MANAGEMENT STOCKHOLDER'S AGREEMENT
(Senior Director, Director or Manager)
This Management Stockholder's Agreement (this "Agreement") is entered into
as of ((MSHA_Date)) between KINDERCARE LEARNING CENTERS, INC., a Delaware
corporation (the "Company"), and ((First_Name)) ((Last_Name)) (the "Purchaser")
(the Company and the Purchaser being hereinafter collectively referred to as the
"Parties").
RECITALS
Pursuant to the terms of the 1997 Stock Purchase and Option Plan for Key
Employees of KinderCare Learning Centers, Inc. and Subsidiaries (the "Option
Plan"), this Agreement and the Non-Qualified Stock Option Agreement, entered
into in connection with this Agreement (the "Non-Qualified Stock Option
Agreement"), the Company has granted to Purchaser an option (the "Initial
Option") to purchase ((Option_Shares)) shares of its Common Stock at an exercise
price of $((Per_Share)) per share of Common Stock. The Company may in the future
grant to Purchaser an additional option or options to purchase Common Stock
(with the Initial Option and all such additional options together referred to as
the "Options").
Effective August 19, 2002, the Company effected a 2-for-1 stock split of
its Common Stock. Accordingly, all references to the number of shares of Common
Stock or the price of the Common Stock in this Agreement, as well as the
Non-qualified Stock Option Agreement and the Sale Participation Agreement dated
as of the date hereof, have been adjusted to give effect to the Stock Split.
This Agreement is one of several other agreements ("Other Purchasers'
Agreements") which have been, or which in the future will be, entered into
between the Company and other individuals who are or will be key employees of
the Company or one of its subsidiaries (collectively, the "Other Purchasers").
AGREEMENT
To implement the foregoing and in consideration of the mutual agreements
contained herein, the Parties agree as follows:
1. Grant of Option. Subject to the terms and conditions hereinafter set
forth and in the Non-Qualified Stock Option Agreement, the Company shall issue
to the Purchaser the Initial Option.
2. Purchaser's Representations, Warranties and Agreements. The Purchaser
hereby represents, warrants and agrees as follows on the date hereof and at the
time of each exercise of the Options:
(a) The Purchaser is acquiring the Common Stock issuable upon exercise
of the Options (the "Stock") for investment for the Purchaser's own account and
not with a view to, or for resale in connection with, the distribution or other
disposition thereof. The Purchaser agrees and acknowledges that the Purchaser
will not, directly or indirectly, offer, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of any shares of the Stock unless (A) such
offer,
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transfer, sale, assignment, pledge, hypothecation or other disposition complies
with Section 3 of this Agreement and (B) the offer, transfer, sale, assignment,
pledge, hypothecation or other disposition is in compliance with the Securities
Act of 1933, as amended, or the rules and regulations in effect thereunder (the
"Act") and in compliance with applicable state securities laws. Notwithstanding
the foregoing, the Company acknowledges and agrees that any of the following
transfers of Stock are deemed to be in compliance with the Act and this
Agreement and no opinion of counsel is required in connection therewith: (x) a
transfer made pursuant to Section 4, 5 or 6 hereof, (y) a transfer upon the
death of the Purchaser to the Purchaser's executors, administrators,
testamentary trustees, legatees or beneficiaries (the "Purchaser's Estate") or a
transfer to the executors, administrators, testamentary trustees, legatees or
beneficiaries of a person who has become a holder of Stock in accordance with
the terms of this Agreement, provided that it is expressly understood that any
such transferee shall be bound by the provisions of this Agreement and (z) a
transfer in compliance with the federal securities laws to a trust or
custodianship the beneficiaries of which may include only the Purchaser, the
Purchaser's spouse or lineal descendants (a "Purchaser's Trust"), provided that
such transfer is made expressly subject to this Agreement and that the
transferee agrees in writing to be bound by the terms and conditions hereof.
(b) In addition to any legends required by the Act or applicable state
securities laws, the certificate (or certificates) representing the Stock shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
COMPLIES WITH THE PROVISIONS OF THE MANAGEMENT STOCKHOLDER'S
AGREEMENT DATED AS OF ((MSHA_Date)) BETWEEN KINDERCARE
LEARNING CENTERS, INC. (THE "COMPANY") AND THE PURCHASER
NAMED ON THE FACE HEREOF (A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY)."
(c) The Purchaser acknowledges that the Purchaser has been advised
that (i) a restrictive legend in the form heretofore set forth shall be placed
on the certificates representing the Stock and (ii) a notation shall be made in
the appropriate records of the Company indicating that the Stock is subject to
restrictions on transfer and appropriate stop transfer restrictions will be
issued to the Company's transfer agent with respect to the Stock. If the
Purchaser is an Affiliate, the Purchaser also acknowledges that (1) Rule 144
promulgated under the Act may not be available with respect to the Stock, and
the Company has made no covenant to make such Rule available (except as provided
in Section 9(b) hereof), (2) when and if shares of the Stock may be disposed of
without registration in reliance on Rule 144, such disposition can be made only
in limited amounts in accordance with the terms and conditions of such Rule and
(3) if the Rule 144 exemption is not available, public sale without registration
will require compliance with Regulation A or some other exemption under the Act.
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(d) If any shares of the Stock are to be disposed of in accordance
with Rule 144 under the Act or otherwise, the Purchaser shall promptly notify
the Company of such intended disposition and shall deliver to the Company at or
prior to the time of such disposition such documentation as the Company may
reasonably request in connection with such sale and, in the case of a
disposition pursuant to Rule 144, shall deliver to the Company an executed copy
of any notice on Form 144 required to be filed with the Securities and Exchange
Commission (the "SEC").
