AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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KU EDUCATION LLC, | KUE MERGER SUB INC., | KINDERCARE LEARNING CENTERS, INC., | KLC ASSOCIATES, L.P.,

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: Delaware Date: 11/9/2004
Industry: Schools Law Firm: Maron & Sandler;Simpson Thacher & Bartlett LLP;Skadden, Arps, Slate, Meagher & Flom LLP Sector: Services

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

KU EDUCATION LLC,

KUE MERGER SUB INC.,

KINDERCARE LEARNING CENTERS, INC.,

KLC ASSOCIATES, L.P.,

KKR PARTNERS II, L.P.,

TCW SPECIAL CREDITS FUND V - THE PRINCIPAL FUND

AND

DAVID J. JOHNSON

DATED AS OF NOVEMBER 5, 2004

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TABLE OF CONTENTS

1. Definitions.........................................................1

2. Stock Purchase; Merger.............................................11

(a) Stock Purchase............................................11

(b) The Merger................................................11

(d) Effect of the Merger......................................12

(e) Certificate of Incorporation; Bylaws......................12

(f) Directors and Officers....................................12

3. Conversion of Securities; Merger Consideration.....................12

(a) Conversion of Securities..................................12

(b) Exchange of Certificates..................................14

(d) Stock Transfer Books......................................17

(e) Stock Options.............................................17

4. Closings; Escrow Accounts..........................................18

(a) Stock Purchase Closing....................................18

(b) Merger Closing............................................19

5. Representations and Warranties of Parent

and Merger Sub...................................................20

(a) Organization of Parent and Merger Sub.....................20

(b) Authorization of Transaction..............................20

(d) Required Filings and Consents.............................21

(e) Financing.................................................21

(f) Brokers...................................................21

(g) Company Common Stock......................................21

(h) Litigation................................................22

(i) Unregistered Equity.......................................22

(j) Disclaimer Regarding Projections..........................22

(k) No Other Representations..................................22

6. Representations and Warranties of the Sellers......................22

(a) Organization..............................................22

(b) Authorization of Transaction..............................23

(d) Ownership of the Purchased Shares.........................23

(e) No Other Representations..................................23

-i-

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7. Representations and Warranties Concerning the

Company and its Subsidiaries.....................................24

(a) Organization, Qualification, and Corporate

Power...................................................24

(b) Capitalization............................................24

(d) Noncontravention..........................................25

(e) Required Filings and Consents.............................26

(f) Title to Assets...........................................26

(g) Subsidiaries..............................................26

(h) Financial Statements......................................27

(i) SEC Filings...............................................27

(j) Events Subsequent to Most Recent Fiscal Year End..........27

(k) Undisclosed Liabilities...................................30

(l) Legal Compliance..........................................30

(m) Tax Matters...............................................30

(n) Real Property.............................................32

(o) Intellectual Property.....................................33

(p) Tangible Assets...........................................34

(q) Contracts.................................................34

(r) Insurance.................................................36

(s) Litigation................................................36

(t) Licenses, Permits, Grants and Authorizations..............36

(u) Employees.................................................37

(v) Employee Benefits.........................................39

(w) Environment, Health, and Safety...........................41

(x) Certain Business Relationships with the Company

and its Subsidiaries....................................44

(y) Brokers...................................................44

(z) No Other Representations..................................44

8. Covenants..........................................................44

(a) General...................................................44

(b) Notices and Consents......................................46

(d) Preservation of Business..................................49

(e) Access....................................................49

(f) Notice of Developments....................................50

(g) Confidentiality...........................................50

(h) Section 16 Approval.......................................50

(i) Exclusivity...............................................51

(j) Restrictive Covenants.....................................52

(k) Indemnification of Directors and Officers;

Insurance...............................................53

(l) Certain Labor Matters.....................................54

(m) Severance Benefits........................................55

(n) Employee Benefits.........................................56

-ii-

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9. Conditions to Obligation to Close..................................57

(a) Conditions to Obligation of Parent and

Merger Sub..............................................57

(b) Conditions to Obligation of the Company and

the Sellers.............................................58

10. Remedies for Breaches of this Agreement............................59

(a) Bring down and Survival of Representations

and Warranties...........................................59

(b) Indemnification Provisions................................60

(d) Determination of Adverse Consequences.....................63

(e) Other Indemnification Provisions..........................65

(f) Escrow Fund Procedures....................................65

(g) Stockholders' Representative..............................67

11. Termination........................................................73

(a) Termination of Agreement..................................73

(b) Certain Fees..............................................74

12. Miscellaneous......................................................75

(a) Press Releases and Public Announcements...................75

(b) No Third-Party Beneficiaries..............................75

(d) Succession and Assignment.................................75

(e) Counterparts..............................................75

(f) Headings..................................................76

(g) Notices...................................................76

(h) Governing Law.............................................78

(i) Amendments and Waivers....................................79

(j) Severability..............................................79

(k) Expenses..................................................79

(l) Transfer Taxes............................................80

(m) Construction..............................................80

(n) Incorporation of Exhibits and Schedules...................80

(o) Specific Performance......................................80

(p) Jurisdiction; Attorneys' Fees; Waiver of Jury Trial.......81

(q) Computation of Time.......................................82

(r) Parent Guarantee of Merger Sub Obligations................82

Exhibit A - Form of Escrow Agreement

Exhibit B - FY05 Plan

Company Disclosure Schedule

Seller Disclosure Schedule

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AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER, dated as of November 5, 2004 (this

"Agreement"), by and among KU Education LLC, a Delaware limited liability

company ("Parent"), KUE Merger Sub Inc., a Delaware corporation and a wholly

owned subsidiary of Parent ("Merger Sub"), KinderCare Learning Centers, Inc.,

a Delaware corporation (the "Company"), KLC Associates, L.P., a Delaware

limited partnership ("KLC"), KKR Partners II, L.P., a Delaware limited

partnership ("KKR Partners" and, together with KLC, "KKR"), TCW Special

Credits Fund V - The Principal Fund, a California limited partnership ("TCW"),

and David J. Johnson, an individual ("Individual"). KKR, TCW and Individual

are referred to herein collectively as the "Sellers." The Parent, the Merger

Sub, the Company and the Sellers are sometimes referred to herein collectively

as the "Parties" or individually as a "Party."

WHEREAS, KKR owns an aggregate 15,657,894 shares (the "KKR Shares")

of common stock, par value $.01 per share of the Company (the "Company Common

Stock"), representing approximately 79.4% of the outstanding shares of Company

Common Stock;

WHEREAS, TCW owns 1,898,488 shares (the "TCW Shares") of Company

Common Stock, representing approximately 9.6% of the outstanding shares of

Company Common Stock;

WHEREAS, Individual owns 315,790 shares (the "Individual Shares"

and, together with the TCW Shares and the KKR Shares, the "Purchased Shares")

of Company Common Stock, representing approximately 1.6% of the outstanding

shares of Company Common Stock;

WHEREAS, Merger Sub desires to purchase from the Sellers, and the

Sellers desire to sell to Merger Sub, all of the Purchased Shares upon the

terms and subject to the conditions set forth in this Agreement;

WHEREAS, the respective Boards of Directors of Parent, Merger Sub

and the Company have approved and declared advisable the merger of Merger Sub

with and into the Company (the "Merger") upon the terms and subject to the

conditions of this Agreement and in accordance with Section 253 of the General

Corporation Law of the State of Delaware (the "DGCL");

WHEREAS, the respective Boards of Directors of Parent and the

Company have determined that the Merger is in furtherance of and consistent

with their respective business strategies and is in the best interest of their

respective stockholders, and Parent has approved this Agreement and the Merger

as the sole stockholder of Merger Sub; and

NOW, THEREFORE, in consideration of the foregoing and the respective

representations, warranties, covenants and agreements set forth in this

Agreement and intending to be legally bound hereby, the parties hereto agree

as follows:

1. Definitions.

"Actions" has the meaning set forth in ss.8(k)(i) below.

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"Adverse Consequences" means any and all losses, costs, settlement

payments, awards, judgments, fines, penalties, damages and expenses (including

reasonable attorneys' fees); provided, however, that Adverse Consequences: (i)

shall not include any direct claims by Parent Indemnified Parties for punitive

damages (for the sake of clarity, Parent Indemnified Parties may recover

punitive damages actually payable by a Parent Indemnified Party under a Third

Party Claim); (ii) may include consequential, incidental or special damages

(collectively, "Special Damages") (A) so long as (x) the Special Damages were

reasonably foreseeable and proximately caused by the events and circumstances

giving rise to the Adverse Consequences and (y) the Parent Indemnified Parties

used their reasonable best efforts to mitigate any such damages, but (B) shall

exclude Special Damages to the extent they (x) are based on any loss in value

of the Company and its Subsidiaries (including through the use of a multiple

of any financial measure) or any increase in financing costs of the Company or

(y) represent lost profits for a period of any longer than one year; and (iii)

exclude Taxes payable by an Indemnified Party as a result of any

indemnification payment under this Agreement being treated by the relevant Tax

authority as income.

"Affiliate" has the meaning set forth in Rule 12b-2 of the

regulations promulgated under the Securities Exchange Act.

"Affiliated Group" means any affiliated group within the meaning of

Code ss.1504(a) or any similar group defined under a similar provision of

state, local or foreign law.

"Aggregate Amount" has the meaning set forth in ss.3(a)(i)(A) below.

"Aggregate Exercise Price" has the meaning set forth in ss.3(a)(i)(A)

below.

"Aggregate Exercise Proceeds" has the meaning set forth in

ss.3(a)(i)(A) below.

"Agreement" has the meaning set forth in the preface above.

"Applicable Rate" means 6% per annum.

"Business Day" means any day that is not a Saturday, Sunday or other

day on which banks are required or authorized by law to be closed in Los

Angeles, California.

"Certificate of Merger" has the meaning set forth in ss.2(c) below.

"Certificates" has the meaning set forth in ss.3(b)(ii) below.

"Child Care Laws" means any federal, state or local statute, law,

ordinance, executive order, regulation, rule, code, order, other requirement

or rule of law applicable to the child care industry.

"CMBS Loan" means the Loan Agreement, dated as of July 1, 2003,

between KC Propco, LLC and Morgan Stanley Mortgage Capital Inc., as may be

amended, modified or supplemented from time to time, together with the other

agreements and instruments entered into in connection therewith.

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"Closing Date" has the meaning set forth in ss.4(a)(i) below.

"Closings" has the meaning set forth in ss.4(b)(i) below.

"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of

1985, as amended.

"Code" means the Internal Revenue Code of 1986, as amended.

"Company" has the meaning set forth in the preface above.

"Company Common Stock" has the meaning set forth in the preface

above.

"Company Disclosure Schedule" means the disclosure schedule delivered

by the Company to Parent.

