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As filed with the Securities and Exchange Commission on April 21, 2004

Registration No. 333- .

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

KINDERCARE LEARNING CENTERS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE (Jurisdiction of incorporation or organization)	8351 (Primary Standard Industrial Classification Code Number)	63-0941966 (I.R.S. Employer Identification Numbers)
650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)
Eva Kripalani, Esq. KinderCare Learning Centers, Inc. 650 N.E. Holladay Street, Suite 1400 Portland, Oregon 97232 (503) 872-1300 (Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies To:
Risë B. Norman, Esq. Simpson Thacher & Bartlett LLP 425 Lexington Avenue New York, New York 10017 (212) 455-2000		David J. Goldschmidt, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 (212) 735-3000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

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. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) 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. o

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. o

If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee


Income Deposit Securities (IDSs)(2)
Shares of Class A Common Stock, par value $0.01 per share(3)	$625,000,000	$79,188
% Senior Subordinated Notes(4)
Subsidiary Guarantees of % Senior Subordinated Notes(5)

(1): Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2): The IDSs represent shares of Class A common stock and $ million aggregate principal amount of % senior subordinated notes of KinderCare Learning Centers, Inc. ("KLC"). Includes IDSs subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate number of IDSs of the same series which may be received by holders of IDSs in the future on one or more occasions in replacement of the IDSs being offered hereby in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes as discussed in note (4) below.
(3): Includes shares of KLC's Class A common stock subject to the underwriters' over-allotment option to purchase additional IDSs.
(4): Includes $ million aggregate principal amount of KLC's % senior subordinated notes issued in the form of IDSs which are subject to the underwriters' over-allotment option to purchase additional IDSs and an indeterminate principal amount of notes of the same series as the notes, which will be received by holders of notes in the future on one or more occasions in the event of a subsequent issuance of IDSs, upon an automatic exchange of portions of the notes for identical portions of such additional notes. In addition, $ million aggregate principal amount of % senior subordinated notes will be sold separately (not represented by IDSs) to the public in connection with this offering.
(5): Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee for the guarantees is payable.

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 in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Table of Additional Registrant Guarantors

Exact Name of Registrant Guarantor as Specified in its Charter	State or Other Jurisdiction of Incorporation or Organization	I.R.S. Employer Identification Number	Address Including Zip Code, Telephone Number Including Area Code, of Registrant Guarantor's Principal Executive Offices
KC Development, LLC	Delaware	63-1086588	650 N.E. Holladay Street Suite 1400 Portland, Oregon 97232 (503) 872-1300
KC Distance Learning, Inc.	Delaware	63-1120500	650 N.E. Holladay Street Suite 1400 Portland, Oregon 97232 (503) 872-1300
KinderCare Real Estate, LLC	Delaware	63-1120501	650 N.E. Holladay Street Suite 1400 Portland, Oregon 97232 (503) 872-1300
Mulberry Child Care Centers, Inc.	Delaware	04-3056834	650 N.E. Holladay Street Suite 1400 Portland, Oregon 97232 (503) 872-1300

SUBJECT TO COMPLETION, DATED , 2004

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

KinderCare Learning Centers, Inc.
Income Deposit Securities (IDSs)
representing
Shares of Class A Common Stock and
$ million % Senior Subordinated Notes due 2014
and
$ million % Senior Subordinated Notes due 2014

We are selling IDSs representing shares of our Class A common stock and $ million aggregate principal amount of our % senior subordinated notes due 2014, subject to extension of maturity as described herein. Each IDS initially represents:

•: one share of our Class A common stock; and
•: a % senior subordinated note with $ principal amount.

We are also selling separately (not in the form of IDSs) $ million aggregate principal amount of our % senior subordinated notes due 2014, subject to extension of maturity as described herein. The completion of the offering of separate notes is a condition to our sale of IDSs and the completion of the offering of IDSs is a condition to our sale of the separate notes. In addition, the consummation of the recapitalization as described herein is a condition to our sale of IDSs and separate notes and the completion of the sale of IDSs and separate notes is a condition to the recapitalization.

This is the initial public offering of our IDSs and notes. We anticipate that the public offering price will be between $ and $ per IDS and the public offering price of the notes sold separately (not represented by IDSs) will be % of their stated principal amount.

Holders of IDSs will have the right to separate the IDSs into the shares of our Class A common stock and notes represented thereby at any time after the earlier of 45 days from the closing of this offering or the occurrence of a change of control. Similarly, any holder of shares of our common stock and notes may combine the applicable number of shares of common stock and principal amount of notes to form IDSs so long as no automatic separation event has occurred. Separation of all the IDSs will occur automatically upon certain circumstances described herein.

Upon a subsequent issuance by us of IDSs or notes of the same series (not represented by IDSs), a portion of your notes may be automatically exchanged for an identical principal amount of the notes issued in such subsequent issuance, and in that event your IDSs or notes will be replaced with new IDSs or notes, as the case may be. In addition to the notes offered hereby, the registration statement of which this prospectus is a part also registers the notes and new IDSs to be issued upon any such subsequent issuance. For more information regarding these automatic exchanges and the effect they may have on your investment, see "Description of Notes—Covenants Relating to IDSs—Procedures Relating to Subsequent Issuance" on page 122 and "Material U.S. Federal Income Tax Consequences—Consequences to U.S. Holders—Notes—Additional Issuances" on page 161.

We will apply to list the IDSs on the under the trading symbol " ."

Investing in our IDSs, shares of our Class A common stock and/or notes involves risks. See "Risk Factors" beginning on page 23.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Per IDS	Total		Total (1)
Public offering price	$	$	%	$
Underwriting discount	$	$	%	$
Proceeds to KinderCare Learning Centers, Inc. (before expenses) (2)	$	$	%	$

(1): Represents the $ million aggregate principal amount of notes sold separately (not represented by IDSs).
(2): Approximately $ million of these proceeds will be paid to our existing equity investors.

We have granted the underwriters an option to purchase up to additional IDSs to cover over-allotments.

The underwriters expect to deliver the IDSs and notes in book-entry form only through the facilities of The Depository Trust Company to purchasers on or about , 2004.

CIBC World Markets

, 2004

Table of Contents

		Page
Summary		1
Risk Factors		23
Cautionary Statement Regarding Forward-Looking Statements		39
Use of Proceeds		40
Recapitalization		41
Capitalization		43
Dividend Policies		44
Dilution		45
Market Price Information of Existing Common Stock		46
Unaudited Pro Forma Condensed Consolidated Financial Data		47
Selected Historical Consolidated Financial and Other Data		54
Management's Discussion and Analysis of Financial Condition and Results of Operations		57
Business		78
Management		97
Principal Stockholders		104
Related Party Transactions		106
Description of Certain Indebtedness		107
Description of IDSs		110
Description of Notes		114
Description of Capital Stock		150
Securities Eligible for Future Sale		155
Certain ERISA Considerations		156
Material U.S. Federal Income Tax Consequences		157
Underwriting		167
Legal Matters		170
Experts		170
Where You Can Find More Information		170
Index to Consolidated Financial Statements		F-1

In making your investment decision, you should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized anyone to provide you with information that is different. If anyone provided you with different or inconsistent information, you should not rely on it. This prospectus may only be used where it is legal to sell these securities. You should assume the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, consolidated financial condition, results of operations, liquidity and prospects may have changed since that date. Neither the delivery of this prospectus nor any sale made hereunder shall under any circumstances imply that the information in this prospectus is correct as of any date subsequent to the date on the cover of this prospectus.

Notice to Purchasers of Separate Notes
and Acknowledgement of Purchaser Intent

None of the separate notes purchased in connection with this offering may be purchased, directly or indirectly, by persons who are also (1) purchasing IDSs in this offering or (2) otherwise receiving IDSs or shares of Class B common stock in connection with the transactions described herein. Accordingly, each investor purchasing the separate notes in this offering must not purchase IDSs in this offering and must not concurrently enter into any plan or pre-arrangement whereby it would acquire any IDSs or our equity (as specified below) or transfer the separate notes to any holder of IDSs or our equity. In addition, each person receiving IDSs or shares of Class B common stock in connection with the transactions described herein must not purchase separate notes in this offering.

Each investor in this offering assumes sole responsibility for ensuring that it complies with the restrictions above. Neither we nor the underwriters will assume any responsibility to ensure that any investor complies with these restrictions. If you are unsure whether the restrictions above would prohibit you from purchasing the separate notes or our IDSs in this offering, you should consult your own legal advisor with regard to the application of these restrictions to your individual circumstances.

Furthermore, each person purchasing separate notes in this offering, by acquiring the separate notes, thereby represents to us and the underwriters that:

(a): neither such purchaser nor any entity, investment fund or account over which such purchaser exercises investment control is purchasing IDSs in this offering;
(b): neither such purchaser nor any entity, investment fund or account over which such purchaser exercises investment control owns, or has the contractual right to acquire, our equity securities (including securities which are convertible, exchangeable or exercisable into or for our equity or our equity-linked securities); and
(c): such purchaser is not party to any plan or pre-arrangement whereby it would (1) acquire any IDSs or our equity or (2) transfer the separate notes to any holder of IDSs or our equity.

For purposes of these representations, the "purchaser" shall be deemed to be (1) the person who initially purchases the separate notes from the underwriters in this offering and (2) the person(s), if any, pursuant to whose instructions such purchase was made.

Summary

The following is a summary of the principal features of this offering of IDSs and senior subordinated notes, which we refer to as "notes," and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus.

Throughout this prospectus, we refer to KinderCare Learning Centers, Inc., a Delaware corporation, and its consolidated operations as "we," "our," "us" and "KinderCare," unless otherwise indicated.

Throughout this prospectus, we use the term "EBITDA," which is not an indicator of performance or other measure determined in accordance with generally accepted accounting principles in the United States of America and is more fully described in "Selected Historical Consolidated Financial and Other Data."

Our Company

Overview

KinderCare is the nation's leading for-profit provider of early childhood education and care services based on number of centers and licensed capacity. We provide services to infants and children up to 12 years of age, with a majority of the children from the ages of six weeks to five years old. At March 5, 2004, licensed capacity at our centers was approximately 166,000, and we served approximately 126,000 children and their families at 1,245 child care centers. We distinguish ourselves by providing high quality educational programs, a professional and well-trained staff and clean, safe and attractive facilities. We focus on the development of the whole child: physically, socially, emotionally, cognitively and linguistically. In addition to our primary business of center-based child care, we also own and operate a distance learning company serving teenagers and young adults through our subsidiary, KC Distance Learning, Inc.

At March 5, 2004, we operated 1,245 centers across 39 states, 1,176 of which were branded with the KinderCare name and 69 of which were branded with the Mulberry name. We operate two types of centers: community centers and employer-sponsored centers. The vast majority of our centers are community centers which are designed to meet the general needs of families within a given area. Our employer-sponsored centers partner with companies to provide on-site or near-site education and child care for their employees. All of our centers are open year round. Tuition is generally collected on a weekly basis, in advance, and tuition rates vary for children of different ages and by location.

Industry

The early childhood education and care services industry offers attractive opportunities to for-profit providers. According to an industry analysis by Marketdata Enterprises, the U.S. child care industry generated an estimated $40 billion in 2000 and is estimated to generate approximately $60 billion in 2005. This growth has been driven by a number of factors, including the number of mothers in the workplace, increases in the population of children under the age of five, an expanding awareness of the importance of early childhood development, a shift toward center-based care, availability of federal and state government support of child care service providers and employer-sponsored child care services.

Our Business Strengths

Our objective is to continue to build on our position as the nation's leading for-profit provider of quality early childhood education and care services by further enhancing our competitive operating strengths, which include the following:

Strong Brand Identity and Reputation. With more than 30 years of experience in the industry, we believe that we enjoy strong brand recognition and a reputation for quality. Established in 1969, our KinderCare brand provides a valuable asset in an industry where personal trust and parent referrals play an important role in retaining existing customers and attracting new customers.

High Quality Educational Programs. We have developed high quality proprietary curricula targeted to children in each of the various age and development levels we serve. We also pursue accreditation of our centers by various accrediting bodies, including the National Association for the Education of Young Children, referred to as NAEYC. Accreditation strengthens the quality of our centers. In certain states, these quality initiatives are tied to financial incentives such as higher child care assistance reimbursement rates and property tax incentives. At March 5, 2004, we had 483 centers accredited by NAEYC and approximately 360 centers actively pursuing NAEYC accreditation.

Stable and Predictable Financial Model. We believe KinderCare benefits from an attractive financial model with stable revenues, cash flows and margins. Our net revenues from child care centers increased from approximately $610.7 million during fiscal year 1999 to $838.6 million during fiscal year 2003. Our EBITDA increased from $101.0 million to $123.4 million during the same period, despite the effect of an increase in rent expense from $27.8 million to $51.8 million for the same period as a result of our previous synthetic lease facility, leased center acquisitions and our sale-leaseback program. Our net cash flows provided by operating activities have shown moderate growth, with an increase from $61.8 million for fiscal year 1999 to $78.4 million for fiscal year 2003.

Over the past several years, we have pursued a strategy of increasing our net revenues through enhanced center yield management. We have done so by balancing an increase in tuition rates against the gradual decline in occupancy at our centers and by expanding our fee-based service offerings. Our average weekly tuition rate increased from $113.45 to $144.45 from fiscal year 1999 to fiscal year 2003 accompanied by a decline in our occupancy rate from 69.9% to 63.3% during the same period. In fiscal years 2001, 2002 and 2003, comparable center net revenues grew 3.1%, 1.1% and 1.4%, respectively.

During the fourth quarter of fiscal year 2002, we embarked on a program of selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. Historically, we believe this has been an efficient way to finance growth and reduce leverage. Assuming the market for such transactions remains favorable, we expect this effort to continue with our remaining owned centers and our new centers as we develop them. We will continue using the proceeds of these sales to fund our growth by developing and opening new centers. In addition to developing new centers, we routinely analyze the profitability of our existing centers. If a center is identified as underperforming, we will evaluate the center for closure to minimize the resulting financial liability.

Ability to Attract and Retain a Qualified Workforce. We believe our ability to provide attractive employee benefits and recognition programs gives us a competitive advantage in attracting and

retaining a high quality workforce, which is an important factor in the successful operation of our centers.

Experienced Management Team. The top six members of our senior management average approximately eight years of experience with us. In addition, our six region vice presidents and 81 area managers average over nine years with us. Our senior management has introduced and overseen quality initiatives such as NAEYC accreditation and improved training programs, developed systems to allow focus on labor productivity and expense control and built 213 new centers, acquired 89 centers and closed 201 underperforming centers.

Growth Opportunities

We are pursuing the following growth opportunities:

Increase Existing Center Revenue. We have ongoing initiatives to increase center revenue by:

•: Sharing best practices—Center directors are incentivized to share best practices;
•: Providing incentives for center directors—Bonus programs reward center directors for enrollment growth and overall operating profit performance;
•: Using targeted marketing—Targeted marketing programs include a referral program under which parents receive tuition credits for every new customer enrollment referral and a variety of direct mail solicitation, telephone directory and internet yellow pages listings and local advertising vehicles. We also periodically hold open house events and have established parent forums to involve parents in center activities and events;
•: Maintaining competitive tuition pricing—In coordination with center directors, we carefully manage occupancy and tuition rates at the classroom level to maximize net revenue yield from each of our centers;
•: Increasing the number and availability of supplemental fee programs—We offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics in the majority of our centers for a supplemental fee and are exploring additional supplemental fee programs; and
•: Continuing to operate clean, safe and attractive facilities—We continue to maintain and upgrade our facilities on a regularly scheduled basis to enhance their curb appeal.

Continue to Open Centers. Many attractive markets across the United States offer opportunities to locate new community and employer-sponsored centers. We plan to expand by opening 15 to 30 new, higher capacity centers per year in locations where we believe the market for center-based child care will support tuition rates higher than our current average rates. We opened 28 new centers during fiscal year 2003 and expect to open 17 new centers during fiscal year 2004. We believe we have multiple sources of funding available to fund new center openings, including our sale-leaseback program, our revolving credit facility and cash flows from operations. Our new centers typically produce positive EBITDA in their first full year of operation and positive net income by the end of their second full year of operation.

Increase Profitability Through Operational Efficiencies. We have developed a culture dedicated to operational efficiencies. We focus on center-level economics, which hold each center director

accountable for profitability. Strong controls have helped us contain costs and leverage our overhead over our large, nationwide center base.

Expand Our Distance Learning Operations. Our subsidiary, KC Distance Learning, Inc., is based in Bloomsburg, Pennsylvania and operates three business units: Keystone National High School, Learning and Evaluation Center and IQ Academies. We plan to expand our distance learning operations by offering these services in additional states and increasing sales of these services.

Establish Strategic Relationships. Through our strategic partnerships, we offer our customers proprietary conveniences and discounts, including access to various educational products and toys. Our large, nationwide base of centers with its associated customer base gives our strategic partners access to a valuable distribution network for such products and services.

Transactions Related to This Offering and Our Capital Structure

Our Existing Equity Investors

KKR-KLC L.L.C., an affiliate of Kohlberg Kravis Roberts & Co. L.P., which we refer to as KKR in this prospectus, Oaktree Capital Management, LLC, an affiliate of The TCW Group, Inc., which we refer to as Oaktree in this prospectus, some of our officers and employees and a number of other public holders (which own a small percentage of our shares) are the owners of all our outstanding common stock and stock options prior to this offering. In this prospectus, we refer to these existing owners of our common stock and stock options as the "existing equity investors." See "Principal Stockholders."

Our Recapitalization

Concurrently with the closing of this offering, we will undertake a recapitalization transaction in order to implement the capital structure required for this offering. Pursuant to the recapitalization, we will prepare a separate registration statement in order to offer our existing equity investors (1) cash and (2) IDSs or shares of Class B common stock as recapitalization consideration. If the over-allotment option to purchase additional IDSs is exercised, our existing equity investors will receive additional cash in lieu of IDSs obtained as recapitalization consideration.

We will offer a maximum of approximately shares of Class B common stock as part of the recapitalization consideration. The total number of shares of Class B common stock will represent % of our outstanding voting power and % of the overall value of our equity after giving effect to this offering. KKR and Oaktree have informed us that they intend to elect to receive the full number of shares of Class B common stock as recapitalization consideration. If any other holders elect to receive Class B common stock, the number of shares that KKR and Oaktree will receive will be decreased pro rata based on the number of shares held by holders electing Class B common stock.

The expected dividend rate on the Class B common stock will be multiplied by the dividend rate on the Class A common stock. Dividends on the Class B common stock will be pari passu based on the relative dividend rate on the Class A common stock. After the second anniversary of the recapitalization and subject to certain conditions, each share of Class B common stock will be convertible at the option of the holder into either one IDS or, if the IDSs have automatically separated or are otherwise not outstanding at such time, one share of Class A common stock and a note having a principal amount equal to each note which was represented by an IDS. In addition, on or after the third anniversary of the recapitalization, under certain circumstances and subject to certain conditions, we may force a conversion of the shares of Class B common stock into IDSs or shares of Class A common stock and notes. See "Description of Capital Stock" for a description of the dividends on the Class A and Class B common stock and the conversion features of the Class B common stock.

For a detailed description of the transactions described above, see "Recapitalization."

The following chart reflects our ownership structure immediately after this offering:

Revolving Credit Facility

Concurrently with the closing of this offering, we will enter into an amendment to our existing senior secured credit facility with a syndicate of financial institutions. In this prospectus, we refer to this credit facility as the "revolving credit facility." Our existing revolving credit facility allows us to borrow up to $125.0 million until July 9, 2008 and is secured by first mortgages or deeds of trusts on 119 of our owned centers and certain other collateral. It includes borrowing capacity of up to $75.0 million for letters of credit and up to $10.0 million for selected short-term borrowings. See "Description of Certain Indebtedness—Revolving Credit Facility."

Tender Offer and Consent Solicitation

Concurrently with this offering, we will commence a tender offer and consent solicitation with respect to all of our $179.4 million outstanding 9.5% senior subordinated notes due 2009 for an expected total consideration of $ million. The closing of this offering is conditioned upon the receipt of the tender and consent of at least a majority in aggregate principal amount of our outstanding senior subordinated notes due 2009. Holders of our senior subordinated notes due 2009 that provide consents are obligated to tender their notes in the offer, and holders of our senior subordinated notes due 2009 that tender their notes are obligated to provide consents. Upon obtaining the minimum required consents in the tender offer and consent solicitation, we will enter into a supplemental indenture with the trustee of the senior subordinated notes due 2009 that will eliminate all of the material restrictive covenants contained in the indenture governing the senior subordinated notes due 2009. The consummation of the tender offer and consent solicitation is conditioned upon the closing of this offering. We intend to redeem any senior subordinated notes due 2009 not tendered after the

completion of this offering. We will use a portion of the net proceeds from this offering to pay for the senior subordinated notes due 2009 accepted for purchase in the tender offer and consent solicitation or redeemed by us after this offering. See "Description of Certain Indebtedness—Senior Subordinated Notes."

CMBS Mortgage Loan

In July 2003, one of our subsidiaries entered into a loan agreement with various lenders to refinance our existing borrowings, referred to as the CMBS loan. The loan is secured by mortgages or deeds of trust on 475 child care centers owned by our subsidiary borrower, with a net book value of $326.1 million at March 5, 2004. Because these mortgaged centers, referred to as the CMBS centers, are owned by our subsidiary borrower and subject to the CMBS loan, recourse to the CMBS centers by our creditors, including holders of notes, will be effectively subordinated to recourse by holders of the CMBS loan. The subsidiary borrower under the CMBS loan will not guarantee the notes. We will use a portion of the net proceeds from this offering to pre-fund some CMBS loan amortization and interest payments. See "Description of Certain Indebtedness—Mortgage Loan."

Our Corporate Information

We are a Delaware corporation organized on November 14, 1986. Our principal executive offices are located at 650 N.E. Holladay Street, Suite 1400, Portland, Oregon 97232. Our telephone number is (503) 872-1300. Our website addresses include kindercare.com, kindercareatwork.com, mulberrychildcare.com, kcdistancelearning.com, keystonehighschool.com, creditmakeup.com, iqacademies.com and go2iq.com. The information on our websites is not incorporated by reference in this prospectus.

The Offering

Summary of the IDSs and Notes

We are offering IDSs at an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and $ million aggregate principal amount of notes at an initial public offering price of % of the stated principal amount of each note sold separately (not represented by IDSs). As described below, assuming we make our scheduled interest payments on the notes, and pay dividends in the amount contemplated by our initial dividend policy, holders of IDSs will receive in the aggregate approximately $ per year in interest on the notes and dividends on the Class A common stock represented by each IDS, and holders of our notes will receive $ per year in interest per note.

What are IDSs?

IDSs are securities comprised of common stock and notes.

Each IDS initially represents:

•: one share of our Class A common stock; and
•: a % senior subordinated note with $ principal amount.

The ratio of Class A common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we effect a two-for-one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented.

What payments can I expect to receive as a holder of IDSs or notes?

You will be entitled to receive quarterly interest payments at an annual rate of % of the aggregate principal amount of notes or, in the case of notes represented by IDSs, approximately $ per IDS per year, subject to our right or obligation, under certain circumstances specified in the indenture governing the notes and in our revolving credit facility, to defer interest payments on our notes. For a detailed description of these circumstances, see "Description of Notes—Terms of the Notes—Interest Deferral" and "Description of Certain Indebtedness—Revolving Credit Facility."

You will also receive quarterly dividends on the shares of our Class A common stock represented by your IDSs, if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of the credit facility, the indenture governing our notes and any of our other then outstanding indebtedness. Specifically, the indenture governing our notes restricts our ability to declare and pay dividends on our Class A common stock as described under "Dividend Policies." In addition, the revolving credit facility restricts our ability to declare and pay dividends on our common stock as described under "Dividend Policies" and "Description of Certain Indebtedness—Revolving Credit Facility." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock.

We expect to make interest and dividend payments quarterly on the day of each , , and to holders of record on the day or the immediately preceding business day of such month.

Will my rights as a holder of IDSs be any different than the rights of a direct holder of the Class A common stock and notes?

No. As a holder of IDSs you are the beneficial owner of the Class A common stock and notes represented by your IDSs. As such, through your broker or other financial institution and The Depository Trust Company, known as DTC, you will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing our notes, ranking upon bankruptcy and rights to receive communications and notices as a direct holder of the Class A common stock and notes, as applicable.

Will the IDSs be listed on an exchange?

We will apply to list the IDSs for trading on the under the trading symbol " ." Listing is subject to our fulfillment of all of the requirements of the , including the distribution of the IDSs to a minimum number of public holders.

Will the notes or shares of our Class A common stock represented by the IDSs be separately listed on an exchange?

The notes represented by the IDSs and the additional notes sold separately (not represented by IDSs) will not be listed on any exchange. We do not anticipate that our Class A common stock will trade on an exchange and we currently do not expect an active trading market for our Class A common stock to develop. However, we will use best efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the for at least 30 consecutive trading days. The shares of Class A common stock and notes offered hereby will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act.

Will the notes sold separately (not represented by IDSs) be the same as the notes issued as a component of the IDSs?

Yes. The notes sold separately (not represented by IDSs) will be identical to the notes represented by IDSs and will be part of the same series of notes and issued under the same indenture. Accordingly, holders of notes sold separately and holders of notes represented by IDSs will vote together as a single class, in proportion to the aggregate principal amount of notes they hold, on all matters on which holders of notes are entitled to vote under the indenture governing the notes.

In what form will IDSs and the securities represented by the IDSs and the notes sold separately be issued?

The IDSs and the securities represented by the IDSs and the notes sold separately (not represented by IDSs) will be issued in book-entry form only. This means that you will not be a registered holder of IDSs or the securities represented by the IDSs or the notes sold separately (not represented by IDSs), and you will not receive a certificate for your IDSs or the securities represented by your IDSs or the notes sold separately (not represented by IDSs). You must rely on your broker or other financial institution that will maintain your book-entry position to receive the benefits and exercise the rights of a holder of IDSs or notes.

Can I separate my IDSs into shares of Class A common stock and notes or recombine shares of Class A common stock and notes to form IDSs?

Yes. Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Any holder of shares of our Class A common stock and notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs. Separation and recombination of IDSs may involve transaction fees charged by your broker and/or financial intermediary. See "Description of IDSs—Book Entry Settlement and Clearance—Separation and Combination."

Will my IDSs automatically separate into shares of Class A common stock and notes upon the occurrence of certain events?

Yes. Separation of all of the IDSs will occur automatically upon the occurrence of any redemption, whether in whole or in part, of the notes, upon the maturity of the notes or upon the continuance of a payment default for 90 days.

What will happen if the company issues additional IDSs or notes of the same series in the future?

We may conduct future financings by selling additional IDSs or notes of the same series, which will have terms that are identical to those of the IDSs or notes, respectively, being sold in this offering, except that if additional IDSs are issued 45 days or more from the closing of this offering, they will be immediately separable, and if they are issued fewer than 45 days from the closing of this offering, they will be separable on the same dates as the IDSs issued hereunder may separate. Additional IDSs will also represent the same proportions of Class A common stock and notes as are represented by the then outstanding IDSs. Although the notes represented by such IDSs or sold separately (not represented by IDSs) will have terms that are identical (except for the issuance date) to the notes being sold in this offering and will be part of the same series of notes for all purposes under the indenture, it is possible that the new notes will be sold with original issue discount, referred to as OID, for U.S. federal income tax purposes. If such notes are issued with OID, all holders of IDSs of the same series (including the IDSs being offered hereby) and of outstanding notes not held in IDSs (including the notes being offered hereby) will automatically exchange a ratable portion of their outstanding notes for a portion of the new notes, whether held directly or in the form of IDSs, and will thereafter hold a unit consisting of new notes and old notes with a new CUSIP number or a new IDS (consisting of such note unit and Class A common stock) with a new CUSIP number. As a result of such exchanges, we intend to allocate and report the OID associated with the sale of the new notes among all holders of notes on a pro rata basis, which may adversely affect your tax treatment. In addition, if such notes are issued with OID, holders of such notes may not be able to recover the portion of their principal amount treated as unaccrued OID in the event of an acceleration of the notes or our bankruptcy prior to the maturity of the notes.

What will be the U.S. federal income tax consequences of an investment in the IDSs?

The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs in this offering are not entirely clear.

Treatment of Purchase of IDSs. We intend to treat the purchase of IDSs in this offering as the purchase of shares of our Class A common stock and notes and, by purchasing IDSs, you will agree to such treatment. You must allocate the purchase price of the IDSs between those shares of Class A common stock and notes in proportion to their respective initial fair market values, which will establish

your initial tax basis in the shares of Class A common stock and notes. We will report the initial fair market value of each share of Class A common stock as $ and the initial fair market value of each $ principal amount of notes as $ , assuming an initial public offering price of $ per IDS, which represents the midpoint of the range set forth on the cover page of this prospectus, and by purchasing IDSs, you will agree to such allocation. If this allocation is not respected, our interest deductions may be reduced or your income inclusion (on account of interest) may be increased.

Treatment of Notes. The notes should be treated as debt for U.S. federal income tax purposes. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes, which could significantly reduce our future cash flow. In addition, payments on the notes to foreign holders could be subject to U.S. federal withholding taxes at rates of up to 30%. Payments to foreign holders would not be grossed-up on account of any such taxes.

What will be the U.S. federal income tax consequences of a subsequent issuance of notes?

The U.S. federal income tax consequences to you of the subsequent issuance of notes are not entirely clear.

Exchange of Notes. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes with a new CUSIP number having terms that are otherwise identical (other than issuance date) in all material respects to the notes, including an issuance of notes upon an exchange of shares of Class B common stock, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued notes, held either as part of IDSs or separately, and each holder of existing notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old notes and the newly issued notes. The aggregate principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange.

It is unclear whether the exchange of notes for subsequently issued notes results in a taxable exchange for U.S. federal income tax purposes, and it is possible that the Internal Revenue Service, or IRS, might successfully assert that such an exchange should be treated as a taxable exchange. In such case, a holder would recognize any gain realized on such exchange, but a loss realized might be disallowed. Your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange.

Reporting of Original Issue Discount. Regardless of whether the exchange of notes is treated as a taxable event, such exchange could result in holders having to include OID in taxable income prior to the receipt of cash. Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs or notes, agree to report OID in a manner consistent with this approach. However, we cannot assure you that the IRS will not assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees), and they may challenge a holder's reporting of OID on its tax returns.

Because there is no statutory, judicial or administrative authority directly addressing the tax treatment of the IDSs or instruments similar to the IDSs, we urge you to consult your own tax advisor concerning the tax consequences of an investment in the IDSs. For additional information, see "Material U.S. Federal Income Tax Consequences."

Summary of Our Class A Common Stock

Issuer		KinderCare Learning Centers, Inc.
Shares of Class A common stock represented by IDSs offered hereby		shares, or shares if the underwriters' overallotment option to purchase additional IDSs is exercised in full.
Shares of all classes of common stock to be outstanding following the offering and the recapitalization		shares of Class A common stock and shares of Class B common stock.
Voting rights		Each outstanding share of our Class A and Class B common stock will carry one vote per share and, as a general matter, will vote together as a single class.
Dividends		You will receive quarterly dividends on the shares of our Class A common stock if and to the extent dividends are declared by our board of directors and permitted by applicable law and the terms of our then outstanding indebtedness. Specifically, the notes indenture and the revolving credit facility both restrict our ability to declare and pay dividends on our common stock as described in detail under "Dividend Policies." Upon the closing of this offering, our board of directors is expected to adopt a dividend policy which contemplates that, subject to applicable law and the terms of our then existing indebtedness, initial annual dividends will be approximately $ per share of our Class A common stock. However, our board of directors may, in its discretion, modify or repeal this dividend policy. We cannot assure you that we will pay dividends at this level in the future or at all. Dividends will be paid on the Class A common stock and the Class B common stock on a pro rata basis based on their respective dividend rates. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock.
Dividend payment dates		If declared, dividends will be paid quarterly on the day of each , , and to holders of record on the day or the immediately preceding business day of such month.

Listing

We do not anticipate that our Class A common stock will trade separately on an exchange and we currently do not expect an active trading market for our common stock to develop. However, we will use best efforts to list our Class A common stock for separate trading on the if a sufficient number of shares of our Class A common stock are held separately to meet the minimum distribution requirements for separate trading on the for at least 30 consecutive trading days. Our Class A common stock will be freely tradable without restriction or further registration under the Securities Act, unless purchased by "affiliates" as that term is defined in Rule 144 under the Securities Act.

Summary of Notes

Issuer	KinderCare Learning Centers, Inc.
Notes	•	$ million aggregate principal amount of % senior subordinated notes represented by IDSs; and
	•	$ million aggregate principal amount of % senior subordinated notes sold separately (not represented by IDSs).
	•	Assuming the exchange of all of our Class B common stock for IDSs pursuant to their terms, $ million aggregate principal amount of notes would be outstanding.
	•	Each note will have a principal amount of $ .
Interest rate	% per year.
Interest payment dates	Interest will be paid quarterly in arrears on the day of each , , and , commencing , 2004 to holders of record on the day or the immediately preceding business day of such month.
Interest deferral	Prior to , 2009, we may, subject to certain restrictions, defer interest payments on our notes on one or more occasions for up to an aggregate period of eight (8) quarters. In addition, after , 2009 but before 2014, we may, subject to certain restrictions, defer interest payments on our notes on two occasions for up to three (3) quarters. If the maturity of the notes is extended, we may defer interest during each extension period in the same manner as during the period from , 2009, through , 2014.
	During any interest deferral period and so long as any deferred interest or interest on deferred interest remains outstanding, we will not be permitted to make any payment of dividends on the common stock.
	For a detailed description of interest deferral provisions of the indenture see "Description of Notes—Terms of the Notes—Interest Deferral."
	In the event that interest payments on the notes are deferred, you would be required to include accrued interest in your income for U.S. federal income tax purposes even if you do not receive any cash interest payments.

Maturity date	The notes will mature on , 2014. We may extend the maturity of our notes for two additional successive five-year terms if the following conditions are satisfied:
	•	during the twelve month period ending on the last day of the fiscal quarter ending at least 45 days before the then-current maturity date, our ratio of net debt to EBITDA under the indenture is less than to ;
	•	no event of default, including certain events of bankruptcy, insolvency or reorganization of us or our subsidiaries, under the indenture has occurred and is continuing; and
	•	no event of default has occurred and is continuing with respect to any of our other outstanding indebtedness or could occur as a result of the extension.
Optional redemption	We may not redeem the notes at our option prior to , 2009. After , 2009, we may redeem for cash all or part of the notes upon not less than 30 or more than 60 days' notice by mail to the holders of notes, as described in the indenture. If we redeem any notes, there will be an automatic separation of IDSs.
Change of control	Upon the occurrence of a change of control, as defined under "Description of Notes—Repurchase at the Option of Holders—Change of Control," each holder of notes will have the right to require us to repurchase that holder's notes at a price equal to 101% of the principal amount of the notes being repurchased, plus any accrued but unpaid interest to but not including the repurchase date. In order to exercise that right, a holder of IDSs must separate its IDSs into the shares of Class A common stock and notes represented thereby and hold the notes separately.
Guarantees of notes	The notes will be fully and unconditionally guaranteed, on an unsecured senior subordinated basis, by certain of our direct and indirect wholly owned domestic subsidiaries. The notes will not be guaranteed by our subsidiaries which are the borrower and operator of the CMBS centers under the CMBS loan and our foreign subsidiaries. The guarantees will be subordinated to the guarantees issued by the subsidiary guarantors under the credit facility.

Subsequent issuances may affect tax treatment	The indenture governing the notes will provide that in the event we issue additional notes with a new CUSIP number having terms that are otherwise identical to the notes (except for the issuance date) in connection with the issuance by us of additional IDSs, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes, whether held as part of IDSs or separately, will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes, and the records of any record holders of notes will be revised to reflect such exchanges. Consequently, following each such subsequent issuance and exchange, each holder of IDSs or separately held notes, as the case may be, will own notes of each separate issuance in the same proportion as each other holder. However, the aggregate principal amount of notes owned by each holder will not change as a result of such subsequent issuance and exchange. Any subsequent issuance of notes by us may affect the tax treatment of the IDSs and notes. See "Material U.S. Federal Income Tax Consequences—Consequences to U.S. Holders—Notes—Additional Issuances."
Ranking of notes and guarantees	The notes will be our and any guarantor's unsecured senior subordinated indebtedness, will be subordinated in right of payment to all our and any guarantor's existing and future senior indebtedness, and will rank pari passu in right of payment with all our and any guarantor's existing and future pari passu indebtedness and trade payables. The notes will also be effectively subordinated to any of our and any guarantor's secured indebtedness to the extent of the value of the assets securing the indebtedness.
	The indenture governing the notes will permit us and our guarantors to incur additional indebtedness, including senior indebtedness, subject to specified limitations. On a pro forma basis at March 5, 2004:
	•	we would have had $ million aggregate principal amount of senior secured indebtedness outstanding under the revolving credit facility plus approximately $ million of letters of credit, which would have been guaranteed on a senior secured basis by the guarantors of the notes;

	•	we would have had $ million of pari passu indebtedness outstanding, including trade payables; and
	•	the non-guarantor subsidiaries, including the CMBS subsidiaries, would have had total liabilities, excluding liabilities owed to us, of $ million and the total assets of these subsidiaries would have accounted for % of our assets.
Restrictive covenants	The indenture governing the notes will contain covenants with respect to us and our restricted subsidiaries that will restrict:
	•	the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock;
	•	the payment of dividends on, and redemption of, capital stock;
	•	a number of other payments, including investments;
	•	specified sales of assets;
	•	specified transactions with affiliates;
	•	the creation of liens; and
	•	consolidations, mergers and transfers of all or substantially all of our assets.
Listing	We do not anticipate that our notes will be separately listed on any exchange.

Risk Factors

You should carefully consider the information under the heading "Risk Factors" and all other information in this prospectus before investing in the IDSs and the shares of our Class A common stock or notes.

General Information About This Prospectus

Throughout this prospectus, unless otherwise noted, we have assumed no exercise of the underwriters' over-allotment option to purchase additional IDSs.

We utilize a financial reporting schedule comprised of 13 four-week periods and our fiscal year ends on the Friday closest to May 31. References to years in this prospectus as they relate to our financial, operating and other information refer to our fiscal years unless otherwise noted. The information presented refers to the 52 weeks ended June 1, 2001 as "fiscal year 2001," the 52 weeks ended May 31, 2002 as "fiscal year 2002" and the 52 weeks ended May 30, 2003 as "fiscal year 2003." Our first fiscal quarter is comprised of 16 weeks, while the remaining quarters are each comprised of 12 weeks.

We have restated amounts previously reported to reflect the results of operations for the 60 centers closed since the end of fiscal year 2002 as discontinued operations.

Unless the context otherwise requires, references in this prospectus to the "notes" refer collectively to the notes represented by IDSs and the notes sold separately, and references to the "offering" refer collectively to the offering of IDSs, including the shares of Class A common stock and notes represented by such IDSs, and $ million aggregate principal amount of notes offered separately (not represented by IDSs).

Summary Consolidated Financial Information

The following table sets forth our summary consolidated financial information derived from our audited consolidated financial statements for each of our fiscal years in the three-year period ended May 30, 2003. The following table also sets forth our summary historical financial information derived from our unaudited consolidated financial statements for the forty weeks ended March 7, 2003 and March 5, 2004, which are also included in this prospectus.

The information in the table below is only a summary and should be read in conjunction with our audited consolidated financial statements for fiscal years 2001, 2002 and 2003 and the related notes, our unaudited consolidated financial statements for the forty weeks ended March 7, 2003 and March 5, 2004 and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all as included elsewhere in this prospectus. The figures for interim periods shown below are not necessarily indicative of results for the applicable full fiscal year.

	Fiscal Year Ended									Forty Weeks Ended
	June 1, 2001			May 31, 2002			May 30, 2003			March 7, 2003			March 5, 2004
	(in thousands, except per share data, child care center data and ratios)
Statement of Operations Data:
Revenues, net	$	721,076		$	806,746		$	838,584		$	635,097		$	649,105
Operating income		74,514			74,163			72,414			49,798			49,192
Interest expense, net (a)		(48,233	)		(43,512	)		(40,612	)		(31,576	)		(36,060	)
Loss on minority investment (b)		—			(2,265	)		(6,700	)		—			—
Net income		15,671			16,543			13,415			10,055			6,389
Per Share Data (c):
Basic net income per share		0.82			0.83			0.68			0.51			0.32
Diluted net income per share		0.81			0.82			0.67			0.51			0.32
Other Financial Data:
Depreciation and amortization		45,315			57,533			57,284			42,997			46,153
Capital expenditures (d)		94,269			95,843			83,114			69,731			41,345
Net cash provided by operating activities		69,671			87,466			78,359			48,461			59,220
EBITDA (e)		120,807			130,155			123,386			93,212			94,634
Rent		37,296			46,910			51,770			39,514			41,709
Ratio of earnings to fixed charges (f)		1.42	x		1.45	x		1.42	x		1.39	x		1.25	x
Comparable center net revenue growth (g)		3.1	%		1.1	%		1.4	%		1.3	%		0.0	%
Child Care Center Data:
Number of centers at end of period		1,242			1,264			1,264			1,264			1,245
Center licensed capacity at end of period		162,000			166,000			167,000			167,000			166,000
Average weekly tuition rate (h)	$	129.34		$	137.72		$	144.45		$	143.85		$	152.04
Occupancy (i)		68.3	%		65.6	%		63.3	%		62.5	%		59.3	%

			March 5, 2004
	May 30, 2003		Actual		Pro Forma As Adjusted
	(in thousands)
Balance sheet data:
Property and equipment, net	$	660,939	$	716,887
Total assets		811,093		905,590
Total long-term obligations, including current portion		470,976		532,403
Stockholders' equity		135,159		142,179

(a): Interest expense, net was comprised of the following, in thousands:

	Fiscal Year Ended									Forty Weeks Ended
	June 1, 2001			May 31, 2002			May 30, 2003			March 7, 2003			March 5, 2004
Interest income	$	582		$	560		$	420		$	215		$	712
Interest expense		(48,815	)		(44,072	)		(41,032	)		(31,791	)		(31,563	)
Loss on the early extinguishment of debt		—			—			—			—			(5,209	)

	$	(48,233	)	$	(43,512	)	$	(40,612	)	$	(31,576	)	$	(36,060	)

(b): Investments, wherein we do not exert significant influence or own over 20% of the investee's stock, are accounted for under the cost method. During fiscal years 2002 and 2003, we wrote down a minority investment by $2.3 million and $6.7 million, respectively.
(c): The per share amounts have been adjusted to reflect the 2-for-1 stock split, which was effective August 19, 2002.
(d): Capital expenditures included the following, in thousands:

	Fiscal Years Ended						Forty Weeks Ended
	June 1, 2001		May 31, 2002		May 30, 2003		March 7, 2003		March 5, 2004
New center development	$	44,254	$	63,990	$	50,651	$	44,274	$	21,379
Maintenance capital expenditures		50,015		31,853		32,463		25,457		19,966

	$	94,269	$	95,843	$	83,114	$	69,731	$	41,345

(e): EBITDA was calculated as follows, in thousands:

			Fiscal Year Ended								Forty Weeks Ended
			June 1, 2001		May 31, 2002			May 30, 2003			March 7, 2003			March 5, 2004
Net income			$	15,671	$	16,543		$	13,415		$	10,055		$	6,389
Interest expense, net				48,233		43,512			40,612			31,576			36,060
Income tax expense				10,095		11,213			9,940			7,215			5,605
Depreciation and amortization				45,315		57,533			57,284			42,997			46,153
Discontinued operations:
	Interest expense			5		6			1			1			—
	Income taxes			171		(412	)		(1,145	)		(623	)		(848	)
	Depreciation			1,317		1,760			3,279			1,991			1,275

		EBITDA	$	120,807	$	130,155		$	123,386		$	93,212		$	94,634

EBITDA is a non-GAAP financial measure of our liquidity. We believe EBITDA is a useful tool for certain investors and creditors for measuring our ability to meet debt service requirements. Additionally, management uses EBITDA for purposes of reviewing our results of operations on a more comparable basis. EBITDA does not represent cash flow from operations as defined by accounting principles generally accepted in the United States of America, which we refer to as "GAAP," is not necessarily indicative of cash available to fund all cash flow needs and should not be considered an alternative to net income under GAAP for purposes of evaluating our results of operations. A reconciliation of EBITDA to net cash provided by operating activities was as follows, in thousands:

		Fiscal Year Ended									Forty Weeks Ended
		June 1, 2001			May 31, 2002			May 30, 2003			March 7, 2003			March 5, 2004
Net cash provided by operating activities		$	69,671		$	87,466		$	78,359		$	48,461		$	59,220
Income tax expense			10,095			11,213			9,940			7,215			5,605
Deferred income taxes			116			(6,431	)		10,968			(5,624	)		9,103
Interest expense, net			48,233			43,512			40,612			31,576			36,060
Effect of discontinued operations on interest and taxes			176			(406	)		(1,144	)		(622	)		(848	)
Change in operating assets and liabilities			(6,997	)		(4,769	)		(16,332	)		12,052			(16,937	)
Other non-cash items			(486	)		(429	)		983			154			2,431

	EBITDA	$	120,807		$	130,155		$	123,386		$	93,212		$	94,634

(f): For purposes of determining the ratio of earnings to fixed charges, earnings are defined as income before income taxes, discontinued operations and a cumulative effect of a change in accounting principle, plus fixed charges. Fixed charges consist of interest expense, including capitalized interest, on all indebtedness, amortization of deferred financing costs and one-third of rental expense on operating leases representing that portion of rental expense that we deemed to be attributable to interest.
(g): Comparable center net revenues include those centers that have been open and operated by us at least one year. Therefore, a center is considered comparable during the first four-week period it has prior year net revenues. Non-comparable center net revenues include those generated from centers that have been closed and our revenues from distance learning services. The fiscal year ended June 2, 2000 included 53 weeks of operations. If fiscal year 2000 were adjusted to a 52 week basis, the comparable center net revenue growth would have been 5.2% in fiscal year 2001.
(h): We calculate the average weekly tuition rate as the actual tuition charged, net of discounts, for a specified time period, divided by "full-time equivalent," or FTE, attendance for the related time period. FTE attendance is not a strict head count. Rather, the methodology determines an approximate number of full-time children based on weighted averages. For example, an enrolled full-time child equates to one FTE, while a part-time child enrolled for five half-days equates to 0.5 FTE. The FTE measurement of center capacity utilization does not necessarily reflect the actual number of full- and part-time children enrolled.
(i): Occupancy is a measure of the utilization of center capacity. We calculate occupancy as FTE attendance divided by the sum of the centers' licensed capacity during the related period.

Interest and Dividend Payments to IDS Holders

The tables below reflect the following:

•: a reconciliation of our cash flow from operating activities to EBITDA for the fifty-two week period ended March 5, 2004;
•: a reconciliation of our EBITDA for the fifty-two week period ended March 5, 2004 to our estimated remaining available cash at March 5, 2004, after giving pro forma effect to this offering and the related transactions described elsewhere in this prospectus, in each case, as if such transactions had been completed on March 8, 2003; and
•: payments to IDS holders and holders of notes sold separately (not represented by IDSs) for the fifty-two week period ended March 5, 2004, after giving pro forma effect to this offering and the related transactions described elsewhere in this prospectus, in each case, as if such transactions had been completed on March 8, 2003 and based on the assumptions and estimates included in the above calculations.

			Fifty-Two Weeks Ended March 5, 2004
			(in thousands) (unaudited)
Net income			$	9,749

Additions:
	Interest expense, net			45,096
	Income tax expense			8,330
	Depreciation and amortization			60,440
	Discontinued operations:
		Interest expense		—

		Income tax benefit		(1,370	)
		Depreciation		2,563
EBITDA				124,808

Additions (deductions) to EBITDA:
	Amortization of deferred gain related to sale-leaseback program (1)
	Estimated annual public company administrative expenses (2)
	Income tax expense (3)
	Interest expense on senior indebtedness (4)
	Interest expense on notes (5)
	Loss on minority investment (6)
	Capital expenditures (7)

		Available cash for dividends, working capital and general corporate purposes
	Dividends on Class A common stock (8)
	Dividends on Class B common stock (8)

		Remaining available cash (9)	$

(1): Deferred gains have generally been recognized on our sale-leaseback transactions. The deferred gains are amortized on a straight-line basis, typically over a period of 15 years, and are offset against the related rent expense. At March 5, 2004, the deferred gain on sale-leaseback transactions was $56.5 million, which was included in other noncurrent liabilities on the consolidated balance sheet.

(2): Consists of estimated incremental audit fees, director and officer liability insurance, expenses related to stockholders meetings, printing expenses, investor relations expenses, additional filing fees, additional trustee fees, registrar and transfer agent fees, directors' fees, additional legal fees, listing fees and miscellaneous fees.
(3): Consists of federal and state taxes resulting from the capitalization of our company after this offering.
(4): Assumes fixed interest at current swap rates, estimated as % average interest on $ million outstanding borrowings under our existing CMBS loan, (net of amortization prefunded amount of $ ), % average interest on $ million outstanding borrowings under our existing industrial revenue bonds and mortgages, % interest on an estimated average balance of $ million under our amended revolving credit facility, a % commitment fee on the average unused balance of $ million under our amended revolving credit facility and % on an estimated $ million outstanding under letters of credit.
(5): Represents % interest on $ million of notes represented by IDSs and $ million of % notes sold separately (not represented by IDSs).
(6): Investments, wherein we do not exert significant influence or own over 20% of the investee's stock, are accounted for under the cost method. During the fourth quarter of fiscal year 2003, we wrote down a minority investment by $6.7 million.
(7): Represents our maintenance capital expenditures for fiscal year 2003. We expect maintenance capital expenditures for fiscal year 2004 to be approximately $31.4 million.
(8): Dividends will be paid on the Class A common stock and the Class B common stock on a pro rata basis based on their respective dividend rates.
(9): Remaining cash will be used for working capital and other general corporate purposes.

Based on the foregoing, aggregate payments to IDS holders and holders of notes sold separately (not represented by IDSs) for the fifty-two week period ended March 5, 2004 would have been as follows:

		Aggregate	Per IDS	Per Note
		(in thousands)
Interest on notes (1)		$	$	$
Dividends on shares of Class A common stock represented by IDSs (2)

	Total	$	$	$

(1): We may defer interest payments on our notes under specified circumstances and subject to the limitations described in "Description of Notes—Terms of the Notes—Interest Deferral." Deferred interest on our notes will bear interest at an annual rate equal to the stated rate of interest on the notes.
(2): Dividends are payable if and to the extent they are declared by our board of directors and permitted by applicable law and the terms of our then existing indebtedness and are taxed as dividends to the extent of our current and accumulated earnings and profits with any excess taxed as a return of basis. The indenture governing our notes and our amended revolving credit facility will contain significant restrictions on our ability to declare and pay dividends on our common stock, as described in "Dividend Policies."