(e) The Purchaser agrees that, if any shares of the capital stock of
the Company are offered to the public pursuant to an effective registration
statement under the Act (other than registration of securities issued under an
employee plan), the Purchaser will not effect any public sale or distribution of
any shares of the Stock not covered by such registration statement within 7 days
prior to, or within 180 days after, the effective date of such registration
statement (or such shorter period as may be agreed among the Company's officers,
directors, principal stockholders and the underwriters), unless otherwise agreed
to in writing by the Company.
(f) The Purchaser represents and warrants that the Purchaser has been
given the opportunity to obtain any additional information or documents and to
ask questions and receive answers about such information and documents, the
Company and the business and prospects of the Company which the Purchaser deems
necessary to evaluate the merits and risks related to the Purchaser's investment
in the Stock and to verify the information received as indicated in this Section
2(f), and the Purchaser has relied solely on such information.
(g) Purchaser understands that there is not an active public market
for the Stock, the Stock must be held indefinitely and the Purchaser must
continue to bear the economic risk of the investment in the Stock. The Purchaser
further represents and warrants that (i) the Purchaser's financial condition is
such that the Purchaser can afford to bear the economic risk of holding the
Stock for an indefinite period of time and has adequate means for providing for
the Purchaser's current needs and personal contingencies, (ii) the Purchaser can
afford to suffer a complete loss of the Purchaser's investment in the Stock,
(iii) all information which the Purchaser has provided to the Company concerning
the Purchaser and the Purchaser's financial position is correct and complete as
of the date of this Agreement, (iv) the Purchaser has received and read the
Prospectus relating to the Stock and understands and has taken cognizance of all
risk factors related to the purchase of the Stock and (v) the Purchaser's
knowledge and experience in financial and business matters are such that the
Purchaser is capable of evaluating the merits and risks of the purchase of the
Stock as contemplated by this Agreement.
3. Restriction on Transfer. Except for transfers (i) permitted by clauses
(x), (y) and (z) of Section 2(a); (ii) pursuant to an effective registration
statement under the Act filed by the Company; or (iii) pursuant to the Sale
Participation Agreement (as defined below), the Purchaser agrees not to
transfer, sell, assign, pledge, hypothecate or otherwise dispose of any shares
of the Stock at any time until the fifth anniversary of the applicable
Commencement Date (as defined below). With respect to the Initial Option and any
Stock acquired upon exercise of the Initial Option, the "Commencement Date"
shall be ((Grant_Hire_Promotion_Date)). With respect to any other Option and any
Stock acquired upon exercise of any other Option, the "Commencement Date" shall
be the Commencement Date set forth in the option agreement
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evidencing such other Option. No transfer of any such shares in violation hereof
shall be made or recorded on the books of the Company and any such transfer
shall be void and of no effect.
4. Right of First Refusal. If at any time after the fifth anniversary of
the Commencement Date related to any of Purchaser's Stock ("Five-Year Stock")
and prior to a Public Offering (as defined below), (i) the Purchaser receives a
bona fide offer (the "Offer") to purchase any or all of the Purchaser's
Five-Year Stock from a third party (the "Offeror") which the Purchaser wishes to
accept or (ii) the Purchaser wishes to sell any or all of the Purchaser's
Five-Year Stock in the open market at the Market Price Per Share (as defined in
Section 7(i)) on the date of sale ("Proposed Market Sale"), the Purchaser shall
cause the Offer to be reduced to writing and shall notify the Company in writing
of the Purchaser's wish to accept the Offer or consummate the Proposed Market
Sale, as the case may be. The Purchaser's notice shall constitute an irrevocable
offer to sell such Five-Year Stock to the Company (in the manner set forth
below) at a purchase price (i) in the case of an Offer, equal to the price
contained in, and on the same terms and conditions of, the Offer, and shall be
accompanied by a true copy of the Offer (which shall identify the Offeror) and
(ii) in the case of a Proposed Market Sale, equal to the Market Price Per Share
on the date of purchase. At any time within 30 days after the date of the
receipt by the Company of the Purchaser's notice, the Company shall have the
right and option to purchase, or to arrange for a third party to purchase, all
of the Five-Year Stock covered by the Offer or the Proposed Market Sale either
(i) at the same price and on the same terms and conditions as the Offer or the
Proposed Market Sale or (ii) if the Offer includes any consideration other than
cash, then at the sole option of the Company, at the equivalent all cash price,
determined in good faith by the Company's Board of Directors, by delivering a
certified bank check or checks in the appropriate amount to the Purchaser at the
principal office of the Company against delivery of certificates or other
instruments representing the Five-Year Stock so purchased, appropriately
endorsed by the Purchaser. If at the end of such 30-day period, the Company has
not tendered the purchase price for such Five-Year Stock in the manner set forth
above, the Purchaser may during the succeeding 60-day period sell not less than
all of the Five-Year Stock covered by the Purchaser's notice in the case of an
Offer to the Offeror at a price and on terms no less favorable to the Purchaser
than those contained in the Offer and in the case of a Proposed Market Sale at
the Market Price Per Share at the time of sale; provided, however, that any sale
to the Offeror shall be subject to and conditioned upon the agreement in writing
of the Offeror to be bound by this Section 4 with respect to the Five-Year Stock
so transferred. Promptly after such sale, the Purchaser shall notify the Company
of the consummation thereof and shall furnish such evidence of the completion
and time of completion of such sale and of the terms thereof as may reasonably
be requested by the Company. If, at the end of 60 days following the expiration
of the 30-day period for the Company to purchase the Five-Year Stock, the
Purchaser has not completed the sale of such shares of the Five-Year Stock as
aforesaid, all the restrictions on sale contained in this Section shall again be
in effect with respect to such Five-Year Stock.
5. Purchaser's Resale of Stock and Options to the Company Upon the
Purchaser's Death or Disability.
