date after giving effect to the Transactions.
(e) As of the Effective Date, neither Holdings, the Borrower nor any of the
Subsidiaries has received notice of, or has knowledge of, any pending or
contemplated condemnation proceeding affecting any Mortgaged Property or any
sale or disposition thereof in lieu of condemnation. Neither any Mortgaged
Property nor any interest therein is subject to any right of first refusal,
option or other contractual right to purchase such Mortgaged Property or
interest therein.
SECTION 3.06. Litigation and Environmental Matters. (a) There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of Holdings or the Borrower,
threatened against or affecting Holdings, the Borrower or any of the
Subsidiaries (i) as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect (other
than the Disclosed Matters) or (ii) that involve any of the Loan Documents or
the Transactions.
(b) Except for the Disclosed Matters and except with respect to any other
matters that, individually or in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect, none of Holdings, the Borrower or any of
the Subsidiaries (i) has failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval required
under any Environmental Law, (ii) has become subject to any Environmental
Liability, (iii) has received notice of any claim with respect to any
Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or caused there to be a reasonable likelihood of, a Material
Adverse Effect.
SECTION 3.07. Compliance with Laws and Agreements. Except as set forth in
Schedule 3.07, each of Holdings, the Borrower and each of the Subsidiaries is in
compliance
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with all laws, regulations and orders of any Governmental Authority applicable
to it or its property and all indentures, agreements and other instruments
binding upon it or its property, except where the failure to do so, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect. No Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. None of Holdings, the
Borrower or any of the Subsidiaries is (a) an "investment company" as defined
in, or subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of Holdings, the Borrower and each of the
Subsidiaries has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused to be paid all Taxes required
to have been paid by it, except (a) any Taxes that are being contested in good
faith by appropriate proceedings and for which Holdings, the Borrower or such
Subsidiary, as applicable, has set aside on its books adequate reserves or (b)
to the extent that the failure to do so could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected
to occur that, when taken together with all other such ERISA Events for which
liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $500,000 the fair market value of the assets of such Plan, and the present
value of all accumulated benefit obligations of all underfunded Plans (based on
the assumptions used for purposes of Statement of Financial Accounting Standards
No. 87) did not, as of the date of the most recent financial statements
reflecting such amounts, exceed the fair market value of the assets of all such
underfunded Plans by an amount that would be reasonably likely to result in a
Material Adverse Effect.
SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders all
agreements, instruments and corporate or other restrictions to which Holdings,
the Borrower or any of the Subsidiaries is subject, and all other matters known
to any of them, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. Neither the Information
Memorandum nor any of the other reports, financial statements, certificates or
other information furnished by or on behalf of any Loan Party to the Agents or
any Lender in connection with the negotiation of this Agreement or any other
Loan Document or delivered hereunder or thereunder (as modified or supplemented
by other information so furnished) contains any material misstatement of fact or
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
provided that, with respect to projected financial information, Holdings and the
Borrower represent only that such information was prepared in good faith based
upon assumptions believed to be reasonable at the time.
SECTION 3.12. Subsidiaries. Holdings does not have any subsidiaries other
than the Borrower and the Subsidiaries. Schedule 3.12 sets forth the name of,
and the ownership interest of the Borrower in, each Subsidiary and identifies
each Subsidiary that is a Subsidiary Loan Party, in each case as of the
Effective Date.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of all
insurance maintained by or on behalf of the Borrower and the Subsidiaries as of
the Effective Date. As of the Effective Date, all premiums in respect of such
insurance that are due and payable have been paid.
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45
SECTION 3.14. Labor Matters. As of the Effective Date, there are no
strikes, lockouts or slowdowns against Holdings, the Borrower or any Subsidiary
pending or, to the knowledge of Holdings or the Borrower, threatened. The hours
worked by and payments made to employees of Holdings, the Borrower and the
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable Federal, state, local or foreign law dealing with such matters,
except where any such violations, individually or in the aggregate, would not be
reasonably likely to result in a Material Adverse Effect. All material payments
due from Holdings, the Borrower or any Subsidiary, or for which any claim may be
made against Holdings, the Borrower or any Subsidiary, on account of wages and
employee health and welfare insurance and other benefits, have been paid or
accrued as a liability on the books of Holdings, the Borrower or such
Subsidiary. The consummation of the Transactions will not give rise to any right
of termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which Holdings, the Borrower or any
Subsidiary is bound.
SECTION 3.15. Solvency. Immediately after the consummation of the
Transactions to occur on the Effective Date and immediately following the making
of each Loan made on the Effective Date and after giving effect to the
application of the proceeds of such Loans, (a) the fair value of the assets of
each Loan Party, at a fair valuation, will exceed its debts and liabilities,
unsecured, contingent or otherwise; (b) the present fair saleable value of the
property of each Loan Party will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
unsecured, contingent or otherwise, as such debts and other liabilities become
absolute and matured; (c) each Loan Party will be able to pay its debts and
liabilities, unsecured, contingent or otherwise, as such debts and liabilities
become absolute and matured; and (d) each Loan Party will not have unreasonably
small capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted following the
Effective Date.
SECTION 3.16. Security Documents. (a) The Pledge Agreement is effective to
create in favor of the Collateral Agent, for the ratable benefit of the Secured
Parties, a legal, valid and enforceable security interest in the Collateral (as
defined in the Pledge Agreement) and, when the Collateral is delivered to the
Collateral Agent or financing statements are filed (covering certificated
securities), the Pledge Agreement shall constitute a fully perfected first
priority Lien on, and security interest in, all right, title and interest of the
pledgor thereunder in such Collateral, in each case prior and superior in right
to any other person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement) and, when financing statements in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral
(other than the Intellectual Property (as defined in the Security Agreement), in
each case prior and superior in right to any other person, other than with
respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent and
Trademark Office and the United States Copyright Office, the Security Agreement
shall constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the Loan Parties in the Intellectual Property (as defined
in the Security Agreement) in which a security interest may be perfected by
filing, recording or registering a security agreement, financing statement or
analogous document in the United States Patent and Trademark Office or the
United States Copyright Office, as applicable, in each case prior and superior
in right to any other person other than Liens expressly permitted by Section
6.02 (it being understood that subsequent recordings in the United States Patent
and Trademark Office and the United States Copyright Office may be necessary to
perfect a Lien on registered trademarks, trademark applications and copyrights
acquired by the Loan Parties after the date hereof).
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46
(d) The Mortgages are effective to create, subject to the exceptions listed
in each title insurance policy covering such Mortgage, in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable Lien on all of the Loan Parties' right, title and interest in
and to the Mortgaged Properties thereunder and the proceeds thereof, and when
the Mortgages are filed in the appropriate offices, the Mortgages shall
constitute a Lien on, and security interest in, all right, title and interest of
the Loan Parties in such Mortgaged Properties and the proceeds thereof, in each
case prior and superior in right to any other person, other than with respect to
the rights of persons pursuant to Liens expressly permitted by Section 6.02.
SECTION 3.17. Federal Reserve Regulations. (a) Neither Holdings, the
Borrower nor any of the Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
buying or carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is inconsistent
with, the provisions of the Regulations of the Board, including Regulation T, U
or X.
SECTION 3.18. Year 2000 Compliance. To the best of Holdings' and the
Borrower's knowledge, any reprogramming required to permit the proper
functioning, in and following the year 2000, of (a) the computer systems of the
Borrower and its Subsidiaries and (b) equipment containing embedded microchips
(including systems and equipment supplied by others or with which systems of the
Borrower and its Subsidiaries interface) and the testing of all such systems and
equipment, as so reprogrammed, will be completed in all material respects by
August 31, 1999. To the best of Holdings' and the Borrower's knowledge, the cost
to the Borrower and its Subsidiaries of such reprogramming and testing and of
the reasonably foreseeable consequences of year 2000 to the Borrower and its
Subsidiaries (including reprogramming errors and the failure of others' systems
or equipment) will not result in a Default or a Material Adverse Effect.
ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans,
of the Swingline Lender to make Swingline Loans and of the Issuing Bank to issue
Letters of Credit hereunder shall not become effective until the date on which
each of the following conditions is satisfied (or waived in accordance with
Section 9.02):
(a) The Agents (or their counsel) shall have received from each party
hereto either (i) a counterpart of this Agreement signed on behalf of such
party or (ii) written evidence satisfactory to the Agents (which may
include telecopy transmission of a signed signature page of this Agreement)
that such party has signed a counterpart of this Agreement.
(b) The Agents shall have received a favorable written opinion
(addressed to the Agents and the Lenders and dated the Effective Date) of
each of (i) O'Sullivan Graev & Karabell, LLP, counsel for the Borrower,
substantially in the form of Exhibit B, and (ii) local counsel in each
jurisdiction where a Mortgaged Property is located, substantially in the
form of Exhibit C, and, in the case of each such opinion required by this
paragraph, covering such other matters relating to the Loan Parties, the
Loan Documents or the Transactions as the Required Lenders shall reasonably
request. The Borrower hereby requests such counsel to deliver such
opinions.
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47
(c) The Agents shall have received such documents and certificates as
the Agents or their counsel may reasonably request relating to the
organization, existence and good standing of each Loan Party, the
authorization of the Transactions and any other legal matters relating to
the Loan Parties, the Loan Documents or the Transactions, all in form and
substance satisfactory to the Agents and their counsel.
(d) The Agents shall have received a certificate, dated the Effective
Date and signed by the President, a Vice President or a Financial Officer
of the Borrower, confirming compliance with the conditions set forth in
paragraphs (a) and (b) of Section 4.02.
(e) The Agents shall have received all fees and other amounts due and
payable on or prior to the Effective Date, including, to the extent
invoiced, reimbursement or payment of all out-of-pocket expenses required
to be reimbursed or paid by any Loan Party hereunder or under any other
Loan Document.
(f) The Agents shall have received counterparts of the Pledge
Agreement signed on behalf of Holdings, the Borrower and each Subsidiary
Loan Party thereto, and the Collateral Agent shall have received stock
certificates representing all the outstanding shares of capital stock of
the Borrower and each Subsidiary or Joint Venture owned by or on behalf of
any Loan Party as of the Effective Date after giving effect to the
Transactions (except that stock certificates representing shares of common
stock of a Foreign Subsidiary may be limited to 65% of the outstanding
shares of common stock of such Foreign Subsidiary), promissory notes
evidencing all intercompany Indebtedness owed to any Loan Party by the
Borrower or any Subsidiary as of the Effective Date after giving effect to
the Transactions and stock powers and instruments of transfer, endorsed in
blank, with respect to such stock certificates and promissory notes.
(g) The Agents shall have received counterparts of the Security
Agreement signed on behalf of Holdings, the Borrower and each Subsidiary
Loan Party, together with the following:
(i) all documents and instruments, including Uniform Commercial
Code financing statements, required by law or reasonably requested by
the Agents to be filed, registered or recorded to create or perfect
the Liens intended to be created under the Security Agreement; and
(ii) a completed Perfection Certificate dated the Effective Date
and signed by an executive officer or Financial Officer of the
Borrower, together with all attachments contemplated thereby,
including the results of a search of the Uniform Commercial Code (or
equivalent) filings made with respect to the Loan Parties in the
jurisdictions contemplated by the Perfection Certificate and copies of
the financing statements (or similar documents) disclosed by such
search and evidence reasonably satisfactory to the Agents that the
Liens indicated by such financing statements (or similar documents)
are permitted by Section 6.02 or have been released.
(h) Subject to Section 5.14, the Agents shall have received (i)
counterparts of a Mortgage with respect to each Mortgaged Property signed
on behalf of the record owner of such Mortgaged Property, (ii) a policy or
policies of title insurance issued by a nationally recognized title
insurance company, insuring the Lien of each such Mortgage as a valid first
Lien on the Mortgaged Property described therein, free of any other Liens
except as permitted by Section 6.02, in form and substance reasonably
acceptable to the Collateral Agent, together with such endorsements,
coinsurance and reinsurance as the Collateral Agent or the Required Lenders
may reasonably request, (iii) such surveys as
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may be required pursuant to such Mortgages or as the Administrative Agent
or the Required Lenders may reasonably request, (iv) a copy of the original
permanent certificate or temporary certificate of occupancy as the same may
have been amended or issued from time to time, covering each improvement
located upon the Mortgaged Properties, that were required to have been
issued by the appropriate Governmental Authority for such improvement and
(v) written confirmation from the applicable zoning commission or other
appropriate Governmental Authority stating that with respect to each
Mortgaged Property its current use complies with existing land use and
zoning ordinances, regulations and restrictions applicable to such
Mortgaged Property.
(i) The Administrative Agent shall have received (i) counterparts of
the Parent Guarantee Agreement signed on behalf of Holdings, (ii)
counterparts of the Subsidiary Guarantee Agreement signed on behalf of each
Subsidiary Loan Party and (iii) counterparts of the Indemnity, Subrogation
and Contribution Agreement signed on behalf of Holdings, the Borrower and
each Subsidiary Loan Party.
(j) The Administrative Agent shall have received evidence satisfactory
to it that the insurance required by Section 5.07 is in effect.
(k) The Merger and the other Transactions shall be consummated
simultaneously with the closing under the Loans in accordance with
applicable law, the Merger Agreement and all other related documentation
(in each case without giving effect to any amendment or waiver not approved
by the Agent) and on terms substantially consistent with those set forth in
the preamble of this Agreement, and the Agent shall be satisfied that the
Transaction Costs shall not exceed $16,500,000.
(l) The Borrower shall have received not less than $145,000,000 in
gross cash proceeds from the issuance of the Senior Unsecured Notes. The
terms and conditions of the Senior Unsecured Notes (including terms and
conditions relating to the interest rate, fees, amortization, maturity,
covenants, events of default and remedies) and the provisions of the Senior
Unsecured Notes Indenture shall be satisfactory to the Agents.
(m) After giving effect to the Transactions and the other transactions
contemplated hereby, Holdings, the Borrower and the Subsidiaries shall have
outstanding no Indebtedness or preferred stock other than (i) the Loans,
(ii) the Senior Unsecured Notes, (iii) the Preferred Stock, (iv) subject to
Section 5.15, the Existing Convertible Debentures and (v) the Indebtedness
set forth on Schedule 6.01 or otherwise permitted pursuant to Section
6.01(a). The Agents shall also have received duly executed documentation
reasonably satisfactory to the Agents evidencing or necessary to (i)(A)
defease the Existing Exchange Debentures, (B) defease the Existing Senior
Notes and (C) repay all amounts outstanding under the Existing Credit
Agreement and (ii) terminate all related agreements, guarantees and
security interests, as applicable, granted in connection therewith.
(n) The Lenders shall be reasonably satisfied as to the amount and
nature of any Environmental Liabilities to which Holdings, the Borrower and
the Subsidiaries may be subject, and the plans of Holdings, the Borrower or
such Subsidiary with respect thereto, after giving effect to the
Transactions and the consummation of the other transactions contemplated
hereby.
(o) There shall be no litigation or administrative proceeding that has
had or is reasonably likely to have a Material Adverse Effect.
(p) The Lenders shall have received a solvency letter, in form and
substance and from an independent valuation firm reasonably satisfactory to
the Agents, together with
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such other evidence reasonably requested by the Lenders, confirming the
solvency of Holdings, the Borrower and the Subsidiaries on a consolidated
basis after giving effect to the Transactions and the other transactions
contemplated hereby.
(q) The consummation of the Transactions and the other transactions
contemplated hereby shall not (a) violate any applicable material law,
statute, rule or regulation or (b) violate or result in a Default under any
material agreement of Holdings, the Borrower or any Subsidiary, and the
Agents shall have received one or more legal opinions to such effect,
satisfactory to the Agents, from counsel to the Borrower satisfactory to
the Agents.
(r) All requisite material Governmental Authorities and third parties
shall have approved or consented to the Transactions and the other
transactions contemplated hereby to the extent required, and there shall be
no governmental or judicial action, actual or threatened, that could
reasonably be expected to restrain, prevent or impose burdensome conditions
on the Transactions or the other transactions contemplated hereby.
(s) The Lenders shall have received a certificate of a Financial
Officer of the Borrower with respect to the Consolidated EBITDA of the
Borrower (to be calculated based on the financial statements of the
Borrower that have been prepared in accordance with generally accepted
accounting principles and adjusted to give effect to the adjustments set
forth in the Offering Memorandum for the Senior Unsecured Notes) for the
52-week period ending March 14, 1998, and such Consolidated EBITDA shall
not be less than $32,580,000.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans, of the Swingline
Lender to make Swingline Loans and of the Issuing Bank to issue Letters of
Credit hereunder shall not become effective unless each of the foregoing
conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00
p.m., New York City time, on May 15, 1998 (and, in the event such conditions are
not so satisfied or waived, the Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to make a
Loan on the occasion of any Borrowing, of the Swingline Lender to make a
Swingline Loan on the occasion of any Swingline Borrowing and of the Issuing
Bank to issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:
(a) The representations and warranties of each Loan Party set forth in
the Loan Documents qualified as to materiality shall be true and correct
and those not so qualified shall be true and correct in all material
respects on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable,
except to the extent such representations and warranties expressly relate
to an earlier date in which case such representations and warranties shall
be true and correct as of such earlier date.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be continuing.
(c) To the extent the proceeds of such Borrowing will be used to
finance expenditures relating to property, plant and equipment, after
giving effect to such Borrowing, there shall be at least $5,000,000 of
unused Revolving Commitments, provided that, for purposes of this clause
(c), the amount of unused Revolving
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Commitments shall be deemed to include amounts that will be due to the
Borrower at the closing of any Sale Leaseback relating to Academies under
construction at such time if the Borrower has entered into a written
agreement with respect to such Sale Leaseback at such time.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by Holdings
and the Borrower on the date thereof as to the matters specified in paragraphs
(a) and (b) of this Section.
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal of
and interest on each Loan and all fees payable hereunder shall have been paid in
full and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, each of Holdings and the Borrower
covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. Each of Holdings
and the Borrower will furnish to the Administrative Agent and each Lender:
(a) within 100 days after the end of each fiscal year of Holdings, its
audited consolidated balance sheet and related statements of operations,
stockholders' equity and cash flows as of the end of and for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all reported on by Deloitte & Touche LLP or other independent
public accountants of recognized national standing (without a "going
concern" or like qualification or exception and without any qualification
or exception as to the scope of such audit) to the effect that such
consolidated financial statements present fairly in all material respects
the financial condition and results of operations of Holdings and its
consolidated subsidiaries on a consolidated basis in accordance with GAAP
consistently applied;
(b) within 50 days after the end of each of the first three fiscal
quarters of each fiscal year of Holdings, its consolidated balance sheet
and related statements of operations, stockholders' equity and cash flows
as of the end of and for such fiscal quarter and the then elapsed portion
of the fiscal year, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous fiscal year, all certified by
one of its Financial Officers as presenting fairly in all material respects
the financial condition and results of operations of Holdings and its
consolidated subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes;
(c) within 30 days after the end of each of the four-week fiscal
periods ending on a date other than the last day of a fiscal quarter of
Holdings, its consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such fiscal month and the then elapsed portion of the fiscal year, all
certified by one of its Financial Officers as presenting in all material
respects the financial condition and results of operations of Holdings and
its consolidated subsidiaries on a consolidated basis in accordance with
GAAP consistently applied, subject to normal year-end audit adjustments and
the absence of footnotes;
(d) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of Holdings
(i) certifying as to whether a
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Default has occurred and, if a Default has occurred, specifying the details
thereof and any action taken or proposed to be taken with respect thereto,
(ii) setting forth reasonably detailed calculations demonstrating
compliance with Sections 6.12, 6.13, 6.14 and 6.15 and (iii) stating
whether any change in GAAP or in the application thereof has occurred since
the date of the Borrower's audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of
such change on the financial statements accompanying such certificate;
(e) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any Default
(which certificate may be limited to the extent required by accounting
rules or guidelines);
(f) at least 15 days following the commencement of each fiscal year of
the Borrower, a detailed consolidated budget for such fiscal year
(including a projected consolidated balance sheet and related projected
statements of operations and cash flow as of the end of and for such fiscal
year) and, promptly when available, the final version of such budget and
any significant revisions thereto;
(g) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
Holdings, the Borrower or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, as
the case may be; and
(h) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of
Holdings, the Borrower or any Subsidiary, or compliance with the terms of
any Loan Document, as the Agents or any Lender may reasonably request.
SECTION 5.02. Notices of Material Events. Holdings and the Borrower will
furnish to the Administrative Agent and each Lender prompt written notice of the
following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or, to the
knowledge of an executive officer of Holdings or the Borrower, affecting
Holdings, the Borrower or any Affiliate thereof that could reasonably be
expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of Holdings, the Borrower and the Subsidiaries in an
aggregate amount exceeding $1,000,000; and
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
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SECTION 5.03. Information Regarding Collateral. (a) The Borrower will
furnish to the Administrative Agent prompt written notice of any change (i) in
any Loan Party's corporate name or in any trade name used to identify it in the
conduct of its business or in the ownership of its properties, (ii) in the
location of any Loan Party's chief executive office, its principal place of
business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
with an aggregate book value in excess of $250,000 is located (including the
establishment of any such new office or facility), (iii) in any Loan Party's
identity or corporate structure or (iv) in any Loan Party's Federal Taxpayer
Identification Number. Each of Holdings and the Borrower agrees not to effect or
permit any change referred to in the preceding sentence unless all filings have
been made under the Uniform Commercial Code or otherwise that are required in
order for the Administrative Agent to continue at all times following such
change to have a valid, legal and perfected security interest in all the
Collateral. The Borrower also agrees promptly to notify the Administrative Agent
if Collateral with a fair market value in excess of $250,000 is damaged in any
material respect or destroyed.
(b) Each year, at the time of delivery of annual financial statements with
respect to the preceding fiscal year pursuant to clause (a) of Section 5.01, the
Borrower shall deliver to the Administrative Agent a certificate of a Financial
Officer of the Borrower (i) setting forth the information required pursuant to
the Perfection Certificate or confirming that there has been no change in such
information since the date of the Perfection Certificate delivered on the
Effective Date or the date of the most recent certificate delivered pursuant to
this Section. Each certificate delivered pursuant to this Section 5.03(b) shall
identify in the format of Schedule II, III, IV or V of the Security Agreement,
all registered Intellectual Property of any Loan Party in existence on the date
thereof and not then listed on such Schedules or previously so identified.
SECTION 5.04. Existence; Conduct of Business. Each of Holdings and the
Borrower will, and will cause each of the Subsidiaries to, do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, licenses, permits, privileges, franchises,
patents, copyrights, trademarks and trade names material to the conduct of its
business, provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Obligations. Each of Holdings and the Borrower
will, and will cause each of the Subsidiaries to, pay (a) all material Taxes and
other charges of any Governmental Authority imposed on it or any of its
properties or assets or in respect of any of its franchises, business, income or
property before any material penalty or interest accrues thereon and (b) all
claims (including claims for labor, services, materials and supplies) for sums
that have become due and payable and that by law have or may become a Lien
(other than a Lien permitted under Section 6.02) upon any of the property or
assets of Holdings, the Borrower or any of its Subsidiaries, prior to the time
when any penalty or fine shall be incurred with respect thereto, except where
(i) the validity or amount thereof is being contested in good faith by
appropriate proceedings, (ii) Holdings, the Borrower or such Subsidiary has set
aside on its books adequate reserves with respect thereto in accordance with
GAAP, (iii) such contest effectively suspends collection of the contested
obligation and the enforcement of any Lien securing such obligation and (iv) the
failure to make payment pending such contest could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 5.06. Maintenance of Properties. Each of Holdings and the Borrower
will, and will cause each of the Subsidiaries to, keep and maintain all property
material to the conduct of its business in reasonable working order and
condition, ordinary wear and tear excepted.
SECTION 5.07. Insurance. (a) Each of Holdings and the Borrower will, and
will cause each of the Subsidiaries to, at all times maintain in full force and
effect, with
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financially sound and reputable insurance companies (i) adequate insurance for
its insurable properties, all to such extent and against such risks, including
fire, casualty and other risks insured against by extended coverage, as is
customary with companies of the same or similar size in the same or similar
businesses operating in the same or similar locations, (ii) such other insurance
as is required pursuant to the terms of any Security Document and (iii)
liability and other insurance in at least such amounts and against at least such
risks as are usually insured against by companies in the same or similar
businesses, and in each case, will furnish to the Lenders, upon written request
from the Administrative Agent, information presented in reasonable detail as to
the insurance so carried.
SECTION 5.08. Casualty and Condemnation. (a) The Borrower will furnish to
the Administrative Agent and the Lenders prompt written notice of any casualty
or other insured damage to any portion of any Collateral with a fair market
value in excess of $250,000 or the commencement of any action or proceeding for
the taking of any Collateral or any part thereof or interest therein under power
of eminent domain or by condemnation or similar proceeding.
(b) If any event described in paragraph (a) of this Section results in Net
Proceeds (whether in the form of insurance proceeds, condemnation award or
otherwise), the Administrative Agent is authorized to collect such Net Proceeds
and, if received by Holdings, the Borrower or any Subsidiary, such Net Proceeds
shall be paid over to the Administrative Agent, provided that (i) if the
aggregate Net Proceeds in respect of such event (other than proceeds of business
income insurance) are less than $250,000, such Net Proceeds shall be paid over
to the Borrower unless a Default has occurred and is continuing, and (ii) all
proceeds of business income insurance shall be paid over to the Borrower unless
a Default has occurred and is continuing. All such Net Proceeds retained by or
paid over to the Administrative Agent shall be held by the Administrative Agent
and released from time to time to pay the costs of repairing, restoring or
replacing the affected property or funding expenditures for assets in the same
business or any Related Business, in each case in accordance with the terms of
the applicable Security Document, subject to the provisions of the applicable
Security Document regarding application of such Net Proceeds during a Default.
(c) If any Net Proceeds retained by or paid over to the Administrative
Agent as provided above continue to be held by the Administrative Agent on the
date that is 18 months after the receipt of such Net Proceeds, then such Net
Proceeds shall be applied to prepay Term Borrowings as provided in Section
2.11(b).
SECTION 5.09. Books and Records; Inspection and Audit Rights. Each of
Holdings and the Borrower will, and will cause each of the Subsidiaries to, keep
proper books of record and account in which full, true and correct entries in
all material respects are made of all dealings and transactions in relation to
its business and activities. Each of Holdings and the Borrower will, and will
cause each of the Subsidiaries to, permit any representatives designated by the
Agents or any Lender, upon reasonable prior notice, to visit and inspect its
properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested.
SECTION 5.10. Compliance with Laws. Each of Holdings and the Borrower will,
and will cause each of the Subsidiaries to, comply with all laws, rules,
regulations and orders of any Governmental Authority applicable to it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The proceeds of the
Loans and each Letter of Credit will be used only for the purposes set forth in
the preamble of this Agreement. No part of the proceeds of any Loan will be
used, whether directly or indirectly,
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54
for any purpose that entails a violation of any of the Regulations of the Board,
including Regulations T, U and X.
SECTION 5.12. Additional Subsidiaries. If any additional Subsidiary is
formed or acquired after the Effective Date, the Borrower will notify the
Administrative Agent and the Lenders thereof and (a) if such Subsidiary is a
Subsidiary Loan Party, the Borrower will cause such Subsidiary to become a party
to the Subsidiary Guarantee Agreement, the Indemnity, Subrogation and
Contribution Agreement and each applicable Security Document in the manner
provided therein within three Business Days after such Subsidiary is formed or
acquired and promptly take such actions to create and perfect Liens on such
Subsidiary's assets to secure the Obligations as the Administrative Agent or the
Required Lenders shall reasonably request and (b) if any shares of capital stock
or Indebtedness of such Subsidiary are owned by or on behalf of any Loan Party,
the Borrower will cause such shares and promissory notes evidencing such
Indebtedness to be pledged pursuant to the Pledge Agreement within three
Business Days after such Subsidiary is formed or acquired (except that, if such
Subsidiary is a Foreign Subsidiary, shares of common stock of such Subsidiary to
be pledged pursuant to the Pledge Agreement may be limited to 65% of the
outstanding shares of common stock of such Subsidiary).
SECTION 5.13. Further Assurances. (a) Each of Holdings and the Borrower
will, and will cause each Subsidiary Loan Party to, execute any and all further
documents, financing statements, agreements and instruments, and take all such
further actions (including the filing and recording of financing statements,
fixture filings, mortgages, deeds of trust and other documents), that may be
required under any applicable law, or which the Administrative Agent or the
Required Lenders may reasonably request, to effectuate the transactions
contemplated by the Loan Documents or to grant, preserve, protect or perfect the
Liens created or intended to be created by the Security Documents or the
validity or priority of any such Lien, all at the expense of the Loan Parties.
Holdings and the Borrower also agree to provide to the Administrative Agent,
from time to time upon request, evidence reasonably satisfactory to the
Administrative Agent as to the perfection and priority of the Liens created or
intended to be created by the Security Documents.
(b) If any material assets (including any real property or improvements
thereto (other than any individual real property or improvements with a fair
market value not in excess of $250,000, provided that the aggregate fair market
value of all real property or improvements excluded pursuant to this
parenthetical shall in no event exceed $250,000 in the aggregate) or any
interest therein other than leasehold interests in real property) are acquired
by Holdings, the Borrower or any Subsidiary Loan Party after the Effective Date
(other than assets constituting Collateral under the Security Agreement that
become subject to the Lien of the Security Agreement upon acquisition thereof),
the Borrower will notify the Administrative Agent and the Lenders thereof, and,
if requested by the Administrative Agent or the Required Lenders, the Borrower
will cause such assets to be subjected to a Lien securing the Obligations and
will take, and cause the Subsidiary Loan Parties to take, such actions as shall
be necessary or reasonably requested by the Administrative Agent to grant and
perfect such Liens, including actions described in paragraph (a) of this
Section, all at the expense of the Loan Parties.
SECTION 5.14. Real Estate. Within 90 days following the Effective Date, the
Borrower shall deliver to the Collateral Agent, with respect to each of the
properties identified on Schedule 1.01(a) as "post-closing properties", the
items set forth in Section 4.01(h)(i) through (h)(v).