"Company Preferred Stock" has the meaning set forth in ss.7(b) below.

"Company Options" has the meaning set forth in ss.3(e)(i) below.

"Company SEC Filings" has the meaning set forth in ss.7(i) below.

"Company Stock Option Plans" has the meaning set forth in ss.3(e)(i)

below.

"Confidential Information" means any information concerning the

businesses and affairs of the Company and its Subsidiaries that is not already

generally available to the public.

"Confidentiality Agreement" has the meaning set forth in ss.8(g)

below.

"Deductible Amount" has the meaning set forth in ss.10(b)(i)(B)

below.

"De Minimis Claim Size" has the meaning set forth in ss.10(b)(i)(B)

below.

"DGCL" has the meaning set forth in the preface above.

"Dissenting Shares" has the meaning set forth in ss.3(c) below.

"Dissenting Stockholders" has the meaning set forth in ss.3(a)(i)(A)

below.

"Distribution Date" has the meaning set forth in ss.10(f)(i) below.

"Effective Time" has the meaning set forth in ss.2(c) below.

"Employee Benefit Plan" means any "employee benefit plan" as defined

in ERISA ss.3(3), including, without limitation, any (a) nonqualified deferred

compensation or retirement plan or arrangement which is an Employee Pension

Benefit Plan, (b) qualified defined contribution retirement plan or

arrangement which is an Employee Pension Benefit Plan, (c) qualified defined

benefit retirement plan or arrangement which is an Employee Pension Benefit

Plan (including any Multiemployer Plan), (d) Employee Welfare Benefit Plan or

material fringe benefit plan or program, or (e) stock purchase, stock option,

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severance pay, employment, change-in-control, fringe benefit, collective

bargaining, vacation pay, company awards, salary continuation, sick leave,

excess benefit, supplemental retirement, deferred compensation, bonus or other

incentive compensation, stock purchase, life insurance, or other employee

benefit plan, contract, program, policy or other arrangement, whether or not

subject to ERISA, whether formal or informal, oral or written, under which any

present or former employee of the Company or any of its Subsidiaries has any

present or future right to benefits sponsored, contributed to or maintained by

the Company or any of its Subsidiaries.

"Employee Pension Benefit Plan" has the meaning set forth in ERISA

ss.3(2).

"Employee Welfare Benefit Plan" has the meaning set forth in ERISA

ss.3(1).

"Environmental Claim" has the meaning set forth in ss.7(w)(i)(A)

below.

"Environmental Laws" has the meaning set forth in ss.7(w)(i)(B)

below.

"Environmental Permits" has the meaning set forth in ss.7(w)(ii)

below.

"Equity Interest" means any share, capital stock, partnership, member

or similar interest in any entity, and any option, warrant, right or security

(including debt securities) convertible, exchangeable or exercisable therefor.

"ERISA" means the Employee Retirement Income Security Act of 1974, as

amended.

"ERISA Affiliate" means any entity which is a member of a "controlled

group of corporations" with, under "common control" with or a member of an

"affiliated services group" with, the Company or any of its Subsidiaries, as

defined in Section 414(b), (c), (m) or (o) of the Code.

"Escrow Agent" has the meaning set forth in ss.4(c) below.

"Escrow Agreement" has the meaning set forth in ss.4(c) below.

"Escrow Amount" has the meaning set forth in ss.3(a)(i)(B) below.

"Escrow Claim Notice" has the meaning set forth in ss.10(f)(ii)

below.

"Escrow Fund" has the meaning set forth in ss.4(c) below.

"Escrow Per Share Amount" has the meaning set forth in ss.3(a)(i)(B)

below.

"Excess Expenses" has the meaning set forth in ss.12(k) below.

"Excluded Expenses" has the meaning set forth in ss.12(k) below.

"Expense Fund Per Share Amount" has the meaning set forth in

ss.3(a)(i)(B) below.

"Financial Statements" has the meaning set forth in ss.7(h) below.

<PAGE>

"FIRPTA Certificate" means a certificate stating, under penalties of

perjury, that such holder is not a "foreign person" within the meaning of

Section 1445(b)(2) of the Code and complying with the requirements of Treasury

Regulation Section 1.1445-2.

"FY05 Plan" means the capital expenditures and operating plan

approved by the Board of Directors of the Company, as amended prior to the

date hereof, and attached as Exhibit B.

"GAAP" means United States generally accepted accounting principles

as in effect from time to time.

"Governmental Authority" means any federal, state, municipal or local

government, governmental authority, regulatory or administrative agency,

governmental commission, department, board, bureau, court, tribunal,

arbitrator or arbitral body.

"Governmental Permits" has the meaning specified in ss.7(t)(i).

"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust

Improvements Act of 1976, as amended.

"Hazardous Materials" has the meaning set forth in ss.7(w)(i)(C)

below.

"Headquarters Plan" has the meaning set forth in ss.8(m) below.

"In the Money" has the meaning set forth in ss.3(a)(i)(A) below.

"Income Tax" means any Tax based upon, measured by, or calculated

with respect to income or profits (including any capital gains Tax, minimum

Tax and any Tax on items of Tax preference, but not including sales, use, real

or personal property, gross receipts, transfer Taxes or similar Taxes).

"Indemnified D&O Liabilities" has the meaning set forth in ss.8(k)(i)

below.

"Indemnified Party" or "Indemnified Parties" has the meaning set

forth in ss.10(b)(ii) below.

"Indemnifying Party" or "Indemnifying Parties" has the meaning set

forth in ss.10(b)(ii)(B) below.

"Individual" has the meaning set forth in the preface above.

"Individual Shares" has the meaning set forth in the preface above.

"Intellectual Property" means (a) all inventions (whether patentable

or unpatentable and whether or not reduced to practice), all improvements

thereto, and all patents, patent applications, and patent disclosures,

together with all reissuances, continuations, continuations-in-part,

revisions, extensions, and reexaminations thereof, (b) all trademarks, service

marks, trade dress, logos, trade names, and corporate names, together with all

translations, adaptations, derivations, and combinations thereof and including

all goodwill associated therewith, and all applications, registrations, and

<PAGE>

renewals in connection therewith, (c) all copyrightable works (including

curricula to the extent copyrightable), all copyrights, and all applications,

registrations, and renewals in connection therewith, (d) all mask works and

all applications, registrations, and renewals in connection therewith, (e) all

trade secrets and confidential business information (including research and

development, know-how, formulas, compositions, manufacturing and production

processes and techniques, technical data, designs, drawings, specifications,

customer and supplier lists, pricing and cost information, and business and

marketing plans and proposals), (f) all computer software (including related

documentation) and (g) all other proprietary rights.

"KKR" has the meaning set forth in the preface above.

"KKR Partners" has the meaning set forth in the preface above.

"KKR Shares" has the meaning set forth in the preface above.

"KLC" has the meaning set forth in the preface above.

"Knowledge of the Company" means the actual knowledge of any of the

persons set forth in ss.1(a) of the Company Disclosure Schedule.

"Knowledge of Parent" means the actual knowledge of any of the

persons set forth in ss.1(a) of the Parent Disclosure Schedule.

"Letter Agreement" means the letter agreement dated the date hereof

executed by Parent, Merger Sub and the Company.

"Liability" means any liability (whether known or unknown, whether

asserted or unasserted, whether absolute or contingent, whether accrued or

unaccrued, whether liquidated or unliquidated, and whether due or to become

due), including any liability for Taxes.

"Leased Real Property" has the meaning set forth in ss.7(n)(ii)

below.

"Material Adverse Effect" means any change, event, development,

condition or effect that (i) prevents the consummation of the Merger or the

transactions contemplated hereby or (ii) is materially adverse to the

business, assets, liabilities, properties, condition (financial or otherwise)

or results of operations of the Company and its Subsidiaries, taken as a

whole; provided, however, that "Material Adverse Effect" shall not include any

change, event, development, condition or effect arising out of or attributable

to (a) general economic conditions or events, circumstances, changes or

effects affecting the securities or financial markets generally which do not

disproportionately adversely affect the Company relative to other participants

in the child care and child education industries, (b) changes arising from the

consummation of the transactions and other events contemplated by this

Agreement or the announcement or performance of this Agreement and (c) events,

circumstances, changes or effects generally affecting the child care and child

education industries in which the Company participates, which events,

circumstances, changes or effects do not disproportionately adversely affect

the Company relative to other participants in the child care and child

<PAGE>

education industries, (d) changes in laws or GAAP, or in the authoritative

interpretations thereof, and (e) acts of war, hostilities, sabotage or

terrorism or any escalation thereof.

"Merger" has the meaning set forth in the preface above.

"Merger Closing" has the meaning set forth in ss.4(b)(i) below.

"Merger Consideration" has the meaning set forth in ss.3(a)(i)(A)

below.

"Merger Sub" has the meaning set forth in the preface above.

"Most Recent Balance Sheet" means the balance sheet contained within

the Most Recent Financial Statements.

"Most Recent Financial Statements" has the meaning set forth in

ss.7(h) below.

"Most Recent Fiscal Period End" has the meaning set forth in ss.7(h)

below.

"Most Recent Fiscal Year End" has the meaning set forth in ss.7(h)

below.

"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).

"Notice of Indemnification" has the meaning set forth in ss.10(c)(i)

below.

"Notice Period" has the meaning set forth in ss.10(c)(ii) below.

"Option Escrow Amount" has the meaning set forth in ss.3(e)(ii).

"Option Expense Fund Amount" has the meaning set forth in

ss.3(e)(ii).

"Option Payment" has the meaning set forth in ss.3(e)(i) below.

"Ordinary Course of Business" means the ordinary course of business

consistent with past practice.

"Owned Real Property" has the meaning set forth in ss.7(n)(i) below.

"Parent" has the meaning set forth in the preface above.

"Parent Indemnified Party" or "Parent Indemnified Parties" has the

meaning set forth in ss.10(b)(i)(B) below.

"Parent Indemnifying Party" or "Parent Indemnifying Parties" has the

meaning set forth in ss.10(b)(ii)(B) below.

"Parent Indemnity Claim" has the meaning set forth in ss.10(g)(i)

below.

"Parties" has the meaning set forth in the preface above.

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"Party" has the meaning set forth in the preface above.

"Paying Agent" has the meaning set forth in ss.3(b)(i) below.

"Payment Fund" has the meaning set forth in ss.3(b)(i) below.

"PBGC" means the Pension Benefit Guaranty Corporation.

"Per Share Purchase Price" has the meaning set forth in ss.3(a)(i)(A)

below.

"Permitted Investments" has the meaning set forth in ss.4(c) below.

"Person" means an individual, a partnership, a limited liability

company, a corporation, an association, a joint stock company, a trust, a

joint venture, an unincorporated organization, or a governmental entity (or

any department, agency, or political subdivision thereof).