(a) Except as otherwise provided herein, if at any time prior to the
fifth anniversary of the Commencement Date related to any of Purchaser's Stock
or Options ("Pre-Five Stock" or "Pre-Five Options"), (i) the Purchaser is still
in the employ of the Company and
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(ii) the Purchaser either dies or becomes permanently disabled, then the
Purchaser or the Purchaser's Estate, as the case may be, shall have the right,
for six months following the date of death or permanent disability, to (A) sell
to the Company, and the Company shall be required to purchase, on one occasion,
all or any portion of the shares of Pre-Five Stock then held by the Purchaser or
the Purchaser's Estate, as the case may be, at the Section 5 Repurchase Price,
as determined in accordance with Section 7, and (B) require the Company to pay,
on the same occasion, to the Purchaser or the Purchaser's Estate, as the case
may be, an additional amount equal to the Option Excess Price determined on the
basis of the Section 5 Repurchase Price as provided in Section 8 with respect to
the termination of outstanding Pre-Five Options held by the Purchaser. The
Purchaser or the Purchaser's Estate, as the case may be, shall send written
notice to the Company of its intention to sell shares of Pre-Five Stock and to
terminate such Pre-Five Options in exchange for the payment referred to in the
preceding sentence (the "Redemption Notice"). The completion of the purchase
shall take place at the principal office of the Company on the tenth business
day after the giving of the Redemption Notice. The Section 5 Repurchase Price
and any payment with respect to the Pre-Five Options as described above shall be
paid by delivery to the Purchaser or the Purchaser's Estate, as the case may be,
of a certified bank check or checks in the appropriate amount payable to the
order of the Purchaser or the Purchaser's Estate, as the case may be, against
delivery of certificates or other instruments representing the Pre-Five Stock so
purchased and appropriate documents canceling the Pre-Five Options so
terminated, each appropriately endorsed or executed by the Purchaser or the
Purchaser's Estate, or his or her or its duly authorized representative. For
purposes of this Agreement, Purchaser shall be deemed to have a "permanent
disability" if the Purchaser is unable to engage in the activities required by
Purchaser's position by reason of any medically-determined physical or mental
impairment which can be expected to result in death or which has lasted or can
reasonably be expected to last for a continuous period of not less than 12
months.
(b) Notwithstanding anything in Section 5(a) to the contrary and
subject to Section 10, the Company shall not be obligated to repurchase any of
the Pre-Five Stock or the Pre-Five Options from the Purchaser or the Purchaser's
Estate, as the case may be, if there exists and is continuing, or such
repurchase would result in, (x) a default or an event of default on the part of
the Company or any subsidiary of the Company under any loan, guarantee or other
agreement under which the Company or any subsidiary of the Company has borrowed
money or (y) a violation under any applicable provision of the Delaware General
Corporation Law (or if the Company reincorporates, the corporation law of that
state) (such occurrence being a "Blocking Event"). The Company's obligation to
repurchase any of the Pre-Five Stock or Pre-Five Options as set forth in Section
5(a) shall be suspended until the first business day which is 5 calendar days
after all of the foregoing Blocking Events have ceased to exist (the "Repurchase
Eligibility Date"); provided, however, that the Section 5 Repurchase Price shall
be determined in accordance with Section 7 as of the Repurchase Eligibility Date
(unless the Section 5 Repurchase Price would be greater if it had been
determined as if no Blocking Event had occurred in which case, solely for
purposes of this proviso, the Section 5 Repurchase Price shall be determined as
if no Blocking Event had occurred). All Pre-Five Options exercisable as of the
date of a Redemption Notice shall continue to be exercisable until the
repurchase pursuant to such Redemption Notice.
(c) Notwithstanding any other provision of this Section 5 to the
contrary, the Purchaser or the Purchaser's Estate, as the case may be, shall
have the right to withdraw any
5
Redemption Notice which has been pending for 60 or more days and which has
remained unsatisfied because of the provisions of Section 5(b).
6. The Company's Option to Repurchase Stock and Options of Purchaser.
(a) If, prior to the fifth anniversary of the Commencement Date
related to any of Purchaser's Stock or Options, (i) the Purchaser's active
employment with the Company is either (A) terminated by the Purchaser without
Good Reason or (B) terminated by the Company for Cause, (ii) a Purchaser's Trust
fails to comply with the requirements set forth in Section 2(a)(z), or (iii) the
Purchaser shall effect a transfer of any of the Pre-Five Stock other than as
permitted in this Agreement, the Company shall have the right to purchase all,
but not less than all, of the Pre-Five Stock then held by the Purchaser, the
Purchaser's Estate or a Purchaser's Trust at the applicable Section 6(a)
Repurchase Price determined in accordance with Section 7 hereof. In the event of
the Purchaser's resignation without Good Reason, all unexercisable Options shall
terminate without any payment. In the event Purchaser's active employment with
the Company is terminated by the Company for Cause, all Options shall terminate
without any payment.
(b) If, prior to the fifth anniversary of the Commencement Date
related to any of Purchaser's Stock or Options, the Purchaser's active
employment with the Company is terminated by the Purchaser with Good Reason, the
Company shall have the right to purchase all, but not less than all, of the
Pre-Five Stock then held by the Purchaser, the Purchaser's Estate or a
Purchaser's Trust at the applicable Section 6(b) Repurchase Price determined in
accordance with Section 7 hereof.
(c) If, prior to the fifth anniversary of the Commencement Date
related to any of Purchaser's Stock or Options, the Purchaser's active
employment with the Company is terminated by the Company without Cause, the
Company shall have the right to purchase all, but not less than all, of the
Pre-Five Stock then held by the Purchaser, the Purchaser's Estate or a
Purchaser's Trust at the applicable Section 6(c) Repurchase Price determined in
accordance with Section 7 hereof.