SECTION 5.15. Existing Convertible Debentures. Within 90 days following the
Effective Date, the Borrower shall repurchase or redeem all its issued and
outstanding Existing Convertible Debentures.
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55
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder have been paid in full and
all Letters of Credit have expired or terminated and all LC Disbursements shall
have been reimbursed, each of Holdings and the Borrower covenants and agrees
with the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity Securities. (a) The Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or permit
to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) the Senior Unsecured Notes and the Guarantees thereof;
(iii) Indebtedness existing on the date hereof and set forth in
Schedule 6.01 and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof
or result in an earlier final maturity date or decreased weighted average
life thereof;
(iv) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary, provided that
Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or
any Subsidiary Loan Party shall be subject to Section 6.04;
(v) Guarantees by the Borrower of Indebtedness of any Subsidiary and
by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary,
provided that Guarantees by the Borrower or any Subsidiary Loan Party of
Indebtedness of any Subsidiary that is not a Loan Party shall be subject to
Section 6.04;
(vi) Indebtedness of the Borrower or any Subsidiary incurred to
finance the acquisition, construction or improvement of any fixed or
capital assets, including Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or secured by
a Lien on any such assets prior to the acquisition thereof, and extensions,
renewals and replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof or result in an earlier final maturity
date or decreased weighted average life thereof, provided that (A) such
Indebtedness is incurred prior to or within 12 months after such
acquisition or the completion of such construction or improvement and (B)
the aggregate principal amount of Indebtedness permitted by this clause
(vi) shall not exceed $5,000,000 at any time outstanding;
(vii) Indebtedness of any Person that becomes a Subsidiary after the
date hereof and extensions, renewals and replacements thereof that do not
increase the outstanding principal amount thereof, provided that (A) such
Indebtedness exists at the time such Person becomes a Subsidiary and is not
created in contemplation of or in connection with such Person becoming a
Subsidiary and (B) the aggregate principal amount of Indebtedness permitted
by this clause (vii) shall not exceed $5,000,000 at any time outstanding;
(viii) unsecured Indebtedness not otherwise permitted hereunder in an
aggregate principal amount not exceeding $5,000,000 at any time
outstanding;
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56
(ix) Indebtedness under Hedging Agreements entered into in accordance
with Section 6.07;
(x) Indebtedness with respect to surety, appeal and performance bonds
obtained by Holdings, the Borrower or any of its Subsidiaries in the
ordinary course of business;
(xi) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two Business Days of its incurrence;
(xii) unsecured subordinated Indebtedness of the Borrower or any
Subsidiary assumed or incurred in connection with any Permitted
Acquisition, provided that (A) the subordination provisions of such
Indebtedness are reasonably satisfactory in all respects to the Agents, (B)
the terms of such Indebtedness shall not provide for any maturity,
amortization, sinking fund payment, mandatory redemption or other required
repayment or repurchase of such Indebtedness (other than any required offer
to repay or repurchase (x) with asset sale proceeds pursuant to customary
arrangements providing that the Borrower or such Subsidiary, as the case
may be, may (in lieu of making such offer) repay Indebtedness under this
Agreement or (y) pursuant to "change of control" provisions that are no
more restrictive than the analogous provisions contained in this
Agreement), in each case prior to the Maturity Date (C) the covenants and
events of default relating to such Indebtedness shall be no more
restrictive than those contained in this Agreement and (D) the aggregate
principal amount of such Indebtedness shall not exceed $10,000,000 in the
aggregate at any time outstanding;
(xiii) Capital Lease Obligations entered into in connection with
Permitted Existing Academy Sale Leasebacks; and
(xiv) Indebtedness arising from agreements of the Borrower or any
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 any Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of financing
such acquisition; provided, however, that (A) such Indebtedness is not
reflected on the balance sheet of the Borrower or any Subsidiary (provided
that contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will be deemed
not 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 it is
received and without giving effect to any subsequent changes in value),
actually received by the Borrower and its Subsidiaries in connection with
such disposition.
(b) Holdings will not create, incur, assume or permit to exist any
Indebtedness except Indebtedness created under the Loan Documents.
(c) Neither Holdings nor the Borrower will, nor will they permit any
Subsidiary to, issue any preferred stock (other than the Preferred Stock)
or be or become liable in respect of any obligation (contingent or
otherwise) to purchase, redeem, retire, acquire or make any other payment
in respect of any shares of capital stock of Holdings, the Borrower or any
Subsidiary or any option, warrant or other right to acquire any such shares
of capital stock.
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57
SECTION 6.02. Liens. (a) The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
or asset now owned or hereafter acquired by it, or assign or sell any income or
revenues (including accounts receivable) or rights in respect of any thereof,
except:
(i) Liens created under the Loan Documents;
(ii) Permitted Encumbrances;
(iii) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 6.02,
provided that (A) such Lien shall not apply to any other property or asset
of the Borrower or any Subsidiary except assets then being financed solely
by the same financing source and (B) except as permitted under clause (D)
of clause (v) of this Section, such Lien shall secure only those
obligations that it secures on the date hereof and extensions, renewals and
replacements thereof that do not increase the outstanding principal amount
thereof;
(iv) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary, provided that
(A) such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming a Subsidiary, as the case may be, (B)
such Lien shall not apply to any other property or assets of the Borrower
or any Subsidiary except assets then being financed solely by the same
financing source and (C) except as permitted under clause (D) of clause (v)
of this Section, such Lien shall secure only those obligations that it
secures on the date of such acquisition or the date such Person becomes a
Subsidiary, as the case may be and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof;
(v) Liens on fixed or capital assets acquired, constructed or improved
by the Borrower or any Subsidiary and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof,
provided that (A) such security interests secure Indebtedness permitted by
clause (vi) of Section 6.01(a), (B) such security interests and the
Indebtedness secured thereby are incurred prior to or within 12 months
after such acquisition or the completion of such construction or
improvement, (C) the Indebtedness secured thereby does not exceed 100% of
the cost of acquiring, constructing or improving such fixed or capital
assets and other fixed or capital assets then being financed solely by the
same financing source and (D) such security interests shall not apply to
any other property or assets of the Borrower or any Subsidiary except
assets then being financed solely by the same financing source;
(vi) Liens (other than those permitted by paragraphs (i) through (v)
above) securing liabilities permitted hereunder in an aggregate amount not
exceeding $1,000,000 at any time outstanding; and
(vii) licenses of intellectual property rights granted in the ordinary
course of business and not interfering in any material respect with the
conduct of the business.
(b) Holdings will not create, incur, assume or permit to exist any Lien on
any property or asset now owned or hereafter acquired by it, or assign or sell
any income or revenues (including accounts receivable) or rights in respect
thereof, except Liens created under any of the Security Documents and Permitted
Encumbrances.
SECTION 6.03. Fundamental Changes. (a) Holdings and the Borrower will not
and will not permit any Subsidiary to, merge into or consolidate with any other
Person, or permit
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58
any other Person to merge into or consolidate with it, or liquidate or dissolve,
except that, if at the time thereof and immediately after giving effect thereto
no Default shall have occurred and be continuing (i) any Subsidiary may merge
into the Borrower in a transaction in which the Borrower is the surviving
corporation, (ii) any Subsidiary may merge into any Subsidiary Loan Party in a
transaction in which the surviving entity is a Subsidiary Loan Party, (iii) any
Subsidiary that is not a Loan Party may merge into any Subsidiary that is not a
Loan Party, (iv) any Subsidiary may merge into any other Person that becomes a
Subsidiary Loan Party in connection with a Permitted Acquisition and (v) any
Subsidiary may liquidate or dissolve if the Borrower determines in good faith
that such liquidation or dissolution is in the best interests of the Borrower
and is not materially disadvantageous to the Lenders, provided that any such
merger involving a Person that is not a wholly owned Subsidiary immediately
prior to such merger shall not be permitted unless also permitted by Section
6.04.
(b) Holdings will not engage in any business or activity other than the
ownership of all the outstanding shares of capital stock of the Borrower and
activities incidental thereto. Holdings will not own or acquire any assets
(other than shares of capital stock of the Borrower, cash and Permitted
Investments) or incur any liabilities (other than liabilities under the Loan
Documents, liabilities under certain employment agreements and other written
employment arrangements, liabilities under the Preferred Stock, liabilities
imposed by law, including tax liabilities, and other liabilities incidental to
its existence and permitted business and activities).
SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions.
(a) The Borrower will not, and will not permit any of the Subsidiaries to,
purchase, hold or acquire (including pursuant to any merger with any Person that
was not a wholly owned Subsidiary prior to such merger) any capital stock,
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist
any investment or any other interest in, any other Person, or purchase or
otherwise acquire (in one transaction or a series of transactions) any assets of
any other Person constituting a business unit, except, subject to clause (b)
hereof:
(i) Permitted Investments;
(ii) Permitted Acquisitions;
(iii) investments existing on the date hereof and set forth on
Schedule 6.04, to the extent such investments would not be permitted under
any other clause of this Section;
(iv) investments by the Borrower in the capital stock of the
Subsidiaries, provided that (A) any such shares of capital stock shall be
pledged pursuant to the Pledge Agreement (subject to the limitations
applicable to common stock of a Foreign Subsidiary referred to in Section
5.12) and (B) the amount of investments by the Borrower in Subsidiaries
that are not Loan Parties shall not exceed $1,000,000 in the aggregate at
any time outstanding;
(v) loans or advances made by the Borrower to any Subsidiary and made
by any Subsidiary to the Borrower or any other Subsidiary, provided that
(A) any such loans and advances made by a Loan Party shall be evidenced by
a promissory note pledged pursuant to the Pledge Agreement and (B) the
amount of all such loans and advances by Loan Parties to Subsidiaries that
are not Loan Parties shall not exceed $1,000,000 in the aggregate at any
time outstanding;
(vi) Guarantees constituting Indebtedness permitted by Section 6.01,
provided that the amount of Indebtedness that is (A) outstanding with
respect to Subsidiaries that
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59
are not Loan Parties and (B) Guaranteed by any Loan Party shall not exceed
$1,000,000 in the aggregate at any time outstanding;
(vii) loans to employees of the Borrower and the Subsidiaries in their
capacity as such, in an aggregate principal amount not to exceed $1,000,000
at any time outstanding except that loans to employees for the purpose of
acquiring capital stock of Holdings the Net Proceeds of which capital stock
is contributed to the capital of the Borrower or used to acquire capital
stock of the Borrower shall not be subject to such limit;
(viii) Hedging Agreements permitted under Section 6.07;
(ix) investments in Joint Ventures in an aggregate amount not to
exceed $2,000,000 at any time outstanding;
(x) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
(xi) extensions of trade credit in the ordinary course of business;
(xii) investments constituting non-cash proceeds of any sale, transfer
or other disposition permitted by Section 6.05;
(xiii) investments of any Person existing at the time such Person
becomes a Subsidiary or at the time such Person merges or consolidates with
the Borrower or any of its Subsidiaries, in either case in compliance with
the terms of this Agreement, provided that such investments were not made
by such Person in connection with, or in anticipation or contemplation of,
such Person becoming a Subsidiary or such merger or consolidation;
(xiv) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business; and
(xv) other investments in an aggregate amount not to exceed $1,000,000
at any time outstanding.
(b) Notwithstanding anything to the contrary contained in this Agreement,
the Borrower will not, and will not permit any of the Subsidiaries to, make any
investments (by way of any loan, guarantee, capital contribution to, or purchase
of stock, bonds, notes or other securities of or any assets constituting a
business unit of, any Person or otherwise) outside the business of the Borrower
as conducted on the Effective Date in an aggregate amount in excess of
$5,000,000 during the term of this Agreement.
SECTION 6.05. Asset Sales. The Borrower will not, and will not permit any
of the Subsidiaries to, sell, transfer, lease or otherwise dispose of any asset,
including any capital stock (other than any such sale, transfer, lease or other
disposition resulting from any casualty or condemnation of any assets of the
Borrower or any of its Subsidiaries), nor will the Borrower permit any of it
Subsidiaries to issue any additional shares of its capital stock or other
ownership interest in such Subsidiary, except:
(a) sales of inventory, used or surplus tangible personal property and
Permitted Investments in the ordinary course of business;
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(b) sales, transfers and dispositions to the Borrower or a Subsidiary,
provided that any such sales, transfers or dispositions involving a
Subsidiary that is not a Loan Party shall be made in compliance with
Section 6.09;
(c) any Sale Leaseback permitted pursuant to Section 6.06; and
(d) sales, transfers and dispositions of assets (other than capital
stock of a Subsidiary) that are not permitted by any other clause of this
Section, provided that the aggregate fair market value of all assets sold,
transferred or otherwise disposed of in reliance upon this clause (d) shall
not exceed $5,000,000 during any fiscal year of the Borrower,
provided that (i) all sales, transfers, leases and other dispositions permitted
hereby shall be made for fair value and, subject to clause (ii) hereof, for
consideration at least 80% of which is cash, and (ii) notwithstanding the
foregoing, the Borrower shall be permitted to sell, transfer or otherwise
dispose of any Academy for consideration consisting, in whole or in part, of a
note or notes not to exceed $500,000 for any such Academy and an aggregate
amount not to exceed $5,000,000 for all notes at any time outstanding, provided
that in the case of this clause (ii), (A) the Borrower has made a good faith
effort to comply with the requirements of clause (i) hereof and (B) any such
notes are pledged to the Collateral Agent in accordance with the terms of this
Agreement and the Pledge Agreement.
SECTION 6.06. Sale and Lease-Back Transactions. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into any Sale Leaseback other
than (a) any Permitted New Academy Sale Leaseback, provided that the Borrower
shall, promptly after the Net Proceeds with respect to such Permitted New
Academy Sale Leaseback are received, repay outstanding Revolving Loans in an
aggregate amount equal to such Net Proceeds (it being understood that the
Borrower may retain the amount by which such Net Proceeds exceed the amount of
outstanding Revolving Loans), and (b) any Permitted Existing Academy Sale
Leaseback, provided that (i) the aggregate fair value of Academies subject to
all transactions to which this clause (b) applies shall not exceed on a
cumulative basis during the term of this Agreement $30,000,000, (ii) the first
$500,000 of aggregate Net Proceeds of any such Permitted Existing Academy Sale
Leaseback shall be reinvested as contemplated by the definition of the term "Net
Proceeds" or applied to prepay Term Loans as required by this Agreement and
(iii) all Net Proceeds after the first $500,000 of aggregate Net Proceeds shall
be applied to prepay Term Loans as required by this Agreement (it being
understood that such Net Proceeds may not be so reinvested).
SECTION 6.07. Hedging Agreements. The Borrower will not, and will not
permit any of the Subsidiaries to, enter into any Hedging Agreement, other than
Hedging Agreements entered into in the ordinary course of business to hedge or
mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct
of its business or the management of its liabilities.
SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness. (a)
Holdings and the Borrower will not, and will not permit any Subsidiary to,
declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, except (i) Holdings may declare and pay dividends with respect to its
capital stock payable solely in additional shares of its capital stock, (ii) the
Borrower may repurchase or acquire shares of, or options to purchase shares of,
its common stock from employees, former employees, directors or former directors
of the Borrower or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors) pursuant to the
terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors of the Borrower under
which such individuals purchase or sell or are granted the option to purchase or
sell, shares of such common stock, provided that the aggregate amount of such
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repurchases shall not exceed $250,000 in any fiscal year of the Borrower and
(iii) Subsidiaries may declare and pay dividends ratably with respect to their
capital stock. Notwithstanding the foregoing, the Borrower may make Restricted
Payments to Holdings (but with respect to clauses (ii), (iv) and (v) below, only
if no Default or Event of Default has occurred and is continuing or would be
continuing after giving effect to such Restricted Payment):
(i) the proceeds of which shall be applied by Holdings directly to pay
out-of-pocket expenses, for administrative, legal and accounting services
provided by third parties that are reasonable and customary and incurred in
the ordinary course of business for such professional services, or to pay
franchise fees and similar costs; provided, however, any such
administrative expenses shall not exceed an aggregate amount of $500,000
per fiscal year;
(ii) payments, the proceeds of which will be used to repurchase the
capital stock of Holdings owned by former employees of the Borrower and its
Subsidiaries or their assigns, estates and heirs, at a price not in excess
of fair market value determined in good faith by the Board of Directors of
Holdings or the Borrower, in an aggregate amount not in excess of
$1,500,000 per annum, net of the proceeds received by Holdings as a result
of any resales of any such capital stock or other securities plus any
unused amounts from any immediately preceding fiscal year, provided that
the aggregate amount of all such payments shall not exceed $5,000,000
during the term of this Agreement, net of the proceeds received by Holdings
as a result of any resales of any such capital stock or other securities;
(iii) payments, the proceeds of which will be used to pay taxes of
Holdings, the Borrower and the Subsidiaries as part of a consolidated,
combined or unitary tax filing group;
(iv) payments, the proceeds of which will be used to pay fees to
Sponsor in accordance with the terms of the Management Agreement; and
(v) at any time after the fifth anniversary of the Effective Date, the
proceeds of which shall be applied by Holdings to pay in cash scheduled
dividends on the Preferred Stock in accordance with its terms, provided
that such Restricted Payments shall not exceed in any quarterly period the
amounts scheduled with respect to the Preferred Stock for such quarter.
(b) Holdings and the Borrower will not, and will not permit any Subsidiary
to, make or agree to pay or make, directly or indirectly, any payment or other
distribution (whether in cash securities or other property) of or in respect of
principal of or interest on any Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancelation or termination of any Indebtedness, except:
(i) payment of Indebtedness created under the Loan Documents;
(ii) payment of regularly scheduled interest and principal payments as
and when due in respect of any Indebtedness permitted pursuant to Section
6.01(a);
(iii) refinancings of Indebtedness to the extent permitted by Section
6.01; and
(iv) payment of secured Indebtedness that becomes due as a result of
any transfer not prohibited by this Agreement of the property or assets
securing such Indebtedness.
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SECTION 6.09. Transactions with Affiliates. Holdings and the Borrower will
not, and will not permit any Subsidiary to, sell, lease or otherwise transfer
any property or assets to, or purchase, lease or otherwise acquire any property
or assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions in the ordinary course of business that are
at prices and on terms and conditions not less favorable to the Borrower or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties (as determined in good faith by a majority of the disinterested members
of the Board of Directors of Holdings or the Borrower, as the case may be), (b)
transactions between or among the Borrower and the Subsidiary Loan Parties not
involving any other Affiliate, (c) any Restricted Payment permitted by Section
6.08, (d) reasonable fees and compensation paid to, and indemnity provided on
behalf of, officers, directors, employees, consultants or agents of Holdings,
the Borrower or any Subsidiary as determined in good faith by the Board of
Directors of Holdings or the Borrower and (e) any transactions undertaken
pursuant to any contractual obligations in existence on the Effective Date (as
in effect on the Effective Date) and set forth on Schedule 6.09.
SECTION 6.10. Restrictive Agreements. Holdings and the Borrower will not,
and will not permit any Subsidiary to, directly or indirectly, enter into, incur
or permit to exist any agreement or other arrangement that prohibits, restricts
or imposes any condition upon (a) the ability of Holdings, the Borrower or any
Subsidiary to create, incur or permit to exist any Lien upon any of its property
or assets, or (b) the ability of any Subsidiary to pay dividends or other
distributions with respect to any shares of its capital stock or to make or
repay loans or advances to the Borrower or any other Subsidiary or to Guarantee
Indebtedness of the Borrower or any other Subsidiary, provided that (i) the
foregoing shall not apply to restrictions and conditions imposed by law or by
any Loan Document, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule 6.10 (but shall
apply to any extension or renewal of, or any amendment or modification expanding
the scope of, any such restriction or condition), (iii) the foregoing shall not
apply to customary restrictions and conditions contained in agreements relating
to the sale of a Subsidiary or any property or assets of a Subsidiary pending
such sale, provided such restrictions and conditions apply only to the
Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause
(a) of the foregoing shall not apply to restrictions or conditions imposed by
any agreement relating to secured Indebtedness permitted by this Agreement if
such restrictions or conditions apply only to the property or assets securing
such Indebtedness and (v) clause (a) of the foregoing shall not apply to
customary provisions in leases, licenses and similar contracts restricting the
subletting, assignment or transfer thereof, or any property or asset the subject
thereof.
SECTION 6.11. Amendment of Material Documents. (a) Holdings and the
Borrower will not, and will not permit any Subsidiary to, amend, modify or waive
any of its rights under (i) their respective certificates of incorporation,
by-laws or other organizational documents, (ii) the Management Agreement, (iii)
the Merger Agreement, (iv) the Certificate of Designations, (v) the Senior
Unsecured Notes or the Senior Unsecured Notes Indenture or (vi) the Stockholders
Agreement, in each case other than amendments, modifications or waivers that
would not reasonably be expected to adversely affect the interests of the
Lenders.
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63
SECTION 6.12. Capital Expenditures. (a) The Borrower will not permit the
aggregate amount of Capital Expenditures made by the Borrower and the
Subsidiaries in any fiscal year to exceed the amount set forth below opposite
such year:
Fiscal Year Ending Amount
------------------ ------
1998 $15,000,000
1999 $17,000,000
2000 $20,000,000
2001 $20,000,000
2002 $22,000,000
2003 $26,000,000
2004 $26,000,000
2005 $25,000,000
(b) Notwithstanding the foregoing, in the event that the amount of Capital
Expenditures permitted to be made by the Borrower and its Subsidiaries pursuant
to clause (a) in any fiscal year is greater than the amount of Capital
Expenditures made by the Borrower and its Subsidiaries during such fiscal year,
75% of such excess may be carried forward and utilized in the immediately
succeeding fiscal year (it being understood and agreed that (i) no amount may be
carried forward beyond the year immediately succeeding the fiscal year in which
it arose and (ii) no portion of the carry-forward amount available in 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 have been made).
SECTION 6.13. Leverage Ratio. The Borrower will not permit the Leverage
Ratio for any fiscal quarter ending during any period set forth below to be in
excess of the ratio set forth below opposite such period:
Period Ratio
------ -----
June 1998 through June 1999 6.50 to 1.00
August 1999 through December 1999 6.25 to 1.00
March 2000 through June 2000 6.00 to 1.00
August 2000 through December 2000 5.75 to 1.00
March 2001 through August 2001 5.50 to 1.00
December 2001 5.25 to 1.00
March 2002 through June 2002 5.00 to 1.00
August 2002 through December 2002 4.75 to 1.00
March 2003 through June 2003 4.50 to 1.00
August 2003 through December 2003 4.00 to 1.00
March 2004 through June 2004 3.75 to 1.00
August 2004 through December 2004 3.50 to 1.00
March 2005 through Maturity Date 3.00 to 1.00
SECTION 6.14. Consolidated Fixed Charge Coverage Ratio. The Borrower will
not permit the Consolidated Fixed Charge Coverage Ratio for any
four-fiscal-quarter period ending during any period set forth below to be less
than the ratio set forth below opposite such period:
Period Ratio
------ -----
December 1998 through August 2001 1.00 to 1.00
December 2001 through June 2003 1.05 to 1.00
August 2003 through Maturity Date 1.10 to 1.00
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64
SECTION 6.15. Minimum Consolidated EBITDA. The Borrower will not permit
Consolidated EBITDA for any four-fiscal-quarter period ending during any period
set forth below to be less than the amount set forth below opposite such period:
Period Amount
------ ------
June 1998 through August 1998 $29,000,000
December 1998 through March 2000 $30,000,000
June 2000 through August 2000 $31,000,000
December 2000 through August 2001 $33,000,000
December 2001 through August 2002 $35,000,000
December 2002 through August 2003 $37,000,000
December 2003 through June 2004 $41,000,000
August 2004 through Maturity Date $45,000,000
SECTION 6.16. Changes in Fiscal Periods . Each of Holdings and the Borrower
will not, and will not permit any Subsidiary to, change its fiscal year or its
method of determining fiscal quarters without the prior written approval of the
Agents.
ARTICLE VII
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement or any other Loan Document, when and
as the same shall become due and payable, and such failure shall continue
unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made by or on behalf
of Holdings, the Borrower or any Subsidiary in or in connection with any
Loan Document or any amendment or modification thereof or waiver
thereunder, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with any Loan Document or
any amendment or modification thereof or waiver thereunder, shall prove to
have been incorrect, or in the case of any representation or warranty not
qualified as to materiality, incorrect in any material respect, when made
or deemed made;
(d) Holdings or the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.04 (with
respect to the existence of Holdings or the Borrower) or 5.11 or in Article
VI;
(e) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in any Loan Document (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after written notice
thereof from the Administrative Agent to the Borrower (which notice will be
given at the request of any Lender);
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65
(f) Holdings, the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any Material Indebtedness, when and as the same shall become due
and payable, including any applicable grace period;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become
due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity, provided that this clause (g)
shall not apply to secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of, or casualty or condemnation affecting, the
property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of Holdings, the Borrower or any Subsidiary or its debts,
or of a substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect or (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for Holdings, the Borrower or
any Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60 days or
an order or decree approving or ordering any of the foregoing shall be
entered;
(i) Holdings, the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or petition described in clause (h)
of this Article, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for Holdings, the Borrower or any Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;
(j) Holdings, the Borrower or any Subsidiary shall become unable,
admit in writing its inability or fail generally to pay its debts as they
become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $1,000,000 shall be rendered against Holdings, the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor to attach or levy upon any assets of Holdings,
the Borrower or any Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the reasonable opinion
of the Required Lenders, when taken together with all other ERISA Events
that have occurred, could reasonably be expected to result in liability of
Holdings, the Borrower or any Subsidiary or any combination thereof in an
aggregate amount exceeding (i) $500,000 in any year or (ii) $1,000,000 for
all periods;
(m) any Lien purported to be created under any Security Document shall
cease to be, or shall be asserted by any Loan Party not to be, a valid and
perfected Lien on any
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66
Collateral with a fair market value in excess of $500,000, with the
priority required by the applicable Security Document, except (i) as a
result of the sale or other disposition of the applicable Collateral in a
transaction permitted under the Loan Documents or (ii) as a result of the
Administrative Agent's failure to maintain possession of any stock
certificates, promissory notes or other instruments delivered to it under
the Pledge Agreement; or
(n) a Change of Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrower accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; and in case of any
event with respect to the Borrower described in clause (h) or (i) of this
Article, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other obligations of the Borrower accrued hereunder, shall automatically become
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
Each of the Lenders and the Issuing Bank hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms of the Loan Documents, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the same
rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with Holdings, the Borrower or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations except
those expressly set forth in the Loan Documents. Without limiting the generality
of the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing, (b) the Administrative Agent shall not have any duty to take
any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that the Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02), and (c) except as
expressly set forth in the Loan Documents, the Administrative Agent shall not
have any duty to disclose, and shall not be liable for the failure to disclose,
any information relating to Holdings, the Borrower or any of the Subsidiaries
that is communicated
<PAGE>
67
to or obtained by the bank serving as Administrative Agent or any of its
Affiliates in any capacity. The Administrative Agent shall not be liable for any
action taken or not taken by it with the consent or at the request of the
Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02) or in the absence
of its own gross negligence or wilful misconduct. The Administrative Agent shall
not be deemed to have knowledge of any Default unless and until written notice
thereof is given to the Administrative Agent by Holdings, the Borrower or a
Lender, and the Administrative Agent shall not be responsible for or have any
duty to ascertain or inquire into (a) any statement, warranty or representation
made in or in connection with any Loan Document, (b) the contents of any
certificate, report or other document delivered thereunder or in connection
therewith, (c) the performance or observance of any of the covenants, agreements
or other terms or conditions set forth in any Loan Document, (d) the validity,
enforceability, effectiveness or genuineness of any Loan Document or any other
agreement, instrument or document or (e) the satisfaction of any condition set
forth in Article IV or elsewhere in any Loan Document, other than to confirm
receipt of items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise
its rights and powers by or through any one or more sub-agents appointed by the
Administrative Agent. The Administrative Agent and any such sub-agent may
perform any and all its duties and exercise its rights and powers through their
respective Related Parties. The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of each
Administrative Agent and any such sub-agent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor the Administrative
Agent as provided in this paragraph, the Administrative Agent may resign at any
time by notifying the Lenders, the Issuing Bank and the Borrower. Upon any such
resignation, the Required Lenders shall have the right, with the consent of the
Borrower (such consent not to be unreasonably withheld), to appoint a successor.
If no successor shall have been so appointed by the Required Lenders and shall
have accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may, on behalf of the Lenders and the Issuing Bank, appoint a successor
Administrative Agent that shall be a bank with an office in New York, New York,
or an Affiliate of any such bank. Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Administrative Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
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68
Each Lender acknowledges 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 credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges 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 from time
to time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement, any other Loan Document or
related agreement or any document furnished hereunder or thereunder.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to Holdings or the Borrower, to it at 14 Corporate Woods, 8717
West 10th Street, Suite 300, Overland Park, KS 66201, Attention of Phillip
M. Kane (Telecopy No. 913-345-9601) with a copy to Chase Capital Partners,
380 Madison Avenue - 12th Floor, New York, NY 10017, Attention of Stephen
P. Murray (Telecopy No. 212-622-3101);
(b) if to the Administrative Agent, the Documentation Agent or the
Collateral Agent, to NationsBank, N.A., 901 Main Street, 13th Floor,
Dallas, Texas 75202, Attention of Credit Services (Telecopy No.
214-508-2515) with a copy to Bruce Easterly, NationsBank, N.A., 14 West
10th Street, 5th Floor, Kansas City, MO 64105 (Telecopy No. 816-979-7426);
(c) if to the Issuing Bank, to Chase Bank of Texas, N.A., 2200 Ross
Avenue - 3rd Floor, Dallas, Texas 75201, Attention of Brenda Harris
(Telecopy No. 214-965-2044) with a copy to Ana Laura Moreira (Telecopy No.