Risk Factors

An investment in the IDSs and the shares of our Class A common stock and/or our notes involves a number of risks. In addition to the other information contained in this prospectus, prospective investors should give careful consideration to the following factors.

Risks Relating to the IDSs, the Shares of Class A Common Stock and the Notes

We have substantial indebtedness and may incur additional indebtedness in the future, which could restrict our ability to pay interest and principal on the notes and to pay dividends with respect to shares of our Class A common stock represented by the IDSs and could impact our financing options and liquidity position.

At March 5, 2004, we had $517.1 million of consolidated indebtedness and $142.2 million of consolidated stockholders' equity, and on a pro forma basis after giving effect to the offering and the use of proceeds described in this prospectus, we would have had $ million of consolidated indebtedness and $ million of consolidated stockholders' equity. Our indebtedness after the offering will consist primarily of the CMBS loan, borrowings under our revolving credit facility and our notes. We may incur additional indebtedness in the future, subject to the limitations contained in the instruments governing our indebtedness. Accordingly, we will continue to have significant debt service obligations in the future. In addition, we may enter into additional debt agreements or other financing arrangements in the future that could impose additional financial and operational restrictions upon us.

Our ability to make distributions, pay dividends or make other payments will be subject to applicable law and contractual restrictions contained in the instruments governing any indebtedness of ours and our subsidiaries, including our revolving credit facility. The degree to which we are leveraged on a consolidated basis could have important consequences to the holders of the IDSs, including:

•: our ability in the future to obtain additional financing for working capital, capital expenditures or acquisitions may be limited;
•: we may not be able to refinance our indebtedness on terms acceptable to us or at all;
•: a significant portion of our cash flow from operations is likely to be dedicated to the payment of the principal of and interest on our indebtedness, thereby reducing funds available for future operations, capital expenditures and/or dividends on our common stock; and
•: we may be more vulnerable to economic downturns or changes in interest rates and be limited in our ability to withstand competitive pressures.

Although our revolving credit facility contains covenants that will restrict our ability to incur debt as described under "Description of Certain Indebtedness—Revolving Credit Facility," the indenture governing the notes allows us to issue an unlimited amount of notes so long as we issue additional shares of common stock in the appropriate proportionate amounts to represent additional IDSs.

A failure to comply with the obligations contained in our borrowing agreements could result in an event of default under our borrowing agreements, which could result in acceleration of the debt related to the particular borrowing agreement, as well as the debt under other borrowing instruments that contain cross-acceleration or cross-default provisions.

If we are unable to service our debt, we may be required to refinance all or a portion of our existing debt, to sell assets or to obtain additional financing. Such refinancing might not be possible, and such sales of assets or additional financing might not be achieved, which could lead to a bankruptcy proceeding.

Holders of our notes will be structurally subordinated to the debt of our non-guarantor subsidiaries, including the CMBS loan borrower, which owns the CMBS centers.

In July 2003, one of our subsidiaries entered into a $300.0 million loan agreement with various lenders to refinance our existing borrowings, referred to as the CMBS loan. The balance outstanding at March 5, 2004 was $298.1 million. The loan is secured by mortgages or deeds of trust on 475 of our child care centers that are owned by that subsidiary borrower, referred to as the CMBS centers, as well as by certain cash collateral reserve accounts.

Certain of our subsidiaries, including the CMBS loan borrower, will not be guarantors of our notes. As a result, no payments are required to be made to us from the assets of these subsidiaries. In the event of bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries, holders of their indebtedness, including their trade creditors and the lenders of the CMBS loan, would generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us for payment to you. As a result, our notes are effectively subordinated to the indebtedness of the non-guarantor subsidiaries.

At March 5, 2004, our non-guarantor subsidiaries had total assets of $411.6 million and total liabilities, excluding liabilities owed to us, of $316.1 million. For the forty weeks ended March 5, 2004, our non-guarantor subsidiaries had net revenues of $211.5 million. The percentage of our assets, the amount of total liabilities and net revenues on a consolidated basis attributable to the non-guarantor subsidiaries that operate the CMBS centers and borrow under the CMBS loan were 41.6%, $307.8 million and $208.7 million, respectively, for and at March 5, 2004.

The CMBS loan contains restrictive covenants that could materially affect our cash flow and operations.

The CMBS loan contains restrictive covenants that could materially affect our cash flow and operations. For example, if the net operating income, as defined in the CMBS loan agreement, from the CMBS centers falls below $60.0 million in any year, we must escrow 50% of the operating cash flows from the CMBS centers, or 100% of the cash flows from those centers if their net operating income falls below $50.0 million. These thresholds are adjusted as centers are released from the loan collateral. The net operating income of the CMBS centers for the 52 week period ended March 5, 2004 was approximately $80.2 million. To the extent that these provisions are triggered, we will not have any cash distributed up to us from the CMBS centers and, thus, this escrow requirement may limit the amount of cash we have available to make interest payments on the notes or to declare or pay dividends on our Class A common stock.

The CMBS loan contains other provisions that may limit our operating or financial flexibility and that of the subsidiary borrower, including a prohibition on making alterations to the CMBS centers without the lenders' consent if such alterations could adversely affect the value of the CMBS centers, restrictions on transfer of the subsidiary borrower and a requirement to maintain certain levels of insurance. We are also required to maintain an interest rate cap agreement until the loan matures. If the CMBS loan is accelerated, we will be subject to restrictions on our ability to compete with the CMBS centers in their geographic regions, which could limit our ability to open and operate centers in these regions.

Because of the subordinated nature of the notes, holders of our notes may not be entitled to be paid in full, if at all, in a bankruptcy, liquidation or reorganization or similar proceeding.

As a result of the subordinated nature of our notes and related guarantees, upon any distribution to our creditors or the creditors of the subsidiary guarantors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or the subsidiary guarantors or our or their property, the holders of our senior indebtedness and senior indebtedness of the subsidiary guarantors will be entitled to be paid in full in cash before any payment may be made with respect to our notes or the subsidiary guarantees.

In the event of a bankruptcy, liquidation, reorganization or similar proceeding relating to us or the subsidiary guarantors, holders of our notes will participate with all other holders of unsecured indebtedness of ours or the subsidiary guarantors similarly subordinated in the assets remaining after we and the subsidiary guarantors have paid all senior indebtedness. In any of these cases, we and the subsidiary guarantors may not have sufficient funds to pay all of our creditors, and holders of our notes may receive less, ratably, than the holders of senior indebtedness.

Further, in the event of such bankruptcy proceedings, a party in interest may seek to subordinate the notes to all creditors under principles of equitable subordination or to recharacterize the notes as equity. While we believe that any such attempt should fail, there can be no assurance as to the outcome of such proceedings. In the event of such a subordination or recharacterization, you may not recover any amounts owing on the notes until all senior claims have been paid. Further, in the event of such a recharacterization you might be required to return any payments made to you on account of the notes, potentially up to six years prior to our bankruptcy, if it can be shown that at the time of such payment we were insolvent or rendered insolvent by reason of issuing the guarantee and the application of the proceeds of the guarantee, were engaged or about to engage in a business or a transaction for which the guarantor's remaining assets available to carry on its business constituted unreasonably small capital, or intended to incur, or believed that we would incur, debts beyond our ability to pay the debts as they mature.

On a pro forma basis at March 5, 2004, our notes and the associated subsidiary guarantees would have ranked junior, on a consolidated basis, to $ million of outstanding senior secured indebtedness (including the amount outstanding under the CMBS loan) plus approximately $ million of letters of credit, and the subsidiary guarantees would have ranked junior to $ senior unsecured debt and pari passu with approximately $ million of outstanding indebtedness of ours and the subsidiary guarantors. In addition, at March 5, 2004, we had the ability to borrow up to an additional $58.9 million under our revolving credit facility (less amounts reserved for letters of credit), which would have ranked senior in right of payment to our notes.

The notes or the guarantees of the notes by our subsidiaries may not be enforceable.

Under federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the notes or the guarantees could be voided, or claims in respect of the notes or the guarantees could be subordinated to all other debt of ours or the guarantor, as applicable, if, among other things, we or the guarantor, at the time that we issued the notes or it assumed the guarantee:

•

received less than reasonably equivalent value or fair consideration for issuing the notes or the guarantee and, at the time we issued the notes or it issued the guarantee:

•: was insolvent or rendered insolvent by reason of issuing the notes or the guarantee and the application of the proceeds of the notes or the guarantee;
•: was engaged or about to engage in a business or a transaction for which our or such guarantor's remaining assets available to carry on its business constituted unreasonably small capital;
•: intended to incur, or believed that we or such guarantor would incur, debts beyond our or such guarantor's ability to pay the debts as they mature; or
•: was a defendant in an action for money damages, or had a judgment for money damages docketed against us or such guarantor if, in either case, after final judgment, the judgment is unsatisfied.

In addition, any payment by us or the guarantor pursuant to the notes or the guarantees could be voided and required to be returned to us or the guarantor or to a fund for the benefit of the creditors of ours or the guarantor or the notes or the guarantee could be subordinated to other debt of ours or the guarantor.

The measures of insolvency for the purposes of fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a person would be considered insolvent if, at the time it incurred the debt:

•: the sum of its debts, including contingent liabilities, was greater than the fair saleable value of its assets;
•: the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
•: it could not pay its debts as they become due.

We believe that immediately after the issuance of the notes and the guarantees, we and each of the guarantors will be solvent, will have sufficient capital to carry on our respective businesses and will be able to pay our respective debts as they mature. However, we cannot be sure as to what standard a court would apply in making these determinations or that a court would reach the same conclusions with regard to these issues. Regardless of the standard that the court uses, we cannot be sure that the issuance by us of the notes or by the subsidiary guarantors of the subsidiary guarantees would not be voided or that the notes or the subsidiary guarantees would not be subordinated to our or their other debt. If the guarantee of any subsidiary guarantor were voided, our notes would be effectively subordinated to the indebtedness of that subsidiary guarantor.

We may amend the terms of our revolving credit facility, or we may enter into new agreements that govern our senior indebtedness, and the amended or new terms may significantly affect our ability to pay interest and/or dividends to you.

Our revolving credit facility contains significant restrictions on our ability to pay interest on the notes and dividends on the shares of Class A common stock based on meeting certain tests and compliance with other conditions (including timely delivery of applicable financial statements), as described in detail under "Description of Certain Indebtedness—Revolving Credit Facility." As a result of general economic conditions, conditions in the lending markets, the results of our operations or for any other reason, we may elect or be required to amend or refinance our revolving credit facility, at or prior to maturity, or enter into additional agreements for senior indebtedness. Regardless of any protection you have in the indenture governing the notes, any such amendment, refinancing or additional agreement may contain covenants that could limit in a significant manner our ability to pay interest payments and/or dividends to you.

We are subject to restrictive debt covenants and other requirements related to our outstanding debt that limit our business flexibility by imposing operating and financial restrictions on our operations.

The agreements governing our indebtedness impose significant operating and financial restrictions on us. These restrictions prohibit or limit, among other things:

•: the incurrence of additional indebtedness and the issuance of preferred stock and certain redeemable capital stock;
•: the payment of dividends on, and purchase or redemption of, capital stock;
•: a number of other restricted payments, including investments;
•: specified sales of assets;
•: specified transactions with affiliates;
•: the creation of liens; and
•: consolidations, mergers and transfers of all or substantially all of our assets.

The terms of our revolving credit facility include other and more restrictive covenants and prohibit us from prepaying our other indebtedness, including the notes, while indebtedness under our revolving credit facility is outstanding. The revolving credit facility also requires us to maintain specified financial ratios and satisfy financial condition tests.

Our ability to comply with the ratios or tests may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants, ratios or tests could result in a default under our revolving credit facility, the CMBS loan and/or the indenture. Certain events of default under our revolving credit facility would prohibit us from making payments on the notes, including payment of interest when due. In addition, upon the occurrence of an event of default under our revolving credit facility, the lenders could elect to declare all amounts outstanding under the revolving credit facility, together with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, the lenders could proceed against the security granted to them to secure that indebtedness. If the lenders accelerate the payment of the indebtedness, our assets may not be sufficient to repay in full this indebtedness and our other indebtedness, including the notes.

We have the right to defer interest at any time prior to , 2009, in which case you may not be paid any deferred interest until , 2009, and if we were to defer interest at any time after , 2009, and before , 2014, you may not be paid all of the deferred interest owed to you until , 2014.

Our revolving credit facility and the indenture governing our notes contain restrictions on our ability to pay interest, subject to certain limitations. During the first five years that the notes are outstanding, we may defer interest for up to an aggregate period of eight quarters. During the period from , 2009, through , 2014, interest payments may be deferred for no more than three quarters in the aggregate at any time. Deferred interest will bear interest at the same rate as the notes. For any interest deferred during the first five years, we are not obligated to pay any deferred interest until , 2009, so you may be owed a substantial amount of deferred interest that will not be due and payable until such date. For any interest deferred after , we are not obligated to pay all of the deferred interest until , so you may be owed a substantial amount of deferred interest that will not be due and payable until such date.

You may not receive the level of dividends provided for in the dividend policy our board of directors is expected to adopt upon the closing of this offering or any dividends at all.

Our board of directors may, in its discretion, amend or repeal the dividend policy it is expected to adopt upon the closing of this offering. Our board of directors may decrease the level of dividends provided for in this dividend policy or entirely discontinue the payment of dividends. Future dividends with respect to shares of our capital stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law and other factors that our board of directors may deem relevant. The indenture governing our notes and our revolving credit facility contain significant restrictions on our ability to make dividend payments, including, if we defer interest on the notes, restrictions on the payment of dividends until we have paid all deferred interest.

In addition, our after-tax cash flow available for dividend and interest payments would be reduced if the notes were treated as equity rather than debt for U.S. federal income tax purposes. In that event, the stated interest on the notes could be treated as a dividend, and interest on the notes would not be deductible by us for U.S. federal income tax purposes. Our inability to deduct interest on the notes could materially increase our taxable income and, thus, our U.S. federal and applicable state income tax liability.

Our interest expense may increase significantly and could cause our net income and distributable cash to decline significantly.

The revolving credit facility will be subject to periodic renewal or must otherwise be refinanced. We may also be required to refinance the CMBS loan when it matures in 2008, or, if extended, 2009. We may not be able to renew or refinance the revolving credit facility or CMBS loan, or if either is renewed or refinanced, the renewal or refinancing may occur on less favorable terms. Borrowings under the revolving facility and the CMBS loan are made at a floating rate of interest, subject to interest rate hedging arrangements. In the event of an increase in the base reference interest rates or inability to replace our interest rate hedging arrangements, our interest expense will increase and could have a material adverse effect on our ability to make cash dividend payments to our stockholders. Our ability to continue to expand our business will, to a large extent, be dependent upon our ability to borrow funds under our revolving credit facility and to obtain other third-party financing, including through the sale of IDSs or any sale of securities. Such financing may not be available to us on favorable terms or at all.

We may not generate sufficient funds from operations to pay our indebtedness at maturity or upon the exercise by holders of their rights upon a change of control.

A significant portion of our cash flow from operations will be dedicated to maintaining our child care centers and servicing our debt requirements. In addition, we currently expect to distribute a significant portion of any remaining cash earnings to our stockholders in the form of quarterly dividends. Moreover, prior to the maturity of our notes, we will not be required to make any payments of principal on our notes. We may not generate sufficient funds from operations to repay the principal amount of our indebtedness at maturity or in case you exercise your right to require us to purchase your notes upon a change of control. We may therefore need to refinance our debt or raise additional capital. These alternatives may not be available to us when needed or on satisfactory terms due to prevailing market conditions, a decline in our business or restrictions contained in our senior debt obligations.

The indenture governing our notes and our revolving credit facility permit us to pay a significant portion of our free cash flow to stockholders in the form of dividends.

Although the indenture governing our notes and our revolving credit facility have some limitations on our payment of dividends, they permit us to pay a significant portion of our free cash flow to stockholders in the form of dividends and, following completion of this offering, we intend to pay quarterly dividends. Specifically, the indenture governing our notes permits us to pay up to the quarterly base dividend level in any fiscal quarter, which equals % of our excess cash, as defined in the indenture, for the 12 fiscal month period divided by four, as more fully described in "Description of Notes—Certain Covenants." In addition, if the actual dividends paid in any fiscal quarter are less than the quarterly base dividend level, the indenture permits us to use the difference between the aggregate amount of dividends actually paid and the quarterly base dividend level for such quarter for the payment of dividends at a later date. The revolving credit facility will permit us to pay a portion of our cash to fund dividends on the shares of our common stock as described in detail in "Description of Certain Indebtedness—Revolving Credit Facility." Any amounts paid by us in the form of dividends will not be available in the future to satisfy our obligations under the notes.

You will be immediately diluted by $ per share of Class A common stock if you purchase IDSs in this offering.

If you purchase IDSs in this offering, based on the book value of the assets and liabilities reflected on our balance sheet, you will experience an immediate dilution of $ per share of Class A common stock represented by the IDSs which exceeds the entire price allocated to each share of Class A common stock represented by the IDSs in this offering because the net tangible book value will be lower for each share of Class A common stock outstanding immediately after this offering. Our net tangible book value at March 5, 2004, after giving effect to this offering, was approximately $ million, or $ per share of Class A common stock.

Because we will use a significant portion of the proceeds of this offering to pay the cash portion of the recapitalization consideration with respect to shares of our existing common stock and to cancel options held by our existing equity investors, we will have less of the proceeds of this offering available to repay our existing debt and for corporate purposes.

We will use a significant portion of the net proceeds from this offering to pay the cash portion of the recapitalization consideration with respect to shares of our existing common stock and to cancel options held by our existing equity investors. As a result of these transactions with our existing equity investors, our total indebtedness will be higher after the offering and the amount of net proceeds from this offering that remain available to us for working capital or debt retirement will be less than if we had not undertaken these transactions. Having less of the net proceeds from this offering on a going forward basis may require us to borrow more money under our revolving credit facility or seek other sources of capital to repay debt, fund our operations or continue to expand our business.

Deferral of interest payments would have adverse tax consequences for you and may adversely affect the trading price of the notes.

If we defer interest payments on the notes, you will be required to recognize interest income for U.S. federal income tax purposes in respect of interest payments on the notes represented by the IDSs or the notes, as the case may be, held by you before you receive any cash payment of this interest. In addition, we will not pay you this cash if you sell the IDSs or the notes, as the case may be, before the end of any deferral period or before the record date relating to interest payments that are to be paid.

If we defer interest, the IDSs or the notes may trade at a price that does not fully reflect the value of accrued but unpaid interest on the notes.

The U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs are unclear.

No statutory, judicial or administrative authority directly addresses the treatment of the IDSs or instruments similar to the IDSs for U.S. federal income tax purposes. As a result, the U.S. federal income tax consequences of the purchase, ownership and disposition of IDSs are unclear. We believe that an IDS should be treated as a unit representing a share of common stock and notes. However, the IRS or the courts may take the position that the notes are equity, which could adversely affect the amount, timing and character of income, gain or loss in respect of your investment in IDSs, and materially increase our taxable income and, thus, our U.S. federal and applicable state income tax liability. This would reduce our after-tax cash flow and materially and adversely impact our ability to make interest and dividend payments on the notes and the common stock. Foreign holders could be subject to withholding or estate taxes with regard to the notes in the same manner as they will be with regard to the common stock. Payments to foreign holders would not be grossed-up for any such taxes. For discussion of these tax related risks, see "Material U.S. Federal Income Tax Consequences."

The allocation of the purchase price of the IDSs may not be respected.

The purchase price of each IDS must be allocated between the share of Class A common stock and notes in proportion to their respective fair market values at the time of purchase. If our allocation is not respected, it is possible that the notes will be treated as having been issued with OID (if the allocation to the notes were determined to be too high) or amortizable bond premium (if the allocation to the notes were determined to be too low). You generally would have to include OID in income in advance of the receipt of cash attributable to that income and would be able to elect to amortize bond premium over the term of the notes.

The IRS may not view the interest rate on the notes as an arm's length rate.

We plan to deduct the interest expense on the notes from taxable income for income tax purposes and to report the full benefit of the income tax deductions in our consolidated financial statements. If the IRS were to determine that the interest rate on the notes did not represent an arm's length rate, any excess amount over arm's length would not be deductible and could be recharacterized as a dividend payment instead of an interest payment. In addition, the reclassification of interest payments as dividend payments may give rise to an event of default under our revolving credit facility. In such case, our taxable income and, thus, our U.S. federal income tax liability could be materially increased, and we would have to provide an additional liability in our consolidated financial statements for the previously recorded benefit for the interest deductions. In addition, foreign holders could be subject to withholding or estate taxes with regard to the notes in the same manner as they will be with regard to the Class A common stock. If the interest rate were determined to be less than the arm's length rate, the notes could be treated as issued with OID, which you would be required to include in income over the term of the notes in advance of the receipt of cash attributable to that income.

Because of the deferral of interest provisions, the notes may be treated as issued with original issue discount.

Under applicable Treasury regulations, a "remote" contingency that stated interest will not be timely paid will be ignored in determining whether a debt instrument is issued with OID. Although there is no authority directly on point, we believe that the likelihood of deferral of interest payments on the notes is remote within the meaning of the Treasury regulations. Based on the foregoing, although the matter is not free from doubt because of the lack of direct authority, the notes would not be considered issued with OID at the time of their original issuance. If deferral of any payment of interest were determined not to be "remote," the notes would be treated as issued with OID at the time of issuance. In such case, all stated interest on the notes would be treated as OID, and all holders, regardless of their method of tax accounting, would be required to include stated interest in income on a constant accrual basis, possibly in advance of their receipt of the associated cash.

If we subsequently issue notes with significant OID, we may not be able to deduct all of the interest on those notes.

It is possible that notes we issue in a subsequent issuance will be issued at a discount to their face value and, accordingly, may have "significant original issue discount" and thus be classified as "applicable high yield discount obligations," or AHYDOs. If any such notes were so treated, a portion of the OID on such notes could be nondeductible by us and the remainder would be deductible only when paid. This treatment would have the effect of increasing our taxable income and may adversely affect our cash flow available for interest payments and distributions to our equity holders.

Subsequent issuances of notes may adversely affect your tax treatment.

The indenture governing our notes will provide that, in the event there is a subsequent issuance of notes with a new CUSIP number having terms that are otherwise identical (other than issuance date) to the notes offered hereby, each holder of IDSs or separately held notes, as the case may be, agrees that a portion of such holder's notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued notes, held either as part of IDSs or separately, and each holder of existing notes, held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old notes and the newly issued notes. Therefore, subsequent issuances of notes with OID may adversely affect your tax treatment by increasing the OID,

if any, that you were previously accruing with respect to the notes, resulting in your having to accrue interest income in advance of receiving the related cash payments.

Following any subsequent issuance of notes with OID, we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of IDSs and separately held notes, and each holder of IDSs and separately held notes will, by purchasing IDSs, agree to report OID in a manner consistent with this approach. However, the Internal Revenue Service may assert that any OID should be reported only to the persons that initially acquired such subsequently issued notes (and their transferees). In such case, the Internal Revenue Service might further assert that, unless a holder can establish that it is not a person that initially acquired such subsequently issued notes (or a transferee thereof), all of the notes held by such holder have OID. Any of these assertions by the Internal Revenue Service could create significant uncertainties in the pricing of IDSs and notes and could adversely affect the market for IDSs and notes.

For a discussion of these tax related risks, see "Material U.S. Federal Income Tax Consequences."

Any OID attributable to you could reduce the amount of principal you could recover from us in a bankruptcy proceeding.

Under New York and federal bankruptcy law, holders of subsequently issued notes having OID may not be able to collect the portion of their principal face amount that represents unamortized OID as at the acceleration or filing date in the event of an acceleration of the notes or a bankruptcy of KinderCare prior to the maturity date of the notes. As a result, an automatic exchange that results in a holder receiving a note with OID could have the effect of ultimately reducing the amount such holder can recover from us in the event of an acceleration or bankruptcy.

If interest rates rise, the trading value of our IDSs and the notes sold separately in this offering may decline.

We cannot predict the interest rate environment or guarantee that interest rates will not rise in the near future. Should interest rates rise or should the threat of rising interest rates develop, debt markets may be adversely affected. As a result, the trading value of our IDSs and notes may decline.

Before this offering, there was no public market for our IDSs, notes or Class A common stock and an inactive public market for shares of our then outstanding common stock. The price of the IDSs or notes may fluctuate substantially, which could negatively affect holders of IDSs or holders of notes sold separately.

The IDSs, notes and Class A common stock have not had a public market history and prior to this offering, the shares of our then outstanding common stock, while registered under the Securities Act and traded in the over-the-counter markets, have not traded actively. In addition, there has not been an active market in the United States for securities similar to the IDSs. We cannot assure you that an active trading market for the IDSs and the notes sold separately in this offering will develop in the future, which may cause the price of the IDSs and the notes sold separately in this offering to fluctuate substantially, and we currently do not expect that an active trading market for the shares of our Class A common stock will develop until the notes are redeemed or mature. We do not intend to list our notes on any securities exchange. Accordingly, we cannot assure you that there will be a market for the notes. If the notes represented by your IDSs are redeemed or mature, or if there is a payment default on the notes for 90 days, the IDSs will automatically separate, and you will then hold the shares of our Class A common stock.

The initial public offering price of the IDSs and the notes sold separately in this offering will be determined by negotiations among us, the existing equity investors and the representatives of the underwriters and may not be indicative of the market price of the IDSs and the notes sold separately

after the offering. Factors such as quarterly variations in our financial results, announcements by us or others, developments affecting us or the child care industry, general interest rate levels and general market volatility could cause the market price of the IDSs and the notes sold separately in this offering to fluctuate significantly.

Future sales or the possibility of future sales of a substantial amount of IDSs, shares of our Class A common stock or our notes may depress the price of the IDSs and the shares of our Class A common stock and our notes.

Future sales or the availability for sale of substantial amounts of IDSs or shares of our Class A common stock or a significant principal amount of our notes in the public market, including by the existing equity investors as described below, could adversely affect the prevailing market price of the IDSs and the shares of our Class A common stock and our notes and could impair our ability to raise capital through future sales of our securities.

Our existing equity investors will own IDSs and shares of Class B common stock representing % of voting power of all of our outstanding shares of our common stock after the offering. Subject to the applicable contractual lock-up period and any securities law limits on affiliate resales, their IDSs (including IDSs after any conversion of their shares of Class B common stock) will be eligible for resale from time to time in any form of at-the-market, block or underwritten sales, whether as IDSs, shares of our common stock or our notes.

We may issue shares of our Class A common stock and notes, which may be in the form of IDSs, or other securities from time to time as consideration for future acquisitions and investments. In the event any such acquisition or investment is significant, the number of shares of our Class A common stock and the aggregate principal amount of notes, which may be in the form of IDSs, or the number or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be significant. In addition, we may also grant registration rights covering those IDSs, shares of our Class A common stock, notes or other securities in connection with any such acquisitions and investments.

Our certificate of incorporation and by-laws and several other factors could limit another party's ability to acquire us and deprive our investors of the opportunity to obtain a takeover premium for their securities.

Several provisions in our certificate of incorporation and by-laws will make it difficult for another company to acquire us and for you to receive any related takeover premium for your securities. For example, our by-laws do not allow stockholders to call a special meeting. Our certificate of incorporation authorizes the issuance of preferred stock without stockholder approval and upon such terms as the board of directors may determine.

Our annual and quarterly results of operations reflect seasonal fluctuations.

Our revenues and the initial success of new centers are subject to seasonal fluctuations because enrollments are generally highest in September and January when children return to child care and/or school after summer and holiday vacations. Accordingly, July, August and December are particularly important times for new enrollments. In addition, enrollment generally decreases 5% to 10% during holiday periods and summer months. If we achieve less than satisfactory enrollment during these key months, we may not be able to compensate sufficiently for lower enrollment during the rest of the year. We may also be unable to adjust our expenses on a short-term basis to offset these fluctuations in revenues. This may cause us to experience insufficient cash flow to meet our ongoing capital needs during our low seasons. This imbalance in our cash flows may lead to seasonal volatility in the trading price of the IDSs due to a market reaction to our lower cash flow levels or any curtailment in our dividend payments to IDS holders or the commencement of any interest deferral.

Risks Relating to our Business and the Industry

We face intense competition in the early childhood education and care services industry from numerous other types of providers.

The early childhood education and care services industry is competitive and highly fragmented, with the most important competitive factors generally based upon reputation, location and price. Our competition consists principally of the following:

•: other for-profit, center-based child care providers, including franchise organizations;
•: preschool, kindergarten and before- and after-school programs provided by public schools;
•: local nursery schools and child care centers, including church-affiliated and other non-profit centers;
•: providers of child care services that operate out of homes; and
•: substitutes for organized child care, such as relatives, nannies and one parent caring full-time for a child.

In many markets, we face competition from preschool services and before- and after-school programs offered by public schools that offer such services at little or no cost to parents. The number of school districts offering these services is growing, and we expect this form of competition to increase in the future.

We also face competition from large, national, for-profit companies providing child care and education services, many of which offer these services at a lower price than we do. These other for-profit providers continue to expand in many of the same markets where we currently operate or plan to operate. According to a July 2001 study published by Marketdata Enterprises, the 40 largest providers of child care services totaled less than 5% of total licensed child care centers.

Local nursery schools, child care centers and in-home providers generally charge less for their services than we do. Many denominational and other non-profit child care centers have lower operating expenses than we do and may receive donations and/or other funding to subsidize operating expenses. Consequently, operators of such centers often charge tuition rates that are less than our rates. In addition, fees for home-based care are normally substantially lower than fees for center-based care.

Litigation and adverse publicity concerning incidents at child care centers could hurt our reputation and limit our ability to obtain insurance.

We believe our success in the child care business, where personal trust and parent referrals play a key role, is directly related to our reputation and favorable brand identity. We are periodically subject to claims and litigation alleging negligence, inadequate supervision and other grounds for liability arising from injuries or other harm to children. In addition, claimants may seek damages from us for child abuse, sexual abuse or other criminal acts arising out of alleged incidents at our centers. Any adverse publicity concerning such incidents at one of our child care centers, or child care centers generally, could greatly damage our reputation and could have an adverse effect on occupancy levels at our centers.

Operators of child care centers have had difficulty obtaining general liability insurance or other liability insurance that covers child abuse, or have been able to obtain such insurance only at substantially higher rates, because of the adverse publicity risks discussed above and because the statutes of limitations for the bringing of child abuse and personal injury claims typically do not expire until a number of years after the child reaches the age of majority.

To date, we have been able to obtain insurance in amounts we believe to be appropriate. However, insurance premiums may increase in the future as a consequence of conditions in the insurance business generally, or our situation in particular, and continuing publicity with respect to alleged instances of child abuse in the child care industry may result in our inability to obtain insurance. Furthermore, our current insurance coverage may not be sufficient in amount or type of coverage to protect us against all of such claims.

We are subject to claims and litigation arising in the ordinary course of business, including claims and litigation involving allegations of physical or sexual abuse of children. We are aware of such allegations that have not yet resulted in claims or litigation. Any such allegations, claims or lawsuits, either individually or in the aggregate, may have a material adverse effect on our financial position, operating results or cash flows.

Our failure to comply with present or future governmental regulation and licensing requirements for child care centers could have a material adverse effect on our operations.

Our centers are subject to numerous state and local regulations and licensing requirements. We have policies and procedures in place to assist in complying with such regulations and requirements. Although these regulations vary from jurisdiction to jurisdiction, government agencies generally review the fitness and adequacy of buildings and equipment, the ratio of staff personnel to enrolled children, staff training, record keeping, children's dietary program, the daily curriculum, compliance with health and safety standards and transportation safety. In most jurisdictions, these agencies conduct scheduled and unscheduled inspections of the centers and licenses must be renewed periodically. Most jurisdictions establish requirements for background checks or other clearance procedures for new employees of child care centers. Repeated failures of a center to comply with applicable regulations can subject it to sanctions, which might include probation or, in more serious cases, suspension or revocation of the center's license to operate and could also lead to sanctions against our other centers located in the same jurisdiction. In addition, this type of action could lead to negative publicity extending beyond that jurisdiction.

A licensing authority may determine that a particular center is in violation of applicable regulations and may take action against that center and possibly other centers in the same jurisdiction. In addition, there may be unforeseen changes in regulations and licensing requirements, such as changes in the required ratio of child center staff personnel to enrolled children, that could increase our center staff operating expenses and, therefore have a material adverse effect on our operations. States in which we operate routinely review the adequacy of regulatory and licensing requirements and implement changes which may significantly increase our costs to operate in those states.

State and local licensing regulations often provide that the licenses held by us 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 change in ownership of our equity capital effected pursuant to this offering and the recapitalization may be considered a transfer of our business under some applicable state and local regulations. As a result, we may, in certain circumstances, be required to apply for relicensing in certain jurisdictions. If relicensing is required, we may have to incur material expenditures to relicense our centers in such jurisdictions.

Failure to comply with such laws or regulations or changes in such laws or regulations could have a material adverse effect on our operations. See "Business—Governmental Laws and Regulations Affecting Us."

Any reduction in, or other changes to, the general labor force reduces the need for our child care services.

Demand for our child care services may be subject to fluctuations in general economic conditions, and our revenues depend, in part, on the number of working mothers and working single parents who require child care services. Recessionary pressure on the economy, and a consequent reduction in the general labor force, may adversely impact us because of the tendency of out-of-work parents to stop using child care services. In addition, demographic trends, including the increasing percentage of mothers in the workforce, as well as trends in the preference of working parents and employers for center-based child care, may not continue.

Children attending our facilities are enrolled on a weekly basis. Accordingly, any change in economic conditions will impact us more quickly than it would businesses in which contracts are for a longer time period.

A loss or reduction of government funding for child care assistance programs or food reimbursement programs could adversely affect us.

During fiscal year 2003 and the forty weeks ended March 5, 2004, approximately 21.6% and 20.1%, respectively, of our net revenues were generated from federal and state child care assistance programs, primarily the Child Care and Development Block Grant and At-Risk Programs. These programs are designed to assist low-income families with child care expenses and are administered through various state agencies. Although additional funding for child care may be available for low income families as part of welfare reform and the reauthorization of the Block Grant, we may not benefit from any such additional funding.

Federal or state child care assistance programs may not continue to be funded at current levels. Many states have recently experienced fiscal problems and have reduced or may in the future reduce spending on social services. A termination or reduction of child care assistance programs could have a material adverse effect on our business.

Adverse changes to the national or local economies may result in an increase in the number of families eligible for child care assistance. In order to compensate for such increases, state or local governments have in the past, and may in the future, increase parent co-payments required under such programs or change the eligibility requirements to reduce the number of families eligible to participate in such programs. Because our rates are at the higher end of child care providers, an increase in the required parent co-payments may create a disincentive for parents to send their children to our centers. An increase in required parent co-payments also increases our exposure to the risk of nonpayment by these parents.

In addition, states which reduce funding for child care may be unable to qualify to receive funds under the Temporary Assistance for Needy Families, or TANF, program. Such states may utilize funds under the Child Care and Development Block Grant to provide child care assistance to needy families in lieu of TANF funds, thereby reducing the amount of funds available to other families, including families that utilize our child care centers.

At March 5, 2004, approximately 500 of our centers were entitled to receive reimbursement for meals and snacks that meet certain USDA nutritional guidelines through the Child and Adult Care Food Program (CACFP). During fiscal year 2003 and the forty weeks ended March 5, 2004, our CACFP reimbursements were $7.8 million and $6.3 million, respectively, which were recorded as a reduction of operating expense. If the CACFP is not funded at current levels or if changes to the program result in any of our centers no longer qualifying for the CACFP, we would experience a decline in

reimbursements and a resultant inability to reduce our operating expense, which could have a material adverse effect on our business.

A termination or reduction of tax credits for child care could have a material adverse effect on our business.

Tax incentives for child care programs can potentially benefit us. Section 21 of the Internal Revenue Code of 1986, as amended, referred to as the Code, provides a federal income tax credit ranging from 20% to 35% of specified child care expenses with maximum eligible expenses of $3,000 for one child and $6,000 for two or more children. The fees paid to us by eligible taxpayers for child care services qualify for these tax credits, subject to the limitations of Section 21 of the Code. However, these tax incentives are subject to change.

Many states offer tax credits in addition to the federal credits discussed above. Credit programs vary by state and may apply to both the individual taxpayer and the employer. A termination or reduction of such tax credits could have a material adverse effect on our business.

If we are unable to successfully execute our growth strategy, our revenue growth, earnings and cash flow could be diminished.

Our ability to increase revenues and operating cash flow significantly over time depends, in part, on our success in building and/or acquiring new centers on satisfactory terms, successfully integrating them into our operations and achieving operational maturity represented by stable revenues and cash flow within our targeted time frame. Acceptable acquisition opportunities and appropriate sites for our expansion program might not be available. The availability and price of sites and acquisition opportunities could be adversely impacted by the expansion activities of our competitors. In addition, our ability to take successful advantage of any available acquisition opportunity will be dependent, in part, on the availability of adequate financial resources, to which we may not have access. We also may have to incur material expenditures to relicense centers that we acquire in the future because state and local licensing regulations often do not allow family services companies, such as child care centers, to transfer their licenses.

Our growth strategy also contemplates investing in or acquiring education-related businesses with which we may not have significant prior experience. Competition for such investment or acquisition opportunities has been significant and has driven up prices for such opportunities. Accordingly, such opportunities may not be available on reasonable terms, or, if available, may not be executed successfully.

As our business develops and expands, we may need to implement enhanced operational and financial systems and may require additional employees and management, operational and financial resources. Failure to implement such systems successfully and to use such resources effectively could have a material adverse effect on us.

Since the fourth quarter of fiscal year 2002 until the present, we have relied on our real estate sale-leaseback transactions as a source of cash flow, and the availability of such transactions may be limited in the future.

During the fourth quarter of fiscal year 2002, we began selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. At March 5, 2004, sale-leaseback transactions contributed $162.7 million in gross proceeds. Subsequent to March 5, 2004, we closed $15.2 million in sales, which included six centers, and are currently in the process of negotiating another $69.9 million of sales related to 27 centers. However, the sale-leaseback market may cease to be a reliable source of cash flow for us in the future if capitalization rates become less attractive or other unfavorable market conditions develop. In addition, although new center

construction is a potential source of assets for sale-leaseback transactions, our current inventory of assets suitable for sale-leaseback transactions is a limiting factor on future sale-leaseback transaction volume. In addition to the transactions relating to the 27 centers referred to above, we estimate that we have additional marketable inventory at April 16, 2004 of 74 centers with a market value of approximately $168.0 million.

Our insurance policies may prove inadequate to cover claims, and we may be unable to maintain our existing coverage in the future at current prices.

Our insurance program currently includes the following types of policies: workers' compensation, comprehensive general liability, automobile liability, property, excess "umbrella" liability, directors' and officers' liability and employment practices liability. These policies provide for a variety of coverages, are subject to various limits, and include substantial deductibles or self-insured retentions. Special insurance is sometimes obtained with respect to specific hazards, if deemed appropriate and available at reasonable cost. Our owned centers are covered by blanket insurance policies, including property insurance with an aggregate coverage limit of $100,000,000. Claims in excess of, or not included within, our coverage may be asserted. To the extent that any claims are not covered by insurance, we will be forced to cover the associated costs ourselves, which will reduce the amount of cash we have available for other business purposes. We expect our insurance costs to continue to increase in the near future due partially to higher premiums, which will further reduce the amount of cash we will have available for other business purposes.

After the terrorist attacks of September 11, 2001, insurance premiums for all new insurance policies increased dramatically. Prior to the attacks, we had entered into three-year insurance policies with fixed premiums, which expired in May 2002. The combined effect of these circumstances impacted the increase in our insurance costs. Our insurance policies will be up for renewal in May 2004, and we expect that the premiums we pay for the same level of insurance under any new policies may be greater than the premiums we currently pay.

We are subject to audits by tax authorities which, if determined adversely, could have a material adverse effect on our cash flow and results of operations.

From time to time, we are subject to audits of our tax returns by the IRS and state taxing authorities. We are currently in the review process of an IRS audit with respect to our fiscal years 1998, 1999 and 2000. We are unable to predict the outcome of this review. The results of this review and any future audits by the IRS or other taxing authorities could result in adjustments that could have a material adverse effect on our cash flows and results of operations.

If we are unable to attract and retain sufficient qualified employees, if minimum wage rates increase or if our employees unionize, our results of operations may be adversely affected.

We believe that our success is largely dependent on our ability to attract and retain qualified employees. Many of our child care center staff are entry-level wage earning employees. Expenses for salaries, wages and benefits represented approximately 55.3% of net revenues for the forty weeks ended March 5, 2004. If we are unable to hire sufficient numbers of quality employees or are only able to hire such employees by providing significantly greater salaries, wages and benefits than we currently do as a result of increases in the federal or state minimum wage rates or other market conditions, our operations may be adversely affected.

Since early 1998, union organization efforts in the child care industry have received considerable publicity. While union officials associated with the American Federation of State, County and Municipal Employees and Service Employees International have announced their intention to engage in a national effort to organize child care workers, organization efforts to date have been principally

localized in Philadelphia and Seattle. Although we are not aware of any organization efforts at any of our centers, such efforts may occur and, if successful, could have an adverse effect on our relationships with employees and our labor costs. In addition, the general publicity surrounding such efforts, even if not focused on our centers, could result in increased wages for child care workers and, as a result, increase our labor costs.

The loss of any of our key management employees could adversely affect our business.

Our success and growth strategy depend upon our senior management, particularly David J. Johnson, our chief executive officer. However, we do not have employment agreements with, or key man life insurance for, Mr. Johnson or any of our senior management. If any of our key employees becomes unable or unwilling to participate in the business and operations of our company and/or we are unable to continue to attract and retain additional highly qualified senior management personnel, our future business and operations could be materially and adversely affected.

Because we own or lease a substantial number of real properties, our results of operations could be adversely affected if environmental contamination is discovered on our properties.

We are subject to federal, state and local environmental laws, regulations and ordinances that may impose liability for the costs of cleaning up, and damages resulting from, past spills, disposals and other releases of hazardous substances. In particular, under applicable environmental laws, we may be responsible for investigating and remediating environmental conditions and may be subject to associated liability, including lawsuits brought by private litigants, relating to our properties. These obligations could arise whether we own or lease the property at issue and regardless of whether the environmental conditions were created by us or by a prior owner or tenant. Environmental conditions unknown to us at this time relating to prior, existing or future properties may be discovered and have a material adverse effect on our results of operations. See "Business—Properties."

Cautionary Statement Regarding Forward-Looking Statements

Some of the statements under "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus may include forward-looking statements which reflect our current views with respect to future events and financial performance. The forward-looking statements are subject to various known and unknown risks, uncertainties and other factors. When we use words such as "believes," "expects," "anticipates," "plans," "estimates," "projects," "may," "intends," "seeks" or similar expressions, we are making forward-looking statements.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include the following:

•: the effects of general economic conditions, including changes in the rate of inflation, tuition price sensitivity and interest rates;
•: competitive conditions in the early childhood education and care services industry;
•: various factors affecting occupancy levels, including, but not limited to, the reduction in or changes to the general labor force that would reduce the need for child care services;
•: the availability of a qualified labor pool, the impact of labor organization efforts and the impact of government regulations concerning labor and employment issues;
•: federal and state regulations regarding changes in child care assistance programs, welfare reform, transportation safety, tax rates, minimum wage increases and licensing standards;
•: the loss or reduction of government funding for child care assistance programs or the establishment of a governmentally mandated universal child care benefit;
•: our inability to successfully execute our growth strategy or plans designed to improve operating results, cash flow or our financial position, or to improve our disclosure controls and procedures;
•: the availability of financing, additional capital or access to the sale-leaseback market;
•: our difficulty in meeting or inability to meet our obligations to repay our indebtedness;
•: the availability of sites and/or licensing or zoning requirements that may hinder our ability to open new centers;
•: our ability to integrate acquisitions;
•: our inability to successfully defend against or counter negative publicity associated with claims involving alleged incidents at our centers;
•: our inability to obtain insurance at the same levels, or at costs comparable to those incurred historically;
•: the effects of potential environmental contamination existing on any real property owned or leased by us; and
•: other risk factors that are discussed in this prospectus and, from time to time, in our other Securities and Exchange Commission reports and filings.

We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

Use of Proceeds

The table below sets forth our estimate of the sources and uses of funds required to effect the offering and our recapitalization, assuming they all occurred at , 2004, and 100% of the 9.5% senior subordinated notes are repurchased in the tender offer and consent solicitation. The estimated sources and uses are based on an assumed initial public offering price of $ per IDS and the sale of $ million aggregate principal amount of our senior subordinated notes that are being sold separately from the IDSs. Actual amounts may vary from the amounts shown below, and to the extent we sell more IDSs and notes in this offering, the cash proceeds to the existing holders of our common stock will be greater.

See "Summary—Transactions Related to This Offering and Our Capital Structure," "Capitalization" and "Recapitalization" for details of the sources and uses set forth below.

Sources		(In millions)		Uses	(In millions)
Cash and cash equivalents		$		Revolving credit facility	$	—
Revolving credit facility			—	Purchase of 9.5% senior subordinated notes in tender offer and consent solicitation
IDSs offered hereby				Pre-funding of CMBS loan amortization and interest payments
Notes (not represented by IDSs) offered hereby				Purchase of existing stockholder common stock as part of the recapitalization consideration
				Transaction fees and expenses
	Total			Total
Additional IDSs offered hereby assuming exercise of the over-allotment option in full				Purchase of existing stockholder IDSs as part of the over-allotment option recapitalization consideration
				Additional transaction fees and expenses related to the exercise of the over-allotment option
	Total assuming exercise of the over-allotment option in full			Total assuming exercise of the over-allotment option

Our 9.5% senior subordinated notes bear interest at an annual rate of 9.5% and mature on February 15, 2009.

Recapitalization

Concurrently with the closing of this offering, we will consummate a recapitalization in order to implement the capital structure required for this offering. Prior to this offering, we had issued and outstanding a single class of common stock registered under the securities laws and held by KKR, Oaktree, management and a number of other public stockholders (which own a small percentage of our shares). In addition, management owns a number of options to purchase shares of common stock.

We will undertake the following transaction steps in connection with the recapitalization:

•

We will form a wholly owned subsidiary and will enter into a recapitalization agreement and plan of merger with the subsidiary, whereby we will merge the subsidiary into us.

•

Under the terms of our certificate of incorporation, adoption of the recapitalization agreement and plan of merger and approval of the restated certificate of incorporation will require the affirmative vote of stockholders owning a majority of the outstanding shares of our existing common stock. KKR, which currently holds 79.4% of the voting power of our existing common stock, has informed us that they intend to approve the merger.

•

Assuming that the recapitalization and this offering result in a change in control of KinderCare, immediately prior to the recapitalization all unvested options to purchase shares of our common stock held by our employees under our stock-based compensation plans will become fully vested. Outstanding options will cease to be exercisable and will be cancelled upon the recapitalization, but holders of cancelled options will be provided the same consideration as our existing stockholders in the recapitalization with respect to a number of shares having a fair market value equal to the "spread" of the relevant option (the excess of the fair market value of the underlying shares at the time of the recapitalization over the exercise price of the stock option).

•

In connection with the recapitalization, we will prepare a separate registration statement and hold a special meeting in order to offer our existing stockholders and option holders the following recapitalization consideration for all of our existing shares of common stock, after taking into account the treatment of outstanding options as described above:

(1)

The initial consideration, of:

•

an aggregate amount of $ million in cash (based on the midpoint of the price range set forth on the cover of this prospectus) and

•

an election to receive

•: shares of Class B common stock, subject to a limit on the total shares offered as described below, or
•: IDSs representing shares of Class A common stock and notes; and

(2)

If the over-allotment option to purchase additional IDSs is exercised in full, the holders will receive the net cash proceeds resulting from such exercise in lieu of a portion of IDSs, as described more fully below.

We will offer a maximum of approximately shares of Class B common stock as part of the initial consideration. The shares of Class B common stock will represent % of the outstanding voting power of us and % of the overall value of our equity after giving effect to this offering and the recapitalization. KKR and Oaktree have informed us that they intend to elect to receive the full number of shares of Class B common stock as the recapitalization consideration. If any other holders elect to receive Class B common stock, the amount that KKR and Oaktree will receive will be decreased pro rata based on the number of shares held by holders electing Class B common stock and KKR and Oaktree will receive additional IDSs. See "Description of

Capital Stock—Class B Common Stock" for a description of the terms of the Class B common stock.

The remainder of the recapitalization consideration will consist of approximately IDSs, subject to the additional over-allotment consideration described in the next paragraph.

As part of the merger consideration, if the underwriters exercise their over-allotment option to purchase additional IDSs, we will use all of the net cash proceeds from the sale of such additional IDSs (which would be approximately $ if the over-allotment option was exercised in full) as the recapitalization consideration in lieu of IDSs.

In order to facilitate the distribution of the recapitalization consideration, at the time of the offering we will cause to be deposited with , an escrow agent, IDSs representing the appropriate number of IDSs to cover the underwriters' over-allotment option or alternatively, distributable to our existing equity investors. We will simultaneously accept and cancel all of the shares of existing common stock from holders that have accepted the recapitalization consideration. If the underwriters exercise their over-allotment option to purchase additional IDSs within the 30-day period, the IDSs will be released from escrow to the underwriters pursuant to the escrow agreement, and the net cash proceeds received by us from the underwriters will be distributed to our existing stockholders as the over-allotment consideration. However, if the underwriters do not exercise their over-allotment option to purchase additional IDSs prior to the end of the 30-day option period, on the 31st day, the appropriate number of IDSs will be released from escrow to our existing stockholders in fulfillment of the recapitalization consideration. The escrow account will be governed by an escrow agreement between us and the escrow agent.

•: Under Delaware law and subject to certain procedures, existing stockholders who do not consent to the merger will be entitled to exercise appraisal rights for the fair value of their shares of common stock in lieu of accepting the recapitalization consideration and any applicable over-allotment consideration.

See "Summary—Transactions Related to This Offering and Our Capital Structure—Our Recapitalization" for a structure chart reflecting the transactions described above.

Capitalization

The following table sets forth our cash and cash equivalents and capitalization at March 5, 2004:

•: on an actual basis; and
•: on a pro forma as adjusted basis as if this offering, including the use of proceeds from this offering and our recapitalization, had occurred on that date and we had amended the revolving credit facility on that date.