(d) If, prior to the fifth anniversary of the Commencement Date
related to any of Purchaser's Stock or Options, the Purchaser either dies or
becomes permanently disabled and on the date of such death or permanent
disability the Purchaser was still in the employ of the Company, the Company
shall have the right to purchase all, but not less than all, of the Pre-Five
Stock then held by the Purchaser, the Purchaser's Estate or a Purchaser's Trust;
provided, however, that the Repurchase Price shall be the Section 5 Repurchase
Price.
(e) The circumstances under which the Company may elect to repurchase
the shares of Pre-Five Stock pursuant to Sections 6(a), (b), (c) and (d) are
hereinafter collectively referred to as "Call Events." The Company shall have a
period of 75 days from the date of a Call Event in which to give notice in
writing to the Purchaser of the exercise of such election ("Call Notice"). In
the event that the Company exercises its right to repurchase the Pre-Five Stock
pursuant to this Section 6, the Company shall also pay the Purchaser an amount
equal to the Option Excess Price determined on the basis of the Section 6(a)
Repurchase Price, the Section 6(b) Repurchase Price, the Section 6(c) Repurchase
Price or the Section 5 Repurchase Price, as
6
the case may be, as provided in Section 8, with respect to the termination of
outstanding Pre-Five Options held by the Purchaser.
(f) The completion of the purchases pursuant to the foregoing shall
take place at the principal office of the Company on the tenth business day
after the giving of notice of the exercise of the option to purchase. The
Section 5 Repurchase Price, the Section 6(a) Repurchase Price, the Section 6(b)
Repurchase Price and the Section 6(c) Repurchase Price, as the case may be, and
any payment with respect to the Pre-Five Options as described above shall be
paid by delivery to the applicable seller of a certified bank check or checks in
the appropriate amount payable to the order of such seller against delivery of
certificates or other instruments representing the Pre-Five Stock so purchased
and appropriate documents canceling the Pre-Five Options so terminated,
appropriately endorsed or executed by the Purchaser, the Purchaser's Estate, the
Purchaser's Trust or his, her or their authorized representatives.
(g) Notwithstanding any other provision of this Section 6 to the
contrary and subject to Section 10, if there exists and is continuing, or such
repurchase would result in, any Blocking Event, the Company shall delay the
repurchase of any of the Pre-Five Stock or the Pre-Five Options (pursuant to a
Call Notice timely given in accordance with Section 6(a), 6(b), 6(c) or 6(d)
hereof) from the Purchaser, the Purchaser's Estate or the Purchaser's Trust, as
the case may be, until the Repurchase Eligibility Date; provided, however, that
the applicable Repurchase Price shall be determined in accordance with Section 7
based on the Repurchase Eligibility Date (unless the applicable Repurchase Price
would be greater if it had been determined as if no Blocking Event had occurred,
in which case, solely for purposes of this proviso, the applicable Repurchase
Price shall be determined as if no Blocking Event had occurred). All Pre-Five
Options exercisable as of the date of a Call Notice shall continue to be
exercisable until the repurchase pursuant to such Call Notice.
(h) For purposes of this Agreement the following definitions shall
apply: "Cause" shall mean (i) the Purchaser's willful and continued failure to
perform Purchaser's duties with respect to the Company or its subsidiaries which
continues beyond ten days after a written demand for substantial performance is
delivered to Purchaser by the Company and which could reasonably result in
demonstrable injury to the Company or (ii) misconduct by Purchaser (x) involving
dishonesty or breach of trust in connection with Purchaser's employment, (y)
which would be a reasonable basis for an indictment of Purchaser for a felony or
for a misdemeanor involving moral turpitude, or (z) which results in
demonstrable injury to the Company; and "Good Reason" shall mean, without the
Purchaser's consent, (i) a reduction in Purchaser's base salary, other than a
reduction which is part of a general salary reduction program affecting all
salaried employees of the Company, (ii) a substantial reduction in Purchaser's
duties and responsibilities or change in the Purchaser's title, (iii) the
elimination or reduction of Purchaser's eligibility to participate in the
Company's benefit programs that is inconsistent with the eligibility of
similarly situated employees of the Company to participate therein or (iv) a
transfer of the Purchaser's primary workplace by more than fifty (50) miles from
the workplace as of the date hereof.
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7. Determination of Repurchase Price.
(a) The Section 5 Repurchase Price, the Section 6(a) Repurchase Price,
the Section 6(b) Repurchase Price and the Section 6(c) Repurchase Price are
herein collectively referred to as the "Repurchase Price." The Repurchase Price
shall be calculated on the basis of (i) the Base Price (as defined below) and
the unaudited financial statements of the Company as of the last day of the
month preceding the later of (x) the month in which the event giving rise to the
repurchase occurs and (y) the month in which the Repurchase Eligibility Date
occurs (hereinafter called the "Repurchase Calculation Date") or (ii) the Market
Price Per Share (as defined in Section 7(i)) as of the later of (x) the
effective date of the Redemption Notice or the Call Notice, as the case may be,
or (y) the Repurchase Eligibility Date or (iii) the fair market value per share
of Common Stock as determined by the Company's Board of Directors in good faith
as of the later of (x) the effective date of the Redemption Notice or the Call
Notice, as the case may be, or (y) the Repurchase Eligibility Date. For purposes
of clause (i) of the immediately preceding sentence, the event giving rise to
the repurchase shall be the death, permanent disability, retirement or
termination of employment, as the case may be, of the Purchaser, not the giving
of any notice required pursuant to Section 5 or 6. With respect to any Option
and any Stock acquired upon exercise of any Option, the "Base Price" shall be
the exercise price set forth in the option agreement evidencing such Option.
(b) The Section 5 Repurchase Price shall be a per share Repurchase
Price equal to (i) prior to a Public Offering, the greater of (x) the Base Price
and (y) the Base Price plus the increase, if any, in Book Value Per Share (as
defined in Section 7(g)) from the applicable Commencement Date through the
Repurchase Calculation Date or (ii) after a Public Offering, the Market Price
Per Share.
