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Borrowings under the Revolver will generally bear interest based on a margin over, at KLC OpCo's option, either the base rate (generally the applicable prime lending rate, as announced from time to time) or the reserve adjusted LIBOR rate. The applicable margin for revolving loans will be 0.25% for base rate loans and 1.25% for reserve adjusted LIBOR loans. KLC is permitted to voluntarily prepay principal amounts outstanding or reduce commitments under the Revolver at any time, in whole or in part, without premium or penalty.

The Revolver is fully and unconditionally guaranteed by KSI and on a joint and several basis by most of KLC's direct and indirect domestic subsidiaries within KLC OpCo. The Revolver and guarantees are secured by first priority security interests in, and liens on, substantially all of KLC OpCo's and the guarantors' assets and first priority pledges of all the equity interests owned by KSI in KLC and owned by KLC in its direct and indirect domestic subsidiaries in KLC OpCo and 66% of the equity interests owned by KLC in its non-domestic subsidiaries.

The revolving credit facility contains customary affirmative and negative covenants for financings of its type (with customary exceptions). The financial covenants include: a minimum fixed charge coverage ratio test; a minimum leverage ratio test; a minimum interest coverage ratio test; and a minimum EBITDA test.

Operating covenants limit KLC's and its restricted subsidiaries, and in certain cases, KSI's ability to (among others): incur additional debt; incur liens or other encumbrances; make investments; make acquisitions; incur certain contingent liabilities; make certain restricted junior payments and other similar distributions; enter into mergers, consolidations and similar combinations; sell assets or engage in similar transfers; open new learning centers; engage in transactions with affiliates; enter into sale-leaseback transactions; engage in businesses other than those in which KLC and its restricted subsidiaries and KSI were engaged at the time of the closing of the Revolver and other related or ancillary businesses; amend certain material agreements; prepay subordinated debt; sell or discount receivables; and dispose of any equity securities in its subsidiaries.

11.19. Terms of Senior Subordinated Notes

In February 2005, KLC sold $260.0 million in aggregate principal amount of 7 1/4% Senior Subordinated Notes due February 1, 2015 (the "Notes") in connection with the KinderCare acquisition and related financing transactions. The Notes bear interest at the rate of 7 1/4% per year, payable semi-annually, in arrears, on February 1 and August 1 of each year.

KLC may redeem the Notes, in whole or in part, on or after February 1, 2010 at certain pre-set redemption prices, plus any accrued and unpaid interest. On or prior to February 1, 2008 KLC may redeem the Notes in whole, but not in part, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus an applicable premium. In addition, on or prior to February 1, 2008 KLC may redeem up to 35% of the aggregate principal amount of the Notes with the net proceeds of one or more qualified equity offerings.

Subject to KLC's right to redeem the Notes, upon a change of control event, holders of the Notes may require KLC to repurchase all or a portion of the Notes at a purchase price of 101% of their principal amount, plus accrued and unpaid interest.

KLC's obligations under the Notes are fully and unconditionally, and jointly and severally, guaranteed on a senior subordinated basis by most of KLC's domestic restricted subsidiaries within KLC OpCo.

The indenture governing the Notes contains covenants that limit KLC and its restricted subsidiaries' ability to, among other things: (a) pay dividends, redeem capital stock and make other restricted payments and investments; (b) incur additional debt or issue preferred stock; (c) enter into agreements that restrict KLC subsidiaries from paying dividends or other distributions, making loans or otherwise transferring assets to

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