"Purchase Proposal" means any inquiry, proposal or offer from any

Person (other than Parent or its Affiliates) relating to, or that would

reasonably be expected to lead to, any (a) merger, consolidation, business

combination (including by way of share exchange or any similar transaction) or

similar transaction involving the Company or any of its Subsidiaries, (b)

direct or indirect sale, or other disposition, in one transaction or a series

of transactions, by merger, consolidation, business combination, share

exchange or similar transaction, of assets representing more than 50% of the

consolidated assets of the Company and its Subsidiaries, (c) issuance, sale or

other disposition of (including by way of merger, consolidation, business

combination, share exchange, joint venture or any similar transaction)

securities (or options, rights or warrants to purchase, or securities

convertible into or exchangeable for, such securities) representing more than

50% of the voting power of the Company or (d) transaction, including any

tender offer or exchange offer, that if consummated would result in any Person

or group beneficially owning more than 50% of the voting power of the Company

or in which any Person or group shall acquire the right to acquire beneficial

ownership of more than 50% of the outstanding voting power of the Company.

"Purchase Proposal Consideration" means (A) in the case of any

Purchase Proposal whereby the Person proposing such Purchase Proposal pays in

cash, the aggregate cash purchase price, on a per share basis, for such

Purchase Proposal, (B) in the case of a Purchase Proposal whereby the Person

proposing such Purchase Proposal pays in such Person's stock or other

consideration, the aggregate market value, on a per share basis, of such

consideration as of the date the Purchase Proposal's definitive agreement or

the Purchase Proposal's consummation is publicly announced, whichever is

earlier and (C) in the case of a Purchase Proposal whereby the Person

proposing such Purchase Proposal pays in such Person's stock or other

consideration and cash, a combination of the foregoing (A) and (B).

"Purchased Shares" has the meaning set forth in the preface above.

"Real Property" has the meaning set forth in ss.7(n)(ii) below.

"Release" has the meaning set forth in ss.7(w)(i)(D) below.

<PAGE>

"Reportable Event" has the meaning set forth in ERISA ss.4043.

"Representative Expense Amount" has the meaning set forth in

ss.3(a)(i)(B) below.

"Representative Expense Fund" has the meaning set forth in ss.4(c)

below.

"Repurchase Payments" has the meaning set forth in ss.3(a)(i)(A)

below.

"Section 16" has the meaning set forth in ss.8(h) below.

"Securities Act" means the Securities Act of 1933, as amended, and

the rules and regulations promulgated thereunder.

"Securities Exchange Act" means the Securities Exchange Act of 1934,

as amended, and the rules and regulations promulgated thereunder.

"Security Interest" means any mortgage, pledge, lien, encumbrance,

charge, or other security interest, other than (a) mechanic's, materialmen's,

workmen's, repairmen's, warehousemen's, landlord's, carrier's and similar

liens, including all statutory Security Interests arising in the Ordinary

Course of Business for amounts not yet due and payable, and Security Interests

imposed by law in the absence of any wrongful conduct by the owner of the

property subject to such Security Interest, (b) Security Interests for Taxes

and installments of special assessments arising in the Ordinary Course of

Business for amounts not yet due and payable or delinquent or the validity of

which are being contested in good faith subject to appropriate reserves for

contested Taxes or assessments in accordance with GAAP, (c) Security Interests

to secure capital lease obligations in place as of the date hereof or incurred

hereafter to the extent the incurrence of such obligations does not violate

this Agreement, (d) Security Interests incurred pursuant to equipment leases

in the Ordinary Course of Business, (e) Security Interests incurred pursuant

to actions of Parent, Merger Sub or their respective Affiliates, (f) Security

Interests which do not materially interfere with the use or value of an asset,

or (g) Security Interests set forth on ss.1(b) of the Company Disclosure

Schedule.

"Seller Disclosure Schedule" means the disclosure schedule delivered

by the Sellers to Parent.

"Sellers" has the meaning set forth in the preface above.

"Severance Agreements" has the meaning set forth in ss.8(m) below.

"Severance Policy" has the meaning set forth in ss.8(m) below.

"Sharing Percentage" has the meaning set forth in ss.10(f)(i) below.

"Stock Purchase" has the meaning set forth in ss.2(a)(i) below.

"Stock Purchase Closing" has the meaning set forth in ss.4(a)(i)

below.

"Stock Sale Purchase Price" has the meaning set forth in ss.2(a)(i)

below.

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"Stockholder" means each holder of Company Common Stock and each

holder of any Company Option.

"Stockholder Indemnified Party" or "Stockholder Indemnified Parties"

has the meaning set forth in ss.10(b)(ii)(B) below.

"Stockholder Indemnifying Party" or "Stockholder Indemnifying

Parties" has the meaning set forth in ss.10(b)(i)(B) below.

"Stockholders' Representative" has the meaning set forth in

ss.10(g)(i) below.

"Subsidiary" means any corporation, partnership or limited liability

company with respect to which a specified Person (or a Subsidiary thereof)

owns a majority of the common stock or other ownership interests or has the

power to vote or direct the voting of sufficient securities to elect a

majority of the directors or managers.

"Superior Proposal" means a bona fide written Purchase Proposal which

(a) was unsolicited and did not result from a breach of ss.8(i)(i) of this

Agreement, (b) would result in the Person proposing such Purchase Proposal or

its stockholders owning ninety percent (90%) or more of the voting power of

the entity surviving or resulting from such transaction or owning all or

substantially all of the assets of Company, and (c) would be on terms which

the Board of Directors of the Company in good faith concludes (following

consultation with the Company's financial advisor and outside counsel), taking

into account, among other things, all legal, financial, regulatory and other

aspects of the Purchase Proposal and the ability of such Person making such

Purchase Proposal to consummate the transactions contemplated by such Purchase

Proposal, would reasonably be expected to result in a transaction that is more

favorable to the Company's stockholders than the transactions contemplated by

this Agreement (including any binding revisions hereto proposed in writing by

Parent in response to such proposal or otherwise).

"Surviving Corporation" has the meaning set forth in ss.2(b) below.

"Tax" means any federal, state, local, or foreign income, gross

receipts, license, payroll, employment, excise, severance, stamp, occupation,

premium, windfall profits, environmental (including taxes under Code ss.59A),

customs duties, capital stock, franchise, profits, withholding, social

security (or similar), unemployment, disability, real property, personal

property, sales, use, transfer, registration, value added, alternative or

add-on minimum, estimated, business, occupancy or other tax of any kind

whatsoever, including any interest, penalty, or addition thereto, whether

disputed or not.

"Tax Authority" shall mean any domestic, foreign, federal, national,

state, provincial, county or municipal or other local government, and

subdivision, agency, commission or authority thereof, or any

quasi-governmental body exercising any taxing authority or any other authority

exercising Tax regulatory authority.

"Tax Return" means any return, declaration, report, claim for refund,

or information return or statement relating to Taxes, including any schedule

or attachment thereto, and including any amendment thereof.

<PAGE>

"TCW" has the meaning set forth in the preface above.

"TCW Shares" has the meaning set forth in the preface above.

"Third Party Claim" has the meaning set forth in ss.10(c)(i) below.

"Total Option Escrow Amount" has the meaning set forth in ss.3(e)(ii)

below.

"Total Option Expense Fund Amount" has the meaning set forth in

ss.3(e)(ii) below.

"Transaction Claims" has the meaning set forth in ss.12(p)(i) below.

"Transfer Consent" means the consents and approvals necessary under

the terms of the CMBS Loan in connection with the transactions contemplated by

this Agreement.

"Transfer Taxes" has the meaning set forth in ss.12(l) below.

"WARN Act" has the meaning set forth in ss.7(u)(xv) below.

2. Stock Purchase; Merger.

(a) Stock Purchase.

(i) Upon the terms and subject to the conditions

including (including those set forth in ss.9) of this

Agreement, each Seller shall sell to Merger Sub, and

Merger Sub shall purchase from each Seller, the number of

Purchased Shares owned by each such Seller for a per share

price equal to the Per Share Purchase Price (as defined in

ss.3(a)), payable in cash (the "Stock Sale Purchase Price"

and the transactions contemplated by this ss.2(a), the

"Stock Purchase").

(ii) Notwithstanding the foregoing, on the Closing Date,

and subject to and in accordance with the provisions of

ss.8, Merger Sub shall pay to the Escrow Agent (as defined

in ss.4(c)), for deposit into the Escrow Fund and the

Representative Expense Fund, respectively, on behalf of

each Seller, a portion of the Stock Sale Purchase Price

otherwise payable to the Sellers under this ss.2 equal to

the Escrow Per Share Amount and the Expense Fund Per Share

Amount, respectively, for each Share so sold, which in

each case shall be held by the Escrow Agent as nominee for

the Sellers pursuant to ss.4(c).

(b) The Merger. Upon the terms and subject to satisfaction or

waiver of the conditions set forth in this Agreement, immediately following

the Stock Purchase Closing (as defined below) and in accordance with Section

253 of the DGCL, Merger Sub shall be merged with and into the Company. As a

result of the Merger, the separate corporate existence of Merger Sub shall

cease and the Company shall continue as the surviving corporation of the

Merger (the "Surviving Corporation").

Closing, the parties hereto shall cause the Merger to be consummated by filing

a certificate of merger (the "Certificate of

<PAGE>

Merger") with the Secretary of State of the State of Delaware, in such form as

required by, and executed in accordance with the relevant provisions of, the

DGCL (the date and time of such filing, or if another date and time is

specified in such filing, such specified date and time, being the "Effective

Time").

(d) Effect of the Merger. At the Effective Time, the effect of

the Merger shall be as provided in the applicable provisions of the DGCL.

Without limiting the generality of the foregoing, at the Effective Time,

except as otherwise provided herein, all the property, rights, privileges,

powers and franchises of the Company and Merger Sub shall vest in the

Surviving Corporation, and all debts, liabilities and duties of the Company

and Merger Sub shall become the debts, liabilities and duties of the Surviving

Corporation.

(e) Certificate of Incorporation; Bylaws. At the Effective

Time, the Certificate of Incorporation and the bylaws of the Surviving

Corporation shall be amended in their entirety to contain the provisions set

forth in the Certificate of Incorporation and the bylaws of Merger Sub, each

as in effect immediately prior to the Effective Time.

(f) Directors and Officers. The directors of Merger Sub

immediately prior to the Effective Time shall be the initial directors of the

Surviving Corporation, each to hold office in accordance with the Certificate

of Incorporation and bylaws of the Surviving Corporation. The officers of the

Company immediately prior to the Effective Time shall be the initial officers

of the Surviving Corporation, each to hold office in accordance with the

bylaws of the Surviving Corporation or resolution of the board of directors of

the Surviving Corporation.