(c) The Section 6(a) Repurchase Price shall be a per share Repurchase
Price equal to (i) prior to a Public Offering, (x) the Base Price less the
decrease in Book Value Per Share from the applicable Commencement Date through
the Repurchase Calculation Date, if such Book Value Per Share has decreased, (y)
the Base Price plus the product of (A) the Unrestricted Percentage (as defined
below) and (B) the increase in the Book Value Per Share from the applicable
Commencement Date through the Repurchase Calculation Date, if such Book Value
Per Share has increased or (z) the Base Price, if such Book Value Per Share has
neither decreased nor increased and (ii) after a Public Offering, (x) the Market
Price Per Share, if the Market Price Per Share is less than or equal to the Base
Price or (y) the Base Price plus the product of (A) the Unrestricted Percentage
and (B) the Market Price Per Share less the Base Price, if the Market Price Per
Share is greater than the Base Price.
(d) The Section 6(b) Repurchase Price shall be a per share Repurchase
Price equal to (x) prior to a Public Offering, the Base Price minus any decrease
in Book Value Per Share or plus any increase in Book Value Per Share from the
applicable Commencement Date through the Repurchase Calculation Date or (y)
after a Public Offering, the Market Price Per Share.
(e) The Section 6(c) Repurchase Price shall be a per share Repurchase
Price equal to (x) prior to a Public Offering, the fair market value per share
of Common Stock as
8
determined by the Company's Board of Directors in good faith or (y) after a
Public Offering, the Market Price Per Share.
(f) For purposes of this Agreement the "Unrestricted Percentage" shall
be determined as follows:
Repurchase Calculation Date Percentage
--------------------------- ----------
Through and including the first anniversary of the 0%
applicable Commencement Date
After the first anniversary of the applicable 20%
Commencement Date through and including the second
anniversary of the applicable Commencement Date
After the second anniversary of the applicable 40%
Commencement Date through and including the third
anniversary of the applicable Commencement Date
After the third anniversary of the applicable 60%
Commencement Date through and including the fourth
anniversary of the applicable Commencement Date
After the fourth anniversary of the applicable 80%
Commencement Date through and including the fifth
anniversary of the applicable Commencement Date
After the fifth anniversary of the applicable 100%
Commencement Date
(g) For purposes of this Agreement, "Book Value Per Share" shall mean
book value per share based on generally accepted accounting principles
consistently applied excluding, in the Board of Directors' discretion, any
extraordinary or unusual charges or credits such as one time write-offs of
goodwill or similar events.
(h) As used herein the term "Public Offering" shall mean the sale of
shares of Common Stock to the public subsequent to the date hereof pursuant to a
registration statement under the Act which has been declared effective by the
SEC (other than a registration statement on Form S-8) which results in an active
trading market of 30% or more of the outstanding shares of the Common Stock;
provided, however, that for purposes of determining the "Repurchase Price" in
Section 7 hereof, a "Public Offering" shall be a sale of shares of Common Stock
to the public subsequent to the date hereof pursuant to a registration statement
under the Act which has been declared effective by the Commission (other than a
registration statement on Form S-8 or any other similar form) which results in
an active trading market, without regard to the 30% requirement. An active
trading market will be deemed to exist, without limitation, if the "Market Price
Per Share" (as defined below) can be calculated pursuant to clause (i) or clause
(iv) of such definition.
(i) As used herein the term "Market Price Per Share" shall mean either
(i) the price per share equal to the average of the last sale price of the
Common Stock on the Repurchase Calculation Date on each national securities
exchange on which the Common Stock
9
may at the time be listed or (ii) if there shall have been no sales on any of
such exchanges on the Repurchase Calculation Date, the average of the closing
bid and asked prices on each such exchange at the end of the Repurchase
Calculation Date or (iii) if there is no such bid and asked price on the
Repurchase Calculation Date, the average of the closing bid and asked prices on
each such exchange on the next preceding date when such bid and asked price
occurred or (iv) if the Common Stock shall not be so listed, the closing sales
price as reported by the Nasdaq National Market or the Nasdaq Small Cap Market
("NASDAQ") at the end of the Repurchase Calculation Date or (v) if there shall
have been no sales reported by NASDAQ on the Repurchase Calculation Date, the
closing bid and asked prices reported by NASDAQ at the end of the Repurchase
Calculation Date or (vi) if there is no such bid and asked price on the
Repurchase Calculation Date, the average closing sales price as reported by the
OTC Bulletin Board for the 15-day period immediately preceding the Repurchase
Calculation Date, or (vii) if no such sales occurred within such 15-day period,
the Book Value Per Share.
(j) In determining the Repurchase Price, appropriate adjustments shall
be made for any future issuances of rights to acquire and securities convertible
into Common Stock and any stock dividends, splits, combinations,
recapitalizations or any other adjustment in the number of outstanding shares of
Common Stock.
8. Termination of Options. All outstanding Pre-Five Options granted to the
Purchaser under the Option Plan or otherwise, whether or not then exercisable,
will be automatically terminated upon the payment by the Company to the
Purchaser, pursuant to the provisions of Sections 5 or 6 of this Agreement, of
an amount equal to the Option Excess Price. If the Option Excess Price is zero
or a negative number, all outstanding Pre-Five Options granted to the Purchaser
under the Option Plan or otherwise, whether or not then exercisable, shall be
automatically terminated upon the purchase of the Pre-Five Stock as provided in
Sections 5 or 6. The Option Excess Price is the excess, if any, of the Section 5
Repurchase Price, the Section 6(a) Repurchase Price, the Section 6(b) Repurchase
Price or the Section 6(c) Repurchase Price, depending on which Repurchase Price
is being used to repurchase the remainder of the Pre-Five Stock, over the Base
Price, multiplied by the number of Exercisable Option Shares. For purposes
hereof, "Exercisable Option Shares" shall mean the shares of Common Stock which,
at the time of determination of the Option Excess Price, could be purchased by
the Purchaser upon exercise of the Purchaser's outstanding Pre-Five Options.
