LA PETITE ACADEMY INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File No. 333-56239-01

LPA HOLDING CORP.
(exact name of registrant as specified in its charter)

SEE TABLE OF ADDITIONAL REGISTRANTS

Delaware 48-1144353
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)

8717 WEST 110TH STREET, SUITE 300
OVERLAND PARK, KS 66210
(Address of principal executive office and zip code)

(913) 345-1250
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

(1) Yes X No (2) Yes X No
--- --- --- ----

There are no shares of voting stock of La Petite Academy, Inc. held by
non-affiliates.

As of November 27, 2001, LPA Holding Corp. had outstanding 564,985 shares of
Class A Common Stock (par value, $.01 per share) and 20,000 shares of Class B
Common Stock (par value, $.01 per share). As of November 27, 2001, each of the
additional registrants had the number of outstanding shares, which is shown on
the following table.

ADDITIONAL REGISTRANT

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LPA HOLDING CORP.

INDEX
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PART I.

ITEM 1. BUSINESS

ORGANIZATION

Vestar/LPA Investment Corp. (Parent), a privately-held Delaware corporation,
was formed in 1993 for the purpose of holding the capital stock of La Petite
Holdings Corp. (Holdings), a Delaware corporation. Holdings, which has no
assets or operations, was formed in 1993 for the purpose of holding the
capital stock of La Petite Acquisition Corp. (Acquisition). On July 23, 1993,
as a result of a series of transactions, Holdings acquired all the
outstanding shares of common stock, par value $.01 (the Common Stock), of La
Petite Academy, Inc., a Delaware corporation (La Petite). The transaction was
accounted for as a purchase and the excess of purchase price over the net
assets acquired is being amortized over 30 years. On May 31, 1997, Holdings
was merged with and into La Petite with La Petite as the surviving
corporation. On August 28, 1997, LPA Services, Inc. (Services), a wholly
owned subsidiary of La Petite, was incorporated. Services provides third
party administrative services on insurance claims to La Petite.

On March 17, 1998, LPA Investment LLC (LPA), a Delaware limited liability
company owned by an affiliate of JP Morgan Partners (JPMP) and by an entity
controlled by Robert E. King, a director of La Petite, and Parent, which was
renamed LPA Holding Corp., entered into an Agreement and Plan of Merger
pursuant to which a wholly owned subsidiary of LPA was merged into Parent
(the Recapitalization). In the Recapitalization, all of the then outstanding
shares of preferred stock and common stock of Parent (other than the shares
of common stock retained by Vestar/LPT Limited Partnership and management of
La Petite) owned by the existing stockholders of Parent (the Existing
Stockholders) were converted into cash. As part of the Recapitalization, LPA
purchased $72.5 million (less the value of options retained by management) of
common stock of the Parent and $30 million of redeemable preferred stock of
Parent (collectively, the Equity Investment). In addition, in connection with
the purchase of preferred stock of Parent, LPA received warrants to purchase
up to 6.0% of Parent's common stock on a fully diluted basis. The
Recapitalization was completed May 11, 1998.

On July 21, 1999, La Petite acquired all the outstanding shares of Bright
Start, Inc. (Bright Start). See Note 11 to the consolidated financial
statements.

On December 15, 1999, LPA acquired an additional $15.0 million of Parent's
redeemable preferred stock and received warrants to purchase an additional 3%
of Parent's common stock on a fully-diluted basis at that time. The $15.0
million proceeds received by Parent were contributed to La Petite as common
equity.

Pursuant to a notice dated November 13, 2001, Parent offered all of its
stockholders the right to purchase up to their respective pro rata amount of
a newly created class of convertible preferred stock and warrants to purchase
common stock of Parent. The convertible preferred stock is junior to the
redeemable preferred stock of Parent in terms of dividends, distributions,
and rights upon liquidation. Up to $4.25 million of convertible preferred
stock of Parent and warrants to purchase 562,500 shares of common stock of
Parent were offered. Stockholders of Parent electing to participate in the
offer were required to commit to purchase a similar percentage of an
additional aggregate amount of convertible preferred stock equal to $10.75
million. At any time, or from time to time, prior to May 14, 2002, as
requested by Parent, the stockholders of Parent participating in the
pre-emptive rights offer are required to purchase the balance of the
convertible preferred stock being offered thereby. All of the proceeds from
the pre-emptive rights offer received by Parent will be contributed to La
Petite as common equity and will be used by La Petite for general working
capital and liquidity purposes.