214-965-2997);
(d) if to the Swingline Lender, to Chase Bank of Texas, N.A., 2200
Ross Avenue - 3rd Floor, Dallas, Texas 75201, Attention of Brenda Harris
(Telecopy No. 214-965-2044) with a copy to Ana Laura Moreira (Telecopy No.
214-965-2997); and
(e) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by any Agent,
the Issuing Bank, the Swingline Lender or any Lender in exercising any right or
power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Agents, the Issuing Bank, the
Swingline Lender and the Lenders hereunder and under the other Loan Documents
are cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of any Loan Document or consent to
any departure by any Loan Party therefrom shall
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69
in any event be effective unless the same shall be permitted by paragraph (b) of
this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the
generality of the foregoing, the making of a Loan or issuance of a Letter of
Credit shall not be construed as a waiver of any Default, regardless of whether
any Agent, any Lender, the Swingline Lender or the Issuing Bank may have had
notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any provision
hereof or thereof may be waived, amended or modified except, in the case of this
Agreement, pursuant to an agreement or agreements in writing entered into by
Holdings, the Borrower and the Required Lenders or, in the case of any other
Loan Document, pursuant to an agreement or agreements in writing entered into by
the Administrative Agent and the Syndication Agent (or, if applicable, the
Collateral Agent) and the Loan Party or Loan Parties that are parties thereto,
in each case with the consent of the Required Lenders, provided that no such
agreement shall (i) increase the Commitment of any Lender without the written
consent of such Lender, (ii) reduce the principal amount of any Loan or LC
Disbursement or reduce the rate of interest thereon, or reduce any fees payable
hereunder, without the written consent of each Lender affected thereby, (iii)
postpone the scheduled date of payment of the principal amount of any Loan or LC
Disbursement, or any interest thereon, or any fees payable hereunder, or reduce
the amount of, waive or excuse any such payment, or postpone the scheduled date
of expiration of any Commitment, without the written consent of each Lender
affected thereby, (iv) change Section 2.18(b) or (c) in a manner that would
alter the pro rata sharing of payments required thereby, without the written
consent of each Lender, (v) change any of the provisions of this Section or the
definition of the term "Required Lenders" or any other provision of any Loan
Document specifying the number or percentage of Lenders (or Lenders of any
Class) required to waive, amend or modify any rights thereunder or make any
determination or grant any consent thereunder, without the written consent of
each Lender (or each Lender of such Class, as the case may be), (vi) release
Holdings or any Subsidiary Loan Party from its Guarantee under the applicable
Guarantee Agreement (except as expressly provided in such Guarantee Agreement),
or limit its liability in respect of such Guarantee, without the written consent
of each Lender, (vii) waive any mandatory prepayment hereunder, without the
written consent of Lenders holding a majority in interest of the outstanding
Loans and unused Commitments of each Class; (viii) release all or any
substantial portion of the Collateral from the Liens of the Security Documents,
without the written consent of each Lender, except for any Collateral sold or
otherwise transferred in accordance with the terms of this Agreement, or (ix)
change any provisions of any Loan Document in a manner that by its terms
adversely affects the rights in respect of payments due to Lenders holding Loans
of any Class differently than those holding Loans of any other Class, without
the written consent of Lenders holding a majority in interest of the outstanding
Loans and unused Commitments of each affected Class, and provided further that
(A) no such agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent, the Collateral Agent, the Syndication Agent,
the Swingline Lender or the Issuing Bank without the prior written consent of
the Administrative Agent, the Collateral Agent, the Syndication Agent, the
Swingline Lender or the Issuing Bank, as the case may be, and (B) any waiver,
amendment or modification of this Agreement that by its terms affects the rights
or duties under this Agreement of the Revolving Lenders (but not the Term
Lenders) or the Term Lenders (but not the Revolving Lenders) may be effected by
an agreement or agreements in writing entered into by Holdings, the Borrower and
the requisite percentage in interest of the affected Class of Lenders that would
be required to consent thereto under this Section if such Class of Lenders were
the only Class of Lenders hereunder at the time.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall
pay (i) all reasonable out-of-pocket expenses incurred by the Administrative
Agent, the Collateral Agent, the Documentation Agent, the Syndication Agent and
their respective Affiliates, including the reasonable fees, charges and
disbursements of counsel for the Agents, in connection with the syndication of
the credit facilities provided for herein, the preparation and
<PAGE>
administration of the Loan Documents or any amendments, modifications or waivers
of the provisions thereof (whether or not the transactions contemplated hereby
or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses
incurred by the Issuing Bank in connection with the issuance, amendment, renewal
or extension of any Letter of Credit or any demand for payment thereunder, and
(iii) all out-of-pocket expenses incurred by the Administrative Agent, the
Collateral Agent, the Documentation Agent, the Syndication Agent, the Issuing
Bank, the Swingline Lender or any Lender, including the reasonable fees, charges
and disbursements of any counsel for the Administrative Agent, the Collateral
Agent, the Documentation Agent, the Syndication Agent, the Issuing Bank, the
Swingline Lender or any Lender, in connection with the enforcement or protection
of its rights in connection with the Loan Documents, including its rights under
this Section, or in connection with the Loans made or Letters of Credit issued
hereunder, including all such out-of-pocket expenses incurred during any
workout, restructuring or negotiations in respect of such Loans or Letters of
Credit.
(b) The Borrower shall indemnify the Administrative Agent, the Collateral
Agent, the Documentation Agent, the Syndication Agent, the Issuing Bank, the
Swingline Lender and each Lender, and each Related Party of any of the foregoing
Persons (each such Person being called an "Indemnitee") against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and
related expenses, including the fees, charges and disbursements of any counsel
for any Indemnitee, incurred by or asserted against any Indemnitee arising out
of, in connection with, or as a result of (i) the execution or delivery of any
Loan Document or any other agreement or instrument contemplated hereby, the
performance by the parties to the Loan Documents of their respective obligations
thereunder or the consummation of the Transactions or any other transactions
contemplated hereby, (ii) any Loan or Letter of Credit or the use of the
proceeds therefrom (including any refusal by the Issuing Bank to honor a demand
for payment under a Letter of Credit if the documents presented in connection
with such demand do not strictly comply with the terms of such Letter of
Credit), (iii) any actual or alleged presence or release of Hazardous Materials
on or from any Mortgaged Property or any other property currently or formerly
owned or operated by Holdings, the Borrower or any of the Subsidiaries, or any
Environmental Liability related in any way to Holdings, the Borrower or any of
the Subsidiaries or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto, provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses resulted from the gross negligence or wilful misconduct of such
Indemnitee or any Affiliate of such Indemnitee (or of any officer, director,
employee, advisor or agent of such Indemnitee) or any of such Indemnitee's
Affiliates or to the extent such damages constitute special, indirect or
consequential damages (as opposed to direct or actual damages).
(c) To the extent that the Borrower fails to pay any amount required to be
paid by it to the Administrative Agent, the Collateral Agent, the Documentation
Agent, the Syndication Agent, the Issuing Bank or the Swingline Lender under
paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the
Administrative Agent, the Syndication Agent, the Collateral Agent, the Issuing
Bank or the Swingline Lender, as the case may be, such Lender's pro rata share
(determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount, provided that the unreimbursed expense
or indemnified loss, claim, damage, liability or related expense, as the case
may be, was incurred by or asserted against the Administrative Agent, the
Collateral Agent, the Documentation Agent, the Syndication Agent, the Issuing
Bank or the Swingline Lender in its capacity as such. For purposes hereof, a
Lender's "pro rata share" shall be determined based upon its share of the sum of
the total Revolving Exposures, outstanding Term Loans and unused Commitments at
the time.
(d) To the extent permitted by applicable law, Holdings and the Borrower
shall not assert, and each hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages)
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70
arising out of, in connection with, or as a result of, this Agreement or any
agreement or instrument contemplated hereby, the Transactions, any Loan or
Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly after
written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit), except that each of Holdings
and the Borrower may not assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
attempted assignment or transfer by Holdings or the Borrower without such
consent shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit) and, to the
extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent, the Collateral Agent, the Documentation Agent, the
Syndication Agent, the Issuing Bank, the Swingline Lender and the Lenders) any
legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of its
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it), provided that (i) except in
the case of an assignment to a Lender or an Affiliate of a Lender, each of the
Borrower and the Administrative Agent (and, in the case of an assignment of all
or a portion of a Revolving Commitment or any Lender's obligations in respect of
its LC Exposure or Swingline Exposure, the Issuing Bank and the Swingline
Lender) must give their prior written consent to such assignment (which consent
shall not be unreasonably withheld or delayed), (ii) except in the case of an
assignment to a Lender or an Affiliate of a Lender or an assignment of the
entire remaining amount of the assigning Lender's Commitment or Loans, the
amount of the Commitment or Loans of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Administrative Agent) shall not be less
than $5,000,000 unless each of the Borrower and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender's rights and obligations
under this Agreement, except that this clause (iii) shall not be construed to
prohibit the assignment of a proportionate part of all the assigning Lender's
rights and obligations in respect of one Class of Commitments or Loans, (iv) the
parties to each assignment shall execute and deliver to the Administrative Agent
an Assignment and Acceptance, together with a processing and recordation fee of
$3,500, and (v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire, and provided further that
any consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default under clause (h) or (i) of Article VII has
occurred and is continuing. Subject to acceptance and recording thereof pursuant
to paragraph (d) of this Section, from and after the effective date specified in
each Assignment and Acceptance the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment and Acceptance,
have the rights and obligations of a Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to the
benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this paragraph shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
paragraph (e) of this Section.
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71
(c) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices in Charlotte, North Carolina a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and Holdings, the Borrower, the Administrative
Agent, the Issuing Bank, the Swingline Lender and the Lenders may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement, notwithstanding notice to
the contrary. The Register shall be available for inspection by the Borrower,
the Issuing Bank, the Swingline Lender and any Lender, at any reasonable time
and from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance executed
by an assigning Lender and an assignee, the assignee's completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this Section and
any written consent to such assignment required by paragraph (b) of this
Section, the Administrative Agent shall accept such Assignment and Acceptance
and record the information contained therein in the Register. No assignment
shall be effective for purposes of this Agreement unless it has been recorded in
the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the Administrative
Agent, the Issuing Bank or the Swingline Lender, sell participations to one or
more banks or other entities (a "Participant") in all or a portion of such
Lender's rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans owing to it), provided that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) such Lender shall be solely responsible for any
withholding taxes or any filing or reporting requirements relating to such
Participant and (iv) Holdings, the Borrower, the Administrative Agent, the
Issuing Bank, the Swingline Lender and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce the Loan Documents and to approve any amendment,
modification or waiver of any provision of the Loan Documents, provided that
such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso (other than clause (viii) thereof) to Section
9.02(b) that affects such Participant. Subject to paragraph (f) of this Section,
the Borrower agrees that each Participant shall be entitled to the benefits of
Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to paragraph (b) of this Section.
To the extent permitted by law, each Participant also shall be entitled to the
benefits of Section 9.08 as though it were a Lender, provided such Participant
agrees to be subject to Section 2.18(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.15, 2.16 or 2.17 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless this restriction is waived by the Borrower and the aggregate amount
payable to any Participant and the applicable Lender pursuant any such Section
shall not exceed the amount that the applicable Lender would have been entitled
to receive with respect to such participation had such participation not been
sold to such Participant.
(g) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender, including any
<PAGE>
73
pledge or assignment to secure obligations to a Federal Reserve Bank, and this
Section shall not apply to any such pledge or assignment of a security interest,
provided that no such pledge or assignment of a security interest shall release
a Lender from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations and
warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instru ments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that any Agent, the Issuing Bank, the
Swingline Lender or any Lender may have had notice or knowledge of any Default
or incorrect representation or warranty at the time any credit is extended
hereunder, and shall continue in full force and effect as long as the principal
of or any accrued interest on any Loan or any fee or any other amount payable
under this Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Commitments or the termination of
this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may
be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement, the other
Loan Documents and any separate letter agreements with respect to fees payable
to the Administrative Agent or the Syndication Agent constitute the entire
contract among the parties relating to the subject matter hereof and supersede
any and all previous agreements and understandings, oral or written, relating to
the subject matter hereof. Except as provided in Section 4.01, this Agreement
shall become effective when it shall have been executed by the Administrative
Agent and the Syndication Agent and when the Administrative Agent shall have
received counterparts hereof that, when taken together, bear the signatures of
each of the other parties hereto, and thereafter shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Set-off. If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of the Borrower
against any of and all the obligations of the Borrower now or hereafter existing
under this Agreement held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement and although such
obligations may be unmatured. The rights of each Lender under this Section are
in addition to other rights and remedies (including other rights of setoff) that
such Lender may have.
<PAGE>
74
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
(b) Each of Holdings and the Borrower hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement or any other Loan Document shall
affect any right that the Administrative Agent, the Issuing Bank, the Swingline
Lender or any Lender may otherwise have to bring any action or proceeding
relating to this Agreement or any other Loan Document against Holdings, the
Borrower or its properties in the courts of any jurisdiction.
(c) Each of Holdings and the Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 9.01. Nothing in this Agreement or
any other Loan Document will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
SECTION 9.10. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Agents, the Issuing Bank, the
Swingline Lender and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates' directors, officers, employees and agents, including
accountants, legal counsel and other advisors, and to any direct or indirect
contractual counterparty in swap agreements or to such contractual
counterparty's professional advisor (it being understood that the Persons to
whom such disclosure
<PAGE>
75
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, provided that, to the
extent reasonably practicable and not prohibited by applicable laws or
regulations or by any judicial or administrative order, such Person will provide
the Borrower with prior notice of such disclosure, (d) to any other party to
this Agreement, (e) in connection with the exercise of any remedies hereunder or
any suit, action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of rights hereunder or thereunder, (f) subject to an
agreement containing provisions substantially the same as those of this Section,
to any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement, (g) with
the consent of the Borrower or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section or (ii)
becomes available to any Agent, the Issuing Bank, the Swingline Lender or any
Lender on a nonconfidential basis from a source other than Holdings or the
Borrower. For the purposes of this Section, the term "Information" means all
information received from Holdings or the Borrower relating to Holdings or the
Borrower or its business, other than any such information that is available to
any Agent, the Issuing Bank, the Swingline Lender or any Lender on a
nonconfidential basis prior to disclosure by Holdings or the Borrower. Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein to
the contrary, if at any time the interest rate applicable to any Loan, together
with all fees, charges and other amounts that are treated as interest on such
Loan under applicable law (collectively, the "Charges"), shall exceed the
maximum lawful rate (the "Maximum Rate") that may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
LPA HOLDING CORP.,
by
-------------------------
Name:
Title:
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76
LA PETITE ACADEMY, INC.,
by
-------------------------
Name:
Title:
NATIONSBANK, N.A., individually and as
Administrative Agent, Documentation Agent
and Collateral Agent,
by
-------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
individually and as Syndication Agent,
the Issuing Bank and the Swingline
Lender,
by
---------------------------
Name:
Title:
<PAGE>
EXECUTION COPY
PLEDGE AGREEMENT dated as of May 11, 1998,
among LA PETITE ACADEMY, INC., a Delaware corporation
(the "Borrower"), LPA HOLDING CORP., a Delaware
corporation ("Holdings"), each Subsidiary of the
Borrower listed on Schedule I hereto (each such
Subsidiary individually a "Subsidiary Pledgor" and
collectively, the "Subsidiary Pledgors"; the
Borrower, Holdings and the Subsidiary Pledgors are
referred to collectively herein as the "Pledgors")
and NATIONSBANK, N.A., ("Nationsbank"), as collateral
agent (in such capacity, the "Collateral Agent") for
the Secured Parties (as defined in the Credit
Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of May 11, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, Holdings, the lenders from time to time party
thereto (the "Lenders"), Nationsbank, as administrative agent, documentation
agent and Collateral Agent, and THE CHASE MANHATTAN BANK, as syndication agent
and as issuing bank (in such capacity, the "Issuing Bank"), (b) the Parent
Guarantee Agreement dated as of May 11, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Parent Guarantee Agreement"), between
Holdings and the Collateral Agent and (c) the Subsidiary Guarantee Agreement
dated as of May 11, 1998 (as amended, supplemented or otherwise modified from
time to time, the "Subsidiary Guarantee Agreement"; and, collectively with the
Parent Guarantee Agreement, the "Guarantee Agreements") among the Subsidiary
Pledgors and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Holdings and the Subsidiary Guarantors (as defined in the Security
Agreement) have agreed to guarantee, among other things, all the obligations of
the Borrower under the Credit Agreement. The obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit are conditioned upon,
among other things, the execution and delivery by the Pledgors of a Pledge
Agreement in the form hereof to secure (a) the due and punctual payment by the
Borrower of (i) the principal of and premium, if any, and interest (including
interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on the Loans, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Borrower to the Secured Parties under the Credit Agreement and the other
Loan Documents, (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Borrower under or pursuant to the
Credit Agreement and the other Loan Documents, (c) the due and punctual payment
and performance of all the covenants, agreements, obligations and liabilities of
Holdings under or pursuant to the Parent Guarantee Agreement or the other Loan
Documents, (d) the due and punctual payment and performance of all the
covenants, agreements, obligations and liabilities of each Subsidiary Pledgor
under or pursuant to the Subsidiary Guarantee Agreement or the other Loan
Documents and (e) the due and punctual payment and performance of all
obligations of the Borrower under each Hedging Agreement entered into with any
counterparty that was a Lender (or an Affiliate of Lender) at the time such
Hedging Agreement was entered into (all the monetary and other obligations
referred to in the preceding clauses (a) through (e) being referred to
collectively as the "Obligations"). Capitalized terms used herein and not
defined herein shall have meanings assigned to such terms in the Credit
Agreement.
<PAGE>
2
Accordingly, the Pledgors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or assigns), hereby
agree as follows:
SECTION 1. Pledge. As security for the payment and performance, as the case
may be, in full of the Obligations, each Pledgor hereby transfers, grants,
bargains, sells, conveys, hypothe cates, pledges, sets over and delivers unto
the Collateral Agent, its successors and assigns, and hereby grants to the
Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in all of the Pledgor's right, title and
interest in, to and under (a) the shares of capital stock owned by it and listed
on Schedule II hereto and any shares of capital stock of the Borrower or any
Subsidiary obtained in the future by the Pledgor and the certificates
representing all such shares (the "Pledged Stock"); provided that the Pledged
Stock shall not include (i) more than 65% of the issued and outstanding shares
of stock of any Foreign Subsidiary or (ii) to the extent that applicable law
requires that a Subsidiary of the Pledgor issue directors' qualifying shares,
such qualifying shares; (b)(i) the debt securities listed opposite the name of
the Pledgor on Schedule II hereto, (ii) any debt securities in the future issued
to the Pledgor and (iii) the promissory notes and any other instruments
evidencing such debt securities (the "Pledged Debt Securities"); (c) all other
property that may be delivered to and held by the Collateral Agent pursuant to
the terms hereof; (d) subject to Section 5, all payments of principal or
interest, dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed, in respect of, in exchange for or
upon the conversion of the securities referred to in clauses (a) and (b) above;
(e) subject to Section 5, all rights and privileges of the Pledgor with respect
to the securities and other property referred to in clauses (a), (b), (c) and
(d) above; and (f) all proceeds of any of the foregoing (the items referred to
in clauses (a) through (f) above being collectively referred to as the
"Collateral"). Upon delivery to the Collateral Agent, (a) any stock
certificates, notes or other securities now or hereafter included in the
Collateral (the "Pledged Securities") shall be accompanied by stock powers duly
executed in blank or other instruments of transfer satisfactory to the
Collateral Agent and by such other instruments and documents as the Collateral
Agent may reasonably request and (b) all other property comprising part of the
Collateral shall be accompanied by proper instruments of assignment duly
executed by the applicable Pledgor and such other instruments or documents as
the Collateral Agent may reasonably request. Each delivery of Pledged Securities
shall be accompanied by a schedule describing the securities theretofore and
then being pledged hereunder, which schedule shall be attached hereto as
Schedule II and made a part hereof. Each schedule so delivered shall supersede
any prior schedules so delivered.
TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent, its successors and assigns, for the ratable benefit
of the Secured Parties, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth.
SECTION 2. Delivery of the Collateral. (a) Each Pledgor agrees promptly to
deliver or cause to be delivered to the Collateral Agent any and all Pledged
Securities, and any and all certificates or other instruments or documents
representing the Collateral.
(b) Each Pledgor will cause any Indebtedness for borrowed money owed to the
Pledgor by any person to be evidenced by a duly executed promissory note that is
pledged and delivered to the Collateral Agent pursuant to the terms thereof.
SECTION 3. Representations, Warranties and Covenants. Each Pledgor hereby
represents, warrants and covenants, as to itself and the Collateral pledged by
it hereunder, to and with the Collateral Agent that:
(a) the Pledged Stock represents that percentage as set forth on
Schedule II of the issued and outstanding shares of each class of the
capital stock of the issuer with respect thereto;
(b) except for the security interest granted hereunder, the Pledgor
(i) is and will at all times continue to be the direct owner, beneficially
and of record, of the Pledged
<PAGE>
3
Securities indicated on Schedule II, (ii) holds the same free and clear of
all Liens, (iii) will make no assignment, pledge, hypothecation or transfer
of, or create or permit to exist any security interest in or other Lien on,
the Collateral, other than pursuant hereto, and (iv) subject to Section 5,
will cause any and all Collateral, whether for value paid by the Pledgor or
otherwise, to be forthwith deposited with the Collateral Agent and pledged
or assigned hereunder;
(c) the Pledgor (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will defend
its title or interest thereto or therein against any and all Liens (other
than the Lien created by this Agreement), however arising, of all persons
whomsoever;
(d) no consent of any other person (including stockholders or
creditors of any Pledgor) and no consent or approval of any Governmental
Authority or any securities exchange was or is necessary to the validity of
the pledge effected hereby;
(e) by virtue of the execution and delivery by the Pledgors of this
Agreement, when the Pledged Securities, certificates or other documents
representing or evidencing the Collateral are delivered to the Collateral
Agent in accordance with this Agreement, the Collateral Agent will obtain a
valid and perfected first lien upon and security interest in such Pledged
Securities as security for the payment and performance of the Obligations;
(f) the pledge effected hereby is effective to vest in the Collateral
Agent, on behalf of the Secured Parties, the rights of the Collateral Agent
in the Collateral as set forth herein;
(g) all of the Pledged Stock has been duly authorized and validly
issued and is fully paid and nonassessable;
(h) all information set forth herein relating to the Pledged Stock is
accurate and complete in all material respects as of the date hereof; and
(i) the pledge of the Pledged Stock pursuant to this Agreement does
not violate Regulation T, U or X of the Federal Reserve Board or any
successor thereto as of the date hereof.
SECTION 4. Registration in Nominee Name; Denominations. The Collateral
Agent, on behalf of the Secured Parties, shall have the right (in its sole and
absolute discretion) to hold the Pledged Securities in its own name as pledgee,
the name of its nominee (as pledgee or as sub-agent) or the name of the
Pledgors, endorsed or assigned in blank or in favor of the Collateral Agent.
Each Pledgor will promptly give to the Collateral Agent copies of any notices or
other communications received by it with respect to Pledged Securities
registered in the name of such Pledgor. The Collateral Agent shall at all times
have the right to exchange the certificates representing Pledged Securities for
certificates of smaller or larger denominations for any purpose consistent with
this Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc. (a) Unless and until
an Event of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting
and/or other consensual rights and powers inuring to an owner of Pledged
Securities or any part thereof for any purpose consistent with the terms of
this Agreement, the Credit Agreement and the other Loan Documents;
provided, however, that such Pledgor will not be entitled to exercise any
such right if the result thereof could materially and adversely affect the
rights inuring to a holder of the Pledged Securities or the rights and
remedies of any of the Secured Parties under this Agreement or the Credit
Agreement or any other Loan Document or the ability of the Secured Parties
to exercise the same.
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(ii) The Collateral Agent shall execute and deliver to each Pledgor,
or cause to be executed and delivered to each Pledgor, all such proxies,
powers of attorney and other instruments as such Pledgor may reasonably
request for the purpose of enabling such Pledgor to exercise the voting
and/or consensual rights and powers it is entitled to exercise pursuant to
subparagraph (i) above and to receive the cash dividends it is entitled to
receive pursuant to subparagraph (iii) below.
(iii) Each Pledgor shall be entitled to receive and retain any and all
cash dividends, interest and principal paid on the Pledged Securities to
the extent and only to the extent that such cash dividends, interest and
principal are permitted by, and otherwise paid in accordance with, the
terms and conditions of the Credit Agreement, the other Loan Documents and
applicable laws. All noncash dividends, interest and principal, and all
dividends, interest and principal paid or payable in cash or otherwise in
connection with a partial or total liquidation or dissolution, return of
capital, capital surplus or paid-in surplus, and all other distributions
(other than distributions referred to in the preceding sentence) made on or
in respect of the Pledged Securities, whether paid or payable in cash or
otherwise, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of the issuer of any
Pledged Securities or received in exchange for Pledged Securities or any
part thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which such issuer
may be a party or otherwise, shall be and become part of the Collateral,
and, if received by any Pledgor, shall not be commingled by such Pledgor
with any of its other funds or property but shall be held separate and
apart therefrom, shall be held in trust for the benefit of the Collateral
Agent and shall be forthwith delivered to the Collateral Agent in the same
form as so received (with any necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default
(except with respect to dividends permitted by clause (i) and (iii) of Section
6.08 of the Credit Agreement which shall continue to be governed by clause
(a)(3) above), all rights of any Pledgor to dividends, interest or principal
that such Pledgor is authorized to receive pursuant to paragraph (a)(iii) above
shall cease, and all such rights shall thereupon become vested in the Collateral
Agent, which shall have the sole and exclusive right and authority to receive
and retain such dividends, interest or principal. All divi dends, interest or
principal received by the Pledgor contrary to the provisions of this Section 5
shall be held in trust for the benefit of the Collateral Agent, shall be
segregated from other property or funds of such Pledgor and shall be forthwith
delivered to the Collateral Agent upon demand in the same form as so received
(with any necessary endorsement). Any and all money and other property paid over
to or received by the Collateral Agent pursuant to the provisions of this
paragraph (b) shall be retained by the Collateral Agent in an account to be
established by the Collateral Agent upon receipt of such money or other property
and shall be applied in accordance with the provisions of Section 7. After all
Events of Default have been cured or waived, the Collateral Agent shall, within
five Business Days after all such Events of Default have been cured or waived,
repay to each Pledgor all cash dividends, interest or principal (without
interest), that such Pledgor would otherwise be permitted to retain pursuant to
the terms of paragraph (a)(iii) above and which remain in such account.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to exercise the voting and consensual rights and
powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section
5, and the obligations of the Collateral Agent under paragraph (a)(ii) of this
Section 5, shall cease, upon notice thereof by the Collateral Agent, and all
such rights shall thereupon become vested in the Collateral Agent, which shall
have the sole and exclusive right and authority to exercise such voting and
consensual rights and powers, provided that, upon an Event of Default pursuant
to clause (h) or (i) of Article VII of the Credit Agreement such rights shall
automatically vest in the Collateral Agent without any action on the part of the
Collateral Agent. After all Events of Default have been cured or waived, such
Pledgor will have the right to exercise the voting and consensual rights and
powers that it would otherwise be entitled to exercise pursuant to the terms of
paragraph (a)(i) above.
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5
SECTION 6. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Collateral Agent may sell the Collateral, or any part thereof,
at public or private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the Collateral Agent
shall deem appropriate. The Collateral Agent shall be authorized at any such
sale (if it deems it advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of any Pledgor, and, to the extent permitted by applicable
law, the Pledgors hereby waive all rights of redemption, stay, valuation and
appraisal any Pledgor now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days' prior written notice
(which each Pledgor agrees is reasonable notice within the meaning of Section
9-504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions) of the Collateral Agent's intention to
make any sale of such Pledgor's Collateral. Such notice, in the case of a public
sale, shall state the time and place for such sale and, in the case of a sale at
a broker's board or on a securities exchange, shall state the board or exchange
at which such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Collateral Agent may fix and state in the
notice of such sale. At any such sale, the Collateral, or portion thereof, to be
sold may be sold in one lot as an entirety or in separate parcels, as the
Collateral Agent may (in its sole and absolute discretion) determine. The
Collateral Agent shall not be obligated to make any sale of any Collateral if it
shall determine not to do so, regardless of the fact that notice of sale of such
Collateral shall have been given. The Collateral Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Collateral Agent until the sale price is paid in full by the
purchaser or purchasers thereof, but the Collateral Agent shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like notice. At any public (or, to the extent permitted by
applicable law, private) sale made pursuant to this Section 6, any Secured Party
may bid for or purchase, free from any right of redemption, stay or appraisal on
the part of any Pledgor (all said rights being also hereby waived and released),
the Collateral or any part thereof offered for sale and may make payment on
account thereof by using any claim then due and payable to it from such Pledgor
as a credit against the purchase price, and it may, upon compliance with the
terms of sale, hold, retain and dispose of such property without further
accountability to such Pledgor therefor. For purposes hereof, (a) a written
agreement to purchase the Collateral or any portion thereof shall be treated as
a sale thereof, (b) the Collateral Agent shall be free to carry out such sale
pursuant to such agreement and (c) such Pledgor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding
the fact that after the Collateral Agent shall have entered into such an
agreement all Events of Default shall have been remedied and the Obligations
paid in full. As an alternative to exercising the power of sale herein conferred
upon it, the Collateral Agent may proceed by a suit or suits at law or in equity
to foreclose upon the Collateral and to sell the Collateral or any portion
thereof pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver. Any sale
pursuant to the provisions of this Section 6 shall be deemed to conform to the
commercially reasonable standards as provided in Section 9-504(3) of the Uniform
Commercial Code as in effect in the State of New York or its equivalent in other
jurisdictions.