9. The Company's Representations and Warranties.
(a) The Company represents and warrants to the Purchaser that (i) this
Agreement has been duly authorized, executed and delivered by the Company and
(ii) the Stock, when issued and delivered in accordance with the terms hereof,
will be duly and validly issued, fully paid and nonassessable.
(b) The Company shall use reasonable efforts to register the Stock to
be acquired on exercise of the Options on a Form S-8 Registration Statement or
any successor to Form S-8 to the extent that such registration is then available
with respect to such Stock. The Company will file the reports required to be
filed by it under the Act and the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations adopted by the SEC thereunder, to the extent
required from time to time to enable the Purchaser to sell shares of Stock
without
10
registration under the Act within the limitations of the exemptions provided by
(A) Rule 144 under the Act, as such Rule may be amended from time to time, or
(B) any similar rule or regulation hereafter adopted by the SEC. Notwithstanding
anything contained in this Section 9(b), the Company may cease to file reports
under the Exchange Act if it is then permitted to do so pursuant to the Exchange
Act and the rules and regulations thereunder. Nothing in this Section 9(b) shall
be deemed to limit in any manner the restrictions on sales of Stock contained in
this Agreement.
10. Pro Rata Repurchases. Notwithstanding anything to the contrary
contained in Sections 5 or 6, if at any time consummation of all purchases and
payments to be made by the Company pursuant to this Agreement, the Other
Purchasers' Agreements and/or the stockholder's agreement dated as of February
14, 1997, as amended or restated from time to time, between Xxxxx X. Xxxxxxx
("Xxxxxxx") and the Company (the "Xxxxxxx Stockholder's Agreement"), would
result in a Blocking Event, then the Company shall (i) first make purchases
from, and payments to, Xxxxxxx with respect to his Side-by-Side Equity (as
defined in the Xxxxxxx Stockholder's Agreement) for the maximum number of shares
of Side-by-Side Equity without resulting in a Blocking Event and (ii) after all
of Xxxxxxx'x Side-by-Side Equity has been purchased and paid for, make purchases
from, and payments to, the Purchaser, the Other Purchasers and Xxxxxxx pro rata
(on the basis of the proportion of the number of shares of Stock and the number
of Options which Xxxxxxx (with respect to Xxxxxxx'x Promote Equity (as defined
in the Xxxxxxx Stockholder's Agreement)), the Purchaser and all Other Purchasers
have elected or are required to sell to the Company) for the maximum number of
shares of Stock and shall pay the Option Excess Price for the maximum number of
Options permitted without resulting in a Blocking Event. The maximum number of
shares of Stock and the maximum number of Options permitted to be purchased or
paid for by the Company at any time without resulting in a Blocking Event shall
be referred to herein as the "Maximum Repurchase Amount". The provisions of
Sections 5(b) and 6(g) shall apply in their entirety to payments and repurchases
with respect to Options and shares of Stock which may not be made due to the
limits imposed by the Maximum Repurchase Amount under this Section 10. Until all
of such Stock and Options are purchased and paid for by the Company, Xxxxxxx,
the Purchaser and the Other Purchasers whose Stock and Options are not purchased
in accordance with this Section 10 shall have priority, on the basis set forth
in this Section 10, over other purchases of Common Stock and Options by the
Company pursuant to this Agreement, the Xxxxxxx Stockholder's Agreement and the
Other Purchasers' Agreements, except that any purchase of Xxxxxxx'x Side-by-Side
Equity by the Company pursuant to the Xxxxxxx Stockholder's Agreement shall have
a priority over all other purchases of Stock or Options to be made by the
Company under this Agreement or the Other Purchasers' Agreements.
11. Rights to Negotiate Repurchase Price. Nothing in this Agreement shall
be deemed to restrict or prohibit the Company from purchasing shares of Stock or
Options from the Purchaser, at any time, upon such terms and conditions, and for
such price, as may be mutually agreed upon between the Parties, whether or not
at the time of such purchase circumstances exist which specifically grant the
Company the right to purchase, or the Purchaser the right to sell, shares of
Stock or the Company has the right to pay, or the Purchaser has the right to
receive, the Option Excess Price under the terms of this Agreement.
12. Covenant Regarding 83(b) Election. Except as the Company may otherwise
agree in writing, the Purchaser will make an election provided pursuant to
Treasury Regulation 1.83-2
11
with respect to the Stock to be acquired upon each exercise of the Purchaser's
Options; and Purchaser will furnish the Company with copies of the forms of
election the Purchaser files within 30 days after each exercise of Purchaser's
Options and with evidence that each such election has been filed in a timely
manner.
13. Notice of Change of Beneficiary. Immediately prior to any transfer of
Stock to a Purchaser's Trust, the Purchaser shall provide the Company with a
copy of the instruments creating the Purchaser's Trust and with the identity of
the beneficiaries of the Purchaser's Trust. The Purchaser shall notify the
Company immediately prior to any change in the identity of any beneficiary of
the Purchaser's Trust.
14. Expiration of Certain Provisions. The provisions contained in Sections
4, 5 and 6 of this Agreement and the portion of any other provision of this
Agreement which incorporates the provisions of Sections 4, 5 and 6, shall
terminate and be of no further force or effect with respect to any shares of
Stock sold by the Purchaser (i) pursuant to Section 4 (except as otherwise
provided therein), (ii) pursuant to an effective registration statement under
the Act filed by the Company, or (iii) pursuant to the terms of the Sale
Participation Agreement of even date herewith, among the Purchaser, KKR Partners
II, L.P. and KLC Associates, L.P.