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Pursuant to the pre-emptive offer, on November 15, 2001 LPA acquired $3.4
million of Parent's convertible preferred stock and received warrants to
purchase 452,343 shares of common stock. LPA also committed to purchase the
balance of the $11.6 million of convertible preferred stock being offered and
not otherwise purchased by the other stockholders of Parent. Prior to
December 31, 2001 LPA is required to purchase an amount of convertible
preferred stock equal to the difference between $0.8 million and the value of
the amount of the convertible preferred stock purchased by other stockholders
in connection with the pre-emptive offer. After December 31, 2001, the
balance of the convertible preferred stock of Parent to be purchased by LPA
will, as applicable, be purchased at any time, or from time to time, prior to
May 14, 2002 at the request of Parent. If Parent has not requested that LPA
fund its commitment to purchase the balance of the convertible preferred
stock prior to May 14, 2002, LPA has the right to cause Parent to issue the
balance of the convertible preferred stock to LPA.

As a result of the recapitalization and additional purchases of preferred
stock and warrants, LPA beneficially owns approximately 90.0% of the common
stock of Parent on a fully diluted basis, $45 million of redeemable preferred
stock of Parent and $3.4 million of convertible participating preferred stock
of Parent. An affiliate of JPMP owns a majority of the economic interests of
LPA and an entity controlled by Robert E. King owns a majority of the voting
interests of LPA.

Parent, consolidated with La Petite, Bright Start and Services, is referred
to herein as the Company.

BUSINESS DESCRIPTION

The following discussion refers to the Company, and includes a discussion of
La Petite prior to the 1993 acquisition:

La Petite, founded in 1968, is the largest privately held and one of the
leading for-profit preschool educational facilities (commonly referred to as
Academies) in the United States based on the number of centers operated. The
Company provides center-based educational services and child care to children
between the ages of six weeks and 12 years. Management believes the Company
differentiates itself through its superior educational programs, which were
developed and are regularly enhanced by its Curriculum Department. The
Company's focus on quality educational services allows it to capitalize on
the increased awareness of the benefits of premium educational instruction
for preschool and elementary school age children. At its residential and
employer-based Academies, the Company utilizes its proprietary Journey(R)
curriculum with the intent of maximizing a child's cognitive and social
development. The Company also operates Montessori schools that employ the
Montessori method of teaching, a classical approach that features the
programming of tasks with materials presented in a sequence dictated by each
child's capabilities.

As of June 30, 2001 the Company operated 734 Academies including 674
residential Academies, 28 employer-based Academies and 32 Montessori schools
located in 36 states and the District of Columbia. For the 52 weeks ended
June 30, 2001, the Company had an average attendance of approximately 80,000
full and part-time children.

CURRICULUM

Residential and Employer-Based Academies. La Petite, with the assistance of
outside educational experts, designed and developed the Journey(R) curriculum
to not only maximize children's cognitive development but also to provide a
positive learning experience for the children. The Company believes the
Journey(R) curriculum is unsurpassed by the educational materials of any of
the major child care providers or our other competitors, many of whom
purchase educational materials from third party vendors.

Journey is an integrated approach to learning, giving children opportunities
to learn through all of their senses while stimulating development and
learning in all areas. Children progress at their own pace, building skills
and abilities in a logical pattern. The Journey(R) curriculum covers children
of all ages that La Petite Academy serves. Each level of the curriculum
includes a parent component, built-in training, carefully selected age
appropriate materials, equipment and activities, and a well planned and
developed environment.

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For infants and toddlers, Journey provides activities for a variety of
developmental areas such as listening and talking, physical development,
creativity and learning from the world around them. As infants become
toddlers, more activities focus on nurturing their need for independence and
practicing small motor skills that help them learn to feed themselves, walk
and communicate with others. Journey provides songs, fingerplay, art ideas,
storytelling tips, building activities and many activities to develop the
bodies of toddlers through climbing, pushing and pulling. These activities
also build the foundation for social skills such as how to get along with
others and how to share.

The Journey preschool program includes a balance of teacher-directed and
child-directed activities that address both the physical and intellectual
development of preschool children. Physical activities are designed to
increase physical and mental dexterity, specifically hand-eye and large and
small muscle coordination. Preschool children also engage in creative and
expressive activities such as painting, crafts and music. Intellectual
activities are designed to promote language development, pre-reading, writing
and thinking skills, imagination through role playing, pretending and problem
solving. In addition, Journey enables the children to experience the world
around them through geography, Spanish, mathematics and sensorial activities.

The Journey(R) curriculum for SuperStars, children ages 5 through 12,
consists of providing quiet, private space for them to do homework; social
interaction with children of their own age; participation in enrichment
programs such as arts and crafts and fitness activities, and transportation
to and from their elementary schools.

Montessori Schools. Montessori is a non-traditional method of education in
that children work and learn in a highly individualized environment.
Montessori materials, combined with our certified Montessori instructors,
create a learning environment in which children become energized to explore,
investigate and learn. Children work in mixed age group classrooms with
attractive, state-of-the-art Montessori materials that have been designed to
stimulate each child's interest in reading, mathematics, geography and
science. In addition to the Montessori method, Montessori schools provide
enrolled children foreign language and computer learning.