3. Conversion of Securities; Merger Consideration.

(a) Conversion of Securities. At the Effective Time, by virtue

of the Merger and without any action on the part of Merger Sub, the Company or

the holders of any of the following securities:

(i) Conversion Generally.

(A) Each share of Company Common Stock issued and

outstanding immediately prior to the Effective Time (other

than any shares of Company Common Stock to be canceled

pursuant to ss.4(a)(ii) and any shares of Company Common

Stock which are held by Stockholders exercising appraisal

rights pursuant to Section 262 of the DGCL ("Dissenting

Stockholders")), shall be converted, subject to ss.4(a)(iv),

into the right to receive the Per Share Purchase Price in

cash, payable to the holder thereof, without interest, and

subject to ss.4(c) and ss.12(k) (the "Merger

Consideration"). All such shares of Company Common Stock

shall no longer be outstanding and shall automatically be

canceled and retired and shall cease to exist, and each

certificate previously representing any such shares shall

thereafter represent the right to receive the Merger

Consideration therefor or the right, if any, to receive

payment from the Surviving Corporation of the "fair value"

of such shares of Company Common Stock as determined in

accordance with Section 262 of the DGCL. Certificates

<PAGE>

previously representing shares of Company Common Stock shall

be exchanged for the Merger Consideration upon the surrender

of such certificates in accordance with the provisions of

ss.3(b), without interest. The "Per Share Purchase Price"

shall equal the quotient of (i) the Aggregate Amount divided

by(ii) the sum of (A) the number of outstanding shares of

Company Common Stock as of immediately prior to the

Effective Time and (B) the aggregate number of shares of

Company Common Stock issuable pursuant to Company Options

whether vested or unvested that are In the Money and

outstanding immediately prior to cancellation in accordance

with ss.3(e). The "Aggregate Amount" shall equal

$550,300,000 (A) plus the Aggregate Exercise Price, (B) plus

the Aggregate Exercise Proceeds, (C) minus the Excess

Expenses (as defined in ss.12(k)) and (D) minus the

aggregate amount paid by the Company or any Subsidiary of

the Company to redeem or repurchase any Company Common Stock

or Company Options, (excluding, for the avoidance of doubt,

the transactions contemplated by ss.3(e)) between the date

hereof and the Effective Time ("Repurchase Payments"). A

Company Option is "In the Money" for purposes hereof if the

exercise price per share of Company Common Stock issuable

upon exercise of such Company Option is less than the Per

Share Purchase Price. The "Aggregate Exercise Price" means

the aggregate exercise price of all Company Options that are

In the Money and outstanding immediately prior to

cancellation in accordance with ss.3(e). The "Aggregate

Exercise Proceeds" means the aggregate cash proceeds

received by the Company from the exercise of Company Options

during the period beginning on the date of this Agreement

and ending on the Effective Time, excluding any cash

proceeds from the exercise of Company Options by the persons

listed on ss.3 of the Company Disclosure Schedule.

(B) Notwithstanding the foregoing, at the Effective

Time, and subject to and in accordance with the provisions

of ss.ss.4 and 10, Parent shall pay to the Escrow Agent (as

defined in ss.4(c)), for deposit into the Escrow Fund and

the Representative Expense Fund, respectively, on behalf of

each holder of shares of Company Common Stock, a portion of

the Merger Consideration otherwise payable in respect of

such Company Common Stock equal to the Escrow Per Share

Amount and the Expense Fund Per Share Amount (as defined

below), respectively, for each share of Company Common

Stock, which in each case shall be held by the Escrow Agent

as nominee for the holders of shares of Company Common Stock

converted pursuant to ss.3(a). The "Escrow Per Share Amount"

shall be equal to the quotient of (x) the Escrow Amount (as

defined below) less the Total Option Escrow Amount (as

defined in ss.3(e)) divided by (y) the aggregate number of

shares of Company Common Stock outstanding as of the Closing

Date. The "Expense Fund Per Share Amount" shall be equal to

the quotient of (x), the Representative Expense Amount less

the Total Option Expense Fund Amount, divided by (y) the

aggregate number of shares of Company Common Stock

outstanding as of the Closing Date. The "Escrow Amount"

<PAGE>

shall be $25,000,000. The "Representative Expense Amount"

shall be $500,000 for out-of-pocket expenses incurred by the

Stockholders' Representative in such capacity, and shall be

increased from time to time by the amount of any interest,

dividends, earnings and other income on such amount.

(ii) Cancellation of Certain Shares. Each share of

Company Common Stock held by Parent, Merger Sub, any wholly

owned subsidiary of Parent or Merger Sub, in the treasury of

the Company or by any wholly owned subsidiary of the Company

immediately prior to the Effective Time shall be canceled and

extinguished without any conversion thereof and no payment

shall be made with respect thereto.

(iii) Merger Sub. Each share of common stock, par

value $0.01 per share, of Merger Sub issued and outstanding

immediately prior to the Effective Time shall be converted

into and be exchanged for one newly and validly issued, fully

paid and nonassessable share of common stock of the Surviving

Corporation.

(iv) Change in Shares. If, between the date of this

Agreement and the Effective Time, the outstanding shares of

Company Common Stock shall have been changed into a different

number of shares or a different class, by reason of any stock

dividend, subdivision, reclassification, recapitalization,

split, combination or exchange of shares, the Merger

Consideration shall be correspondingly adjusted, if

appropriate, to reflect such stock dividend, subdivision,

reclassification, recapitalization, split, combination or

exchange of shares.

(b) Exchange of Certificates.

(i) Paying Agent. Prior to the Effective Time, Parent

shall deposit, or shall cause to be deposited, with a paying

agent reasonably satisfactory to the Company and Parent (the

"Paying Agent"), for the benefit of the holders of shares of

Company Common Stock, for exchange in accordance with ss.2 and

this ss.3, through the Paying Agent, cash in U.S. dollars in

an amount sufficient to pay the aggregate Stock Sale Purchase

Price as provided herein payable pursuant to ss.2(a) and the

aggregate Merger Consideration as provided herein payable

pursuant to ss.3(a) in exchange for outstanding shares of

Company Common Stock less, in each case, the amount to be

deposited with the Escrow Agent into the Escrow Account and

Representative Expense Fund (such cash being hereinafter

referred to as the "Payment Fund"). The Paying Agent shall,

pursuant to irrevocable instructions from Parent

given at the Effective Time, deliver the aggregate Stock Sale

Purchase Price contemplated to be paid pursuant to ss.2(a) and

the aggregate Merger Consideration contemplated to be paid

pursuant to ss.3(a) out of the Payment Fund. The Payment Fund

shall not be used for any other purpose. Any interest earned

on the Payment Fund shall be for the account of and paid to

the Parent.

<PAGE>

(ii) Exchange Procedures. (A) At the Effective Time,

Parent shall instruct the Paying Agent to mail to each holder

of record of a certificate or certificates which immediately

prior to the Effective Time represented outstanding shares of

Company Common Stock (the "Certificates") (x) a letter of

transmittal (which shall specify that delivery shall be

effected, and risk of loss and title to the Certificates shall

pass, only upon proper delivery of the Certificates to the

Paying Agent and shall be in customary form) and (y)

instructions for use in effecting the surrender of the

Certificates in exchange for the Merger Consideration,

including instructions for providing a FIRPTA Certificate;

provided that the Company and Parent will, and will cause the

Paying Agent to, make such letter of transmittal and

instructions available at the Effective Time at the premises

of the Company or such other location as the Company shall

determine and facilitate the payment of Merger Consideration

at the Effective Time to any holder of a Certificate or

Certificates who is prepared as of that date to surrender its

Certificates and deliver such documents. Upon surrender of a

Certificate for cancellation to the Paying Agent together with

such letter of transmittal, properly completed and duly

executed, and such other documents as may be required pursuant

to such instructions, the holder of such Certificate shall be

entitled to receive in exchange therefor the Merger

Consideration which such holder has the right to receive in

respect of the shares of Company Common Stock formerly

represented by such Certificate (less the amount, if any, of

the applicable Merger Consideration to be deposited in the

Escrow Fund and Representative Expense Fund pursuant to ss.4),

after giving effect to any required withholdings, and the

Certificate so surrendered shall forthwith be canceled. No

interest will be paid or accrued on any Merger Consideration

payable to holders of Certificates. In the event of a transfer

of ownership of shares of Company Common Stock which is not

registered in the transfer records of the Company, the Merger

Consideration may be issued to a transferee if the Certificate

representing such shares of Company Common Stock is presented

to the Paying Agent, accompanied by all documents required to

evidence and effect such transfer and by evidence that any

applicable stock transfer taxes have been paid. Until

surrendered as contemplated by this ss.3(b), each Certificate

shall be deemed at any time after the Effective Time to

represent only the right to receive upon such surrender the

Merger Consideration.

(B) At the Stock Purchase Closing, Parent shall

instruct the Paying Agent to deliver the Stock Sale Purchase

Price to the Sellers pursuant to ss.4(a) (less the amount,

if any, of the applicable Stock Sale Purchase Price to be

deposited in the Escrow Fund and Representative Expense Fund

pursuant to ss.4). No interest will be paid or accrued on

any Stock Sale Purchase Price.

(iii) Further Rights in Company Common Stock. All

Merger Consideration paid in accordance with the terms hereof

shall be deemed to have been issued in full satisfaction of

all rights pertaining to such shares of Company Common Stock.

At and after the Effective Time, the holder of a Certificate

<PAGE>

(except Merger Sub) or of Dissenting Shares shall cease to

have any rights as a holder of Company Common Stock, except

for, in the case of a holder of a Certificate or a holder of

Dissenting Shares to whom the penultimate sentence of ss.3(c)

applies, the right to surrender Certificates in the manner

prescribed by ss.3(b)(ii) in exchange for payment of the

Merger Consideration, and in the case of a Dissenting

Stockholder, the right to perfect the right to receive payment

for his or her Dissenting Shares pursuant to Section 262 of

the DGCL.

(iv) Termination of Payment Fund. Any portion of the

Payment Fund which remains undistributed to the holders of

Company Common Stock for 18 months after the Effective Time

shall be delivered to Parent upon demand, and any holders of

Company Common Stock who have not theretofore complied with

this ss.3 shall thereafter look only to Parent for the Merger

Consideration, without any interest thereon.

(v) No Liability. Neither Parent nor the Company shall

be liable to any holder of shares of Company Common Stock for

any cash from the Exchange Fund delivered to a public official

pursuant to any abandoned property, escheat or similar law.

(vi) Lost Certificates. If any Certificate shall have

been lost, stolen or destroyed, upon the making of an

affidavit of that fact by the person claiming such Certificate

to be lost, stolen or destroyed and, if required by Parent,

the posting by such person of a bond, in such reasonable

amount as Parent may direct, as indemnity against any claim

that may be made against it with respect to such Certificate,

the Paying Agent will issue in exchange for such lost, stolen

or destroyed Certificate the Merger Consideration without any

interest thereon.