			At March 5, 2004
			Actual			Adjustments	Pro Forma As Adjusted Assuming No Exercise of the Over- Allotment Option	Adjustments	Pro Forma As Adjusted Assuming Full Exercise of the Over- Allotment Option
			(in thousands)
Cash and cash equivalents			$	34,557		$	$	$	$

Long-term obligations, including current portion:
	Current maturities of long-term debt		$	7,580		$	$	$	$
	Revolving credit facility			11,000
	Mortgage loan			294,588
	Industrial revenue bonds			8,500
	senior subordinated notes			—
	9.5% senior subordinated notes due 2009 (1)			194,423
	8.0% notes due 2008			979
	Capital lease obligations			15,333

		Total long-term debt		532,403

Redeemable portion of Class B common stock				—

Stockholders' equity
	Common stock, $0.01 par value per share (2)			197
	Class A common stock, $0.01 par value per share (3)			—
	Class B common stock, $0.01 par value per share (4)			—
	Additional paid-in capital			26,800
	Notes receivable from stockholders			(1,933	)
	Retained earnings			116,686
	Accumulated other comprehensive income (loss)			429

	Total stockholders' equity			142,179

		Total capitalization	$	674,582		$	$	$	$

(1): On March 29, 2004, we redeemed approximately $15.0 million in aggregate principal amount of our 9.5% senior subordinated notes due 2009.
(2): 100.0 million shares authorized actual and as adjusted (no exercise and full exercise); issued and outstanding: 19,721,646. After completion of our recapitalization, this class of common stock will no longer exist.
(3): After our recapitalization, 100.0 million shares authorized; issued and outstanding: shares as adjusted (no exercise), shares as adjusted (full exercise).
(4): After our recapitalization, 20.0 million shares authorized; issued and outstanding: shares.

Dividend Policies

Upon the closing of this offering, our board of directors is expected to adopt a dividend policy pursuant to which, in the event and to the extent we have lawfully available funds for distribution to the holders of shares of our Class A and Class B common stock as of each , , and , and subject to applicable law, as described below, and the terms of the revolving credit facility, the indenture governing our notes and any other then outstanding indebtedness of ours, our board of directors will declare cash dividends on our Class A and Class B common stock. Pursuant to our certificate of incorporation, the dividend rate on the Class B common stock will equal multiplied by the dividend rate on each share of Class A common stock. The initial dividend rates on the Class A and Class B common stock are expected to be equal to $ and $ , respectively, per share per annum, subject to adjustment. We expect to pay dividends on or about each , , and .

Dividends on the Class A and Class B common stock will be pari passu with one another based on their relative dividend rates. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock.

If we have any remaining cash after the payment of dividends as contemplated above, our board of directors may, in its sole discretion, decide to use that cash to fund capital expenditures or acquisitions, repay indebtedness, pay additional dividends or for general corporate purposes.

The indenture governing our notes restricts our ability to declare and pay dividends on our common stock as follows:

•: we may not pay dividends if such payment will exceed certain amounts to be specified in "Description of Notes;"
•: we may not pay dividends while interest on the notes is being deferred or, after the end of any interest deferral, so long as any deferred interest has not been paid in full; and
•: we may not pay any dividends if a default or event of default under the indenture has occurred and is continuing.

We expect that our amended revolving credit facility will contain restrictions on our ability to declare and pay dividends on our common stock. In addition, we may enter into other borrowing agreements that impose restrictions on our ability to declare dividends with respect to our common stock.

Our board of directors may, in its discretion, amend or repeal these dividend policies. Our board of directors may decrease the level of dividends provided for in these dividend policies or discontinue entirely the payment of dividends.

Future dividends with respect to shares of our capital stock, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, provisions of applicable law and other factors that our board of directors may deem relevant. Under Delaware law, our board of directors may declare dividends only to the extent of our "surplus" (which is defined as total assets at fair market value minus total liabilities, minus statutory capital), or if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal years.

During the past two fiscal years and the first forty weeks of fiscal year 2004, we have not declared or paid any cash dividends or distributions on our capital stock.

Dilution

Dilution is the amount by which the portion of the offering price paid by the purchasers of the IDSs to be sold in the offering that is allocated to our shares of Class A common stock represented by the IDSs exceeds the net tangible book value per share of our common stock after the offering. Net tangible book value per share of our common stock is determined at any date by subtracting our total liabilities from our total assets less our intangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date.

Our net tangible book value at March 5, 2004 was approximately $79.6 million, or $ per share of common stock. After giving effect to our receipt and intended use of approximately $ million of estimated net proceeds (after deducting estimated underwriting discounts and commissions and offering expenses) from our sale of IDSs and notes (not represented by IDSs) in this offering, our pro forma as adjusted net tangible book value at March 5, 2004 would have been approximately $ million, or $ per share of common stock. This represents an immediate increase in net tangible book value of $ per share of our common stock to existing stockholders and an immediate dilution of $ per share of our Class A common stock to new investors purchasing IDSs in this offering.

The following table illustrates this substantial and immediate dilution to new investors:

		Per Share of Class A Common Stock	Per Share of Class A Common Stock Assuming Full Exercise of the Over-Allotment Option
Portion of the initial public offering price of $ per IDS allocated to one share of Class A common stock		$	$
	Net tangible book value per share at March 5, 2004
	Increase per share attributable to cash payments made by investors in this offering

	Pro forma as adjusted net tangible book value after this offering

Dilution in net tangible book value per share to new investors		$	$

The following table sets forth on a pro forma basis at March 5, 2004, assuming no exercise of the over-allotment option:

•: the total number of shares of our Class A and Class B common stock owned by the existing equity investors and to be owned by the new investors, as represented by the IDSs to be sold in this offering;
•: the total consideration paid by the existing equity investors and to be paid by the new investors purchasing IDSs in this offering; and
•: the average price per share of Class A and Class B common stock paid by existing equity investors (cash and stock) and to be paid by new investors purchasing IDSs in this offering:

			Shares of Common Stock Purchased						Average Price Per Share of Common Stock
			Shares of Common Stock Purchased			Total Consideration
			Number	Percent		Amount	Percent
Existing equity investors					%	$		%	$
	Class A common stock
	Class B common stock
New investors					%			%

		Total			%			%

Market Price Information of Existing Common Stock

Our existing common stock is quoted on the OTC Bulletin Board under the symbol "KDCR." The following table shows the range of the high and low sale prices of shares of our existing common stock, as reported on the OTC Bulletin Board for each of our fiscal quarterly periods during the last three years.

		High		Low
Fiscal 2002
	First Quarter	$	13.00	$	12.75
	Second Quarter		15.00		12.75
	Third Quarter		15.00		8.00
	Fourth Quarter		11.50		8.50
Fiscal 2003
	First Quarter	$	11.50	$	11.25
	Second Quarter		11.25		11.01
	Third Quarter(a)		11.01		11.01
	Fourth Quarter		15.00		11.01
Fiscal 2004
	First Quarter	$	16.00	$	13.25
	Second Quarter		13.00		10.00
	Third Quarter		11.50		9.00
	Fourth Quarter (through April 20, 2004)		10.00		8.00

(a): No sales reported in this quarter.

On April 20, 2004, the last trading day before the public announcement of the recapitalization, the last sale price of the existing common stock quoted on the OTC Bulletin Board was $9.40. On April 20, 2004, there were 134 holders of record of our common stock. On , 2004, the last trading day before the effectiveness of the registration statement relating to our proxy statement/prospectus for the recapitalization, the last sale price of the existing common stock quoted on the OTC Bulletin Board was $ .

After the recapitalization and this offering, we will not have any of our existing common stock outstanding.

The market price of the IDSs or the Class A common stock represented thereby will not be correlated to the historical market price of our existing common stock. For more information, see "Risk Factors—Risks Relating to the IDSs, the Shares of Class A Common Stock and the Notes—Before this offering, there was no public market for our IDSs, notes or Class A common stock and an inactive public market for shares of our then outstanding common stock. The price of the IDSs or notes may fluctuate substantially, which could negatively affect holders of IDSs or holders of notes sold separately."

Unaudited Pro Forma Condensed Consolidated Financial Data

The following unaudited pro forma condensed consolidated financial statements have been derived by the application of pro forma adjustments to our historical consolidated financial statements included elsewhere in this prospectus. We are providing the following unaudited pro forma condensed consolidated financial information because the effect of the offering and recapitalization on our financial information is material.

The unaudited pro forma condensed consolidated balance sheet assumes that each of the following had occurred on March 5, 2004, and the unaudited pro forma condensed consolidated statements of operations for the fiscal year ended May 30, 2003 and the forty weeks ended March 5, 2004 assume that each of the following had occurred on June 1, 2002:

•: this offering of IDSs (assuming the underwriters do not exercise their over-allotment option) and notes sold separately (not represented by IDSs);
•: the conversion of shares of our existing common stock into cash, IDSs and shares of our Class B common stock in the recapitalization (in amounts assuming the underwriters do not exercise their over-allotment option);
•: the amendment of our existing revolving credit facility;
•: the repurchase in the tender offer or redemption of all of our 9.5% senior subordinated notes due 2009; and
•: the pre-funding of CMBS loan amortization and interest payments.

We anticipate having to pay call premiums of approximately $ million in order to repurchase or redeem our existing $194.4 million of 9.5% senior subordinated notes due 2009 outstanding at March 5, 2004. We also anticipate taking a write-off of deferred financing costs of $ million associated with the early extinguishment of our $194.4 million of 9.5% senior subordinated notes due 2009 outstanding at March 5, 2004. These call premiums and write-offs of deferred financing costs, which total $ million, are not reflected in the unaudited pro forma condensed consolidated statements of operations for the year ended May 30, 2003 or the forty weeks ended March 5, 2004.

The unaudited pro forma condensed consolidated financial information is for informational purposes only and is not necessarily indicative of either the financial position or the results of operations that would have been achieved had the offering and recapitalization for which we are giving pro forma effect actually occurred on the dates or for the periods indicated described in the accompanying notes, nor is such unaudited pro forma condensed consolidated financial information necessarily indicative of the results to be expected for the full year or any future period. A number of factors may affect our results. See "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors."

The pro forma adjustments are based on preliminary estimates and currently available information and assumptions that management believes are reasonable. The notes to the unaudited pro forma condensed consolidated statements of operations and balance sheet provide a detailed discussion of how such adjustments were derived and presented in the unaudited pro forma condensed consolidated financial information. You should read the unaudited pro forma condensed consolidated financial information in conjunction with "Summary—Transactions Related to This Offering and Our Capital Structure," "Selected Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Balance Sheet
At March 5, 2004

			Historical Consolidated			Pro Forma Adjustments		Pro Forma Consolidated
Assets
Current assets:
	Cash and cash equivalents		$	34,557		$	(a)(b)(c)(d)(e)	$
	Receivables, net			30,091
	Prepaid expenses and supplies			8,175
	Deferred income taxes			11,063
	Assets held for sale			4,238

		Total current assets		88,124
Property and equipment, net				716,887
Deferred income taxes				15,771
Goodwill				42,565
Deferred financing costs				19,982			(c)(d)(e)
Other assets				22,261

			$	905,590		$		$

Liabilities and Stockholders' Equity
Current liabilities:
	Bank overdrafts		$	6,644		$	(d)(e)	$
	Accounts payable			7,496
	Current portion of long-term debt			7,580
	Accrued expenses and other liabilities			109,441			(d)(e)

		Total current liabilities		131,161
Long-term debt				509,490			(a)(b)(d)(e)
Noncurrent self-insurance liabilities				32,417
Deferred income taxes				5,059
Other noncurrent liabilities				85,284

		Total liabilities		763,411

Redeemable portion of Class B common stock				—			(b)

Stockholders' equity:
	Preferred stock			—
	Common stock			197			(a)(b)
	Class A common stock			—			(a)(b)
	Class B common stock			—			(a)(b)
	Additional paid-in capital			26,800
	Notes receivable from stockholders			(1,933	)
	Retained earnings			116,686			(d)(e)
	Accumulated other comprehensive income			429

		Total stockholders' equity		142,179

			$	905,590		$		$

The notes to this unaudited pro forma condensed consolidated balance sheet are an integral part of the pro forma financial information presented.

KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Fiscal Year Ended May 30, 2003
(in thousands)

			Historical Consolidated			Pro Forma Transactions Adjustments		Pro Forma Consolidated
Revenues, net			$	838,584		$		$

Operating expenses:
	Salaries, wages and benefits			462,361
	Depreciation and amortization			57,284
	Rent			51,770
	Provision for doubtful accounts			4,954
	Other			189,801

		Total operating expenses		766,170

	Operating income			72,414
Investment income				420
Interest expense				(41,032	)		(f)(g)
Loss on the early extinguishment of debt				—
Loss on minority investment				(6,700	)

	Income from continuing operations before income taxes			25,102
Income tax expense				(9,940	)

	Income from continuing operations		$	15,162		$		$

The notes to this unaudited pro forma condensed consolidated statement of operations are an integral part of the pro forma financial information presented.

KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Forty Weeks Ended March 5, 2004
(in thousands)

			Historical Consolidated			Pro Forma Transactions Adjustments		Pro Forma Consolidated
Revenues, net			$	649,105		$		$

Operating expenses:
	Salaries, wages and benefits			358,880
	Depreciation and amortization			46,153
	Rent			41,709
	Provision for doubtful accounts			4,639
	Other			148,532

		Total operating expenses		599,913

	Operating income			49,192
Investment income				712
Interest expense				(31,563	)		(h)(i)
Loss on the early extinguishment of debt				(5,209	)
Loss on minority investment				—

	Income from continuing operations before income taxes			13,132
Income tax expense				(5,605	)

	Income from continuing operations		$	7,527		$		$

The notes to this unaudited pro forma condensed consolidated statement of operations are an integral part of the pro forma financial information presented.

Notes to the Unaudited Pro Forma Condensed
Consolidated Financial Information

1. Basis of Presentation

The unaudited pro forma condensed consolidated balance sheet at March 5, 2004 presents our consolidated financial position assuming this offering of IDSs (assuming the underwriters do not exercise their over-allotment option) and separate notes, the exchange of shares of our existing common stock for cash, IDSs and shares of our Class B common stock in the recapitalization (in amounts assuming the underwriters do not exercise their over-allotment option), the amendment of our existing revolving credit facility, the repurchase in the tender offer or redemption of all of our 9.5% senior subordinated notes due 2009, and the pre-funding of CMBS loan amortization and interest payments, had been completed on that date. Our unaudited pro forma condensed consolidated statements of operations for the fiscal year ended May 30, 2003 and the forty weeks ended March 5, 2004 present our consolidated results of operations assuming that the recapitalization and offering had been completed on June 1, 2002. In our opinion, these statements include all material adjustments necessary to reflect, on a pro forma basis, the impact of the offering and the recapitalization on our historical financial information. The pro forma adjustments set forth in the Unaudited Pro Forma Condensed Consolidated Balance Sheet and Unaudited Pro Forma Condensed Consolidated Statements of Operations are described more fully in Note 2, "Pro Forma Assumptions and Adjustments," below.

You should read this unaudited pro forma condensed consolidated financial information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus. Our unaudited pro forma condensed consolidated financial information has been presented for informational purposes only and does not necessarily reflect our results of operations or financial position that would have existed had we operated with the offering and the recapitalization for the periods presented and should not be relied upon as being indicative of our future results after the offering and the recapitalization.

2. Pro Forma Assumptions and Adjustments

Unaudited Pro Forma Condensed Consolidated Balance Sheet at March 5, 2004

The unaudited pro forma condensed consolidated balance sheet has been prepared to reflect the following transactions as if they had occurred on March 5, 2004. Actual amounts could vary from these pro forma adjustments.

(a)

The offering of IDSs and separate notes.

We expect to offer for sale IDSs and $ aggregate principal amount of separate notes for gross proceeds of $ and net proceeds of $ , after deducting underwriters' fees and transaction expenses which are currently estimated at $ . These IDSs will represent shares of our Class A common stock and $ of notes, bearing interest at %, assuming the underwriters do not exercise their over-allotment option for the IDSs.

(b)

The conversion of shares of our existing common stock into cash, IDSs and shares of our Class B common stock in the recapitalization.

We expect to exchange all of our outstanding shares of common stock for $ of cash, using proceeds from the offering, plus IDSs and shares of Class B common stock.

After the second anniversary of the recapitalization and subject to satisfaction of certain conditions, each share of Class B common stock may be converted at the option of the holder into either one IDS or, if the IDSs have automatically separated or are otherwise not

outstanding at the time of such conversion, one share of Class A common stock and a note having a principal amount equal to the note which was represented by each IDS. In addition, at any time on or after the third anniversary of the recapitalization, we will have the option to force conversion of all of the shares of Class B common stock into IDSs on the same terms and subject to the same conditions referred to above. Accordingly, the portion of the Class B common stock exchangeable into senior subordinated debt may be classified as either long-term debt or mezzanine equity. Currently we are presenting this Class B common stock as mezzanine equity.

(c): The amendment of our existing revolving credit facility.

We expect to amend our existing revolving credit facility of $ and to incur debt issuance costs of $ in securing the amendment, which we intend to pay with proceeds from this offering and cash on hand. The new revolving credit facility is expected to have a term of years. The undrawn revolving line of credit, if used, is expected to bear interest at . To the extent the revolving line of credit remains undrawn, we expect to incur a commitment fee of % per year.
(d): The repurchase in full of all outstanding 9.5% senior subordinated notes due 2009.

We intend to use $ of the expected net proceeds from the offering to repay and retire in full the $ outstanding under our 9.5% senior subordinated notes due 2009 together with $ of accrued interest at March 5, 2004 and a call premium of $ through the tender offer and, if required, redemption. We also expect to write-off the deferred financing costs associated with the early extinguishment of the existing senior subordinated notes due 2009, which were $ , respectively, at March 5, 2004.
(e): The pre-funding of CMBS loan amortization and interest payments.

We intend to use $ of the expected net proceeds from the offering to pre-fund $ in amortization payments and $ interest payments under the CMBS loan.

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Fiscal Year Ended May 30, 2003

The unaudited pro forma condensed consolidated statement of operations for the fiscal year ended May 30, 2003 has been prepared to reflect the following adjustments as if the offering and the recapitalization had occurred on June 1, 2002. Only results from continuing operations are depicted. Actual amounts could vary from these pro forma adjustments.

(f): Represents the elimination of historical interest costs associated with debt to be extinguished as a result of the transactions described in Note (d) and Note (e), or extinguished in previous financing transactions completed during fiscal year 2003.
(g): Represents the addition of the interest costs associated with the amended revolving credit facility as discussed in Note (c) and the interest costs associated with the notes forming part of the IDSs and the separate notes as discussed in Note (a) and Note (b).

The unaudited pro forma condensed consolidated statement of operations has not been adjusted to reflect the following because they are non-recurring:

•: the write-off of deferred financing costs associated with the debt to be extinguished early, as described in Note (d), which totaled $ at March 5, 2004;
•: the estimated premiums associated with the repayment of our 9.5% senior subordinated notes due 2009 as described in Note (d) which we estimate will total $ .

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Forty Weeks Ended March 5, 2004

The unaudited pro forma condensed consolidated statement of operations for the forty weeks ended March 5, 2004 has been prepared to reflect the following adjustments as if the offering and the recapitalization had occurred on June 1, 2003. Only results from continuing operations are depicted. Actual amounts could vary from these pro forma adjustments.

(h): Represents the elimination of historical interest costs associated with debt to be extinguished as a result of the transactions described in Note (d), or extinguished in previous financing transactions completed during fiscal year 2003 and the forty weeks ended March 5, 2004.
(i): Represents the addition of the interest costs associated with the amended revolving credit facility as discussed in Note (c) and the interest costs associated with the notes forming part of the IDSs and the separate notes as discussed in Note (a) and Note (b).

The unaudited pro forma condensed consolidated statement of operations has not been adjusted to reflect the following because they are non-recurring:

•: the write-off of deferred financing costs associated with the debt to be extinguished early, as described in Note (d), which totaled $ at March 5, 2004; and
•: the estimated premiums associated with the repayment of our 9.5% senior subordinated notes due 2009 as described in Note (d) which we estimate will total $ .

Selected Historical Consolidated Financial and Other Data

The following table sets forth selected historical consolidated financial and other data. Our fiscal year ends on the Friday closest to May 31. The fiscal years are typically comprised of 52 weeks. However, fiscal year 2000 included 53 weeks. The first quarter is comprised of 16 weeks, while the second, third and fourth quarters are each comprised of 12 weeks.

The information in the following table should be read together with our audited consolidated financial statements for fiscal years 1999 and 2000, which are not included herein, fiscal years 2001, 2002 and 2003 and the related notes, our unaudited consolidated financial statements for the forty weeks ended March 7, 2003 and March 5, 2004 and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all as included elsewhere in this prospectus. The figures for interim periods shown below are not necessarily indicative of results for the applicable full fiscal year.

		Fiscal Year Ended															Forty Weeks Ended
		May 28, 1999			June 2, 2000 (53 Weeks)			June 1, 2001			May 31, 2002			May 30, 2003			March 7, 2003			March 5, 2004
		(in thousands, except per share amounts and child care center data and ratios)
Statement of Operations Data:
Revenues, net		$	610,667		$	673,798		$	721,076		$	806,746		$	838,584		$	635,097		$	649,105
Operating expenses			549,977			598,939			646,562			732,583			766,170			585,299			599,913
Operating income			60,690			74,859			74,514			74,163			72,414			49,798			49,192
Interest expense, net (a)			(41,349	)		(44,979	)		(48,233	)		(43,512	)		(40,612	)		(31,576	)		(36,060	)
Loss on minority investment (b)			—			—			—			(2,265	)		(6,700	)		—			—
Income tax expense			(7,576	)		(11,298	)		(10,095	)		(11,213	)		(9,940	)		(7,215	)		(5,605	)
Income from continuing operations			11,765			18,582			16,186			17,173			15,162			11,007			7,527
Net income			13,526			19,963			15,671			16,543			13,415			10,055			6,389
Per Share Data (c):
	Basic net income per share	$	0.71		$	1.05		$	0.82		$	0.83		$	0.68		$	0.51		$	0.32
	Diluted net income per share		0.70			1.04			0.81			0.82			0.67			0.51			0.32
Balance Sheet Data (at end of period):
Property and equipment, net		$	560,367		$	607,032		$	660,112		$	697,638		$	660,939		$	673,842		$	716,887
Total assets			638,797			695,570			805,367			845,451			811,093			819,929			905,590
Total long-term obligations, including current portion			441,371			475,175			540,602			549,240			470,976			536,325			532,403
Stockholders' equity			51,790			76,673			106,731			123,269			135,159			126,536			142,179
Other Financial Data:
Net cash provided by operating activities			61,810			61,197			69,671			87,466			78,359			48,461			59,220
EBITDA (d)			100,974			117,132			120,807			130,155			123,386			93,212			94,634
Rent			27,773			28,207			37,296			46,910			51,770			39,514			41,709
Ratio of earnings to fixed charges (e)			1.35	x		1.53	x		1.42	x		1.45	x		1.42	x		1.39	x		1.25	x
Comparable center net revenue growth (f)			5.1	%		8.4	%		3.1	%		1.1	%		1.4	%		1.3	%		0.0	%
Capital expenditures (g)		$	92,139		$	82,473		$	94,269		$	95,843		$	83,114		$	69,731		$	41,345
Child Care Center Data:
Number of centers at end of period			1,160			1,169			1,242			1,264			1,264			1,264			1,245
Center licensed capacity at end of period			146,000			150,000			162,000			166,000			167,000			167,000			166,000
Average weekly tuition rate (h)		$	113.45		$	120.75		$	129.34		$	137.72		$	144.45		$	143.85		$	152.04
Occupancy (i)			69.9	%		69.8	%		68.3	%		65.6	%		63.3	%		62.5	%		59.3	%

Notes to Selected Historical Consolidated Financial and Other Data

(a): Interest expense, net was comprised of the following, in thousands:

	Fiscal Year Ended															Forty Weeks Ended
	May 28, 1999			June 2, 2000 (53 Weeks)			June 1, 2001			May 31, 2002			May 30, 2003			March 7, 2003			March 5, 2004
Interest income	$	490		$	386		$	582		$	560		$	420		$	215		$	712
Interest expense		(41,839	)		(45,365	)		(48,815	)		(44,072	)		(41,032	)		(31,791	)		(31,563	)
Loss on the early extinguishment of debt		—			—			—			—			—			—			(5,209	)

	$	(41,349	)	$	(44,979	)	$	(48,233	)	$	(43,512	)	$	(40,612	)	$	(31,576	)	$	(36,060	)

(b): Investments, wherein we do not exert significant influence or own over 20% of the investee's stock, are accounted for under the cost method. During fiscal years 2002 and 2003, we wrote down a minority investment by $2.3 million and $6.7 million, respectively.
(c): The per share amounts have been adjusted to reflect the 2-for-1 stock split, which was effective August 19, 2002.
(d): EBITDA was calculated as follows, in thousands:

			Fiscal Year Ended												Forty Weeks Ended
			May 28, 1999		June 2, 2000 (53 Weeks)		June 1, 2001		May 31, 2002			May 30, 2003			March 7, 2003			March 5, 2004
Net income			$	13,526	$	19,963	$	15,671	$	16,543		$	13,415		$	10,055		$	6,389
Interest expense, net				41,349		44,979		48,233		43,512			40,612			31,576			36,060
Income tax expense				7,576		11,298		10,095		11,213			9,940			7,215			5,605
Depreciation and amortization				36,464		38,951		45,315		57,533			57,284			42,997			46,153
Discontinued operations:
	Interest expense			3		10		5		6			1			1			—
	Income taxes			1,136		840		171		(412	)		(1,145	)		(623	)		(848	)
	Depreciation			920		1,091		1,317		1,760			3,279			1,991			1,275

		EBITDA	$	100,974	$	117,132	$	120,807	$	130,155		$	123,386		$	93,212		$	94,634

alternative to net income under GAAP for purposes of evaluating our results of operations. A reconciliation of EBITDA to net cash provided by operating activities was as follows, in thousands:

	Fiscal Year Ended															Forty Weeks Ended
	May 28, 1999			June 2, 2000 (53 Weeks)			June 1, 2001			May 31, 2002			May 30, 2003			March 7, 2003			March 5, 2004
Net cash provided by operating activities	$	61,810		$	61,197		$	69,671		$	87,466		$	78,359		$	48,461		$	59,220
Income tax expense		7,576			11,298			10,095			11,213			9,940			7,215			5,605
Deferred income taxes		(6,703	)		(4,271	)		116			(6,431	)		10,968			(5,624	)		9,103
Interest expense, net		41,349			44,979			48,233			43,512			40,612			31,576			36,060
Effect of discontinued operations on interest and taxes		1,139			850			176			(406	)		(1,144	)		(622	)		(848	)
Change in operating assets and liabilities		(3,567	)		3,279			(6,997	)		(4,769	)		(16,332	)		12,052			(16,937	)
Other non-cash items		(630	)		(200	)		(486	)		(429	)		983			154			2,431

EBITDA	$	100,974		$	117,132		$	120,807		$	130,155		$	123,386		$	93,212		$	94,634

(e): For purposes of determining the ratio of earnings to fixed charges, earnings are defined as income before income taxes, discontinued operations and a cumulative effect of a change in accounting principle, plus fixed charges. Fixed charges consist of interest expense, including capitalized interest, on all indebtedness, amortization of deferred financing costs and one-third of rental expense on operating leases representing that portion of rental expense that we deemed to be attributable to interest.
(f): Comparable center net revenues include those centers that have been open and operated by us at least one year. Therefore, a center is considered comparable during the first four-week period it has prior year net revenues. Non-comparable net revenues include those generated from centers that have been closed and our revenues from distance learning services. The fiscal year ended June 2, 2000 included 53 weeks of operations. If fiscal year 2000 were adjusted to a 52 week basis, the comparable center net revenue growth would have been 5.2% in fiscal year 2001 and 6.2% in fiscal year 2000.
(g): Capital expenditures included the following, in thousands:

	Fiscal Years Ended										Forty Weeks Ended
	May 28, 1999		June 2, 2000 (53 weeks)		June 1, 2001		May 31, 2002		May 30, 2003		March 7, 2003		March 5, 2004
New center development	$	57,633	$	36,631	$	44,254	$	63,990	$	50,651	$	44,274	$	21,379
Maintenance capital expenditures		34,506		45,842		50,015		31,853		32,463		25,457		19,966

	$	92,139	$	82,473	$	94,269	$	95,843	$	83,114	$	69,731	$	41,345

(h): We calculate the average weekly tuition rate as the actual tuition charged, net of discounts, for a specified time period, divided by "full-time equivalent," or FTE, attendance for the related time period. FTE attendance is not a strict head count. Rather, the methodology determines an approximate number of full-time children based on weighted averages. For example, an enrolled full-time child equates to one FTE, while a part-time child enrolled for five half-days equates to 0.5 FTE. The FTE measurement of center capacity utilization does not necessarily reflect the actual number of full- and part-time children enrolled.
(i): Occupancy is a measure of the utilization of center capacity. We calculate occupancy as the FTE attendance divided by the sum of the centers' licensed capacity during the related time period.

Management's Discussion and Analysis of
Financial Condition and Results of Operations

You should read the following discussion in conjunction with "Selected Historical Consolidated Financial and Other Data" and the consolidated financial statements and the related notes presented beginning on Page F-1 of this prospectus. We utilize a financial reporting schedule comprised of 13 four-week periods and our fiscal year ends on the Friday closest to May 31. The information presented refers to the 52 weeks ended June 1, 2001 as "fiscal year 2001," the 52 weeks ended May 31, 2002 as "fiscal year 2002" and the 52 weeks ended May 30, 2003 as "fiscal year 2003." Our first fiscal quarter is comprised of 16 weeks, while the remaining quarters are each comprised of 12 weeks.

Overview

We are the nation's leading for-profit provider of early childhood education and care services based on number of centers and licensed capacity. We provide services to infants and children up to 12 years of age, with a majority of the children from the ages of six weeks to five years old. At March 5, 2004, licensed capacity at our centers was approximately 166,000, and we served approximately 126,000 children and their families at 1,245 child care centers. We distinguish ourselves by providing high quality educational programs, a professional, and well-trained staff and clean, safe and attractive facilities. We focus on the development of the whole child: physically, socially, emotionally, cognitively and linguistically. In addition to our primary business of center-based child care, we also own and operate a distance learning company serving teenagers and young adults through our subsidiary, KC Distance Learning, Inc.

Net Revenues

We derive our net revenues primarily from the tuition we charge for attendance by children at our centers. Our tuition rates and net revenues can be significantly impacted by enrollment levels and factors affecting the enrollment mix at our centers. These factors include (i) enrollment levels by geographic location because we can command higher tuition rates in certain geographic areas like the northeast; (ii) the age mix of children enrolled because our tuition rates depend on the age of the child and are generally higher for younger children; (iii) the mix between full- and part-time attendance because we charge a premium rate for part-time enrollment and (iv) the level of participation in discount programs. Recently, net revenue growth has primarily resulted from the addition of new centers through internal development and acquisitions, and to a lesser extent due to increased tuition charges and expanded programs at existing centers.

Tuition charges from our child care centers represent the majority of our net revenues. We collect tuition on a weekly basis in advance. The majority of our tuition is paid by individual families. Approximately 20% is paid at varying levels of subsidy by government agencies. In our employer-sponsored centers, tuition may be partly subsidized by the employers. We provide certain discounts to families, government agencies and employees. These include discounts with respect to government agency reimbursed rates, staff discounts, family discounts for multiple enrollments, marketing discounts for referrals or trial periods and employer-based discounts.

Over the past several years, we have pursued a strategy of increasing our net revenues through enhanced center yield management. We have done so by balancing an increase in tuition rates against the gradual decline in occupancy at our centers and by expanding our fee-based service offerings. Our comparable center net revenues have grown moderately from fiscal year 2001 to fiscal year 2003 and were relatively flat during the forty weeks ended March 5, 2004. A center is included in comparable center net revenues when it has been open and operated by us for at least one year. Therefore, a center is considered comparable during the first four-week period it has prior year net revenues.

Non-comparable net revenues include those generated from centers that have been closed and from our distance learning services.

We determine tuition rates based upon a number of factors, including the age of the child, full- or part-time attendance, enrollment levels, location and competition. Tuition rates are typically adjusted company-wide each year to coincide with the back-to-school periods. However, we may adjust individual classroom rates within a specific center at any time based on competitive position, occupancy levels and demand. In order to maximize enrollment, center directors may also adjust the rates at their center or offer discounts at their discretion, within limits. These rate discounts and adjustments are closely monitored by our field and corporate management. Our focus on pricing at the classroom level within our centers has enabled us to improve comparable center net revenue growth throughout the year without losing occupancy in centers where the quality of our services, demand and other market conditions support such increases. We believe that our reputation, brand awareness, educational offerings and focus on developing centers in growing and comparatively more affluent regions of the United States are some of the primary reasons we have been able to charge premium tuition rates.

We calculate an average weekly tuition rate as the actual tuition charged, net of discounts, for a specified time period, divided by "full-time equivalent," or FTE, attendance for the related time period. FTE attendance is not a strict head count. Rather, the methodology determines an approximate number of full-time children based on weighted averages. For example, an enrolled full-time child equates to one FTE, while a part-time child enrolled for five half-days equates to 0.5 FTE. The FTE measurement of center capacity utilization does not necessarily reflect the actual number of full- and part-time children enrolled.

The average weekly tuition rate has risen primarily due to the annual tuition rate increases we have instituted as well as the classroom specific tiered rates we have implemented. Although we have increased rates, in most cases our families experience lower tuition charges over time. This is due to the fact that within a specific center, the highest pricing levels exist in the infant program and the lowest pricing is charged in our school age offerings, as a result of the higher care requirements of younger children. The average weekly tuition rate is also impacted by shifts in enrollment within various geographic markets, enrollment mix between age segments, enrollment mix between full- and part-time attendance, participation levels within discount programs and the opening of new centers in markets that support rates at levels higher than our company average. Average tuition is also affected by regional concentrations, which may represent markets with significantly different tuition levels.

Occupancy is a measure of the utilization of center capacity. We calculate occupancy as the FTE attendance divided by the sum of the center's licensed capacity during the related time period. We have experienced declines in our occupancy levels in recent years. We believe the factors contributing to these declines include reduced or flat government funding for child care assistance programs, increased unemployment rates and job losses and the general economic downturn. Our licensed capacity has increased from 162,000 at the end of fiscal year 2001 to 166,000 at March 5, 2004 due to new center openings and acquisitions. Typically, our new centers open with lower occupancy than our pre-existing center base.

In addition to our tuition charges, we record revenues from fees and other income. We charge a reservation fee, typically at half of the normal tuition charge, for any full week that an enrolled child is absent from our centers. We also collect registration fees and fees to cover educational supplies at the time of enrollment and annually thereafter. We offer tutorial programs on a supplemental fee basis in the majority of our centers in the areas of literacy and reading, foreign language and mathematics. We also offer field trips, predominantly during the summer months, for an additional charge. Our child care centers earn other income from various sources, including management fees related to certain employer-sponsored contracts. In addition to our child care operations, our subsidiary, KC Distance

Learning, sells high school level courses via online and correspondence formats and provides related instructional services directly to private students, as well as to schools and school districts.

Seasonality

New enrollments are generally highest during the traditional fall "back to school" period and after the calendar year-end holidays. Therefore, we attempt to focus our marketing efforts to support these periods of high re-enrollments. Enrollment generally decreases 5% to 10% during the summer months and calendar year-end holidays.

New Center Openings, Acquisitions and Center Closures

We intend to continue to open 15 to 30 new centers each year. In addition, we will make selective acquisitions of existing high quality centers. We also continually evaluate our centers and close those, typically older, centers that are not generating positive cash flow. During the periods indicated, we opened, acquired and closed centers as follows:

		Fiscal Year Ended						Forty Weeks Ended
		June 1, 2001		May 31, 2002		May 30, 2003		March 7, 2003		March 5, 2004
Number of centers at the beginning of the period		1,169		1,242		1,264		1,264		1,264
Openings		44		35		28		24		12
Acquisitions		75		—		—		—		1
Closures		(46	)	(13	)	(28	)	(24	)	(32	)

	Number of centers at the end of the period	1,242		1,264		1,264		1,264		1,245

Total center licensed capacity at the end of the period		162,000		166,000		167,000		167,000		166,000

Operating Expenses

Our operating expenses include the direct costs related to the operations of our centers, as well as the costs associated with the field and corporate oversight of such centers. Our large, nationwide customer base gives us the ability to spread the costs of programs and services, such as curriculum development, training programs and other management processes over a large number of centers.

Labor related costs are the largest component of operating expenses. We have been successful in managing our labor productivity without impacting the quality of services within our centers. Other costs incurred at the center level include insurance, janitorial, maintenance, utilities, transportation, provision for doubtful accounts, food and marketing. While we generally have seen gradual rises in our expenses, our largest increase in expense has come from the recent renewals of our insurance policies due to the higher premiums that resulted from the terrorist attacks on September 11, 2001 and the subsequent expiration of a set of three-year fixed premium policies. We anticipate that these costs will remain at their current levels or may increase further.

Other significant components of our cost structure include depreciation and rent. We have experienced increases in our rent expense primarily due to an active sale-leaseback program in which we sell our centers to unaffiliated third parties and lease them back. We then redeploy the proceeds to buy and develop additional sites for our child care centers, or to reduce debt levels. We have an active inventory of our properties available for sale and plan to continue our sale-leaseback program for as long as there is investor interest.

Application of Critical Accounting Policies

Critical Accounting Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that management make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Predicting future events is inherently an imprecise activity and as such requires the use of judgment. Actual results may vary from estimates in amounts that may be material to the financial statements.

For a description of our significant accounting policies, see note 2 to the audited consolidated financial statements included with this prospectus. The following accounting estimates and related policies are considered critical to the preparation of our financial statements due to the business judgment and estimation processes involved in their application. Management has reviewed the development and selection of these estimates and their related disclosure with the Audit Committee of the Board of Directors.

Revenue recognition. The recognition of our net revenues meets the following criteria: the existence of an arrangement, the rendering of services, a determinable fee and probable collection. Tuition revenues, net of discounts, and other revenues are recognized as services are performed. Payments may be received in advance of services being rendered, in which case the revenue is deferred and recognized during the appropriate time period, typically a week. Our non-refundable registration and education fees are amortized over the average enrollment period, not to exceed one year.

Accounts receivable. Our accounts receivable are comprised primarily of tuition due from governmental agencies, parents and employers. Accounts receivable are presented at estimated net realizable value. We use estimates in determining the collectibility of our accounts receivable and must rely on our evaluation of historical experience, governmental funding levels, specific customer issues and current economic trends to arrive at appropriate allowance. Material differences may result in the amount and timing of bad debt expense if actual experience differs significantly from management estimates.

Long-lived and intangible assets. We assess the potential impairment of property and equipment and finite-lived intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An asset's value is impaired if our estimate of the aggregate future cash flows, undiscounted and without interest charges, to be generated by the asset is less than the carrying value of the asset. Such cash flows consider factors such as expected future operating income and historical trends, as well as the effects of demand and competition. To the extent impairment has occurred, the loss will be measured as the excess of the carrying amount of the asset over its fair value. Such estimates require the use of judgment and numerous subjective assumptions, which, if actual experience varies, could result in material differences in the requirements for impairment charges. Impairment charges, which were included as a component of depreciation expense, were as follows, in thousands:

	Fiscal Year Ended						Forty Weeks Ended
	June 1, 2001		May 31, 2002		May 30, 2003		March 7, 2003		March 5, 2004
Impairment charges included in depreciation expense	$	1,026	$	2,968	$	1,395	$	280	$	1,137
Impairment charges included in discontinued operations		23		597		1,951		999		145

Total impairment charges	$	1,049	$	3,565	$	3,346	$	1,279	$	1,282

Investments. Investments, wherein we do not exert significant influence or own over 20% of the investee's stock, are accounted for under the cost method. We measure the fair values of these investments annually, or more frequently if there is an indication of impairment, using multiples of comparable companies and discounted cash flow analysis. During fiscal years 2002 and 2003, we wrote

down a minority investment by $2.3 million and $6.7 million, respectively, due to a reduced valuation on the subject company and dilution of our minority interest. During the forty weeks ended March 5, 2004, we received a $0.7 million dividend payment from a minority investment accounted for under the cost method. We recognized investment income of $0.5 million for our proportionate share of accumulated earnings since the date of the initial investment and $0.2 million was recorded as a return of investment in the subject company.

Self-insurance obligations. We self-insure a portion of our general liability, workers' compensation, auto, property and employee medical insurance programs. We purchase stop loss coverage at varying levels in order to mitigate our potential future losses. The nature of these liabilities, which may not fully manifest themselves for several years, requires significant judgment. We estimate the obligations for liabilities incurred but not yet reported or paid based on available claims data and historical trends and experience, as well as future projections of ultimate losses, expenses, premiums and administrative costs. The accrued obligations for these self-insurance programs were $45.1 million and $53.7 million at May 30, 2003 and March 5, 2004, respectively. Our internal estimates are reviewed throughout the fiscal year by a third party actuary. While we believe that the amounts accrued for these obligations are sufficient, any significant increase in the number of claims and/or costs associated with claims made under these programs could have a material adverse effect on our consolidated financial statements.

Accounting Treatment for IDSs and Class B Common Stock. Our IDS units include Class A common stock, the notes representing senior subordinated debt and three embedded derivative features that may require bifurcation under Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted. The embedded derivative features include a call option, a change of control put option, and a term-extending option on the notes. Upon completion of this offering, proceeds from the issuance of the IDSs will be allocated, based upon relative fair value, to Class A common stock and the notes. If it is determined at the time of issuance that any of the embedded derivatives are required to be bifurcated and separately accounted for, a portion of the proceeds from the original issuance will also be allocated to these derivatives equal to the combined fair value of the embedded derivatives that require bifurcation. If a portion of the initial proceeds is allocated to any of the derivatives, the notes will initially be recorded at a premium or discount and accreted or amortized to their redemption value using the effective interest method. Any such allocation will not affect the tax treatment of the IDSs.

The Class A common stock portion of the IDS unit will be included in stockholders' equity, net of related transaction costs, and dividends paid on the Class A common stock will be recorded as a reduction to retained earnings when declared by us. The note portion of the IDS unit will be included in long-term debt, and the related transaction costs will be capitalized as deferred financing costs and amortized to interest expense using the effective interest method. Interest on the notes will be charged to expense as accrued by us. The bifurcated derivatives will be recorded as an asset or a liability and will be marked to market with changes in fair value being recorded in earnings. We intend to determine the fair value of the Class A common stock, the notes and embedded derivatives through the sale of the separate notes with the same terms that are part of this offering.

In connection with the merger and recapitalization, we will issue shares of Class B common stock to some current stockholders, which shares may, subject to certain conditions and after two years, be exchanged for IDSs. The dividend rate on each share of Class B common stock will equal multiplied by the dividend rate on each share of Class A common stock. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock.

After the second anniversary of this offering and subject to satisfaction of certain conditions, each share of Class B common stock may be converted at the option of the holder into either one IDS or, if the IDSs have automatically separated or are otherwise not outstanding at the time of such conversion, one share of Class A common stock and a note having a principal amount equal to the note which was

represented by each IDS. Accordingly, at the date of issuance of the Class B common stock, based on relative fair values, a pro rata portion of the Class B common stock convertible into notes will be classified as mezzanine equity and the pro rata portion convertible into Class A common stock will be classified as permanent equity. If it is determined at the time of issuance that the embedded conversion option is required to be bifurcated and separately accounted for, a portion of the fair market value of the Class B common stock will also be allocated to this derivative. If a portion of the fair value at the time of issuance is allocated to the derivative, the amount recorded as mezzanine equity will initially be recorded at a discount or premium and accreted or amortized to the redemption value using the effective interest method. The bifurcated derivative will be recorded as an asset or a liability and will be marked to market with changes in fair value being recorded in the statement of operations.

At the time the holder exercises its conversion right, the portion of the Class B common stock included as mezzanine equity will be reclassified to debt and the associated interest payments will be included in interest expense on the statement of operations.

In connection with the merger and recapitalization, management will receive a combination of cash and IDSs or Class B common stock in exchange for certain of their outstanding shares and stock options. The resulting compensation expense will be based upon the fair value of the IDSs or Class B common stock received by management at the date of exchange.

Income taxes. Accounting for income taxes requires us to estimate our future tax liabilities. Due to timing differences in the recognition of items included in income for accounting and tax purposes, deferred tax assets or liabilities are recorded to reflect the impact arising from these differences on future tax payments. With respect to recorded tax assets, we assess the likelihood that the asset will be realized. If realization is in doubt because of uncertainty regarding future profitability or enacted tax rates, we provide a valuation allowance related to the asset. Should any significant changes in the tax law or our estimate of the necessary valuation allowance occur, we would be required to record the impact of the change. This could have a material effect on our financial position or results of operations. In the third quarter of fiscal year 2004, our effective tax rate increased to 43.5% compared to 39.6% for the same period in fiscal year 2003 due, in part, to the expiration of the Work Opportunity Tax Credit as of December 31, 2003.

Income taxes payable with respect to any fiscal year are subject to adjustment at any time until the tax returns are audited or the statute of limitations for the fiscal year closes. We maintain contingency accruals for potential adjustments that may arise after our tax returns have been filed. We believe that an appropriate liability has been established for potential tax exposure; however, actual results may differ materially from these potential contingency accruals. At March 5, 2004, we were subject to income tax audits for fiscal years 1998, 1999, and 2000. To the extent the adjustments arising from this audit, or other potential events, result in a material adjustment to the accrued estimates, the effect would be recognized in income tax expense (benefit) in the consolidated statement of operations in the period of the event.

We intend to account for our issuance of the IDS units in this offering as representing shares of Class A common stock and notes by allocating the proceeds for each IDS unit to the underlying Class A common stock or note based upon the relative fair values of each. Accordingly, we will account for the portion of the aggregate IDSs outstanding that represents notes as long-term debt bearing a stated interest rate of % maturing on , 2014. We have concluded that it is appropriate, and we intend to annually deduct interest expense of approximately $ on the notes from taxable income for U.S. federal and state income tax purposes. We cannot assure you that the IRS or the courts will not seek to challenge the treatment of these notes as debt or the amount of interest expense deducted, although to date we have not been notified that the notes should be treated as equity rather than debt for U.S. federal and state income tax purposes. If the cumulative interest expense associated with the notes were determined to be not deductible, in whole or in part, from taxable income, we would be required to recognize additional tax expense and establish a related

income tax liability. In addition, we could be subject to interest and penalties in relation to any disallowance of the interest expense deduction. The additional tax and interest due to the federal and state authorities would be based on our taxable income or loss for each of the years that we take the interest expense deduction and would materially reduce our after tax cash flow and materially affect our ability to make interest or dividend payments on the IDS units. We do not currently intend to record a liability for a potential disallowance of this interest expense deduction. In addition, characterization by the IRS of the disallowed interest as a dividend could subject non-U.S. holders to incremental withholding taxes to the extent that the U.S. withholding tax on dividends exceeds the withholding tax on interest. The incremental withholding taxes could subject us to additional liability since we would not be able to collect the incremental tax from the non-U.S. holders.

The determination of whether the portion of the IDS represented by the notes is appropriately classified as debt or equity for U.S. federal income tax purposes is based on all of the facts and circumstances. There is no statutory definition of indebtedness for U.S. federal and state income tax purposes and its characterization is governed by principles developed in case law, which analyzes numerous factors that are intended to identify the economic substance of an investor's interest in the company. While the IRS has not published an exhaustive list of relevant items, principal factors often cited include the intent of the parties, whether the instrument in question is an unconditional obligation to pay a sum certain at a maturity date that is not unduly far in the future and whether the instrument has significant equity-like characteristics, such as convertibility into our stock, participation rights, voting power, subordination to other creditors and proportionate ownership by equity holders.

See "Material U.S. Federal Income Tax Consequences—Consequences to U.S. Holders—Notes" for further details.

Initial Adoption of Accounting Policies

SFAS No. 149, Amendments of Statement 133 on Derivative Instruments and Hedging Activities, amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 was adopted for contracts entered into or modified and for hedging relationships designated after June 30, 2003. This adoption did not have a material impact on our consolidated financial statements.

SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The statement requires that an issuer classify a financial instrument that is within its scope as a liability, or an asset in some circumstances. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective in the second quarter of our fiscal year 2004. This statement did not have a material impact on our consolidated financial statements. While SFAS No. 150 did not have a material impact on our existing financial instruments, it is reasonably possible that certain equity instruments issued in future periods will include features that require those instruments, or portions of those instruments, to be treated as debt in our consolidated financial statements.

Recently Issued Accounting Pronouncements

Financial Accounting Standards Board Interpretation, or FIN, 46, Consolidation of Variable Interest Entities, as amended by FIN 46R, requires consolidation where there is a controlling financial interest in a variable interest entity, previously referred to as a special-purpose entity, and certain other entities. The implementation of FIN 46R has been delayed and will be effective during the fourth quarter of our fiscal year 2004. We do not anticipate an impact to our consolidated financial statements.

Results of Operations

Forty Weeks ended March 7, 2003 compared to Forty Weeks ended March 5, 2004

The following table shows the comparative operating results of KinderCare, in thousands, except the average weekly tuition rate:

				Forty Weeks Ended March 7, 2003			Percent of Revenues		Forty Weeks Ended March 5, 2004			Percent of Revenues		Change Amount Increase/ (Decrease)
Revenues, net				$	635,097		100.0	%	$	649,105		100.0	%	$	14,008

Operating expenses:
	Salaries, wages and benefits:
		Center expense			329,232		51.9			330,893		51.0			1,661
		Field and corporate expense			26,114		4.1			27,987		4.3			1,873

			Total salaries, wages and benefits		355,346		56.0			358,880		55.3			3,534
	Depreciation and amortization				42,997		6.8			46,153		7.1			3,156
	Rent				39,514		6.2			41,709		6.4			2,195
	Other				147,442		23.2			153,171		23.6			5,729

			Total operating expenses		585,299		92.2			599,913		92.4			14,614

		Operating income		$	49,798		7.8	%	$	49,192		7.6	%	$	(606	)

Average weekly tuition rate				$	143.85				$	152.04				$	8.19
Occupancy					62.5	%				59.3	%				(3.2	)
Comparable center net revenue growth					1.3	%				0.0	%				(1.3	)

Revenues, net. Net revenues increased $14.0 million, or 2.2%, from the same period last year to $649.1 million in the forty weeks ended March 5, 2004. The increase was due to higher average weekly tuition rates, offset by reduced occupancy, as well as additional net revenues generated by the newly opened centers. Comparable center net revenues decreased $0.2 million.

The average weekly tuition rate increased $8.19 or 5.7%, from the same period last year to $152.04 in the forty weeks ended March 5, 2004 due primarily to tuition increases. Occupancy declined to 59.3% from 62.5% for the same period last year due primarily to reduced full-time equivalent attendance within the population of older centers. We believe the factors contributing to this decline include reduced or flat government funding for child care assistance programs, increased unemployment rates and job losses and the general economic downturn.