ACADEMY NETWORK

The Company operates three types of child care centers: residential
Academies, employer-based Academies and Montessori schools. Academies
generally operate year round, five days a week and typically are open from
6:30 AM to 6:30 PM. A child may be enrolled in any of a variety of program
schedules from a full-time, five-day-per-week plan to as little as two or
three half-days a week. A child attending full-time typically spends
approximately nine hours a day, five days per week, at an Academy. The
SuperStars program for children ages five to 12 provides extended child care
before and after the elementary school day and transportation to and from the
elementary school.

Academy employees include Academy Directors, Assistant Directors (who are
generally teachers), full-time and part-time teachers, temporary and
substitute teachers, teachers' aides, and non-teaching staff. On average,
there are 15 to 20 employees per Academy. Each Academy is managed by an
Academy Director. An Academy Director implements company policies and
procedures, but has the autonomy to individualize local operations.
Responsibilities of Academy Directors include curriculum implementation, the
establishment of daily, weekly and monthly operating schedules, staffing,
marketing to develop and increase enrollment and control of operating
expenses. Personnel involved in operations as Academy Director and above are
compensated in part on the basis of the profitability and level of parent and
employee satisfaction of each Academy for which they have managerial
responsibility.

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Academy Directors are supervised by a Managing Director. Managing Directors
have an average of 12 years of experience with the Company, typically are
responsible for six to 30 Academies and report to one of three Divisional
Vice Presidents. Managing Directors visit their Academies regularly and are
in frequent contact to help make decisions and improvements to program
quality and profitability. The Divisional Vice Presidents average in excess
of 19 years of experience with the Company.

Residential Academies. As of June 30, 2001, the Company operated 674
residential Academies. Residential Academies are typically located in
residential, middle income neighborhoods, and are usually one-story,
air-conditioned buildings located on three-quarters of an acre to one acre of
land. A typical Academy also has an adjacent playground designed to
accommodate the full age range of children attending the school. Newly built
Academies are approximately 9,500 square feet, built on sites of
approximately one acre, have an operating capacity of approximately 175
children and incorporate a closed classroom concept. The Company continues to
improve, modernize and renovate existing residential Academies to improve
efficiency and operations, to better compete, to respond to the requests of
parents and to support the Journey(R) curriculum.

Residential Academies generally have programs to care for children from
toddlers to 12 years old arranged in five age groups. In addition, over half
of the Academies offer child care for infants, as young as six weeks old.
Teacher-student ratios vary depending on state requirements but generally
decrease with the older child groups.

Employer-Based Academies. As of June 30, 2001, the Company operated 28
employer-based Academies, which are similar to residential Academies, but are
designed to offer businesses, including government employers and hospitals,
on-site employer-sponsored child care. The Company's focus has been
principally on developing on-site centers, operating employers' on-site
centers through management contracts and providing consulting services for
developing and managing centers. At most employer-based Academies, tuition is
collected from our students in the same way as at residential Academies. At
some employer-based Academies, additional payments or support services from
the sponsoring employer are received. At other employer-based Academies, a
fee in addition to tuition may be received.

Montessori Schools. As of June 30, 2001, the Company operated 32 Montessori
schools. Montessori schools are typically located in upper-middle income
areas and feature brick facades and closed classrooms. The Montessori schools
typically have lower staff turnover, and their lead teachers are certified
Montessori instructors, many of whom are certified through the Company's
internal training program. In addition, unlike students at residential
Academies, Montessori students are enrolled for an entire school year, pay
tuition monthly in advance and pay higher tuition rates.

SEASONALITY

Historically, the Company's operating revenue has followed the seasonality of
a school year, declining during the summer months and the year-end holiday
period. The number of new children enrolling at the Academies is generally
highest in September-October and January-February; therefore, the Company
attempts to concentrate its marketing efforts immediately preceding these
high enrollment periods. Several Academies in certain geographic markets have
a backlog of children waiting to attend; however, this backlog is not
material to the overall attendance throughout the system.

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NEW ACADEMY DEVELOPMENT

The Company intends to expand within existing markets and enter new markets
with Academies concentrated in clusters. In existing markets, management
believes it has developed an effective selection process to identify
attractive markets for prospective Academy sites. In evaluating the
suitability of a particular location, the Company concentrates on the
demographics of its target customer within a two-mile radius of residential
Academies. The Company targets Metropolitan Statistical Area's with benchmark
demographics which indicate parent education levels and family incomes
combined with high child population growth, and considers the labor supply,
cost of marketing and the likely speed and ease of development of Academies
in the area.

Newly constructed Academies are generally able to open approximately 36 weeks
after the real estate contract is signed. Because a location's early
performance is critical in establishing its ongoing reputation, the Academy
staff is supported with a variety of special programs to help achieve quick
enrollment gains and development of a positive reputation. These programs
include special compensation for the Academy Director who opens the new site
and investment in local marketing prior to the opening.

During the 2001 year, the Company re-opened one Journey based Academy and
five new employer based Academies.