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6
SECTION 7. Application of Proceeds of Sale. The proceeds of any sale of
Collateral pursuant to Section 6, as well as any Collateral consisting of cash,
shall be applied by the Collateral Agent as follows:
FIRST, to the payment of all costs and expenses incurred by the
Collateral Agent in connection with such sale or otherwise in connection
with this Agreement, any other Loan Document or any of the Obligations,
including all court costs and the reasonable fees and expenses of its
agents and legal counsel, the repayment of all advances made by the
Collateral Agent hereunder or under any other Loan Document on behalf of
any Pledgor and any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each Pledgor agrees to
pay upon demand to the Collateral Agent the amount of any and all reasonable
expenses, including the reasonable fees, other charges and disbursements of its
counsel and of any experts or agents, that the Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent hereunder or (iv) the failure by such Pledgor to perform or
observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Pledgor agrees to indemnify the Collateral Agent and the
Indemnitees (as defined in Section 9.03(b) of the Credit Agreement) against, and
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, other
charges and disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties hereto
of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or (ii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such Indemnitee.
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8 shall remain operative and in full force and effect regardless
of the termination of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Obligations, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document or any investigation made by or on behalf of the Collateral Agent or
any other Secured Party. All amounts
<PAGE>
7
due under this Section 8 shall be payable on written demand therefor and shall
bear interest at the rate specified in Section 2.13 of the Credit Agreement.
SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor hereby
appoints the Collateral Agent the attorney-in-fact of such Pledgor, upon the
occurrence and during the continuance of an Event of Default, for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any instrument that the Collateral Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of the foregoing,
the Collateral Agent shall have the right, upon the occurrence and during the
continuance of an Event of Default, with full power of substitution either in
the Collateral Agent's name or in the name of such Pledgor, to ask for, demand,
sue for, collect, receive and give acquittance for any and all moneys due or to
become due under and by virtue of any Collateral, to endorse checks, drafts,
orders and other instruments for the payment of money payable to the Pledgor
representing any interest or dividend or other distribution payable in respect
of the Collateral or any part thereof or on account thereof and to give full
discharge for the same, to settle, compromise, prosecute or defend any action,
claim or proceeding with respect thereto, and to sell, assign, endorse, pledge,
transfer and to make any agreement respecting, or otherwise deal with, the same;
provided, however, that nothing herein contained shall be construed as requiring
or obligating the Collateral Agent to make any commitment or to make any inquiry
as to the nature or sufficiency of any payment received by the Collateral Agent,
or to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby. The Collateral Agent and the other
Secured Parties shall be accountable only for amounts actually received as a
result of the exercise of the powers granted to them herein, and neither they
nor their officers, directors, employees or agents shall be responsible to any
Pledgor for any act or failure to act hereunder, except for their own gross
negligence or wilful misconduct.
SECTION 10. Waivers; Amendment. (a) No failure or delay of the Collateral
Agent in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Collateral Agent hereunder and of
the other Secured Parties under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provisions of this Agreement or consent to any departure by any
Pledgor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Pledgor in any case shall entitle such Pledgor to any
other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Collateral Agent and the Pledgor or Pledgors with respect to which such waiver,
amendment or modification is to apply, subject to any consent required in
accordance with Section 9.02(b) of the Credit Agreement.
SECTION 11. Securities Act, etc. In view of the position of the Pledgors in
relation to the Pledged Securities, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the "Federal Securities Laws") with respect to any
disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Pledged Securities, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Securities could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting the Collateral Agent in any
attempt to dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose or
effect. Each Pledgor recognizes that in light of such restrictions and
limitations the Collateral Agent may, with respect to any sale
<PAGE>
8
of the Pledged Securities, limit the purchasers to those who will agree, among
other things, to acquire such Pledged Securities for their own account, for
investment, and not with a view to the distribution or resale thereof. Each
Pledgor acknowledges and agrees that in light of such restrictions and
limitations, the Collateral Agent, in its sole and absolute discretion, (a) may
proceed to make such a sale whether or not a registration statement for the
purpose of registering such Pledged Securities or part thereof shall have been
filed under the Federal Securities Laws and (b) may approach and negotiate with
a single potential purchaser to effect such sale. Each Pledgor acknowledges and
agrees that any such sale might result in prices and other terms less favorable
to the seller than if such sale were a public sale without such restrictions. In
the event of any such sale, the Collateral Agent shall incur no responsibility
or liability for selling all or any part of the Pledged Securities at a price
that the Collateral Agent, in its sole and absolute discretion, may in good
faith deem reasonable under the circumstances, notwithstanding the possibility
that a substantially higher price might have been realized if the sale were
deferred until after registration as aforesaid or if more than a single
purchaser were approached. The provisions of this Section 11 will apply
notwithstanding the existence of a public or private market upon which the
quotations or sales prices may exceed substantially the price at which the
Collateral Agent sells.
SECTION 12. Registration, etc. Each Pledgor agrees that, upon the
occurrence and during the continuance of an Event of Default hereunder, if for
any reason the Collateral Agent desires to sell any of the Pledged Securities of
the Borrower at a public sale, it will, at any time and from time to time, upon
the written request of the Collateral Agent, use its best efforts to take or to
cause the issuer of such Pledged Securities to take such action and prepare,
distribute and/or file such documents, as are required or advisable in the
reasonable opinion of counsel for the Collateral Agent to permit the public sale
of such Pledged Securities. Each Pledgor further agrees to indemnify, defend and
hold harmless the Collateral Agent, each other Secured Party, any underwriter
and their respective officers, directors, affiliates and controlling persons
from and against all loss, liability, expenses, costs of counsel (including,
without limitation, reasonable fees and expenses to the Collateral Agent of
legal counsel), and claims (including the costs of investigation) that they may
incur insofar as such loss, liability, expense or claim arises out of or is
based upon any alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto) or in any notification or
offering circular, or arises out of or is based upon any alleged omission to
state a material fact required to be stated therein or necessary to make the
statements in any thereof not misleading, except insofar as the same may have
been caused by any untrue statement or omission based upon information furnished
in writing to such Pledgor or the issuer of such Pledged Securities by the
Collateral Agent or any other Secured Party expressly for use therein. Each
Pledgor further agrees, upon such written request referred to above, to use its
best efforts to qualify, file or register, or cause the issuer of such Pledged
Securities to qualify, file or register, any of the Pledged Securities under the
Blue Sky or other securities laws of such states as may be requested by the
Collateral Agent and keep effective, or cause to be kept effective, all such
qualifications, filings or registrations. Each Pledgor will bear all costs and
expenses of carrying out its obligations under this Section 12. Each Pledgor
acknowledges that there is no adequate remedy at law for failure by it to comply
with the provisions of this Section 12 and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section 12 may be specifically enforced.
SECTION 13. Security Interest Absolute. All rights of the Collateral Agent
hereunder, the grant of a security interest in the Collateral and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Credit
Agreement, any other Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to any of the foregoing,
(c) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Pledgor in
respect of the Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all the Obligations).
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9
SECTION 14. Termination or Release. (a) This Agreement and the security
interests granted hereby shall terminate when all the principal of and any
interest on any Loan or any other fee or amount payable under this Agreement or
any other Loan Document has been indefeasibly paid in full in cash, the L/C
exposure has been reduced to zero and the Commitments and the L/C Commitments
have been terminated.
(b) Upon any sale or other transfer by any Pledgor of any Collateral that
is permitted under the Credit Agreement to any person that is not a Pledgor, or,
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to Section 9.02(b) of the
Credit Agreement, the security interest in such Collateral shall be
automatically released.
(c) In connection with any termination or release pursuant to paragraph (a)
or (b), the Collateral Agent shall execute and deliver to any Pledgor, at such
Pledgor's expense, all documents that such Pledgor shall reasonably request to
evidence such termination or release. Any execution and delivery of documents
pursuant to this Section 14 shall be without recourse to or warranty by the
Collateral Agent.
SECTION 15. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to any Subsidiary Pledgor shall be given to
it in care of the Borrower.
SECTION 16. Further Assurances. Each Pledgor agrees to do such further acts
and things, and to execute and deliver such additional conveyances, assignments,
agreements and instruments, as the Collateral Agent may at any time reasonably
request in connection with the administration and enforcement of this Agreement
or with respect to the Collateral or any part thereof or in order better to
assure and confirm unto the Collateral Agent its rights and remedies hereunder.
SECTION 17. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any Pledgor that are contained in
this Agreement shall bind and inure to the benefit of its successors and
assigns. This Agreement shall become effective as to any Pledgor when a
counterpart hereof executed on behalf of such Pledgor shall have been delivered
to the Collateral Agent and a counterpart hereof shall have been executed on
behalf of the Collateral Agent, and thereafter shall be binding upon such
Pledgor and the Collateral Agent and their respective successors and assigns,
and shall inure to the benefit of such Pledgor, the Collateral Agent and the
other Secured Parties, and their respective successors and assigns, except that
no Pledgor shall have the right to assign its rights hereunder or any interest
herein or in the Collateral (and any such attempted assignment shall be void),
except as expressly contemplated by this Agreement or the other Loan Documents.
If all of the capital stock of a Pledgor is sold, transferred or otherwise
disposed of to a person that is not an Affiliate of the Borrower pursuant to a
transaction permitted by Section 6.05 of the Credit Agreement, such Pledgor
shall be released from its obligations under this Agreement without further
action. This Agreement shall be construed as a separate agreement with respect
to each Pledgor and may be amended, modified, supplemented, waived or released
with respect to any Pledgor without the approval of any other Pledgor and
without affecting the obligations of any other Pledgor hereunder
SECTION 18. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by each Pledgor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
other fee or amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or the L/C Exposure does not equal zero and as long as
the Commitments and the L/C Commitments have not been terminated.
<PAGE>
10
(b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 19. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute a single contract, and shall become effective
as provided in Section 17. Delivery of an executed counterpart of a signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 21. Rules of Interpretation. The rules of interpretation specified
in Section 1.03 of the Credit Agreement shall be applicable to this Agreement.
Section headings used herein are for convenience of reference only, are not part
of this Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 22. Jurisdiction; Consent to Service of Process. (a) Each Pledgor
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or Federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that, to the extent permitted by applicable law, all claims in respect of
any such action or proceeding may be heard and determined in such New York State
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that the Collateral Agent or any other Secured Party may otherwise have to
bring any action or proceeding relating to this Agreement or the other Loan
Documents against any Pledgor or its properties in the courts of any
jurisdiction.
(b) Each Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 15. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 23. Waiver Of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN
<PAGE>
11
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION.
SECTION 24. Additional Pledgors. Pursuant to Section 5.12 of the Credit
Agreement, each Subsidiary of the Borrower that was not in existence or not a
Subsidiary on the date of the Credit Agreement is required to enter in this
Agreement as a Subsidiary Pledgor upon becoming a Subsidiary that is a
Subsidiary Loan Party if such Subsidiary owns or possesses property of a type
that would be considered Collateral hereunder. Upon execution and delivery by
the Collateral Agent and a Subsidiary of an instrument in the form of Annex 1,
such Subsidiary shall become a Subsidiary Pledgor hereunder with the same force
and effect as if originally named as a Subsidiary Pledgor herein. The execution
and delivery of such instrument shall not require the consent of any Pledgor
hereunder. The rights and obligations of each Pledgor hereunder shall remain in
full force and effect notwithstanding the addition of any new Subsidiary Pledgor
as a party to this Agreement.
SECTION 25. Execution of Financing Statements. Pursuant to Section 9-402 of
the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions, each Pledgor authorizes the Collateral Agent
to file financing statements with respect to the Collateral owned by it without
the signature of such Pledgor in such form and in such filing offices as the
Collateral Agent reasonably determines appropriate to perfect the security
interests of the Collateral Agent under this Agreement. A carbon, photographic
or other reproduction of this Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
<PAGE>
12
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
LA PETITE ACADEMY, INC.,
by
-----------------------------
Name:
Title:
LPA HOLDING CORP.,
by
-----------------------------
Name:
Title:
THE SUBSIDIARY PLEDGORS LISTED ON
SCHEDULE I HERETO,
by
-----------------------------
Name:
Title: Authorized Officer
NATIONSBANK, N.A., as Collateral Agent,
by
-----------------------------
Name:
Title:
<PAGE>
Schedule I to the
Pledge Agreement
SUBSIDIARY PLEDGORS
Name [Address]
- ---- ---------
LPA SERVICES, INC.
<PAGE>
Schedule II to the
Pledge Agreement
CAPITAL STOCK
Number of Registered Number and Class Percentage of
Issuer Certificate Owner of Shares Shares
- ------ ----------- ----- --------- ------
DEBT SECURITIES
Principal
Issuer Amount Date of Note Maturity Date
- ------ ------ ------------ -------------
<PAGE>
Annex 1 to the
Pledge Agreement
SUPPLEMENT NO. dated as of , to the PLEDGE
AGREEMENT dated as of May [ ],1998, among LA PETITE
ACADEMY, INC., a Delaware corporation (the
"Borrower"), LPA HOLDING CORP., a Delaware
corporation ("Holdings"), and each subsidiary of the
Borrower listed on Schedule I hereto (each such
subsidiary individually a "Subsidiary Pledgor" and
collectively, the "Subsidiary Pledgors"; the
Borrower, Holdings and Subsidiary Pledgors are
referred to collectively herein as the "Pledgors")
and NATIONSBANK, N.A., ("Nationsbank"), as collateral
agent (in such capacity, the "Collateral Agent") for
the Secured Parties (as defined in the Credit
Agreement referred to below).
A. Reference is made to (a) the Credit Agreement dated as of May [ ], 1998
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, Holdings, the lenders from time to time party
thereto (the "Lenders"), Nationsbank, as administrative agent, documentation
agent and Collateral Agent, and THE CHASE MANHATTAN BANK, as syndication agent
and as issuing bank (in such capacity, the "Issuing Bank"), (b) the Parent
Guarantee Agreement dated as of May [ ], 1998 (as amended, supplemented or
otherwise modified from time to time, the "Parent Guarantee Agreement"), between
Holdings and the Collateral Agent and (c) the Subsidiary Guarantee Agreement
dated as of May [ ], 1998 (as amended, supplemented or otherwise modified from
time to time, the "Subsidiary Guarantee Agreement"; and, collectively with the
Parent Guarantee Agreement, the "Guarantee Agreements") among the Subsidiary
Pledgors and the Collateral Agent.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
C. The Pledgors have entered into the Pledge Agreement in order to induce
the Lenders to make Loans and the Issuing Bank to issue Letters of Credit.
Pursuant to Section 5.12 of the Credit Agreement, each Subsidiary of the
Borrower that was not in existence or not a Subsidiary on the date of the Credit
Agreement is required to enter into the Pledge Agreement as a Subsidiary Pledgor
upon becoming a Subsidiary if such Subsidiary owns or possesses property of a
type that would be considered Collateral under the Pledge Agreement. Section 24
of the Pledge Agreement provides that such Subsidiaries may become Subsidiary
Pledgors under the Pledge Agreement by execution and delivery of an instrument
in the form of this Supplement. The undersigned Subsidiary (the "New Pledgor")
is executing this Supplement in accordance with the requirements of the Credit
Agreement to become a Subsidiary Pledgor under the Pledge Agreement in order to
induce the Lenders to make additional Loans and the Issuing Bank to issue
additional Letters of Credit and as consideration for Loans previously made and
Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Pledgor agree as follows:
SECTION 1. In accordance with Section 24 of the Pledge Agreement, the New
Pledgor by its signature below becomes a Pledgor under the Pledge Agreement with
the same force and effect as if originally named therein as a Pledgor and the
New Pledgor hereby agrees (a) to all the terms and provisions of the Pledge
Agreement applicable to it as a Pledgor thereunder and (b) represents and
warrants that the representations and warranties made by it as a Pledgor
thereunder are true and correct on and as of the date hereof. In furtherance of
the foregoing, the New Pledgor, as security for the payment and performance in
full of the Obligations (as defined in the Pledge Agreement), does hereby create
and grant to the Collateral Agent, its successors and assigns, for the benefit
of the Secured Parties, their successors and assigns, a security interest in and
lien on all of the New Pledgor's right, title and interest in and to the
Collateral (as defined in the Pledge Agreement) of the New Pledgor. Each
reference to a "Subsidiary Pledgor" or a "Pledgor" in the Pledge Agreement shall
be deemed to include the New Pledgor. The Pledge Agreement is hereby
incorporated herein by reference.
<PAGE>
2
SECTION 2. The New Pledgor represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Pledgor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. The New Pledgor hereby represents and warrants that set forth on
Schedule I attached hereto is a true and correct schedule of all its Pledged
Securities.
SECTION 5. Except as expressly supplemented hereby, the Pledge Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforce able, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Pledge Agreement shall not in any way be affected or impaired.
The parties hereto shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provi sions the economic
effect of which comes as close as possible to that of the invalid, illegal or
unen forceable provisions.
SECTION 8. All communications and notices hereunder shall be in writing and
given as provided in Section 15 of the Pledge Agreement. All communications and
notices hereunder to the New Pledgor shall be given to it in care of the
Borrower.
SECTION 9. The New Pledgor agrees to reimburse the Collateral Agent for its
reasonable out-of-pocket expenses in connection with this Supplement, including
the reasonable fees, other charges and disbursements of counsel for the
Collateral Agent.
IN WITNESS WHEREOF, the New Pledgor and the Collateral Agent have duly
executed this Supplement to the Pledge Agreement as of the day and year first
above written.
[Name of New Pledgor],
by
-----------------------------
Name:
Title:
Address:
NATIONSBANK, N.A., as Collateral Agent,
by
-----------------------------
Name:
Title:
<PAGE>
Schedule I to
Supplement No.
to the Pledge Agreement
Pledged Securities of the New Pledgor
-------------------------------------
CAPITAL STOCK
Number of Registered Number and Class Percentage of
Issuer Certificate Owner of Shares Shares
- ------ ----------- ----- --------- ------
DEBT SECURITIES
Principal
Issuer Amount Date of Note Maturity Date
- ------ ------ ------------ -------------
<PAGE>
EXECUTION COPY
SECURITY AGREEMENT dated as of May 11, 1998,
among LA PETITE ACADEMY, INC., a Delaware corporation
(the "Borrower"), LPA HOLDING CORP., a Delaware
corporation ("Holdings"), each subsidiary of the
Borrower listed on Schedule I hereto (each such
subsidiary individually a "Subsidiary Guarantor" and
collectively, the "Subsidiary Guarantors"; the
Subsidiary Guarantors, Holdings and the Borrower are
referred to collectively herein as the "Grantors")
and NATIONSBANK, N.A., ("Nationsbank"), as collateral
agent (in such capacity, the "Collateral Agent") for
the Secured Parties (as defined herein).
Reference is made to (a) the Credit Agreement dated as of May 11, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, Holdings, the lenders from time to time party
thereto (the "Lenders"), Nationsbank, as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"), documentation agent and
Collateral Agent, and THE CHASE MANHATTAN BANK, as syndication agent and as
issuing bank (in such capacity, the "Issuing Bank") and (b) the Parent Guarantee
Agreement dated as of May 11, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Parent Guarantee Agreement"), between Holdings
and the Collateral Agent and (c) the Subsidiary Guarantee Agreement dated as of
May 11, 1998 (as amended, supplemented or otherwise modified from time to time,
the "Subsidiary Guarantee Agreement"), among the Subsidiary Guarantors and the
Collateral Agent.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of Holdings and the Subsidiary Guarantors has agreed to
guarantee, among other things, all the obligations of the Borrower under the
Credit Agreement. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit are conditioned upon, among other
things, the execution and delivery by the Grantors of an agreement in the form
hereof to secure (a) the due and punctual payment by the Borrower of (i) the
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) each payment required to be
made by the Borrower under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral and
(iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of the Borrower to the Secured Parties
under the Credit Agreement and the other Loan Documents, (b) the due and
punctual performance of all covenants, agreements, obligations and liabilities
of the Borrower under or pursuant to the Credit Agreement and the other Loan
Documents, (c) the due and punctual payment and performance of all the
covenants, agreements, obligations and liabilities of each other Loan Party
under or pursuant to this Agreement and the other Loan Documents and (d) the due
and punctual payment and performance of all obligations of the Borrower under
each Hedging Agreement entered into with any counterparty that was a Lender (or
an affiliate of a Lender) at the time such Hedging Agreement was entered into
(all the monetary and other obligations described in the preceding clauses (a)
through (d) being collectively called the "Obligations").
<PAGE>
6
Accordingly, the Grantors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or assigns), hereby
agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless the context otherwise
requires, all capitalized terms used but not defined herein shall have the
meanings set forth in the Credit Agreement and all references to the Uniform
Commercial Code shall mean the Uniform Commercial Code in effect in the State of
New York as of the date hereof.
SECTION 1.02. Definition of Certain Terms Used Herein. As used herein, the
following terms shall have the following meanings:
"Account Debtor" shall mean any person who is or who may become obligated
to any Grantor under, with respect to or on account of an Account or chattel
paper.
"Accounts" shall mean any and all right, title and interest of any Grantor
to payment for goods and services sold or leased, including any such right
evidenced by chattel paper, whether due or to become due, whether or not it has
been earned by performance, and whether now or hereafter acquired or arising in
the future, including Accounts Receivable from Affiliates of the Grantors.
"Accounts Receivable" shall mean all accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities and
guarantees with respect thereto, including any rights to stoppage in transit,
replevin, reclamation and resales, and all related security interests, liens and
pledges, whether voluntary or involuntary, in each case whether now existing or
owned or hereafter arising or acquired.
"Collateral" shall mean all (a) Accounts Receivable, (b) Documents, (c)
Equipment, (d) General Intangibles, (e) Inventory, (f) cash and cash accounts,
(g) Investment Property and (h) Proceeds, provided that "Collateral" shall not
include, with respect to any Grantor, any item of property to the extent the
grant by such Grantor of a security interest pursuant to this Agreement in its
right, title and interest in such item of property is prohibited by an
applicable contractual obligation or requirement of law or would give any other
Person the right to terminate its obligations with respect to such item of
property, and provided further, that the limitation in the foregoing proviso
shall not affect, limit, restrict or impair the grant by any Grantor of a
security interest pursuant to this Agreement in any money or other amounts due
or to become due under any Account, Investment Property, contract, agreement or
General Intangible.
"Commodity Account" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.
"Commodity Contract" shall mean a commodity futures contract, an option on
a commodity futures contract, a commodity option or any other contract that, in
each case, is (a) traded on or subject to the rules of a board of trade that has
been designated as a contract market for such a contract pursuant to the federal
commodities laws or (b) traded on a foreign commodity board of trade, exchange
or market, and is carried on the books of a Commodity Intermediary for a
Commodity Customer.
"Commodity Customer" shall mean a person for whom a Commodity Intermediary
carries a Commodity Contract on its books.
"Commodity Intermediary" shall mean (a) a person who is registered as a
futures commission merchant under the federal commodities laws or (b) a person
who in the ordinary course of its business provides clearance or settlement
services for a board of trade that has been designated as a contract market
pursuant to federal commodities laws.
<PAGE>
7
"Copyright License" shall mean any written agreement, now or hereafter in
effect, granting any right to any third party under any Copyright now or
hereafter owned by any Grantor or which such Grantor otherwise has the right to
license, or granting any right to such Grantor under any Copyright now or
hereafter owned by any third party, and all rights of such Grantor under any
such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office,
including those listed on Schedule II.
"Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Documents" shall mean all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral.
"Entitlement Holder" shall mean a person identified in the records of a
Securities Intermediary as the person having a Security Entitlement against the
Securities Intermediary. If a person acquires a Security Entitlement by virtue
of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such person is the
Entitlement Holder.
"Equipment" shall mean all equipment, furniture and furnishings, and all
tangible personal property similar to any of the foregoing, including tools,
parts and supplies of every kind and descrip tion, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor. The term Equipment shall include Fixtures.
"Financial Asset" shall mean (a) a Security, (b) an obligation of a person
or a share, participation or other interest in a person or in property or an
enterprise of a person, which is, or is of a type, dealt with in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment or (c) any property that is held by a
Securities Intermediary for another person in a Securities Account if the
Securities Intermediary has expressly agreed with the other person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code. As the context requires, the term Financial Asset shall mean
either the interest itself or the means by which a person's claim to it is
evidenced, including a certificated or uncertificated Security, a certificate
representing a Security or a Security Entitlement.
"Fixtures" shall mean all items of Equipment or goods, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
"General Intangibles" shall mean all choses in action and causes of action
and all other assignable intangible personal property of any Grantor of every
kind and nature (other than Accounts Receivable) now owned or hereafter acquired
by any Grantor, including all rights and interests in partnerships, limited
partnerships, limited liability companies and other unincorporated entities,
corporate or other business records, indemnification claims, contract rights
(including rights under leases, whether entered into as lessor or lessee,
Hedging Agreements and other agreements), Intellectual Property, goodwill,
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor to secure payment by an Account Debtor of any of the Accounts
Receivable.
"Intellectual Property" shall mean all intellectual and similar property of
any Grantor of every kind and nature now owned or hereafter acquired by any
Grantor, including inventions, designs, Patents, Copyrights, Licenses,
Trademarks, trade secrets, confidential or proprietary technical and business
information, know-how, show-how or other data or information, software and
databases and all embodiments or fixations thereof and related documentation,
registrations and
<PAGE>
8
franchises, and all additions, improvements and accessions to, and books and
records describing or used in connection with, any of the foregoing.
"Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packag ing materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing supplies
and spare parts, and all such goods that have been returned to or repossessed by
or on behalf of any Grantor.
"Investment Property" shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts
and Commodity Accounts of any Grantor, whether now owned or hereafter acquired
by any Grantor.
"License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party,
including those listed on Schedule III (other than those license agreements in
existence on the date hereof and listed on Schedule III and those license
agreements entered into after the date hereof, which by their terms prohibit
assignment or a grant of a security interest by such Grantor as licensee
thereunder).
"Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any invention
on which a Patent, now or hereafter owned by any Grantor or which any Grantor
otherwise has the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under
any such agreement.
"Patents" shall mean all of the following now owned or hereafter acquired
by any Grantor: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including
registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, including
those listed on Schedule IV, and (b) all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof, and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate substantially in the form
of Annex 1 hereto, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer and the chief
legal officer of the Borrower.
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include (a) any claim of any Grantor against any third
party for (and the right to sue and recover for and the rights to damages or
profits due or accrued arising out of or in connection with) (i) past, present
or future infringement of any Patent now or hereafter owned by any Grantor, or
licensed under a Patent License, (ii) past, present or future infringement or
dilution of any Trademark now or hereafter owned by any Grantor or licensed
under a Trademark License or injury to the goodwill associated with or
symbolized by any Trademark now or hereafter owned by any Grantor, (iii) past,
present or future breach of any License and (iv) past, present or future
infringement of any Copyright now or hereafter owned by any Grantor or licensed
under a Copyright License and (b) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
<PAGE>
9
"Secured Parties" shall mean (a) the Lenders, (b) the Administrative Agent,
(c) the Collateral Agent, (d) the Issuing Bank, (e) each counterparty to an
Hedging Agreement entered into with the Borrower if such counterparty was a
Lender (or an Affiliate of a Lender) at the time the Hedging Agreement was
entered into, (f) the beneficiaries of each indemnification obligation
undertaken by any Grantor under any Loan Document and (g) the successors and
assigns of each of the foregoing.
"Securities" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of shares,
participations, interests or obligations and (c)(i) are, or are of a type, dealt
with or traded on securities exchanges or securities markets or (ii) are a
medium for investment and by their terms expressly provide that they are a
security governed by Article 8 of the Uniform Commercial Code.
"Securities Account" shall mean an account to which a Financial Asset is or
may be credited in accordance with an agreement under which the person
maintaining the account undertakes to treat the person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
"Security Entitlements" shall mean the rights and property interests of an
Entitlement Holder with respect to a Financial Asset.
"Security Interest" shall have the meaning assigned to such term in Section
2.01.
"Securities Intermediary" shall mean (a) a clearing corporation or (b) a
person, including a bank or broker, that in the ordinary course of its business
maintains securities accounts for others and is acting in that capacity.
"Trademark License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or which any Grantor otherwise has the right to
license, or granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any such
agreement.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office,
any State of the United States or any similar offices in any other country or
any political subdivision thereof, and all extensions or renewals thereof,
including those listed on Schedule V, (b) all goodwill associated therewith or
symbolized thereby and (c) all other assets, rights and interests that uniquely
reflect or embody such goodwill.
SECTION 1.03. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor hereby
bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates
and transfers to the Collateral Agent, its successors and assigns,
<PAGE>
10
for the ratable benefit of the Secured Parties, and hereby grants to the
Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in, all of such Grantor's right, title and
interest in, to and under the Collateral (the "Security Interest"). Without
limiting the foregoing, the Collateral Agent is hereby authorized, to the extent
permitted by applicable law, to file one or more financing statements (including
fixture filings), continuation statements, filings with the United States Patent
and Trademark Office or United States Copyright Office (or any successor office
or any similar office in any other country) or other documents for the purpose
of perfecting, confirm ing, continuing, enforcing or protecting the Security
Interest granted by each Grantor, without the signature of any Grantor, and
naming any Grantor or the Grantors as debtors and the Collateral Agent as
secured party.
SECTION 2.02. No Assumption of Liability. The Security Interest is granted
as security only and shall not subject the Collateral Agent or any other Secured
Party to, or in any way alter or modify, any obligation or liability of any
Grantor with respect to or arising out of the Collateral.
ARTICLE III
Representations and Warranties
The Grantors jointly and severally represent and warrant to the Collateral
Agent and the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has good and valid rights
in and title to the Collateral with respect to which it has purported to grant a
Security Interest hereunder and has full power and authority to grant to the
Collateral Agent the Security Interest in such Collateral pursuant hereto and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other person other than
any consent or approval which has been obtained or the failure of which to
obtain could not reasonably be expected to have a Material Adverse Effect.
SECTION 3.02. Filings. (a) The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete. Fully executed Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations containing a description of the Collateral
have been delivered to the Collateral Agent for filing in each governmental,
municipal or other office specified in Schedule 6 to the Perfection Certificate,
which are all the filings, recordings and registrations (other than filings
required to be made in the United States Patent and Trademark Office and the
United States Copyright Office in order to perfect the Security Interest in
Collateral consisting of United States Patents, Trademarks and Copyrights) that
are necessary to publish notice of and protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all Collateral in
which the Security Interest may be perfected by filing, recording or
registration in the United States (or any political subdivision thereof) and its
territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements.