During the periods indicated, we opened, acquired and closed centers as follows:

		Forty Weeks Ended
		March 7, 2003		March 5, 2004
Number of centers at the beginning of the period		1,264		1,264
Openings		24		12
Acquisitions		—		1
Closures		(24	)	(32	)

	Number of centers at the end of the period	1,264		1,245

Total center licensed capacity at the end of the period		167,000		166,000

Salaries, wages and benefits. Expenses for salaries, wages and benefits increased $3.5 million, from the same period last year to $358.9 million. Total salaries, wages and benefits expense as a percentage of

net revenues was 56.0% and 55.3% for the forty weeks ended March 7, 2003 and March 5, 2004, respectively.

Expenses for salaries, wages and benefits directly associated with the centers was $330.9 million, an increase of $1.7 million from the same period last year. The increase was primarily due to costs from newly opened centers and overall higher wage rates, offset by control over labor hours and a reduction in medical insurance costs. See "—Wage Increases." At the center level, salaries, wages and benefits expense as a percentage of net revenues declined to 51.0% from 51.9% for the same period last year due primarily to improved labor productivity and a reduction in medical insurance costs. Expense for salaries, wages and benefits associated with field and corporate employees increased $1.9 million, due primarily to $1.5 million additional management bonus expense, which was the result of recognizing the expense earlier this fiscal year compared to the prior year. This earlier recognition was due to the timing of our financial performance to date compared to the same period last year. Our annual management bonus expense is not expected to be materially higher than the prior year.

Depreciation and amortization. Depreciation and amortization expense increased $3.2 million from the same period last year to $46.2 million. Significant changes in depreciation expense included the impact of purchasing centers previously included in our synthetic lease facility, our sale-leaseback program, whereby centers are classified as operating leases when they are sold and leased back and impairment charges. These changes were as follows, in thousands:

Depreciation for centers previously included in the synthetic lease facility		$	2,929
Change in impairment charges			857
Impact of the centers sold in the sale-leaseback program			(1,585	)
Other			955

	Increase in depreciation and amortization expense	$	3,156

Impairment charges of $0.3 million and $1.1 million in the forty weeks ended March 7, 2003 and March 5, 2004, respectively, related to underperforming centers and certain undeveloped properties.

Rent. Rent expense increased $2.2 million from the same period last year to $41.7 million. The most significant changes in the rent expense included the impact of our sale-leaseback program and centers previously included in our synthetic lease facility. In addition, the rental rates experienced on new and renewed center leases are higher than those experienced in previous fiscal periods. The changes were as follows, in thousands:

Impact of centers leased under the sale-leaseback program		$	5,095
Amortization of deferred gains on sale-leaseback transactions			(1,638	)
Rent expense for centers previously included in the synthetic lease facility			(2,449	)
Other			1,187

	Increase in rent expense	$	2,195

Other operating expenses. Other operating expenses include costs directly associated with the centers, such as food, insurance, transportation, janitorial, maintenance, utilities, property taxes and licenses and marketing costs, and expenses related to field management and corporate administration. Other operating expenses increased $5.7 million, or 3.9%, from the same period last year to $153.2 million. The increase was due primarily to $4.4 million of increased insurance costs and additional center level costs for newly opened centers. Other operating expenses as a percentage of net revenues increased to 23.6% from 23.2% for the same period last year primarily as a result of the higher insurance costs.

Operating income. Operating income was $49.2 million, a decrease of $0.6 million, or 1.2%, from the same period last year. Operating income decreased due to $1.6 million of higher insurance costs, which included a reduction in medical insurance of $2.8 million, and $3.5 million of increased rent expense from sale-leasebacks, offset by higher tuition rates and control over labor productivity. Operating income as a percentage of net revenues was 7.6% compared to 7.8% for the same period last year.

Investment income. During the forty weeks ended March 5, 2004, we received a dividend payment of $0.7 million from a minority investment accounted for under the cost method. Investment income of $0.5 million was recognized to the extent of our proportionate share of accumulated earnings since the date of the initial investment. In accordance with APB No. 18, The Equity Method of Accounting for Investments in Common Stock, the remaining $0.2 million was recorded as a return of investment in the subject company.

Interest expense. Interest expense was $31.6 million for the forty weeks ended March 5, 2004, a decrease of $0.2 million from the same period last year. Our weighted average interest rate on our long-term debt, including amortization of deferred financing costs, but excluding the write-off discussed below, was 7.8% and 7.0% for the forty weeks ended March 7, 2003 and March 5, 2004 respectively.

Loss on the early extinguishment of debt. As a result of our debt refinancing in July 2003 and the acquisition and redemption of a portion of our 9.5% senior subordinated notes, we recognized a loss on the early extinguishment of debt of $5.2 million in the forty weeks ended March 5, 2004. These costs included the write-off of deferred financing costs of $3.6 million associated with the debt that was repaid and the incurrence of premium costs of $1.6 million in connection with the acquisition and redemption of a portion of our 9.5% senior subordinated notes. In the forty weeks ended March 5, 2004, we purchased $56.3 million and redeemed $39.3 million aggregate principal amount of our 9.5% senior subordinated notes.

Income tax expense. Income tax expense was $7.2 million, or 39.6% of pretax income, and $5.6 million, or 42.7% of pretax income, in the forty weeks ended March 7, 2003 and March 5, 2004, respectively. Income tax expense was computed by applying estimated effective income tax rates to the income or loss before income taxes. Income tax expense varies from the statutory federal income tax rate due primarily to state income taxes and non-tax deductible expenses, offset by tax credits. The increase in the effective tax rate for the forty weeks ended March 5, 2004 was due, in part, to the expiration of the Work Opportunity Tax Credit as of December 31, 2003.

Discontinued operations. We recognized losses of $1.0 million and $1.1 million on discontinued operations in the forty weeks ended March 7, 2003 and March 5, 2004, respectively, which represents the operating results, net of tax, for all periods presented of the 60 centers closed during fiscal year

2003 and the forty weeks ended March 5, 2004. Discontinued operations included the following, in thousands:

		Forty Weeks Ended
		March 7, 2003			March 5, 2004
Revenues, net		$	13,010		$	3,684

Operating expenses:
	Salaries, wages and benefits		8,506			2,853
	Depreciation		1,991			1,275
	Rent		1,323			322
	Provision for doubtful accounts		280			118
	Other		2,484			1,102

Total operating expenses			14,584			5,670

	Operating loss		(1,574	)		(1,986	)
Interest expense			(1	)		—
Income tax benefit			623			848

	Discontinued operations, net of tax	$	(952	)	$	(1,138	)

Depreciation expense for the forty weeks ended March 7, 2003 and March 5, 2004 included $1.0 million and $0.1 million of impairment charges, respectively. Other operating expenses included gains on closed center sales of $1.2 million and $0.6 million in the forty weeks ended March 7, 2003 and March 5, 2004, respectively.

Fiscal Year 2002 compared to Fiscal Year 2003

The following table shows the comparative operating results of KinderCare, in thousands, except the average weekly tuition rate:

				Fiscal Year Ended
				May 31, 2002			Percent of Revenues		May 30, 2003			Percent of Revenues		Change Amount Increases/ (Decrease)
Revenues, net				$	806,746		100.0	%	$	838,584		100.0	%	$	31,838

Operating expenses:
	Salaries, wages and benefits:
		Center expense			414,605		51.4			427,600		51.0			12,995
		Field and corporate expense			31,943		4.0			34,761		4.1			2,818

			Total salaries, wages and benefits		446,548		55.4			462,361		55.1			15,813

	Depreciation and amortization				57,533		7.1			57,284		6.9			(249	)
	Rent				46,910		5.8			51,770		6.2			4,860
	Other				181,592		22.5			194,755		23.2			13,163

			Total operating expenses		732,583		90.8			766,170		91.4			33,587

Operating income				$	74,163		9.2	%	$	72,414		8.6	%	$	(1,749	)

Average weekly tuition rate				$	137.72				$	144.45				$	6.73
Occupancy					65.6	%				63.3	%				(2.3	)
Comparable center net revenue growth					1.1	%				1.4	%				0.3

Revenues, net. Net revenues increased $31.8 million, or 3.9%, in fiscal year 2003 compared to fiscal year 2002 to $838.6 million. The increase was due to higher average weekly tuition rates as well as

additional net revenues generated by newly opened centers. Comparable center net revenues increased $11.4 million, or 1.4%.

The average weekly tuition rate increased $6.73, or 4.9%, to $144.45 in fiscal year 2003, due primarily to tuition increases. Occupancy declined to 63.3% from 65.6% in fiscal year 2002 primarily due to reduced full-time equivalent attendance within the population of older centers.

During fiscal years 2002 and 2003, we opened and closed centers as follows:

		Fiscal Year Ended
		May 31, 2002		May 30, 2003
Number of centers at the beginning of the fiscal year		1,242		1,264
Openings		35		28
Closures		(13	)	(28	)

	Number of centers at the end of the fiscal year	1,264		1,264

Total center licensed capacity at the end of the fiscal year		166,000		167,000

Salaries, wages and benefits. Expenses for salaries, wages and benefits increased $15.8 million, or 3.5%, in fiscal year 2003 compared to fiscal year 2002 to $462.4 million. Total salaries, wages and benefits expense as a percentage of net revenues was 55.4% and 55.1% for fiscal years 2002 and 2003, respectively.

Expenses for salaries, wages and benefits expense directly associated with the centers was $427.6 million, an increase of $13.0 million in fiscal year 2003 compared to fiscal year 2002. The increase was primarily due to overall higher wage rates and higher medical insurance costs. See "—Wage Increases." At the center level, salaries, wages and benefits expense as a percentage of net revenues improved from 51.4% for fiscal year 2002 to 51.0% for fiscal year 2003. This improvement was due primarily to strong controls over the management of labor hours.

Depreciation and amortization. Depreciation and amortization expense decreased $0.2 million in fiscal year 2003 compared to fiscal year 2002 to $57.3 million. Significant changes in depreciation included the impact of the cessation of goodwill amortization for all of fiscal year 2003, our sale-leaseback program, whereby centers are classified as operating leases when they are sold and leased back, impairment charges and newly opened centers. These changes were as follows, in thousands:

Cessation of goodwill amortization		$	(2,934	)
Change in impairment charges			(1,573	)
Impact of the centers sold in the sale-leaseback program			(1,239	)
Impact of newly opened centers			4,503
Other			994

	Decrease in depreciation and amortization expense	$	(249	)

Impairment charges of $3.0 million and $1.4 million in fiscal year 2002 and fiscal year 2003, respectively, related to underperforming centers and certain undeveloped properties.

Rent. Rent expense increased $4.9 million in fiscal year 2003 compared to fiscal year 2002 to $51.8 million. The most significant change in the rent expense was the impact of our sale-leaseback. In

addition, the rental rates experienced on new and renewed center leases are higher than those experienced in previous fiscal years. The changes were as follows, in thousands:

Impact of centers leased under the sale-leaseback program		$	4,415
Amortization of deferred gains on sale-leaseback transactions			(1,116	)
Other			1,561

	Increase in rent expense	$	4,860

Other operating expenses. Other operating expenses include costs directly associated with the centers, such as insurance, janitorial, maintenance, utilities, transportation, provision for doubtful accounts, food and marketing costs, and expenses relating to field management and corporate administration. Other operating expenses increased $13.2 million, or 7.2%, from fiscal year 2002 to $194.8 million in fiscal year 2003. Other operating expenses as a percentage of net revenues were 22.5% and 23.2% for fiscal years 2002 and 2003, respectively. The increase was due primarily to insurance costs that were $12.7 million higher in fiscal year 2003 compared to fiscal year 2002. The provision for doubtful accounts declined $2.3 million in fiscal year 2003 compared to fiscal year 2002. The reduction in our provision for doubtful accounts was due to the implementation of automated programming that allows us to have stronger controls over our receivables.

Operating income. Operating income was $72.4 million, a decrease of $1.7 million, or 2.4%, in fiscal year 2003 compared to fiscal year 2002. Operating income decreased primarily due to $13.9 million of higher insurance costs, which included an increase in medical insurance of $1.2 million, and $3.3 million of increased rent expense from sale-leasebacks, offset in part by the impact of higher tuition rates. Operating income as a percentage of net revenues was 8.6% compared to 9.2% for the same period last year.

Interest expense. Interest expense was $44.1 million in fiscal year 2002 compared to $41.0 million in fiscal year 2003. The decrease was substantially attributable to lower interest rates and a decrease in the principal balance on our revolving credit facility. The weighted average interest rate on our long-term debt, including amortization of deferred financing costs, was 7.8% and 8.0% for fiscal year 2002 and 2003, respectively. A larger portion of our debt was comprised of 9.5% senior subordinated notes during fiscal year 2003, which resulted in an increase in the weighted average interest rate from fiscal year 2002 compared to fiscal year 2003. See note 8 to our consolidated financial statements included elsewhere in this prospectus.

Loss on minority investment. During fiscal year 2002, we recorded a write down of $2.3 million to the net book value of a minority investment due to a reduced valuation of the subject company and the dilution of our minority interest in that investment. During fiscal year 2003, we wrote down the net book value of the same investment by $6.7 million due to a further reduced valuation. The minority investment was accounted for under the cost method. See note 2 to our consolidated financial statements included elsewhere in this prospectus.

Income tax expense. Income tax expense was $11.2 million, or 39.5% of pretax income, in fiscal year 2002 and $9.9 million, or 39.6% of pretax income, in fiscal year 2003. The slight increase in the effective tax rate was due to the relative impact of tax credits at different levels of taxable income, the impact of the cessation of goodwill amortization and an increase in expenses that were disallowed for income tax purposes. Income tax expense was computed by applying estimated effective income tax rates to income before income taxes. Income tax expense varies from the statutory federal income tax rate due primarily to state and foreign income taxes, offset by tax credits.

Discontinued operations. Discontinued operations resulted in losses of $0.6 million and $1.7 million in fiscal years 2002 and 2003, respectively. Discontinued operations represents the operating results for all

periods presented of the 60 centers closed during fiscal year 2003 and the forty weeks ended March 5, 2004. Discontinued operations included the following, in thousands:

			Fiscal Year Ended
			May 31, 2002			May 30, 2003
Revenues, net			$	22,688		$	15,964

Operating expenses:
	Salaries, wages and benefits			14,243			10,314
	Depreciation			1,760			3,279
	Rent			2,210			1,557
	Provision for doubtful accounts			269			302
	Other			5,242			3,403

		Total operating expenses		23,724			18,855

	Operating loss			(1,036	)		(2,891	)
Interest expense				(6	)		(1	)
Income tax benefit				412			1,145

Discontinued operations, net of tax			$	(630	)	$	(1,747	)

Depreciation expense related to discontinued operations included impairment charges of $0.6 million and $2.0 million for fiscal years 2002 and 2003, respectively. Other operating expenses related to discontinued operations included gains on closed center sales of $1.2 million in fiscal year 2003.

Fiscal Year 2001 compared to Fiscal Year 2002

The following table shows the comparative operating results of KinderCare, in thousands, except the average weekly tuition rate:

			Fiscal Year Ended
			June 1, 2001			Percent of Revenues		May 31, 2002			Percent of Revenues		Change Amount Increases/ (Decrease)
Revenues, net			$	721,076		100.0	%	$	806,746		100.0	%	$	85,670

Operating expenses:
Salaries, wages and benefits:
	Center expense			366,301		50.8			414,605		51.4			48,304
	Field and corporate expense			28,638		4.0			31,943		4.0			3,305

		Total salaries, wages and benefits		394,939		54.8			446,548		55.4			51,609
Depreciation and amortization				45,315		6.3			57,533		7.1			12,218
Rent				37,296		5.2			46,910		5.8			9,614
Other				169,112		23.4			181,592		22.5			12,480
Restructuring charges (reversals)				(100	)	0.0			—		—			100

	Total operating expenses			646,562		89.7			732,583		90.8			86,021

Operating income			$	74,514		10.3	%	$	74,163		9.2	%	$	(351	)

Average weekly tuition rate			$	129.34				$	137.72				$	8.38
Occupancy				68.3	%				65.6	%				(2.7	)
Comparable center net revenue growth				3.1	%				1.1	%				(2.0	)

Revenues, net. Net revenues increased $85.7 million, or 11.9%, to $806.7 million in fiscal year 2002. The increase was primarily due to the acquisition of the Mulberry centers in the fourth quarter of fiscal year 2001 and the additional net revenues generated by the newly opened centers. Comparable center net revenues increased $7.7 million, or 1.1%.

The average weekly tuition rate increased $8.38, or 6.5%, to $137.72 in fiscal year 2002 due primarily to tuition increases. Occupancy declined from 68.3% in fiscal year 2001 to 65.6% in fiscal year 2002 primarily due to reduced full-time equivalent attendance within the older center population.

During fiscal years 2001 and 2002, we opened, acquired and closed centers as follows:

		Fiscal Year Ended
		June 1, 2001		May 31, 2002
Number of centers at the beginning of the fiscal year		1,169		1,242
Openings		44		35
Acquisitions		75		—
Closures		(46	)	(13	)

	Number of centers at the end of the fiscal year	1,242		1,242

Total center licensed capacity at the end of the fiscal year		162,000		166,000

Salaries, wages and benefits. Expenses for salaries, wages and benefits increased $51.6 million, or 13.1%, from fiscal year 2001 to $446.5 million. Total salaries, wages and benefits expense as a percentage of net revenues was 54.8% for fiscal year 2001 compared to 55.4% for fiscal year 2002.

Expenses for salaries, wages and benefits expense directly associated with the centers increased $48.3 million to $414.6 million in fiscal year 2002 compared to fiscal year 2001. The increase was primarily due to costs from the acquired and newly opened centers and overall higher wage rates. At the center level, salaries, wages and benefits expense as a percentage of net revenues increased from 50.8% in fiscal year 2001 to 51.4% in fiscal year 2002 due primarily to higher medical insurance costs.

The expense related to field management and corporate administration was $31.9 million, an increase of $3.3 million from fiscal year 2001. The increase was primarily due to the acquisition of Mulberry during the fourth quarter of fiscal year 2001. In addition, we expanded the field operations team that oversees the KinderCare centers. We reorganized the field management structure again in fiscal year 2003.

Depreciation and amortization. Depreciation and amortization expense increased $12.2 million from fiscal year 2001 to $57.5 million in fiscal year 2002. Significant changes in depreciation included the impact of acquisition of the Mulberry centers in the fourth quarter of fiscal year 2001, newly opened centers and impairment charges. In addition, capital spending was increased, particularly for new center development. These changes were as follows, in thousands:

Acquisition of the Mulberry centers		$	3,406
Impact of newly opened centers			2,883
Change in impairment charges			1,942
Other			3,987

	Increase in depreciation and amortization expense	$	12,218

Impairment charges of $1.0 million and $3.0 million in fiscal year 2001 and fiscal year 2002, respectively, related to underperforming centers and certain undeveloped properties.

Rent. Rent expense increased $9.6 million in fiscal year 2002 compared to fiscal year 2001 to $46.9 million. The most significant changes in the rent expense included the impact of the acquisition of the Mulberry centers and the impact of centers included in our synthetic lease facility. In addition, the rental rates experienced on new and renewed center leases are higher than those experienced in previous fiscal years. The changes were as follows, in thousands:

Acquisition of the Mulberry centers		$	8,368
Rent expense for centers previously included in the synthetic lease facility			1,868
Other			(622	)

	Increase in rent expense	$	9,614

Other operating expenses. Other operating expenses increased $12.5 million, or 7.4%, in fiscal year 2002 compared to fiscal year 2001, to $181.6 million. The increase was due primarily to additional center level costs from the acquired and newly opened centers. Other operating expenses as a percentage of net revenues declined to 22.5% in fiscal year 2002 from 23.4% in fiscal year 2001 as a result of cost controls over variable center level and corporate expenditures.

Operating income. Operating income was $74.2 million, a decrease of $0.4 million, or 0.5%, in fiscal year 2002 compared to fiscal year 2001. The decreased operating income was primarily due to the $3.0 million impairment charge included in depreciation expense, higher insurance costs and rent expense. Operating income was positively impacted by the control of variable center level and corporate expenditures. Operating income as a percentage of net revenues was 10.3% in fiscal year 2001 compared to 9.2% in fiscal year 2002.

Interest expense. Interest expense was $48.8 million in fiscal year 2001 compared to $44.1 million in fiscal year 2002. The decrease was substantially attributable to lower interest rates, offset partially by additional borrowings. Our weighted average interest rate on our long-term debt, including amortization of deferred financing costs, was 9.7% and 7.8% for fiscal years 2001 and 2002, respectively.

Loss on minority investment. During the fourth quarter of fiscal year 2002, we wrote down the net book value of a minority investment. The $2.3 million write-down was due to a reduced valuation of the subject company and dilution of our minority investment. See note 2 to our consolidated financial statements included elsewhere in this prospectus.

Income tax expense. Income tax expense was $10.1 million, or 38.4% of pretax income, in fiscal year 2001 and $11.2 million, or 39.5% of pretax income, in fiscal year 2002. The increase in the effective tax rate was due to additional goodwill amortization, which is not deductible for tax purposes. Income tax expense was computed by applying estimated effective income tax rates to income before income taxes. Income tax expense varies from the statutory federal income tax rate due primarily to state and foreign income taxes, offset by tax credits.

Discontinued operations. Discontinued operations resulted in income of $0.3 million and a loss of $0.6 million in fiscal years 2001 and 2002, respectively. Discontinued operations represents the

operating results for all periods presented of the 60 centers closed during fiscal year 2003 and through the forty weeks ended March 5, 2004. Discontinued operations included the following, in thousands:

			Fiscal Year Ended
			June 1, 2001			May 31, 2002
Revenues, net			$	22,321		$	22,688

Operating expenses:
	Salaries, wages and benefits			13,051			14,243
	Depreciation			1,317			1,760
	Rent			1,944			2,210
	Provision for doubtful accounts			272			269
	Other			5,286			5,242

		Total operating expenses		21,870			23,724

	Operating income (loss)			451			(1,036	)
Interest expense				(5	)		(6	)

	Discontinued operations before income taxes			446			(1,042	)
Income tax (expense) benefit				(171	)		412

	Discontinued operations, net of tax		$	275		$	(630	)

There was less than $0.1 million impairment charges related to discontinued operations in fiscal year 2001. Depreciation expense related to discontinued operations included impairment charges of $0.6 million for fiscal year 2002.

We implemented Securities and Exchange Commission Staff Accounting Bulletin No. 101 with respect to non-refundable fee revenues in the first quarter of fiscal year 2001. This resulted in a one-time charge of $0.8 million, net of taxes, which was recorded as a cumulative effect of a change in accounting principle.

Liquidity and Capital Resources

Financing Activities

In July 2003 we refinanced $279.9 million of our debt. We obtained a $125.0 million revolving credit facility, and, as described below in greater detail, one of our subsidiaries obtained a $300.0 million mortgage loan. Proceeds from the mortgage loan were used to pay off the $98.0 million balance of the then existing revolving credit facility, $47.0 million of the term loan facility and $97.9 million under the synthetic lease facility. We also used a portion of the remaining proceeds to purchase $37.0 million aggregate principal amount of our 9.5% senior subordinated notes.

The $300.0 million mortgage loan is secured by first mortgages or deeds of trust on 475 of our owned centers located in 33 states. We refer to the mortgage loan as the CMBS loan and the 475 mortgaged centers as the CMBS centers. In connection with the CMBS loan, the CMBS centers were transferred to a newly formed wholly owned subsidiary of ours, which is the borrower under the CMBS loan and is referred to as the CMBS borrower. Because the CMBS centers are owned by the CMBS borrower and subject to the CMBS loan, recourse to the CMBS centers by our creditors will be effectively subordinated to recourse by holders of the CMBS loan.

The CMBS loan is nonrecourse to the CMBS borrower and us, subject to customary recourse provisions, and has a maturity date of July 9, 2008, which may be extended to July 9, 2009, subject to certain conditions. The CMBS loan bears interest at a per annum rate equal to LIBOR plus 2.25% and requires monthly payments of principal and interest. For more information on the CMBS loan, see "Description of Certain Indebtedness—Mortgage Loan."

Our $125.0 million revolving credit facility is secured by first mortgages or deeds of trusts on 119 of our owned centers and certain other collateral and has a maturity date of July 9, 2008. The revolving credit facility includes borrowing capacity of up to $75.0 million for letters of credit and up to $10.0 million for selected short-term borrowings.

During the forty weeks ended March 5, 2004, we repurchased and redeemed our 9.5% senior subordinated notes as follows, in thousands:

		Principal		Aggregate Price		Premium Costs		Write-off of Deferred Financing Costs		Total Loss
Notes repurchased		$	56,300	$	59,424	$	925	$	949	$	1,874
Notes redeemed			39,277		39,931		622		741		1,363

	Total	$	95,577	$	99,355	$	1,547	$	1,690	$	3,237

We completed the repurchase of $11.0 million aggregate principal amount of our 9.5% senior subordinated notes at an aggregate price of $11.4 million in the first quarter of fiscal year 2004, which is included above. The premium costs and associated write-off of deferred financing costs related to this repurchase were recognized in the fourth quarter of fiscal year 2003 and were excluded from the costs above. We redeemed an additional $15.0 million aggregate principal amount of our 9.5% senior subordinated notes on March 29, 2004 at an aggregate price of $15.4 million. The redemption was funded by cash flow from operations and proceeds received from sale-leaseback transactions.

In fiscal year 2000, we entered into a $100.0 million synthetic lease facility under which a syndicate of lenders financed the construction of new centers for lease to us for a three to five year period. A total of 44 centers were constructed at a cost of $97.9 million. The synthetic lease facility was terminated in July 2003 as part of our refinancing. The 44 centers are now owned by us and the assets are reflected in our fiscal year 2004 consolidated financial statements.

Cash Flows and Liquidity Sources

Historically, our principal liquidity requirements were for debt service and new center development. We expect to fund our liquidity needs primarily from cash flow generated from operations, with proceeds received from our sale-leaseback program and, to the extent necessary, through borrowings under our revolving credit facility. At March 5, 2004, we had $11.0 million of borrowings outstanding under our revolving credit facility and had outstanding letters of credit totaling $55.1 million. Our availability under our revolving credit facility was $58.9 million.

Following the completion of the transactions contemplated by this offering, our short-term and long-term liquidity needs will arise primarily from: (1) interest payments primarily related to our notes and revolving credit facility; (2) new center development expenditures, which are expected to be approximately $29.4 million in fiscal year 2004; (3) maintenance capital expenditures, which are expected to be approximately $31.4 million in fiscal year 2004; (4) working capital requirements as may be needed to support the growth of our business; (5) dividend payments on our capital stock; and (6) potential strategic acquisitions.

Our consolidated net cash provided by operating activities for the forty weeks ended March 7, 2003 was $48.5 million compared to $59.2 million in the forty weeks ended March 5, 2004. Our consolidated net cash provided by operating activities was $87.5 million in fiscal year 2002 compared to $78.4 million in fiscal year 2003. The changes in both periods were due primarily to changes in working capital. Cash and cash equivalents totaled $34.6 million at March 5, 2004, compared to $18.1 million at May 30, 2003.

Our current sale-leaseback program began during the fourth quarter of fiscal year 2002. Under this initiative, we began selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. The resulting leases have been classified as operating leases with an average lease term of 15 years, with three to four five-year renewal options. The sales were summarized as follows, in thousands:

	Fiscal Year Ended
	May 31, 2002		May 30, 2003		Forty Weeks Ended March 5, 2004
Number of centers		5		41		29
Net proceeds from completed sales	$	9,177	$	88,704	$	58,079
Deferred gains		2,599		32,507		19,786

Our sale-leaseback program has the effect of increasing rent expense while typically reducing the depreciation and interest expense incurred to support the previously owned centers. In addition, deferred gains have generally been recognized on our sale-leaseback transactions. The deferred gains are amortized on a straight-line basis, typically over a period of 15 years, and are offset against the related rent expense. At May 30, 2003 and March 5, 2004, other noncurrent liabilities on the consolidated balance sheet included deferred gains on sale-leaseback transactions of $38.6 million and $56.5 million, respectively. Subsequent to March 5, 2004, we closed $15.2 million in sales, which included six centers, and we are currently in the process of negotiating another $69.9 million of sales related to 27 centers. We expect our sale-leaseback efforts to continue, assuming the market for such transactions remains favorable. In addition to the transactions relating to the 27 centers referred to above, we estimate that we have additional marketable inventory at April 16, 2004 of 74 centers with a market value of approximately $168.0 million.

We believe that cash flow generated from operations, proceeds from our sale-leaseback program and borrowings under our revolving credit facility will be sufficient to fund our interest and principal payment obligations, expected capital expenditures, working capital requirements and anticipated dividend payments for the foreseeable future. Any future acquisitions, joint ventures or similar transactions may require additional capital, which may be financed through borrowings under our revolving credit facility, issuances of additional IDSs, notes or other securities of ours, net cash provided by operating activities, other third party financing or a combination of these alternatives, and such capital may not be available to us on acceptable terms or at all. Although we cannot assure you that such sources of capital will be sufficient, the capital expenditure program has substantial flexibility and is subject to revision based on various factors, including but not limited to, business conditions, cash flow requirements, debt covenants, competitive factors and seasonality of openings. If we experience a lack of working capital, it may reduce our future capital expenditures. If these expenditures were substantially reduced, our operations and cash flow would be adversely impacted.

Capital Expenditures

During the forty weeks ended March 7, 2003 and March 5, 2004, we opened 24 and 12 new centers, respectively. In addition, we completed the acquisition of one center in the forty weeks ended March 5, 2004. We expect to open 17 new centers in fiscal year 2004 and to continue our practice of closing centers that are identified as not meeting performance expectations. In addition, we may acquire existing centers from local or regional early childhood education and care providers. We may not be able to successfully negotiate and acquire sites and/or previously constructed centers, meet our targets for new center additions or meet targeted deadlines for the development of new centers.

New centers are located based upon detailed site analyses that include feasibility and demographic studies and financial modeling. The length of time from site selection to construction and, finally, the opening of a community center ranges from 16 to 24 months. Frequently, new site negotiations are delayed or canceled or construction is delayed for a variety of reasons, many of which are outside our

control. The average total cost for land, building and equipment per community center typically ranges from $1.9 million to $2.8 million depending on the size and location of the center. However, the actual costs of a particular center may vary from such range.

Our new centers typically have a licensed capacity ranging from 145 to 180, while the centers constructed during fiscal 1997 and earlier have an average licensed capacity of 125. When mature, these new, larger centers are designed to generate higher revenues, operating income and margins than our older centers. These new centers also have higher average costs of construction and typically take three to four years to reach maturity. On average, our new centers should begin to produce positive EBITDA during the first year of operation and begin to produce positive net income by the end of the second year of operation. Accordingly, as more new centers are developed and opened, profitability will be negatively impacted in the short-term but is expected to be enhanced in the long-term once these new centers achieve anticipated levels of occupancy.

Capital expenditures included the following, in thousands:

	Fiscal Years Ended						Forty Weeks Ended
	June 1, 2001		May 31, 2002		May 30, 2003		March 7, 2003		March 5, 2004
New center development	$	44,254	$	63,990	$	50,651	$	44,274	$	21,379
Refurbishment of existing facilities		37,829		18,979		18,945		14,648		12,610
Equipment purchases		7,993		9,508		11,731		9,516		6,652
Information systems purchases		4,193		3,366		1,787		1,293		704

	$	94,269	$	95,843	$	83,114	$	69,731	$	41,345

We refer to the costs associated with the refurbishment of existing facilities and equipment and information systems purchases as maintenance capital expenditures.

Capital expenditures for the forty weeks ended March 5, 2004 do not include $97.9 million spent to purchase the 44 centers previously included in the synthetic lease facility, or $0.9 million for the acquisition of a previously constructed center.

Capital expenditure limits under our credit facility for fiscal year 2004 are $110.0 million. We have some ability to incur additional indebtedness, including through mortgages or sale-leaseback transactions, subject to the limitations imposed by the indenture under which our notes are issued and our revolving credit facility.

Contractual Commitments

We have certain contractual obligations and commercial commitments. Contractual obligations are those that will require cash payments in accordance with the terms of a contract, such as a loan or lease agreement. Commercial commitments represent potential obligations for performance in the event of demands by third parties or other contingent events, such as lines of credit. Our contractual obligations and commercial commitments at March 5, 2004 were as follows, in thousands:

					Fiscal Year
			Remainder of Fiscal Year 2004		Fiscal Year
	Total		Remainder of Fiscal Year 2004		2005		2006		2007		2008		Thereafter
Long-term debt	$	517,070	$	1,116	$	7,572	$	4,136	$	4,314	$	4,447	$	495,485
Capital lease obligations		27,958		407		2,240		2,279		2,396		2,415		18,221
Operating lease		457,948		8,391		48,263		45,056		41,180		37,824		277,234
Standby letters of credit		55,139		—		55,139		—		—		—		—
Other commitments		4,892		4,892		—		—		—		—		—

	$	1,063,007	$	14,806	$	113,214	$	51,471	$	47,890	$	44,686	$	790,940

Other commitments include those related to center development and purchase orders.

Wage Increases

Expenses for salaries, wages and benefits represented approximately 55.2% and 55.3% of net revenues for fiscal year 2003 and the forty weeks ended March 5, 2004, respectively. We believe that, through increases in our tuition rates, we can mitigate any future increase in expenses caused by adjustments to the federal or state minimum wage rates or other market adjustments. However, we may not be able to increase our rates sufficiently to offset such increased costs. We continually evaluate our wage structure and may implement changes at targeted local levels.

Quantitative And Qualitative Disclosures About Market Risk

Market risk represents the risk of loss that may impact our consolidated financial position, results of operations or cash flows. We are exposed to market risk in the areas of interest rates and foreign currency exchange rates.

Interest Rates

Our exposure to market risk for changes in interest rates relates primarily to debt obligations. We have no cash flow exposure due to rate changes on our 9.5% senior subordinated notes aggregating $194.4 million at March 5, 2004. We also have no cash flow exposure on certain industrial revenue bonds, mortgages and notes payable aggregating $5.1 million at March 5, 2004. However, we have cash flow exposure on our revolving credit facility and certain industrial revenue bonds subject to variable LIBOR or adjusted base rate pricing. We had borrowings of $11.0 million outstanding under our credit facility at March 5, 2004. Accordingly, a 1% (100 basis points) change in the LIBOR rate would have resulted in interest expense changing by less than $0.1 million in the forty weeks ended March 5, 2004. A 1% (100 basis points) change in the variable LIBOR or adjusted base rate pricing on our industrial revenue bonds, aggregating $8.5 million at March 5, 2004, would have resulted in interest expense changing by $0.1 million in the forty weeks ended March 7, 2003 and March 5, 2004, respectively.

We have cash flow exposure on the CMBS loan entered into in July 2003, which bears interest at a rate equal to LIBOR plus 2.25%. A 1% (100 basis points) change in the LIBOR rate would have resulted in interest expense changing by approximately $2.1 million in the forty weeks ended March 5, 2004. We have purchased an interest rate cap agreement to protect us from significant movements in LIBOR during the initial three years of the CMBS loan. The LIBOR strike price is 6.50% under the interest rate cap agreement, which terminates July 9, 2006, at which time we are required to purchase an additional interest rate cap agreement for the duration of the loan term.

We also have cash flow exposure on our vehicle leases with variable interest rates. A 1% (100 basis points) change in the interest rate defined in our vehicle lease agreement would have resulted in rent expense changing by approximately $0.1 million in the forty weeks ended March 7, 2003 and March 5, 2004, respectively.

Foreign Exchange Risk

We are exposed to foreign exchange risk to the extent of fluctuations in the United Kingdom pound sterling. Based upon the relative size of our operations in the United Kingdom, we do not believe that the reasonably possible near-term change in the related exchange rate would have a material effect on our financial position, results of operations or cash flows.

Business

Overview

Education is core to our mission. We have developed a series of educational programs, including five separate proprietary age-specific curricula, tailored for (1) infants and toddlers, (2) two-year olds, (3) preschool, (4) kindergarten and (5) school ages between six and 12. We also offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics. Our educational programs recognize the importance of using high quality, research-based curriculum materials designed to create a rich and nurturing learning environment for children. Our programs are revised on a rotating basis to take advantage of the latest research in child development. In furtherance of our focus on quality educational programming, we pursue accreditation by various accrediting bodies that have been approved by states as meeting quality improvement initiatives.

We hold minority investments in Voyager Expanded Learning, Inc., a developer of educational curricula for elementary and middle schools and a provider of a public school teacher retraining program, and Chancellor Beacon Academies, Inc., an education management company.

Our Corporate Information

Our Business Strengths

Leading Market Position. We are the nation's leading for-profit provider of early childhood education and care services in the highly fragmented child care industry. Our current licensed capacity represented more than 25% of the aggregate licensed capacity of the top 40 for-profit child care service providers at January 1, 2004. Our position as the industry leader with a large, nationwide customer base gives us both the ability to spread the costs of programs and services, such as curriculum development, training programs and other management processes, over a large number of centers and a valuable distribution network for new products and services. Our national presence, with centers located throughout 39 states, allows us to continue to serve customers who relocate to other communities where we have centers, enhances brand awareness and mitigates any potential negative impact of changing local or regional economic trends, demographic trends or regulatory factors.

High Quality Educational Programs. Early childhood education is a crucial part of child development and we believe that educational content is becoming increasingly important as a distinguishing factor in our industry. We have developed high quality proprietary curricula targeted to children in each of the various age and development levels we serve. Our programs are updated and enhanced as new research becomes available. We also pursue accreditation of our centers by various accrediting bodies, including NAEYC. Accreditation strengthens the quality of our centers by motivating the teaching staff and enhancing their understanding of developmentally appropriate early childhood practices. In certain states, these quality initiatives are tied to financial incentives such as higher child care assistance reimbursement rates and property tax incentives. At March 5, 2004, we had 483 centers accredited by NAEYC and approximately 360 centers actively pursuing NAEYC accreditation. We believe that our high quality educational programs allow us to attract new students, retain our existing students and distinguish ourselves from our competitors.

Stable and Predictable Financial Model. We believe KinderCare benefits from an attractive financial model with stable revenues, cash flows and margins. Our net revenues from child care centers increased from approximately $610.7 million during fiscal year 1999 to $838.6 million during fiscal year 2003. Our EBITDA increased from $101.0 million to $123.4 million during the same period, despite the effect of an increase in rent expense from $27.8 million to $51.8 million for the same period as a result of our previous synthetic lease facility, leased center acquisitions and our sale-leaseback program. Our net cash flows provided by operating activities have shown moderate growth with an increase from $61.8 million for fiscal year 1999 to $78.4 million for fiscal year 2003.

At March 5, 2004, we owned 738 centers, which had an approximate net book value of $567.6 million. Of our 738 owned centers, 594 centers, which had an approximate net book value of $395.6 million at March 5, 2004, were encumbered through first mortgages or deeds of trust pursuant to the CMBS loan and our revolving credit facility. During the fourth quarter of fiscal year 2002, we embarked on a program of selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. We are currently in the negotiation process with respect to $69.9 million of sales related to 27 centers. In addition to these pending transactions, we estimate that we had additional marketable inventory at April 16, 2004 of 74 centers with a market value of approximately $168.0 million. Historically, we believe this has been an efficient way to finance growth and reduce leverage. Assuming the market for such transactions remains favorable, we expect this effort to continue with our remaining owned centers and our new centers as we develop them. We will continue using the proceeds of these sales to fund our growth by developing and opening new centers. In addition to developing new centers, we routinely analyze the profitability of our existing centers. If a center is identified as underperforming, we will evaluate the center for closure to minimize the resulting financial liability.

Ability to Attract and Retain a Qualified Workforce. We believe our ability to provide attractive employee benefits and recognition programs gives us a competitive advantage in attracting and retaining a high quality workforce, which is an important factor in the successful operation of our centers. The center directors at our KinderCare centers have an average of approximately eight years with us, and those at our Mulberry centers have an average of approximately seven years with us. As part of our focus on investing in our people, we have implemented attractive benefit and incentive programs, employee recognition programs and training programs.

Growth Opportunities

We are pursuing the following growth opportunities:

Increase Existing Center Revenue. We have ongoing initiatives to increase center revenue by:

•: Sharing best practices—Center directors are incentivized to share best practices. For example, we recently completed an incentive campaign that was designed to encourage center directors to think creatively about ways to increase enrollment. Each week during the campaign, center directors were encouraged to submit their ideas to our corporate headquarters and received recognition by having their winning ideas posted on our intranet;
•: Providing incentives for center directors—Bonus programs reward center directors for enrollment growth and overall operating profit performance;
•: Using targeted marketing—Targeted marketing programs include a referral program under which parents receive tuition credits for every new customer enrollment referral and a variety of direct mail solicitation, telephone directory and internet yellow pages listings and local advertising vehicles. We also periodically hold open house events and have established parent forums to involve parents in center activities and events;

•: Maintaining competitive tuition pricing—In coordination with center directors, we carefully manage occupancy and tuition rates at the classroom level to maximize net revenue yield from each of our centers;
•: Increasing the number and availability of supplemental fee programs—We offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics in the majority of our centers for a supplemental fee and are exploring additional supplemental fee programs; and
•: Continuing to operate clean, safe and attractive facilities—We continue to maintain and upgrade our facilities on a regularly scheduled basis to enhance their curb appeal. In the past five years, we have improved the signage at our centers to ensure a uniform standard to enhance customer recognition of our brands.

Pursue Strategic Acquisitions. We plan to continue making selective acquisitions of existing high quality centers. Our strong market position enhances the opportunities to capitalize on consolidation of the highly fragmented early childhood education and care services industry. For example, our acquisition of Mulberry Child Care Centers, Inc. in 2001 allowed us to increase our presence in certain attractive markets in the northeast. In addition to making center acquisitions, we plan to continue evaluating investment and acquisition opportunities for companies in the education industry that offer educational content and services to children, teenagers and adults. We believe these opportunities would complement our center based educational and our distance learning services.

Increase Profitability Through Operational Efficiencies. We have developed a culture dedicated to operational efficiencies. We focus on center-level economics, which hold each center director accountable for profitability. Labor costs are the most significant component of a center's cost structure. We developed and utilize a proprietary labor management system to assist center directors in managing staff hours relative to attendance levels at their centers. We also require most supply purchases to be executed through our automated procurement system, which tracks expenses against benchmarks and requires field management oversight at the point of purchase. Strong controls have helped us contain costs and leverage our overhead over our large, nationwide center base. We believe we are well positioned to benefit from future utilization of our available capacity with our proven ability to manage our cost structure.

Establish Strategic Relationships. Through our strategic partnerships, we offer our customers proprietary conveniences and discounts, including access to various educational products and toys. We recently announced an exclusive arrangement with Discover® Card to accept payments via credit card

online or at our centers. Our market position and large, nationwide base of centers with its associated customer base makes us an attractive strategic partner for companies with comparable products and services, and gives our strategic partners access to a valuable distribution network for such products and services. Since fiscal year 2000, we have been successfully offering literacy and reading tutorial programs in our centers, which we have licensed from companies that sell these same products in the retail market. We believe that strategic partnerships strengthen our reputation as an early childhood education and care service provider and enrich the experiences of children enrolled at our centers.

Center Operations

We operate the largest system of for-profit centers providing early childhood education and care in the United States. At March 5, 2004, we managed 1,245 centers in 39 states primarily under the KinderCare name with a licensed capacity of 166,000 students at March 5, 2004. We managed 69 of these centers under the Mulberry name. At March 5, 2004, we owned 738 centers, leased 502 centers and operated five centers under management contracts. Our centers are open year round. The hours vary by location, although Monday through Friday from 6:30 a.m. to 6:00 p.m. is typical. Children are usually enrolled on a weekly basis for either full- or half-day sessions.

Centers. We operate two types of centers, community centers and employer-sponsored centers. Community centers are designed to meet the needs of the general community in which they are located. Employer-sponsored centers partner with companies to provide on- site or near-site education and child care for the families of their employees. The vast majority of our centers are community centers.

Our typical community and employer-sponsored center is a one-story, air-conditioned building constructed based on our design and located on approximately one acre of land. Larger capacity centers are situated on parcels ranging from one to four acres of land. The centers contain classrooms, play areas and complete kitchen and bathroom facilities. Each center is equipped with a variety of audio and visual aids, educational supplies, games, puzzles, toys and outdoor play equipment. Centers also lease vehicles used for field trips and transporting children enrolled in our before- and after-school programs. All centers are equipped with computers for children's educational programs. Most of our centers are able to accommodate from 95 to 190 children, with our older centers having an average capacity of 132 children. Since 1997, we have been developing and opening centers based on prototypes with average capacities of either 140 or 185 children. The employer-sponsored centers are individualized for each sponsor and range in capacity from 75 to 230 children.

Tuition. We determine tuition rates based upon a number of factors, including the age of the child, full- or part-time attendance, enrollment levels, location and competition. Tuition rates are typically adjusted company-wide each year to coincide with the back-to-school periods. However, we may adjust individual room rates within a specific center at any time based on competitive position, occupancy levels and demand. In order to maximize enrollment, center directors may also adjust the rates at their center or offer discounts at their discretion, within limits. These rate discounts and adjustments are closely monitored by our field and corporate management. Our focus on pricing at the classroom level within our centers has enabled us to improve comparable center net revenue growth throughout the year without losing occupancy in centers where the quality of our services, demand and other market conditions support such increases.

Center Oversight. Each of our centers is linked to our corporate headquarters through a fully automated information, communication and financial reporting system. This system is designed to provide timely information on items such as net revenues, enrollments, expenses, payroll and staff hours and provides center directors with the ability to distribute reports and update centrally maintained information on a daily basis. We regularly seek new uses for our intranet as a tool to communicate with our centers. For example, in fiscal year 2004, we used our intranet to collect creative

marketing ideas from our center directors. Our intranet provides an automated way to communicate information to our corporate headquarters where management can use it to assess quality and identify best practices.

Field and Center Personnel. Our centers are organized into six geographic regions, each headed by a region vice president. The region vice presidents are supported by 81 area manager positions for KinderCare and nine region director positions for Mulberry.

Individual centers are managed by a center director and, in most cases, an assistant director. All center directors participate in periodic training programs or meetings and must be familiar with applicable state and local licensing regulations. The corporate human resources department monitors salaries and benefits for competitiveness. During fiscal year 2002, we conducted a center director retention survey. We believe the results of the survey reflect overall center director satisfaction. As a result of the survey, we revised the center director bonus plan in fiscal year 2003 to increase the focus on customer retention and new enrollments.

Due to high employee turnover rates in the early childhood education and care services industry in general, we emphasize recruiting and retaining qualified personnel. The turnover of personnel experienced by us and other providers in our industry results in part from the fact that a significant portion of our employees earn entry-level wages and are part-time employees.

All center teachers and other non-management staff are required to attend an initial half-day training session prior to being assigned full duties and to complete a six week on-the-job basic training program. Our basic orientation and staff training program is delivered via a video series. Additionally, we have developed and implemented training programs to certify personnel as teachers of various age groups in accordance with our internal standards and in connection with our age-specific educational programs. We offer ongoing sales and service training to center directors, area managers and region directors that focuses on enrollment and retention of families, training on delivery of our educational programs and health and safety related training. Center staff also participate in ongoing in-service training as required by state licensing authorities, most of which is focused on education and child health and safety related issues.

Marketing, Advertising and Promotions. We conduct our marketing efforts through direct response programs supported by the use of the internet and grass roots efforts at the center level in conjunction with our corporate sponsored initiatives. We combine traditional direct mail, email, yellow pages listings, internet directory placements and search optimization for visibility that makes local efforts successful. We believe that our referral, drive-by and yellow pages marketing strategies are the most effective in helping customers find us. In addition to contacting a local center, customers can gain information by calling an advertised toll free number or visiting either of our websites, kindercare.com or mulberrychildcare.com. The information on our websites is not incorporated by reference in this prospectus.

Our local marketing programs use a wide variety of approaches from extended hours to center events for existing and prospective families, to a parent referral program in order to acquire new families and retain those currently enrolled. The referral program provides tuition credits for every referral that becomes an enrollment to both the new and current family. We also periodically hold open house events and have established parent forums to involve parents in center activities and events, in an effort to retain customers.

Each of our center directors receives training and support designed to facilitate their marketing success. These materials are developed using the most recent customer research and are designed specifically for the center director and staff. The end goal is to better prepare center level staff to convert each inquiry into an enrollment.

From a corporate perspective, we have focused on center-specific marketing opportunities such as (1) choosing sites that are convenient for customers to encourage drive-by identification, (2) refurbishing our existing centers to enhance their curb appeal and (3) upgrading the signage at our centers to enhance customer recognition.

Our new center pre-opening marketing effort includes direct mail and newspaper support, as well as local public relations support. Every new center hosts a grand opening and an open house and provides individualized center tours where parents and children can talk with staff, visit classrooms and play with educational toys and computers.

Employer-Sponsored Child Care Services

Through KinderCare At Work®, we offer a more flexible format for our services by individually evaluating the needs of each sponsoring company to find the appropriate format to fit its needs for on-site or near-site employee child care. Our employer-sponsored centers utilize an operating model that is very similar to our community centers, including collecting tuition fees directly from the employee parent, however they support businesses, government, hospitals and universities with large, single site employee populations. Most employer-sponsored centers also allow community children to attend as a second priority to the sponsoring company employee's children, which helps to maximize the revenue and profit opportunity at each employer-sponsored center.

Employer-sponsored centers are typically located on the business owner's property and the business owner sponsors and usually supports the center with free or reduced rent, utilities and custodial maintenance. Employer-sponsored centers may be operated on a profit and loss basis, on a management fee basis or a variation of the two. The management contracts generally provide for a three- to five-year initial period with renewal options ranging from two to five years. Our compensation under existing agreements is generally based on a fixed fee with annual escalations. KinderCare At Work® can also assist organizations in one or more aspects of implementing a child care related benefit, including needs assessments, financial analysis, architectural design and development plans. KinderCare At Work's® website address is kindercareatwork.com. The information on our websites is not incorporated by reference into this prospectus.

At March 5, 2004, we operated 43 on-site/near-site employer-sponsored early childhood education and care centers for 42 different employers, including Universal Orlando Resort, Saturn Corporation, LEGO Systems, Inc., Oregon State University, University of Utah and several hospitals and other businesses and universities. Of the 43 employer-sponsored centers, 38 were owned or leased by us and five were operated under management contracts.

We also offer back-up child care, a program that utilizes our existing centers to provide back-up child care services to the employees of subscribed employers. Current clients include Universal Orlando Resort, Prudential Financial, US Cellular and KPMG.

Educational Programs

We have developed a series of educational programs, including five separate proprietary age-specific curricula. Our educational programs recognize the importance of using high quality, research-based curriculum materials designed to create a rich and nurturing learning environment for children. The programs are revised on a rotating basis to take advantage of the latest research in child development.

Our educational programs and materials are designed to respond to the needs of the children, parents and families we serve and to prepare children for success in school and in life. Specifically, we focus on the development of the whole child: physically, socially, emotionally, cognitively and linguistically.