TUITION

Academy tuition depends upon a number of factors including, but not limited
to, location of an Academy, age of the child, full or part-time attendance
and competition. The Company also provides various tuition discounts
primarily consisting of sibling, staff, and Corporate Referral Program. The
Company adjusts tuition for Academy programs by child age-group and program
schedule within each Academy on an annual basis each September. Parents also
pay an annual registration fee, which is reduced for families with more than
one child attending an Academy. Tuition and fees are payable weekly and in
advance for most residential and employer-based Academies and monthly and in
advance for Montessori schools. Management estimates that state governments
pay the tuition for approximately 16% of the children under its care.

MARKETING AND ADVERTISING

In 2000, the Company embarked on a branding and marketing initiative that the
Company believes will enhance the value of the La Petite Academy name. A
series of focus groups were conducted to study different graphical elements
of parent communications and a new logo design. The Company introduced a new
logo and identity package. The new Apple design retains a previous theme but
adds a contemporary feel. The new logo brings an attractive design element
yet retains the brand equity found in the previous Apple style. The new logo
and other graphic elements were used to develop a complete package of parent
communications, print advertising, and other collateral material. The design
elements have been being incorporated into other branding efforts including
signage and additional advertising mediums.

The Company continues to focus on retention as the greatest asset to business
stability and growth. In July 2000, the Company introduced an innovative
employee cash incentive bonus program. This program rewards Academy employees
for achieving utilization targets and in-turn, providing high levels of
customer service. The Company believes that the program is viewed by parents
as a highly positive means of improving teacher retention and adding value to
the Company.

A heavy emphasis has been placed on expanding corporate partner relationships
and growing the Preferred Employer Program. This Program allows the Company
to build quality relationships with large corporations by providing preferred
pricing for their employees who enroll their children at the Company's
Academies.

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INFORMATION SYSTEMS

The Company's financial and management reporting systems are connected
through a Virtual Private Network (VPN) that connects all Academies, field
management and Support Center employees. Through the use of the Company's
point of sale software product, called ADMIN, and the implementation of the
VPN, information such as financial reporting, enrollments, pricing, labor,
receivables, and attendance are available at all levels of the organization.

The Company continues to review its management information systems to ensure
it reports on meaningful, specific and measurable performance indicators as
well as provide consistent access.

To improve the management of the Company's labor and human resources, the
Company implemented the first phase of a new Payroll and Human Resource
system that focuses on employee self-service and analytic capabilities. The
Company anticipates significant savings with the automation of payroll
collection and with the ability to manage our human resources for the first
time with automated capabilities.

COMPETITION

The United States preschool education and child care industry is highly
fragmented and competitive. The Company's competition consists principally of
local nursery schools and child care centers, some of which are non-profit
(including religious-affiliated centers), providers of services that operate
out of their homes and other for profit companies which may operate a number
of centers. Local nursery schools and child care centers generally charge
less for their services. Many religious-affiliated and other non-profit child
care centers have no or lower rental costs than the Company, may receive
donations or other funding to cover operating expenses and may utilize
volunteers for staffing. Consequently, tuition rates at these facilities are
commonly lower than our rates. Additionally, fees for home-based care are
normally lower than fees for center-based care because providers of home care
are not always required to satisfy the same health, safety or operational
regulations as our Academies. The competition also consists of other large,
national, for profit child care companies that may have more aggressive
tuition discounting and other pricing policies than La Petite. The Company
competes principally by offering trained and qualified personnel,
professionally planned educational and recreational programs, well-equipped
facilities and additional services such as transportation. In addition, the
Company offers a challenging and sophisticated program that emphasizes the
individual development of the child. Based on focus group research, the
majority of parent's rank the qualities of staff as the most important
deciding factor in choosing a child care facility. Following teacher
qualification were such items as safety, cleanliness, programs, and
curriculum. Price typically played a minimal role in the decision process,
assuming price was within a reasonable variance. For some potential
customers, the non-profit status of certain competitors may be a significant
factor in choosing a child care provider.

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REGULATION AND GOVERNMENT INVOLVEMENT

Child care centers are subject to numerous state and local regulations and
licensing requirements, and the Company has policies and procedures in place
in order to comply with such regulations and requirements. Although state and
local regulations vary greatly from jurisdiction to jurisdiction, government
agencies generally review the ratio of staff to enrolled children, the
safety, fitness and adequacy of the buildings and equipment, the dietary
program, the daily curriculum, staff training, record keeping and compliance
with health and safety standards. In certain jurisdictions, new legislation
or regulations have been enacted or are being considered which establish
requirements for employee background checks or other clearance procedures for
new employees of child care centers. In most jurisdictions, governmental
agencies conduct scheduled and unscheduled inspections of child care centers,
and licenses must be renewed periodically. Failure by an Academy to comply
with applicable regulations can subject it to state sanctions, which might
include the Academy being placed on probation or, in more serious cases,
suspension or revocation of the Academy's license to operate and could also
lead to sanctions against our other Academies located in the same
jurisdiction. In addition, this type of action could lead to negative
publicity extending beyond that jurisdiction.