(vii) Withholding. Parent or the Paying Agent shall be

entitled to deduct and withhold from the Merger Consideration

otherwise payable pursuant to ss.3(b) to any holder of

Certificates such amounts as Parent or the Paying Agent are

required to deduct and withhold under the Code, or any

provision of state, local or foreign tax law, with respect to

the making of such payment; provided, however, that no amount

shall be deducted or withheld under Section 1445 of the Code

withrespect to a holder who has provided a FIRPTA Certificate.

To the extent that amounts are so withheld by Parent or the

Paying Agent, such withheld amounts shall be treated for all

purposes of this Agreement as having been paid to the holder

of Company Common Stock in respect of whom such deduction and

withholding was made by Parent or the Paying Agent.

c) Dissenters' Rights. Notwithstanding anything in this

Agreement to the contrary, if any Dissenting Stockholder shall demand to be

paid the "fair value" of such holder's shares of Company Common Stock, as

provided in Section 262 of the DGCL, such shares (the "Dissenting Shares")

shall not be converted into or exchangeable for the right to receive the

Merger Consideration except as provided in this ss.3(c), and the Company shall

give Parent notice thereof and Parent shall have the right to participate in

all negotiations and proceedings with respect to any such demands. Neither the

Company nor the Surviving Corporation shall, except with the prior written

consent of Parent, voluntarily make any payment with respect to, or settle or

offer to settle, any such demand for payment. If any Dissenting Stockholder

<PAGE>

shall fail to perfect or shall have effectively withdrawn or lost the right to

dissent, the shares of Company Common Stock held by such Dissenting

Stockholder shall thereupon be treated as though such shares had been

converted into the Merger Consideration pursuant to ss.3(a). Parent shall

contribute or cause to be contributed to the Surviving Corporation funds

sufficient from time to time to make all payments with respect to the

Dissenting Shares.

(d) Stock Transfer Books. At the close of business on the

date of the Effective Time, the stock transfer books of the Company shall be

closed and thereafter, there shall be no further registration of transfers of

shares of Company Common Stock theretofore outstanding on the records of the

Company. From and after the Effective Time, the holders of certificates

representing shares of Company Common Stock outstanding immediately prior to

the Effective Time shall cease to have any rights with respect to such shares

of Company Common Stock except as otherwise provided herein or by law. On or

after the Effective Time, any Certificates presented to the Paying Agent or

Parent for any reason shall be converted into the Merger Consideration.

(e) Stock Options.

(i) Prior to the Effective Time, the Company shall

take all reasonable actions necessary and appropriate to

provide that, immediately prior to the Effective Time, each

unexpired and unexercised option to purchase Company Common

Stock (the "Company Options") under any stock option plan of

the Company, including the 1997 Stock Purchase and Option Plan

for Key Employees of KinderCare Learning Centers, Inc. and

Subsidiaries, the 2002 Stock Purchase and Option Plan for Key

California Employees of KinderCare Learning Centers, Inc. and

Subsidiaries (the "Company Stock Option Plans"), whether or

not then exercisable or vested, shall be cancelled and, in

exchange therefor, each former holder of any such cancelled

Company Option shall be entitled to receive, in consideration

of the cancellation of such Company Option and in settlement

therefor, a payment in cash (subject to any applicable

withholding taxes required by applicable Law to be withheld)

of an amount equal to the product of (A) the total number of

shares of Company Common Stock previously subject to such

Company Option and (B) the excess, if any, of the Per Share

Purchase Price over the exercise price per share of Company

Common Stock previously subject to such Company Option (such

amounts payable hereunder being referred to as the "Option

Payment"). From and after the Effective Time, any such

cancelled Company Option shall no longer be exercisable by the

former holder thereof, but shall only entitle such holder to

the payment of the Option Payment. Subject to the immediately

following paragraph, all Option Payments shall be made by the

Company at the Effective Time.

(ii) Notwithstanding the foregoing, at the Effective

Time, and subject to and in accordance with the provisions of

ss.ss.4 and 10, Parent shall pay to the Escrow Agent, for

deposit into the Escrow Fund and the Representative Expense

Fund, respectively, on behalf of each holder of In the Money

Company Options, a portion of the Option Payment otherwise

payable in respect of such Company Options equal to (x) the

quotient of the Option Escrow Amount in respect of such

<PAGE>

Company Options divided by the total number of shares of

Company Common Stock underlying In the Money Company Options

as of the Closing Date and (y) the quotient of the Option

Expense Fund Amount in respect of such Company Options divided

by the total number of shares of Company Common Stock

underlying In the Money Options as of the Closing Date,

respectively, which in each case shall be held by the Escrow

Agent as nominee for holders of In the Money Company Options

converted pursuant to this Section ss.3(e). In respect of any

Company Options, (i) the "Option Escrow Amount" shall be the

product of (x) the Escrow Amount multiplied by, (y) the

quotient of (a) the Option Payment, divided by (b) the sum of

$550,300,000, plus the Aggregate Exercise Proceeds, less the

aggregate Repurchase Payments and less Excess Expenses (with

the "Total Option Escrow Amount" being the total of all Option

Escrow Amounts) and (ii) the "Option Expense Fund Amount"

shall be the product of (x) the Representative Expense Amount

multiplied by, (y) the quotient of (a) the Option Payment,

divided by (b) the sum of $550,300,000, plus the Aggregate

Exercise Proceeds, less the aggregate Repurchase Payments and

less Excess Expenses (with the "Total Option Expense Fund

Amount" being the total of all Option Expense Fund Amounts).

4. Closings; Escrow Accounts.

(a) Stock Purchase Closing.

(i) Unless the transactions contemplated hereby have

been abandoned and this Agreement terminated pursuant to

ss.11, the closing of the Stock Purchase (the "Stock Purchase

Closing") shall take place at the offices of Latham & Watkins

LLP, 633 West Fifth St., Suite 4000, Los Angeles, CA

90071-2007, at 10:00 a.m., local time, on the second Business

Day after all of the conditions set forth in ss.9 have been

satisfied or waived (except for the conditions that by their

express terms are not capable of being satisfied until the

Stock Purchase Closing) (the "Closing Date"), unless otherwise

provided by mutual agreement of the Sellers, the Company and

Parent.

(ii) At the Stock Purchase Closing, Parent shall

direct and cause the Paying Agent to deliver, subject to

ss.4(b):

(A) to KLC an amount equal to the product of (A)

the Per Share Purchase Price multiplied by (B) the

number of Purchased Shares set forth opposite its name

on Schedule I, by wire transfer of immediately

available funds to one or more accounts designated in

writing by KLC;

(B) to KKR Partners an amount equal to the

product of (A) the Per Share Purchase Price multiplied

by (B) the number of Purchased Shares set forth

opposite its name on Schedule I, by wire transfer of

immediately available funds to one or more accounts

designated in writing by KKR Partners;

<PAGE>

the Per Share Purchase Price multiplied by (B) the

number of Purchased Shares set forth opposite its name

on Schedule I, by wire transfer of immediately

available funds to one or more accounts designated in

writing by TCW; and

(D) to Individual an amount equal to the product

of (A) the Per Share Purchase Price multiplied by (B)

the number of Purchased Shares set forth opposite his

name on Schedule I, by wire transfer of immediately

available funds to one or more accounts designated in

writing by Individual;

(iii) At the Stock Purchase Closing, each Seller shall

deliver to Merger Sub:

(A) a certificate or certificates representing

the Purchased Shares being sold by such Seller, duly

endorsed in blank for transfer or accompanied by stock

powers duly endorsed in blank, together with requisite

transfer tax stamps, if any, attached;

(B) a receipt acknowledging payment of the

Purchase Price by Merger Sub in full satisfaction of

Merger Sub's obligations under this ss.4 with respect

to such Seller's Purchased Shares; and

Seller is not a "foreign person" as defined in Section

1445 of the Code.

(iv) At the Stock Purchase Closing, Parent shall cause

Merger Sub to deliver to the Sellers a receipt acknowledging

receipt of the Purchased Shares by Merger Sub in full

satisfaction of the Sellers' obligations under this ss.4.

(b) Merger Closing.

(i) Immediately following the Stock Purchase Closing,

the closing of the transactions contemplated by ss.ss.2 and 3

(the "Merger Closing" and, together with the Stock Purchase

Closing, the "Closings") shall take place at the offices of

Latham & Watkins LLP, 633 West Fifth St., Suite 4000, Los

Angeles, CA 90071-2007.

(ii) At the Merger Closing, Parent, Merger Sub and the

Company shall deliver such certificates and other documents

required to be delivered pursuant to ss.9 hereof.

Stockholders contained in ss.10, prior to the Closing, Parent and the

Stockholders' Representative (as defined in ss.10(g)(i)) shall enter into an

escrow agreement with an escrow agent (the "Escrow Agent") mutually acceptable

to Parent and the Stockholders' Representative substantially in the form of

Exhibit A hereto (the "Escrow Agreement"). At the Closings, Parent shall

deposit into an escrow fund (the "Escrow Fund") the Escrow Amount and shall

<PAGE>

deposit into an escrow fund for the Stockholders' Representative's benefit

pursuant to ss.10(g) (the "Representative Expense Fund") the Representative

Expense Amount. The Escrow Agent shall invest the Escrow Amount as Parent

directs and the Representative Expense Amount as the Stockholders'

Representative directs; provided, however, that such investments shall be in

(i) obligations of or guaranteed by the United States of America or any agency

thereof with maturity dates of 90 days or less, (ii) commercial paper

obligations receiving the highest rating from either Moody's Investors

Service, Inc. or Standard & Poor's Ratings Group or (iii) certificates of

deposit with maturity dates of 90 days or less issued by commercial banks

incorporated under the laws of the United States of America or any states in

the United States of America or any domestic branch of a foreign commercial

bank, subject to supervision and examination by federal or state banking or

depository institution authorities with combined capital, surplus and

undivided profits exceeding $1,000,000,000 (collectively, "Permitted

Investments") or in money market funds which are invested solely in Permitted

Investments; provided further, however, that the maturities of Permitted

Investments shall be such as to permit the Escrow Agent to make withdrawals

from the Escrow Fund and the Representative Expense Fund on no more than two

(2) Business Days' notice. Any net profit from, or interest or income produced

by, Permitted Investments in the Escrow Fund shall remain in and be a part of

such Escrow Fund. The Escrow Fund shall be administered in accordance with the

terms and provisions of the Escrow Agreement for a term that shall expire upon

the termination of the representations and warranties and the indemnification

provisions relating thereto in accordance with ss.10(a) and the resolution of

any claims for breach of representations, warranties or covenants properly

made before such time.