Infant and Toddler Curricula. Our infant and toddler program, Welcome to Learning®, is designed for children ages six weeks to two years. The infant component, for children from six weeks to 15 months,

is based on building relationships with the child and the family and focuses on providing a safe and nurturing environment. The toddler component lets children from 12 to 24 months feel free to explore and discover the world around them.

Two-Year-Old Curriculum. Our Early Learning Curriculum focuses on using the latest research in brain development to provide learning experiences for children during one of their most critical developmental stages. This curriculum provides children with opportunities to explore and discover the world around them with both daily and long-term extended activities and projects. The Early Learning Curriculum is offered for children from 24 to 36 months.

Preschool Curricula. We have two preschool programs designed for children three to five years of age. Both programs use research-based goals and objectives as their framework to provide a high quality learning experience for children. We also offer tutorial programs in the areas of literacy, reading, foreign languages and mathematics for a supplemental fee in the majority of our centers.

The Preschool Readiness Curriculum focuses on three-year-olds. Monthly themes are divided into two-week units to allow children extended time for in-depth exploration and discovery. Curriculum activities emphasize emerging readiness skills in reading and language development. Specially designed LetterBooks are used to introduce children to phonics and letter and word recognition. Discovery areas support children's learning of basic math and science concepts, computer awareness, creative arts, cooking and homeliving.

The Preschool at KinderCare curriculum focuses on four-year-olds. It teaches children to enjoy learning through hands-on involvement and stimulating activities. Monthly themes are divided into one-week units providing a comprehensive array of activities relevant to the lives of older preschoolers. Curriculum materials build pre-reading, writing and language skills. Discovery areas provide opportunities for exploration and choice based on children's interests.

We are investigating the demand for a new pre-kindergarten concept that represents a more academic approach to learning. This program is being pilot tested in a select group of centers. The curriculum focuses on teaching basic skills in literacy, math, science and social studies in learning stations set up to provide challenging daily lessons. We use experienced degreed teachers who work from a scope and sequence based on standards recognized by state departments of education to define what children should know and be able to do. We will provide on-going assessments to parents that support children's language, cognitive, social, emotional and physical development.

Kindergarten Curriculum. For five-year-olds, we offer the Kindergarten at KinderCare...Journey to Discovery® program. Children learn through play, hands-on exploration, activities and experiences that are real world and sensory in nature. This curriculum emphasizes reading development, beginning math concepts and those skills necessary to give children the confidence to succeed in school. Our kindergarten is offered in approximately two-thirds of our child care centers and meets state requirements for instructional curriculum prior to first grade.

School-Age Curriculum. Our KC Imagination Highway® program is a project-based curriculum designed for children ages six to 12. The program includes a number of challenging activities and projects designed to stimulate the imagination of elementary school-age children through researching, designing, building, decorating and presenting. This program meets the needs of parents looking for content rich after-school experiences that keep school-age children interested and involved.

Summer Curriculum. We offer a summer program called Summer Adventures^SM to elementary school-agers. This program is a fun-filled, academic-based curriculum of 20 weekly themes, including themes that help children learn new vocabulary, try out recipes for foods that are actually good for them, make volcanoes that erupt, construct robots out of junk and learn about patriotism.

Distance Learning. Although center-based child-care is our primary business, we also own and operate a distance learning company serving teenagers and young adults. Our subsidiary, KC Distance Learning, Inc., operates Keystone National High School, an accredited distance-learning program which is licensed as a private high school. Keystone National High School is accredited by several national and regional bodies, including Northwest Association of Colleges and Schools; Distance Education and Training Council and the National Collegiate Athletic Association. Keystone's curriculum has been developed to reflect the curriculum being taught in high schools across the country. Our course catalog consists of over 60 courses, covering all the subjects required to obtain a diploma. We deliver courses in both correspondence and online formats. We provide each student with current textbooks from major publishers, which have been selected by subject matter specialists. Accompanying each textbook, our learning guides are written by veteran classroom teachers and provide the appropriate level of direction. Our certified teachers provide guidance, tutoring and grading services for our students.

Center Accreditation. We continue to stress the importance of offering high quality programs and services to children and families. We also pursue accreditation of our centers by various accrediting bodies recognized by states as meeting quality improvement initiatives and believe that the accreditation process improves the quality of our centers by motivating the teaching staff and enhancing their understanding of developmentally appropriate childhood practices. In certain states, these quality initiatives are tied to financial incentives such as higher child care assistance reimbursement rates and property tax incentives. At March 5, 2004, we had 483 centers accredited by NAEYC, which is the most widely recognized accrediting body by states that have implemented these quality initiatives. Other agencies that have been recognized by a number of states include the National Early Childhood Program Accreditation and the National Accreditation Commission of the National Association of Child Care Professionals.

Training. We provide curriculum-specific training for teachers and caregivers to assist them in effectively delivering our programs. Each curriculum is designed to provide teachers with the necessary materials and enhancements to enable effective delivery based on the resources and needs of the local community. We emphasize selection of staff who are caring adults responsive to the needs of children. We strive to give each teacher the opportunity, training and resources to effectively implement the best in developmentally and age appropriate practice. Opportunities for professional growth are available through company-wide training such as the Certificate of Excellence Program. We also make available more advanced training opportunities, including tuition reimbursement for employment-related college courses or course work in obtaining a Child Development Associate credential.

Asset Management

We have developed processes designed to effectively manage our real estate assets at all stages beginning with site selection and development and including center maintenance, refurbishment and, where appropriate, center closure.

Site Selection and Development of New Centers. We seek to identify attractive new sites for our centers in large, metropolitan markets and smaller, growth markets that meet our operating and financial goals. We look for sites where we believe the market for our services will support tuition rates higher than our current average rates. Our real estate department performs comprehensive studies of geographic markets to determine potential areas for new center development. These studies include analysis of land prices, development costs, competitors, tuition pricing and demographic data such as population, age, household income and employment levels. In addition, we review state and local laws, including zoning requirements, development regulations and child care licensing regulations to determine the timing and probability of receiving the necessary approvals to construct and operate a new center. This information is reviewed by our Development Committee, which includes our Chief Executive Officer, our Executive Vice President and Chief Financial Officer, our Senior Vice President and Chief

Development Officer and our Senior Vice President of Operations, among others. The Development Committee meets every two weeks and evaluates new center development opportunities as well as center acquisition opportunities, lease renewals and center closures.

We target sites that offer convenience for our customers, are located in appealing markets and provide opportunities for drive-by interest. We make specific site location decisions for new centers based upon a detailed site analysis that includes feasibility and demographic studies, as well as comprehensive financial modeling. Within a prospective area, we often analyze several alternative sites. Each potential site is evaluated against our standards for location, convenience, visibility, traffic patterns, size, layout, affordability and functionality, as well as potential competition.

Our new center development is supported by a team of individuals from our operations, purchasing, human resources, marketing and legal departments to streamline the new center opening process. We believe this results in a more efficient transition of new centers from the construction phase to field operation.

We opened 28 new centers during fiscal year 2003 and 12 more through March 5, 2004. These new centers have an average licensed capacity of 175. When mature, these larger centers are designed to generate higher revenues, operating income and margins than the older centers. These new centers also have higher average costs of construction and typically take three to four years to reach maturity. On average, our new centers should begin to produce positive EBITDA during the first year of operation and begin to produce positive net income by the end of the second year of operation. Accordingly, as more new centers are developed and opened, profitability will be negatively impacted in the short-term but is expected to be enhanced in the long-term once these new, more profitable centers achieve anticipated levels.

The following is a summary of our center opening activity over the past five years:

		Fiscal Year Ended
		May 28, 1999		June 2, 2000		June 1, 2001		May 31, 2002		May 30, 2003
Number of centers, beginning of fiscal year		1,147		1,160		1,169		1,242		1,264

Openings		39		35		44		35		28
Acquisitions		—		13		75		—		—
Centers closed or sold		(26	)	(39	)	(46	)	(13	)	(28	)

	Net centers additions	13		9		73		22		—

	Number of centers, end of fiscal year	1,160		1,169		1,242		1,264		1,264

Center Maintenance. We believe it is critical to maintain a fresh, clean, pleasant and safe environment for the children and families we serve as well as our employees. The appearance of our facilities affects tuition rates, occupancy and the long term success of our centers.

We use a centralized maintenance program to ensure consistent high quality maintenance of our facilities located across the country. Each of our approximately 100 maintenance technicians has a van stocked with spare parts and handles emergency, routine and preventative maintenance functions through an automated work order system. Technicians are notified and track all work orders via palm top computers. At March 5, 2004, specific geographic areas were supervised by two regional directors and 12 facility managers, each of whom manages between six and 10 technicians.

Our facilities management department has developed a center assessment system that allows our facilities technicians to assess the condition of the major building components of our centers, such as roofing, parking lots, exteriors, playgrounds, mechanical systems, appliances and building finishes. The assessment data is recorded in a central database, which is accessible over the intranet. The system includes replacement benchmarks for building components, which will be used to assist in determining replacement schedules and capital priorities. Preliminary assessments have been completed on

approximately 1,000 of our centers and we expect to complete assessments on the remaining centers by the end of the current fiscal year. We believe this system will enable us to make better capital deployment decisions on more significant center enhancements.

Asset Evaluation and Center Closings. We routinely analyze the profitability of our existing centers through a detailed evaluation that considers leased versus owned status, lease options, operating history, premises expense, capital requirements, area demographics, competition and site assessment. Through this evaluation process, our asset management staff formulates a plan for the property reflecting our strategic direction and marketing objectives.

At March 5, 2004, we owned 738, or 59.3%, of our 1,245 centers. Those centers have an approximate net book value of $567.6 million, which includes land, building and equipment costs. Our current sale-leaseback program began during the fourth quarter of fiscal year 2002. Under this initiative, we began selling centers to individual real estate investors and concurrently signing long term leases to continue operating the centers. Most leases have an average lease term of 15 years, with three to four five-year renewal options. We continue to manage the operations of any centers that are sold in such transactions. During fiscal year 2003, we completed sales totaling $88.7 million, which represented 41 centers. From the end of fiscal year 2003 through March 5, 2004, we completed another $58.1 million of sales, which represented 29 centers. Subsequent to March 5, 2004, we closed $15.2 million of sales, which included six centers. We are currently in the process of negotiating another $69.9 million of sales related to 27 centers. It is possible that we will be unable to complete these transactions. We expect this effort to continue, assuming the market for such transactions remains favorable.

Our asset management department also manages the disposition of all surplus real estate owned or leased by us. These real estate assets include undeveloped sites, unoccupied buildings and closed centers. We disposed of 10 surplus properties in fiscal year 2003. From the end of fiscal year 2003 to March 5, 2004, we sold two surplus properties. We were in the process of marketing an additional 19 surplus properties at March 5, 2004.

The profitability of our centers is closely monitored by our asset management program. If a center continues to under perform, exit strategies are employed in an attempt to minimize our financial liability. Typical reasons for a center closure include changing demographics that have adversely affected financial performance and inability to renew a lease on economically favorable terms. We make an effort to time center closures to minimize the negative impact on affected families. During fiscal year 2003, we closed 28 centers. From the end of fiscal year 2003 to March 5, 2004, we closed 32 additional centers.

The Early Childhood Education and Care Services Industry

Our industry is the early childhood education and care services industry, which we refer to in this section as the child care industry. According to an industry analysis by Marketdata Enterprises, the U.S. child care industry generated an estimated $40 billion in revenues in 2000, and is estimated to generate revenues of approximately $60 billion in 2005. The Children's Foundation estimates that there are currently approximately 117,000 licensed child care centers throughout the United States, compared to approximately 106,000 in 2000.

The growth in the child care industry has been driven by a number of factors some of which are discussed below. Although some of the trends that rose so sharply in the 1980s, such as the population of children under five and return of mothers to the workforce, have stabilized, the factors that drive demand for early education and child care services continue to be strongly positive.

Number of Mothers in the Workforce. As the number of traditional single earner and stay-at-home parent families has declined, many parents have been forced to struggle with alternative care options for their children. In 2002, approximately 65% of all U.S. families with children under six were

dual-income or single parent households, with a declining percentage of children receiving care from a stay-at-home parent. As women and mothers have entered the workforce, the demand for child care has increased proportionally. According to the U.S. Bureau of Labor Statistics, the labor force participation rate of mothers with children under the age of six has increased from approximately 39% in 1975 to approximately 64% in 2002. In 2002, approximately 37% of all children were born to mothers over 30, as compared to 20% in 1980, according to the National Center for Health Statistics. These mothers are typically more committed to a career than their younger counterparts and are also more likely to be part of a two-income household with more to spend on child care services.

Labor Force Participation of Mothers with Children Under 6 Years of Age

Source: U.S. Bureau of Labor Statistics

Increased Population of Children Under the Age of Five. According to the National Center for Health Statistics, the annual number of live births was approximately 4.0 million in 2002, versus approximately 3.6 million in 1980. The U.S. Census Bureau projects the annual number of live births to increase to approximately 4.5 million in 2015. In addition, the number of children under the age of five has grown from approximately 18.9 million in 1990 to approximately 19.6 million in 2002, according to the U.S. Census Bureau.

Number of Children Under 5 Years of Age

Source: U.S. Census Bureau

Awareness of the Importance of Early Childhood Development. The demand for quality child care has increased as scientific research highlights the importance of education during a child's early developmental years. In 1996, the Families and Work Institute completed research demonstrating the importance of early childhood experiences in a child's overall cognitive development. In addition, recent scientific research into early childhood development has drawn widespread media and political attention, increasing parents' awareness of, and the demand for, quality educational facilities for their children. For example, a 1997 National Institute of Child Health and Human Development study reviewed the impact of child care on children and found that the quality of early childhood care had a statistically significant and direct relationship with a child's cognitive growth. In addition, a study published in January 2004 by Child Development focusing on the effects of center based care on children in poor communities concluded that quality center based programs show positive effects on children's cognitive growth.

Shift Toward Center-Based Care. There has been a significant increase in the use of center-based child care facilities, which typically offer a more structured curriculum, better educational materials, more experienced personnel and more opportunity for social interaction than alternative forms of child care. According to Child Care Information Exchange, nearly one of every three preschool-aged children is enrolled in a child care center.

Availability of Government Support of Early Childhood Programs. The subject of early education and child care has been given considerable attention by the federal government. In 1996, federal funding for early childhood programs increased substantially when Congress enacted the welfare reform laws and increased funding for programs aimed at low income families. The federal government currently funds early childhood programs primarily through the Child Care and Development Block Grant, but

also through the Social Services Block Grant, Temporary Aid for Needy Families and Head Start. Over $15 billion in the federal budget for the 2003 fiscal year was dedicated to early childhood programs.

Employer-Sponsored Child Care Services. Within the child care industry, there is a continued trend toward employer-sponsored child care services as large- and medium-size employers continue to recognize the value of child care assistance as an employee benefit. Many corporations and other employers have found that providing early childhood education services enhances employee productivity, loyalty and commitment. For these reasons, employers have increasingly recognized child care benefits as a key element of their employee recruitment and retention strategy, and are increasingly providing this benefit through employer-sponsored child development centers. A wide variety of employers currently sponsor on-site/near-site child development centers, including corporations, hospitals, government agencies and universities.

Industry Competition

•: other for-profit, center-based child care providers;
•: preschool, kindergarten and before- and after-school programs provided by public and private schools;
•: child care franchising organizations;
•: local nursery schools and child care centers, including church-affiliated and other non-profit centers;
•: providers of child care services that operate out of homes; and
•: substitutes for organized child care, such as relatives, nannies and one parent caring full-time for a child.

The following table, which was published in a Fall 2002 report sponsored by the National Child Care Association entitled "The National Economic Impacts of the Child Care Sector," sets forth the categories and estimated quantities of all licensed child care providers in the United States.

Licensed Facility Category		Number of Centers
Family Day Care Providers/Homes		306,246
Child Care Centers		113,298
Public Sector Agencies		55,000
Churches		23,000
Community Service Organizations		2,000
Colleges and Universities		1,400
Hospitals		900
U.S. Military Bases (Worldwide)		639

Based on the information set forth in the table above, there are over 113,000 licensed child care centers and over 500,000 total licensed facilities in the United States.

Competition includes other large, national, for-profit companies providing child education and care services, many of which offer these services at a lower price than we do. These other for-profit providers continue to expand in many of the same markets where we currently operate or plan to operate. We compete by offering (1) high quality education and recreational programs, (2) contemporary, well-equipped facilities, (3) trained teachers and supervisory personnel and (4) a

range of services, including infant and toddler care, drop-in service and the transportation of older children enrolled in our before- and after-school program between the centers and schools.

According to a July 2001 study published by Marketdata Enterprises, the 40 largest providers of child care services totaled less than 5% of total licensed child care centers. The table set forth below, which was based on information published in Child Care Information Exchange from information provided by the organizations listed, sets forth information regarding certain of our competitors and us as of January 1, 2004.

Company	Number of Centers	Licensed Capacity
KinderCare Learning Centers, Inc.	1,269	167,000
Knowledge Learning Corporation	850	112,365
La Petite Academy	648	89,835
Bright Horizon Family Solutions	510	59,000
Childtime Learning Centers	483	52,000
Nobel Learning Communities. Inc.	168	28,100
ChildCare Network	117	15,881

In addition, the table below, which was published in Child Care Information Exchange, based solely on information provided by the organizations listed, sets forth information regarding certain child care franchising organizations as of January 1, 2004.

Company	Number of Centers	Licensed Capacity
Kids 'R' Kids International	109	21,800
Goddard Systems, Inc.	160	21,000
Primrose School Franchising Company	118	20,408
Kiddie Academy	70	9,535

Based on this information, only 13 companies have total capacity in excess of 10,000 children, and only 10 companies have more than 100 centers. We are the only company with more than 1,000 centers.

In some markets, we also face competition with respect to preschool services and before- and after-school programs from public schools that offer such services at little or no cost to parents. In many instances, public schools hire third party operators to manage these programs, and we are currently evaluating opportunities in this area. The number of school districts offering these services is growing and we expect that this form of competition will increase in the future.

Our employer-sponsored centers compete with center-based child care chains, some of which have divisions that compete for employer-sponsorship opportunities, and with other organizations that focus exclusively on the work-site segment of the child care market.

Governmental Laws and Regulations Affecting Us

Center Licensing Requirements. Our centers are subject to numerous state and local regulations and licensing requirements. We have policies and procedures in place to assist in complying with such regulations and requirements. Although these regulations vary from jurisdiction to jurisdiction,

government agencies generally review the fitness and adequacy of buildings and equipment, the ratio of staff personnel to enrolled children, staff training, record keeping, children's' dietary program, the daily curriculum and compliance with health and safety standards. In most jurisdictions, these agencies conduct scheduled and unscheduled inspections of the centers and licenses must be renewed periodically. Most jurisdictions establish requirements for background checks or other clearance procedures for new employees of child care centers. Repeated failures of a center to comply with applicable regulations can subject it to sanctions, which might include probation or, in more serious cases, suspension or revocation of the center's license to operate and could also lead to sanctions against our other centers located in the same jurisdiction. In addition, this type of action could lead to negative publicity extending beyond that jurisdiction.

We believe that our operations are in substantial compliance with all material regulations applicable to our business. However, a licensing authority may determine that a particular center is in violation of applicable regulations and may take action against that center and possibly other centers in the same jurisdiction. In addition, there may be unforeseen changes in regulations and licensing requirements, such as changes in the required ratio of child center staff personnel to enrolled children, that could have a material adverse effect on our operations. States in which we operate routinely review the adequacy of regulatory and licensing requirements and implement changes which may significantly increase our costs to operate in those states.

Child Care Tax Incentives. Tax incentives for child care programs can potentially benefit us. Section 21 of the Internal Revenue Code of 1986, referred to as the Code, provides a federal income tax credit ranging from 20% to 35% of specified child care expenses with maximum eligible expenses of $3,000 for one child and $6,000 for two or more children. The fees paid to us by eligible taxpayers for child care services qualify for these tax credits, subject to the limitations of Section 21 of the Code. However, these tax incentives are subject to change.

Code Section 45F provides incentives to employers to offset costs related to employer-provided child care facilities. Costs related to (a) acquiring or constructing property used as a qualified child care center, (b) operating an existing child care center, or (c) contracting with an independent child care operator to care for the children of the taxpayer's employees will qualify for the credit. The credit amount is 25% of the qualified costs. An additional credit of 10% of qualified expenses for child care resource and referral services has also been enacted. The maximum credit available for any taxpayer is $150,000 per tax year.

Many states offer tax credits in addition to the federal credits discussed above. Credit programs vary by state and may apply to both the individual taxpayer and the employer.

Child Care Assistance Programs. During fiscal year 2003 and the forty weeks ended March 5, 2004, approximately 21.6% and 20.1%, respectively, of our net revenues were generated from federal and state child care assistance programs, primarily the Child Care and Development Block Grant and At-Risk Programs. These programs are designed to assist low-income families with child care expenses and are administered through various state agencies. Although additional funding for child care may be available for low income families as part of welfare reform and the reauthorization of the Block Grant, we may not benefit from any such additional funding.

At March 5, 2004, approximately 500 of our centers were also eligible to participate in the Child and Adult Care Food Program, or CACFP, which provide reimbursement for meals and snacks that meet certain USDA approved nutritional guidelines. Centers can qualify to participate in the CACFP by meeting one of two tests: 25% or more of the enrolled students receive child care assistance funding or 25% or more of the center's customers have household incomes that are at or below state specified income levels. Reimbursement is calculated based on the percentage of the center's customers that fall into a "free" or "reduced" income category established by the state. During fiscal year 2003 and the

forty weeks ended March 5, 2004, our CACFP reimbursements were $7.8 million and $6.3 million , respectively, which were recorded as a reduction of operating expense.

Participation in these federal and state child care assistance programs involves complex recordkeeping and other administrative requirements. We believe the processes we have developed and are continuing to develop to manage our participation in these programs offers us a competitive advantage.

Americans with Disabilities Act. The federal Americans with Disabilities Act, referred to as the ADA, and similar state laws prohibit discrimination on the basis of disability in public accommodations and employment. Compliance with the ADA requires that public accommodations reasonably accommodate individuals with disabilities and that new construction or alterations made to commercial facilities conform to accessibility guidelines unless structurally impracticable for new construction or technically infeasible for alterations. Non-compliance with the ADA could result in the imposition of injunctive relief, fines, an award of damages to private litigants and additional capital expenditures to remedy such noncompliance. We have not experienced any material adverse impact as a result of these laws.

Federal Transportation Regulations. In August and September of 1998, the National Highway Transportation Safety Administration, referred to as NHTSA, issued interpretive letters that appear to modify its interpretation of regulations governing the sale by automobile dealers of vehicles intended to be used for the transportation of children to and from school by child care providers. These letters indicate that dealers may no longer sell 15-passenger vans for this use, and that any vehicle designed to transport 11 persons or more must meet federal school bus standards if it is likely to be used significantly to transport children to and from school or school-related events. These interpretations have affected the type of vehicle that may be purchased by us for use in transporting children between schools and our centers and, in effect, required us to commence a scheduled replacement of our remaining fleet of vans with school buses. NHTSA's interpretation and potential related changes in state and federal transportation regulations have increased our costs to transport children because school buses are more expensive to purchase and maintain and, in some jurisdictions, require drivers with commercial licenses. At March 5, 2004, we had 1,280 school buses out of a total of 2,240 vehicles used to transport children.

Trademarks and Service Marks

We believe that our name and logo are important to our operations. We own and use various registered and unregistered trademarks and service marks covering the name KinderCare, our schoolhouse logo and a number of other names, slogans and designs. A federal registration in the United States is effective for 10 years and may be renewed for 10-year periods perpetually, subject only to required filings based on continued use of the mark by the registrant.

Employees

At March 5, 2004, we had approximately 24,000 employees. Of these employees, over 23,000 were employed in our centers. Center employees include the following:

•: center directors,
•: assistant directors,
•: regular full- and part-time teachers,
•: temporary and substitute teachers,

•: teachers' aides, and
•: non-teaching staff, including cooks and van drivers.

There are approximately 330 employees in the corporate headquarters and 260 field management and support personnel. Approximately 7.2% of our 24,000 employees, including all management and supervisory personnel, are salaried. All other employees are paid on an hourly basis. We do not have an agreement with any labor union and we believe that we have good relations with our employees.

Properties

Early Childhood Education and Care Centers. Of our child care centers in operation at March 5, 2004, we owned 738, leased 502 and operated five under management contracts. We own or lease other centers that have not yet been opened or are being held for disposition. In addition, we own real property held for the future development of centers.

The community and employer-sponsored centers we operated at March 5, 2004 were located as follows:

Location		Centers	Location	Centers	Location	Centers
United States:
	Alabama	8	Kentucky	14	New York	10
	Arizona	23	Louisiana	11	North Carolina	33
	Arkansas	2	Maryland	26	Ohio	80
	California	143	Massachusetts	49	Oklahoma	6
	Colorado	36	Michigan	32	Oregon	20
	Connecticut	19	Minnesota	39	Pennsylvania	65
	Delaware	5	Mississippi	3	Rhode Island	1
	Florida	70	Missouri	32	Tennessee	23
	Georgia	31	Nebraska	10	Texas	95
	Illinois	96	Nevada	8	Utah	8
	Indiana	25	New Hampshire	4	Virginia	54
	Iowa	10	New Jersey	51	Washington	58
	Kansas	13	New Mexico	6	Wisconsin	24
					United Kingdom	2

					Total	1,245

Environmental Compliance. We are not aware of any existing environmental conditions that currently or in the future could reasonably be expected to have a material adverse effect on our financial position, operating results or cash flows. We have not incurred material expenditures to address environmental conditions at any owned or leased property. Approximately 10 years ago, we established a process of obtaining environmental assessment reports to reduce the likelihood of incurring liabilities under applicable federal, state and local environmental laws upon acquisition or lease of prospective new centers or sites. These assessment reports have not revealed any environmental liability that we believe would have a material adverse effect on us. Nevertheless, it is possible that these assessment reports do not or will not reveal all environmental liabilities and it is also possible that sites acquired prior to the establishment of our current process have environmental liabilities. In connection with the origination of the CMBS loan in July 2003, see "Description of Certain Indebtedness—Mortgage Loan," a third party performed Phase I environmental assessments for approximately half of the centers secured by the mortgage loan. Although there were no material adverse findings, operations and maintenance plans relating to lead paint and asbestos were recommended and have been implemented. Additionally, from time to time, we have conducted additional limited environmental investigations and remedial activities at some of our former and current centers. However, we have not

undertaken an in-depth environmental review of all of our owned and leased centers. Consequently, there may be material environmental liabilities of which we are unaware.

In addition, future laws, ordinances or regulations may impose material environmental liability, the current environmental condition of our owned or leased centers may be adversely affected by conditions at locations in the vicinity of our centers (such as the presence of leaking underground storage tanks) or by third parties unrelated to us and, on sites we lease to others, tenants may violate their leases by introducing hazardous or toxic substances into our owned or leased centers that could expose us to liability under federal, state, or local environmental laws.

Corporate Headquarters. Our corporate office is located in Portland, Oregon. We lease approximately 80,000 square feet of office space for annual rental payments of $26.50 per square foot. The initial term of the lease expires in November 2007 with one five-year extension option at market rent.

Seasonality

Legal Proceedings

We do not believe that there are any pending or threatened legal proceedings that, if adversely determined, would have a material adverse effect on our business or operations. However, we are subject to claims and litigation arising in the ordinary course of business, including claims and litigation involving allegations of physical or sexual abuse of children. We are aware of such allegations that have not yet resulted in claims or litigation. Although we cannot be certain of the ultimate outcome of the allegations, claims or lawsuits of which we are aware, we believe that none of these allegations, claims or lawsuits, either individually or in the aggregate, will have a material adverse effect on our financial position, operating results or cash flows. In addition, we cannot predict the negative impact of publicity that may be associated with any such allegation, claim or lawsuit.

Management

Directors and Executive Officers

The following table sets forth the names and positions of our directors and executive officers upon completion of this offering and their ages at March 5, 2004.

Name	Age	Position
David J. Johnson	57	Chief Executive Officer and Chairman of the Board of Directors
Henry R. Kravis	60	Director
George R. Roberts	60	Director
Michael W. Michelson	52	Director
Scott C. Nuttall	31	Director
Richard J. Goldstein	38	Director
Dan R. Jackson	50	Executive Vice President and Chief Financial Officer
Edward L. Brewington	60	Senior Vice President, Human Resources and Education
S. Wray Hutchinson	43	Senior Vice President, Operations
Eva M. Kripalani	44	Senior Vice President, General Counsel and Secretary
Bruce A. Walters	46	Senior Vice President and Chief Development Officer

Set forth below is information concerning our directors and executive officers.

David J. Johnson joined us as chief executive officer and chairman of the board in February 1997. Between September 1991 and November 1996, Mr. Johnson served as president, chief executive officer and chairman of the board of Red Lion Hotels, Inc., which was formerly an affiliate of Kohlberg Kravis Roberts & Co. L.P., or its predecessor. From 1989 to September 1991, Mr. Johnson was a general partner of Hellman & Friedman, a private equity investment firm based in San Francisco. From 1986 to 1988, he served as president, chief operating officer and director of Dillingham Holdings, a diversified company headquartered in San Francisco. From 1984 to 1987, Mr. Johnson was president and chief executive officer of Cal Gas Corporation, a principal subsidiary of Dillingham Holdings.

Henry R. Kravis has been on our board since February 1997. He is a managing member of KKR & Co. L.L.C., the limited liability company that serves as the general partner of Kohlberg Kravis Roberts & Co. L.P. He is also a director of Accel-KKR Company; Alliance Imaging, Inc.; Amphenol Corporation; Borden Chemical, Inc.; The Boyds Collection Ltd.; KSL Recreation Corporation; Legrand S.A.; PRIMEDIA, Inc.; U.S. Natural Resources, Inc.; and Willis Group Holdings Limited.

George R. Roberts has been on our board since February 1997. He is a managing member of KKR & Co. L.L.C., the limited liability company that serves as the general partner of Kohlberg Kravis Roberts & Co. L.P. He is also a director of Accel-KKR Company; Borden Chemical, Inc.; Owens-Illinois, Inc.; PRIMEDIA, Inc.; Safeway Inc.; U.S. Natural Resources, Inc.; and Willis Group Holdings Limited.

Michael W. Michelson has been on our board since December 1999. He is a member of KKR & Co. L.L.C., the limited liability company that serves as the general partner of Kohlberg Kravis Roberts & Co. He is also a director of Alliance Imaging, Inc.; Amphenol Corporation; and Owens-Illinois, Inc.

Scott C. Nuttall has been on our board since December 1999. He has been an executive at Kohlberg Kravis Roberts & Co. since 1996. Before then, he was an executive at The Blackstone Group L.P. He is also a director of Alea Group Holdings, Ltd.; Amphenol Corporation; Bristol West Holdings, Inc.; Walter Industries Inc.; and Willis Group Holdings Limited.

Richard J. Goldstein has been on our board since May 2001. He has been a managing director and, before that, a senior vice president and vice president of Oaktree Capital Management, LLC, referred to as Oaktree, since 1995. Oaktree provides investment management services to TCW Asset Management Company, the general partner of TCW Special Credits Fund V—The Principal Fund, pursuant to a subadvisory agreement. Mr. Goldstein was an assistant vice president of Trust Company of the West from 1994 to 1995.

Dan R. Jackson was promoted to executive vice president, chief financial officer in November 2002. He had served as senior vice president, finance since October 1999. He joined us in February 1997 as vice president of financial control and planning. Prior to that time, Mr. Jackson held various financial positions with Red Lion Hotels, Inc., or its predecessor, from September 1985 to January 1997, the last of which was vice president, controller. From 1978 to 1985, Mr. Jackson held several financial management positions with Harsch Investment Corporation, a real estate holding company based in Portland, Oregon.

Edward L. Brewington was promoted in July 2001 to senior vice president, human resources and education. He had served as vice president, human resources since April 1997. From June 1993 to April 1997, Mr. Brewington was with Times Mirror where his last position held was vice president, human resources for the Times Mirror Training Group. Prior to that time, Mr. Brewington spent 25 years with IBM in various human resource, sales and marketing positions.

S. Wray Hutchinson was promoted to senior vice president, operations in October 2000. He had served as vice president, operations since April 1996. He joined us in 1992 as district manager in New Jersey and was later promoted to region manager for the Chicago, Illinois market. Prior to that time, Mr. Hutchinson was a restaurant consultant and also spent 12 years with McDonald's Corporation in various operations positions.

Eva M. Kripalani was promoted in July 2001 to senior vice president, general counsel and secretary. She had served as vice president, general counsel and secretary since July 1997. Prior to joining us, Ms. Kripalani was a partner in the law firm of Stoel Rives LLP in Portland, Oregon, where she had worked since 1987.

Bruce A. Walters has served as senior vice president, chief development officer since July 1997. From June 1995 to February 1997, Mr. Walters served as the executive vice president of store development for Hollywood Entertainment Corporation in Portland, Oregon. Prior to that time, Mr. Walters spent 14 years with McDonald's Corporation in various domestic and international development positions.

Composition of the Board After the Offering

Our board of directors currently consists of six directors. Following the completion of this offering, we intend to nominate two independent members within three months thereafter and one additional independent member prior to October 31, 2004 so that our board is composed of a majority of independent members.

Committees of the Board

Our board of directors currently has an executive committee, audit committee and a compensation committee. Prior to the completion of the offering, we expect that our board of directors will designate a nominating committee.

Executive Committee. Messrs. Johnson, Michelson and Nuttall comprise the executive committee of the board of directors. The executive committee exercises the authority of the board of directors, to the extent permitted by law, in the management of our business between meetings of the board of directors. The executive committee held one meeting during the 2003 fiscal year.

Audit Committee. Our audit committee currently consists of Messrs. Michelson and Nuttall. The audit committee is responsible for (1) selecting the independent auditors, (2) approving the overall scope of the audit, (3) assisting the board in monitoring the integrity of our financial statements, the independent accountant's qualifications and independence, the performance of the independent accountants and our internal audit function and our compliance with legal and regulatory requirements, (4) annually reviewing an independent auditors' report describing the auditing firms' internal quality-control procedures, any material issues raised by the most recent internal quality-control review, or peer review, of the auditing firm, (5) discussing the annual audited financial and quarterly statements with management and the independent auditor, (6) discussing earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies, (7) discussing policies with respect to risk assessment and risk management, (8) meeting separately, periodically, with management, internal auditors and the independent auditor, (9) reviewing with the independent auditor any audit problems or difficulties and managements' response, (10) setting clear hiring policies for employees or former employees of the independent auditors, (11) handling such other matters that are specifically delegated to the audit committee by the board of directors from time to time and (12) reporting regularly to the full board of directors.

Following the completion of this offering, we intend to nominate two additional members to our audit committee within three months thereafter to replace existing members, and one additional member prior to October 31, 2004 so that our audit committee will consist of at least three members who will be independent as such term is defined in Rule 10A-3(b)(i) under the Exchange Act by that date.

Our board of directors has adopted a written charter for the audit committee, which will be available on our website.

Compensation Committee. Our compensation committee currently consists of Messrs. Michelson and Nuttall. The compensation committee is responsible for (1) administering employee benefits, (2) determining the compensation of our executive officers, (3) establishing targets and incentive awards under incentive compensation plans and (4) such other matters that are specifically delegated to the compensation committee by the board of directors from time to time.

Following the completion of this offering, we plan to nominate one independent member to our compensation committee prior to October 31, 2004 and an additional independent member prior to the later of 90 days following the closing of the offering and October 31, 2004, to replace an existing member, so that at least a majority of our compensation committee members will be independent. We intend for our compensation committee to be comprised solely of independent members within one year of the closing of this offering.

Our board of directors will adopt a written charter for the compensation committee which will be available on our website.

Nominating Committee. We intend for the nominating committee to be comprised of at least one independent member prior to October 31, 2004 and a majority of independent members prior to the later of 90 days following the closing of the offering and October 31, 2004. We intend for the nominating committee to consist of solely independent members within one year of the closing of this offering. The principal duties and responsibilities of the nominating committee will be: (1) to establish criteria for board and committee membership and recommend to our board of directors proposed nominees for election to the board of directors and for membership on committees of the board of directors, (2) to make recommendations regarding proposals submitted by our stockholders and (3) to make recommendations to our board of directors regarding board governance matters and practices.

Our board of directors will adopt a written charter for the nominating committee which will be available on our website.

Compensation Committee Interlocks and Insider Participation

The board of directors approved the appointment of a compensation committee composed of Messrs. Michelson and Nuttall. Mr. Michelson is a member of KKR-KLC L.L.C., to which we paid fees for management and consulting services. See "Related Party Transactions" below.

Director and Executive Compensation

Director Compensation

Initial compensation for our directors who are not also employed by us or our subsidiaries will be $ per director per year and $ per director for attending meetings in person ($ if by telephone) of the board of directors and $ per director for attending committee meetings of the board of directors in person ($ if by telephone). A committee chair will receive an additional $ for attending a committee meeting in person ($ if by telephone). Directors will also be reimbursed for out-of-pocket expenses for attending board and committee meetings.

On May 27, 1998, the board of directors adopted the Directors' Deferred Compensation Plan, referred to as the Directors' Plan. Under this plan, nonemployee members of the board of directors may elect to defer receipt and income taxation of all or a portion of their annual retainer. Any amounts deferred under the plan are credited to a phantom stock account. The number of shares of phantom stock credited to a director's account under the plan is determined based on the amount of deferred compensation divided by the then fair value per share, as defined in the plan, of our common stock.

Distributions from the plan are made in cash and reflect the value per share of the common stock at the time of distribution, multiplied by the number of phantom shares credited to the director's account. Distributions from the plan occur upon the earlier of (1) the first day of the year following the director's retirement or separation from the board of directors or (2) termination of the plan.

In connection with this offering, we are evaluating amendment or replacement of the Director's Plan to reflect our post-offering capital structure.

Executive Compensation

Base salary levels for executive officers, including the chief executive officer, are set so that the overall cash compensation package, including bonus opportunity, compares favorably to compensation offered by our competitors for executive talent. In determining salaries, we also take into account individual experience and performance, the officer's level of responsibility, the cost of living, historical salary levels and other factors. We measure individual performance based on a number of quantitative and qualitative factors such as our historical and recent financial performance and the individual's achievement of particular nonfinancial goals and other contributions.

In addition to base salary, each executive, including the chief executive officer, is eligible to participate in an annual incentive program. For fiscal year 2003, awards under the annual incentive program were based on a combination of our performance and the individual's achievement of specific objectives. In addition, some discretionary bonuses were awarded based on subjective determinations of the individual's overall contribution to our performance.

For fiscal year 2004, the chief executive officer's annual incentive target is 70% of his annual salary. The annual incentive target for other executive officers ranges from 45% to 60% of annual salary. Awards under the annual incentive program are based 70% on our achievement of targeted earnings before interest, taxes, depreciation and amortization; 20% on our achievement of targeted net income; and 10% on the individual's achievement of specific objectives.

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The long-term component of our executive compensation package consists of an equity component provided pursuant to the 1997 Stock Purchase and Option Plan for Key Employees of KinderCare Learning Centers, Inc. and Subsidiaries, which was approved by a majority of our stockholders at our 1997 annual meeting. The 1997 plan is designed to provide stock-based incentives in the form of stock options, generally coupled with a requirement that participants invest their own personal resources in our stock. The objective of the 1997 plan has been to align the interests of executive employees with those of our stockholders.

The 2002 Stock Purchase and Option Plan for Key California Employees of KinderCare Learning Centers, Inc. and Subsidiaries was approved by a majority of our stockholders at our 2002 annual meeting. The 2002 plan is similar to the 1997 plan in all material respects.

Legislation enacted in 1993 imposes certain limits on the tax-deductibility of executive compensation. The compensation committee's policy is to maximize the tax-deductibility of executive compensation to the extent consistent with its responsibility to effectively compensate executives based on performance.

The following table sets forth information with respect to the compensation of our chief executive officer and the named executive officers for services in all capacities for us in the years indicated:

								Long-Term Compensation Awards— Securities Underlying Options(a)
		Annual Compensation
Name and Principal Position	Fiscal Year	Annual Compensation							All Other Compensation(b)
Name and Principal Position	Fiscal Year	Salary		Bonus		Other			All Other Compensation(b)
David J. Johnson Chief Executive Officer and Chairman of the Board	2003 2002 2001	$	723,236 698,325 673,197	$	740,059 416,900 308,997	$	4,787 4,687 140	200,000 — —	$	11,392 112,475 113,172
Dan R. Jackson Executive Vice President and Chief Financial Officer	2003 2002 2001	$	248,940 223,446 199,385	$	199,383 97,646 77,009	$	627 2,816 77	39,000 — 8,000	$	3,454 17,726 17,588
Edward L. Brewington Senior Vice President of Human Resources and Education	2003 2002 2001	$	217,044 207,052 186,231	$	142,774 81,475 66,340	$	1,153 1,558 —	20,000 10,000 8,000	$	759 41,243 41,243
Eva M. Kripalani Senior Vice President, General Counsel and Secretary	2003 2002 2001	$	232,547 220,735 191,404	$	159,972 84,873 67,158	$	567 3,831 68	20,000 10,000 6,000	$	2,322 8,918 9,324
Bruce A. Walters Senior Vice President and Chief Development Officer	2003 2002 2001	$	241,200 231,998 223,326	$	156,493 88,159 70,521	$	541 1,765 60	20,000 — 6,000	$	3,290 15,581 15,580

(a): Stock options granted under the 1997 Stock Purchase and Option Plan for Key Employees.

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(b): Matching contributions in fiscal year 2003 under our Nonqualified Deferred Compensation Plan were as follows:

Name
David J. Johnson	$	11,392
Dan R. Jackson		3,454
Edward L. Brewington		759
Eva M. Kripalani		2,322
Bruce A. Walters		3,290

Option Grants in Fiscal Year 2003

The following table provides information regarding option grants during the fiscal year ended May 30, 2003 to our chief executive officer and our four other most highly compensated executive officers:

	Number of Securities Underlying Options Granted(a)	Percent of Total Options Granted to Employees in Fiscal Year		Exercise Price Per Share		Expiration Date	Grant Date Present Value(b)
David J. Johnson	200,000	34.3	%	$	14.52	July 15, 2012	$	854,000
Dan R. Jackson	24,000 15,000	4.1 2.6	% %		14.52 14.44	July 15, 2012 November 1, 2012		102,480 64,050
Edward L. Brewington	20,000	3.4	%		14.52	July 15, 2012		85,400
Eva M. Kripalani	20,000	3.4	%		14.52	July 15, 2012		85,400
Bruce A. Walters	20,000	3.4	%		14.52	July 15, 2012		85,400

(a): The options become exercisable 20% per year over a five-year period, with the first 20% becoming exercisable on the first anniversary of the vesting commencement date. Vesting ceases upon termination of employment; however, options vest in full upon death or disability. The options expire upon the earlier of (1) 10 years following grant date; (2) the first anniversary of death, disability or retirement; (3) following any termination of employment other than for cause; (4) termination for cause; or (5) the date of any merger or certain other transactions. Exercisability of options will accelerate upon a change of control.

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(b): A modified Black-Scholes model of option valuation has been used to estimate grant date present value. The assumptions used in this model were volatility of 36.2%, risk-free rate of return of 3.9%, dividend yield of 0.0% and time to exercise of seven years. The actual value of the options depends on the amount by which the market value of our shares exceeds the exercise price of the options.

Aggregated Option Exercises in Fiscal Year 2003 and 2003 Fiscal-Year-End Option Values

No options were exercised to purchase shares during fiscal year 2003. The following table sets forth the unexercised options held at May 30, 2003 by our chief executive officer and our four other most highly compensated executive officers:

	Number of Unexercised Options at May 30, 2003		Value of Unexercised "in-the-Money" Options at May 30, 2003(a)
	Exercisable	Unexercisable	Exercisable		Unexercisable
David J. Johnson	842,106	200,000	$	4,715,794	$	116,000
Dan R. Jackson	58,974	47,800		309,242		51,732
Edward L. Brewington	44,848	32,800		234,097		37,152
Eva M. Kripalani	43,874	31,600		230,850		33,744
Bruce A. Walters	68,190	23,600		375,240		21,824

(a): The value of options represents the aggregate difference between the fair value, as determined by the board of directors at May 30, 2003, of $15.10 and the applicable exercise price.

New Long Term Incentive Plan

Members of our management team will be identified by our compensation committee to participate in our new long term incentive plan, or LTIP. The purpose of the LTIP is to provide eligible participants with compensation opportunities that will enhance our ability to attract, retain and motivate key personnel and reward key senior management for significant performance. The LTIP will be administered by our compensation committee, which shall have the power to, among other things, determine:

•: those individuals who will participate in the LTIP;
•: the level of participation of each participant;
•: the maximum contribution to the LTIP in any given year;
•: the conditions that must be satisfied in order for the participants to vest and receive any amounts under the LTIP (including establishing specified performance targets that must be achieved in order for payment to occur); and
•: other conditions that the participants must satisfy in order to receive payment of amounts under the LTIP.

We intend to engage an outside compensation consulting firm to make recommendations to the compensation committee of our board of directors regarding the LTIP structure.

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Principal Stockholders

The following table provides information regarding the beneficial ownership of (i) our common stock before the completion of this offering and (ii) our Class A and Class B common stock after the completion of this offering by each of the following:

•: each person who is known by us to beneficially own more than 5% of each class of our common stock,
•: our chief executive officer and our four other most highly compensated executive officers,
•: each of our directors, and
•: all directors and executive officers as a group.

A person is a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of the security, or "investment power," which includes the power to dispose of or to direct the disposition of the security. Unless otherwise noted in the footnotes to the following table, the persons named in the table have sole voting and investment power with respect to their beneficially owned common stock. A person is also deemed to be a beneficial owner of any securities that person has a right to acquire within 60 days. The percentage of outstanding shares in each class is based on the 19,721,646 shares of common stock outstanding at April 16, 2004. Shares subject to option grants that have vested or will vest before 60 days after April 16, 2004 are deemed outstanding for calculating the percentage ownership of the person holding the options, but are not deemed outstanding for calculating the percentage ownership of any other person.

				Beneficial Ownership After the Transactions
	Beneficial Ownership Prior to the Transactions			Beneficial Ownership After the Transactions				Beneficial Ownership of Voting Power of All Stock After the Transactions
	Beneficial Ownership Prior to the Transactions			Class A		Class B
	Number	%		Number	%	Number	%	Number	%
KKR-KLC L.L.C. and affiliated entities(a) c/o Kohlberg Kravis Roberts & Co. L.P. 9 West 57th Street New York, New York 10019	15,657,894	79.4	%
The TCW Group, Inc. and affiliated entities(b) 333 South Grand Avenue, 28th Floor Los Angeles, California 90071	1,898,488	9.6	%
David J. Johnson(c) 650 NE Holladay Street, Suite 400 Portland, Oregon 97232	1,197,896	5.8	%
Dan R. Jackson(c)	90,284	*
Edward L. Brewington(c)	68,306	*
Eva M. Kripalani(c)	66,864	*
Bruce A. Walters(c)	99,706	*
Henry R. Kravis(a)	—	—
George R. Roberts(a)	—	—
Michael W. Michelson(a)	—	—
Scott C. Nuttall(a)	—	—
Richard J. Goldstein(b)	—	—
All directors and executive officers as a group (12 individuals)(d)	1,595,228	7.6	%

*: Percentage of shares of the applicable class of common stock beneficially owned does not exceed 1%.

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(a): 15,454,210 shares of common stock shown as beneficially owned by KKR-KLC L.L.C. are directly held by KLC Associates, L.P. KKR-KLC L.L.C. is the sole general partner of KKR Associates (KLC), L.P., which is the sole general partner of KLC Associates, L.P., and possesses sole voting and investment power with respect to such shares. KKR-KLC L.L.C. is a limited liability company, the members of which are Messrs. Henry R. Kravis; George R. Roberts; Paul E. Raether; Michael W. Michelson; James H. Greene, Jr.; Perry Golkin; Scott M. Stuart; and Edward A. Gilhuly. Messrs. Kravis and Roberts are members of the executive committee of KKR-KLC L.L.C. and are directors of KinderCare. Mr. Michelson is also a director of KinderCare. Each of the members of KKR-KLC L.L.C. may be deemed to share beneficial ownership of the shares shown as beneficially owned by KKR-KLC L.L.C. Each member disclaims beneficial ownership of these shares. 203,684 shares of common stock shown as beneficially owned by KKR-KLC L.L.C. are directly held by KKR Partners II, L.P., its affiliate.
(b): Oaktree Capital Management, LLC, referred to as Oaktree, provides investment subadvisory services to the general partner of TCW Special Credits Fund V—The Principal Fund, pursuant to a subadvisory agreement. To the extent that Mr. Goldstein, as a managing director of Oaktree, participates in the process to vote or to dispose of any such shares, he may be deemed under such circumstances for the purpose of Section 13 of the Securities Exchange Act of 1934 to be the beneficial owner of such shares of common stock. Mr. Goldstein disclaims beneficial ownership of these shares of common stock.
(c): The shares beneficially owned by these individuals include shares subject to options that are exercisable before 60 days after the date hereof as follows:

		Number of Options
David J. Johnson		882,106
Dan R. Jackson		70,374
Edward L. Brewington		52,448
Eva M. Kripalani		51,074
Bruce A. Walters		73,390

(d): The shares beneficially owned by all directors and executive officers as a group include 1,183,800 shares that are subject to options that are exercisable before 60 days after April 16, 2004. Shares owned by our executive officers are subject to restrictions on transfer.

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Related Party Transactions

Relationship with KKR-KLC L.L.C.

At March 5, 2004, KKR-KLC L.L.C. beneficially owned approximately 79.4% of our outstanding shares of common stock. See "Principal Stockholders" above.

KKR-KLC L.L.C. receives fees and expense reimbursements for management, consulting and financial services provided to us and may receive customary investment banking fees for services, plus reimbursement of its related expenses. During fiscal year 2003 and the forty weeks ended March 5, 2004, we paid $590,223 and $380,948, respectively, in fees and reimbursements to KKR-KLC L.L.C. Messrs. Kravis, Roberts and Michelson are members of KKR-KLC L.L.C., and Messrs. Kravis and Roberts are members of its executive committee.

KKR-KLC L.L.C. will receive cash proceeds, IDSs and shares of Class B common stock as part of the recapitalization consideration. See "Recapitalization" for a description of the recapitalization consideration to be received.

Registration Rights

Each of KLC Associates, L.P. and its affiliate, KKR Partners II, L.P., has the right to require us to register under the Securities Act the IDSs, the shares of Class A common stock and notes held by them pursuant to a registration rights agreement. These registration rights will generally be available to KLC Associates, L.P. and KKR Partners II, L.P. until registration under the Securities Act is no longer required to enable either company to resell the IDSs, the Class A common stock and notes owned by it. The registration rights agreement provides that we will pay all expenses in connection with the first six registrations requested by KLC Associates, L.P. and/or KKR Partners II, L.P. and in connection with any registration commenced by us as a primary offering. In addition, pursuant to stockholders' agreements, Oaktree and members of our management may be allowed to participate in specified registration processes. In addition, Oaktree and our management stockholders have the right, under certain circumstances and subject to certain conditions and exceptions, to participate in any registration process.