Management believes the Company is in substantial compliance with all
material regulations and licensing requirements applicable to our businesses.
However, there is no assurance that a licensing authority will not determine
a particular Academy to be in violation of applicable regulations and take
action against that Academy. In addition, there may be unforeseen changes in
regulations and licensing requirements, such as changes in the required ratio
of child center staff personnel to enrolled children that could have material
adverse effect on our operations.

Certain tax incentives exist for child care programs. Section 21 of the
Internal Revenue Code provides a federal income tax credit ranging from 20%
to 30% of certain child care expenses for "qualifying individuals" (as
defined in the Code). The fees paid to the Company for child care services by
eligible taxpayers qualify for the tax credit, subject to the limitations of
Section 21 of the Code. In addition to the federal tax credits, various state
programs provide child care assistance to low income families. Management
estimates approximately 16% of operating revenue is generated from such,
federal and state programs. Although no federal license is required at this
time, there are minimum standards that must be met to qualify for
participation in certain federal subsidy programs.

Government, at both the federal and state levels, is actively involved in
expanding the availability of child care services. Federal support is
delivered at the state level through government-operated educational and
financial assistance programs. Child care services offered directly by states
include training for child care providers and resource and referral systems
for parents seeking child care. In addition, the state of Georgia has an
extensive government-paid private sector preschool program in which the
Company participates.

The Federal Americans with Disabilities Act (the "Disabilities Act")
prohibits discrimination on the basis of disability in public accommodations
and employment. The Disabilities Act became effective as to public
accommodations in January 1992 and as to employment in July 1992. Since
effectiveness of the Disabilities Act, the Company has not experienced any
material adverse impact as a result of the legislation.

In September of 1998, the National Highway Transportation Safety
Administration (NHTSA) issued interpretative letters that modified its
interpretation of regulations governing the sale by automobile dealers of
vehicles intended to be used for the transportation of children to and from
school. These letters indicate that dealers may no longer sell
fifteen-passenger vans for this use, and that any vehicle designed to
transport eleven persons or more must meet federal school bus standards if it
is likely to be "used significantly" to transport children to and from school
or school-related events. The Company currently maintains a fleet of
approximately 1,300 fifteen-passenger vans and 120 school buses for use in
transportation of children which management believes are safe and effective
vehicles for that purpose. The Company's current fleet meets all necessary
federal, state, and local safety

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requirements. In accordance with the new NHTSA requirements, all new fleet
additions or replacements will meet school bus standards.

COMPLIANCE WITH ENVIRONMENTAL PROTECTION PROVISIONS

Compliance with federal, state and local laws and regulations governing
pollution and protection of the environment is not expected to have any
material effect upon the financial condition or results of operations of the
Company.

TRADEMARKS

The Company has various registered trademarks covering the name La Petite
Academy, its logos, and a number of other names, slogans and designs,
including, but not limited to: La Petite Journey, Parent's Partner,
SuperStars and Montessori Unlimited(R). A federally registered trademark in
the United States is effective for ten years subject only to a required
filing and the continued use of the mark by the registrant. A federally
registered trademark provides the presumption of ownership of the mark by the
registrant in connection with its goods or services and constitutes
constructive notice throughout the United States of such ownership. In
addition the Company has registered various trademarks in Japan, Taiwan and
the Peoples Republic of China. Management believes that the Company name and
logos are important to its operations and intends to continue to renew the
trademark registrations thereof.

INSURANCE AND CLAIMS ADMINISTRATION

The Company maintains insurance covering comprehensive general liability,
automotive liability, workers' compensation, property and casualty, crime and
directors and officers insurance. The policies provide for a variety of
coverage, are subject to various limits, and include substantial deductibles
or self-insured retention. There is no assurance that claims in excess of, or
not included within, coverage will not be asserted, the effect of which could
have an adverse effect on the Company.

EMPLOYEES

As of June 30, 2001, the Company employed approximately 12,000 full-time
Associates. The Company's employees are not represented by any organized
labor unions or employee organizations and management believes relations with
employees are good.

ITEM 2. PROPERTIES

As of June 30, 2001, the Company operated 734 Academies, 665 of which were
leased under operating leases, 49 of which were owned and 20 of which were
operated in employer-owned centers. Most of these Academy leases have 15-year
terms, some have 20-year terms, many have renewal options, and most require
the Company to pay utilities, maintenance, insurance and property taxes. In
addition, some of the leases provide for contingent rentals, if the Academy's
operating revenue exceeds certain base levels.

Because of different licensing requirements and design features, Academies
vary in size and licensed capacity. Academies typically contain 5,400, 6,700,
7,800 or 9,500 square feet in a one-story, air-conditioned building typically
located on three-quarters of an acre to one acre of land. Each Academy has an
adjacent playground designed to accommodate the full age range of children
attending the Academy. Licensed capacity for the same size building varies
from state to state because of different licensing requirements.