5. Representations and Warranties of Parent and Merger Sub. Each

of Parent and Merger Sub hereby jointly and severally represents and warrants to

the other Parties as follows:

(a) Organization of Parent and Merger Sub. Each of Parent and

Merger Sub is duly organized, validly existing and in good standing under the

laws of the State of Delaware, and has the requisite power and authority and

all necessary governmental approvals to (i) own, lease and operate its

properties, (ii) carry on its business as it is now being conducted, (iii)

enter into and perform this Agreement and (iv) otherwise consummate the

transactions contemplated to be performed by it under this Agreement.

(b) Authorization of Transaction. Each of Parent and Merger

Sub has all necessary power and authority to execute and deliver this

Agreement, to perform its obligations hereunder and to consummate the

transactions contemplated by this Agreement. The execution and delivery of

this Agreement by each of Parent and Merger Sub, as applicable, and the

consummation by Parent and Merger Sub of the transactions contemplated hereby

have been duly and validly authorized by all necessary action (including

approval by Parent as the sole stockholder of Merger Sub), and no other

corporate proceedings on the part of Parent and Merger Sub and no other

stockholder votes are necessary to authorize this Agreement or to consummate

the transactions contemplated hereby. This Agreement has been duly authorized

and validly executed and delivered by Parent and Merger Sub, as applicable,

and, assuming due authorization, execution and delivery hereof by the other

Parties, constitutes a legal, valid and binding obligation of Parent and

Merger Sub, enforceable against Parent and Merger Sub in accordance with its

terms, subject to the effects of bankruptcy, insolvency, fraudulent

conveyance, reorganization, moratorium and other similar laws relating to or

affecting creditors' rights generally, general equitable principles (whether

<PAGE>

considered in a proceeding in equity or at law) and an implied covenant of

good faith and fair dealing.

compliance with and performance of the terms and provisions of this Agreement,

nor the consummation of the transactions contemplated hereby, will, (i)

conflict with or violate any provision of the certificate of incorporation or

bylaws of either of Parent or Merger Sub, (ii) result in any breach or

violation of or constitute a default pursuant to any contract or other

agreement to which Parent or Merger Sub is a party or by which it or any part

of its assets may be bound, (iii) violate any constitution, statute,

regulation, rule, injunction, judgment, order, decree, ruling, charge, or

other restriction of any government, governmental agency, or court to which

Parent or Merger Sub is subject or (iv) conflict with, result in a breach of,

constitute a default under, result in the acceleration of, create in any party

the right to accelerate, terminate, modify, or cancel, or require any notice

under any agreement, contract, lease, license, instrument, or other

arrangement to which Parent or Merger Sub is a party or by which it is bound

or to which any of its assets is subject, except in the cases of clauses (iii)

or (iv) for any such events which would not, individually or in the aggregate,

reasonably be expected to (A) prevent or materially delay consummation of the

transactions contemplated hereby or (B) otherwise prevent or materially delay

performance by Parent or Merger Sub of any of their material obligations under

this Agreement.

(d) Required Filings and Consents. The execution and delivery

of this Agreement do not, and the performance hereof by Parent and Merger Sub

will not, require any consent, approval, authorization or permit of, or filing

with or notification to, any Governmental Authority or other person with

respect to Parent or Merger Sub, except (A) under the Hart-Scott-Rodino Act,

foreign or supranational antitrust and competition laws, and filing and

recordation of the Certificate of Merger as required by the DGCL and (B) where

failure to obtain such consents, approvals, authorizations or permits, or to

make such filings or notifications, would not, individually or in the

aggregate, reasonably be expected to (1) prevent or materially delay

consummation of the transactions contemplated by this Agreement or (2)

otherwise prevent or materially delay performance by Parent or Merger Sub of

any of their material obligations under this Agreement.

(e) Financing. Parent has, and at the Effective Time, Parent

will have, available all the funds necessary to pay all amounts payable

pursuant to ss.ss.2 and 4 and to pay all fees and expenses and other amounts

payable by Parent and Merger Sub related to the transactions contemplated by

this Agreement.

(f) Brokers. No Person acting on behalf of Parent or Merger

Sub is or will be entitled to any commission, broker's, finder's or investment

banking fees in connection with the transactions contemplated by this

Agreement.

(g) Company Common Stock. Neither Parent nor Merger Sub is,

nor at any time during the last three years has it been, an "interested

shareholder" of the Company as defined in Section 203 of the DGCL. Neither

Parent nor Merger Sub owns (directly or indirectly, beneficially or of record)

and is not a party to any agreement, arrangement or understanding for the

purposes of acquiring, holding, voting or disposing of, in each case, any

shares of capital stock of the Company.

<PAGE>

(h) Litigation. Each of Parent and Merger Sub is not (i)

subject to any outstanding injunction, judgment, order, decree, ruling, or

charge, or (ii) a party or, to the Knowledge of Parent, threatened to be made

a party to any other material action, suit, proceeding, hearing, or

investigation of, in, or before any court or quasi-judicial or administrative

agency of any federal, state, local, or foreign jurisdiction or before any

arbitrator, that (A) individually or in the aggregate would reasonably be

expected to question or challenge the validity of this Agreement or any action

taken or to be taken by Parent or Merger Sub pursuant to this Agreement or in

connection with the transactions contemplated hereby or (B) seeks to prevent

or materially delay the consummation of the transactions contemplated hereby.

(i) Unregistered Equity. Each of Parent and Merger Sub

acknowledges that it has been advised by the Sellers that the Purchased Shares

have not been and will not be registered under the Securities Act. Merger Sub

is an accredited investor as that term is defined in Regulation D under the

Securities Act. The Purchased Shares will be acquired by Merger Sub for its

own account for investment and without a view to resale in violation of the

Securities Act.

(j) Disclaimer Regarding Projections. In connection with

Parent's and Merger Sub's investigation of the Company, Parent and Merger Sub

have received from the Sellers, the Company and their respective Affiliates

and agents certain projections and other forecasts, including but not limited

to projected financial statements, cash flow items and other data of the

Company and its Subsidiaries and certain business plan information of the

Company and its Subsidiaries. Each of Parent and Merger Sub acknowledges that

there are uncertainties inherent in attempting to make such projections and

other forecasts and plans and accordingly is not relying on them, that each of

Parent and Merger Sub is familiar with such uncertainties, that each of Parent

and Merger Sub is taking full responsibility for making its own evaluation of

the adequacy and accuracy of all projections and other forecasts and plans so

furnished to it, and that neither Parent nor Merger Sub shall have any claim

against anyone with respect thereto. Accordingly, each of Parent and Merger

Sub acknowledges that the Sellers have made no representation or warranty with

respect to such projections and other forecasts and plans.

(k) No Other Representations. Notwithstanding anything

contained in this ss.5 or any other provision of this Agreement, it is the

explicit intent of all the parties hereto that neither Parent or Merger Sub is

making any representation or warranty whatsoever, express or implied, except

those of Parent or Merger Sub, as the case may be, set forth in ss.5 hereof.

6. Representations and Warranties of the Sellers. Each of the

Sellers severally represents and warrants to the other Parties solely as to

itself or himself (as the case may be) as follows, except as set forth in the

Seller Disclosure Schedule or in the Company SEC Filings filed prior to the

date hereof:

(a) Organization. Such Seller (other than Individual) is, in

the case of KKR, a Delaware limited partnership, and in the case of TCW, a

California limited partnership, in each case duly organized, validly existing

and in good standing under the laws of the state of its formation, and has the

requisite power and authority and all necessary governmental approvals to (i)

own, lease and operate its properties, (ii) carry on its business as it is now

being conducted, (iii) enter into and perform this Agreement and (iv)

otherwise consummate the transactions contemplated to be performed by it under

this Agreement.

<PAGE>

(b) Authorization of Transaction. Such Seller (other than

Individual) has all necessary limited partnership power and authority to

execute and deliver this Agreement, to perform its obligations hereunder and

to consummate the transactions contemplated by this Agreement. The execution

and delivery of this Agreement by such Seller (other than Individual) and the

consummation by such Seller (other than Individual) of the transactions

contemplated hereby have been duly and validly authorized by all necessary

limited partnership action, and no other limited partnership proceedings on

the part of such Seller (other than Individual) and no other limited partner

votes are necessary to authorize this Agreement or to consummate the

transactions contemplated hereby. This Agreement has been duly authorized and

validly executed and delivered by such Seller and, assuming due authorization,

execution and delivery hereof by the other Parties, constitutes a legal, valid

and binding obligation of such Seller, enforceable against such Seller in

accordance with its terms, subject to the effects of bankruptcy, insolvency,

fraudulent conveyance, reorganization, moratorium and other similar laws

relating to or affecting creditors' rights generally, general equitable

principles (whether considered in a proceeding in equity or at law) and an

implied covenant of good faith and fair dealing.

Seller Disclosure Schedule, neither the execution, delivery and compliance

with and performance of the terms and provisions of this Agreement, nor the

consummation of the transactions contemplated hereby, will, (i) conflict with

or violate any provision of the certificate of incorporation or bylaws of such

Seller, (ii) result in any breach or violation of or constitute a default

pursuant to any contract or other agreement to which such Seller is a party or

by which it or any part of its assets may be bound, (iii) violate any

constitution, statute, regulation, rule, injunction, judgment, order, decree,

ruling, charge, or other restriction of any government, governmental agency,

or court to which such Seller is subject or (iv) conflict with, result in a

breach of, constitute a default under, result in the acceleration of, create

in any party the right to accelerate, terminate, modify, or cancel, or require

any notice under any agreement, contract, lease, license, instrument, or other

arrangement to which such Seller is a party or by which it is bound or to

which any of its assets is subject, except in the cases of clauses (iii) or

(iv) for any such events which would not, individually or in the aggregate,

reasonably be expected to (A) prevent or materially delay consummation of the

transactions contemplated hereby or (B) otherwise prevent or materially delay

performance by such Seller of any of its material obligations under this

Agreement.

(d) Ownership of the Purchased Shares. Such Seller is and

will be on the Stock Purchase Closing Date the record and beneficial owner of

the number of Purchased Shares set forth opposite its name on Schedule I, free

and clear of all security interests or encumbrances of any kind, other than

restrictions arising under applicable federal and state securities laws. The

delivery to Merger Sub of such Seller's Purchased Shares in accordance with

the terms and conditions of this Agreement will transfer to Merger Sub good

and valid title to such Purchased Shares, free and clear of all security

interests or encumbrances of any kind, other than restrictions arising under

applicable federal and state securities laws.

(e) No Other Representations. Notwithstanding anything

contained in this ss.6 or any other provision of this Agreement, it is the

explicit intent of all the parties hereto that no Seller is making any

representation or warranty whatsoever, express or implied, except those of

such Seller set forth in ss.6 hereof.