Management Indebtedness

The following table sets forth the amount of indebtedness due at March 5, 2004 under term notes executed by the executive officers:

Edward L. Brewington	$	96,804
S. Wray Hutchinson		122,198
Dan R. Jackson		74,145
Eva M. Kripalani		75,005

The amount of indebtedness remained constant during the past year for all executive officers.

The term notes mature in calendar year 2008 and bear interest at a rate of 4.44% per year, payable semiannually on June 30 and December 31. These loans were made in 1998 to enable these executive officers to purchase shares of restricted stock under our 1997 Stock Purchase and Option Plan. The term notes are secured by the shares of restricted stock purchased.

In connection with this offering, we expect our executive officers to repay this indebtedness with a portion of the cash proceeds the officers receive as the recapitalization consideration. See "Recapitalization" for a description of the recapitalization consideration to be received.

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Description of Certain Indebtedness

Refinancing

In July 2003 we refinanced a portion of our debt. We obtained a $125.0 million revolving credit facility, and, as described below in greater detail, one of our subsidiaries obtained a $300.0 million mortgage loan. Proceeds from the mortgage loan were used to pay off the balance on the then existing revolving credit facility, term loan facility and synthetic lease facility. We also used a portion of the remaining proceeds to purchase $37.0 million aggregate principal amount of our 9.5% senior subordinated notes. In accordance with SFAS No. 6, Classification of Short-Term Obligations Expected to Be Refinanced, an Amendment of ARB No. 43, Chapter 3A, the $104.0 million balance on our previous revolving credit facility and our annual $0.5 million installment on our term loan were classified as long-term debt at May 30, 2003, since they were refinanced on a long-term basis during our first quarter of fiscal year 2004.

Mortgage Loan

The mortgage loan is secured by first mortgages or deeds of trust on 475 of our owned centers located in 33 states. We refer to the mortgage loan as the CMBS loan and the 475 mortgaged centers as the CMBS centers. In connection with the CMBS loan, the CMBS centers were transferred to a newly formed wholly owned subsidiary of ours, which is the borrower under the CMBS loan and is referred to as the CMBS borrower. Because the CMBS centers are owned by the CMBS borrower and subject to the CMBS loan, recourse to the CMBS centers by our creditors will be effectively subordinated to recourse by holders of the CMBS loan.

The CMBS loan is nonrecourse to the CMBS borrower and to us, subject to customary recourse provisions, and has a maturity date of July 9, 2008, which may be extended to July 9, 2009, subject to certain conditions. The CMBS loan bears interest at a per annum rate equal to LIBOR plus 2.25% and requires monthly payments of principal and interest. Principal payments are based on a thirty-year amortization (based on an assumed rate of 6.50%). We have purchased an interest rate cap agreement to protect us from significant changes in LIBOR during the initial three years of the CMBS loan. Under the cap agreement, which terminates July 9, 2006, LIBOR is capped at 6.50%. We are required to purchase additional interest rate cap agreements capping LIBOR at a rate no higher than 7.00% for the period from July 9, 2006 to the maturity date of the CMBS loan.

Each of the centers included in the CMBS centers is being ground leased by the CMBS borrower to another wholly owned subsidiary formed in connection with the CMBS loan, which is referred to as the CMBS operator, and is being managed by us pursuant to a management agreement with the CMBS operator. Transactions between the CMBS borrower and the CMBS operator are eliminated in consolidation since both the CMBS borrower and the CMBS operator are our wholly owned subsidiaries. If the loan is accelerated for any reason, the terms of the loan will prevent us from allowing our centers that are not mortgaged under the loan to compete with the CMBS Centers for a period of time after such acceleration as specified in the CMBS loan agreement.

Prepayment of the CMBS loan is prohibited through July 8, 2005, after which prepayment is permitted in whole, subject to a prepayment premium of 3.0% from July 8, 2005 through July 8, 2006, 2.0% from July 9, 2006 through July 8, 2007 and 1.0% from July 9, 2007 through January 8, 2008, with no prepayment penalty thereafter. In addition, after July 8, 2005, the loan may be partially prepaid as follows:

•: up to $15.0 million each loan year in connection with releases of mortgaged centers with no prepayment premium; and
•: up to $5.0 million each loan year subject to payment of the applicable prepayment premium.

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The CMBS loan contains a provision that requires the loan servicer to escrow 50% of excess cash flow generated from the CMBS centers (determined after payment of debt service on the CMBS loan, certain fees and required reserve amounts) if the net operating income, as defined in the CMBS loan agreement, of the CMBS centers declines to $60.0 million, as adjusted to account for released properties. The amount of excess cash flow to be escrowed increases to 100% if the net operating income of the CMBS centers declines to $50.0 million, as adjusted. The net operating income of the CMBS centers for the 52 week period ended March 5, 2004 was approximately $80.2 million. The maximum amount of excess cash flow that can be escrowed is limited to one year of debt service on the CMBS loan and one year of rent due under the ground lease with the CMBS operator during the term of the CMBS loan. The escrowed amounts are released if the CMBS centers generate the necessary minimum net operating income for two consecutive fiscal quarters. The annual debt service on the CMBS loan is approximately $22.8 million (assuming a 6.50% interest rate). The annual rent due under the ground lease is $34.0 million during the term of the CMBS loan. These excess cash flow provisions could limit the amount of cash made available to us.

Revolving Credit Facility

Our $125.0 million credit facility is secured by first mortgages or deeds of trusts on 119 of our owned centers and certain other collateral and has a maturity date of July 9, 2008. The revolving credit facility includes borrowing capacity of up to $75.0 million for letters of credit and up to $10.0 million for selected short-term borrowings. At March 5, 2004, there were $11.0 million of borrowings outstanding under our credit facility, which were subsequently repaid.

The credit facility bears interest, at our option, at either of the following rates, which are adjusted in quarterly increments based on our ratio of total consolidated debt to total consolidated EBITDA (EBITDA is defined in the credit facility as net income before interest expense, income taxes, depreciation, amortization, non-recurring charges, non-cash charges, gains and losses on asset sales, restructuring charges or reserves and non-cash gains):

•: An adjusted LIBOR rate plus 2.00% to 3.25%. At March 5, 2004 this rate was adjusted LIBOR plus 3.25%, or an all-in rate of 4.34%. There were $11.0 million of borrowings outstanding at this rate at March 5, 2004.
•: An alternative base rate plus 0.75% to 2.00%. At March 5, 2004 this rate would have been the alternative base rate plus 2.00%, or an all-in rate of 6.00%. There were no borrowings outstanding at this rate at March 5, 2004.

The credit facility contains customary covenants and provisions that restrict our ability to:

•: make certain fundamental changes to our business,
•: consummate asset sales,
•: declare dividends,
•: grant liens,
•: incur additional indebtedness, amend the terms of or repay certain indebtedness, and
•: make capital expenditures.

In addition, the credit facility requires us to meet or exceed certain leverage and interest and lease expense coverage ratios.

Under the revolving credit facility we are required to pay a commitment fee at a rate ranging from 0.40% to 0.50% on the available commitment. The fee is payable quarterly in arrears. In addition, we are required to pay a letter of credit fee at a rate ranging from 2.00% to 3.25%, minus 0.125%, plus a

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fronting fee of 0.125%, in each case on the average daily stated amount of each letter of credit. These fees are also payable quarterly in arrears. At March 5, 2004 the rates for our commitment and letter of credit fees were 0.50% and 3.125%, respectively.

In connection with this offering, we will enter into an amendment to our revolving credit facility to reflect our new capital structure.

Series A Through E Industrial Revenue Bonds

We are obligated to various issuers of industrial revenue bonds, which are referred to as refunded IRBs. Such bonds mature in calendar 2009. The refunded IRBs were issued to provide funds for refunding an equal principal amount of industrial revenue bonds that were used to finance the cost of acquiring, constructing and equipping specific centers. At March 5, 2004, the refunded IRBs bore interest at a variable rate of 1.20%, and each was secured by a letter of credit under the revolving credit facility.

Other Industrial Revenue Bonds

We are also obligated to various issuers of other industrial revenue bonds that mature in calendar 2005. The principal amount of such IRBs was used to finance the cost of acquiring, constructing and equipping specific child care centers. The IRBs are secured by these centers. At March 5, 2004, the IRBs bore interest at rates of 2.80% to 4.55%.

Senior Subordinated Notes

In fiscal 1997, we issued $300.0 million aggregate principal amount of 9.5% unsecured notes under an indenture between HSBC Bank USA (formerly known as Marine Midland Bank), as trustee, and us. Since fiscal year 2000, we have repurchased or redeemed $120.6 aggregate principal amount of our outstanding 9.5% senior subordinated notes, $15.0 million of which was redeemed on March 29, 2004. The balance currently outstanding is $179.4 million. The closing of the tender offer and consent solicitation is a condition to this offering. Upon obtaining the minimum required consents in the tender offer and consent solicitation, we will enter into a supplemental indenture with the trustee of the senior subordinated notes that will delete all of the material restrictive covenants contained in the indenture governing the 9.5% senior subordinated notes. The only operative material covenant will be the covenant to make payment on the senior subordinated notes. The form of supplemental indenture is filed as an exhibit to the registration statement related to this prospectus. We intend to redeem any senior subordinated notes due 2009 not tendered after the completion of this offering. See "Summary—Transactions Related to This Offering and Our Capital Structure—Tender Offer and Consent Solicitation."

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Description of IDSs

General

We are selling IDSs in this offering. Each IDS initially represents:

•: one share of our Class A common stock; and
•: a % senior subordinated note with a $ principal amount.

The ratio of common stock to principal amount of notes represented by an IDS is subject to change in the event of a stock split, recombination or reclassification of our Class A common stock. For example, if we elect to effect a two for one stock split, from and after the effective date of the stock split, each IDS will represent two shares of Class A common stock and the same principal amount of notes as it previously represented. Likewise, if we effect a recombination or reclassification of our Class A common stock, each IDS will thereafter represent the appropriate number of shares of Class A common stock on a recombined or reclassified basis, as applicable, and the same principal amount of notes as it previously represented. Immediately following the occurrence of any such event, we will file with the SEC a Current Report on Form 8-K or any other applicable form, disclosing the changes in the ratio of Class A common stock to principal amount of notes as a result of such event.

Holders of IDSs are at all times the beneficial owners of the Class A common stock and notes represented by such IDSs and, through their broker or other financial institution and DTC, will have exactly the same rights, privileges and preferences, including voting rights, rights to receive distributions, rights and preferences in the event of a default under the indenture governing the notes, ranking upon bankruptcy and rights to receive communications and notices as a beneficial owner of separately held common stock and notes, as applicable, would have through its broker or other financial institution and DTC.

The IDSs will be available in book entry form only. As discussed below under "Book-Entry Settlement and Clearance," a nominee of the book entry clearing system will be the sole registered holder of the IDSs. That means you will not be a registered holder of IDSs or be entitled to receive a certificate evidencing your IDSs. You must rely on the procedures used by your broker or other financial institution that will maintain your book entry position to receive the benefits and exercise the rights of a holder of IDSs that are described below. You should consult with your broker or financial institution to find out what those procedures are.

Voluntary Separation and Recombination

Holders of IDSs, whether purchased in this offering or in a subsequent offering of IDSs of the same series may, at any time after the earlier of 45 days from the date of the closing of this offering or the occurrence of a change of control, through their broker or other financial institution, separate the IDSs into the shares of our Class A common stock and notes represented thereby. Unless the IDSs have been previously automatically separated, any holder of shares of our Class A common stock and notes may, at any time, through his or her broker or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs.

If a sufficient number of our outstanding shares of Class A common stock are held separately to meet the minimum distribution requirements for separate trading of the for at least 30 consecutive trading days, we have agreed that we will use best efforts to cause the Class A common stock to be listed on the or any other exchange or quotation system on which the IDSs are then listed (or were previously listed), provided that the Class A common stock would meet the applicable exchange or quotation system listing standards.

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Automatic Separation

Upon the occurrence of any of the following, the IDSs will be automatically separated into the shares of Class A common stock and notes represented thereby:

•: exercise by us of our right to redeem all or a portion of the notes, which may be represented by IDSs at the time of such redemption;
•: the date on which principal on the notes becomes due and payable, whether at the stated maturity date or upon acceleration thereof;
•: the continuance of a payment default on the notes for 90 days; or
•: if DTC is unwilling or unable to continue as securities depository with respect to the IDSs or ceases to be a registered clearing agency under the Securities Exchange Act of 1934 and we are unable to find a successor depositary.

Following the automatic separation of the IDSs as a result of the redemption or maturity of any notes, shares of common stock and notes may no longer be combined to form IDSs.

The Class B common stock will be convertible into IDSs after the second anniversary of the recapitalization at the option of the holder or on or after the third anniversary of the recapitalization at our option, subject in each case to certain restrictions. In addition, subject to certain conditions, the holders of Class B common stock will have the option to convert the Class B common stock to Class A common stock and notes at such time as the IDSs are automatically separated.

Book Entry Settlement and Clearance

DTC will act as securities depository for the IDSs, and the notes and shares of Class A common stock represented by the IDSs, or the "securities." The notes and the shares of our Class A common stock represented by the IDSs will be represented by one or more global notes and global stock certificates. The global notes and global stock certificates will be issued in fully registered form in the name of DTC's nominee, Cede & Co.

Book Entry Procedures. If you intend to purchase IDSs in the manner provided by this prospectus you must do so through the DTC system or through direct and indirect participants. The participant that you purchase through will receive a credit for the applicable security on DTC's records. The ownership interest of each actual purchaser of the applicable security, who we refer to as a "beneficial owner," is to be recorded on the participant's records. Beneficial owners will not receive written confirmation from DTC of their purchases, but beneficial owners are expected to receive written confirmations providing details of their purchase and sale transactions, as well as periodic statements of their holdings, from the DTC participant through which the beneficial owner entered into their purchase and sale transactions.

All interests in the securities will be subject to the operations and procedures of DTC. We provide the following summary of DTC's operations solely for your convenience. The operations and procedures of DTC may be changed at any time. We are not responsible for those procedures and operations.

DTC has advised us as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York State Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered under Section 17A of the Securities Exchange Act of 1934. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book entry changes to the accounts of its participants. DTC's participants include securities brokers and dealers, including the underwriters, banks and trust companies, clearing corporations and other organizations. Indirect access to DTC's system is also available to others such as banks, brokers, dealers and trust companies. These indirect participants clear through or maintain a custodial relationship with

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a DTC participant, either directly or indirectly. The rules that apply to DTC and its participants are on file with the SEC.

To facilitate subsequent transfers, all securities deposited by direct participants with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of securities with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the securities. DTC's records reflect only the identity of the direct participants to whose accounts such securities are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers.

Transfers of ownership interests in the securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in the applicable security except in the event that use of the book-entry system for the securities is discontinued.

Separation and Combination. Holders of IDSs may, at any time after 45 days from the date of original issuance, through their broker or other financial institution, separate their IDSs into the shares of Class A common stock and notes represented thereby. Similarly, any holder of shares of our Class A common stock and notes may, at any time after 45 days from the date of original issuance, through their broker or other financial institution, combine the applicable number of shares of Class A common stock and notes to form IDSs.

In addition, the IDSs will be automatically separated into the shares of Class A common stock and notes represented thereby upon the occurrence of the events described under "—Automatic Separation" above.

Any voluntary or automatic separation of IDSs and any subsequent combination of IDSs from notes and Class A common stock are to be accomplished by entries made by the DTC participants acting on behalf of beneficial owners. In any such case, the participant's account through which a separation or combination is effected will be credited and debited for the applicable securities on DTC's records. Depending on the arrangements between a holder and his or her brokerage firm, and the brokerage arrangements with the DTC participant, the transaction fee for any voluntary separation or recombination may be passed directly on to the holder.

Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

Neither DTC nor Cede & Co. will consent or vote with respect to the securities. Under its usual procedures, DTC would mail an omnibus proxy to participants as soon as possible after the record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those direct participants to whose accounts the securities are credited on the record date.

We and the transfer agent and registrar will make any payments on the securities to DTC. DTC's practice is to credit direct participants' accounts on the payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on the payment date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such participant and not of DTC, us or the transfer agent and registrar, subject to any statutory or regulatory requirements as may be in effect from time to time.

We or the transfer agent and registrar will be responsible for the payment of all amounts to DTC. DTC will be responsible for the disbursement of those payments to its participants, and the participants will be responsible for disbursements of those payments to beneficial owners.

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DTC may discontinue providing its service as securities depository with respect to the IDSs, the shares of our common stock or our notes at any time by giving reasonable notice to us or the transfer agent and registrar. If DTC discontinues providing its service as securities depository with respect to the IDSs and we are unable to obtain a successor securities depository, you will automatically take a position in the component securities. If DTC discontinues providing its service as securities depository with respect to the shares of our Class A common stock and/or our notes and we are unable to obtain a successor securities depository, we will print and deliver to you certificates for the securities that have been discontinued and you will automatically take a position in any securities still subject to the depository arrangement.

Also, in case we decide to discontinue use of the system of book entry transfers through DTC (or a successor securities depository) we will print and deliver to you certificates for the various certificates of Class A common stock and notes you may own.

The information in this section concerning DTC and DTC's book entry system has been obtained from sources that we believe to be reliable, including DTC.

Except for actions taken by DTC in accordance with our instructions, neither we nor the trustee nor the underwriters will have any responsibility or obligation to participants, or the persons for whom they act as nominees, with respect to:

•: the accuracy of the records of DTC, its nominee or any participant or any record of beneficial ownership interest in the securities on DTC's books, or
•: any payments, or the providing of notice, to participants or beneficial owners.

Procedures Relating to Subsequent Issuances. The indenture governing our notes will provide that, in the event there is a subsequent issuance of notes having terms identical to the notes offered hereby except for the issuance date, if we determine that such new notes need to have a new CUSIP number, each holder of notes or IDSs (as the case may be) agrees that a portion of such holder's notes (whether held directly in book entry form or held as part of IDSs) will be exchanged, without any further action of such holder, for a portion of the notes acquired by the holders of such subsequently issued notes. Consequently, following each such subsequent issuance and exchange, each holder of notes or IDSs (as the case may be) will own an indivisible unit composed of notes of each separate issuance in the same proportion as each other holder. Immediately following any exchange resulting from a subsequent offering, a new CUSIP number will be assigned to represent an inseparable unit consisting of the notes outstanding prior to the subsequent issuance and the notes issued in the subsequent issuance. Accordingly, the notes issued in the original offering will not be able to be separated from the notes issued in any subsequent offering. In addition, immediately following any exchange resulting from a subsequent offering, new IDSs will be issued in exchange for the existing IDSs which will consist of the inseparable unit described above representing the proportionate principal amounts of each issuance of notes (but with the same aggregate principal amount as the notes (or inseparable unit) represented by the IDSs immediately prior to such subsequent issuance and exchange) and the Class A common stock. All accounts of DTC participants with a position in the securities will be automatically revised to reflect the new CUSIP numbers.

Most subsequent issuances of notes, including subsequent issuances of notes which have OID and all subsequent issuances six months after the date of this offering, may require trades on the to settle up to 24 hours after the date such trades would settle absent such subsequent issuance or settle for cash, consistent with such exchange's practices for the date of such issuance. has informed us that they will broadcast any such alternate settlement procedures in advance of any relevant trading day, consistent with their established procedures. Based upon these discussions, we do not believe that any settlement delays or cash settlement procedures, if any, associated with subsequent issuances will have a significant impact on the IDS trading market. Immediately following any subsequent issuance, we will file with the SEC a Current Report on Form 8-K or any other applicable form, disclosing the changes, if any, to the OID attributable to your notes as a result of such subsequent issuance.

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Description of Notes

The following is a description of the terms of the indenture under which our senior subordinated notes will be issued, a copy of the form of which has been filed with the Commission as an exhibit to the registration statement of which this prospectus is a part. We refer to KinderCare Learning Centers, Inc. as the "Company" in this "Description of Notes" section.

General

The Notes are to be issued under an indenture, to be dated as of , 2004 (the "Indenture"), among us, the subsidiary guarantors and , as Trustee (the "Trustee").

The following description is a summary of the material provisions of the Indenture and the Notes. It does not purport to be complete and we urge you to read the Indenture, a copy of which will be available upon request from the Company. This description is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part thereof by the Trust Indenture Act of 1939, as amended. Capitalized terms used in this "Description of Notes" section and not otherwise defined have the meanings set forth in "—Certain Definitions" hereafter.

The Indenture will provide for the issuance of an unlimited aggregate principal amount of additional notes having identical terms and conditions to the Notes offered hereby (other than Issuance Date) (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. The Additional Notes will be deemed to have the same accrued current period interest, deferred interest and defaults as the Notes issued in this offering and will be deemed to have expended Payment Blockage Periods (as defined below) and interest deferral periods to the same extent as the Notes issued in this offering. Additional Notes may be sold with OID for United States federal income tax purposes. See "Risk Factors" and "Material U.S. Federal Income Tax Consequences—Consequences to U.S. Holders—Notes—Additional Issuances."

The Notes will be issued only in fully-registered form, without coupons represented by one or more global notes which will be registered in the name of Cede & Co., the nominee of DTC. See "Description of IDSs—Book-Entry Settlement and Clearance."

Terms of the Notes

Maturity

The Notes will be unsecured senior subordinated obligations of the Company and will mature on , 2014. The Company may extend the maturity of the Notes for two additional successive five-year terms if the following conditions are satisfied:

•: during the twelve month period ending on the last day of the fiscal quarter ending at least 45 days before the end of the then-current term, our ratio of Net Debt to EBITDA is less than to ;
•: no Event of Default (including certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary) has occurred and is continuing with respect to the Notes; and
•: no event of default has occurred and is continuing with respect to any other Indebtedness of the Company or could occur as a result of such extension, including under any Designated Senior Indebtedness.

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If the Company is going to extend the maturity of the Notes, the Company will cause a notice of such extension, including the new maturity date, to be sent to Holders at least 30 and not more than 60 days prior to the previously scheduled maturity date.

Interest

The Notes will bear interest at a rate per year of % from , 2004 or from the most recent date to which interest has been paid or provided for, payable quarterly in arrears on the day of each , , and commencing , 2004, to Holders of record at the close of business on the day of such month or, if any interest payment date falls on a day that is not a Business Day, the interest payment shall be postponed to the next day that is a Business Day.

Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

Interest Deferral

Prior to , 2009, the Company will be permitted, at its election, on one or more occasions to defer interest payments on the Notes (each, an "Interest Deferral Period") by delivering to the Trustee a copy of a resolution of the Company's Board of Directors to the effect that, based upon a good-faith determination of the Company's Board of Directors, such deferral is reasonably necessary for bona-fide cash management purposes, or to reduce the likelihood of or avoid a default under any Designated Senior Indebtedness; provided, however that no such deferral may be commenced, and any on-going deferral shall cease, if a default in payment of interest, principal or premium, if any, on the Notes has occurred and is continuing, or another Event of Default with respect to the Notes has occurred and is continuing and the Notes have been accelerated as a result of the occurrence of such Event of Default; and provided, further, that interest payments on the Notes may not be deferred under this provision for more than eight quarters in the aggregate or beyond , 2009.

In addition, between , 2009 and , 2014 but not after , 2014, the Company may, at its election, defer interest on the Notes on not more than two occasions for not more than three (3) quarters (each, an "Additional Interest Deferral Period") by delivering to the Trustee a copy of a resolution of the Company's Board of Directors to the effect that, based upon a good-faith determination of the Company's Board of Directors, such deferral is reasonably necessary for bona-fide cash management purposes, or to reduce the likelihood of or avoid a default under any Designated Senior Indebtedness; provided, however that no such deferral may be commenced, and any on-going deferral shall cease, if a default in payment of principal or premium, if any, on the Notes has occurred and is continuing, an Event of Default with respect to payment of interest on the Notes has occurred and is continuing or another Event of Default with respect to the Notes has occurred and is continuing and the Notes have been accelerated as a result of the occurrence of such Event of Default and provided, further, that interest payments may not be deferred under this provision for more than three quarters per occasion. After the end of the first Additional Interest Deferral Period, the Issuer may not defer interest on the Notes unless and until all deferred interest has been paid in full.

Deferred interest on the Notes will bear interest at a rate per annum of % until paid in full. Following the end of any Interest Deferral Period, the Company will be obligated to resume quarterly payments of interest on the Notes, including interest on deferred interest. At the end of any Interest Deferral Period, all interest on the Notes deferred at any time prior to the end of such Interest Deferral Period (including any prior Interest Deferral Period), together with interest accrued on such deferred interest (such amounts, as determined at the end of any Interest Deferral Period, the "Deferred Interest"), will be paid by the Company in one or more equal quarterly installments beginning on the interest payment date following the end of such Interest Deferral

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Period and ending on , 2009. All Deferred Interest attributable to an Interest Deferral Period ending on , 2009, will be immediately due and payable on such date. At the end of an Additional Interest Deferral Period, any interest deferred prior to , 2009, must be repaid on , 2009. All interest deferred prior to , 2014, must be repaid on , 2014, provided that the Company must pay all deferred interest and accrued interest thereon in full prior to deferring interest for the second occasion and may prepay all or part of the deferred interest at any time other than during an Interest Deferral Period.

During any Interest Deferral Period or an Additional Interest Deferral Period and so long as any deferred interest or interest on deferred interest remains outstanding and unpaid, the Company will not be permitted to make any payment of dividends on the Common Stock or make any distribution to holders of Common Stock, or make certain other Restricted Payments.

The Company will notify the Trustee of each interest deferral at least one Business Day prior to the interest payment date on which interest would have been due. In addition, the Representative of holders of Designated Senior Indebtedness may provide a written notice to the Trustee and any paying agent (with a copy to the Company) at least one Business Day prior to such interest payment date specifying that the Representative has received notice of the interest deferral from the Company and, upon receipt of such notice, the Trustee and any paying agent will not permit any payment of interest to be made due to the interest deferral.

Guarantees

Except for the CMBS Subsidiaries, all of the Company's direct and indirect Wholly Owned Subsidiaries organized under the laws of any state of the United States of America on the Issue Date and certain future Subsidiaries of the Company (as described below), as primary obligors and not merely as sureties, will jointly and severally irrevocably and unconditionally guarantee on an unsecured senior subordinated basis the performance and punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all obligations of the Company under the Indenture and the Notes, whether for payment of principal of, premium, if any, or interest on the Notes, expenses, indemnification or otherwise (all such obligations guaranteed by such Guarantors being herein called the "Guaranteed Obligations"). Such Guarantors will agree to pay, in addition to the amount stated above, any and all expenses (including reasonable counsel fees and expenses) Incurred by the Trustee or the Holders in enforcing any rights under the Guarantees. Each Guarantee will be limited to an amount not to exceed the maximum amount that can be guaranteed by the applicable Guarantor after giving effect to all of its other contingent and fixed liabilities (including without limitation all of its obligations under or with respect to the Credit Agreement) without rendering the Guarantee, 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. After the Issue Date, the Company will cause each Restricted Subsidiary (other than the CMBS Subsidiaries) organized under the laws of the United States of America or any state or territory thereof that Incurs Indebtedness or issues shares of Disqualified Stock or Preferred Stock to execute and deliver to the Trustee a supplemental indenture pursuant to which such Restricted Subsidiary will guarantee, payment of the Notes. See "Certain Covenants—Future Guarantors" below.

Each Guarantee is a continuing guarantee and shall (i) remain in full force and effect until payment in full of all the Guaranteed Obligations, (ii) be binding upon each such Guarantor and its successors, and (iii) inure to the benefit of and be enforceable by the Trustee, the Holders and their successors, transferees and assigns.

The Guarantee of a Guarantor shall be automatically and unconditionally released and discharged upon: (i) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the

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Company's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the Indenture) or (ii) upon satisfaction and discharge or defeasance of the Notes as provided below under "Defeasance" and "Satisfaction and Discharge."

Subordination

The payment of the Senior Subordinated Note Obligations will be subordinated in right of payment, as set forth in the Indenture, to the prior payment in full in cash equivalents of all Senior Indebtedness, whether outstanding on the date of the Indenture or thereafter incurred and will rank pari passu in right of payment with all existing and future Pari Passu Indebtedness and trade payables of the Company. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Indebtedness will be entitled to receive payment in full in cash equivalents of such Senior Indebtedness before the holders of Notes will be entitled to receive any payment with respect to the Senior Subordinated Note Obligations, and until all Senior Indebtedness is paid in full in cash equivalents, any distribution to which the holders of Notes would be entitled shall be made to the holders of Senior Indebtedness (except that holders of Notes may receive (i) shares of stock and any debt securities that are subordinated at least to the same extent as the Notes to (a) Senior Indebtedness and (b) any securities issued in exchange for Senior Indebtedness and (ii) payments made from the trusts described under "—Legal Defeasance and Covenant Defeasance").

The Company also may not make any payment upon or in respect of the Senior Subordinated Note Obligations (except in such subordinated securities or from the trust described under "—Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of the principal of, premium, if any, or interest on, or of unreimbursed amounts under drawn letters of credit or in respect of bankers' acceptances or fees relating to letters of credit or bankers' acceptances constituting, Designated Senior Indebtedness occurs and is continuing beyond any applicable period of grace (a "payment default") or (ii) any other default occurs and is continuing with respect to Designated Senior Indebtedness that permits holders of the Designated Senior Indebtedness as to which such default relates to accelerate its maturity (a "non-payment default") and the Trustee receives a notice of such default (a "Payment Blockage Notice") from a Representative of holders of such Designated Senior Indebtedness. Payments on the Notes, including any missed payments, may and shall be resumed (a) in the case of a payment default, upon the date on which such default is cured or waived or shall have ceased to exist or such Designated Senior Indebtedness shall have been discharged or paid in full in cash equivalents and (b) in case of a nonpayment default, the earlier of (x) the date on which such nonpayment default is cured or waived, (y) 179 days after the date on which the applicable Payment Blockage Notice is received (each such period, the "Payment Blockage Period") or (z) the date such Payment Blockage Period shall be terminated by written notice to the Trustee from the requisite holders of such Designated Senior Indebtedness necessary to terminate such period or from their Representative. No new period of payment blockage may be commenced unless and until 365 days have elapsed since the effectiveness of the immediately preceding Payment Blockage Notice. However, if any Payment Blockage Notice within such 365-day period is given by or on behalf of any holders of Designated Senior Indebtedness (other than the agent under the Senior Credit Facility), the agent under the Senior Credit Facility may give another Payment Blockage Notice within such period. In no event, however, may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 365 consecutive day period. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 days.

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If the Company fails to make any payment on the Notes when due or within any applicable grace period, whether or not on account of the payment blockage provision referred to above unless permitted by the interest deferral provisions, such failure would constitute an Event of Default under the Indenture and would enable the holders of the Notes to accelerate the maturity thereof.

The Indenture further requires that the Company promptly notify holders of Senior Indebtedness if payment of the Notes is accelerated because of an Event of Default.

The Indenture will contain identical subordination provisions relating to each Guarantor's obligations under its Guarantee.

As a result of the subordination provisions described above, in the event of insolvency, bankruptcy, administration, reorganization, receivership or similar proceedings relating to the Company, holders of Notes may recover less ratably than creditors of the Company who are holders of Senior Indebtedness. At March 5, 2004, on a pro forma basis after giving effect to the recapitalization and the Offering), (i) the Company would have had approximately $ million of Senior Indebtedness outstanding, (ii) the Company would have had additional availability of $ million (reduced by $ million of outstanding letters of credit) for borrowings under the Senior Credit Facility, all of which would be Senior Indebtedness of the Company, (iii) the Guarantors would have had approximately $ million of Senior Indebtedness outstanding, and (iv) the Guarantors would have had approximately $ million of Pari Passu Indebtedness outstanding. In addition, the Notes will be structurally subordinated to the liabilities of the CMBS Subsidiaries of the Company. At March 5, 2004, the CMBS Subsidiaries had approximately $ million of Indebtedness and other liabilities outstanding. Although the Indenture contains limitations on the amount of additional Indebtedness that the Company and its Subsidiaries may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock."

The Indebtedness evidenced by each Guarantee will be unsecured senior subordinated Indebtedness of the applicable Guarantor, will be subordinated in right of payment, as set forth in the Indenture, to all existing and future Senior Indebtedness of such Guarantor, including the Senior Indebtedness of each Guarantor represented by such Guarantor's guarantee of the Credit Agreement, and will rank pari passu in right of payment with all existing and future Pari Passu Indebtedness and trade payables of such Guarantor. The Notes and Guarantees will rank senior in right of payment to all Subordinated Indebtedness of the Company and the Guarantors, respectively. At the Issuance Date neither the Company nor any of the Guarantors had any Subordinated Indebtedness outstanding.

"Designated Senior Indebtedness" means (i) Senior Indebtedness under the Senior Credit Facility and (ii) any other Senior Indebtedness permitted under the Indenture the principal amount of which is $50 million or more and that has been designated by the Company as Designated Senior Indebtedness.

"Senior Indebtedness" means (i) the Obligations under the Senior Credit Facility and (ii) any other Indebtedness permitted to be incurred by the Company or any Guarantor under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes or Guarantees, as applicable, including, with respect to (i) and (ii), interest accruing subsequent to the filing of, or which would have accrued but for the filing of, a petition for bankruptcy, whether or not such interest is an allowable claim in such bankruptcy proceeding. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include (1) any liability for federal, state, local or other taxes owed or owing by the Company, (2) any obligation of the Company or any Guarantor to any of the Company's Subsidiaries, (3) any accounts payable or trade liabilities arising in the ordinary course of business (including instruments evidencing such liabilities) other than obligations in respect of bankers' acceptances and letters of credit under the Senior Credit Facility, (4) any Indebtedness that is incurred

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in violation of the Indenture, (5) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company, (6) any Indebtedness, guarantee or obligation of the Company or any Guarantor which is subordinate or junior to any other Indebtedness, guarantee or obligation of the Company or any Guarantor, (7) Indebtedness evidenced by the Notes or Guarantees and (8) Capital Stock of the Company or any Guarantor.

"Senior Subordinated Note Obligations" means any principal of, premium, if any, and interest on the Notes payable pursuant to the terms of the Notes or upon acceleration, together with and including any amounts received upon the exercise of rights of rescission or other rights of action (including claims for damages) or otherwise, to the extent relating to the purchase price of the Notes or amounts corresponding to such principal, premium, if any, or interest on the Notes.

Mandatory Redemption

The Company will not be required to make mandatory redemptions or sinking fund payments prior to maturity of the Notes.

Optional Redemption

The Company may not redeem the Notes at its option prior to , 2009. Thereafter, the Company may redeem the Notes in accordance with the Indenture.

Notice of any redemption will be mailed at least 30 days but not more than 60 days before the date of redemption to each Holder of the Notes to be redeemed. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on such Notes or the portions called for redemption.

Any exercise by the Company of its option to redeem the Notes, in whole or in part, will result in an automatic separation of the IDSs upon the redemption date.

Repurchase at the Option of Holders

Change of Control. The Indenture provides that, upon the occurrence of a Change of Control, the Company will make an offer to purchase all or any part of the Notes pursuant to the offer described below (the "Change of Control Offer") at a price in cash (the "Change of Control Payment") equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. The Indenture provides that within 30 days following any Change of Control, the Company will mail a notice to each Holder of Notes issued under the Indenture (whether held separately or represented by IDSs), with a copy to the Trustee, with the following information: (1) a Change of Control Offer is being made pursuant to the covenant entitled "Change of Control," and that all Notes properly tendered pursuant to such Change of Control Offer will be accepted for payment; (2) the purchase price and the purchase date, which will be no earlier than 30 days nor later than 60 days from the date such notice is mailed, except as may be otherwise required by applicable law (the "Change of Control Payment Date"); (3) any Note not properly tendered will remain outstanding and continue to accrue interest; (4) unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest on the Change of Control Payment Date; (5) Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to make its election pursuant to the instructions set forth in such notice; (6) Holders will be entitled to withdraw their tendered Notes and their election to require the Company to purchase such Notes, provided that the paying agent receives notice thereof, not later than the close of business on the last day of the offer period; and (7) that Holders whose Notes are

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being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. In order for a holder of IDSs to exercise this repurchase right, such holder must separate its IDSs into the shares of Class A common stock and Notes represented thereby.

The Indenture provides that, prior to complying with the provisions of this covenant, but in any event within 30 days following a Change of Control, the Company will either repay all outstanding amounts under the Senior Credit Facility or offer to repay in full all outstanding amounts under the Senior Credit Facility and repay the Obligations held by each lender who has accepted such offer or obtain the requisite consents, if any, under the Senior Credit Facility to permit the repurchase of the Notes required by this covenant.

The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase of the Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof.

The Indenture provides that on the Change of Control Payment Date, the Company will, to the extent permitted by law, (1) accept for payment all Notes properly tendered pursuant to the Change of Control Offer, (2) deposit with the paying agent an amount equal to the aggregate Change of Control Payment in respect of all Notes so tendered and (3) deliver, or cause to be delivered, to the Trustee for cancellation the Notes so accepted together with an Officers' Certificate stating that such Notes have been tendered to and purchased by the Company. The Indenture provides that the paying agent will promptly mail to each Holder the Change of Control Payment for such Notes. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

The Senior Credit Facility does, and future credit agreements or other agreements relating to Senior Indebtedness to which the Company becomes a party may, prohibit the Company from purchasing any Notes as a result of a Change of Control and/or provide that certain change of control events with respect to the Company would constitute a default thereunder. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing the Notes, the Company could seek the consent of its lenders to the purchase of the Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company will remain prohibited from purchasing the Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture. If, as a result thereof, a default occurs with respect to any Senior Indebtedness, the subordination provisions in the Indenture would likely restrict payments to the Holders of the Notes.

The existence of a Holder's right to require the Company to repurchase such Holder's Notes upon the occurrence of a Change of Control may deter a third party from seeking to acquire the Company in a transaction that would constitute a Change of Control.

Asset Sales. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, cause, make or suffer to exist an Asset Sale, unless (x) the Company, or its Restricted Subsidiaries, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Company) of the assets sold or otherwise disposed of and (y) at least 75% of the proceeds from such Asset Sale when received consists of cash or Cash Equivalents; provided that the amount of (a) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Notes) that are assumed by the transferee of any such assets, (b) any notes or other obligations received by the Company or any such

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Restricted Subsidiary from such transferee that are converted by the Company or such Restricted Subsidiary into cash within 180 days after such Asset Sale (to the extent of the cash received) and (c) any Designated Noncash Consideration received by the Company or any of its Restricted Subsidiaries in such Asset Sale having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed the greater of (x) $ million or (y) % of Total Assets at the time of the receipt of such Designated Noncash Consideration (with the fair market value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value), shall be deemed to be cash for the purposes of this provision.

Within 30 months after the Company's or any Restricted Subsidiary's receipt of the Net Proceeds of any Asset Sale, the Company or such Restricted Subsidiary may apply the Net Proceeds from such Asset Sale, at its option, (i) to permanently reduce Obligations under the Senior Credit Facility (and to correspondingly reduce commitments with respect thereto) or other Senior Indebtedness or Pari Passu Indebtedness (provided that if the Company shall so reduce Obligations under Pari Passu Indebtedness, it will equally and ratably reduce Obligations under the Notes if the Notes are then redeemable or, if the Notes may not be then redeemed, the Company shall make an offer (in accordance with the procedures set forth below for an Asset Sale Offer) to all Holders to purchase at 100% of the principal amount thereof the amount of Notes that would otherwise be prepaid), (ii) to an investment in any one or more businesses, capital expenditures or acquisitions of other assets in each case, used or useful in a Similar Business and/or (iii) to an investment in properties or assets that replace the properties and assets that are the subject of such Asset Sale. Pending the final application of any such Net Proceeds, the Company or such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving credit facility, if any, or otherwise invest such Net Proceeds in Cash Equivalents or Investment Grade Securities. The Indenture provides that any Net Proceeds from the Asset Sale that are not invested as provided and within the time period set forth in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $ million, the Company shall make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes, that is an integral multiple of the principal amount of a Note, that may be purchased out of the Excess Proceeds at an offer price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. The Company will commence an Asset Sale Offer with respect to Excess Proceeds within ten Business Days after the date that Excess Proceeds exceeds $ million by mailing the notice required pursuant to the terms of the Indenture, with a copy to the Trustee. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased in the manner described under the caption "Selection and Notice" below. Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.

The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof.

Selection and Notice. If less than all of the Notes are to be redeemed at any time or if more Notes are tendered pursuant to an Asset Sale Offer than the Company is required to purchase, selection of such Notes for redemption or purchase, as the case may be, will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed,

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or, if such Notes are not so listed, on a pro rata basis, by lot or by such other method as the Trustee shall deem fair and appropriate (and in such manner as complies with applicable legal requirements); provided that no Notes shall be purchased or redeemed in part.

Notices of purchase or redemption shall be mailed by first class mail, postage prepaid, at least 30 but not more than 60 days before the purchase or redemption date to each Holder of Notes to be purchased or redeemed at such Holder's registered address.

On and after the purchase or redemption date, unless the Company defaults in payment of the purchase or redemption price, interest shall cease to accrue on Notes or portions thereof purchased or called for redemption.

Covenants Relating to IDSs

Recombination of Notes and Class A Common Stock into IDSs. The Indenture will provide that as long as any Notes are outstanding, any Holder of Notes and shares of Class A common stock may after 45 days from the date of the Indenture, at any time and from time to time, recombine these securities to form IDSs.

Procedures Relating to Subsequent Issuance. The Indenture will provide that, in the event there is a subsequent issuance of Additional Notes with OID, each Holder of the Notes or the IDSs (as the case may be) agrees that a portion of such Holder's Notes (whether held directly in book-entry form or held as part of IDSs) will be exchanged, without any further action of such Holder, for a portion of the Additional Notes purchased by the Holders of such Additional Notes, such that following any such additional issuance and exchange each Holder of the Notes or the IDSs (as the case may be) owns an indivisible unit composed of the Notes and Additional Notes of each issuance in the same proportion as each other Holder, and the records of DTC and the Trustee will be revised to reflect each such exchange without any further action of such Holder. The aggregate principal amount of the Notes owned by each Holder will not change as a result of such exchange. Any Additional Notes will be guaranteed by the Guarantors on the same basis as the Notes. See "Material U.S. Federal Income Tax Consequences—Consequences to U.S. Holders—Notes—Additional Issuances." There is a possibility that holders of subsequently issued notes having original issue discount may not be able to collect the unamortized portion of the original issue discount in the event of an acceleration of the notes or bankruptcy of the Company as described under "Risk Factors—Risks Relating to the IDSs, the Shares of Class A Common Stock and the Notes—Any OID attributable to you could reduce the amount of principal you could recover from us in a bankruptcy proceeding." Any such automatic exchange should not impair the rights any holder would otherwise have to assert a claim against us or the underwriters, with respect to the full amount of Notes purchased by such holder.

Certain Covenants

Limitation on Restricted Payments. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests, including any dividend or distribution payable in connection with any merger or consolidation (other than (A) dividends or distributions by the Company payable in Equity Interests (other than Disqualified Stock) of the Company or (B) dividends or distributions by a Restricted Subsidiary so long as, in the case of any dividend or distribution payable on or in respect of any class or series of securities issued by a Subsidiary other than a Wholly Owned Subsidiary, the Company or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Equity Interests in such class or series of securities); (ii) purchase, redeem, defease or otherwise acquire or retire for value any Equity Interests of the Company; (iii) make any principal payment on,

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or redeem, repurchase, defease or otherwise acquire or retire for value in each case, prior to any scheduled repayment, or maturity, any Subordinated Indebtedness; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment:

(a)

no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof;

(b)

immediately before and immediately after giving effect to such transaction on a pro forma basis, the Company could incur $1.00 of additional Indebtedness under the provisions of the first paragraph of "—Limitations on Incurrence of Indebtedness and Issuance of Disqualified Stock"; and

(c)

such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the Issuance Date (including Restricted Payments permitted by clauses (i), (ii) (with respect to the payment of dividends on Refunding Capital Stock pursuant to clause (b) thereof), (iv) (only to the extent that amounts paid pursuant to such clause are greater than amounts that would have been paid pursuant to such clause if $ million and $ million were substituted in such clause for $ million and $ million, respectively), (v), (viii) and (ix) of the next succeeding paragraph, but excluding all other Restricted Payments permitted by the next succeeding paragraph), is less than the sum of:

(i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the fiscal quarter that first begins after to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, in the case such Consolidated Net Income for such period is a deficit, minus 100% of such deficit); provided, however, that for the purposes of this clause (i), Consolidated Net Income shall be deemed to include any increases during such period to Consolidated Additional Paid-In Capital of the Company, which increases are attributable to tax benefits from net operating losses incurred prior to the Issuance Date and are not otherwise included in Consolidated Net Income of the Company for such period, plus

(ii) 100% of the aggregate net cash proceeds and the fair market value, as determined in good faith by the Board of Directors, of marketable securities received by the Company since immediately after the Issuance Date from the issue or sale of Equity Interests (including Retired Capital Stock (as defined below), but excluding cash proceeds from the exercise of the underwriters' over-allotment option and cash proceeds and marketable securities received from the sale of Equity Interests to members of management, directors or consultants of the Company and its Subsidiaries after the Issuance Date to the extent such amounts have been applied to Restricted Payments in accordance with clause (iv) of the next succeeding paragraph) or debt securities of the Company that have been converted into such Equity Interests of the Company (other than Refunding Capital Stock (as defined below) or Equity Interests or convertible debt securities of the Company sold to a Restricted Subsidiary and other than Disqualified Stock or debt securities that have been converted into Disqualified Stock), plus

(iii) 100% of the aggregate amount of cash and marketable securities contributed to the capital of the Company following the Issuance Date, plus

(iv) 100% of the aggregate amount received in cash and the fair market value of marketable securities (other than Restricted Investments) received from (A) the sale or other disposition (other than to the Company or a Restricted Subsidiary) of Restricted Investments made by the Company and its Restricted Subsidiaries or (B) a dividend from, or the sale (other than to the Company or a Restricted Subsidiary) of the stock of, an Unrestricted Subsidiary (other than an

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Unrestricted Subsidiary the Investment in which was made by the Company or a Restricted Subsidiary pursuant to clauses (vi) or (xi) below).

The foregoing provisions will not prohibit:

(i): the payment of any dividend within 60 days after the date of declaration thereof, if at the date of declaration such payment would have complied with the provisions of the Indenture;
(ii): (a) the redemption, repurchase, retirement or other acquisition of any Equity Interests (the "Retired Capital Stock") or Subordinated Indebtedness of the Company in exchange for, or out of the proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary) of, Equity Interests of the Company (other than any Disqualified Stock) (the "Refunding Capital Stock"), and (b) if immediately prior to the retirement of Retired Capital Stock, the declaration and payment of dividends thereon was permitted under clause (v) of this paragraph, the declaration and payment of dividends on the Refunding Capital Stock in an aggregate amount per year no greater than the aggregate amount of dividends per annum that was declarable and payable on such Retired Capital Stock immediately prior to such retirement; provided, however, that at the time of the declaration of any such dividends, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof;
(iii): the redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, new Indebtedness of the Company so long as (A) the principal amount of such new Indebtedness does not exceed the principal amount of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired for value (plus the amount of any premium required to be paid under the terms of the instrument governing the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired), (B) such Indebtedness is subordinated to the Senior Indebtedness and the Notes at least to the same extent as such Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased, acquired or retired for value, (C) such Indebtedness has a final scheduled maturity date equal to or later than the final scheduled maturity date of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired and (D) such Indebtedness has a Weighted Average Life to Maturity equal to or greater than the remaining Weighted Average Life to Maturity of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired;
(iv): a Restricted Payment to pay for the repurchase, retirement or other acquisition or retirement for value of common Equity Interests of the Company held by any future, present or former employee, director or consultant of the Company or any Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement; provided, however, that the aggregate Restricted Payments made under this clause (iv) does not exceed in any calendar year $ million (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following proviso) of $ million in any calendar year); provided further that such amount in any calendar year may be increased by an amount not to exceed (i) the cash proceeds from the sale of Equity Interests of the Company to members of management, directors or consultants of the Company and its Subsidiaries that occurs after the Issuance Date (to the extent the cash proceeds from the sale of such Equity Interest have not otherwise been applied to the payment of Restricted Payments by virtue of the preceding paragraph (c)) plus (ii) the cash proceeds of key man life insurance policies received by the Company and its Restricted Subsidiaries after the Issuance Date less (iii) the amount of any Restricted Payments previously made pursuant to clauses (i) and (ii) of this subparagraph (iv); and provided further that cancellation of Indebtedness owing to the Company from members of management of the

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Company or any of its Restricted Subsidiaries in connection with a repurchase of Equity Interests of the Company will not be deemed to constitute a Restricted Payment for purposes of this covenant or any other provision of the Indenture;

(v): the declaration and payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued after the Issuance Date (including, without limitation, the declaration and payment of dividends on Refunding Capital Stock in excess of the dividends declarable and payable thereon pursuant to clause (ii)); provided, however, that for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock, after giving effect to such issuance on a pro forma basis, the Company and its Restricted Subsidiaries would have had a Fixed Charge Coverage Ratio of at least to ;
(vi): Investments in Unrestricted Subsidiaries having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (vi) that are at that time outstanding, not to exceed $ million at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value);
(vii): repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options;
(viii): the payment of dividends on the shares of the Company's Common Stock, provided, that the aggregate amount of dividends paid in any fiscal quarter may not exceed the Quarterly Base Dividend Level;
(ix): other Restricted Payments in an aggregate amount not to exceed the Base Dividend Restricted Payments Basket;
(x): the repurchase of shares of Common Stock on the closing of this Offering or upon the exercise of the over-allotment option and the issuance of the Class A Common Stock in exchange for shares of Class B Common Stock after , 2006 and payment of the recapitalization consideration on the closing of this Offering; and
(xi): other Restricted Payments in an aggregate amount not to exceed $ million;

provided, however, that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (iii), (iv), (v), (vi), (vii), (viii), (ix), (x) and (xi), no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and provided further that for purposes of determining the aggregate amount expended for Restricted Payments in accordance with clause (c) of the immediately preceding paragraph, only the amounts expended under clauses (i), (ii) (with respect to the payment of dividends on Refunding Capital Stock pursuant to clause (b) thereof), (iv) (only to the extent that amounts paid pursuant to such clause are greater than amounts that would have been paid pursuant to such clause if $ million and $ million were substituted in such clause for $ million and $ million, respectively), (v), (viii) and (ix) shall be included.