(b) Each Grantor represents and warrants that fully executed security
agreements in the form hereof and containing a description of all Collateral
consisting of Intellectual Property shall have been recorded within three months
after the execution of this Agreement with respect to United States Patents and
United States registered Trademarks (and Trademarks for which United States
registration applications are pending) and within one month after the execution
of this Agreement with respect to United States registered Copyrights have been
delivered to the Collateral Agent for recording by the United States Patent and
Trademark Office and the United States Copyright Office pursuant to 35 U.S.C.
ss. 261, 15 U.S.C. ss. 1060 or 17 U.S.C. ss. 205 and the regulations thereunder,
as applicable, and otherwise as may be required pursuant to the laws of any
other necessary jurisdiction, to protect the validity of and to establish a
legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all
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11
Collateral consisting of Patents, Trademarks and Copyrights in which a security
interest may be perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories and
possessions, or in any other necessary jurisdiction, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to perfect
the Security Interest with respect to any Collateral consisting of Patents,
Trademarks and Copyrights (or registration or application for registration
thereof) acquired or developed after the date hereof).
SECTION 3.03. Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the United States (or
any political subdivision thereof) and its territories and possessions pursuant
to the Uniform Commercial Code or other applicable law in such jurisdictions and
(c) a security interest that shall be perfected in all Collateral in which a
security interest may be perfected upon the receipt and recording of this
Agreement with the United States Patent and Trademark Office and the United
States Copyright Office, as applicable, within the three month period
(commencing as of the date hereof) pursuant to 35 U.S.C. ss. 261 or 15 U.S.C.
ss. 1060 or the one month period (commencing as of the date hereof) pursuant to
17 U.S.C. ss. 205 and otherwise as may be required pursuant to the laws of any
other necessary jurisdiction. The Security Interest is and shall be prior to any
other Lien on any of the Collateral, other than Liens expressly permitted to be
prior to the Security Interest pursuant to Section 6.02 of the Credit Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. The Grantor has not filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office
or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which financing statement or
analogous document, assignment, security agreement or similar instrument is
still in effect, except, in each case, for Liens expressly, in each case, (i)
permitted pursuant to Section 6.02 of the Credit Agreement and (ii) Liens
arising from precautionary Uniform Commercial Code financing statements with
respect to operating leases entered into by the Borrower or any of its
Subsidiaries in the ordinary course of business.
ARTICLE IV
Covenants
SECTION 4.01. Change of Name; Location of Collateral; Records; Place of
Business. (a) Each Grantor agrees promptly to notify the Collateral Agent in
writing of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility),
(iii) in its identity or corporate structure or (iv) in its Federal Taxpayer
Identification Number. Each Grantor agrees not to effect or permit any change
referred to in the preceding sentence unless all filings have been made under
the Uniform Commercial Code or otherwise that are required in order for the
Collateral Agent to continue at all times following such change to have a valid,
legal and perfected first priority security interest in all the Collateral.
(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include accounting records
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12
sufficient to enable the preparation of financial statements in accordance with
GAAP indicating all payments and proceeds received with respect to any part of
the Collateral, and, at such time or times as the Collateral Agent may
reasonably request, promptly to prepare and deliver to the Collateral Agent a
duly certified schedule or schedules in form and detail reasonably satisfactory
to the Collateral Agent showing the identity, amount and location of any and all
Collateral.
SECTION 4.02. [Intentionally Left Blank].
SECTION 4.03. Protection of Security. Each Grantor shall, at its own cost
and expense, take any and all actions necessary to defend title to the
Collateral against all persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. Further Assurances. Each Grantor agrees, at its own expense,
to execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and take all such actions as the Collateral Agent may
from time to time request to better assure, preserve, protect and perfect the
Security Interest and the rights and remedies created hereby, including the
payment of any fees and taxes required in connection with the execution and
delivery of this Agree ment, the granting of the Security Interest and the
filing of any financing statements (including fixture filings) or other
documents in connection herewith or therewith. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note or other instrument, such note or instrument shall be
immediately pledged and delivered to the Collateral Agent, duly endorsed in a
manner satisfactory to the Collateral Agent.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by supplementing Schedule II, III, IV or V hereto or
adding additional schedules hereto to specifically identify any registered asset
or item that may constitute Copyrights, Licenses, Patents or Trademarks;
provided, however, that any Grantor shall have the right, exercisable within 10
days after it has been notified by the Collateral Agent of the specific
identification of such Collateral, to advise the Collateral Agent in writing of
any inaccuracy of the representations and warranties made by such Grantor
hereunder with respect to such Collateral. Each Grantor agrees that it will use
its best efforts to take such action as shall be necessary in order that all
representations and warranties hereunder shall be true and correct with respect
to such Collateral within 30 days after the date it has been noti fied by the
Collateral Agent of the specific identification of such Collateral.
SECTION 4.05. Inspection and Verification. The Collateral Agent and such
persons as the Collateral Agent may reasonably designate shall have the right,
at the Grantors' own cost and expense, to inspect the Collateral, all records
related thereto (and to make extracts and copies from such records) and the
premises upon which any of the Collateral is located, to discuss the Grantors'
affairs with the officers of the Grantors and their independent accountants and
to verify under reasonable procedures, the validity, amount, quality, quantity,
value, condition and status of, or any other matter relating to, the Collateral,
including, in the case of Accounts or Collateral in the possession of any third
person, by contacting Account Debtors or the third person possessing such
Collateral for the purpose of making such a verification. The Collateral Agent
shall have the absolute right to share any information it gains from such
inspection or verification with any Secured Party (it being understood that any
such information shall be deemed to be "Information" subject to the provisions
of Section 9.12 of the Credit Agreement), provided that unless and until an
Event of Default shall have occurred and be continuing, any inspection or
verification pursuant to this Section 4.05 shall be conducted in consultation
with the Borrower.
SECTION 4.06. Taxes; Encumbrances. At its option, the Collateral Agent may
discharge past due taxes, assessments, charges, fees, Liens, security interests
or other encumbrances at any time levied or placed on the Collateral and not
permitted pursuant to Section 6.02 of the Credit Agreement, and may pay for the
maintenance and preservation of the Collateral to the extent any Grantor fails
to do so as required by the Credit Agreement and each Grantor jointly and
severally agrees to reimburse the Collateral Agent on demand for any payment
made or any expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in
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this Section 4.06 shall be interpreted as excusing any Grantor from the
performance of, or imposing any obligation on the Collateral Agent or any
Secured Party to cure or perform, any covenants or other promises of any Grantor
with respect to taxes, assessments, charges, fees, liens, security interests or
other encumbrances and maintenance as set forth herein or in the other Loan
Documents.
SECTION 4.07. Assignment of Security Interest. If at any time any Grantor
shall take a secu rity interest in any property of an Account Debtor or any
other person to secure payment and performance of an Account, such Grantor shall
promptly assign such security interest to the Collateral Agent. Such assignment
need not be filed of public record unless necessary to continue the perfected
status of the security interest against creditors of and transferees from the
Account Debtor or other person granting the security interest.
SECTION 4.08. Continuing Obligations of the Grantors. Each Grantor shall
remain liable to observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.
SECTION 4.09. Use and Disposition of Collateral. None of the Grantors shall
make or permit to be made an assignment, pledge or hypothecation of the
Collateral or shall grant any other Lien in respect of the Collateral, except as
expressly permitted by Section 6.02 of the Credit Agreement. None of the
Grantors shall make or permit to be made any transfer of the Collateral and each
Grantor shall remain at all times in possession of the Collateral owned by it,
except that (a) Inventory may be sold in the ordinary course of business and (b)
the Grantors may use and dispose of the Collateral in any lawful manner not
inconsistent with the provisions of this Agreement, the Credit Agreement or any
other Loan Document. Without limiting the generality of the foregoing, each
Grantor agrees that it shall not permit any Inventory to be in the possession or
control of any warehouseman, bailee, agent or processor at any time unless such
warehouseman, bailee, agent or processor shall have been notified of the
Security Interest and shall have agreed in writing to hold the Inventory subject
to the Security Interest and the instructions of the Collateral Agent and to
waive and release any Lien held by it with respect to such Inventory, whether
arising by operation of law or otherwise.
SECTION 4.10. Limitation on Modification of Accounts. None of the Grantors
will, without the Collateral Agent's prior written consent, grant any extension
of the time of payment of any of the Accounts Receivable, compromise, compound
or settle the same for less than the full amount thereof, release, wholly or
partly, any person liable for the payment thereof or allow any credit or
discount whatsoever thereon, other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business
and consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar to
those in which such Grantor is engaged.
SECTION 4.11. Insurance. The Grantors, at their own expense, shall maintain
or cause to be maintained insurance covering physical loss or damage to the
Inventory and Equipment in accor dance with Section 5.07 of the Credit
Agreement. Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other actions with respect thereto as the Collateral Agent
deems advisable. All sums disbursed by the Collateral Agent in connection with
this Section 4.11, including reasonable attorneys' fees, court costs, expenses
and
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14
other charges relating thereto, shall be payable, upon demand, by the Grantors
to the Collateral Agent and shall be additional Obligations secured hereby.
SECTION 4.12. Legend. Each Grantor shall legend, in form and manner
satisfactory to the Collateral Agent, its books, records and documents
evidencing or pertaining to Accounts Receivable with an appropriate reference to
the fact that such Accounts Receivable have been assigned to the Collateral
Agent for the benefit of the Secured Parties and that the Collateral Agent has a
security interest therein.
SECTION 4.13. Covenants Regarding Patent, Trademark and Copyright
Collateral. (a) Each Grantor agrees that it will not, nor will it permit any of
its licensees to, do any act, or omit to do any act, whereby any Patent which is
used in the conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue to mark any products
covered by a Patent with the relevant patent number as necessary and sufficient
to establish and preserve its maximum rights under applicable patent laws in
each case except if the failure to do so would have a Material Adverse Effect.
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark used in the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights in each case except if the failure to do so would have a
Material Adverse Effect.
(c) Each Grantor (either itself or through licensees) will, for each work
covered by any Copyright, continue to publish, reproduce, display, adopt and
distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws in each case except if the failure to do so would have a Material
Adverse Effect.
(d) Each Grantor shall notify the Collateral Agent immediately if it knows
or has reason to know that any Patent, Trademark or Copyright used in the
conduct of its business may become abandoned, lost or dedicated to the public,
or of any adverse determination or development (including the institution of, or
any such determination or development in, any proceeding in the United States
Patent and Trademark Office, United States Copyright Office or any court or
similar office of any country) regarding such Grantor's ownership of any Patent,
Trademark or Copyright, its right to register the same, or to keep and maintain
the same except if any such event or development would not have a Material
Adverse Effect.
(e) In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an application for any material Patent,
Trademark or Copyright (or for the registration of any Trademark or Copyright)
with the United States Patent and Trademark Office, United States Copyright
Office or any office or agency in any political subdivision of the United States
or in any other country or any political subdivision thereof, unless it promptly
informs the Collateral Agent, and, upon request of the Collateral Agent,
executes and delivers any and all agreements, instruments, documents and papers
as the Collateral Agent may request to evidence the Collateral Agent's security
interest in such Patent, Trademark or Copyright, and each Grantor hereby
appoints the Collateral Agent as its attorney-in-fact to execute and file such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all necessary steps that are consistent with the
practice in any proceeding before the United States Patent and Trademark Office,
United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, to maintain and pursue each material application relating
to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant
or registration) and to
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15
maintain each issued Patent and each registration of the Trademarks and
Copyrights that is used in the conduct of any Grantor's business, including
timely filings of applications for renewal, affidavits of use, affidavits of
incontestability and payment of maintenance fees, and, if consistent with good
business judgment, to initiate opposition, interference and cancellation
proceedings against third parties except if the failure to do so would not have
a Material Adverse Effect.
(g) In the event that any Grantor has reason to believe that any Collateral
consisting of a Patent, Trademark or Copyright used in the conduct of any
Grantor's business has been or is about to be infringed, misappropriated or
diluted by a third party and such infringement, misappropriation or dilution
would have a Material Adverse Effect, such Grantor promptly shall notify the
Collateral Agent and shall, if consistent with good business judgment, promptly
sue for infringement, misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution, and take such other
actions as are appropriate under the circumstances to protect such Collateral.
(h) Upon and during the continuance of an Event of Default, each Grantor
shall use its best efforts (and without any obligation to make any payment
therefor) to obtain all requisite consents or approvals by the licensor of each
Copyright License, Patent License or Trademark License to effect the assignment
of all of such Grantor's right, title and interest thereunder to the Collateral
Agent or its designee.
ARTICLE V
Power of Attorney
Each Grantor irrevocably makes, constitutes and appoints the Collateral
Agent (and all officers, employees or agents designated by the Collateral Agent)
as such Grantor's true and lawful agent and attorney-in-fact, and in such
capacity the Collateral Agent shall have the right, with power of substitution
for each Grantor and in each Grantor's name or otherwise, for the use and
benefit of the Collateral Agent and the Secured Parties, upon the occurrence and
during the continuance of an Event of Default (a) to receive, endorse, assign
and/or deliver any and all notes, acceptances, checks, drafts, money orders or
other evidences of payment relating to the Collateral or any part thereof; (b)
to demand, collect, receive payment of, give receipt for and give discharges and
releases of all or any of the Collateral; (c) to sign the name of any Grantor on
any invoice or bill of lading relating to any of the Collateral; (d) to send
verifications of Accounts Receivable to any Account Debtor; (e) to commence and
prosecute any and all suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any of
the Collateral or to enforce any rights in respect of any Collateral; (f) to
settle, compromise, compound, adjust or defend any actions, suits or proceedings
relating to all or any of the Collateral; (g) to notify, or to require any
Grantor to notify, Account Debtors to make payment directly to the Collateral
Agent; and (h) to use, sell, assign, transfer, pledge, make any agreement with
respect to or otherwise deal with all or any of the Collateral, and to do all
other acts and things necessary to carry out the purposes of this Agreement, as
fully and completely as though the Collateral Agent were the absolute owner of
the Collateral for all purposes; provided, however, that nothing herein
contained shall be construed as requiring or obligating the Collateral Agent or
any Secured Party to make any commitment or to make any inquiry as to the nature
or sufficiency of any payment received by the Collateral Agent or any Secured
Party, or to present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or to become due
in respect thereof or any property covered thereby, and no action taken or
omitted to be taken by the Collateral Agent or any Secured Party with respect to
the Collateral or any part thereof shall give rise to any defense, counterclaim
or offset in favor of any Grantor or to any claim or action against the
Collateral Agent or any Secured Party. It is understood and agreed that the
appointment of the Collateral Agent as the agent and attorney-in-fact of the
Grantors for the purposes set forth above is coupled with an interest and is
irrevocable. The provisions of this Section shall in no event relieve any
Grantor of any of its obligations hereunder or under any other Loan Document
with respect to the Collateral or any part thereof or impose any obligation on
the Collateral Agent or any Secured Party to proceed in any particular manner
with respect to the Collateral or any part thereof, or in any way limit the
exercise
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16
by the Collateral Agent or any Secured Party of any other or further right which
it may have on the date of this Agreement or hereafter, whether hereunder, under
any other Loan Document, by law or otherwise.
ARTICLE VI
Remedies
SECTION 6.01. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine (other
than in violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained), and (b) with or without legal process and with or
without prior notice or demand for performance, to take possession of the
Collateral and without liability for trespass to enter any premises where the
Collateral may be located for the purpose of taking possession of or removing
the Collateral and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other applicable law. Without
limiting the generality of the foregoing, each Grantor agrees that the
Collateral Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Collateral for their own account for investment and not
with a view to the distribution or sale thereof, and upon consummation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely, free from
any claim or right on the part of any Grantor, and each Grantor hereby waives
(to the extent permitted by law) all rights of redemption, stay and appraisal
which such Grantor now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-504(3)
of the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's intention to make
any sale of Collateral. Such notice, in the case of a public sale, shall state
the time and place for such sale and, in the case of a sale at a broker's board
or on a securities exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Collateral Agent may fix and state in the notice (if any) of
such sale. At any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole and absolute discretion) determine. The Collateral Agent
shall not be obligated to make any sale of any Collateral if it shall determine
not to do so, regardless of the fact that notice of sale of such Collateral
shall have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. At any public (or, to the extent permitted by law, private) sale made
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pursuant to this Section, any Secured Party may bid for or purchase, free (to
the extent permitted by law) from any right of redemption, stay, valuation or
appraisal on the part of any Grantor (all said rights being also hereby waived
and released to the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account thereof by using any claim then
due and payable to such Secured Party from any Grantor as a credit against the
purchase price, and such Secured Party may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to any Grantor therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Obligations paid in full. As an alternative to exercising
the power of sale herein conferred upon it, the Collateral Agent may proceed by
a suit or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
SECTION 6.02. Application of Proceeds. The Collateral Agent shall apply the
proceeds of any collection or sale of the Collateral, as well as any Collateral
consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Loan Document) in connection with such
collection or sale or otherwise in connection with this Agreement or any of
the Obligations, including all court costs and the fees and expenses of its
agents and legal counsel, the repayment of all advances made by the
Collateral Agent hereunder or under any other Loan Document on behalf of
any Grantor and any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient discharge to the purchaser or purchasers of the Collateral so sold
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Collateral Agent
or such officer or be answerable in any way for the misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, subject to the provisions of any license or
other restriction applicable to such Collateral, each Grantor hereby grants to
the Collateral Agent an irrevocable, non-exclusive license (exercisable without
payment of royalty or other compensation to the Grantors) to use, license or
sub-license any of the Collateral consisting of Intellectual Property now owned
or hereafter acquired by such Grantor, and wherever the same may be located, and
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof. The use of such license
by the Collateral Agent shall be exercised, at the option of the Collateral
Agent, upon the occurrence and during the continuation of an Event of Default;
provided that any license, sub-license or other transaction entered into by the
Collateral Agent in accordance herewith shall be binding upon the Grantors
notwithstanding any subsequent cure of an Event of Default.
<PAGE>
18
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and notices
hereunder to any Subsidiary Guarantor shall be given to it at its address or
telecopy number set forth on Schedule I, with a copy to the Borrower.
SECTION 7.02. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document, any
agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement or instrument,
(c) any exchange, release or non-perfection of any Lien on other collateral, or
any release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations, or (d) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, any Grantor in respect of the Obligations or this Agreement.
SECTION 7.03. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04. Binding Effect; Several Agreement. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Grantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Grantor, the Collateral Agent and the other Secured Parties and their respective
successors and assigns, except that no Grantor shall have the right to assign or
transfer its rights or obligations hereunder or any interest herein or in the
Collateral (and any such assignment or transfer shall be void) except as
expressly contemplated by this Agreement or the Credit Agreement. This Agreement
shall be construed as a separate agreement with respect to each Grantor and may
be amended, modified, supplemented, waived or released with respect to any
Grantor without the approval of any other Grantor and without affecting the
obligations of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of any Grantor or the Collateral Agent that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and assigns.
SECTION 7.06. Collateral Agent's Fees and Expenses; Indemnification. (a)
Each Grantor jointly and severally agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Collateral Agent may incur in connection with (i) the
administration of this Agreement (including the customary fees and charges of
the Collateral Agent for any audits conducted by it or on its behalf with
respect to the Accounts Receivable or Inventory), (ii) the custody or
preservation of, or the sale of, collection from or other realization upon any
of the
<PAGE>
19
Collateral, (iii) the exercise, enforcement or protection of any of the rights
of the Collateral Agent hereunder or (iv) the failure of any Grantor to perform
or observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Grantor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.06 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Collateral Agent or any Lender. All amounts due under this Section 7.06
shall be payable on written demand therefor.
SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.08. Waivers; Amendment. (a) No failure or delay of the Collateral
Agent in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Collateral Agent hereunder and of
the Collateral Agent, the Issuing Bank, the Administrative Agent and the Lenders
under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provisions
of this Agreement or any other Loan Document or consent to any departure by any
Grantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any Grantor in any case shall entitle such Grantor or any
other Grantor to any other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Collateral Agent and the Grantor or Grantors with respect to which
such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.02 of the Credit Agreement.
SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09.
<PAGE>
SECTION 7.10. Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired thereby
(it being understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the validity of such
provision in any other jurisdiction). The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 7.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract (subject to Section 7.04), and
shall become effective as provided in Section 7.04. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 7.12. Headings. Article and Section headings used herein are for
the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 7.13. Jurisdiction; Consent to Service of Process. (a) Each Grantor
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or Federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Collateral Agent, the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or the other Loan Documents
against any Grantor or its properties in the courts of any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 7.01. Nothing in this Agreement
will affected the right of any party to this Agreement to serve process in any
other manner permitted by law.
SECTION 7.14. Termination. This Agreement and the Security Interest shall
terminate when all the principal of and any interest on any Loan or any other
fee or amount payable under this Agreement or any other Loan Document has been
indefeasibly paid in full in cash, the L/C exposure has been reduced to zero and
the Commitments and the L/C Commitments have been terminated. Upon any sale or
other transfer by any Grantor of any Collateral that is permitted under the
Credit Agreement to any person that is not a Grantor, or, upon the effectiveness
of any written consent to the release of the security interest granted hereby in
any Collateral pursuant to Section 9.02(b) of the Credit Agreement, the security
interest in such Collateral shall be automatically released. In connection with
any termination or release pursuant to the preceding sentences, the Collateral
Agent shall execute and deliver to the Grantors, at the Grantors' expense, all
documents that such Grantor shall reasonably request to evidence such
termination or release. Any execution and delivery of documents pursuant to this
Section 7.14 shall be without recourse to or warranty by the Collateral Agent.
If all the capital stock of a Subsidiary Guarantor is sold, transferred or
otherwise disposed
<PAGE>
21
of pursuant to a transaction permitted by Section 6.05 of the Credit Agreement,
such Subsidiary Guarantor shall be released from its obligations under this
Agreement without further action.
<PAGE>
22
SECTION 7.15. Additional Grantors. Upon execution and delivery by the
Collateral Agent and a Subsidiary of an instrument in the form of Annex 2
hereto, such Subsidiary shall become a Grantor hereunder with the same force and
effect as if originally named as a Grantor herein. The execution and delivery of
any such instrument shall not require the consent of any Grantor hereunder. The
rights and obligations of each Grantor hereunder shall remain in full force and
effect notwithstanding the addition of any new Grantor as a party to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
LA PETITE ACADEMY, INC.
by
----------------------------------
Name:
Title:
LPA HOLDING CORP.,
by
----------------------------------
Name:
Title:
EACH OF THE SUBSIDIARY GUARANTORS
LISTED ON SCHEDULE I HERETO,
by
----------------------------------
Name:
Title: Authorized Officer
NATIONSBANK, N.A., as Collateral Agent,
by
----------------------------------
Name:
Title: Authorized Officer
<PAGE>
23
<PAGE>
SCHEDULE I
SUBSIDIARY GUARANTORS
<PAGE>
SCHEDULE II
COPYRIGHTS
<PAGE>
SCHEDULE III
LICENSES
<PAGE>
SCHEDULE IV
PATENTS
<PAGE>
SCHEDULE V
TRADEMARKS
<PAGE>
Annex 1 to the
Security Agreement
[Form Of]
PERFECTION CERTIFICATE
Reference is made to (a) the Credit Agreement dated as of May [ ], 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, Holdings, the lenders from time to time party
thereto (the "Lenders"), NATIONSBANK, N.A., as administrative agent (in such
capacity, the "Administrative Agent"), documentation agent and Collateral Agent,
and THE CHASE MANHATTAN BANK, as syndication agent and as issuing bank (in such
capacity, the "Issuing Bank") and (b) the Parent Guarantee Agreement dated as of
May [ ], 1998 (as amended, supplemented or otherwise modified from time to time,
the "Parent Guarantee Agreement"), between Holdings and the Collateral Agent and
(c) the Subsidiary Guarantee Agreement dated as of May [ ], 1998 (as amended,
supplemented or otherwise modified from time to time, the "Subsidiary Guarantee
Agreement"), among the Subsidiary Guarantors and the Collateral Agent.
The undersigned, a Financial Officer and a legal officer, respectively, of
Holdings, hereby certify to the Collateral Agent and each other Secured Party as
follows:
1. Names. (a) The exact corporate name of each Grantor, as such name
appears in its respective certificate of incorporation, is as follows:
(b) Set forth below is each other corporate name each Grantor has had in
the past five years, together with the date of the relevant change:
(c) Except as set forth in Schedule 1 hereto, no Grantor has changed its
identity or corporate structure in any way within the past five years. Changes
in identity or corporate structure would include mergers, consolidations and
acquisitions, as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include in Schedule 1
the information required by Sections 1 and 2 of this certificate as to each
acquiree or constituent party to a merger or consolidation.
(d) The following is a list of all other names (including trade names or
similar appellations) used by each Grantor or any of its divisions or other
business units in connection with the conduct of its business or the ownership
of its properties at any time during the past five years:
(e) Set forth below is the Federal Taxpayer Identification Number of each
Grantor:
<PAGE>
2
2. Current Locations. (a) The chief executive office of each Grantor is
located at the address set forth opposite its name below:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(b) Set forth below opposite the name of each Grantor are all locations
where such Grantor maintains any books or records relating to any Accounts
Receivable (with each location at which chattel paper, if any, is kept being
indicated by an "*"):
Grantor Mailing Address County State
- ------- --------------- ------ -----
(c) Set forth below opposite the name of each Grantor are all the places of
business of such Grantor not identified in paragraph (a) or (b) above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(d) Set forth below opposite the name of each Grantor are all the locations
where such Grantor maintains any Collateral not identified above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(e) Set forth below opposite the name of each Grantor are the names and
addresses of all persons other than such Grantor that have possession of any of
the Collateral of such Grantor:
Grantor Mailing Address County State
- ------- --------------- ------ -----
3. Unusual Transactions. All Accounts Receivable have been originated by
the Grantors and all Inventory has been acquired by the Grantors in the ordinary
course of business.
4. File Search Reports. Attached hereto as Schedule 4(A) are true copies of
file search reports from the Uniform Commercial Code filing offices where
filings described in Section 3.16 of the Credit Agreement are to be made.
Attached hereto as Schedule 4(B) is a true copy of each financing statement or
other filing identified in such file search reports.
5. UCC Filings. Duly signed financing statements on Form UCC-1 in
substantially the form of Schedule 5 hereto have been prepared for filing in the
Uniform Commercial Code filing office in each jurisdiction where a Grantor has
Collateral as identified in Section 2 hereof.
6. Schedule of Filings. Attached hereto as Schedule 6 is a schedule setting
forth, with respect to the filings described in Section 5 above, each filing and
the filing office in which such filing is to be made.
7. Filing Fees. All filing fees and taxes payable in connection with the
filings described in Section 5 above have been paid.
8. Stock Ownership. Attached hereto as Schedule 8 is a true and correct
list of all the duly authorized, issued and outstanding stock of each Subsidiary
and the record and beneficial owners of such stock.
<PAGE>
3
9. Notes. Attached hereto as Schedule 9 is a true and correct list of all
notes held by Holdings and each Subsidiary and all intercompany notes between
Holdings and each Subsidiary of Holdings and between each Subsidiary of Holdings
and each other such Subsidiary.
10. Advances. Attached hereto as Schedule 10 is (a) a true and correct list
of all advances made by Holdings to any Subsidiary of Holdings or made by any
Subsidiary of Holdings to Holdings or any other Subsidiary of Holdings, which
advances will be on and after the date hereof evidenced by one or more
intercompany notes pledged to the Collateral Agent under the Pledge Agreement,
and (b) a true and correct list of all unpaid intercompany transfers of goods
sold and delivered by or to Holdings or any Subsidiary of Holdings.
11. Mortgage Filings. Attached hereto as Schedule 11 is a schedule setting
forth, with respect to each Mortgaged Property, (i) the exact corporate name of
the corporation that owns such property as such name appears in its certificate
of incorporation, (ii) if different from the name identified pursuant to clause
(i), the exact name of the current record owner of such property reflected in
the records of the filing office for such property identified pursuant to the
following clause and (iii) the filing office in which a Mortgage with respect to
such property must be filed or recorded in order for the Collateral Agent to
obtain a perfected security interest therein.
IN WITNESS WHEREOF, the undersigned have duly executed this certificate on
this [ ] day of May, 1998.
LA PETITE ACADEMY, INC.,
by
------------------------------------
Name:
Title:[Financial Officer]
by
------------------------------------
Name:
Title: [Legal Officer]
<PAGE>
Annex 2 to the
Security Agreement
SUPPLEMENT NO. __ dated as of , to the Security
Agreement dated as of May [ ], 1998, among LA PETITE ACADEMY,
INC., a Delaware corporation (the "Borrower"), LPA HOLDING
CORP., a Delaware corporation ("Holdings"), each subsidiary of
the Borrower listed on Schedule I thereto (each such
subsidiary individually a "Subsidiary Guarantor" and
collectively, the "Subsidiary Guarantors"; the Subsidiary
Guarantors, Holdings and the Borrower are referred to
collectively herein as the "Grantors") and NATIONSBANK, N.A.,
("Nationsbank"), as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (as defined
herein).
A. Reference is made to (a) the Credit Agreement dated as of May [ ], 1998
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, Holdings, the lenders from time to time party
thereto (the "Lenders"), Nationsbank, as administrative agent for the Lenders
(in such capacity, the "Administrative Agent") and Collateral Agent, and THE
CHASE MANHATTAN BANK, as syndication agent and as issuing bank (in such
capacity, the "Issuing Bank") and (b) the Parent Guarantee Agreement dated as of
May [ ], 1998 (as amended, supplemented or otherwise modified from time to time,
the "Parent Guarantee Agreement"), between Holdings and the Collateral Agent and
(c) the Subsidiary Guarantee Agreement dated as of May [ ], 1998 (as amended,
supplemented or otherwise modified from time to time, the "Subsidiary Guarantee
Agreement"), among the Subsidiary Guarantors and the Collateral Agent.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Security Agreement and the
Credit Agreement.