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The following table summarizes Academy openings and closings for the
indicated periods.

During the 2001 fiscal year, the Company
re-opened one Residential Academy, and opened five employer based Academies.
During that same period, the Company closed 24 schools. Eight of the closures
resulted from management's decision to close certain schools located in areas
where the demographic conditions no longer supported and economically viable
operations, and the remaining 16 closures were due to management's decision
not to renew the leases or contracts of certain schools.

The following table shows the number of locations operated by the Company as
of June 30, 2001:

The leases have initial terms expiring as follows:

YEARS INITIAL LEASE TERMS EXPIRE NUMBER OF ACADEMIES

2002 112
2003 105
2004 124
2005 65
2006 95
2007 and later 164
--------------
665
--------------

The Company currently leases 665 Academies from approximately 425 lessors.
The Company has generally been successful when it has sought to renew
expiring Academy leases.

ITEM 3. LEGAL PROCEEDINGS

The Company has litigation pending which arose in the ordinary course of
business. In management's opinion, none of such litigation in which the
Company is currently involved will result in liabilities that will have a
material adverse effect on its financial condition or results of operations.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The common stock of the Parent is not publicly traded. As of November 27,
2001, LPA owned 89.6% of the Parent's common stock, Vestar/LPT Limited
Partnership owned 3.6%, management owned 1.8% and former management owned
5.0%.

No cash dividends were declared or paid on the Parent's common stock during
the 2001 and 2000 years. The Company's Senior Notes and preferred stock (see
Note 3 and Note 7, respectively, to the consolidated financial statements)
contain certain covenants that, among other things, do not permit La Petite
to pay cash dividends on its common or preferred stock now or in the
immediate future.

As of November 27, 2001, there were 13 holders of record of Parent's common
stock.

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ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS OF DOLLARS)

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a) On April 18, 2001, the Company changed its fiscal year end from the 52
or 53-week period ending on the first Saturday in July to the 52 or
53-week period ending on the Saturday closest to June 30. On June 10,
1999, the Company changed its fiscal year to be the period starting on
the first Saturday in July and ending on the first Saturday of July of
the subsequent year, resulting in a 44-week year for fiscal 1999 (see
Note 1 in the consolidated financial statements).
b) Recapitalization costs consist principally of transaction bonuses of
$1.5 million and payments for the cancellation of options of $7.2
million, both of which were inclusive of payroll taxes.
c) In the third quarter of 2000, management committed to a plan to close
certain Academies located in areas where the demographic conditions
no longer support an economically viable operation and to restructure
its operating management to better serve the remaining Academies.
Accordingly, the Company recorded a $7.5 million restructuring
charge ($4.5 million after tax) to provide for costs associated
with the Academy closures and restructuring of 49 Academies. The
charge consisted principally of $5.9 million for the present value of
rent, real estate taxes, common area maintenance charges, and
utilities, net of anticipated sublease income, and $1.1 million for
the write-down of fixed assets to fair market value. At June 30, 2001,
the Company had an accrual for the closing of these Academies of $3.8
million.
d) Interest expense includes $1.1 million, $1.1 million, $0.8 million,
$0.8 million, and $0.9 million of amortization of deferred financing
costs for fiscal years 2001, 2000, 1999, 1998, and 1997, respectively.
e) On May 11, 1998, the Company incurred a $5.5 million extraordinary loss
related to (i) the retirement of all the outstanding $85.0 million
principal amount of 9 5/8% Senior Notes due on 2001, (ii) the exchange
of all outstanding shares of La Petite's Class A Preferred Stock for
$34.7 million in aggregate principal amount of La Petite's 12 1/8%
Subordinated Exchange Debentures due 2003, and (iii) the retirement of
all the 12 1/8% Subordinated Exchange Debentures and the 6.5%
Convertible Debentures. The loss principally reflects the write off of
premiums and related deferred financing costs, net of applicable income
tax benefit.
f) EBITDA is defined herein as net income before non-cash restructuring
charges, extraordinary items, net interest cost, taxes, depreciation
and amortization and is presented because it is generally accepted as
providing useful information regarding a company's ability to service
and/or incur debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a
measure of the Company's profitability or liquidity. EBITDA may not be
comparable to similarly titles measures used by other companies.
g) Depreciation and amortization includes amortization of deferred
financing costs and accretion of discount on the 6.5% Convertible
Debentures that is presented as interest expense on the statements of
income.
h) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes and extraordinary
items, plus fixed charges. Fixed charges consists of interest expense
on all indebtedness, amortization of deferred financing costs, and
one-third of rental expense on operating leases representing that
portion of rental expense that the Company deemed to be attributable to
interest. For the 52 weeks ended June 30, 2001, July 1, 2000 and August
29, 1998, earnings were inadequate to cover fixed charges by $6.6
million, $15.6 million and $8.1 million, respectively.
i) FTE Utilization is the ratio of full-time equivalent (FTE) students to
the total operating capacity for all of the Company's Academies. FTE
attendance is not a measure of the absolute number of students
attending the Company's Academies; rather, it is an approximation of
the full-time equivalent number of students based on Company estimates
and weighted averages. For example, a student attending full-time is
equivalent to one FTE, while a student attending one-half of each day
is equivalent to 0.5 FTE.