The rights and obligations of the parties hereto under Sections 3, 4, 5 and
6 hereof shall all terminate if a Change of Control occurs. A "Change of
Control" means (i) a sale of all or substantially all of the assets of the
Company (other than in connection with financing transactions, sale and
leaseback transactions or other similar transactions) to a Person who is not
Kohlberg Kravis Xxxxxxx & Company, L.P. ("KKR") or an affiliate (as such term is
defined in Section 12b-2 of the Exchange Act) of KKR ("KKR Affiliates" and,
together with KKR, the "KKR Entities") (ii) a sale by KKR or any KKR Affiliate
resulting in more than 50% of the voting stock of the Company being held by a
person or group that does not include a KKR Entity or (iii) (a) a merger or
consolidation of the Company into another person which is not a KKR Entity or
(b) any dilution of KKR's beneficial ownership interest in the Company which
results in the KKR Entities owning less than 50% of the outstanding shares of
the Common Stock of the Company; if and only if any such event described in
either (iii) (a) or (b) results in the inability of the KKR Entities to elect a
majority of the Board of Directors of the Company (or the resulting entity).
15. Recapitalizations, etc. The provisions of this Agreement shall apply,
to the full extent set forth herein with respect to the Stock or the Options, to
any and all shares of capital stock of the Company or any capital stock,
partnership units or any other security evidencing ownership interests in any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for, or
substitution of the Stock or the Options, by reason of any stock dividend,
split, reverse split, combination, recapitalization, liquidation,
reclassification, merger, consolidation or otherwise.
16. Purchaser's Employment by the Company. Nothing contained in this
Agreement or in any other agreement entered into by the Company and the
Purchaser contemporaneously with the execution of this Agreement (i) obligates
the Company or any subsidiary of the Company to employ the Purchaser in any
capacity whatsoever or (ii) prohibits or restricts the Company (or any such
subsidiary) from terminating the employment, if any, of the Purchaser at any
time or for any reason whatsoever, with or without cause, and the Purchaser
hereby
12
acknowledges and agrees that neither the Company nor any other person has made
any representations or promises whatsoever to the Purchaser concerning the
Purchaser's employment or continued employment by the Company.
17. State Securities Laws. The Company hereby agrees to use its best
efforts to comply with all state securities or "blue sky" laws which might be
applicable to the issuance of the Options to the Purchaser and the sale of the
Stock upon exercise thereof.
18. Binding Effect. The provisions of this Agreement shall be binding upon
and accrue to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns. The Purchaser may not assign any
of Purchaser's rights under this Agreement without the consent of the Company,
except that (a) all of Purchaser's rights and obligations may be assigned to a
transferee permitted under clause (y) or (z) of Section 2(a) hereof, and (b)
Purchaser's rights and obligations under Section 4 may be assigned to an Offeror
as provided therein.
19. Amendment. This Agreement may be amended only by a written instrument
signed by the Parties hereto.
20. Closing. Except as otherwise provided herein, the closing of each
purchase and sale of shares of Stock and the payment of the Option Excess Price,
if any, pursuant to this Agreement shall take place at the principal office of
the Company on the tenth business day following delivery of the notice by either
Party to the other of its exercise of the right to purchase or sell such Stock
hereunder or to cause the payment of the Option Excess Price, if any.
21. Applicable Law. The laws of the state of Delaware (or if the Company
reincorporates in another state, of that state) shall govern the interpretation,
validity and performance of the terms of this Agreement, regardless of the law
that might be applied under principles of conflicts of law. Any suit, action or
proceeding against the Purchaser, with respect to this Agreement, or any
judgment entered by any court in respect of any thereof, may be brought in any
court of competent jurisdiction in the State of Delaware (or if the Company
reincorporates in another state, in that state) or the State in which the
Company's headquarters is located, and the Purchaser hereby submits to the
non-exclusive jurisdiction of such courts for the purpose of any such suit,
action, proceeding or judgment. Nothing herein shall in any way be deemed to
limit the ability of the Company to serve any such writs, process or summonses
in any other manner permitted by applicable law or to obtain jurisdiction over
the Purchaser, in such other jurisdictions and in such manner, as may be
permitted by applicable law. The Purchaser hereby irrevocably waives any
objections which the Purchaser may now or hereafter have to the laying of the
venue of any suit, action or proceeding arising out of or relating to this
Agreement brought in any court of competent jurisdiction in the State of
Delaware (or if the Company reincorporates in another state, in that state) or
the State in which the Company's headquarters is located, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum. No suit, action or
proceeding against the Company with respect to this Agreement may be brought in
any court, domestic or foreign, or before any similar domestic or foreign
authority other than in a court of competent jurisdiction in the State of
Delaware (or if the Company reincorporates in another state, in that state) or
the State in which the Company's headquarters is located, and the
13
Purchaser hereby irrevocably waives any right which the Purchaser may otherwise
have had to bring such an action in any other court, domestic or foreign, or
before any similar domestic or foreign authority. The Company hereby submits to
the jurisdiction of such courts for the purpose of any such suit, action or
proceeding.
22. Assignability of Certain Rights by the Company. The Company shall have
the right to assign any or all of its rights or obligations to purchase shares
of Stock pursuant to Sections 4, 5 and 6 hereof; provided, however, that the
Company shall remain obligated to perform its obligations notwithstanding such
assignment in the event that such assignee fails to perform the obligations so
assigned to it.
23. Miscellaneous. In this Agreement (i) all references to "dollars" or "$"
are to United States dollars and (ii) the word "or" is not exclusive. If any
provision of this Agreement shall be declared illegal, void or unenforceable by
any court of competent jurisdiction, the other provisions shall not be affected,
but shall remain in full force and effect.