C. The Grantors have entered into the Security Agreement in order to induce
the Lenders to make Loans and the Issuing Bank to issue Letters of Credit.
Section 7.15 of Security Agreement provides that additional Subsidiaries of the
Borrower may become Grantors under the Security Agreement by execution and
delivery of an instrument in the form of this Supplement. The undersigned
Subsidiary (the "New Grantor") is executing this Supplement in accordance with
the requirements of the Credit Agreement to become a Grantor under the Security
Agreement in order to induce the Lenders to make additional Loans and the
Issuing Bank to issue additional Letters of Credit and as consideration for
Loans previously made and Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Grantor agree as follows:
SECTION 1. In accordance with Section 7.15 of the Security Agreement, the
New Grantor by its signature below becomes a Grantor under the Security
Agreement with the same force and effect as if originally named therein as a
Grantor and the New Grantor hereby (a) agrees to all the terms and provisions of
the Security Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties made by it as a
Grantor thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Grantor, as security for the payment and
performance in full of the Obligations, does hereby create and grant to the
Collateral Agent, its successors and assigns, for the benefit of the Secured
Parties, their successors and assigns, a security interest in and lien on all of
the New Grantor's right, title and interest in and to the Collateral of the New
Grantor. Each reference to a "Grantor" in the Security Agreement shall be deemed
to include the New Grantor. The Security Agreement is hereby incorporated herein
by reference.
SECTION 2. The New Grantor represents and warrants to the Collateral Agent
and the other Secured Parties that this Supplement has been duly authorized,
executed and delivered by it and con stitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Grantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement
<PAGE>
2
by facsimile transmission shall be as effective as delivery of a manually signed
counterpart of this Supplement.
SECTION 4. The New Grantor hereby represents and warrants that (a) set
forth on Schedule I attached hereto is a true and correct schedule of the
location of any and all Collateral of the New Grantor and (b) set forth under
its signature hereto, is the true and correct location of the chief executive
office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the Security Agreement
shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties hereto shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 8. All communications and notices hereunder shall be in writing and
given as provided in Section 7.01 of the Security Agreement. All communications
and notices hereunder to the New Grantor shall be given to it at the address set
forth under its signature below.
SECTION 9. The New Grantor agrees to reimburse the Collateral Agent for its
reasonable out-of-pocket expenses in connection with this Supplement, including
the reasonable fees, other charges and disbursements of counsel for the
Collateral Agent.
IN WITNESS WHEREOF, the New Grantor and the Collateral Agent have duly
executed this Supplement to the Security Agreement as of the day and year first
above written.
[Name Of New Grantor],
by
-----------------------------------
Name:
Title:
Address:
NATIONSBANK, N.A., as Collateral Agent,
by
----------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
to Supplement No.___ to the
Security Agreement
LOCATION OF COLLATERAL
----------------------
Description Location
- ----------- --------
<PAGE>
EXECUTION COPY
PARENT GUARANTEE AGREEMENT dated as of May 11, 1998,
among LPA HOLDING CORP., a Delaware corporation (the
"Guarantor") and NATIONSBANK, N.A., ("Nationsbank"), as
administrative agent (the "Administrative Agent") for the
Secured Parties and as collateral agent (the "Collateral
Agent") for the Lenders (as defined in the Credit Agreement
referred to below).
Reference is made to the Credit Agreement dated as of May 11, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among LA PETITE ACADEMY, INC., a Delaware corporation (the
"Borrower"), the Guarantor, the lenders from time to time party thereto (the
"Lenders"), Nationsbank, as Administrative Agent, documentation agent and
Collateral Agent, and THE CHASE MANHATTAN BANK, as syndication agent and as
issuing bank (in such capacity, the "Issuing Bank"). Capitalized terms used
herein and not defined herein shall have the meanings assigned to such terms in
the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. As the owner of all of the issued and outstanding capital stock of
the Borrower, the Guarantor acknowledges that it will derive substantial benefit
from the making of Loans by the Lenders and the issuance of Letters of Credit by
the Issuing Bank. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit are conditioned on, among other things,
the execution and delivery by the Guarantor of a Parent Guarantee Agreement in
the form hereof. As consideration therefor and in order to induce the Lenders to
make Loans and the Issuing Bank to issue Letters of Credit, the Guarantor is
willing to execute this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. The Guarantor unconditionally and irrevocably
guarantees (the "Guarantee"), as a primary obligor and not merely as a surety,
(a) the due and punctual payment by the Borrower of (i) the principal of and
premium, if any, and interest (including interest accruing during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether such interest is allowed or allowable as a claim in such
proceeding) on the Loans, when and as due, whether at maturity, by acceleration,
upon one or more dates set for prepayment or otherwise, (ii) each payment
required to be made by the Borrower under the Credit Agreement in respect of any
Letter of Credit, when and as due, including payments in respect of
reimbursement of disbursements, interest thereon and obligations to provide cash
collateral, and (iii) all other monetary obligations, including fees, costs,
expenses and indemnities, whether primary, secondary, direct, contingent, fixed
or otherwise (including monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether such monetary obligations are allowed or allowable as a claim in such
proceeding), of the Borrower to the Secured Parties under the Credit Agreement
and the other Loan Documents, (b) the due and punctual performance of all
covenants, agreements, obligations and liabilities of the Borrower under or
pursuant to the Credit Agreement and the other Loan Documents, (c) the due and
punctual payment and performance of all the covenants, agreements, obligations
and liabilities of each other Loan Party under or pursuant to this Agreement and
the other Loan Documents and (d) the due and punctual payment of all obligations
of the Borrower under each Hedging Agreement entered into with any counterparty
that was a Lender (or and Affiliate thereof) at the time such Hedging Agreement
was entered into (all the monetary and other obligations described
<PAGE>
2
in the preceding clauses (a) through (d) being collectively called the
"Obligations"). The Guarantor further agrees that the Obligations may be
extended or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon the Guarantee notwithstanding any
extension or renewal of any Obligation.
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
applicable law, the Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of the Guarantee and notice of protest for nonpayment. To the fullest
extent permitted by applicable law, the obligations of the Guarantor hereunder
shall not be affected by (a) the failure of the Collateral Agent or any other
Secured Party to assert any claim or demand or to enforce or exercise any right
or remedy against the Borrower or any other guarantor of the Obligations under
the provisions of the Credit Agreement, any other Loan Document or otherwise,
(b) any rescission, waiver, amendment or modification of, or any release from
any of the terms or provisions of, this Agreement, any other Loan Document, any
Guarantee or any other agreement, including with respect to any other guarantor
of the Obligations under this Agreement, or (c) the failure to perfect any
security interest in, or the release of, any of the security held by or on
behalf of the Collateral Agent or any other Secured Party.
SECTION 3. Security. The Guarantor authorizes the Collateral Agent and each
of the other Secured Parties to (a) take and hold security for the payment of
the Guarantee and the Obligations and exchange, enforce, waive and release any
such security, (b) apply such security and direct the order or manner of sale
thereof as they in their sole discretion may determine and (c) release or
substitute any one or more endorsees, other guarantors or other obligors. To the
extent that security is given for the payment of this Guarantee or the
Obligations, the Guarantor authorizes the Administrative Agent and the Lenders
to apply such security and direct the order or manner of sale thereof as they in
their sole discretion may determine. The Guarantor further authorizes the
Administrative Agent to release or substitute any one or more endorsees, other
guarantors or other obligors.
SECTION 4. Guarantee of Payment. The Guarantor further agrees that the
Guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Collateral Agent or
any other Secured Party to any of the security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
the Collateral Agent or any other Secured Party in favor of the Borrower or any
other person.
SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of
the Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations, and shall not be
subject to any defense or set-off, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of the Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of any Agent or any other Secured Party to
assert any claim or demand or to enforce any remedy under the Credit Agreement,
any other Loan Document or any other agreement, by any waiver or modification of
any provision of any thereof, by any default, failure or delay, wilful or
otherwise, in the performance of the Obligations, or by any other act or
omission that may or might in any manner or to any extent vary the risk of the
Guarantor or that would otherwise operate as a discharge of the Guarantor as a
matter of law or equity (other than the indefeasible payment in full in cash of
all the Obligations).
<PAGE>
3
SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted by
applicable law, the Guarantor waives any defense based on or arising out of any
defense of the Borrower or the unenforceability of the Obligations or any part
thereof from any cause, or the cessation from any cause of the liability of the
Borrower, other than the indefeasible payment in full in cash of all the
Obligations. The Collateral Agent and the other Secured Parties may, at their
election, foreclose on any security held by one or more of them by one or more
judicial or nonjudicial sales, accept an assignment of any such security in lieu
of foreclosure, compromise or adjust any part of the Obligations, make any other
accommodation with the Borrower or any other guarantor or exercise any other
right or remedy available to them against the Borrower or any other guarantor,
without affecting or impairing in any way the liability of the Guarantor
hereunder except to the extent that all the Obligations have been indefeasibly
paid in full in cash. Pursuant to applicable law, the Guarantor waives any
defense arising out of any such election even though such election operates,
pursuant to applicable law, to impair or to extinguish any right of
reimbursement or subrogation or other right or remedy of the Guarantor against
the Borrower or any other guarantor, as the case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In furtherance of the foregoing
and not in limitation of any other right that the Collateral Agent or any other
Secured Party has at law or in equity against the Guarantor by virtue hereof,
upon the failure of the Borrower or any other Loan Party to pay any Obligation
when and as the same shall become due, whether at maturity, by acceleration,
after notice of prepayment or otherwise, the Guarantor hereby promises to and
will forthwith pay, or cause to be paid, to the Collateral Agent or such other
Secured Party as designated thereby in cash the amount of such unpaid
Obligations. Upon payment by the Guarantor of any sums to the Collateral Agent
or any Secured Party as provided above, all rights of the Guarantor against the
Borrower arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full in cash of all the Obligations. In addition, any indebtedness of the
Borrower now or hereafter held by the Guarantor is hereby subordinated in right
of payment to the prior payment in full of the Obligations. If any amount shall
erroneously be paid to the Guarantor on account of (a) such subrogation,
contribution, reimbursement, indemnity or similar right or (b) any such
indebtedness of the Borrower, such amount shall be held in trust for the benefit
of the Secured Parties and shall forthwith be paid to the Collateral Agent to be
credited against the payment of the Obligations, whether matured or unmatured,
in accordance with the terms of the Loan Documents.
SECTION 8. Information. The Guarantor assumes all responsibility for being
and keeping itself informed of the Borrower's financial condition and assets,
and of all other circumstances bearing upon the risk of nonpayment of the
Obligations and the nature, scope and extent of the risks that the Guarantor
assumes and incurs hereunder, and agrees that none of the Collateral Agent or
the other Secured Parties will have any duty to advise the Guarantor of
information known to it or any of them regarding such circumstances or risks.
SECTION 9. Termination. The Guarantee (a) shall terminate when all the
Obligations have been indefeasibly paid in full in cash and the Lenders have no
further commitment to lend under the Credit Agreement, the LC Exposure has been
reduced to zero and the Issuing Bank has no further obligation to issue Letters
of Credit under the Credit Agreement and (b) shall continue to be effective or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any Obligation is rescinded or must otherwise be restored by any Secured
Party or the Guarantor upon the bankruptcy or reorganization of the Borrower,
the Guarantor or otherwise.
SECTION 10. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party, and all covenants,
promises and agreements by or on behalf of the Guarantor that are contained in
this Agreement shall bind and inure to the benefit of each
<PAGE>
4
party hereto and their respective successors and assigns. This Agreement shall
become effective as to the Guarantor when a counterpart hereof executed on
behalf of the Guarantor shall have been delivered to the Collateral Agent, and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon the Guarantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of the
Guarantor, the Collateral Agent and the other Secured Parties, and their
respective successors and assigns, except that the Guarantor shall not have the
right to assign its rights or obligations hereunder or any interest herein (and
any such attempted assignment shall be void).
SECTION 11. Waivers; Amendment. (a) No failure or delay of the Collateral
Agent in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Collateral Agent hereunder and of
the other Secured Parties under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of this Agreement or consent to any departure by the
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on the Guarantor in any case shall entitle the Guarantor to any
other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Guarantor and the Administrative Agent, with the prior written consent of the
Required Lenders (except as otherwise provided in the Credit Agreement).
SECTION 12. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 13. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to the Guarantor shall be given to it in
care of the Borrower.
SECTION 14. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made the Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Agent and the other Secured Parties and shall
survive the making by the Lenders of the Loans and the issuance of the Letters
of Credit by the Issuing Bank regardless of any investigation made by the
Secured Parties or on their behalf, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan or any other fee
or amount payable under this Agreement or any other Loan Document is outstanding
and unpaid or the LC Exposure does not equal zero and as long as the Commitments
have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
<PAGE>
5
SECTION 15. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract, and shall become effective as provided in
Section 10. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 16. Rules of Interpretation. The rules of interpretation specified
in Section 1.03 of the Credit Agreement shall be applicable to this Agreement.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
LPA HOLDING CORP.,
by
-------------------------------
Name:
Title:
NATIONSBANK, N.A., as Administrative
Agent and as Collateral Agent,
by
-------------------------------
Name:
Title:
<PAGE>
EXECUTION COPY
SUBSIDIARY GUARANTEE AGREEMENT dated as of May 11,
1998, among each of the subsidiaries listed on Schedule I
hereto (each such subsidiary, individually, a "Subsidiary
Guarantor" and, collectively, the "Subsidiary Guarantors")
of LA PETITE ACADEMY, INC., a Delaware corporation (the
"Borrower"), and NATIONSBANK, N.A., as collateral agent (the
"Collateral Agent") for the Secured Parties (as defined in
the Credit Agreement referred to below).
Reference is made to the Credit Agreement dated as of May 11, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, LPA HOLDING CORP., a Delaware corporation, the
lenders from time to time party thereto (the "Lenders"), Nationsbank, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), documentation agent and Collateral Agent and, THE CHASE MANHATTAN BANK,
as syndication agent and as issuing bank (in such capacity, the "Issuing Bank").
Capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of the Subsidiary Guarantors is a wholly owned Subsidiary of the
Borrower and acknowledges that it will derive substantial benefit from the
making of the Loans by the Lenders, and the issuance of the Letters of Credit by
the Issuing Bank. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit are conditioned on, among other things,
the execution and delivery by the Subsidiary Guarantors of a Subsidiary
Guarantee Agreement in the form hereof. As consideration therefor and in order
to induce the Lenders to make Loans and the Issuing Bank to issue Letters of
Credit, the Subsidiary Guarantors are willing to execute this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Subsidiary Guarantor unconditionally guarantees
(the "Guarantee"), jointly with the other Subsidiary Guarantors and severally,
as a primary obligor and not merely as a surety, (a) the due and punctual
payment by the Borrower of (i) the principal of and premium, if any, and
interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether such
interest is allowed or allowable as a claim in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (ii) each payment required to be made by the
Borrower under the Credit Agreement in respect of any Letter of Credit, when and
as due, including payments in respect of reimbursement of disbursements,
interest thereon and obligations to provide cash collateral, and (iii) all other
monetary obligations, including fees, costs, expenses and indemnities, whether
primary, secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether such monetary
obligations are allowed or allowable as a claim in such proceeding), of the
Borrower to the Secured Parties under the Credit Agreement and the other Loan
Documents, (b) the due and punctual performance of all covenants, agreements,
obligations and liabilities of the Borrower under or pursuant to the Credit
Agreement and the other Loan Documents, (c) the due and punctual payment and
performance of all the covenants, agreements, obligations and liabilities of
each other Loan Party under or pursuant to this Agreement and the other Loan
Documents and (d) the due and punctual payment and performance of all
obligations of the
<PAGE>
2
Borrower under each Hedging Agreement entered into with any counterparty that
was a Lender (or an Affiliate thereof) at the time such Hedging Agreement was
entered into (all the monetary and other obligations described in the preceding
clauses (a) through (d) being collectively called the "Obligations"). Each
Subsidiary Guarantor further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice to or further assent from it, and
that it will remain bound upon the Guarantee notwithstanding any extension or
renewal of any Obligation.
Anything contained in this Agreement to the contrary notwithstanding, the
obligations of each Subsidiary Guarantor hereunder shall be limited to a maximum
aggregate amount equal to the greatest amount that would not render such
Subsidiary Guarantor's obligations hereunder subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the United
States Code or any provisions of applicable state law (collectively, the
"Fraudulent Transfer Laws"), in each case after giving effect to all other
liabilities of such Subsidiary Guarantor, contingent or otherwise, that are
relevant under the Fraudulent Transfer Laws (specifically excluding, however,
any liabilities of such Subsidiary Guarantor (a) in respect of intercompany
indebtedness to the Borrower or Affiliates of the Borrower to the extent that
such indebtedness would be discharged in an amount equal to the amount paid by
such Subsidiary Guarantor hereunder and (b) under any guarantee of senior
unsecured indebtedness or Indebtedness subordinated in right of payment to the
Obligations, which guarantee contains a limitation as to maximum amount similar
to that set forth in this paragraph, pursuant to which the liability of such
Subsidiary Guarantor hereunder is included in the liabilities taken into account
in determining such maximum amount) and after giving effect as assets to the
value (as determined under the applicable provisions of the Fraudulent Transfer
Laws) of any rights to subrogation, contribution, reimbursement, indemnity or
similar rights of such Subsidiary Guarantor pursuant to (i) applicable law or
(ii) any agreement providing for an equitable allocation among such Subsidiary
Guarantor and other Affiliates of the Borrower of obligations arising under
Guarantees by such parties (including the Indemnity, Subrogation and
Contribution Agreement).
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
applicable law, each Subsidiary Guarantor waives presentment to, demand of
payment from and protest to the Borrower of any of the Obligations, and also
waives notice of acceptance of the Guarantee and notice of protest for
nonpayment. To the fullest extent permitted by applicable law, the obligations
of each Subsidiary Guarantor hereunder shall not be affected by (a) the failure
of the Collateral Agent or any other Secured Party to assert any claim or demand
or to enforce or exercise any right or remedy against the Borrower or any other
Subsidiary Guarantor under the provisions of the Credit Agreement, any other
Loan Document or otherwise, (b) any rescission, waiver, amendment or
modification of, or any release from any of the terms or provisions of this
Agreement, any other Loan Document, any Guarantee or any other agreement,
including with respect to any other Subsidiary Guarantor under this Agreement,
or (c) the failure to perfect any security interest in, or the release of, any
of the security held by or on behalf of the Collateral Agent or any other
Secured Party.
SECTION 3. Security. Each of the Subsidiary Guarantors authorizes the
Collateral Agent and each of the other Secured Parties to (a) take and hold
security for the payment of the Guarantee and the Obligations and exchange,
enforce, waive and release any such security, (b) apply such security and direct
the order or manner of sale thereof as they in their sole discretion may
determine and (c) release or substitute any one or more endorsees, other
Subsidiary Guarantors or other obligors.
SECTION 4. Guarantee of Payment. Each Subsidiary Guarantor further agrees
that the Guarantee constitutes a guarantee of payment when due and not of
collection, and waives any right to require that any resort be had by the
Collateral Agent or any other Secured Party to any of the security held for
payment of the Obligations or to any balance of any deposit account or
<PAGE>
3
credit on the books of the Collateral Agent or any other Secured Party in favor
of the Borrower or any other person.
SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of
each Subsidiary Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason (other than the
indefeasible payment in full in cash of the Obligations), including any claim of
waiver, release, surrender, alteration or compromise of any of the Obligations,
and shall not be subject to any defense or set-off, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Subsidiary Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of the Collateral Agent or any other Secured Party to assert any claim
or demand or to enforce any remedy under the Credit Agreement, any other Loan
Document or any other agreement, by any waiver or modification of any provision
of any thereof, by any default, failure or delay, wilful or otherwise, in the
performance of the Obligations, or by any other act or omission that may or
might in any manner or to any extent vary the risk of any Subsidiary Guarantor
or that would otherwise operate as a discharge of each Subsidiary Guarantor as a
matter of law or equity (other than the indefeasible payment in full in cash of
all the Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted by
applicable law, each of the Subsidiary Guarantors waives any defense based on or
arising out of any defense of the Borrower or the unenforceability of the
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower, other than the indefeasible payment in full in
cash of all the Obligations. The Collateral Agent and the other Secured Parties
may, at their election, foreclose on any security held by one or more of them by
one or more judicial or nonjudicial sales, accept an assignment of any such
security in lieu of foreclosure, compromise or adjust any part of the
Obligations, make any other accommodation with the Borrower or any other
Subsidiary Guarantor or exercise any other right or remedy available to them
against the Borrower or any other Subsidiary Guarantor, without affecting or
impairing in any way the liability of any Subsidiary Guarantor hereunder except
to the extent that all the Obligations have been indefeasibly paid in full in
cash. Pursuant to applicable law, each of the Subsidiary Guarantors waives any
defense arising out of any such election even though such election operates,
pursuant to applicable law, to impair or to extinguish any right of
reimbursement or subrogation or other right or remedy of such Subsidiary
Guarantor against the Borrower or any other Subsidiary Guarantor or Subsidiary
Guarantor, as the case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In furtherance of the foregoing
and not in limitation of any other right that the Collateral Agent or any other
Secured Party has at law or in equity against any Subsidiary Guarantor by virtue
hereof, upon the failure of the Borrower or any other Loan Party to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Subsidiary Guarantor
hereby promises to and will forthwith pay, or cause to be paid, to the
Collateral Agent or such other Secured Party as designated thereby in cash the
amount of such unpaid Obligations. Upon payment by any Subsidiary Guarantor of
any sums to the Collateral Agent or any Secured Party as provided above, all
rights of such Subsidiary Guarantor against the Borrower arising as a result
thereof by way of right of subrogation, contribution, reimbursement, indemnity
or otherwise shall in all respects be subordinate and junior in right of payment
to the prior indefeasible payment in full in cash of all the Obligations. In
addition, any indebtedness of the Borrower now or hereafter held by any
Subsidiary Guarantor is hereby subordinated in right of payment to the prior
payment in full in cash of the Obligations. If any amount shall erroneously be
paid to any Subsidiary Guarantor on account of (a) such subrogation,
contribution, reimbursement, indemnity or similar right or (b) any such
indebtedness of the Borrower, such amount shall be held in trust for the benefit
of the Secured Parties and shall forthwith be paid to
<PAGE>
4
the Collateral Agent to be credited against the payment of the Obligations,
whether matured or unmatured, in accordance with the terms of the Loan
Documents.
SECTION 8. Information. Each of the Subsidiary Guarantors assumes all
responsibility for being and keeping itself informed of the Borrower's financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Obligations and the nature, scope and extent of the risks that
such Subsidiary Guarantor assumes and incurs hereunder, and agrees that none of
the Collateral Agent or the other Secured Parties will have any duty to advise
any of the Subsidiary Guarantors of information known to it or any of them
regarding such circumstances or risks.
SECTION 9. Representations and Warranties. Each of the Subsidiary
Guarantors represents and warrants as to itself that all representations and
warranties relating to it contained in the Credit Agreement are true and
correct.
SECTION 10. Termination. The Guarantees (a) shall terminate when all the
Obligations have been indefeasibly paid in full in cash and the Lenders have no
further commitment to lend under the Credit Agreement, the LC Exposure has been
reduced to zero and the Issuing Bank has no further obligation to issue Letters
of Credit under the Credit Agreement and (b) shall continue to be effective or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any Obligation is rescinded or must otherwise be restored by any Secured
Party or any Subsidiary Guarantor upon the bankruptcy or reorganization of the
Borrower, any Subsidiary Guarantor or otherwise.
SECTION 11. Binding Effect; Several Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party, and all covenants,
promises and agreements by or on behalf of the Subsidiary Guarantors that are
contained in this Agreement shall bind and inure to the benefit of each party
hereto and their respective successors and assigns. This Agreement shall become
effective as to any Subsidiary Guarantor when a counterpart hereof executed on
behalf of such Subsidiary Guarantor shall have been delivered to the Collateral
Agent, and a counterpart hereof shall have been executed on behalf of the
Collateral Agent, and thereafter shall be binding upon such Subsidiary Guarantor
and the Collateral Agent and their respective successors and assigns, and shall
inure to the benefit of such Subsidiary Guarantor, the Collateral Agent and the
other Secured Parties, and their respective successors and assigns, except that
no Subsidiary Guarantor shall have the right to assign its rights or obligations
hereunder or any interest herein (and any such attempted assignment shall be
void). If all of the capital stock of a Subsidiary Guarantor is sold,
transferred or otherwise disposed of pursuant to a transaction permitted by
Section 6.05 of the Credit Agreement, such Subsidiary Guarantor shall be
released from its obligations under this Agreement without further action. This
Agreement shall be construed as a separate agreement with respect to each
Subsidiary Guarantor and may be amended, modified, supplemented, waived or
released with respect to any Subsidiary Guarantor without the approval of any
other Subsidiary Guarantor and without affecting the obligations of any other
Subsidiary Guarantor hereunder.
SECTION 12. Waivers; Amendment. (a) No failure or delay of the Collateral
Agent in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Collateral Agent hereunder and of
the other Secured Parties under the other Loan Documents are cumulative and are
not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of this Agreement or consent to any departure by any
Subsidiary Guarantor therefrom shall in any event be effective unless the same
shall be permitted by paragraph (b) below, and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which given.
No
<PAGE>
5
notice or demand on any Subsidiary Guarantor in any case shall entitle such
Subsidiary Guarantor to any other or further notice or demand in similar or
other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Subsidiary Guarantors with respect to which such waiver, amendment or
modification relates and the Collateral Agent, with the prior written consent of
the Required Lenders (except as otherwise provided in the Credit Agreement).
SECTION 13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 14. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to each Subsidiary Guarantor shall be given
to it in care of the Borrower.
SECTION 15. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Subsidiary Guarantors
herein and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the Collateral Agent and the other
Secured Parties and shall survive the making by the Lenders of the Loans and the
issuance of the Letters of Credit by the Issuing Bank regardless of any
investigation made by the Secured Parties or on their behalf, and shall continue
in full force and effect as long as the principal of or any accrued interest on
any Loan or any other fee or amount payable under this Agreement or any other
Loan Document is outstanding and unpaid or the LC Exposure does not equal zero
and as long as the Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 16. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract, and shall become effective as provided in
Section 11. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 17. Rules of Interpretation. The rules of interpretation specified
in Section 1.03 of the Credit Agreement shall be applicable to this Agreement.
SECTION 18. Jurisdiction; Consent to Service of Process. (a) Each
Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself
and its property, to the nonexclusive jurisdiction of the Supreme Court of the
State of New York sitting in New York County and of the United States District
Court of the Southern District of New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Agreement or any other Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final
<PAGE>
6
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement or any other Loan Document shall
affect any right that the Collateral Agent or any other Secured Party may
otherwise have to bring any action or proceeding relating to this Agreement or
any other Loan Document against any Subsidiary Guarantor or its properties in
the courts of any jurisdiction.
(b) Each Subsidiary Guarantor irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any other Loan
Document in any court referred to in paragraph (a) of this Section. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of process
in the manner provided for notices in Section 14. Nothing in this Agreement or
any other Loan Document will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
SECTION 19. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 19.
SECTION 20. Additional Subsidiary Guarantors. Pursuant to Section 5.12 of
the Credit Agreement, each Subsidiary that was not in existence or not a
Subsidiary on the date of the Credit Agreement is required to enter into this
Agreement as a Subsidiary Guarantor upon becoming a Subsidiary that is a
Subsidiary Loan Party. Upon execution and delivery after the date hereof by the
Collateral Agent and such a Subsidiary of an instrument in the form of Annex 1,
such Subsidiary shall become a Subsidiary Guarantor hereunder with the same
force and effect as if originally named as a Subsidiary Guarantor herein. The
execution and delivery of any instrument adding an additional Subsidiary
Guarantor as a party to this Agreement shall not require the consent of any
other Subsidiary Guarantor hereunder. The rights and obligations of each
Subsidiary Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Subsidiary Guarantor as a party to this
Agreement.
SECTION 21. Right of Set-off. If an Event of Default shall have occurred
and be continuing, each Secured Party is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other Indebtedness at any time owing by such Secured Party to
or for the credit or the account of any Subsidiary Guarantor against any or all
the obligations of such Subsidiary Guarantor now or hereafter existing under
this Agreement and the other Loan Documents held by such Secured Party,
irrespective of whether or not such
<PAGE>
7
Secured Party shall have made any demand under this Agreement or any other Loan
Document and although such obligations may be unmatured. The rights of each
Secured Party under this Section 21 are in addition to other rights and remedies
(including other rights of set-off) that such Secured Party may have.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
LPA SERVICES, INC.
by
------------------------------------
Name:
Title:
NATIONSBANK, N.A., as Collateral Agent,
by
------------------------------------
Name:
Title:
<PAGE>
Schedule I to the
Subsidiary Guarantee Agreement
Subsidiary Guarantor Address
-------------------- -------
<PAGE>
Annex 1 to the
Subsidiary Guarantee Agreement
SUPPLEMENT NO. dated as of , to the Subsidiary
Guarantee Agreement dated as of May [ ], 1998, among each of
the subsidiaries thereto (each such subsidiary,
individually, a "Subsidiary Guarantor" and, collectively,
the "Subsidiary Guarantors") of LA PETITE ACADEMY, INC., a
Delaware corporation (the "Borrower"), and NATIONSBANK,
N.A., as collateral agent (the "Collateral Agent") for the
Secured Parties (as defined in the Credit Agreement referred
to below).
A. Reference is made to the Credit Agreement dated as of May [ ], 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, LPA HOLDING CORP., a Delaware corporation, the
lenders from time to time party thereto (the "Lenders"), Nationsbank, as
administrative agent for the Lenders (in such capacity the "Administrative
Agent"), documentation agent and Collateral Agent, and THE CHASE MANHATTAN BANK,
as syndication agent and as issuing bank (in such capacity, the "Issuing Bank").
Capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Subsidiary Guarantee Agreement
and the Credit Agreement.
C. The Subsidiary Guarantors have entered into the Subsidiary Guarantee
Agreement in order to induce the Lenders to make Loans and the Issuing Bank to
issue Letters of Credit. Pursuant to Section 5.12 of the Credit Agreement, each
Subsidiary that was not in existence or not a Subsidiary on the date of the
Credit Agreement is required to enter into the Subsidiary Guarantee Agreement as
a Subsidiary Guarantor upon becoming a Subsidiary that is a Subsidiary Loan
Party. Section 20 of the Subsidiary Guarantee Agreement provides that additional
Subsidiaries of the Borrower may become Subsidiary Guarantors under the
Subsidiary Guarantee Agreement by execution and delivery of an instrument in the
form of this Supplement. The undersigned Subsidiary of the Borrower (the "New
Subsidiary Guarantor") is executing this Supplement in accordance with the
requirements of the Credit Agreement to become a Subsidiary Guarantor under the
Subsidiary Guarantee Agreement in order to induce the Lenders to make additional
Loans and the Issuing Bank to issue additional Letters of Credit and as
consideration for Loans previously made and Letters of Credit previously issued.
Accordingly, the Collateral Agent and the New Subsidiary Guarantor agree as
follows:
SECTION 1. In accordance with Section 20 of the Subsidiary Guarantee
Agreement, the New Subsidiary Guarantor by its signature below becomes a
Subsidiary Guarantor under the Subsidiary Guarantee Agreement with the same
force and effect as if originally named therein as a Subsidiary Guarantor and
the New Subsidiary Guarantor hereby (a) agrees to all the terms and provisions
of the Subsidiary Guarantee Agreement applicable to it as a Subsidiary Guarantor
thereunder and (b) represents and warrants that the representations and
warranties made by it as a Subsidiary Guarantor thereunder are true and correct
on and as of the date hereof. Each reference to a "Subsidiary Guarantor" in the
Subsidiary Guarantee Agreement shall be deemed to include the New Subsidiary
Guarantor. The Subsidiary Guarantee Agreement is hereby incorporated herein by
reference.
SECTION 2. The New Subsidiary Guarantor represents and warrants to the
Collateral Agent and the other Secured Parties that this Supplement has been
duly authorized, executed and delivered by it and constitutes its legal, valid
and binding obligation, enforceable against it in accordance with its terms.
<PAGE>
2
SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Subsidiary Guarantor and the
Collateral Agent. Delivery of an executed signature page to this Supplement by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Subsidiary
Guarantee Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and in the Subsidiary Guarantee Agreement shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision hereof in a particular jurisdiction shall not in and of
itself affect the validity of such provision in any other jurisdiction). The
parties hereto shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 7. All communications and notices hereunder shall be in writing and
given as provided in Section 14 of the Subsidiary Guarantee Agreement. All
communications and notices hereunder to the New Subsidiary Guarantor shall be
given to it care of the Borrower.
SECTION 8. The New Subsidiary Guarantor agrees to reimburse the Collateral
Agent for its out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, disbursements and other charges of counsel for
the Collateral Agent.
<PAGE>
3
IN WITNESS WHEREOF, the New Subsidiary Guarantor and the Collateral Agent
have duly executed this Supplement to the Subsidiary Guarantee Agreement as of
the day and year first above written.
[Name Of New Subsidiary Guarantor],
by
------------------------------------
Name:
Title:
Address:
----------------------------
----------------------------
----------------------------
NATIONSBANK, N.A., as Collateral Agent,
by
------------------------------------
Name:
Title:
<PAGE>
EXECUTION COPY
INDEMNITY, SUBROGATION and CONTRIBUTION
AGREEMENT dated as of May 11, 1998, among LA PETITE
ACADEMY, INC., a Delaware corporation (the
"Borrower"), each Subsidiary of the Borrower (the
"Guarantors") and NATIONSBANK, N.A., ("Nationsbank"),
as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (as
defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of May 11, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, LPA HOLDING CORP., a Delaware corporation, the
lenders from time to time party thereto (the "Lenders"), Nationsbank, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), documentation agent and Collateral Agent, and THE CHASE MANHATTAN BANK,
as syndication agent and as issuing bank (in such capacity, the "Issuing Bank"),
and (b) the Subsidiary Guarantee Agreement dated as of May 11, 1998 between the
Guarantors and the Collateral Agent (the "Subsidiary Guarantee Agreement").
Capitalized terms used herein and not defined herein shall have the meanings
assigned to such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. The Guarantors have guaranteed such Loans and the other Obligations
(as defined in the Subsidiary Guarantee Agreement) of the Borrower under the
Credit Agreement pursuant to the Subsidiary Guarantee Agreement; certain
Guarantors have granted Liens on and security interests in certain of their
assets to secure such guarantees. The obligations of the Lenders to make Loans
and of the Issuing Bank to issue Letters of Credit are conditioned on, among
other things, the execution and delivery by the Borrower and the Guarantors of
an agreement in the form hereof.
Accordingly, the Borrower, each Guarantor and the Collateral Agent agree as
follows:
SECTION 1. Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation as the Guarantors may have under applicable law (but
subject to Section 3), the Borrower agrees that (a) in the event a payment shall
be made by any Guarantor under the Guarantee Agreement, the Borrower shall
indemnify such Guarantor for the full amount of such payment and such Guarantor
shall be subrogated to the rights of the Person to whom such payment shall have
been made to the extent of such payment and (b) in the event any assets of any
Guarantor shall be sold pursuant to any Security Document to satisfy a claim of
any Secured Party, the Borrower shall indemnify such Guarantor in an amount
equal to the greater of (i) the book value of the assets so sold and (ii) the
fair market value of the assets so sold.
SECTION 2. Contribution and Subrogation. Each Guarantor (a "Contributing
Guarantor") agrees (subject to Section 3) that, in the event a payment shall be
made by any other Guarantor under the Subsidiary Guarantee Agreement or assets
of any other Guarantor shall be sold pursuant to any Security Document to
satisfy a claim of any Secured Party and such other Guarantor (the "Claiming
Guarantor") shall not have been fully indemnified by the Borrower as provided in
Section 1, the Contributing Guarantor shall indemnify the Claiming Guarantor in
an amount equal to the amount of such payment or the greater of (i) the book
value of the assets so sold and (ii) the fair market value of such assets, as
the case may be, in each case multiplied by a fraction of which the numerator
shall be the net worth of the Contributing Guarantor on the date
<PAGE>
2
hereof and the denominator shall be the aggregate net worth of all the
Guarantors on the date hereof (or, in the case of any Guarantor becoming a party
hereto pursuant to Section 12, the date of the Supplement hereto executed and
delivered by such Guarantor). Any Contributing Guaran tor making any payment to
a Claiming Guarantor pursuant to this Section 2 shall be subrogated to the
rights of such Claiming Guarantor under Section 1 to the extent of such payment.
SECTION 3. Subordination. Notwithstanding any provision of this Agreement
to the contrary, all rights of the Guarantors under Sections 1 and 2 and all
other rights of indemnity, contribution or subrogation under applicable law or
otherwise shall be fully subordinated to the indefeasible payment in full in
cash of the Obligations. No failure on the part of the Borrower or any Guarantor
to make the payments required by Sections 1 and 2 (or any other payments
required under applicable law or otherwise) shall in any respect limit the
obligations and liabilities of any Guarantor with respect to its obligations
hereunder, and each Guarantor shall remain liable for the full amount of the
obligations of such Guarantor hereunder.
SECTION 4. Termination. This Agreement shall survive and be in full force
and effect so long as any Obligation is outstanding and has not been
indefeasibly paid in full in cash, and so long as the LC Exposure has not been
reduced to zero or any of the Commitments under the Credit Agreement have not
been terminated, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or any part thereof, of any Obligation is
rescinded or must otherwise be restored by any Secured Party or any Guarantor
upon the bankruptcy or reorganization of the Borrower, any Guarantor or
otherwise.
SECTION 5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. No Waiver; Amendment. (a) No failure on the part of the
Collateral Agent or any Guarantor to exercise, and no delay in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy by the
Collateral Agent or any Guarantor preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. None of
the Collateral Agent or any of the Guarantors shall be deemed to have waived any
rights hereunder unless such waiver shall be in writing and signed by such
parties.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Borrower, the Guarantors and the Collateral Agent, with the prior written
consent of the Required Lenders (except as otherwise provided in the Credit
Agreement).
SECTION 7. Notices. All communications and notices hereunder shall be in
writing and given as provided in the Subsidiary Guarantee Agreement and
addressed as specified therein.
SECTION 8. Binding Agreement; Assignments. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party, and all covenants, promises and
agreements by or on behalf of the parties that are contained in this Agreement
shall bind and inure to the benefit of their respective successors and assigns.
Neither the Borrower nor any Guarantor may assign or transfer any of its rights
or obligations hereunder (and any such attempted assignment or transfer shall be
void) without the prior written consent of the Required Lenders. Notwithstanding
the foregoing, at the time any Guarantor is released from its obligations under
the Subsidiary Guarantee Agreement in accordance with such Subsidiary Guarantee
Agreement and the Credit Agreement, such Guarantor will cease to have any rights
or obligations under this Agreement.
<PAGE>
3
SECTION 9. Survival of Agreement; Severability. (a) All covenants and
agreements made by the Borrower and each Guarantor herein and in the
certificates or other instruments pre pared or delivered in connection with this
Agreement or the other Loan Documents shall be considered to have been relied
upon by the Collateral Agent, the other Secured Parties and each Guarantor and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loans or any
other fee or amount payable under the Credit Agreement or this Agreement or
under any of the other Loan Documents is outstanding and unpaid or the LC
Exposure does not equal zero and as long as the Commitments have not been ter
minated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 10. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract. This Agreement shall be effective with
respect to any Guarantor when a counterpart bearing the signature of such
Guarantor shall have been delivered to the Collateral Agent. Delivery of an
executed signature page to this Agreement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Agreement.
SECTION 11. Rules of Interpretation. The rules of interpretation specified
in Section 1.03 of the Credit Agreement shall be applicable to this Agreement.
<PAGE>
4
SECTION 12. Additional Guarantors. Pursuant to Section 5.12 of the Credit
Agreement, each Subsidiary that was not in existence or not such a Subsidiary on
the date of the Credit Agreement is required to enter into the Subsidiary
Guarantee Agreement as a Subsidiary Guarantor upon becoming such a Subsidiary
that is a Subsidiary Loan Party. Upon execution and delivery, after the date
hereof, by the Collateral Agent and such a Subsidiary of an instrument in the
form of Annex 1 hereto, such Subsidiary shall become a Guarantor hereunder with
the same force and effect as if originally named as a Guarantor hereunder. The
execution and delivery of any instrument adding an additional Guarantor as a
party to this Agreement shall not require the consent of any Guarantor
hereunder. The rights and obligations of each Guarantor hereunder shall remain
in full force and effect notwithstanding the addition of any new Guarantor as a
party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first appearing above.
LA PETITE ACADEMY, INC.,
by
----------------------------------
Name:
Title:
LPA SERVICES, INC., as a Guarantor,
by
----------------------------------
Name:
Title:
NATIONSBANK, N.A., as Collateral Agent,
by
----------------------------------
Name:
Title:
<PAGE>
Annex 1 to
the Indemnity, Subrogation and
Contribution Agreement
SUPPLEMENT NO. dated as of [ ], to the
Indemnity, Subrogation and Contribution Agreement
dated as of May [ ], 1998 (as the same may be
amended, supplemented or otherwise modified from time
to time, the "Indemnity, Subrogation and Contribution
Agreement"), among LA PETITE ACADEMY, INC., a
Delaware corporation (the "Borrower"), each
Subsidiary of the Borrower listed on Schedule I
thereto (the "Guarantors"), and NATIONSBANK, N.A.,
("Nationsbank"), as collateral agent (the "Collateral
Agent") for the Secured Parties (as defined in the
Credit Agreement referred to below).
A. Reference is made to (a) the Credit Agreement dated as of May [ ], 1998
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, LPA HOLDING CORP., a Delaware corporation, the
lenders from time to time party thereto (the "Lenders") , Nationsbank, as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"), documentation agent and Collateral Agent, and THE CHASE MANHATTAN BANK,
as syndication agent and as issuing bank (in such capacity, the "Issuing Bank"),
and (b) the Subsidiary Guarantee Agreement dated as of May [ ], 1998, among the
Guarantors and the Collateral Agent (the "Subsidiary Guarantee Agreement").
B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Indemnity, Subrogation and
Contribution Agreement and the Credit Agreement.
C. The Borrower and the Guarantors have entered into the Indemnity,
Subrogation and Contribution Agreement in order to induce the Lenders to make
Loans and the Issuing Bank to issue Letters of Credit. Pursuant to Section 5.12
of the Credit Agreement, each Subsidiary that was not in existence or not such a
Subsidiary on the date of the Credit Agreement is required to enter into the
Subsidiary Guarantee Agreement as a Guarantor upon becoming a Subsidiary that is
a Subsidiary Loan Party. Section 12 of the Indemnity, Subrogation and
Contribution Agreement provides that additional Subsidiaries of the Borrower may
become Guarantors under the Indemnity, Subrogation and Contribution Agreement by
execution and delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary of the Borrower (the "New Guaran tor") is executing this
Supplement in accordance with the requirements of the Credit Agreement to become
a Guarantor under the Indemnity, Subrogation and Contribution Agreement in order
to induce the Lenders to make additional Loans and the Issuing Bank to issue
additional Letters of Credit and as consideration for Loans previously made and
Letters of Credit previously issued.
<PAGE>
2
Accordingly, the Collateral Agent and the New Guarantor agree as follows:
SECTION 1. In accordance with Section 12 of the Indemnity, Subrogation and
Contribution Agreement, the New Guarantor by its signature below becomes a
Guarantor under the Indemnity, Subrogation and Contribution Agreement with the
same force and effect as if originally named therein as a Guarantor and the New
Guarantor hereby agrees to all the terms and provisions of the Indemnity,
Subrogation and Contribution Agreement applicable to it as a Guarantor
thereunder. Each reference to a "Guarantor" in the Indemnity, Subrogation and
Contribution Agreement shall be deemed to include the New Guarantor. The
Indemnity, Subrogation and Contribution Agreement is hereby incorporated herein
by reference.
SECTION 2. The New Guarantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts, each of which
shall constitute an original, but all of which when taken together shall
constitute a single contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Guarantor and the Collateral
Agent. Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.
SECTION 4. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. In the event any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein and in the Indemnity, Subrogation and Contribution Agreement
shall not in any way be affected or impaired (it being understood that the
invalidity of a particular provision in a particular jurisdiction shall not in
and of itself affect the validity of such provision in any other jurisdiction).
The parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 7. All communications and notices hereunder shall be in writing and
given as provided in Section 7 of the Indemnity, Subrogation and Contribution
Agreement. All communications and notices hereunder to the New Guarantor shall
be given to it care of the Borrower.
SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.
<PAGE>
3
IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly
executed this Supplement to the Indemnity, Subrogation and Contribution
Agreement as of the day and year first above written.
[Name Of New Guarantor],
by
----------------------------------
Name:
Title:
Address:
NATIONSBANK, N.A., as Collateral
Agent,
by
----------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
to Supplement No.___ to the Indemnity
Subrogation and Contribution Agreement
Guarantors
----------
Name Address
- ---- -------
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
COMPUTATION OF RATIOS
Tha ratio of earnings to fixed charges for the periods indicated below were as follows:
(Predecessor) (The Company) Twenty-Eight Twenty-Eight
January 1, to July 24, to 52 Weeks Ended Weeks Ended Weeks Ended
----------------------------------------------------------------------------------------------------
July 23, August 28, August 27, August 26, August 24, August 30, March 14, March 14,
1993 1993 1994 1995 1996(a) 1997 1997 1998
----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges 1.88 -- -- -- -- 1.09 -- 1.07
Deficiency in the coverage
of fixed charges by earnings -- $1,185 $2,985 $20,617 $2,651 -- $620 --
</TABLE>
For purposes of calculating the above ratios, earnings are defined as income
before income taxes and extraordinary items, plus fixed charges. Fixed
charges consists of interest expenses on all indebtedness, amortization of
deferred financing costs, and one-third of rental expenses on operating
leases representing that portion of rental expense deemed by the Company to be
attributable to interest. The ratio of earnings to fixed charges equals
earnings divided by fixed charges.
<PAGE>
Exhibit 21.1
------------
Subsidiaries of Registrant
--------------------------
Name State of Incorporation
- ---- ----------------------
LPA Services, Inc. Delaware
<PAGE>
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders of
Vestar/LPA Investment Corp.
Overland Park, Kansas
We consent to the use in this Registration Statement dated June 5, 1998 of
Verstar/LPA Investment Corp. on Form S-4 of our report dated October 3, 1997
(May 11, 1998 as to Note 14), appearing in the Prospectus, which is a part of
this Registration Statemnent, and to the references to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedules of Vestar/LPA Investment
Corp., listed in Item 21(b). These financial statement schedules are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
June 5, 1998
<PAGE>
==============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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)_
PNC BANK, NATIONAL ASSOCIATION
(Exact Name of Trustee as Specified in its Charter)
NOT APPLICABLE
(Jurisdiction of incorporation or organization if not a U.S. national bank)
25-1197336
(I.R.S. Employer Identification No.)
One PNC Plaza
Fifth Avenue and Wood Street, Pittsburgh, Pennsylvania 15222
(Address of principal executive offices - Zip code)
Allan K. Poust, Vice President, PNC Bank, National Association
4th Floor, Two PNC Plaza, Pittsburgh, Pennsylvania 15222
(412) 762-2838
(Name, address and telephone number of agent for service)
LA PETITE ACADEMY, INC.
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
43-1243221
(I.R.S. Employer Identification No.)
LPA Holding Corp.
(Exact Name of Obligor as Specified in Its Charter)
Delaware EIN 48-1144353
LPA Services, Inc.
(Exact Name of Obligor as Specified in Its Charter)
Delaware EIN 72-2849053
14 Corporate Woods, 8717 West 110th Street, Suite 300
Overland Park, Kansas 66201
(Address of principal executive offices - Zip code)
10% Series B Senior Notes due 2008 and Guarantees
of the 10% Series B Senior Notes
(Title of the securities)
==============================================================================
<PAGE>
Item 1. General information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
<TABLE>
<S> <C>
Comptroller of the Currency Washington, D.C.
Federal Reserve Bank of Cleveland Cleveland, Ohio
Federal Deposit Insurance Corporation Washington, D.C.
</TABLE>
(b) Whether it is authorized to exercise corporate
trust powers.
Yes. (See Exhibit T-1-3)
Item 2. Affiliations with obligor and underwriters.
If the obligor or any underwriter for the obligor is an
affiliate of the trustee, describe each such affiliation.
Neither any obligor nor any underwriter for any obligor
is an affiliate of the trustee.
Item 3 through Item 14.
None of the obligors is currently in default under any outstanding
securities for which PNC Bank is trustee. Accordingly, responses to
Items 3 through 14 of Form T-1 are not required pursuant to Form
T-1 General Instructions B.
Item 15. Foreign trustee.
Identify the order or rule pursuant to which the foreign trustee
is authorized to act as sole trustee under the indentures qualified or to
be qualified under the Act.
Not applicable (trustee is not a foreign trustee).
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
Exhibit T-1-1 - Articles of Association of the trustee, with
all amendments thereto, as presently in effect,
filed as Exhibit 1 to Trustee's Statement of
Eligibility and Qualification, Registration
No. 333-43153 and incorporated herein by
reference.
Exhibit T-1-2 - Copy of Certificate of the Authority of the
Trustee to Commence Business, filed as Exhibit
2 to Trustee's Statement of Eligibility and
Qualification, Registration No. 2-58789 and
incorporated herein by reference.
Exhibit T-1-3 - Copy of Certificate as to Authority of the
Trustee to Exercise Trust Powers, filed as
Exhibit 3 to Trustee's Statement of Eligibility
and Qualification, Registration No. 2-58789,
and incorporated herein by reference.
Exhibit T-1-4 - The By-Laws of the trustee, filed as Exhibit 4
to Trustee's Statement of Eligibility and
Qualification, Registration No. 333-28711 and
incorporated herein by reference.
Exhibit T-1-5 - The consent of the trustee required by Section
321(b) of the Act.
<PAGE>
Exhibit T-1-6 - The copy of the Balance Sheet taken from the
latest Report of Condition of the trustee
published in response to call made by
Comptroller of the Currency under Section 5211
U.S. Revised Statutes.
NOTE
The answers to this statement, insofar as such answers relate to (a)
what persons have been underwriters for any securities of any obligor
within three years prior to the date of filing this statement, or are
owners of 10% or more of the voting securities of any obligor, or are
affiliates or directors or executive officers of any obligor, and (b) the
voting securities of the trustee owned beneficially by any obligor and
each director and executive officer of each obligor, are based upon
information furnished to the trustee by the obligors and also, in the
case of (b) above, upon an examination of the trustee's records. While
the trustee has no reason to doubt the accuracy of any such information
furnished by the obligors, it cannot accept any responsibility therefor.
-------------------------------
Signature appears on next page
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, PNC Bank, National Association, a corporation organized and
existing under the laws of the United States of America, has duly caused
this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Pittsburgh and
Commonwealth of Pennsylvania on June 3, 1998.
PNC BANK, NATIONAL ASSOCIATION
(Trustee)
By ___________________________________
Allan K. Poust
Vice President
<PAGE>
EXHIBIT T-1-5
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform Act of
1990, in connection with the proposed offering by La Petite Academy,
Inc., LPA Holding Corp. and LPA Services, Inc. of the 10% Series B Senior
Notes Due 2008, and the related Guarantees, we hereby consent that
reports of examination by Federal, State, Territorial, or District
authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
PNC BANK, NATIONAL ASSOCIATION
(Trustee)
By ___________________________________
Allan K. Poust
Vice President
Dated: June 3, 1998
<PAGE>
EXHIBIT T-1-6
SCHEDULE RC - BALANCE SHEET
FROM
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of
PNC BANK, NATIONAL ASSOCIATION
of PITTSBURGH in the state of PENNSYLVANIA
at the close of business on
March 31, 1998
filed in response to call made by
Comptroller of the Currency,
under title 12, United States Code, Section 161
Charter Number 540
Comptroller of the Currency Northeastern District
BALANCE SHEET
<TABLE>
<CAPTION>
Thousands
of Dollars
----------
<S> <C>
ASSETS
Cash and balances due from depository institutions
Noninterest-bearing balances and currency and coin $ 2,571,979
Interest-Bearing Balances......................................................... 74,141
Securities
Held-to-maturity securities....................................................... 0
Available-for-sale securities..................................................... 6,438,137
Federal funds sold and
Securities purchased under agreements to resell 233,993
Loans and lease financing receivables:
Loans and leases, net of unearned income $53,845,983
LESS: Allowance for loan and lease losses 879,844
LESS: Allocated transfer risk reserve 0
Loans and leases, net of unearned income,
allowance and reserve........................................................... 52,966,139
Trading assets ........................................................................ 91,468
Premises and fixed assets (including capitalized leases)............................... 805,743
Other real estate owned ............................................................... 43,906
Investments in unconsolidated subsidiaries and
associated companies ............................................................. 2,940
Customers' liability to this bank on acceptances outstanding .......................... 74,249
Intangible assets ..................................................................... 1,628,061
Other assets........................................................................... 1,995,543
-----------
Total Assets.................................................................. $ 66,926,299
===========
</TABLE>
<PAGE>
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices................................................................. $40,991,484
Noninterest-bearing $ 9,664,232
Interest-bearing 31,327,252
In foreign offices, Edge and Agreement subsidiaries,
and IBFs......................................................................... 2,253,178
Noninterest-bearing $ 9,137
Interest-bearing 2,244,041
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds purchased and
Securities sold under agreements to repurchase................................... 2,274,573
Demand notes issued to U.S. Treasury................................................... 25
Trading Liabilities.................................................................... 151,785
Other borrowed money
With original maturity of one year or less.......................................... 8,838,456
With original maturity of more than one year through three years.................... 231,929
With original maturity of more than three years..................................... 4,153,234
Bank's liability on acceptances executed and outstanding............................... 74,249
Subordinated notes and debentures ..................................................... 671,220
Other liabilities...................................................................... 1,306,177
--------------
Total liabilities...................................................................... 61,036,310
EQUITY CAPITAL
Perpetual preferred stock and related surplus.......................................... 0
Common Stock........................................................................... 218,919
Surplus. . . .......................................................................... 2,376,731
Undivided profits and capital reserves................................................. 3,327,385
Net unrealized holding gains (losses) on
available-for-sale securities....................................................... (33,046)
Cumulative foreign currency translation adjustments.................................... 0
Total equity capital................................................................... 5,889,989
-----------
Total liabilities and equity capital................................................... $ 66,926,299
===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF AUGUST 30, 1997 AND MARCH 14, 1998 AND THE STATEMENT OF INCOME FOR
THE FIFTY-TWO WEEKS ENDED AUGUST 30, 1997 AND THE TWENTY-EIGHT WEEKS ENDED MARCH
14, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATMENTS.
</LEGEND>
<CIK> 1062774
<NAME> LPA HOLDING CORP.
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 7-MOS
<FISCAL-YEAR-END> AUG-30-1997 AUG-29-1998
<PERIOD-START> SEP-01-1996 AUG-31-1997
<PERIOD-END> AUG-30-1997 MAR-14-1998
<CASH> 23,971 24,755
<SECURITIES> 0 0
<RECEIVABLES> 4,976 4,567
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 42,441 42,935
<PP&E> 94,584 101,372
<DEPRECIATION> 33,460 40,533
<TOTAL-ASSETS> 171,160 170,347
<CURRENT-LIABILITIES> 35,043 32,034
<BONDS> 85,903 87,345
3 3
0 0
<COMMON> 9 9
<OTHER-SE> 3,374 2,396
<TOTAL-LIABILITY-AND-EQUITY> 171,160 170,347
<SALES> 0 0
<TOTAL-REVENUES> 302,766 166,701
<CGS> 0 0
<TOTAL-COSTS> 288,740 159,310
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,245 4,917
<INCOME-PRETAX> 2,047 898
<INCOME-TAX> 3,264 1,835
<INCOME-CONTINUING> (1,217) (937)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,217) (937)
<EPS-PRIMARY> 0.00 0.00
<EPS-DILUTED> 0.00 0.00
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10% SENIOR NOTES DUE 2008
OF
LA PETITE ACADEMY, INC.
AND
LPA HOLDING CORP.
PURSUANT TO THE PROSPECTUS
DATED ______ __, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. , NEW YORK CITY TIME,
ON ________ __, 1998, UNLESS EXTENDED.
To: PNC Bank, National Association, as Exchange Agent
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: Robert Frier
Telephone: 732-220-3729
Facsimile: 732-220-3745
Delivery of this instrument to an address other than as set forth above
or transmission via a facsimile number other than the one listed above will not
constitute a valid delivery. The instructions accompanying this Letter of
Transmittal should be read carefully before this Letter of Transmittal is
completed.
The undersigned acknowledges that he or she has received the
Prospectus, dated ________ __, 1998 (the "Prospectus"), of La Petite Academy,
Inc. and LPA Holding Corp. (together, the "Issuers") and this Letter of
Transmittal (the "Letter of Transmittal"), which together constitute the
Issuers' offer (the "Exchange Offer") to exchange their 10% Series B Senior
Notes due 2008 (the "New Notes") for an equal principal amount of their 10%
Senior Notes due 2008 (the "Old Notes" and, together with the New Notes, the
"Notes"). The terms of the New Notes are identical in all material respects to
the Old Notes, except that the New 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 the payment of liquidated damages to the holders of the
Old Notes under certain circumstances relating to the Registration Rights
Agreement (as defined in the Prospectus). The term "Expiration Date" shall mean
5:00 p.m., New York City time, on ________, 1998, unless the Exchange Offer is
extended as provided in the Prospectus, in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended.
Capitalized terms used but not defined herein have the meanings given to them in
the Prospectus.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal or an Agent's Message (as defined in the Prospectus) or
any other documents required by this 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 under the caption "The Exchange Offer
- -- Guaranteed Delivery Procedures" in the Prospectus. See Instruction 5.
The term "Holder" with respect to the Exchange Offer means any person
in whose name Old Notes are registered on the books of the Issuers or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
If the undersigned is a broker-dealer that receives New 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 (other than Old Notes acquired directly from the Issuers), the
undersigned may be deemed to be an "underwriter" under the Securities Act and
the undersigned acknowledges, therefore, that it will deliver a prospectus in
connection with any resale of such New 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.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING THIS LETTER OF TRANSMITTAL
DESCRIPTION OF 10% SENIOR NOTES DUE 2008
<TABLE>
<CAPTION>
- ---------------------------------------------------- ----------------------- ---------------------------- --------------------------
<S> <C> <C> <C>
Principal Amount
Aggregate Principal Tendered (Must be
Name(s) and Address(es) of Registered Holder(s) Amount in Integral
(Please Fill in, if Blank) Certificate Represented Multiples of
Numbers By Certificate(s) $1,000)*
- ---------------------------------------------------- ----------------------- ---------------------------- --------------------------
----------------------- ---------------------------- --------------------------
----------------------- ---------------------------- --------------------------
----------------------- ---------------------------- --------------------------
----------------------- ---------------------------- --------------------------
----------------------- ---------------------------- --------------------------
Total
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Old Notes will be deemed to have tendered the entire
aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, list the certificate numbers
and principal amounts on a separate signed schedule and affix such schedule to
this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount. All other
tenders must be in integral multiples of $1,000.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING (SEE INSTRUCTION 5):
Name(s) of Registered Holder(s):
Window Ticket Number (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which Guaranteed Delivery:
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO
AND COMPLETE THE FOLLOWING:
Name: ____________________________________________________
(Please Print)
Address: ___________________________________________________
(Include Zip Code)
<PAGE>
SPECIAL REGISTRATION INSTRUCTIONS
(SEE INSTRUCTIONS 7, 8 AND 9)
To be completed ONLY if certificates for Old Notes in a principal
amount not tendered, or New Notes issued in exchange for Old Notes accepted for
exchange, are to be issued in the name of someone other than the undersigned.