As of the Issuance Date, all of the Company's Subsidiaries will be Restricted Subsidiaries. The Company will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the second to last sentence of the definition of "Unrestricted Subsidiary." For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of "Investments." Such designation will only be permitted if a Restricted Payment in such amount would be permitted at such time and if such Subsidiary otherwise meets the definition of an

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Unrestricted Subsidiary. Unrestricted Subsidiaries will not be subject to any of the restrictive covenants set forth in the Indenture.

Dividend Suspension. Notwithstanding anything in the Indenture to the contrary: (a) the Company may not pay any dividend or distribution on its Common Stock, if and so long as: (i) the Fixed Charge Coverage Ratio of the Company for the most recently ended twelve-month period for which internal financial statements are available, is less than the applicable Dividend Suspension Threshold (a "Dividend Suspension Period"), (ii) during any Interest Deferral Period or, (iii) after the end of any Interest Deferral Period, so long as any deferred interest remains unpaid.

Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to (collectively, "incur" and collectively, an "incurrence" of) any Indebtedness (including Acquired Indebtedness) or any shares of Disqualified Stock; provided, however, that the Company may incur Indebtedness or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio for the Company and its Restricted Subsidiaries for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of such incurrence would have been at least to 1.00 determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock had been issued, as the case may be, and the application of proceeds had occurred at the beginning of such four-quarter period.

The foregoing limitations will not apply to:

(a): the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness under the Senior Credit Facility and the issuance and creation of letters of credit and banker's acceptances thereunder (with letters of credit and banker's acceptances being deemed to have a principal amount equal to the face amount thereof) up to an aggregate principal amount of $ million outstanding at any one time;
(b): any Real Estate Financing Transaction; provided, however, that the amount of Indebtedness outstanding under clause (a) above and this clause (b) shall not in the aggregate exceed $ million at any time outstanding;
(c): the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by any Notes and related Guarantees issued on the Issuance Date or Additional Notes and related Guarantees issued (i) pursuant to an exercise of the underwriters' over-allotment option, (ii) as part of the consideration for the recapitalization and the Offering, (iii) in connection with the conversion of the Class B common stock pursuant to the terms thereof as in existence on the Issuance Date, or (iv) subject to the Indenture and concurrently with the issuance of shares of Class A common stock, provided that the ratio of the aggregate principal amount of such Additional Notes to the number of such additional shares of Class A common stock shall not exceed the equivalent ratio with respect to the IDSs outstanding prior to such issuance, and, in each case, the related Guarantees;
(d): Existing Indebtedness (other than Indebtedness described in clauses (a) and (c));
(e): Indebtedness (including Capitalized Lease Obligations) incurred by the Company or any of its Restricted Subsidiaries to finance the purchase, lease or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets) in an aggregate principal amount which, when aggregated with the principal amount of all other Indebtedness then outstanding and incurred pursuant to this

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clause (e) (together with any Refinancing Indebtedness with respect thereto), does not exceed the greater of (x) $ million or (y) % of Total Assets;

(f): Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including without limitation letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims; provided, however, that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence;
(g): Indebtedness arising from agreements of the Company or a Restricted Subsidiary providing for indemnification, adjustment of purchase price or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided, however, that (i) such Indebtedness is not reflected on the balance sheet of the Company or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (i)) and (ii) the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds including noncash proceeds (the fair market value of such noncash proceeds being measured at the time received and without giving effect to any subsequent changes in value) actually received by the Company and its Restricted Subsidiaries in connection with such disposition;
(h): Indebtedness of the Company to a Restricted Subsidiary; provided that any such Indebtedness is made pursuant to an intercompany note and is subordinated in right of payment to the Notes; provided further that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Company or another Restricted Subsidiary) shall be deemed, in each case to be an incurrence of such Indebtedness;
(i): Indebtedness of a Restricted Subsidiary to the Company or another Restricted Subsidiary; provided that (i) any such Indebtedness is made pursuant to an intercompany note and (ii) if a Guarantor incurs such Indebtedness from a Restricted Subsidiary that is not a Guarantor, such Indebtedness is subordinated in right of payment to the Guarantee of such Guarantor; provided further that any subsequent transfer of any such Indebtedness (except to the Company or another Restricted Subsidiary) shall be deemed, in each case to be an incurrence of such Indebtedness;
(j): Hedging Obligations that are incurred in the ordinary course of business (1) for the purpose of fixing or hedging interest rate risk with respect to any Indebtedness that is permitted by the terms of the Indenture to be outstanding or (2) for the purpose of fixing or hedging currency exchange rate risk with respect to any currency exchanges;
(k): obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary in the ordinary course of business;
(l): Indebtedness of any Guarantor in respect of such Guarantor's Guarantee;
(m): Indebtedness of the Company and any of its Foreign Subsidiaries not otherwise permitted hereunder in an aggregate principal amount, which when aggregated with the principal amount of all other Indebtedness then outstanding and incurred pursuant to this clause (m), does not

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exceed $ million at any one time outstanding; provided, however, that Indebtedness of Foreign Subsidiaries, which when aggregated with the principal amount of all other Indebtedness of Foreign Subsidiaries then outstanding and incurred pursuant to this clause (m), does not exceed $ million (or the equivalent thereof in any other currency) at any one time outstanding;

(n)

any guarantee by the Company or a Guarantor of Indebtedness or other obligations of the Company or any of its Restricted Subsidiaries so long as the incurrence of such Indebtedness incurred by the Company or such Restricted Subsidiary is permitted under the terms of the Indenture;

(o)

the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness which serves to refund, refinance or restructure any Indebtedness incurred as permitted under the first paragraph of this covenant and clauses (c) and (d) above, or any Indebtedness issued to so refund, refinance or restructure such Indebtedness including additional Indebtedness incurred to pay premiums and fees in connection therewith (the "Refinancing Indebtedness") prior to its respective maturity; provided, however, that such Refinancing Indebtedness:

(i) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred which is not less than the remaining Weighted Average Life to Maturity of Indebtedness being refunded or refinanced;

(ii) to the extent such Refinancing Indebtedness refinances Indebtedness subordinated or pari passu to the Notes, such Refinancing Indebtedness is subordinated or pari passu to the Notes at least to the same extent as the Indebtedness being refinanced or refunded; and

(iii) shall not include (x) Indebtedness of a Subsidiary that refinances Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; and provided further that subclauses (i) and (ii) of this clause (o) will not apply to any refunding or refinancing of any Senior Indebtedness; and

(p)

Indebtedness or Disqualified Stock of Persons that are acquired by the Company or any of its Restricted Subsidiaries or merged into a Restricted Subsidiary in accordance with the terms of the Indenture; provided that such Indebtedness or Disqualified Stock is not incurred in contemplation of such acquisition or merger; and provided further that after giving effect to such acquisition, either (i) the Company would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first sentence of this covenant or (ii) the Fixed Charge Coverage Ratio is greater than immediately prior to such acquisition.

For purposes of determining compliance with this covenant, the event that an item of Indebtedness meets the criteria of more than one of the categories of permitted Indebtedness described in clauses (a) through (p) above or its entitled to be Incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify or reclassify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been Incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an Incurrence of Indebtedness for purposes of this covenant.

Liens. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist any Lien that secures obligations under any Pari Passu Indebtedness or Subordinated Indebtedness on any asset or property of the Company or such Restricted Subsidiary, or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless the Notes are equally and ratably secured with the obligations so secured or until such time as such obligations are no longer secured by a Lien.

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The Indenture provides that no Guarantor will directly or indirectly create, incur, assume or suffer to exist any Lien that secures obligations under any Pari Passu Indebtedness or Subordinated Indebtedness of such Guarantor on any asset or property of such Guarantor or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless the Guarantee of such Guarantor is equally and ratably secured with the obligations so secured or until such time as such obligations are no longer secured by a Lien.

Notwithstanding the foregoing, no such equal and ratable security need be provided if the Indebtedness secured is incurred pursuant to a Real Estate Financing Transaction.

Merger, Consolidation, or Sale of All or Substantially All Assets. The Indenture provides that the Company may not consolidate or merge with or into or wind up into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions (other than pursuant to a Real Estate Financing Transaction) to, any Person unless (i) the Company is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (the Company or such Person, as the case may be, being herein called the "Successor Company"); (ii) the Successor Company (if other than the Company) expressly assumes all the obligations of the Company under the Indenture and the Notes pursuant to a supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; (iv) immediately after giving pro forma effect to such transaction, as if such transaction had occurred at the beginning of the applicable four-quarter period, (A) the Successor Company would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first sentence of the covenant described under "—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock" or (B) the Fixed Charge Coverage Ratio for the Successor Company and its Restricted Subsidiaries would be greater than such Ratio for the Company and its Restricted Subsidiaries immediately prior to such transaction; (v) each Guarantor, if any, unless it is the other party to the transactions described above, shall have by supplemental indenture confirmed that its Guarantee shall apply to such Person's obligations under the Indenture and the Notes; and (vi) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. The Successor Company will succeed to, and be substituted for, the Company under the Indenture and the Notes. Notwithstanding the foregoing clause (iv), (a) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (b) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another State of the United States so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby.

Each Guarantor shall not, and the Company will not permit a Guarantor to, consolidate or merge with or into or wind up into (whether or not such Guarantor is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, any Person unless (i) such Guarantor is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (such Guarantor or such Person, as the case may be, being herein called the "Successor Guarantor"); (ii) the Successor Guarantor (if other than such Guarantor) expressly assumes all the obligations of such Guarantor under the Indenture and such Guarantor's Guarantee pursuant to a supplemental indenture or other documents or instruments in form reasonably

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satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. The Successor Guarantor will succeed to, and be substituted for, such Guarantor under the Indenture and such Guarantor's Guarantee.

Transactions With Affiliates. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction") involving aggregate consideration in excess of $ million, unless:

(a): such Affiliate Transaction is on terms that are not materially less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and
(b): the Company delivers to the Trustee with respect to any Affiliate Transaction involving aggregate payments in excess of $ million, a resolution adopted by a majority of the Board of Directors approving such Affiliate Transaction and set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (a) above.

The foregoing provisions will not apply to the following: (i) transactions between or among the Company and/or any of its Restricted Subsidiaries; (ii) Restricted Payments permitted by the provisions of the Indenture described above under the covenant "—Limitation on Restricted Payments"; (iii) the payment of customary annual management, consulting and advisory fees and related expenses to KKR and its Affiliates; (iv) the payment of reasonable and customary fees paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Restricted Subsidiary; (v) payments by the Company or any of its Restricted Subsidiaries to KKR and its Affiliates made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which payments are approved by a majority of the Board of Directors in good faith; (vi) transactions in which the Company or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to the Company or such Restricted Subsidiary from a financial point of view or meets the requirements of clause (a) of the preceding paragraph; (vii) payments or loans to employees or consultants which are approved by a majority of the Board of Directors in good faith; (viii) any agreement as in effect as of the Issuance Date or any amendment thereto (so long as any such amendment is not disadvantageous to the holders of the Notes in any material respect) or any transaction contemplated thereby; (ix) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issuance Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any of its Restricted Subsidiaries of obligations under any future amendment to any such existing agreement or under any similar agreement entered into after the Issuance Date shall only be permitted by this clause (ix) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the holders of the Notes in any material respect; (x) the payment of all fees and expenses related to the recapitalization and the Offering; (xi) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party; and (xii) the issuance of capital stock (other than Disqualified

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Stock of the Company) or IDSs in respect of the Company's securities or Additional Notes to any Permitted Holder.

Dividend and Other Payment Restrictions Affecting Subsidiaries. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause to become effective any consensual encumbrance or consensual restriction on the ability of any such Restricted Subsidiary to:

(a): (i) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries on its Capital Stock or any other interest or participation in, or measured by, its profits or (ii) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(b): make loans or advances to the Company or any of its Restricted Subsidiaries; or
(c): sell, lease, or transfer any of its properties or assets to the Company, or any of its Restricted Subsidiaries;

except (in each case) for such encumbrances or restrictions existing under or by reason of:

(1): contractual encumbrances or restrictions in effect on the Issuance Date, including pursuant to the Senior Credit Facility and its related documentation;
(2): the Indenture, the Notes and the Guarantees;
(3): purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature discussed in clause (c) above on the property so acquired;
(4): applicable law or any applicable rule, regulation or order;
(5): any agreement or other instrument of a Person acquired by the Company or any Restricted Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired;
(6): contracts for the sale of assets, including, without limitation customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary;
(7): secured Indebtedness otherwise permitted to be incurred pursuant to the covenants described under "Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock" and "Liens" that limit the right of the debtor to dispose of the assets securing such Indebtedness;
(8): restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business;
(9): other Indebtedness of Foreign Subsidiaries permitted to be incurred subsequent to the Issuance Date pursuant to the provisions of the covenant described under "—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock";
(10): customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business;
(11): customary provisions contained in leases and other agreements entered into in the ordinary course of business;
(12): restrictions created in connection with any Real Estate Financing Transaction that, in the good faith determination of the Board of Directors, are necessary or advisable to effect such Real Estate Financing Transaction; and
(13): any encumbrances or restrictions of the type referred to in clauses (a), (b) and (c) above imposed by any amendments, modifications, restatements, renewals, increases, supplements,

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refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (1) through (12) above, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Company's Board of Directors, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.

Limitation on Other Senior Subordinated Indebtedness. The Indenture provides that the Company will not, and will not permit any Guarantor to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is subordinate in right of payment to any Indebtedness of the Company or any Indebtedness of any Guarantor, as the case may be, unless such Indebtedness is either (a) pari passu in right of payment with the Notes or such Guarantor's Guarantee, as the case may be or (b) subordinate in right of payment to the Notes, or such Guarantor's Guarantee, as the case may be, in the same manner and at least to the same extent as the Notes are subordinate to Senior Indebtedness or such Guarantor's Guarantee is subordinate to such Guarantor's Senior Indebtedness, as the case may be.

Reports and Other Information. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the Securities and Exchange Commission (the "Commission"), the Indenture requires the Company to file with the Commission (and provide the Trustee and Holders with copies thereof, without cost to each Holder, within 15 days after it files them with the Commission), (a) within 90 days after the end of each fiscal year, annual reports on Form 10-K (or any successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form); (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 10-Q (or any successor or comparable form); (c) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 8-K (or any successor or comparable form); and (d) any other information, documents and other reports which the Company would be required to file with the Commission if it were subject to Section 13 or 15(d) of the Exchange Act; provided, however, the Company shall not be so obligated to file such reports with the Commission if the Commission does not permit such filing, in which event the Company will make available such information to prospective purchasers of Notes, in addition to providing such information to the Trustee and the Holders, in each case within 15 days after the time the Company would be required to file such information with the Commission, if it were subject to Sections 13 or 15(d) of the Exchange Act.

Events of Default and Remedies

The following events constitute Events of Default under the Indenture:

(i): default in payment when due and payable, upon redemption, acceleration or otherwise, of principal of, or premium on, if any, the Notes whether or not such payment shall be prohibited by the subordination provisions relating to the Notes;
(ii): default for 30 days or more in the payment when due of interest on or with respect to the Notes whether or not such payment shall be prohibited by the subordination provisions relating to the Notes, subject to the interest deferral provisions contained in the Indenture, provided, however, that a default in any payment of interest on the Notes required to be made on (x) , 2009, and (y) any interest payment date after , 2009, at a time when interest deferral would be prohibited under the Indenture shall immediately constitute an Event of Default (without regard to the length of time for which such default continues);

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(iii): failure by the Company or any Guarantor for 30 days after receipt of written notice given by the Trustee or the holders of at least 30% in principal amount of the Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes;
(iv): default under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries (other than Indebtedness owed to the Company or a Restricted Subsidiary), whether such Indebtedness or guarantee now exists or is created after the Issuance Date, if both (A) such default either (1) results from the failure to pay any such Indebtedness at its stated final maturity (after giving effect to any applicable grace periods) or (2) relates to an obligation other than the obligation to pay principal of any such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated maturity and (B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity (after giving effect to any applicable grace periods), or the maturity of which has been so accelerated, aggregate $20 million or more at any one time outstanding;
(v): failure by the Company or any of its Significant Subsidiaries to pay final judgments aggregating in excess of $20 million, which final judgments remain unpaid, undischarged and unstayed for a period of more than 60 days after such judgment becomes final, and in the event such judgment is covered by insurance, an enforcement proceeding has been commenced by any creditor upon such judgment or decree which is not promptly stayed;
(vi): certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries;
(vii): any Guarantee shall for any reason cease to be in full force and effect or be declared null and void or any responsible officer of the Company or any Guarantor denies that it has any further liability under any Guarantee or gives notice to such effect (other than by reason of the termination of the Indenture or the release of any such Guarantee in accordance with the Indenture); or
(viii): the Company pays any dividend on shares of the Company's Common Stock during any Dividend Suspension Period.

If any Event of Default (other than of a type specified in clause (vi) above) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 30% in principal amount of the then outstanding Notes may declare the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately; provided, however, that, so long as any Indebtedness permitted to be incurred pursuant to the Senior Credit Facility shall be outstanding, no such acceleration shall be effective until the earlier of (i) acceleration of any such Indebtedness under the Senior Credit Facility or (ii) five business days after the giving of written notice to the Company and the administrative agent under the Senior Credit Facility of such acceleration. Upon the effectiveness of such declaration, such principal and interest will be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising under clause (vi) of the first paragraph of this section, all outstanding Notes will become due and payable without further action or notice. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Indenture provides that the Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, premium, if any, or interest) if it determines that withholding notice is in their interest. In addition, the Trustee

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shall have no obligation to accelerate the Notes if in the best judgment of the Trustee acceleration is not in the best interest of the Holders of such Notes.

The Indenture provides that the Holders of a majority in aggregate principal amount of the then outstanding Notes issued thereunder by notice to the Trustee may on behalf of the Holders of all of such Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest on, premium, if any, or the principal of, any such Note held by a non-consenting Holder. In the event of any Event of Default specified in clause (iv) above, such Event of Default and all consequences thereof (including without limitation any acceleration or resulting payment default) shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the Holders of the Notes, if within 20 days after such Event of Default arose (x) the Indebtedness or guarantee that is the basis for such Event of Default has been discharged, or (y) the holders thereof have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default, or (z) if the default that is the basis for such Event of Default has been cured.

The Indenture provides that the Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, within five Business Days, upon becoming aware of any Default or Event of Default or any default under any document, instrument or agreement representing Indebtedness of the Company or any Guarantor, to deliver to the Trustee a statement specifying such Default or Event of Default.

No Personal Liability of Directors, Officers, Employees and Stockholders

No director, officer, employee, incorporator or stockholder of the Company or any Guarantor shall have any liability for any obligations of the Company or the Guarantors under the Notes, the Guarantees or the Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy.

Legal Defeasance and Covenant Defeasance

The obligations of the Company and the Guarantors, if any, under the Indenture will terminate (other than certain obligations) and will be released upon payment in full of all of the Notes. The Company may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes and have each Guarantor's obligation discharged with respect to its Guarantee ("Legal Defeasance") and cure all then existing Events of Default except for (i) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due solely out of the trust created pursuant to the Indenture, (ii) the Company's obligations with respect to Notes concerning issuing temporary Notes, registration of such Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and each Guarantor released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment on other indebtedness, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes.

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In order to exercise either Legal Defeasance or Covenant Defeasance with respect to the Notes:

(i): the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest due on the outstanding Notes on the stated maturity date or on the applicable redemption date, as the case may be, of such principal, premium, if any, or interest on the outstanding Notes;
(ii): in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions, (A) the Company has received from, or there has been published by, the United States Internal Revenue Service a ruling or (B) since the Issuance Date, there has been a change in the applicable U.S. federal income tax law, in either case to the effect that, and based thereon such opinion of counsel in the United States shall confirm that, subject to customary assumptions and exclusions, the Holders of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(iii): in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that, subject to customary assumptions and exclusions, the Holders of the outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to such tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(iv): no Default or Event of Default shall have occurred and be continuing with respect to certain Events of Default on the date of such deposit (other than a Default or Event of Default resulting from the financing or borrowing of funds to be applied to such deposit);
(v): such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound;
(vi): the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or any Guarantor or others; and
(vii): the Company shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel in the United States (which opinion of counsel may be subject to customary assumptions and exclusions) each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance, as the case may be, have been complied with.

Satisfaction and Discharge

The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when either (a) all such Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (b) (i) all such Notes not theretofore delivered to such Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has

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irrevocably deposited or caused to be deposited with such Trustee as trust funds in trust an amount of money sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (ii) no Default or Event of Default with respect to the Indenture or the Notes shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the financing or borrowing of funds to be applied to such deposit) and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; (iii) the Company or any Guarantor has paid or caused to be paid all sums payable by it under such Indenture; and (iv) the Company has delivered irrevocable instructions to the Trustee under such Indenture to apply the deposited money toward the payment of such Notes at maturity or the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an opinion of counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.

Amendment, Supplement and Waiver

Except as provided in the next two succeeding paragraphs, the Indenture, any Guarantee and the Notes issued thereunder may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for the Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes).

The Indenture provides that without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a nonconsenting Holder of the Notes): (i) reduce the principal amount of the Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any such Note or alter or waive the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described under "—Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of, premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of such Notes and a waiver of the payment default that resulted from such acceleration), or in respect of a covenant or provision contained in the Indenture or any Guarantee which cannot be amended or modified without the consent of all Holders, (v) make any Note payable in money other than that stated in such Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of such Notes to receive payments of principal of, premium, if any, or interest on such Notes, (vii) make any change in the foregoing amendment and waiver provisions, (viii) impair the right of any Holder of the Notes to receive payment of principal of, or interest on such Holder's Notes on or after the due dates therefore or to institute suit for the enforcement of any payment on or with respect to such Holder's Notes, (ix) make any change in the subordination provisions of the Indenture that would adversely affect the holders of the Notes, (x) make a change to the "Limitation of Restricted Payments" covenant that would have the effect of increasing the amounts permitted to be distributed in respect of the Company's Common Stock (except in connection with an offer by the Company to purchase all of the Notes, in which case a majority in principal amount of Notes will be sufficient) or (xi) make any change to the provisions of the Indenture that eliminate the prohibition on paying dividends and making certain other restricted payments while interest is being deferred, while any previously deferred interest remains unpaid or during the continuance of any Dividend Suspension Period or Event of Default (except in connection with an offer by the Company to purchase all of the Notes, in which case a majority in principal amount of Notes will be sufficient).

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The Indenture provides that, notwithstanding the foregoing, without the consent of any Holder of Notes, the Company, any Guarantor (with respect to a Guarantee or the Indenture to which it is party) and the Trustee together may amend or supplement the Indenture, any Guarantee or the Notes (i) to cure any ambiguity, defect or inconsistency, (ii) to provide for uncertificated Notes in addition to or in place of certificated Notes, (iii) to comply with the covenant relating to mergers, consolidations and sales of assets, (iv) to provide for the assumption of the Company's or any Guarantor's obligations to Holders of such Notes, (v) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, (vi) to add covenants for the benefit of the Holders or to surrender any right or power conferred upon the Company, (vii) to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act or (viii) to add a Guarantor under the Indenture or to provide for the issuance of Additional Notes.

The consent of the Holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment.

Concerning the Trustee

The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign.

The Indenture provides that the Holders of a majority in principal amount of the outstanding Notes issued thereunder will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of such Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

Governing Law

The Indenture, the Notes and the Guarantees, if any, are and will be, subject to certain exceptions, governed by and construed in accordance with the internal laws of the State of New York.

Certain Definitions

Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. For purposes of the Indenture, unless otherwise specifically indicated, the term "consolidated" with respect to any Person refers to such Person consolidated with its Restricted Subsidiaries, and excludes from such consolidation any Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate of such Person.

"Acquired Indebtedness" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person merged with or into or became a Restricted Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Restricted Subsidiary of such specified Person and (ii) Indebtedness encumbering any asset acquired by such specified Person.

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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 purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise, provided, however, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control.

"Asset Sale" means:

(i)

the sale, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of property or assets (including by way of a sale and leaseback) of the Company or any Restricted Subsidiary (each referred to in this definition as a "disposition") or

(ii)

the issuance or sale of Equity Interests of any Restricted Subsidiary (whether in a single transaction or a series of related transactions), in each case, other than:

(a): a disposition of Cash Equivalents or Investment Grade Securities or obsolete equipment in the ordinary course of business;
(b): the disposition of all or substantially all of the assets of the Company in a manner permitted pursuant to the provisions described above under "—Merger, Consolidation or Sale of All or Substantially All Assets" or any disposition that constitutes a Change of Control pursuant to the Indenture;
(c): any Restricted Payment that is permitted to be made, and is made, under the first paragraph of the covenant described above under "Limitation on Restricted Payments";
(d): any disposition of assets with an aggregate fair market value of less than $1 million;
(e): any disposition of property or assets by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Restricted Subsidiary;
(f): any exchange of like property pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, for use in a Similar Business;
(g): any financing transaction with respect to property built or acquired by the Company or any Restricted Subsidiary after the Issuance Date including, without limitation, sale-leasebacks and asset securitizations;
(h): foreclosures on assets; and
(i): any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary.

"Base Dividend Restricted Payments Basket" shall initially equal $0, provided, however, that if during any fiscal quarter the Company has paid dividends on the Company's Common Stock in an aggregate amount that is less than the Quarterly Base Dividend Level for such quarter, an amount equal to % of the difference between (i) the Quarterly Base Dividend Level for such quarter and (ii) the aggregate amount of dividends actually paid on the Company's Common Stock during such quarter shall be added to the Base Dividend Restricted Payments Basket as of the last day of such fiscal quarter.

"Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board.

"Business Day" means a day other than a Saturday, Sunday or other day on which banking institutions in New York State are authorized or required by law to close.

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"Capital Stock" means with respect to any Person, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock of such Person, including, without limitation, if such Person is a partnership, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership.

"Capitalized Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet in accordance with GAAP.

"Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof, (iii) certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any commercial bank having capital and surplus in excess of $500 million, (iv) repurchase obligations for underlying securities of the types described in clauses (ii) and (iii) entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by Moody's or S&P and in each case maturing within one year after the date of acquisition, (vi) investment funds investing 95% of their assets in securities of the types described in clauses (i)-(v) above, (vii) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.

"Change of Control" means the occurrence of any of the following:

(i): the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole (other than pursuant to a Real Estate Financing Transaction); or
(ii): the Company becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than the Permitted Holders and their Related Parties, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of beneficial ownership of more of the total voting power of the Voting Stock of the Company than the Permitted Holders and their Related Parties beneficially own at the time the Company so becomes aware of such acquisition and the Permitted Holders and their Related Parties do not, at such time, have the right or the ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Directors.

"CMBS Subsidiaries" means KC Propco, LLC and KC Opco, LLC.

"Common Stock" means, collectively, the Company's Class A common stock, par value $0.01 per share, Class B common stock, par value $0.01 per share and Class C common stock, par value $0.01 per share, and any other class or series of common stock of the Company.

"Consolidated Additional Paid-In Capital" means, with respect to any Person for any period, the aggregate of the additional paid-in capital of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, and otherwise determined in accordance with GAAP.

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"Consolidated Depreciation and Amortization Expense" means with respect to any Person for any period, the total amount of depreciation and amortization expense and other noncash charges (excluding any noncash item that represents an accrual, reserve or amortization of a cash expenditure for a future period) of such Person and its Restricted Subsidiaries for such period on a consolidated basis and otherwise determined in accordance with GAAP.

"Consolidated Interest Expense" means, with respect to any period, the sum of: (a) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, non-cash interest payments, the interest component of Capitalized Lease Obligations, and net payments (if any) pursuant to Hedging Obligations, excluding amortization of deferred financing fees) and (b) consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income.

"Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, and otherwise determined in accordance with GAAP; provided, however, that (i) any net after-tax extraordinary gains or losses (less all fees and expenses relating thereto) shall be excluded, (ii) the Net Income for such period shall not include the cumulative effect of a change in accounting principles during such period, (iii) any net after-tax income (loss) from discontinued operations and any net after-tax gains or losses on disposal of discontinued operations shall be excluded, (iv) any net after-tax gains or losses (less all fees and expenses relating thereto) attributable to asset dispositions other than in the ordinary course of business (as determined in good faith by the Board of Directors) shall be excluded, (v) the Net Income for such period of any Person that is not a Subsidiary, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the referent Person or a Wholly Owned Restricted Subsidiary thereof in respect of such period, any expense related to a write-off of goodwill due to impairment shall be excluded and (vii) the Net Income for such period of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of its Net Income is not at the date of determination permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restriction with respect to the payment of dividends or in similar distributions has been legally waived.

"Contingent Obligations" means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other obligations that do not constitute Indebtedness ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, or (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.

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"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

"Designated Noncash Consideration" means the fair market value of noncash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Noncash Consideration pursuant to an Officers' Certificate, setting forth the basis of such valuation, executed by the principal executive officer and the principal financial officer of the Company, less the amount of cash or Cash Equivalents received in connection with a sale of such Designated Noncash Consideration.

"Designated Preferred Stock" means preferred stock of the Company (other than Disqualified Stock) that is issued for cash (other than to a Restricted Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an Officers' Certificate executed by the principal executive officer and the principal financial officer of the Company, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in paragraph (c) of the "Restricted Payments" covenant.

"Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which, by its terms (or by the terms of any security into which it is convertible or for which it is putable or exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, in each case prior to the date 91 days after the maturity date of the Notes; provided, however, that if such Capital Stock is issued to any plan for the benefit of employees of the Company or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Company in order to satisfy applicable statutory or regulatory obligations.

"Dividend Suspension Threshold" means the following applicable Fixed Charge Coverage Ratio of the Company for the twelve-month period ended on the last day of any fiscal quarter:

Period Ended On		Dividend Suspension Threshold
Issue Date through , 2005		to 1.00
, 2005 and thereafter		to 1.00

"EBITDA" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (a) provision for taxes based on income or profits of such Person for such period deducted in computing Consolidated Net Income, plus (b) Consolidated Interest Expense of such Person for such period, plus (c) Consolidated Depreciation and Amortization Expense of such Person for such period to the extent such depreciation and amortization were deducted in computing Consolidated Net Income, plus (d) any expenses or charges related to any Equity Offering or Indebtedness permitted to be incurred by the Indenture (including such expenses or charges related to the recapitalization and the Offering) and deducted in such period in computing Consolidated Net Income, plus (e) the amount of any restructuring charge or reserve deducted in such period in computing Consolidated Net Income, plus (f) without duplication, any other non-cash charges reducing Consolidated Net Income for such period (excluding any such charge which requires an accrual of a cash reserve for anticipated cash charges for any future period), less (g) without duplication, non-cash items increasing Consolidated Net Income of such Person for such period (excluding any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period).

"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

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"Equity Offering" means any public or private sale of Common Stock or preferred stock of the Company (excluding Disqualified Stock), other than public offerings with respect to the Company's Common Stock registered on Form S-8.

"Excess Cash" shall mean, with respect to any period, EBITDA minus the sum of (i) cash interest expense, (ii) income tax expense and (iii) capital expenditures, in each case, for such period.

"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder.

"Existing Indebtedness" means Indebtedness of the Company or its Restricted Subsidiaries in existence on the Issuance Date, plus interest accruing thereon, after application of the net proceeds of the sale of the Notes as described in this Prospectus.

"Fixed Charge Coverage Ratio" means, with respect to any Person for any period, the ratio of EBITDA of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than in the case of revolving credit borrowings, in which case interest expense shall be computed based upon the average daily balance of such Indebtedness during the applicable period) or issues or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter period. For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, consolidations and discontinued operations (as determined in accordance with GAAP) that have been made by the Company or any of its Restricted Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions, dispositions, discontinued operations, mergers and consolidations (and the reduction of any associated fixed charge obligations and the change in EBITDA resulting therefrom) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Investment, acquisition, disposition, discontinued operation, merger or consolidation that would have required adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, discontinued operation, merger or consolidation had occurred at the beginning of the applicable four-quarter period. For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligations applicable to such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Company to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP. For purposes of making the computation referred to above, interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Company may designate.

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"Fixed Charges" means, with respect to any Person for any period, the sum of (a) Consolidated Interest Expense of such Person for such period and (b) all cash dividend payments (excluding items eliminated in consolidation) (i) on any series of preferred stock and (ii) on Class B Common Stock (but only to the extent such dividends exceed the aggregate dividends that would have been paid on the shares of Class A common stock had the Class B common stock been fully converted for the relevant period, and only to the extent such excess amount is not included in Consolidated Interest Expense) of such Person.

"Foreign Subsidiary" means a Restricted Subsidiary not organized or existing under the laws of the United States, any State thereof, the District of Columbia or any territory thereof.

"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issuance Date. For the purposes of the Indenture, the term "consolidated" with respect to any Person shall mean such Person consolidated with its Restricted Subsidiaries, and shall not include any Unrestricted Subsidiary.

"Government Securities" means securities that are (a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such Government Securities or a specific payment of principal of or interest on any such Government Securities held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Securities or the specific payment of principal of or interest on the Government Securities evidenced by such depository receipt.

"guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.

"Guarantee" means any guarantee of the obligations of the Company under the Indenture and the Notes by any Person in accordance with the provisions of the Indenture. When used as a verb, "Guarantee" shall have a corresponding meaning. No Guarantees will be issued in connection with the initial offering and sale of the Notes.

"Guarantor" means any Person that incurs a Guarantee; provided that upon the release and discharge of such Person from its Guarantee in accordance with the Indenture, such Person shall cease to be a Guarantor. No Guarantees will be issued in connection with the initial offering and sale of the Notes.

"Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) currency exchange or interest rate swap agreements, currency exchange or interest rate cap agreements and currency exchange or interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange or interest rates.

"Holder" means a holder of the Notes.

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"IDS" means the Company's Income Deposit Securities, whether currently outstanding or as may be issued from time to time.

"Indebtedness" means, with respect to any Person, (a) any indebtedness of such Person, whether or not contingent (i) in respect of borrowed money, (ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers' acceptances (or, without double counting, reimbursement agreements in respect thereof), (iii) representing the balance deferred and unpaid of the purchase price of any property (including Capitalized Lease Obligations), except any such balance that constitutes a trade payable or similar obligation to a trade creditor, in each case accrued in the ordinary course of business or (iv) representing any Hedging Obligations, if and to the extent of any of the foregoing Indebtedness (other than letters of credit and Hedging Obligations) that would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, (b) to the extent not otherwise included, any obligation by such Person to be liable for, or to pay, as obligor, guarantor or otherwise, on the Indebtedness of another Person (other than by endorsement of negotiable instruments for collection in the ordinary course of business) and (c) to the extent not otherwise included, Indebtedness of another Person secured by a Lien on any asset owned by such Person (whether or not such Indebtedness is assumed by such Person); provided, however, that Contingent Obligations incurred in the ordinary course of business shall be deemed not to constitute Indebtedness.

"Independent Financial Advisor" means an accounting, appraisal, investment banking firm or consultant to Persons engaged in Similar Businesses of nationally recognized standing that is, in the judgment of the Company's Board of Directors, qualified to perform the task for which it has been engaged.

"Investment Grade Securities" means (i) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents), (ii) debt securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by Moody's or the equivalent of such rating by such rating organization, or, if no rating of S&P or Moody's then exists, the equivalent of such rating by any other nationally recognized securities rating agency, but excluding any debt securities or instruments constituting loans or advances among the Company and its Subsidiaries, and (iii) investments in any fund that invests exclusively in investments of the type described in clauses (i) and (ii) which fund may also hold immaterial amounts of cash pending investment and/or distribution.

"Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excluding advances to customers, commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person and investments that are required by GAAP to be classified on the balance sheet of the Company in the same manner as the other investments included in this definition to the extent such transactions involve the transfer of cash or other property. For purposes of the definition of "Unrestricted Subsidiary" and the covenant described under "—Certain Covenants—Restricted Payments," (i) "Investments" shall include the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of a Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary equal to an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors.

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"Issuance Date" means the first closing date for the sale of Notes under the Indenture.

"Letter of Credit/Bankers' Acceptance Obligations" means Indebtedness of the Company or any of its Restricted Subsidiaries with respect to letters of credit or bankers' acceptances constituting Senior Indebtedness or Pari Passu Indebtedness which shall be deemed to consist of (i) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing), (ii) the aggregate face amount of all unmatured bankers' acceptances and (iii) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit or creation of such bankers' acceptances.

"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided that in no event shall an operating lease be deemed to constitute a Lien.

"Management Group" means the group consisting of the Officers of the Company.

"Moody's" means Moody's Investors Service, Inc.

"Net Debt" means, with respect to the Company, on a consolidated basis at any time, the actual outstanding amount of funded indebtedness (provided that with respect to the portion thereof represented by any revolving facility under the Senior Indebtedness, such amount shall be calculated at the weighted average principal balance of loans that were outstanding during the immediately preceding 12 fiscal month period), plus, without duplication, the principal component of all Capitalized Lease Obligations and, without duplication, other Indebtedness of the Company and its Restricted Subsidiaries at such time, less (i) any early termination payments that would be owed if all outstanding Hedging Obligations were terminated, and (ii) the amount of cash and cash equivalents of the Company and its Subsidiaries on the balance sheet as of the date of determination.

"Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends.

"Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and brokerage and sales commissions), and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of principal, premium (if any) and interest on Indebtedness required (other than required by clause (i) of the second paragraph of "—Repurchase at the Option of Holders—Asset Sales") to be paid as a result of such transaction and any deduction of appropriate amounts to be provided by the Company as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by the Company after such sale or other disposition thereof, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.

"Oaktree" means Oaktree Capital Management, LLC, a California limited liability company.

"Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements (including, without limitation, reimbursement obligations with respect to letters of credit and banker's

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acceptances), damages and other liabilities payable under the documentation governing any Indebtedness.

"Offering" means the Company's initial public offering of IDSs and Notes sold separately (not in the form of IDSs)

"Officer" means the Chairman of the Board, the President, any Executive Vice President or Vice President, the Treasurer or the Secretary of the Company.

"Officers' Certificate" means a certificate signed on behalf of the Company by two officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company that meets the requirements set forth in the Indenture.

"Pari Passu Indebtedness" means (a) with respect to the Notes, Indebtedness which ranks pari passu in right of payment to the Notes and (b) with respect to any Guarantee, Indebtedness which ranks pari passu in right of payment to such Guarantee.

"Permitted Holders" means Oaktree, KKR and any of their Affiliates and the Management Group.

"Permitted Investments" means (a) any Investment in the Company or any Restricted Subsidiary; (b) any Investment in cash and Cash Equivalents or Investment Grade Securities; (c) any Investment by the Company or any Restricted Subsidiary of the Company in a Person that is a Similar Business if as a result of such Investment (i) such Person becomes a Restricted Subsidiary or (ii) such Person, in one transaction or a series of related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary; (d) any Investment in securities or other assets not constituting cash or Cash Equivalents and received in connection with an Asset Sale made pursuant to the provisions of "—Repurchase at the Option of Holders—Asset Sales" or any other disposition of assets not constituting an Asset Sale; (e) any Investment existing on the Issuance Date; (f) advances to employees not in excess of $ million outstanding at any one time; (g) any Investment acquired by the Company or any of its Restricted Subsidiaries (i) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (ii) as a result of a foreclosure by the Company or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; (h) Hedging Obligations permitted under clause (j) of the "Limitation of Incurrence of Indebtedness and Issuance of Disqualified Stock" covenant; (i) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses, in each case incurred in the ordinary course of business; (j) any Investment in a Similar Business (other than an Investment in an Unrestricted Subsidiary) having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (j) that are at that time outstanding, not to exceed the greater of (x) $ million or (y) % of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value); (k) Investments the payment for which consists of Equity Interests of the Company (exclusive of Disqualified Stock); provided, however, that such Equity Interests will not increase the amount available for Restricted Payments under clause (c) of the "Restricted Payments" covenant; (l) additional Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (l) that are at that time outstanding, not to exceed the greater of (x) $ million or (y) % of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value); (m) any transaction to the extent it constitutes an investment that is permitted by and made in accordance with the provisions of the second paragraph of the covenant described under "—Certain Covenants—Transactions with Affiliates" (except transactions described in

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clauses (ii) and (vi) of such paragraph); (n) any Investment by Restricted Subsidiaries in other Restricted Subsidiaries and Investments by Subsidiaries that are not Restricted Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries; and (o) Investments in any special purpose, Wholly Owned Subsidiary of the Company organized after the Issuance Date in connection with a Real Estate Financing Transaction that, in the good faith determination of the Board of Directors, are necessary or advisable to effect such Real Estate Financing Transaction.

"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

"preferred stock" means any Equity Interest with preferential right of payment of dividends or upon liquidation, dissolution, or winding up.

"Quarterly Base Dividend Level" means, for any fiscal quarter, % of the Company's Excess Cash for the 12-month period ending on the last day of the Company's then most recently ended fiscal quarter for which internal financial statements are available at the time such dividend is declared and paid divided by four (4).

"Real Estate Financing Transaction" means a financing or series of financings consisting principally of one or more mortgage financings, real estate sale or leaseback transactions or an asset-backed program based on real estate owned by the Company or any of its Subsidiaries (funded by the issuance of commercial paper, medium term notes or other forms of borrowing and including credit enhancement facilities), and which may consist of or include such other forms of financing consistent with the foregoing as the Board of Directors shall approve in good faith.

"Related Parties" means any Person controlled by a Permitted Holder, including any partnership of which a Permitted Holder or its Affiliates is the general partner.

"Representative" means the trustee, agent or representative (if any) for an issue of Designated Senior Indebtedness.

"Repurchase Offer" means an offer made by the Company to purchase all or any portion of a Holder's Notes pursuant to the provisions described under the covenants entitled "—Repurchase at the Option of Holders—Change of Control" or "—Repurchase at the Option of Holders—Asset Sales."

"Restricted Investment" means an Investment other than a Permitted Investment.

"Restricted Subsidiary" means, at any time, any direct or indirect Subsidiary of the Company that is not then an Unrestricted Subsidiary; provided, however, that upon the occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in the definition of "Restricted Subsidiary."

"S&P" means Standard and Poor's Ratings Group.

"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder.

"Senior Credit Facility" means that certain credit facility described in this Prospectus among the Company and the lenders from time to time party thereto, including any collateral documents, instruments and agreements executed in connection therewith, and the term Senior Credit Facility shall also include any amendments, supplements, modifications, extensions, renewals, restatements or refundings thereof and any credit facilities that replace, refund or refinance any part of the loans, other credit facilities or commitments thereunder, including any such replacement, refunding or refinancing facility that increases the amount borrowable thereunder or alters the maturity thereof, provided, however, that there shall not be more than one facility at any one time that constitutes the Senior Credit Facility and, if at any time there is more than one facility which would constitute the Senior

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Credit Facility, the Company will designate to the Trustee which one of such facilities will be the Senior Credit Facility for purposes of the Indenture.

"Significant Subsidiary" means any Subsidiary which would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Issuance Date.

"Similar Business" means a business, the majority of whose revenues are derived from preschool and child care services, or from any educational activities, or whose revenues are derived from the licensing of the KinderCare name, or any business or activity that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto, including, without limitation, educational materials, clothes, toys, and other similar consumer products, as well as the operation of primary and private schools.

"Subordinated Indebtedness" means (a) with respect to the Notes, any Indebtedness of the Company which is by its terms subordinated in right of payment to the Notes and (b) with respect to any Guarantee, any Indebtedness of the applicable Guarantor which is by its terms subordinated in right of payment to such Guarantee.

"Subsidiary" means, with respect to any Person, (i) any corporation, association, or other business entity (other than a partnership) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof and (ii) any partnership, joint venture, limited liability company or similar entity of which (x) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof whether in the form of membership, general, special or limited partnership or otherwise and (y) such Person or any Wholly Owned Restricted Subsidiary of such Person is a controlling general partner or otherwise controls such entity.

"Total Assets" means the total consolidated assets of the Company and its Restricted Subsidiaries, as shown on the most recent balance sheet of the Company.

"Unrestricted Subsidiary" means (i) any Subsidiary of the Company which at the time of determination is an Unrestricted Subsidiary (as designated by the Board of Directors, as provided below) and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any existing Subsidiary and any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity Interests of, or owns, or holds any Lien on, any property of, the Company or any Subsidiary of the Company (other than any Subsidiary of the Subsidiary to be so designated), provided that (a) any Unrestricted Subsidiary must be an entity of which shares of the capital stock or other equity interests (including partnership interests) entitled to cast at least a majority of the votes that may be cast by all shares or equity interests having ordinary voting power for the election of directors or other governing body are owned, directly or indirectly, by the Company, (b) the Company certifies that such designation complies with the covenants described under "—Certain Covenants—Limitation on Restricted Payments" and (c) each of (I) the Subsidiary to be so designated and (II) its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that, immediately after giving effect to such designation, the Company could incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test described under "—Certain Covenants—Limitation

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on Incurrence of Indebtedness and Issuance of Disqualified Stock" on a pro forma basis taking into account such designation. Any such designation by the Board of Directors shall be notified by the Company to the Trustee by promptly filing with the Trustee a copy of the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions.

"Voting Stock" means, with respect to any Person, any class or series of capital stock of such Person that is ordinarily entitled to vote in the election of directors thereof at a meeting of stockholders called for such purpose, without the occurrence of any additional event or contingency.

"Weighted Average Life to Maturity" means, when applied to any Indebtedness or Disqualified Stock, as the case may be, at any date, the quotient obtained by dividing (i) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Disqualified Stock multiplied by the amount of such payment, by (ii) the sum of all such payments.

"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary that is a Restricted Subsidiary.

"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person 100% of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person.

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Description of Capital Stock

The following summaries of provisions of our capital stock do not purport to be complete and are subject to, and qualified in their entirety by, the provisions of our certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by applicable law.

General

Our authorized capital stock will consist of:

•

shares of common stock, par value $0.01 per share, which will be divided into the following series:

•: shares of our existing common stock;
•: shares of Class A common stock;
•: shares of Class B common stock;
•: shares of Class C common stock; and

•

shares of preferred stock, par value $0.01 per share.

After this offering, there will be shares of our Class A common stock, shares of our Class B common stock, no shares of our class C common stock and no shares of our preferred stock outstanding.

Our Existing Common Stock

In connection with the recapitalization, we will exchange all shares of our existing common stock for the recapitalization consideration. While our existing common stock will remain authorized, no shares will be outstanding after the recapitalization and we do not intend to issue any additional shares in the foreseeable future.

Class A Common Stock

Voting Rights. The holders of the Class A common stock are entitled to one vote per share. Except as otherwise required by law and as provided in this paragraph, holders of Class A, Class B and Class C common stock will vote as a single class on all matters presented to the stockholders for a vote. There is no provision for cumulative voting with respect to the election of directors. Accordingly, the holders of more than 50% of the shares of Class A, Class B and Class C common stock can elect all of our directors. In such event, the holders of the remaining shares will not be able to elect any directors. Class A common stock will be entitled to vote separately on any amendment to our certificate of incorporation that would disproportionately and adversely affect the rights of holders of Class A common stock.

Dividend Rights. All shares of Class A common stock are entitled to share equally in the dividends that the board of directors may declare from sources legally available for dividends. Dividends on the Class A common stock will be pari passu based on their relative dividend rate with dividends on the Class B and Class C common stock. We cannot declare dividends on our Class A common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock. At the time of the closing of this offering, our board of directors intends to adopt a dividend policy regarding our capital stock. Our borrowing agreements impose restrictions on our ability to declare dividends with respect to our common stock. See "Dividend Policies."

Class Restrictions. Our restated by-laws provide that, so long as we have any IDSs outstanding, we may not issue any shares of Class A common stock unless such shares are represented by IDSs that have

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been issued in transactions that are registered under the Securities Act of 1933 or issued pursuant to the terms of our shares of Class B common stock. Only shares of Class A common stock may be combined with notes to form IDSs.

Liquidation Rights. Upon liquidation or dissolution of KinderCare, whether voluntary or involuntary, each share of Class A and Class C common stock is entitled to share equally, and each share of Class B common stock is entitled to share times each share of Class A common stock, in the assets available for distribution to stockholders after payment of all prior obligations and payments to any outstanding shares of preferred stock.

Other Matters. Holders of the Class A common stock have no preemptive rights. All outstanding shares of Class A common stock are fully paid and non-assessable. The shares of Class A common stock are not convertible and not redeemable. See "Securities Eligible for Future Sale" for a discussion of restrictions on eligibility.

Class B Common Stock

Voting Rights. The holders of the Class B common stock are entitled to one vote per share. Except as otherwise required by law and as provided in this paragraph, holders of Class A, Class B and Class C common stock will vote as a single class on all matters presented to the stockholders for a vote. There is no provision for cumulative voting with respect to the election of directors. Accordingly, the holders of more than 50% of the shares of Class A, Class B and Class C common stock can elect all of our directors. In such event, the holders of the remaining shares will not be able to elect any directors. Class B common stock will be entitled to vote separately on any amendment to our certificate of incorporation that would disproportionately and adversely affect the rights of holders of Class B common stock.

Dividend Rights. All shares of Class B common stock are entitled to share equally in dividends that the board of directors may declare from sources legally available for dividends. The dividend rate on each share of Class B common stock will equal multiplied by the dividend rate on each share of Class A common stock. Dividends on the Class B common stock will be pari passu based on their relative dividend rate with dividends on the Class A and Class C common stock. At the time of the closing of this offering, our board of directors intends to adopt a dividend policy regarding our capital stock. Our borrowing agreements impose restrictions on our ability to declare dividends with respect to our common stock. See "Dividend Policies."

Conversion at the Option of the Holders. On and after the second anniversary of the date of the recapitalization and subject to certain conditions specified below, each share of Class B common stock will be convertible at the option of the holder into either one IDS (representing a share of Class A common stock and a note) or, if the IDSs have automatically separated or are otherwise not outstanding prior to the time of such conversion, one share of Class A common stock and a note having a principal amount equal to the note which was represented by each IDS. The conversion ratio of each share of Class B common stock into an IDS (or Class A common stock and notes) will be protected against dilution to the extent that the ratio of Class A common stock to principal amount of notes represented by an IDS changes in the event of a stock split, recombination or reclassification of the Class A common stock. The conversion of the Class B common stock is subject to the conditions that:

•: such conversion complies with all applicable laws, including securities laws;
•: no default or event of default under the note indenture has occurred and is continuing at the time of, or would result from, such conversion;
•: such conversion does not conflict with, or cause a default under, any of our material financing agreements; and

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•: such conversion does not cause a mandatory suspension of dividends or deferral of interest under any material financing agreement after giving effect to the conversion.

In addition to the conditions above, we will only be required to effect conversions of the Class B common stock at intervals of six months beginning with the second anniversary of the date of the recapitalization, unless a majority of the holders of the Class B common stock request a conversion with respect to a majority of their shares of Class B common stock. In the event of such majority request, we will provide notice to all of the holders of the Class B common stock of our receipt of such request through a release to any appropriate and customary news agency and, subject to the conditions above, effect the conversion within days of such request.