15

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto included elsewhere in this
document.

On April 18, 2001, the Company changed its fiscal year end from the 52/53-week
period ending on the first Saturday in July to the 52/53-week period ending on
the Saturday closest to June 30 (See Note 1 of the consolidated financial
statements). The table below presents the results of the 52 weeks ended June 30,
2001 and the results of the 52 weeks ended July 1, 2000 (herein referred to as
the 2001 year and the 2000 year). The 52 weeks ended July 1, 2000 includes the
results of Bright Start from July 21, 1999, the date of acquisition.

The Company's operating results for the 2001 year are consistent and comparable
with the 2000 year, except for operating results associated with new educational
facilities (New Academies). The Company considers an Academy as new if it opened
within the current or previous fiscal year. These schools typically generate
operating losses during the first few months of operation until the Academies
achieve normalized occupancies. Included in operating income and EBIDTA were New
Academy operating income of $0.3 million for the 2001 year and New Academy
operating losses of $1.9 million for the 2000 year.

Full-time equivalent (FTE) attendance, as defined by the Company, is not a
measure of the absolute number of students attending the Company's Academies,
but rather is an approximation of the full-time equivalent number of students
based on Company estimates and weighted averages. For example, a student
attending full-time is equivalent to one FTE, while a student attending only
one-half of each day is equivalent to 0.5 FTE.

2001 COMPARED TO 2000 RESULTS (IN THOUSANDS OF DOLLARS)

During the 2001 year, the Company opened six new schools and closed 24 schools.
As a result, the Company operated 734 schools on June 30, 2001. During fiscal
year 2001, eight of the closures resulted from management's decision to close
certain schools located in areas where the demographic conditions no

16

longer supported an economically viable operation, and the remaining 16 closures
were due to management's decision not to renew the leases or contracts of
certain schools.

Operating revenue. Operating revenue increased $13.8 million or 3.7% during the
2001 year as compared to the 2000 year. The increase in operating revenue
includes $18.4 million of incremental revenue from established schools, $7.8
million of incremental revenue from the new schools, most of which were opened
late in the 1999 year or early in the 2000 year, offset by $12.4 million of
reduced revenue from closed schools. Tuition revenue increased 3.8% during the
2001 year as compared to the 2000 year. The increase in tuition revenue reflects
an increase of the average weekly FTE tuition rates of 9.9% offset by a decrease
in full time equivalent (FTE) attendance of 5.6%.

The increase in average weekly tuition per FTE was principally due to selective
price increases, which were put into place in February of the 2000 fiscal year
and in September of the 2001 fiscal year, based on geographic market conditions
and class capacity utilization. The decrease in FTE attendance was due to a 3.4%
decline at our established schools (schools which were open prior to the 2000
year) and a 74.9% decline in schools closed during the 2000 and 2001 years,
offset by a 41.8% increase at our new schools.

Salaries, wages and benefits. Salaries, wages and benefits increased $10.4
million or 5.0% during the 2001 year as compared to the 2000 year. As a
percentage of revenue, labor costs were 56.1% for the 2001 year as compared to
55.4% during the 2000 year. The increase in salaries, wages and benefits
includes incremental labor costs at established schools of $12.5 million,
incremental labor costs at new schools of $3.2 million, increased field
management and corporate administration labor costs of $1.1 million, increased
benefit costs of $1.8 million, increased bonus costs of $1.1 million, offset by
reduced incremental labor costs at closed schools of $9.3 million. The increase
in labor costs at established schools was mainly due to a 7.8% increase in
average hourly wage rates and a 0.1% increase in labor hours. New schools
experience higher labor costs relative to revenue as compared to the established
schools.

Facility lease expense. Facility lease expense decreased $1.8 million or 3.9%
during the 2001 year as compared the 2000 year. The decrease in facility lease
expense was mainly due to the closures late in the 2000 year, offset by slightly
increased lease expense on lease renewals.

Depreciation and amortization. Depreciation expense decreased $1.0 million or
6.6% during the 2001 year as compared to the 2000 year. This decrease was mainly
due to the closings that occurred in late fiscal year 2000.

Provision for doubtful accounts. The provision for doubtful accounts increased
$1.6 million or 54.6%. The increase in the provision for doubtful accounts is a
result of increasing revenue, higher write-offs and an increase in the bad debt
reserve of $0.1 million.