Issue certificate(s) to:
Name ______________________________________________________
(Please Print)
Address ___________________________________________________
(Include Zip Code)
____________________________________________________
(Tax Identification or Social Security Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 7, 8 AND 9
To be completed ONLY if certificates for Old Notes in a principal
amount not tendered, or New Notes issued in exchange for Old Notes accepted for
exchange, are to be sent to someone other than the undersigned, or to the
undersigned at an address other than that shown above.
Deliver certificate(s) to:
Name ____________________________________________________
(Please Print)
Address__________________________________________________
(Include Zip Code)
____________________________________________________
(Tax Identification or Social Security Number)
<PAGE>
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuers the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Issuers all right, title and interest in and to the Old Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as its agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as the agent of the Issuers) with respect to the tendered Old
Notes with full power of substitution (i) to deliver certificates for such Old
Notes to the Issuers and deliver all accompanying evidences of transfer and
authenticity to, or upon the order of, the Issuers and (ii) to present such Old
Notes for transfer on the books of the Issuers, all in accordance with the terms
of the Exchange Offer. The power of attorney granted in this paragraph shall be
deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Issuers will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are acquired by the Issuers. The
undersigned and any beneficial owner of Old Notes tendered hereby further
represent and warrant that (i) the New Notes acquired by the undersigned and any
such beneficial owner of Old Notes pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, (ii) neither the undersigned nor any such beneficial owner has an
arrangement with any person to participate in the distribution of such New
Notes, (iii) neither the undersigned nor any such beneficial owner nor any such
other person is engaging in or intends to engage in a distribution of such New
Notes and (iv) neither the undersigned nor any such other person is an
"affiliate," as defined under Rule 405 promulgated under the Securities Act, of
the Issuers. The undersigned and each beneficial owner acknowledge and agree
that any person who is an affiliate of the Issuers or who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a resale transaction of the New Notes
acquired by such person and may not rely on the position of the staff of the
Securities and Exchange Commission set forth in the no-action letters discussed
in the Prospectus under the caption "The Exchange Offer -- Purpose and Effect of
the Exchange Offer." The undersigned and each beneficial owner will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Issuers to be necessary or desirable to complete the sale,
assignment and transfer of the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Issuers shall be deemed to have
accepted validly tendered Old Notes when, as and if the Issuers have given oral
notice (confirmed in writing) or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer because of an invalid tender, the occurrence of certain other
events set forth in the Prospectus or otherwise, any such unaccepted Old Notes
will be returned, without expense, to the undersigned at the address shown below
or at a different address as may be indicated herein under "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Issuers upon the terms and
subject to the conditions of the Exchange Offer, subject only to withdrawal of
such tenders on the terms set forth in the Prospectus under the caption "The
Exchange Offer -- Withdrawal of Tenders."
Unless otherwise indicated under "Special Registration Instructions,"
please issue the certificates representing the New Notes issued in exchange for
the Old Notes accepted for exchange and any certificates for Old Notes not
tendered or not exchanged, in the name(s) of the undersigned. Similarly, unless
otherwise indicated under "Special Delivery Instructions," please send the
certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and any certificates for Old Notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below the undersigned's signature(s). In the event that both
"Special Registration Instructions" and "Special Delivery Instructions" are
completed, please issue the certificates representing the New Notes issued in
exchange for the Old Notes accepted for exchange in the name(s) of, and return
any certificates for Old Notes not tendered or not exchanged to, the person(s)
so indicated. The undersigned understands that the Issuers have no obligation
pursuant to the "Special Registration Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered
Holder(s) thereof if the Issuers do not accept for exchange any of the Old Notes
so tendered.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal or an Agent's Message and any other documents required by
this Letter of Transmittal to the
<PAGE>
Exchange Agent prior to the Expiration Date may tender their Old Notes according
to the guaranteed delivery procedures set forth in the Prospectus under the
caption "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction
5.
<PAGE>
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X________________________________ Date:______________________________________
X________________________________ Date:______________________________________
(Signature(s) of Registered Holder(s) or Authorized Signatory
Area Code and Telephone Number:_________________________________________________
The above lines must be signed by the registered holder(s) as his or
her name(s) appear(s) on the Old Notes or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If the Old Notes to which this Letter of Transmittal relate are held of record
by two or more joint holders, then all such holders must sign this Letter of
Transmittal. If this Letter of Transmittal or any Old Notes or bond powers are
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person must (i) so indicate and set forth his or her full title
below and (ii) unless waived by the Issuers, submit evidence satisfactory to the
Issuers of such person's authority to so act. See Instruction 7.
Name(s):________________________________________________________________________
(Please Print)
________________________________________________________________________________
Capacity:_______________________________________________________________________
Address:________________________________________________________________________
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution:
(If required by Instruction 7)
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name of Person
Date: ____________________, 1998
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Procedures for Tendering. This Letter of Transmittal or a facsimile
hereof, properly completed and duly executed, or an Agent's Message and any
other documents required by this Letter of Transmittal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. In addition, either (i) certificates for tendered
Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at DTC pursuant to the procedure for
book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date or (iii) the Holder must comply with the guaranteed
delivery procedures described below.
The method of delivery of Old Notes and this Letter of Transmittal and
any other required documents to the Exchange Agent is at the election and risk
of the Holder and, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. Instead of
delivery by mail, it is recommended that the Holder use an overnight or hand
delivery service. In the case of physical delivery of Old Notes, if sent by
mail, it is recommended that registered mail, return receipt requested, be used
and proper insurance be obtained. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date. No
Letter of Transmittal or Old Notes should be sent to the Issuers.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuers in their sole discretion, which determination will be final and
binding. The Issuers reserve the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes if the Issuers' acceptance of such Old
Notes would, in the opinion of counsel for the Issuers, be unlawful. The Issuers
also reserve the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. The Issuers' interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Issuers shall determine. Although the Issuers intend to
notify Holders of defects or irregularities with respect to tenders of Old
Notes, neither the Issuers, the Exchange Agent nor any other person shall be
under any duty to give any such notification, nor shall any of them incur any
liability for failure to give such notification. Tenders of Old Notes will not
be deemed to have been made until such defects or irregularities have been cured
or waived. Any Old Notes received by the Exchange Agent that the Issuers
determine are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
2. Tender by Holder. Only a Holder of Old Notes may tender such Old
Notes in the Exchange Offer. 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 the 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 this Letter of
Transmittal and delivering such beneficial owner's 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.
3. Partial Tenders. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Old Notes is tendered, the tendering Holder should fill in the principal amount
tendered in the fourth column of the box entitled "Description of 10% Senior
Notes due 2008" above. The entire principal amount of any Old Notes delivered to
the Exchange Agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Old Notes is not tendered, then
Old Notes for the principal amount of Old Notes not tendered and a certificate
or certificates representing New Notes issued in exchange for any Old Notes
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal, promptly after the Old Notes are accepted for exchange.
4. Book-Entry Transfer. Any financial institution that is a participant
in DTC's system may make book-entry delivery of Old Notes by causing DTC to
transfer such Old Notes into the Exchange Agent's account at DTC in accordance
with DTC's procedures for transfer. However, although delivery of Old Notes may
be effected through book-entry transfer at DTC, an Agent's Message must be
transmitted to and received by the Exchange Agent on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with. See "The Exchange Offer -- Procedures for Tendering" in the Prospectus.
5. Guaranteed Delivery Procedures. Holders who wish to tender their Old
Notes and (i) whose Old Notes are not immediately available or (ii) who cannot
deliver their Old Notes, this Letter of Transmittal or an Agent's Message or any
other documents required hereby to the Exchange Agent prior to the Expiration
Date must tender their Old Notes according to the guaranteed delivery procedures
set forth in the Prospectus. Pursuant to such procedure: (a) such tender must be
made through an Eligible Institution (as defined below); (b) prior to the
Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder, the certificate number(s) of such Old Notes and the
principal amount of Old Notes
<PAGE>
tendered, stating that the tender is being made thereby and guaranteeing that,
within five New York Stock Exchange trading days after the Expiration Date, this
Letter of Transmittal (or facsimile hereof) or an Agent's Message together with
the certificate(s) representing the Old Notes, or a Book-Entry Confirmation, and
any other required documents will be deposited by the Eligible Institution with
the Exchange Agent; and (c) such properly completed and executed Letter of
Transmittal (or facsimile hereof) or an Agent's Message, as well as the
certificate(s) representing all tendered Old Notes in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by this Letter of Transmittal must be received by the Exchange Agent
within five New York Stock Exchange trading days after the Expiration Date, all
as provided in the Prospectus under the caption "The Exchange Offer --
Guaranteed Delivery Procedures." Any Holder who wishes to tender his or her Old
Notes pursuant to the guaranteed delivery procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00
p.m., New York City time, on the Expiration Date. Upon request to the Exchange
Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to
tender their Old Notes according to the guaranteed delivery procedures set forth
above.
6. Withdrawal of Tenders. To withdraw a tender of Old Notes in the
Exchange Offer, a written or facsimile transmission notice of withdrawal must be
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited 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) 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 (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the persons withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at DTC to be credited with the withdrawn Old Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Issuers in their sole discretion, which determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for purposes of the Exchange Offer and no New Notes will
be issued with respect thereto unless the Old Notes so withdrawn are validly
retendered. Properly withdrawn Old Notes may be retendered by following one of
the procedures described above in Instruction 1, under Procedures for Tendering,
at any time prior to the Expiration Date.
7. Signatures on the Letter of Transmittal; Bond Powers and
Endorsements; Guarantee of Signatures. If this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Old Notes
tendered hereby, the signature must correspond with the name(s) as written on
the face of the Old Notes without alteration, enlargement or any change
whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old Notes tendered and the certificate or
certificates for New Notes issued in exchange therefor is to be issued (or any
untendered principal amount of Old Notes is to be reissued) to the registered
holder or holders and neither the "Special Delivery Instructions" nor the
"Special Registration Instructions" has been completed, then such holder or
holders need not and should not endorse any tendered Old Notes, nor provide a
separate bond power. In any other case, such holder or holders must either
properly endorse the Old Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person must so indicate when signing, and,
unless waived by the Issuers, submit evidence satisfactory to the Issuers of
such person's authority to so act with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 7 must be guaranteed by an Eligible Institution which is a member of
(a) the Securities Transfer Agents Medallion Program, (b) the New York Stock
Exchange Medallion Signature Program or (c) the Stock Exchange Medallion
Program.
Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible
Institution"). Signatures on this Letter of Transmittal need not be guaranteed
if (a) this Letter of Transmittal is signed by the registered holder(s) of the
Old Notes tendered herewith and such holder(s) have not completed the box set
forth herein entitled "Special Registration Instructions" or the box set forth
herein entitled "Special Delivery Instructions" or (b) such Old Notes are
tendered for the account of an Eligible Institution.
<PAGE>
8. Special Registration and Delivery Information. Tendering holders
should indicate, in the applicable box or boxes, the name and address to which
New Notes or substitute Old Notes for principal amounts not tendered or not
accepted for exchange are to be issued or sent, if different from the name and
address of the person singing this Letter of Transmittal. In the case of
issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
9. Transfer Taxes. The Issuers will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New 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 hereby, or if tendered Old Notes are registered in the name of
any person other than the person signing this 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 on 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 this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
Except as provided in this Instruction 9, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
10. Waiver of Conditions. The Issuers reserve the right, in their sole
discretion, to amend, waive or modify specified conditions in the Exchange Offer
in the case of any Old Notes tendered.
11. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering
Holder whose Old Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent by telephone at (732) 220-3729 or by facsimile
at (732) 220-3745.
12. Requests for Assistance or Additional Copies. Questions and
requests for assistance and requests for additional copies of the Prospectus or
this Letter of Transmittal may be directed to the Exchange Agent at the address
specified herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
<PAGE>
IMPORTANT TAX INFORMATION
The Holder is required to give the Exchange Agent the social security
number or employer identification number of the Holder of the Notes. If the
Notes are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
- --------------------------------------------------------------------------------
Name of Holder (if joint, list first and circle the name of the person or entity
whose number you enter in Part I below).
- --------------------------------------------------------------------------------
Address (if Holder does not complete, signature below will constitute a
certification that the above address is correct. )
- --------------------------------------------------------------------------------
PAYOR'S NAME: LA PETITE ACADEMY, INC. and LPA HOLDING CORP.
<TABLE>
<S> <C> <C>
SUBSTITUTE Part I-PLEASE PROVIDE YOUR TIN IN THE
FORM W-9 BOX Social Security Number(s)
DEPARTMENT OF THE TREASURY AT RIGHT AND CERTIFY BY SIGNING AND DATING OR
INTERNAL REVENUE SERVICE BELOW. If you do not have a number, see How _________
PAYOR'S REQUEST Part II-FOR PAYEES EXEMPT FROM BACKUP Employer Identification Number
to Obtain a "TIN" in the enclosed Guidelines.
FOR TAXPAYER WITHHOLDING, SEE THE ENCLOSED GUIDELINES FOR _________________________
IDENTIFICATION NUMBER CERTIFICATION OF TAXPAYER IDENTIFICATION
("TIN") NUMBER ON SUBSTITUTE FORM W-9
CERTIFICATION-Under penalties of
perjury, I certify that: (1) The number
shown on this form is my correct
Taxpayer Identification Number (or I am
waiting for a number to be issued for
me), and (2) I am not subject to backup
withholding either because I have not
been notified by the Internal Revenue
Service (IRS) that I am subject to
backup withholding as a result of a
failure to report all interest or
dividends, or the IRS has notified me
that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS. You must
cross out item (2) above if you have
been notified by the IRS that you are
subject to backup withholding because of
underreporting interest or dividends on
your tax return. However, if after being
notified by the IRS that you were
subject to backup withholding you
received another notification from the
IRS that you are no longer subject to
backup withholding, do not cross out
item (2). (Also see instructions in the
enclosed Guidelines for Certification of
Taxpayer Identification Number on
Substitute Form W-9. )
</TABLE>
SIGNATURE _______________________________ DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31 PERCENT OF ANY PAYMENTS MADE TO YOU UNDER
THE NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
(DO NOT WRITE IN SPACE BELOW)
Certificate Surrendered Old Notes Tendered Old Notes Accepted
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Delivery Prepared By _____________ Checked By _______________ Date _____________
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYOR.
- --Social Security numbers have nine digits separated by two hyphens: i. e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i. e. 00-0000000. The table below will help determine the number to
give the payor.
-----------------------------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF
-----------------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint account) The actual owner of
the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. Adult and minor (joint account) The adult or, if the
minor is the only
contributor, the
minor(1)
5. Account in the name of guardian or committee The ward, minor, or
for a designated ward, minor, or incompetent person(3)
incompetent person
6. a. The usual revocable savings trust account The grantor-trus
(grantor is also trustee) tee(1)
So-called trust account that is not a The actual owner(1)
legal or valid trust under State law
7. Sole proprietorship account The Owner(4)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF
-----------------------------------------------------------------------------
8. A valid trust, estate, or pension trust Legal entity (Do not
furnish the
identifying number
of the personal
representative or
trustee unless the
legal entity itself
is not designated in
the account title)(5)
9. Corporate account The corporation
10. Religious, charitable, or educational The organization
organization account
11. Partnership account held in the name of the The partnership
business
12. Association, club, or other tax-exempt The organization
organization
13. A broker or registered nominee The broker or
nominee
14. Account with the Department of Agriculture in The public entity
the name of a public entity (such as a
State or local government, school district or
prison) that receives agricultural program
payments
----------------------------------------------------------------------------
<PAGE>
(1) List first and circle the name of the person whose number you furnish.
If only one person on a joint account has a social security number,
that person's number must be furnished. (2) Circle the minor's name and
furnish the minor's social security number. (3) Circle the ward's,
minor's or incompetent person's name and furnish such person's social
security number. (4) Show the name of the owner, but also enter
business or "doing business as" name. Use either the owner's social
security number or employer identification number. (5) List first and
circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know
your number, obtain Form SS-5, Application for a Social Security Number
Card, or form SS-4, Application for Employer Identification Number, at
the local office of the Social Security Administration or the Internal
Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments
include the following:
- A Corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an
individual retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign
government, or any agency or instrumentality thereof.
- An international organization or any agency, or instrumentality
thereof.
- A registered dealer in securities or commodities registered in the
U.S. or a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a nonexempt trust described
in section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject
to backup withholding include the following:
- Payments to nonresident aliens subject to withholding under
section 1441.
- Payments to partnerships not engaged in a trade or business
in the U.S. and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not
paid in money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding
include the following:
- Payments of interest on obligations issued by individuals.
<PAGE>
Note: You may be subject to backup withholding if this interest is $600
or more and is paid in the course of the payor's trade or business and
you have not provided your correct taxpayer identification number to
the payor.
- Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYOR, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE
FORM, AND RETURN IT TO THE PAYOR IF THE PAYMENTS ARE INTEREST,
DIVIDENDS, OR PATRONAGE DIVIDENDS ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage
dividends, that are not subject to information reporting are also not subject to
backup withholding. For details, see the regulations under sections 6041,
6041(a), 6045, and 6050A.
PRIVACY ACT NOTICE. --Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payors
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payors must be given the numbers whether or not recipients are
required to file tax returns. Payors must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payor. Certain penalties may also apply.
<PAGE>
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. --If you fail
to furnish your taxpayer identification number to a payor, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. --If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. --If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CIVIL PENALTY FOR FALSIFYING INFORMATION. --Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
<PAGE>
EXHIBIT 99.2
LA PETITE ACADEMY, INC.
AND
LPA HOLDING CORP.
Notice Of Guaranteed Delivery
Of
10% Senior Notes Due 2008
As set forth in the Prospectus dated _____ __, 1998 (the "Prospectus"),
of La Petite Academy, Inc. and LPA Holding Corp. (together, the "Issuers") under
the caption "The Exchange Offer -- Guaranteed Delivery Procedures," this form
must be used to accept the Issuers' offer to exchange their 10% Series B Senior
Notes due 2008 (the "New Notes") for an equal principal amount of their 10%
Senior Notes due 2008 (the "Old Notes"), by Holders who wish to tender their Old
Notes and (i) whose Old Notes are not immediately available or (ii) who cannot
deliver their Old Notes, the Letter of Transmittal or an Agent's Message (as
defined in the Prospectus) or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration Date. This form must
be delivered by an Eligible Institution by mail or hand delivery or transmitted,
via facsimile, to the Exchange Agent at its address set forth below not later
than the Expiration Date. All capitalized terms used herein but not defined
herein shall have the meanings ascribed to them in the Prospectus.
The Exchange Agent is:
PNC Bank, National Association
Two Tower Center Boulevard
20th Floor
East Brunswick, New Jersey 08816
Attention: Robert Frier
Facsimile: 732-220-3745
Telephone: 732-220-3729
Delivery Of This Instrument To An Address Other Than As
Set Forth Above Or Transmission Via A Facsimile Number
Other Than One Listed Above
Will Not Constitute A Valid Delivery.
Ladies And Gentlemen:
The undersigned hereby tenders for exchange to the Issuers, upon the
terms and subject to the conditions set forth in the Prospectus and the Letter
of Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures."
The undersigned understands and acknowledges that the Exchange Offer
will expire at 5:00 p.m., New York City time, on __________ __, 1998, unless
extended by the Issuers. The term "Expiration Date" shall mean 5:00 p.m., New
York City time, on _______ __, 1998, unless the Exchange Offer is extended as
provided in the Prospectus, in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended.
All authority conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
<PAGE>
SIGNATURE
_____________________________________________ Date: ___________________________
_____________________________________________ Date: ___________________________
Signature(s) Of Holder(s) Or Authorized Signatory
Area Code and Telephone Number: ____________________________________________
Name(s):
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title), if signing in a fiduciary or representative capacity:
________________________________________________________________________________
Address:
________________________________________________________________________________
(Including Zip Code)
Taxpayer Identification or
Social Security No. :
________________________________________________________________________________
Principal Amount of Old Notes Tendered (must be in integral
multiples of $1,000): $_________________________________________________________
Certificate Number(s) of Old Notes (if available):
________________________________________________________________________________
Aggregate Principal Amount Represented by Certificate(s): $____________________
IF TENDERED OLD NOTES WILL BE DELIVERED BY BOOK-ENTRY TRANSFER, PROVIDE THE
DEPOSITORY TRUST COMPANY ("DTC") ACCOUNT NO. AND TRANSACTION CODE NUMBER
(if available):
Account No.:__________________________
Transaction Number:___________________
<PAGE>
GUARANTEE OF DELIVERY
(Not To Be Used For Signature Guarantee)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
promulgated under the Securities Exchange Act of 1934, as amended, guarantees
deposit with the Exchange Agent of a properly completed and executed Letter of
Transmittal (or facsimile thereof) or an Agent's Message, as well as the
certificate(s) representing all tendered Old Notes in proper form for transfer,
or confirmation of the book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC as described in the Prospectus under the caption "The
Exchange Offer -- Book-Entry Transfer" and any other documents required by the
Letter of Transmittal, all by 5:00 p.m., New York City time, on the fifth New
York Stock Exchange trading day following the Expiration Date.
Name of Eligible Institution: __________________________________________________
Address: _______________________________________________________________________
Authorized Signature:___________________________________________________________
Name:____________________________________________
Title:___________________________________________
Area Code and
Telephone No. : ________________________________
Date:____________________________________________
________________________________________________________________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE. ACTUAL SURRENDER OF OLD NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, THE LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.3
LA PETITE ACADEMY, INC.
AND
LPA HOLDING CORP.
Offer To Exchange Up To $145,000,000 Of Their
10% Series B Senior Notes Due 2008
For Any And All Of Their Outstanding
10% Senior Notes Due 2008
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ______ __, 1998, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
To Brokers, Dealers, Commercial Banks, _______ __ 1998
Trust Companies and Other Nominees:
La Petite Academy, Inc. and LPA Holding Corp. (together, the
"Issuers"), are offering, upon the terms and subject to the conditions set forth
in the Prospectus dated ______ __, 1998 (the "Prospectus") and the accompanying
Letter of Transmittal enclosed herewith (which together constitute the "Exchange
Offer"), to exchange their 10% Series B Senior Notes due 2008 (the "New Notes")
for an equal principal amount of their 10% Senior Notes due 2008 (the "Old
Notes" and together with the New Notes, the "Notes"). As set forth in the
Prospectus, the terms of the New Notes are identical in all material respects to
the Old Notes, except that the New Notes have been registered under the
Securities Act of 1933, as amended, and therefore will not bear legends
restricting their transfer and will not contain certain provisions providing for
the payment of liquidated damages to the holders of the Old Notes under certain
circumstances relating to the Registration Rights Agreement (as defined in the
Prospectus).
THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CUSTOMARY CONDITIONS. SEE "THE
EXCHANGE OFFER -- CONDITIONS" IN THE PROSPECTUS.
Enclosed herewith for your information and forwarding to your clients
are copies of the following documents:
1. the Prospectus, dated ______ __, 1998;
2. the Letter of Transmittal for your use (unless Old Notes are tendered by an
Agent's Message) and for the information of your clients (facsimile copies of
the Letter of Transmittal may be used to tender Old Notes);
3. a form of letter which may be sent to your clients for whose accounts you
hold Old Notes registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Exchange Offer;
4. a Notice of Guaranteed Delivery;
5. Guidelines of the Internal Revenue Service for Certification of Taxpayer
Identification Number on Substitute Form W-9; and
6. a return envelope addressed to PNC Bank, National Association, the
Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. PLEASE NOTE THE EXCHANGE OFFER WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ________ __, 1998, UNLESS EXTENDED.
PLEASE FURNISH COPIES OF THE ENCLOSED MATERIALS TO THOSE OF YOUR CLIENTS FOR
WHOM YOU HOLD OLD NOTES REGISTERED IN YOUR NAME OR IN THE NAME OF YOUR NOMINEE
AS QUICKLY AS POSSIBLE.
In all cases, exchanges of Old Notes accepted for exchange pursuant to
the Exchange Offer will be made only after timely receipt by the Exchange Agent
of (a) certificates representing such Old Notes, or a Book-Entry Confirmation
(as defined in the Prospectus), as the case may be, (b) the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, or an
Agent's Message and (c) any other required documents.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or an Agent's Message and in either case together with 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 under the caption "The Exchange Offer --
Guaranteed Delivery Procedures" in the Prospectus.
<PAGE>
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, holders of Old Notes residing 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.
The Issuers will not pay any fees or commissions to brokers, dealers or
other persons for soliciting exchanges of Notes pursuant to the Exchange Offer.
The Issuers will, however, upon request, reimburse you for customary clerical
and mailing expenses incurred by you in forwarding any of the enclosed materials
to your clients. The Issuers will pay or cause to be paid any transfer taxes
payable on the transfer of Notes to them, except as otherwise provided in
Instruction 9 of the Letter of Transmittal.
Questions and requests for assistance with respect to the Exchange
Offer or for copies of the Prospectus and Letter of Transmittal may be directed
to the Exchange Agent by telephone at (732) 220-3729 or by facsimile at (732)
220-3745.
Very truly yours,
LA PETITE ACADEMY, INC.
LPA HOLDING CORP.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY OTHER PERSON THE AGENT OF THE ISSUERS, OR ANY AFFILIATE THEREOF, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
Exhibit 99.4
LA PETITE ACADEMY, INC.
AND
LPA HOLDING CORP.
Offer To Exchange Up To $145,000,000 Of Their
10% Series B Senior Notes Due 2008
For Any And All Of Their Outstanding
10% Senior Notes Due 2008
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_______ __, 1998 UNLESS EXTENDED.
- --------------------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration is a Prospectus dated _____ __, 1998
(the "Prospectus") and a Letter of Transmittal (which together constitute the
"Exchange Offer") relating to the offer by La Petite Academy, Inc. and LPA
Holding Corp. (together, the "Issuers") to exchange their 10% Series B Senior
Notes due 2008 (the "New Notes") for an equal principal amount of their 10%
Senior Notes due 2008 (the "Old Notes" and together with the New Notes, the
"Notes"). As set forth in the Prospectus, the terms of the New Notes are
identical in all material respects to the Old Notes, except that the New Notes
have been registered under the Securities Act of 1933, as amended, and therefore
will not bear legends restricting their transfer and will not contain certain
provisions providing for the payment of liquidated damages to the holders of the
Old Notes under certain circumstances relating to the Registration Rights
Agreement (as defined in the Prospectus). Old Notes may be tendered only in
integral multiples of $1,000.
The enclosed material is being forwarded to you as the beneficial owner
of Old Notes carried by us for your account or benefit but not registered in
your name. An exchange of any Old Notes may only be made by us as the registered
Holder and pursuant to your instructions. Therefore, the Issuers urge beneficial
owners of Old Notes registered in the name of a broker, dealer, commercial bank,
trust company or other nominee to contact such Holder promptly if they wish to
exchange Old Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to
exchange any or all such Old Notes held by us for your account or benefit,
pursuant to the terms and conditions set forth in the Prospectus and Letter of
Transmittal. We urge you to read carefully the Prospectus and Letter of
Transmittal before instructing us to exchange your Old Notes.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to exchange Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer expires at 5:00 p.m., New
York City time, on ________ __, 1998, unless extended. The term "Expiration
Date" shall mean 5:00 p.m., New York City time, on __________ __, 1998, unless
the Exchange Offer is extended as provided in the Prospectus, in which case the
term "Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. A tender of Old Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 principal amount of
the New Notes for each $1,000 principal amount of the Old Notes, of which
$145,000,000 aggregate principal amount was outstanding as of _________ __,
1998. The terms of the New Notes are identical in all respects to the Old Notes,
except that the New Notes have been registered under the Securities Act of 1933,
as amended, and therefore will not bear legends restricting their transfer and
will not contain certain provisions providing for the payment of liquidated
damages to the holders of the Old Notes under certain circumstances relating to
the Registration Rights Agreement.
2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CUSTOMARY CONDITIONS. SEE
"THE EXCHANGE OFFER -- CONDITIONS" IN THE PROSPECTUS.
3. The Exchange Offer and
withdrawal rights will expire at 5:00 p.m., New York City time, on ________ __,
1998, unless extended.
4. The Issuers have agreed to pay the expenses of the Exchange Offer.
5. Any transfer taxes incident to the transfer of Old Notes from the
tendering Holder to the Issuers will be paid by the Issuers, except as provided
in the Prospectus and the Letter of Transmittal.
<PAGE>
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, holders of Old Notes residing 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.
If you wish us to tender any or all of your Old Notes held by us for
your account or benefit, please so instruct us by completing, executing and
returning to us the attached instruction form. The accompanying Letter of
Transmittal is furnished to you for informational purposes only and may not be
used by you to exchange Old Notes held by us and registered in our name for your
account or benefit.
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed material
referred to therein relating to the Exchange Offer of La Petite Academy, Inc.
and LPA Holding Corp.
This will instruct you to tender for exchange the aggregate principal amount
of Old Notes indicated below (or, if no aggregate principal amount is indicated
below, all Old Notes) held by you for the account or benefit of the
undersigned, pursuant to the terms of and conditions set forth in the
Prospectus and the Letter of Transmittal.
Aggregate Principal Amount of Old Notes to be tendered for exchange:
$________________
* I (we) understand that if I (we) sign this instruction form without indicating
an aggregate principal amount of Old Notes in the space above, all Old Notes
held by you for my (our) account will be tendered for exchange.
________________________________________________________________________________
________________________________________________________________________________
Signature(s)
________________________________________________________________________________
Capacity (full title), if signing in a fiduciary or representative capacity
________________________________________________________________________________
Name(s) and address, including zip code
Date: _____________________________________
________________________________________________________________________________
Area Code and Telephone Number
________________________________________________________________________________
Taxpayer Identification or Social Security No.