Conversion at the Option of KinderCare. At any time on or after the third anniversary of the recapitalization, we will have the option to force conversion of all of the shares of Class B common stock into IDSs on the same terms and subject to the same conditions described above under "—Conversion at the Option of the Holders." We will provide notice to all of the holders of the Class B common stock of our election to conduct such mandatory conversion through a release to any appropriate and customary news agency and, subject to the conditions described above, effect the conversion within days of such notice.

Other Matters. Holders of the Class B common stock have no preemptive rights. All outstanding shares of Class B common stock are fully paid and non-assessable. Except as described above, the shares of Class B common stock are not convertible and not redeemable. See "Securities Eligible for Future Sale" for a discussion of restrictions on eligibility.

Class C Common Stock

Voting Rights. The holders of the Class C common stock are entitled to one vote per share. Except as otherwise required by law and as provided in this paragraph, holders of Class A, Class B and Class C common stock will vote as one class on all matters presented to the stockholders for a vote. There is no provision for cumulative voting with respect to the election of directors. Accordingly, the holders of more than 50% of the shares of Class A, Class B and Class C common stock can elect all of our directors. In such event, the holders of the remaining shares will not be able to elect any directors. Class C common stock will be entitled to vote separately on any amendment to our certificate of incorporation that would disproportionately and adversely affect the rights of holders of Class C common stock.

Dividend Rights. All shares of Class C common stock are entitled to share equally in the dividends that the board of directors may declare from sources legally available for dividends. Dividends on the Class C common stock will be pari passu based on their relative dividend rate with dividends on the Class A and Class B common stock. We cannot declare dividends on our Class C common stock unless at such time the corresponding proportionate dividend is declared on our Class B common stock.

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Other Matters. Holders of the Class C common stock have no preemptive rights. All outstanding shares of Class C common stock are fully paid and non-assessable. The shares of Class C common stock are not convertible and not redeemable.

Preferred Stock

Our Board of Directors may, without further action of the stockholders, issue preferred stock in one or more series and fix or alter the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, dividend rates, conversion rights, voting rights, redemption terms and prices, liquidation terms and preferences, and the number of shares constituting any series or the designations of such series, to the fullest extent permitted by the General Corporation Law of the State of Delaware, or DGCL.

Anti-Takeover Effects of Various Provisions of Delaware Law and Our Restated Certificate of Incorporation and Amended and Restated By-laws

Provisions of the DGCL, our certificate of incorporation and by-laws contain provisions that may have some anti-takeover effects and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders.

Delaware Anti-Takeover Statute

We are subject to Section 203 of the DGCL. Subject to specific exceptions, Section 203 generally prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the time the person became an interested stockholder, unless:

•: the business combination, or the transaction in which the stockholder became an interested stockholder, is approved by our board of directors prior to the time the interested stockholder attained that status;
•: upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
•: at or after the time a person became an interested stockholder, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

"Business combinations" include mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to various exceptions, in general an "interested stockholder" is a person who, together with his or her affiliates and associates, owns, or within three years did own, 15% or more of the shares of the corporation's outstanding voting stock. These restrictions could prohibit or delay the accomplishment of mergers or other takeover or change in control attempts with respect to us and, therefore, may discourage attempts to acquire us.

Our Certificate of Incorporation and By-laws

In addition, provisions of our certificate of incorporation and by-laws, which are summarized in the following paragraphs, may have an anti-takeover effect.

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Calling of Special Meeting of Stockholders. Our certificate of incorporation and by-laws provide that special meetings of our stockholders may be called by (1) our board of directors or chief executive officer for any purpose or (2) by the chief executive officer or secretary if directed by the board of directors.

Advance Notice Requirements for Stockholder Proposals and Director Nominations. Our amended and restated by-laws provide that stockholders seeking to bring business before or to nominate candidates for election as directors at an annual meeting of stockholders must provide timely notice of their proposal in writing to the corporate secretary. To be timely, a stockholder's notice must be delivered or mailed and received at our principal executive offices not less than 90 nor more than 120 days in advance of the anniversary date of the immediately preceding annual meeting of stockholders. Our amended and restated by-laws also specify requirements as to the form and content of a stockholder's notice. These provisions may impede stockholders' ability to bring matters before an annual meeting of stockholders or make nominations for directors at an annual meeting of stockholders. Stockholder nominations for the election of directors at a special meeting must be received by our corporate secretary by the later of 10 days following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made or 90 days prior to the date that meeting is proposed to be held.

Amendment or Alteration of Bylaws. Stockholders may amend, alter, change or repeal provisions of our by-laws only by the affirmative vote of the holders of at least 80% of the shares entitled to vote at an election of directors. This may make it more difficult for stockholders to alter our by-laws.

Quorum Requirements. Our by-laws provide for a minimum quorum of a majority in voting power of the outstanding shares of our capital stock entitled to vote

Limitation on Liability and Indemnification of Officers and Directors. The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties as directors. Our certificate of incorporation includes a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director, except for liability:

•: for breach of duty of loyalty;
•: for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law;
•: under Section 174 of the DGCL (unlawful dividends or stock repurchases); or
•: for transactions from which the director derived improper personal benefit.

Our certificate of incorporation and amended and restated by-laws provide that we must indemnify and advance expenses to our directors and officers to the fullest extent authorized by the DGCL. We are also expressly authorized to, and do, carry directors' and officers' insurance for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.

There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.

Authorized but Unissued Shares. Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without your approval. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Transfer Agent and Registrar

The transfer agent and registrar for all classes of our common stock will be , a corporation.

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Securities Eligible for Future Sale

Future sales or the availability for sale of substantial amounts of IDSs or shares of our Class A common stock or a significant principal amount of our notes in the public market could adversely affect prevailing market prices and could impair our ability to raise capital through future sales of our securities. Upon completion of this offering, including our recapitalization, we will have IDSs outstanding, in respect of in the aggregate shares of our Class A common stock and $ aggregate principal amount of our notes, and we will have shares of our Class B common stock outstanding. Holders of our Class B common stock will be have the right to convert their Class B common stock into IDSs two years after the closing of this offering, subject to certain restrictions. See "Description of Capital Stock—Class B Common Stock—Conversion at the Option of Holders." All of the IDSs, underlying securities and shares of Class B common stock sold in the offering or issued in the recapitalization will be freely tradable without restriction or further registration under the Securities Act by persons other than our "affiliates." Under the Securities Act, an "affiliate" of a company is a person that directly or indirectly controls, is controlled by or is under common control with that company. The remaining IDSs and underlying securities and shares of Class B common stock outstanding will be "restricted securities" within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144.

We, our executive officers, KKR and Oaktree have agreed to a 180-day "lock up," subject to certain exceptions, with respect to all IDSs and shares of our Class A and Class B common stock which we may issue or they own prior to this offering or purchase in or after this offering, as the case may be. This means that for a period of 180 days following the date of this prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of any of these securities or request or demand that we file a registration statement related to any of these securities without the prior written consent of CIBC World Markets Corp., subject to specified exceptions.

In general, under Rule 144, a person (or persons whose shares are aggregated), including any person who may be deemed our affiliate, is entitled to sell within any three-month period, a number of restricted securities that does not exceed the greater of 1% of the then outstanding IDSs or underlying securities and the average weekly trading volume in the over-the-counter market during the four calendar weeks preceding each such sale, provided that at least one year has elapsed since these IDSs or underlying securities were acquired from us or any affiliate of ours and certain manner of sale, notice requirements and requirements as to availability of current public information about us are satisfied. Any person who is deemed to be our affiliate must comply with the provisions of Rule 144 (other than the one-year holding period requirement) in order to sell IDSs or underlying securities which are not restricted securities (such as IDSs or underlying securities acquired by affiliates either in the offering or through purchases in the open market following the offering). In addition, under Rule 144(k), a person who is not our affiliate, and who has not been our affiliate at any time during the 90 days preceding any sale, is entitled to sell the IDSs or underlying securities without regard to the foregoing limitations, provided that at least two years have elapsed since the IDSs or underlying securities were acquired from us or any affiliate of ours.

We may issue shares of our Class A common stock or notes, which may be in the form of IDSs, or other securities from time to time as consideration for future acquisitions and investments. In the event any such acquisition or investment is significant, the number of shares of our Class A common stock or notes, which may be in the form of IDSs, or other securities that we may issue may in turn be significant. In addition, we may also grant registration rights covering those shares of our Class A common stock or notes and IDSs, if applicable, or other securities in connection with any such acquisitions and investments.

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Certain ERISA Considerations

The following is a summary of certain considerations associated with the purchase of the IDSs by employee benefit plans that are subject to Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended ("ERISA"), plans, individual retirement accounts and other arrangements that are subject to Section 4975 of the Code or provisions under any federal, state, local, non-U.S. or other laws or regulations that are similar to such provisions of the Code or ERISA (collectively, "Similar Laws"), and entities whose underlying assets are considered to include "plan assets" of such plans, accounts and arrangements (each, a "Plan").

Prohibited Transaction Issues

Section 406 of ERISA and Section 4975 of the Code prohibit Plans subject to Title I of ERISA or Setion 4975 of the Code ("ERISA Plans") from engaging in specified transactions involving plan assets with persons or entities who are "parties in interest," within the meaning of ERISA, or "disqualified persons," within the meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engaged in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the ERISA Plan that engaged in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Code.

The acquisition and/or holding of the IDSs by an ERISA Plan with respect to which we,[any of the guarantors,] the underwriters, the trustee or the transfer agent are considered a party in interest or a disqualified person may constitute or result in a direct or indirect prohibited transaction under Section 406 of ERISA and/or Section 4975 of the Code, unless the investment is acquired and is held in accordance with an applicable statutory, class or individual prohibited transaction exemption. In this regard, the U.S. Department of Labor (the "DOL") has issued prohibited transaction class exemptions, or "PTCEs," that may apply to the acquisition and holding of the IDSs. These class exemptions include, without limitation, PTCE 84-14 respecting transactions determined by independent qualified professional asset managers, PTCE 90-1 respecting insurance company pooled separate accounts, PTCE 91-38 respecting bank collective investment funds, PTCE 95-60 respecting life insurance company general accounts and PTCE 96-23 respecting transactions determined by in-house asset managers, although there can be no guarantee that all of the conditions of any such exemptions will be satisfied.

Representation

Accordingly, by acceptance of the IDSs, each purchaser and subsequent transferee of the IDSs will be deemed to have represented and warranted that either (i) no portion of the assets used by such purchaser or transferee to acquire and hold the IDSs constitutes assets of any Plan or (ii) the purchase and holding of the IDSs by such purchaser or transferee will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or similar violation under any applicable Similar Laws.

The foregoing discussion is general in nature and is not intended to be all-inclusive. Due to the complexity of these rules and the penalties that may be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries, or other persons considering purchasing the IDSs on behalf of, or with the assets of, any Plan, consult with their counsel regarding the potential applicability of ERISA, Section 4975 of the Code and any Similar Laws to such investment and whether an exemption would be applicable to the purchase and holding of the IDSs.

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Material U.S. Federal Income Tax Consequences

The following discussion constitutes the opinion of Simpson Thacher & Bartlett LLP as to the material United States federal income tax consequences of the purchase, ownership and disposition of IDSs, notes and common stock as of the date hereof by U.S. Holders (as defined below) and Non-U.S. Holders (as defined below). Except where noted, the following discussion deals only with IDSs, notes and common stock held as capital assets by holders who acquired IDSs or notes upon their original issuance at their initial offering price, and does not deal with special situations, such as those of:

•: dealers in securities or currencies,
•: financial institutions,
•: regulated investment companies,
•: real estate investment trusts,
•: tax-exempt entities,
•: insurance companies,
•: persons holding IDSs, notes or common stock as a part of a hedging, integrated, conversion or constructive sale transaction or a straddle,
•: traders in securities that elect to use a mark-to-market method of accounting for their securities holdings,
•: persons liable for alternative minimum tax,
•: investors in pass-through entities, or
•: U.S. Holders (as defined below) of IDSs, notes or common stock whose "functional currency" is not the U.S. dollar.

The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof, and such authorities may be repealed, revoked, modified or subject to differing interpretations, possibly on a retroactive basis, so as to result in U.S. federal income tax consequences different from those discussed below.

A "U.S. Holder" means a holder that is for U.S. federal income tax purposes:

•: an individual citizen or resident of the United States,
•: a corporation (or other entity taxable as a corporation) created or organized in or under the laws of the United States or any political subdivision thereof,
•: an estate the income of which is subject to U.S. federal income taxation regardless of its source, or
•: a trust if it (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes is a holder, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership, you should consult your own tax advisors.

No statutory, administrative or judicial authority directly addresses the treatment of IDSs or instruments similar to IDSs for U.S. federal income tax purposes, and no ruling has been or will be sought from the Internal Revenue Service ("IRS") as to any tax matters discussed below. Furthermore

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a legal opinion is not binding on the IRS or the courts, either of which may not agree with the tax consequences described herein. A different treatment from that assumed below could adversely affect the amount, timing and character of income, gain or loss in respect of an investment in the IDSs or the notes, and, in the case of Non-U.S. Holders, could subject such holders to U.S. federal withholding and estate taxes with regard to the notes in the same manner as they will be with regard to our common stock. (Payments to Non-U.S. Holders would not be grossed-up for any such taxes.) In addition, a different treatment could result in the loss by us of all or part of the deduction for interest paid on the notes. If you are considering the purchase of IDSs or the notes, you should consult your own tax advisors concerning the particular U.S. federal income tax consequences to you of the ownership of IDSs or notes as well as any tax consequences to you arising under the laws of any state, local or other jurisdiction applicable to you.

Consequences to U.S. Holders

IDSs

Allocation of Purchase Price

We intend to treat your acquisition of IDSs as an acquisition of the shares of our common stock and the notes included in the IDSs and, by purchasing IDSs, you will agree to such treatment. The income tax treatment of IDSs is not free from doubt. See "—Notes—Characterization As Debt." The remainder of this discussion assumes that the acquisition of IDSs will be treated as an acquisition of shares of our common stock and notes.

The purchase price of each IDS will be allocated between the share of common stock and the notes in proportion to their respective fair market values at the time of purchase. Such allocation will establish your initial tax basis in the share of common stock and the notes. Assuming an initial offering price for the IDSs of $ (which is the mid-point of the range set forth on the cover page of this prospectus) we will report the initial fair market value of each share of common stock as $ and the initial fair market value of each $ principal amount of notes as $ , and by purchasing IDSs, you will agree to such allocation. If this allocation is not respected, the notes will be treated as having been issued with original issue discount (OID) (if the amount determined to be allocable to the notes is less than their face amount by more than a de minimis amount) or amortizable bond premium (if the amount determined to be allocable to the notes exceed their face amount). You generally would have to include any OID in income in advance of the receipt of cash attributable to that income, and would be able to elect to amortize bond premium over the remaining term of the notes. OID generally would increase our interest deductions, while bond premium would reduce our interest deductions. The remainder of this discussion assumes that our allocation of the purchase price will be respected.

Separation and Recombination

Separating your IDSs into the share of common stock and the notes represented thereby or recombining a share of common stock and the applicable principal amount of notes to form an IDS generally will not cause you to recognize gain or loss for U.S. federal income tax purposes. You will continue to take into account items of income or deduction otherwise includible or deductible, respectively, with respect to your common stock and notes, and your tax basis in your common stock and notes will not be affected by the separation or recombination.

Notes

Characterization As Debt

Our counsel, Simpson Thacher & Bartlett LLP, is of the opinion that the notes should be treated as debt for U.S. federal income tax purposes, and the lead underwriters have received an opinion from

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their counsel, Skadden, Arps, Slate, Meagher & Flom LLP, that the notes should be so treated. Such opinions are based in part on representations and determinations that are discussed in more detail in the following paragraphs, and are not binding on the IRS or the courts, which may not agree with the treatment of the notes included in IDSs as debt for U.S. federal income tax purposes. We and, by acquiring notes, directly or in the form of an IDS, each holder agrees to treat the notes as our indebtedness for all purposes.

The determination of whether an instrument is treated as debt or equity for U.S. federal income tax purposes is based on all the facts and circumstances. There is no statutory definition of debt, and the analysis of whether a purported debt instrument will be respected as debt for U.S. federal income tax purposes therefore relies principally on case law, which applies numerous factors that are intended to identify the economic substance of the investor's interest in the corporation to each situation presented. Our determination that the notes should be treated as debt for U.S. federal income tax purposes, and the opinions of counsel to this effect referred to above, rely upon certain representations and determinations by us, the lead underwriters and an independent appraisal firm, including representations and determinations by us and/or the independent appraisal firm substantially to the effect that:

•: the term, interest rate and other material provisions of the notes are commercially reasonable and are consistent with the terms to which an unrelated third party lender, bargaining at arm's length, would reasonably agree if such lender intended to purchase only the notes, and not IDSs;
•: the aggregate principal amount of the notes and our other liabilities in relation to the aggregate amount of our capital is commercially reasonable and is comparable to similarly situated bond issuers in similar industries;
•: we expect to make the scheduled debt service payments on the notes without deferring any payments; and
•: the fair market value of our assets exceeds the fair market value of our liabilities, and the ratio of our total outstanding liabilities to the fair market value of our equity does not exceed to 1.

In light of the determinations described above and their relevance to several of the factors analyzed in case law, and taking into account the facts and circumstances relating to the issuance of the IDSs and the notes, we (and our counsel) are of the view that the notes should be treated as debt for U.S. federal income tax purposes. However, there is no authority that directly addresses the tax treatment of securities with terms substantially similar to the notes or the IDSs. In light of this absence of any authority directly on point, neither we nor our counsel can conclude with certainty that the notes included in the IDSs will be treated as debt for U.S. federal income tax purposes.

Assuming our treatment of the notes as debt for U.S. federal income tax purposes is respected, stated interest on the notes generally will be taxable to you as ordinary income when paid or accrued, in accordance with your method of tax accounting. If the notes included in the IDSs were to be treated as equity rather than debt for U.S. federal income tax purposes, then interest paid to you on such notes would be treated as a dividend to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), and we could not deduct such payments for U.S. federal income tax purposes. Our inability to deduct interest on the notes could materially increase our taxable income and, thus, our U.S. federal income tax liability. This would reduce our after-tax cash flow, and could materially and adversely impact our ability to make interest and principal payments on the notes and dividend payments on the common stock. In addition, as discussed below under "—Consequences to Non-U.S. Holders—Class A Common Stock," Non-U.S. Holders could be subject to withholding and estate taxes with regard to the notes included in the IDSs in the same manner as they will be with regard to the common stock, and we could be liable for

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withholding taxes (plus interest) on interest payments previously made by us to Non-U.S. Holders of IDSs.

Additionally, there can be no assurance that the IRS will not successfully challenge the determination that the interest rate on the notes represents an arm's length rate. In that event, any excess amount over an arm's length rate would not be deductible by us and could be recharacterized as a dividend payment instead of an interest payment for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), with similar adverse tax results to us and the Non-U.S. Holders as discussed in the preceeding paragraph.

Unless otherwise indicated, the balance of this discussion assumes that the notes are respected as debt for tax purposes and that the interest rate thereon is not excessive.

Sale, Exchange or Retirement of Notes

Upon the sale, exchange, retirement or other disposition of an IDS, you will be treated as having sold, exchanged, retired or disposed of the notes represented by the IDS. Upon the sale, exchange, retirement or other disposition of notes, you will recognize gain or loss equal to the difference between the portion of the proceeds allocable to your notes (less an amount equal to any accrued and unpaid interest, which will be treated as a payment of interest for U.S. federal income tax purposes) and your adjusted tax basis in the notes. As described above under "—Consequences to U.S. Holders—IDSs—Allocation of Purchase Price," your tax basis in the notes generally will be the portion of the purchase price of your IDSs allocable to the notes, or your purchase price paid for your notes, as applicable. Your gain or loss will generally be capital gain or loss. Capital gains of non-corporate taxpayers derived in respect of capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Deferral of Interest

Under applicable U.S. Treasury regulations, a "remote" contingency that stated interest will not be timely paid is ignored in determining whether a debt instrument is issued with OID. We believe the likelihood of deferral of interest payments on the notes is remote within the meaning of the U.S. Treasury regulations. However, if we were to defer payments of interest on the notes, which we do not now anticipate doing, the notes would become OID instruments at such time. In such case, you would be subject to the special OID rules described below. Once the notes become OID instruments, they would be taxed as OID instruments for as long as they remain outstanding.

Under the OID economic accrual rules, the following would occur:

•: regardless of your method of accounting, you would accrue an amount of interest income each year that approximates the stated interest payments called for under the terms of the notes using the constant-yield-to-maturity method of accrual described in section 1272 of the Code;
•: the actual cash payments of interest you receive on the notes would not be reported as separately taxable income;
•: any amount of OID included in your gross income (whether or not during a deferral period) with respect to the notes would increase your tax basis in such notes; and
•: the amount of interest you receive on the notes in respect of such accrued OID would reduce your tax basis in such notes.

The U.S. Treasury regulations dealing with OID and the deferral of interest payments have not yet been addressed in any rulings or other interpretations by the IRS. It is possible that the IRS could assert that the notes were issued initially with OID. If the IRS were successful in this regard, you would

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be subject to the special OID rules described above, regardless of whether we defer payments of interest on such notes.

Additional Issuances

The indenture governing the notes will permit us, from time to time, to issue additional notes having terms that are identical (except for the issuance date) to those of the notes offered hereby. In particular, additional notes will be issued upon conversion of the Class B common stock into IDSs and under certain other circumstances.

Subsequently issued notes may be issued with OID. The U.S. federal income tax consequences to you of the subsequent issuance of notes with OID upon a subsequent offering by us of IDSs or upon the conversion by existing stockholders of any shares of Class B common stock they receive in the recapitalization into IDSs (or any issuance of notes thereafter) are unclear. The indenture governing the notes will provide that, in the event there is a subsequent issuance of notes with a new CUSIP number having terms that are identical (other than issuance date) to the notes offered hereby, each holder of notes or IDSs, as the case may be, agrees that a portion of such holder's notes will be exchanged for a portion of the notes acquired by the holders of such subsequently issued notes. Consequently, immediately following such subsequent issuance, each holder of subsequently issued notes held either as part of IDSs or separately, and each holder of existing notes held either as part of IDSs or separately, will own an inseparable unit composed of a proportionate percentage of both the old notes and the newly issued notes. We intend to take the position that any subsequent issuance of notes with a new CUSIP number, whether or not such notes are issued with OID, will not result in a taxable exchange of your notes for U.S. federal income tax purposes, but because of a lack of legal authority on point, (1) our counsel is unable to opine on the matter and (2) there can be no assurance that the IRS will not assert that such a subsequent issuance of notes should be treated as a taxable exchange of a portion of your notes, whether held separately or in the form of IDSs, for a portion of the notes subsequently issued. In such case, however, you would generally realize any gain on the deemed exchange to the extent that the value of the newly issued notes exceeds your tax basis, and it is possible that the IRS might successfully assert that any loss realized by you should be disallowed under the "wash sale" rules. Your initial tax basis in the notes deemed to have been received in the exchange would be the fair market value of such notes on the date of the deemed exchange (increased to reflect any disallowed loss), and your holding period for such notes would begin on the day after the deemed exchange. A holder of notes who purchased the notes following their original issuance could realize gain if such deemed exchange were to be treated as a taxable exchange.

Following any subsequent issuance of notes with OID (or any issuance of notes thereafter), we (and our agents) will report any OID on the subsequently issued notes ratably among all holders of notes and IDSs, and each holder of notes and IDSs, by purchasing IDSs, agrees to report OID in a manner consistent with this approach. This will generally result in such holders having to report interest income in advance of receiving the related interest payments and in greater amounts over the term of the notes than they would have reported had no such subsequent issuance occurred. (See the discussion above under "—Consequences to U.S. Holders—Notes—Deferral of Interest.") However, there can be no assurance that the IRS will not assert that any OID should be reported only by the persons that initially acquired such subsequently issued notes (and their transferees). In such case, the IRS might further assert that, unless a holder can establish that it is not such a person (or a transferee thereof), all of the notes held by such holder have OID. Any of these assertions by the IRS could create significant uncertainties in the pricing of IDSs and notes, and could adversely affect the market for IDSs and notes. You would be required to include any OID in income as ordinary income as it accrues, in advance of the receipt of cash attributable to such income.

It is possible that notes we issue in a subsequent issuance will be issued with "significant OID" and thus be classified as "applicable high yield discount obligations" (AHYDOs). If any of our notes were

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so classified, a portion of the OID on such notes could be nondeductible by us and the remainder would be deductible only when paid. This treatment would have the effect of increasing our taxable income, which may adversely affect our cash flow available for interest payments and distributions to our stockholders.

Prospective investors are urged to consult their tax advisors regarding the applicable tax consequences to them of a subsequent issuance of notes with OID in light of their particular circumstances.

Class A Common Stock

Dividends

The gross amount of dividends paid to you on our common stock will be treated as dividend income to you to the extent paid out of current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Such income will be includable in your gross income as ordinary income. The amount (if any) of dividends paid to you in excess of our current and accumulated earnings and profits will be treated as a tax-free return of your tax basis in your shares of common stock and thereafter as capital gain. If you are a non-corporate taxpayer, dividends that we pay to you through 2008 will be subject to tax at long-term capital gain rates, provided certain holding period and other requirements are satisfied.

Taxation of Capital Gains

Upon the sale, exchange, retirement or other disposition of IDSs, you will be treated as having sold, exchanged, retired or disposed of the shares of common stock represented by the IDSs. Upon the sale, exchange, retirement or other disposition of shares of our common stock, you will recognize capital gain or loss in an amount equal to the difference between the portion of the proceeds allocable to your shares of common stock and your tax basis in the shares of common stock. As described above under "—Consequences to U.S. Holders—IDSs—Allocation of Purchase Price," your tax basis in the shares of common stock generally will be the portion of the purchase price of your IDSs allocable to the shares of common stock, reduced by any prior distributions treated as a non-taxable return of your basis in the shares. As discussed above, capital gains of non-corporate taxpayers derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to payments of principal, interest and dividends on the notes and our common stock and to the proceeds from the sale of an IDS, notes or our common stock paid to a U.S. Holder other than certain exempt recipients (such as corporations). A backup withholding tax will apply to such payments if you fail to provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.

Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished by you to the IRS.

Consequences to Non-U.S. Holders

The following discussion applies only to Non-U.S. Holders. A "Non-U.S. Holder" is a holder, other than an entity or arrangement classified as a partnership for U.S. federal income tax purposes, that is not a U.S. Holder. Special rules may apply to certain Non-U.S. Holders, such as:

•: U.S. expatriates,

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•: "controlled foreign corporations,"
•: "passive foreign investment companies,"
•: "foreign personal holding companies,"
•: corporations that accumulate earnings to avoid U.S. federal income tax, and
•: investors in pass-through entities that are subject to special treatment under the Code.

Such Non-U.S. Holders should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.

Notes

Characterization of Notes

As discussed above under "—Consequences to U.S. Holders—Notes—Characterization As Debt," we believe the notes should be treated as debt for U.S. federal income tax purposes. However, no ruling on this issue has been requested from the IRS and thus there can be no assurance that such a position would be sustained if challenged by the IRS. If the notes were treated as equity rather than debt for U.S. federal income tax purposes, then the notes would be treated in the same manner as shares of common stock as described below under "—Consequences to Non-U.S. Holders—Class A Common Stock—Dividends," and payments on the notes would be subject to U.S. federal withholding taxes. Payments to you would not be grossed-up on account of any such taxes, and we could be liable for withholding taxes (plus interest) on our prior interest payments to Non-U.S. Holders that are recharacterized as dividends. The remainder of this discussion assumes the characterization of the notes as debt for U.S. federal income tax purposes will be respected.

U.S. Federal Withholding Tax

Subject to the discussion below concerning backup withholding, by virtue of the "portfolio interest" rule, no withholding of U.S. federal income tax should be required with respect to the payment of principal or interest on notes owned by you, provided that:

•: interest paid on the notes is not effectively connected with your conduct of a trade or business in the United States,
•: you do not actually or constructively own 10% or more of the total combined voting power of all classes of our stock entitled to vote within the meaning of section 871(h)(3) of the Code and the U.S. Treasury regulations thereunder,
•: you are not a controlled foreign corporation that is related to us through stock ownership,
•: you are not a bank whose receipt of interest on the notes is described in section 881(c)(3)(A) of the Code, and
•: you satisfy the certification requirements (described generally below) set forth in section 871(h) and section 881(c) of the Code and the U.S. Treasury regulations thereunder.

To satisfy the requirement referred to in the final bullet above, you, or a financial institution holding the notes on your behalf, must provide, in accordance with specified procedures, a statement to the effect that you are not a U.S. person. Currently, these requirements will be met if (1) you provide our paying agent with your name and address, and certify, under penalties of perjury, that you are not a U.S. person (which certification may be made on an IRS Form W-8BEN), or (2) a financial institution holding the notes on your behalf certifies, under penalties of perjury, that such statement has been received by it and furnishes our paying agent with a copy thereof. The statement requirement referred to in the final bullet above may also be satisfied with other documentary evidence with respect to a note held in an offshore account or through certain foreign intermediaries.

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If you cannot satisfy the requirements of the "portfolio interest" rule described in the bullets above, payments of interest (including OID) made to you will be subject to a 30% withholding tax unless you provide us or our paying agent, as the case may be, with a properly executed:

•: IRS Form W-8BEN claiming an exemption from or reduction in withholding under the benefit of an applicable income tax treaty, or
•: IRS Form W-8ECI stating that interest paid on the notes is not subject to withholding tax because it is effectively connected with your conduct of a trade or business in the United States.

Alternative documentation may be applicable to particular Non-U.S. Holders.

U.S. Federal Income Tax

If you are engaged in a trade or business in the United States and interest on the notes is effectively connected with the conduct of such trade or business (or, where a tax treaty applies, is attributable to your U.S. permanent establishment), the withholding tax discussed above will not apply to you (provided the certification requirements described above are satisfied), but you will be subject to U.S. federal income tax on such interest on a net income basis in the same manner as if you were a U.S. Holder. In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or lesser rate under an applicable income tax treaty) of such amount, subject to adjustments.

Sale, Exchange or Retirement of Notes

Upon the sale, exchange, retirement or other disposition of an IDS, you will be treated as having sold, exchanged, retired or disposed of the notes represented by the IDS. Any gain realized upon the sale, exchange, retirement or other disposition of notes generally will not be subject to U.S. federal income tax unless:

•: such gain is effectively connected with your conduct of a trade or business in the United States, or
•: you are an individual, you are present in the United States for 183 days or more in the taxable year of such sale, exchange, retirement or other disposition, and certain other conditions are met.

U.S. Federal Estate Tax

If you are an individual, you should not be subject to U.S. federal estate tax on the notes, provided that interest paid to you on the notes qualifies for exemption from the 30% U.S. federal withholding tax under the "portfolio interest" rule described above under "—Consequences to Non-U.S. Holders—Notes—U.S. Federal Withholding Tax" without regard to the certification requirement described in the final bullet point.

Class A Common Stock

Dividends

Dividends paid to you generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with your conduct of a trade or business within the United States or, where a tax treaty applies, are attributable to your U.S. permanent establishment, are not subject to the withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable graduated individual or corporate rates. Certain certification and disclosure requirements must be satisfied for effectively connected income to be exempt from withholding. If you are a foreign corporation, any such effectively connected dividends received by you may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

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If you wish to claim the benefit of an applicable treaty rate (and avoid backup withholding as discussed below) for dividends, you will be required to:

•: complete IRS Form W-8BEN (or other applicable form) and certify, under penalties of perjury, that you are not a U.S. person and you qualify for treaty benefits, or
•: if the shares of our common stock are held through certain foreign intermediaries, satisfy the relevant certification requirements of applicable U.S. Treasury regulations.

Special certification and other requirements apply to certain Non-U.S. Holders that are entities rather than individuals.

If you are eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.

Gain on Disposition of Class A Common Stock

Upon the sale, exchange, retirement or other disposition of an IDS, you will be treated as having sold, exchanged, retired or disposed of the share of common stock represented by the IDS. Subject to the discussion of "United States real property holding corporation" below, you generally will not be subject to U.S. federal income tax with respect to gain recognized on a sale or other disposition of shares of our common stock unless:

•: such gain is effectively connected with your conduct of a trade or business in the United States, and, where a tax treaty applies, is attributable to your U.S. permanent establishment or
•: you are an individual and hold shares of our common stock as a capital asset, you are present in the United States for 183 days or more in the taxable year of such sale or other disposition, and certain other conditions are met.

If you are an individual and are described in the first bullet above, you will be subject to tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates. If you are an individual and are described in the second bullet above, you will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by U.S. source capital losses (even though you are not considered a resident of the United States). If you are a foreign corporation and are described in the first bullet above, you will be subject to tax on your gain under regular graduated U.S. federal income tax rates and, in addition, may be subject to the branch profits tax equal to 30% of your effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty.

We have determined that we are a "United States real property holding corporation", or USRPHC, for U.S. federal income tax purposes. So long as the IDSs continue to be regularly traded on an established securities market, we believe that a Non-U.S. Holder could take the position that only a Non-U.S. Holder who holds or held actually or constructively (at any time during the shorter of the five year period preceding the date of disposition or the holder's holding period) more than 5% of the IDSs or common stock should be subject to U.S. federal income tax on the disposition of the IDSs or common stock. However, there is no direct legal authority covering the appropriate treatment of a disposition of an interest in a USRPHC that has only units similar to the IDSs (and not shares of a class of its stock) which are regularly traded on an established securities market. Therefore, there can be no assurance that the IRS will not assert that the 5% rule discussed above is inapplicable and that all Non-U.S. Holders will be subject to U.S. federal income tax on the disposition of IDSs or common stock as if they were U.S. Holders. Prospective investors should consult their tax advisors regarding the consequences of disposing of an interest in a USRPHC.

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U.S. Federal Estate Tax

Shares of our common stock held by an individual Non-U.S. Holder at the time of death will be included in such holder's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding

The amount of interest payments and dividends paid to you and the amount of tax, if any, withheld with respect to such payments will be reported annually to the IRS. Copies of the information returns reporting such interest payments, dividends and withholding may also be made available to the tax authorities in the country in which you reside under the provisions of an applicable income tax treaty.

In general, backup withholding will be required with respect to payments made by us or any paying agent to you, unless you comply with the certification requirements referred to in the fifth bullet point under "Consequences to Non-U.S. Holders—Notes—U.S. Federal Withholding Tax" (and we or the paying agent do not have actual knowledge or reason to know that you are a U.S. person).

Information reporting and, depending on the circumstances, backup withholding generally will apply to the proceeds of a sale of IDSs, notes or shares of our common stock within the United States or conducted through U.S.-related financial intermediaries unless you comply with the certification requirements referred to in the fifth bullet under "Consequences to Non-U.S. Holders—Notes—U.S. Federal Withholding Tax" (and we or the paying agent do not have actual knowledge or reason to know that you are a U.S. person) or you otherwise establish an exemption.

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Underwriting

We will enter into an underwriting agreement dated, , 2004 with the underwriters named below. CIBC World Markets Corp. is acting as the representative of the underwriters.

The underwriting agreement will provide for the purchase of a specified number of IDSs by each of the underwriters. The underwriters' obligations will be several, which means that each underwriter will be required to purchase a specified number of IDSs but will not be responsible for the commitment of any other underwriter to purchase the IDSs. Subject to the terms and conditions of the underwriting agreement, each underwriter will severally agree to purchase the number of IDSs set forth opposite its name below. In addition, subject to the terms and conditions of the underwriting agreement, CIBC World Markets Corp. will agree to purchase $ million aggregate principal amount of our % notes due (not represented by IDSs).

Underwriters			Number of IDSs		Notes
CIBC World Markets Corp.
	Total

The offering of the IDSs is conditioned upon the offering of our % senior subordinated notes due 2014 (not represented by IDSs). Under the underwriting agreement, we will agree to sell and the underwriters will agree to purchase the IDSs offered under this offering at a price of $ and CIBC World Markets Corp. will agree to purchase the notes offered under this offering at a price of $ , in each case payable in cash to us against delivery.

The underwriters will agree to purchase all the IDSs and CIBC World Markets Corp. will agree to purchase all the notes sold separately under the underwriting agreement if any of the IDSs or notes sold separately thereunder, as applicable, are purchased. Under the underwriting agreement, if an underwriter defaults in its commitment to purchase the IDSs or notes sold separately, as applicable, the commitments of non-defaulting underwriters may be increased or the underwriting agreement may be terminated, depending on the circumstances.

The IDSs will be offered through the underwriters either directly or through their respective registered broker-dealer affiliates. Subject to applicable law, the underwriters may offer the IDSs and the notes sold separately, as applicable, outside of the United States. Holders of our direct and indirect equity securities (and their related persons) will not be eligible to purchase notes offered separately.

The IDSs and notes sold separately should be ready for delivery on or about , 2004, but in any event no later than , 2004, against payment in immediately available funds. The underwriters are offering the IDSs and notes sold separately subject to various conditions and may reject all or part of any order. The representatives have advised us that the underwriters propose to offer the IDSs and notes sold separately directly to the public at the public offering prices that appear on the cover page of this prospectus. In addition, the representatives may offer some of the IDSs or notes to other securities dealers at such price less a concession of $ per IDS or % of the principal amount per note. The underwriters may also allow, and such dealers may reallow, a concession not in excess of $ per IDS or % of the principal amount per note to other dealers. After the IDSs and notes are released for sale to the public, the representatives may change the offering price and other selling terms at various times.

We have granted the underwriters an over-allotment option to purchase additional IDSs. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of additional IDSs from us to cover all over-allotments. If the

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underwriters exercise all or part of this option, they will purchase the IDSs covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $ , and the total proceeds to us will be $ . The underwriters have severally agreed that, to the extent the over-allotment option is exercised, they will each purchase a number of additional IDSs proportionate to the underwriter's initial amount reflected in the foregoing table.

The following table provides information regarding the amount of the underwriting discount to be paid to the underwriters by us:

	IDS Offering			Notes Offering
Underwriting Discount to be Paid by	Per IDS	Total with No Exercise of Over- Allotment Option	Total with Full Exercise of Over- Allotment Option	Per Note	Total
KinderCare Learning Centers, Inc.	$	$	$	$	$

We estimate that our total expenses of this offering, excluding the underwriting discount, will be approximately $ .

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.

We, our executive officers, KKR and Oaktree have agreed to a 180-day "lock up," subject to certain exceptions, with respect to all IDSs, notes and shares of our Class A and Class B common stock, including securities that are convertible into such securities and securities that are exchangeable or exercisable for such securities, which we may issue or they own prior to this offering or purchase in or after this offering, as the case may be. This means that for a period of 180 days following the date of this prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of any of these securities or request or demand that we file a registration statement related to any of these securities without the prior written consent of the representative, subject to specified exceptions.

The representative has informed us that they do not expect discretionary sales by the underwriters to exceed % of the IDSs offered by this offering.

There is no established trading market for the IDSs, the shares of our Class A common stock or the notes. The offering price for the IDSs and the notes will be determined by us and the representatives based on the following factors:

•: prevailing market and general economic conditions;
•: our financial information;
•: our history and prospects;
•: the history of and prospects for the industry in which we compete;
•: an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues; and
•: the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

We will apply to list the IDSs on the under the trading symbol " ."

Rules of the SEC may limit the ability of the underwriters to bid for or purchase IDSs or notes before the distribution of the IDSs and notes is completed. However, the underwriters may engage in the following activities in accordance with the rules:

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•: Stabilizing transactions—The representative may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the IDSs or notes, so long as stabilizing bids do not exceed a specified maximum.
•: Over-allotment to purchase additional IDSs and syndicate covering transactions—The underwriters may sell more IDSs in connection with this offering than the number of IDSs that they have committed to purchase. This over-allotment to purchase additional IDSs creates a short position for the underwriters. This short sales position may involve either "covered" short sales or "naked" short sales. Covered short sales are short sales made in an amount not greater than the underwriters' over-allotment option to purchase additional IDSs in this offering described above. The underwriters may close out any covered short position either by exercising their over-allotment option to purchase additional IDSs or by purchasing IDSs in the open market. To determine how they will close the covered short position, the underwriters will consider, among other things, the price of IDSs available for purchase in the open market as compared to the price at which they may purchase IDSs through the over-allotment option. Naked short sales are short sales in excess of the over-allotment option to purchase additional IDSs. The underwriters must close out any naked short position by purchasing IDSs in the open market. A naked short position is more likely to be created if the underwriters are concerned that, in the open market after pricing, there may be downward pressure on the price of the IDSs that could adversely affect investors who purchase IDSs in this offering.
•: Penalty bids—If the representative purchases IDSs or notes in the open market in a stabilizing transaction or syndicate covering transaction, it may reclaim a selling concession from the underwriters and selling group members who sold those IDSs or notes as part of this offering.

The underwriters' purchases to cover the syndicate short sales or to stabilize the market price of the IDSs or notes or the imposition of penalty bids may have the effect of raising or maintaining the market price of the IDSs or notes or preventing or mitigating a decline in the market price of the IDSs or notes. As a result, the price of the IDSs or notes may be higher than the price that might otherwise exist in the open market. The imposition of a penalty bid might also have an effect on the price of the IDSs or notes if it discourages resales of the IDSs or notes.

Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of the IDSs or notes sold separately, as applicable. These transactions may occur on the or otherwise. If such transactions are commenced, they may be discontinued without notice at any time.

We have been advised by the representatives that currently intends to facilitate a secondary market in the notes sold separately, and, upon the separation of the IDSs, the notes and the Class A common stock, which means that they will make commercially reasonable attempts to match buyers of such securities with sellers of such securities, considering, when doing so, any relevant credit issues they deem appropriate. However, is not obligated to facilitate a secondary market and may discontinue any such facilitation, if commenced, at any time and without notice. Moreover, if and to the extent that facilitates any market for the notes, there can be no assurance that such market would provide sufficient liquidity for any holder of any such securities.

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters and certain of the underwriters or securities dealers may distribute prospectuses electronically. The representative may agree to allocate a number of IDSs or notes to underwriters for sale to their online brokerage account holders. The representative will allocate IDSs or notes to underwriters that may make Internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on any of these websites and any other information contained on a website maintained by an underwriter or syndicate member is not part of this prospectus.

An automatic exchange described elsewhere in this prospectus should not impair the rights any holder would otherwise have to assert a claim against us or the underwriters, with respect to the full amount of notes purchased by such holder.

169

Legal Matters

The validity of the issuance of the IDSs, our shares of Class A common stock and notes offered hereby will be passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York. Certain legal matters relating to this offering will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Partners of Simpson Thacher & Bartlett LLP, members of their families, related persons and others have an indirect interest, through limited partnerships, which are investors in an affiliate of KLC Associates, L.P., in less than 1% of the common stock underlying the IDSs.

Experts

The consolidated financial statements as of May 31, 2002 and May 30, 2003, and for each of the three years ended June 1, 2001, May 31, 2002 and May 30, 2003, included in this prospectus and elsewhere in the registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and elsewhere in the registration statement (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the adoption of Statement of Financial Accounting Standards, or SFAS, No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective June 1, 2002), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

Where You Can Find More Information

We have filed, and continue to file, annual, quarterly and periodic reports under the Securities Exchange Act of 1934 and the rules and regulations under the Exchange Act with the Securities and Exchange Commission. In addition, we have filed with the Commission a registration statement on Form S-1, which includes amendments, exhibits, schedules and supplements, under the Securities Act and the rules and regulations under the Securities Act, for the registration of the IDSs and notes offered by this prospectus. Although this prospectus, which forms a part of the registration statement, contains all material information included in the registration statement, parts of the registration statement have been omitted from this prospectus as permitted by the rules and regulations of the Commission. For further information with respect to our company and the IDSs offered by this prospectus, please refer to the registration statement. Statements contained in this prospectus as to the content of any contracts or other document referred to in this prospectus are not necessarily complete and, where such contract or other document is an exhibit to the registration statement, each such statement is qualified in all respects by the provisions of such exhibit, to which reference is now made. The registration statement and our other public filings can be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the registration statement and our other public filings are publicly available through the Commission's site on the Internet's world wide web, located at: http://www.sec.gov. Following the offering, our future public filings are expected to be available for inspection at the offices of the American Stock Exchange, 86 Trinity Place, New York, New York 10006. We also make our public filings available free of charge at our Internet web site, located at kindercare.com.

170

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Audited Consolidated Financial Statements of KinderCare Learning Centers, Inc. for the three Fiscal Years ended May 30, 2003
Report of Independent Public Accountants		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7
Unaudited Consolidated Financial Statements of KinderCare Learning Centers, Inc. for the Forty Week Periods ended March 7, 2003 and March 5, 2004
Consolidated Balance Sheets		F-37
Consolidated Statements of Operations		F-38
Consolidated Statements of Stockholders' Equity and Comprehensive Income		F-39
Consolidated Statements of Cash Flows		F-40
Notes to Unaudited Consolidated Financial Statements		F-41

F-1

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
KinderCare Learning Centers, Inc.

We have audited the accompanying consolidated balance sheets of KinderCare Learning Centers, Inc., and subsidiaries as of May 30, 2003 and May 31, 2002, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years ended May 30, 2003, May 31, 2002 and June 1, 2001. 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 auditing standards generally accepted in the United States of America. 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 KinderCare Learning Centers, Inc. and subsidiaries as of May 30, 2003 and May 31, 2002, and the results of their operations and their cash flows for each of the years ended May 30, 2003, May 31, 2002 and June 1, 2001, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective June 1, 2002.


/s/ DELOITTE & TOUCHE LLP
Portland, Oregon August 11, 2003

(April 21, 2004 as to Note 17 and the effects of discontinued operations described in Note 2)

F-2

KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share amounts)

			May 31, 2002			May 30, 2003
ASSETS
Current assets:
	Cash and cash equivalents		$	8,619		$	18,066
	Receivables, net			31,657			31,493
	Prepaid expenses and supplies			9,948			9,423
	Deferred income taxes			13,904			14,500
	Assets held for sale			5,788			5,560

		Total current assets		69,916			79,042
Property and equipment, net				697,638			660,939
Deferred income taxes				8			1,868
Goodwill				42,565			42,565
Other assets				35,324			26,679

			$	845,451		$	811,093

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Bank overdrafts		$	9,779		$	9,304
	Accounts payable			9,836			8,888
	Current portion of long-term debt			6,237			13,744
	Accrued expenses and other liabilities			106,374			109,671

		Total current liabilities		132,226			141,607
Long-term debt				526,080			441,336
Noncurrent self-insurance liabilities				15,723			22,771
Deferred income taxes				12,208			3,696
Other noncurrent liabilities				35,945			66,524

		Total liabilities		722,182			675,934

Commitments and contingencies (Notes 8 and 14)
Stockholders' equity:
	Preferred stock, $.01 par value; authorized 10,000 shares; none outstanding			—			—
	Common stock, $.01 par value; authorized 100,000 shares; issued and outstanding 19,661 and 19,819 shares, respectively			198			197
	Additional paid-in capital			28,107			25,909
	Notes receivable from stockholders			(1,426	)		(1,085	)
	Retained earnings			96,882			110,297
	Accumulated other comprehensive loss			(492	)		(159	)

		Total stockholders' equity		123,269			135,159

			$	845,451		$	811,093

See accompanying notes to consolidated financial statements.

F-3

KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

			Fiscal Year Ended
			June 1, 2001			May 31, 2002			May 30, 2003
Revenues, net			$	721,076		$	806,746		$	838,584

Operating expenses:
	Salaries, wages and benefits			394,939			446,548			462,361
	Depreciation and amortization			45,315			57,533			57,284
	Rent			37,296			46,910			51,770
	Provision for doubtful accounts			6,122			7,230			4,954
	Other			162,990			174,362			189,801
	Restructuring charges (reversals)			(100	)		—			—

		Total operating expenses		646,562			732,583			766,170

	Operating income			74,514			74,163			72,414
Investment income				582			560			420
Interest expense				(48,815	)		(44,072	)		(41,032	)
Loss on minority investment				—			(2,265	)		(6,700	)

	Income before income taxes, discontinued operations and cumulative effect of a change in accounting principle, net			26,281			28,386			25,102
Income tax expense				(10,095	)		(11,213	)		(9,940	)

	Income before discontinued operations and cumulative effect of a change in accounting principle, net			16,186			17,173			15,162
Discontinued operations, net of income tax (expense) benefit of ($171), $412 and $1,145, respectively				275			(630	)		(1,747	)

	Income before cumulative effect of a change in accounting principle			16,461			16,543			13,415
Cumulative effect of a change in accounting principle, net of income tax benefit of $484				(790	)		—			—

		Net income	$	15,671		$	16,543		$	13,415

Basic net income per share:
	Income before discontinued operations and cumulative effect of a change in accounting principle, net		$	0.85		$	0.86		$	0.77
	Discontinued operations, net of taxes			0.01			(0.03	)		(0.09	)
	Cumulative effect of a change in accounting principle, net of taxes			(0.04	)		—			—

		Net income	$	0.82		$	0.83		$	0.68

Diluted net income per share:
	Income before discontinued operations and cumulative effect of a change in accounting principle, net		$	0.84		$	0.85		$	0.76
	Discontinued operations, net of taxes			0.01			(0.03	)		(0.09	)
	Cumulative effect of a change in accounting principle, net of taxes			(0.04	)		—			—

		Net income	$	0.81		$	0.82		$	0.67

Weighted average common shares outstanding:
	Basic			19,073			19,819			19,701
	Diluted			19,275			20,111			19,908

See accompanying notes to consolidated financial statements.

F-4

KINDERCARE LEARNING CENTERS, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity and Comprehensive Income

(In thousands)

			Common Stock							Notes Receivable From Stockholders					Accumulated Other Comprehensive Loss
			Common Stock				Additional Paid-in Capital						Retained Earnings
			Shares		Amount		Additional Paid-in Capital						Retained Earnings					Total
Balance at June 2, 2000			18,964		$	190	$	13,414		$	(1,186	)	$	64,668	$	(413	)	$	76,673
Comprehensive income:
	Net income		—			—		—			—			15,671		—			15,671
	Cumulative translation adjustment		—			—		—			—			—		(145	)		(145	)

		Total comprehensive income																	15,526
Issuance of common stock			882			8		12,074			(264	)		—		—			11,818
Repurchase of common stock			(27	)		—		(324	)		—			—		—			(324	)
Proceeds from collection of stockholders' notes receivable			—			—		—			95			—		—			95
Reversal of pre-fresh start contingency			—			—		2,943			—			—		—			2,943

		Balance at June 1, 2001	19,819			198		28,107			(1,355	)		80,339		(558	)		106,731
Comprehensive income:
	Net income		—			—		—			—			16,543		—			16,543
	Cumulative translation adjustment		—			—		—			—			—		66			66

KINDERCARE LEARNING CENTERS INC /DE S-1