<PAGE>

7. Representations and Warranties Concerning the Company and its

Subsidiaries. The Company represents and warrants to the other Parties as

follows, except as set forth in the Company Disclosure Schedule or in the

Company SEC Filings filed prior to the date hereof:

(a) Organization, Qualification, and Corporate Power. Each of

the Company and its Subsidiaries is a corporation or a limited liability

company duly organized, validly existing and in good standing under the laws

of the jurisdiction of its incorporation or formation. Each of the Company and

its Subsidiaries is duly authorized to conduct business and is in good

standing under the laws of each jurisdiction where such qualification is

required. ss.7(a) of the Company Disclosure Schedule lists each such

jurisdiction in which each of the Company and its Subsidiaries is duly

authorized to conduct its business as it is now being conducted. Each of the

Company and its Subsidiaries has full corporate or limited liability company

power and authority and all material licenses, permits, and authorizations

necessary to carry on the businesses in which it is engaged and to own and use

the properties owned and used by it. ss.7(a) of the Company Disclosure

Schedule lists the members of the board of directors and officers of each of

the Company and its Subsidiaries. The Company has delivered or made available

to Parent correct and complete copies of the charter and bylaws of each of the

Company and its Subsidiaries (as amended to date). None of the Company and its

Subsidiaries is in default under or in violation of any provision of its

charter or bylaws.

(b) Capitalization. The entire authorized capital stock of the

Company consists of 100,000,000 shares of Company Common Stock and 10,000,000

shares of preferred stock, par value $0.01 per share (the "Company Preferred

Stock"). As of November 5, 2004, (i) 19,721,646 shares of Company Common Stock

(other than treasury shares) were issued and outstanding, all of which were

validly issued and fully paid, nonassessable and free of preemptive rights,

(ii) no shares of Company Common Stock were held in the treasury of the

Company or by its Subsidiaries, and (iii) 4,539,568 shares of Company Common

Stock were issuable (and such number was reserved for issuance) upon exercise

of Company Options outstanding as of such date. As of November 5, 2004, no

shares of Company Preferred Stock are issued or outstanding. Except for

Company Options to purchase not more than 2,701,950 shares of Company Common

Stock, there are no options, warrants or other rights, agreements,

arrangements or commitments of any character to which the Company or any of

its Subsidiaries is a party or by which the Company or any of its Subsidiaries

is bound relating to the issued or unissued capital stock or other Equity

Interests of the Company or any of its Subsidiaries, or securities convertible

into or exchangeable for such capital stock or other Equity Interests, or

obligating the Company or any of its Subsidiaries to issue or sell any shares

of its capital stock or other Equity Interests, or securities convertible into

or exchangeable for such capital stock of, or other Equity Interests in, the

Company or any of its Subsidiaries. Since November 5, 2004 until the execution

of this Agreement, the Company has not issued any shares of its capital stock,

or securities convertible into or exchangeable for such capital stock or other

Equity Interests, other than those shares of capital stock reserved for

issuance as set forth in this ss.7(b). The Company has previously provided

Parent with a true and complete list, as of the date hereof, of the prices at

which outstanding Company Options may be exercised under the applicable

Company Stock Option Plan, the number of Company Options outstanding at each

such price and the vesting schedule of the Company Options for each optionee

of the Company. None of the Company Options are "incentive stock options"

within the meaning of Section 422 of the Code. All shares of Company Common

Stock subject to issuance under the Company Stock Option Plans, upon issuance

<PAGE>

prior to the Effective Time on the terms and conditions specified in the

instruments pursuant to which they are issuable, will be duly authorized,

validly issued, fully paid, nonassessable and free of preemptive rights.

Except as set forth in ss.7(b) of the Company Disclosure Schedule, there are

no outstanding contractual obligations of the Company or any of its

Subsidiaries (A) restricting the transfer of, (B) affecting the voting rights

of, (C) requiring the repurchase, redemption or disposition of, or containing

any right of first refusal with respect to, (D) requiring the registration for

sale of, or (E) granting any preemptive or antidilutive right with respect to,

any shares of Company Common Stock or any capital stock of, or other Equity

Interests in, the Company or any of its Subsidiaries. Except as set forth in

ss.7(b) of the Company Disclosure Schedule, each outstanding share of capital

stock of each Subsidiary of the Company is duly authorized, validly issued,

fully paid, nonassessable and free of preemptive rights and is owned,

beneficially and of record, by the Company or another of its Subsidiaries free

and clear of all security interests, liens, claims, pledges, options, rights

of first refusal, agreements, limitations on the Company's or such other

Subsidiary's voting rights, charges and other encumbrances of any nature

whatsoever. There are no outstanding contractual obligations of the Company or

any of its Subsidiaries to provide funds to, or make any investment (in the

form of a loan, capital contribution or otherwise) in, any Subsidiary of the

Company or any other person, other than guarantees by the Company of any

indebtedness or other obligations of any wholly-owned Subsidiary. The Company

Common Stock is listed exclusively on the Nasdaq over-the-counter electronic

bulletin board. There are less than 300 holders of record of Company Common

Stock.

necessary corporate power and authority to execute and deliver this Agreement,

to perform its obligations hereunder and to consummate the transactions

contemplated by this Agreement. The execution and delivery of this Agreement

by the Company and the consummation by the Company of the transactions

contemplated hereby have been duly and validly authorized by all necessary

corporate action and no other corporate proceedings on the part of the Company

are necessary to authorize this Agreement or to consummate the transactions

contemplated hereby. The Board of Directors of the Company has approved this

Agreement and declared advisable the transactions contemplated hereby. This

Agreement has been duly authorized and validly executed and delivered by the

Company and, assuming due authorization, execution and delivery hereof by the

other Parties, constitutes a legal, valid and binding obligation of the

Company, enforceable against the Company in accordance with its terms, subject

to the effects of bankruptcy, insolvency, fraudulent conveyance,

reorganization, moratorium and other similar laws relating to or affecting

creditors' rights generally, general equitable principles (whether considered

in a proceeding in equity or at law) and an implied covenant of good faith and

fair dealing. The Company has taken all appropriate actions so that the

restrictions on business combinations contained in Section 203 of the DGCL

will not apply with respect to or as a result of this Agreement and the

transactions contemplated hereby, including the Merger, without any further

action on the part of the stockholders or the Board of Directors of the

Company.

(d) Noncontravention. Except as set forth in ss.7(d) of the

Company Disclosure Schedule, neither the execution and the delivery of this

Agreement, nor the consummation of the transactions contemplated hereby, will,

assuming that all consents, approvals, authorizations and permits described in

ss.7(e) have been obtained and all filings and notifications described in

ss.7(e) have been made and any waiting periods thereunder have terminated or

<PAGE>

expired, as the case may be, (i) violate any constitution, statute,

regulation, rule, injunction, judgment, order, decree, ruling, charge, or

other restriction of any government, governmental agency, or court to which

any of the Company and its Subsidiaries is subject or any provision of the

charter or bylaws of any of the Company and its Subsidiaries or (ii) conflict

with, result in a breach of, constitute a default under, result in the

acceleration of, create in any party the right to accelerate, terminate,

modify, or cancel, or require any notice under any real property lease or any

material agreement, contract, lease (other than a real property lease),

license, instrument, or other arrangement to which any of the Company and its

Subsidiaries is a party or by which it is bound or to which any of its assets

is subject (or result in the imposition of any Security Interest upon any of

its assets).

(e) Required Filings and Consents. The execution and delivery

of this Agreement by the Company do not, and the performance of this Agreement

by the Company will not, require any consent, approval, authorization or

permit of, or filing with or notification to, any Governmental Authority or

any other person, except as set forth on ss.7(e) of the Company Disclosure

Schedule and except as may be necessary as a result of any circumstances

relating solely to Parent, Merger Sub or their respective Affiliates.

(f) Title to Assets. Except as provided in ss.7(f) of the

Company Disclosure Schedule and except with respect to real property

interests, the Company and its Subsidiaries have good title to all property

and assets, tangible and intangible, necessary for the conduct of the business

of the Company as presently conducted in all material respects, in each case

free and clear of all Security Interests, except (i) for properties and assets

disposed of in the Ordinary Course of Business since the date of the Most

Recent Balance Sheet or (ii) as contemplated or permitted by ss.8(c) of this

Agreement.

(g) Subsidiaries. ss.7(g) of the Company Disclosure Schedule

sets forth for each Subsidiary of the Company (i) its name and jurisdiction of

organization, (ii) the number of shares of authorized capital stock of each

class of its capital stock, (iii) the number of issued and outstanding shares

of each class of its capital stock or other Equity Interests, as the case may

be, the names of the holders thereof, and the number of shares or other Equity

Interests, as the case may be, held by each such holder, and (iv) the number

of shares of its capital stock held in treasury. All of the issued and

outstanding shares of capital stock of each Subsidiary of the Company have

been duly authorized and are validly issued, fully paid, and nonassessable.

Except as set forth in ss.7(g) of the Company Disclosure Schedule, the Company

or one of its Subsidiaries holds of record and owns beneficially all of the

outstanding shares or other equity interests of each Subsidiary of the

Company, free and clear of any restrictions on transfer or Security Interests

(without regard to any exclusions in such defined term), options, warrants,

purchase rights, contracts or commitments (other than in each case

restrictions under the Securities Act and state securities laws). Except as

set forth in ss.7(g) of the Company Disclosure Schedule, there are no

outstanding or authorized options, warrants, purchase rights, subscription

rights, conversion rights, exchange rights, or other contracts or commitments

that require any of the Company and its Subsidiaries to sell, transfer, or

otherwise dispose of any capital stock or other Equity Interests of any of its

Subsidiaries or that require any Subsidiary of the Company to issue, sell, or

otherwise cause to become outstanding any of its own capital stock or other

Equity Interests.

<PAGE>

(h) Financial Statements. The Company has previously provided

Parent with the following financial statements (collectively the "Financial

Statements"): (i) audited consolidated financial statements as of May 28,

2004, including the notes thereto (the "Most Recent Fiscal Year End") for the

Company and its Subsidiaries; and (ii) the unaudited consolidated financial

statements (the "Most Recent Financial Statements") as of and for the period

ended October 15, 2004 (the "Most Recent Fiscal Period End") for the Company

and its Subsidiaries. Except as set forth in ss.7(h) of the Company Disclosure

Schedule, the Financial Statements (including the notes thereto) have been

prepared in conformity with GAAP (except as otherwise provided in the

Financial Statements and the notes thereto, and in the case of the unaudited

financial statements, except as permitted by Form 10-Q) applied on a

consistent basis throughout the periods covered thereby (unless otherwise

disclosed in the notes to the Financial Statements), present fairly in all

material respects the financial position of the Company and its Subsidiaries

as of such dates and the results of operations and cash flows of the Company

and its Subsidiaries for such periods and have been prepared from the

accounting books and records of the Company and its Subsidiaries.