24. Notices. All notices and other communications provided for herein shall
be in writing and shall be deemed to have been duly given if delivered by hand
(whether by overnight courier or otherwise) or sent by registered or certified
mail, return receipt requested, postage prepaid, to the Party to whom it is
directed:
(a) If to the Company, to it at the following address:
KinderCare Learning Centers, Inc.
000 XX Xxxxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Attn: Xxx X. Xxxxxxxxx
with copies to:
Kohlberg Kravis Xxxxxxx & Co.
0 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxxxxx
and:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: Xxxxx X. Xxxxxx, Esq.
(b) If to the Purchaser, to him at the address set forth below under
the Purchaser's signature; or at such other address as either party shall have
specified by notice in writing to the other.
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25. Covenant Not to Compete; Confidential Information.
(a) In consideration of the Company entering into this Agreement with
the Purchaser, the Purchaser hereby agrees effective as of the date hereof, for
so long as the Purchaser is employed by the Company or one of its subsidiaries
and (x) in the event of termination or resignation for any reason other than a
termination by the Company without Cause or a resignation by the Purchaser for
Good Reason, for a period of six months thereafter or (y) in the event of
termination by the Company without Cause or resignation by the Purchaser for
Good Reason, for the shorter of (A) a period of six months thereafter and (B)
the period during which the Company pays the Purchaser severance pay (the period
in either (x) or (y), as applicable, being the "Initial Noncompete Period"), the
Purchaser shall not, directly or indirectly, engage in the production, sale or
distribution of any product or service produced, sold or distributed by the
Company or its subsidiaries on the date hereof or during the Initial Noncompete
Period or during any extension thereof anywhere in the world in which the
Company or its subsidiaries is doing business other than through the Purchaser's
employment with the Company or any of its subsidiaries. At the Company's option,
the Noncompete Period may be extended for an additional six month period if (i)
within three months of the termination of the Purchaser's employment or if the
Initial Noncompete Period is shorter than three months, at any time prior to the
end of the Initial Noncompete Period, the Company gives the Purchaser notice of
such extension and (ii) beginning with the first business day following the end
of the Initial Noncompete Period, the Company pays the Purchaser during such
extension at a rate equal to the rate of the Purchaser's base salary on the date
of the termination of the Purchaser's employment. Such amount shall be paid in
installments in a manner consistent with the then current salary payment
policies of the Company. For purposes of this Agreement, the phrase "directly or
indirectly engage in" shall include any direct or indirect ownership or profit
participation interest in such enterprise, whether as an owner, stockholder,
partner, joint venturer of otherwise, and shall include any direct or indirect
participation in such enterprise as a consultant, licensor of technology or
otherwise, but shall not include any purchase of less 5% of the stock of a
publicly traded company.
(b) Except as required by law or judicial process, the Purchaser will
not disclose or use at any time, any Confidential Information (as defined below)
of which the Purchaser is or becomes aware, whether or not such information is
developed by him, except to the extent that such disclosure or use is directly
related to the Purchaser's performance of duties, if any, assigned to the
Purchaser by the Company. As used in this Agreement, the term "Confidential
Information" means information developed by or on behalf of the Company that is
not known to the public or within the industry and that is used, developed or
obtained by the Company or its subsidiaries in connection with its business,
including but not limited to (i) products or services, (ii) fees, costs and
pricing structures, (iii) designs, (iv) computer software, including operating
systems, applications and program listings, (v) flow charts, manuals and
documentation, (vi) data bases, (vii) accounting and business methods, (viii)
inventions, devices, new developments, methods and processes, whether patentable
or unpatentable and whether or not reduced to practice, (ix) customers and
clients and customer or client lists, (x) other copyrightable works, (xi) all
trade secrets and (xii) all similar and related information in whatever form.
Confidential Information will not include any information that (a) is a matter
of public knowledge through no fault of Purchaser, (b) is disclosed by Purchaser
with the Company's prior written consent to unrestricted disclosure, (c) was
known by Purchaser prior to the date hereof, (d) is independently developed by
Purchaser without using any Confidential Information or (e) is lawfully obtained
by Purchaser from any third party who did
15
not obtain the information directly from the Company or its representatives or
agents. The Purchaser acknowledges and agrees that all copyrights, works,
inventions, innovations, improvements, developments, patents, trademarks and all
similar or related information which relate to the actual or anticipated
business of the Company and its subsidiaries (including its predecessors) and
conceived, developed or made by the Purchaser while employed by the Company or
its subsidiaries belong to the Company. The Purchaser will perform all actions
reasonably requested by the Company (whether during or after the Noncompete
Period) to establish and confirm such ownership at the Company's expense
(including without limitation assignments, consents, powers of attorney and
other instruments).
(c) Notwithstanding clauses (a) and (b) above, if at any time a court
holds that the restrictions stated in clauses (a) and (b) are unreasonable or
otherwise unenforceable under circumstances then existing, the parties hereto
agree that the maximum period, scope or geographic area of such restrictions
determined to be reasonable under such circumstances by such court will be
substituted for the stated period, scope or area of such restrictions. Because
the Purchaser's services are unique and because the Purchaser has had access to
Confidential Information, the parties hereto agree that money damages will be an
inadequate remedy for any breach of this Agreement. In the event a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
relief in order to enforce, or prevent any violations of, the provisions hereof
(without the posting of a bond or other security).
(d) Notwithstanding the foregoing paragraphs (a) and (b), the
provisions of any employment agreement in effect on the date hereof between the
Company and Purchaser which contains covenants relating to confidentiality and
competition shall supersede and replace the provisions of paragraphs (a) and (b)
and shall be deemed incorporated by reference in this Agreement in their
entirety.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
KINDERCARE LEARNING CENTERS, INC.
By:
-------------------------------------
Xxxxx X. Xxxxxxx
Chairman and Chief Executive Officer
By:
-------------------------------------
((First_Name))((Last_Name))
((Address_1))
((Address_2))
16