(i) SEC Filings. Except as set forth in ss.7(i) of the

Company Disclosure Schedule, the Company has timely filed all periodic reports

and documents required to be filed by it under the Securities Exchange Act

since January 1, 2002 (collectively, the "Company SEC Filings"). Each Company

SEC Filing (i) as of its date, complied as to form with the requirements of

the Securities Exchange Act, and (ii) did not, at the time it was filed,

contain any untrue statement of a material fact or omit to state a material

fact required to be stated therein or necessary in order to make the

statements made therein, in the light of the circumstances under which they

were made, not misleading. As of the date of this Agreement, no Subsidiary of

the Company is subject to the periodic reporting requirements of the

Securities Exchange Act.

(j) Events Subsequent to Most Recent Fiscal Year End. Except

as set forth in ss.7(j) of the Company Disclosure Schedule, since the Most

Recent Fiscal Year End to the date of this Agreement, there has not been any

material adverse change in the business, financial condition, operations or

results of operations of the Company and its Subsidiaries taken as a whole.

Without limiting the generality of the foregoing, except as set forth in

ss.7(j) of the Company Disclosure Schedule, since the Most Recent Fiscal Year

End to the date of this Agreement:

(i) none of the Company and its Subsidiaries has sold,

leased, transferred, or assigned any asset (other than any

interest in Owned Real Property) with value greater than

$100,000;

(ii) none of the Company and its Subsidiaries has sold

any interest in Owned Real Property which interest has a value

in excess of $250,000 outside the Ordinary Course of Business;

(iii) no party (including any of the Company and its

Subsidiaries) has (A) terminated or cancelled in writing any

agreement, contract, lease, or license (or series of related

agreements, contracts, leases, and licenses) involving more

than $250,000 to which any of the Company and its Subsidiaries

is a party or by which any of them is bound or (B) modified in

writing any agreement, contract, lease, or license (or series

<PAGE>

of related agreements, contracts, leases, and licenses)

involving more than $250,000 and outside the Ordinary Course

of Business, to which any of the Company and its Subsidiaries

is a party or by which any of them is bound;

(iv) none of the Company and its Subsidiaries has

imposed any Security Interest upon any asset with a value

greater than $250,000;

(v) none of the Company and its Subsidiaries has made

any capital expenditure (or series of related capital

expenditures) involving more than $250,000 and outside the

Ordinary Course of Business;

(vi) none of the Company and its Subsidiaries has made

any capital investment in, or any loan to, any other Person

(or series of related capital investments or loans) involving

more than $250,000 and outside the Ordinary Course of

Business, other than intercompany investments or loans;

(vii) none of the Company and its Subsidiaries has

made any acquisition of the securities or assets of any other

Person (or series of related acquisitions) involving more than

$250,000 and outside the Ordinary Course of Business;

(viii) none of the Company and its Subsidiaries has

issued any note, bond, or other debt security or created,

incurred, assumed, or guaranteed any indebtedness for borrowed

money or capitalized lease obligation involving more than

$250,000;

(ix) none of the Company and its Subsidiaries has

prepaid, repurchased or redeemed any note, bond, debt security

or any other indebtedness for borrowed money involving more

than $250,000, except for scheduled payments on indebtedness

included in the Financial Statements;

(x) none of the Company and its Subsidiaries has

materially delayed or postponed the payment of accounts

payable and other liabilities involving more than $250,000;

(xi) none of the Company and its Subsidiaries has

cancelled, compromised, waived, or released any right or claim

(or series of related rights and claims) involving more than

$250,000 and outside the Ordinary Course of Business;

(xii) there has been no change made or authorized in

the charter or bylaws of any of the Company and its

Subsidiaries;

(xiii) none of the Company and its Subsidiaries has

issued, sold, or otherwise disposed of any of its capital

stock or granted any options, warrants, or other rights to

purchase or obtain (including upon conversion, exchange, or

exercise) any of its capital stock, other than (A) issuances,

sales, dispositions and grants in the Ordinary Course of

Business, including in connection with the administration of

<PAGE>

Employee Benefit Plans or contracts with employees of the

Company or any of its Subsidiaries, and (B) intercompany

issuances, sales or dispositions of capital stock;

(xiv) none of the Company and its Subsidiaries has

declared, set aside, or paid any dividend or made any

distribution with respect to its capital stock (whether in

cash or in kind) or redeemed, purchased, or otherwise acquired

any of its capital stock, other than (A) repurchases of

capital stock held by employees of the Company or any of its

Subsidiaries pursuant to contracts with such employees and (B)

intercompany dividends and distributions and acquisitions of

capital stock;

(xv) none of the Company and its Subsidiaries has

experienced any damage, destruction, or loss (whether or not

covered by insurance) to its properties in excess of

$2,000,000 in the aggregate;

(xvi) none of the Company and its Subsidiaries has (A)

made any loan to any member of its board of directors or its

officers, or (B) made any loan to any of its employees (who

are neither officers nor members of its board of directors)

outside the Ordinary Course of Business or (C) entered into

any other transaction with the members of its board of

directors, officers or employees outside the Ordinary Course

of Business;

(xvii) none of the Company and its Subsidiaries has

entered into any collective bargaining agreement or material

employment contract or modified the terms of any such existing

contract or agreement;

(xviii) none of the Company and its Subsidiaries has

granted any increase in the compensation of any of the members

of its board of directors, officers, and employees outside the

Ordinary Course of Business;

(xix) none of the Company and its Subsidiaries has

adopted, amended, modified, or terminated (A) any bonus,

profit-sharing, incentive, severance or other plan, contract

or commitment for the benefit of any of the members of its

board of directors or its officers, (B) outside the Ordinary

Course of Business, any bonus, profit-sharing, incentive,

severance or other plan, contract, or commitment for the

benefit of any of its employees who are not officers or

members of the board of directors (or taken any such action

with respect to any other Employee Benefit Plan);

(xx) none of the Company and its Subsidiaries has made

any change in employment terms for any of the members of its

board of directors or its officers and employees that would

make any such person eligible for an increase in severance

benefits, other than compensation increases or promotions in

the Ordinary Course of Business with respect to employees who

are not officers or director-level employees;

<PAGE>

(xxi) none of the Company and its Subsidiaries has

made any other change in employment terms for any of the

members of its board of directors, officers, and employees

outside the Ordinary Course of Business; and

(xxii) none of the Company and its Subsidiaries has

committed to any of the foregoing.

(k) Undisclosed Liabilities. None of the Company and its

Subsidiaries has any Liability that would have been required by GAAP to be

shown on the consolidated balance sheet of the Company or described in the

notes thereto, except for (i) Liabilities reflected or reserved against in the

Most Recent Balance Sheet or the notes thereto, (ii) Liabilities set forth on

ss.7(k) of the Company Disclosure Schedule, (iii) Liabilities incurred in the

Ordinary Course of Business since the Most Recent Fiscal Period End, and (iv)

Liabilities otherwise expressly disclosed (or within any materiality or other

threshold contained in any other representation) in this Agreement or the

Company Disclosure Schedules.

(l) Legal Compliance. Except as set forth in ss.7(l) of the

Company Disclosure Schedule, each of the Company and its Subsidiaries is in

compliance in all material respects with all applicable laws (including rules,

regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,

and charges thereunder) of federal, state and local governments (and all

agencies thereof) as such laws are in effect at the date hereof.

(m) Tax Matters. Except as set forth in ss.7(m) of the

Company Disclosure Schedule:

(i) Each of the Company and its Subsidiaries has filed

(including pursuant to applicable extensions) all material Tax

Returns that it was required to file (other than those for

which the applicable due date has been properly extended). All

such Tax Returns were correct and complete in all material

respects. All Taxes with respect to items or periods covered

by such Tax Returns and shown to be owing by any of the

Company and its Subsidiaries on any such Tax Returns have been

paid other than those being contested in good faith through

appropriate proceedings and for which appropriate reserves

have been established. There are no liens on any of the assets

of any of the Company and its Subsidiaries that arose in

connection with any failure (or alleged failure) to pay any

material Tax other than liens for Taxes not yet due or payable

or for Taxes that the Company or its Subsidiaries are

contesting in good faith through appropriate proceedings and

for which appropriate reserves have been established;

(ii) Each of the Company and its Subsidiaries has

withheld and paid all material Taxes required to have been

withheld and paid in connection with amounts paid or owing to

any employee, independent contractor, creditor, stockholder,

or other third party;

(iii) There is no dispute or claim concerning any

material Tax liability of any of the Company and its

Subsidiaries claimed or raised by any authority in writing.

<PAGE>

The Company has delivered or made available to Parent or its

representatives correct and complete copies of all federal or

state income or franchise tax examination reports and

statements of deficiencies with potential tax liability of at

least $100,000 assessed against or agreed to by any of the

Company and its Subsidiaries since October 15, 2001;

(iv) None of the Company and its Subsidiaries has

waived any statute of limitations in respect of Taxes or

agreed to any extension of time with respect to a Tax

assessment or deficiency;

(v) None of the Company and its Subsidiaries has filed

a consent under Code ss.341(f) concerning collapsible

corporations. None of the Company and its Subsidiaries has

made any payments, is obligated to make any payments, or is a

party to any agreement that under certain circumstances could

obligate it to make any payments that will not be deductible

under Code ss.280G. None of the Company and its Subsidiaries

is a party to any Tax allocation or sharing agreement other

than with any of the Company or its Subsidiaries. None of the

Company and its Subsidiaries (A) has been a member of an

Affiliated Group filing a consolidated federal income Tax

Return (other than a group the common parent of which was the

Company) or (B) has any liability for the Taxes of any Person

(other than any of the Company and its Subsidiaries and the

affiliated group the common parent of which is the Company)

under Reg. ss.1.1502-6 (or any similar provision of state,

local, or foreign law), as a transferee or successor, by

contract, or otherwise;

(vi) ss.7(m)(vi) of the Company Disclosure Schedule,

to the Knowledge of Company, sets forth in all material

respects the approximate adjusted federal income tax basis of

all the real estate assets owned by the Company and its

Subsidiaries as of September 17, 2004;

(vii) The unpaid Income Taxes of the Company and its

Subsidiaries (A) did not, as of the Most Recent Fiscal Period

End, exceed the reserve for Income Tax Liability (other than

any reserve for deferred Income Taxes established to reflect

timing differences between book and Income Tax income) set

forth on the face of the Most Recent Balance Sheet (or in any

notes thereto) and (B) do not exceed that reserve as adjusted

for the passage of time through the Effective Time in

accordance with the past practice of the Company and its

Subsidiaries in filing their Income Tax Returns; and

(viii) No claim is currently being asserted or

threatened in writing with

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