Restructuring charge. In the third quarter of 2000, management committed to a
plan to close certain schools located in areas where the demographic conditions
no longer support an economically viable operation and to restructure its
operating management to better serve the remaining schools. Accordingly, the
Company recorded a $7.5 million restructuring charge ($4.5 million after tax) to
provide for costs associated with the school closures and restructuring 49
schools. The charge consisted principally of $5.9 million for the present value
of rent, real estate taxes, common area maintenance charges, and utilities, net
of anticipated sublease income and $1.1 million for the write-down of fixed
assets to fair market value.

Other operating costs. Other operating costs increased $0.4 million or 0.5%
during the 2001 year as compared to the 2000 year. Other operating costs include
repair and maintenance, utilities, insurance, marketing, real estate taxes,
food, supplies, transportation, recruitment and training. The increase was due
primarily to higher expenses in repairs and maintenance, utilities, insurance,
real estate taxes, offset by decreases in food, supplies, recruitment, training
and other costs. As a percentage of revenue, other operating costs decreased to
22.7% in the 2001 year as compared to 23.4% in the 2000 year.

Operating income and EBITDA. As a result of the foregoing, operating income was
$16.9 million for the 2001 year as compared to $5.1 million during the 2000
year. Excluding the 2000 year restructuring costs,

17

operating income increased $4.3 million or 34.2% in the year 2001 as compared to
the year 2000. The increase in operating income is principally due to increased
revenue and lower non-labor operating costs. EBITDA is defined as net income
before non-cash restructuring charges, extraordinary items, net interest cost,
taxes, depreciation and amortization. EBITDA was $32.1 million for the year 2001
as compared to $28.9 million for 2000, an increase of 11.1%. EBITDA should not
be considered in isolation or as a substitute for net income, cash flow from
operating activities and other consolidated income or cash flow statement data
prepared in accordance with the accounting principles generally accepted in the
United State of America or as a measure of the Company's profitability or
liquidity. EBITDA may not be comparable to similarly titled measures used by
other companies.

Interest expense. Net interest expense for the 2001 year increased $2.8 million
from the 2000 year. The increase was principally due to the $3.2 million
amortization of transition adjustment from other comprehensive income into
operations over the life of the derivative contracts. (See Note 1 to the
consolidated financial statements)

Income tax rate. After adding back the permanent differences to pretax income,
the effective income tax rate for the 2001 year was approximately 41% as
compared to approximately 40% for the 2000 year.

2000 COMPARED TO 1999 RESULTS

On June 10, 1999, the Company changed its fiscal year to be the period starting
on the first Sunday in July and ending on the first Saturday in July in the
subsequent year (See Note 1 of the consolidated financial statements). For
comparative purposes, the table below presents the results of the 52 weeks ended
July 1, 2000 and the results of the 52 weeks ended July 3, 1999 (herein referred
to as the 2000 year and the 1999 year). The subsequent discussion of results is
based on the 52 week comparison. The selected data for the 52 weeks ended July
3, 1999 is unaudited but reflects all adjustments, consisting of normal
recurring accruals, which in the opinion of management are necessary to fairly
present the Company's results of operations for the unaudited period. The
selected data for the 52 weeks ended July 1, 2000 includes the results of Bright
Start from July 21, 1999, the date of acquisition.

2000 COMPARED TO 1999 RESULTS (IN THOUSANDS OF DOLLARS)

18

During the 2000 year, the Company opened 16 new schools and acquired 43 schools
through the acquisition of Bright Start. During that same period, the Company
closed 50 schools. As a result, the Company operated 752 schools on July 1,
2000. During fiscal year 2000, 39 of the closures resulted from management's
decision to close certain schools located in areas where the demographic
conditions no longer supported an economically viable operation, and the
remaining 11 closures were due to management's decision not to renew the leases
or contracts of certain schools.

Operating revenue. Operating revenue increased $42.3 million or 12.9% during the
2000 year as compared to the 1999 year. The increase in operating revenue
includes $24.0 million from the acquired Bright Start schools, $13.9 million of
incremental revenue from established schools, $10.9 million of incremental
revenue from the new schools, most of which were opened late in the 1999 year or
early in the 2000 year, offset by $6.5 million of reduced revenue from closed
schools. Tuition revenue increased 13.2% during the 2000 year as compared to the
1999 year. The increase in tuition revenue reflects an increase in full time
equivalent (FTE) attendance of 7.1% and an increase of the average weekly FTE
tuition rates of 5.7%.

The increase in FTE attendance is due to the addition of the Bright Start
schools and the new schools offset by a 1.2% decline at our established schools
(schools which were open prior to the 1999 year). The increase in average weekly
tuition per FTE was principally due to selective price increases which were put
into place in February of fiscal years 1999 and 2000, based on geographic market
conditions and class capacity utilization.

Salaries, wages and benefits. Salaries, wages and benefits increased $30.1
million or 17.1% during the 2000 year as compared to the 1999 year. As a
percentage of revenue, labor costs were 55.4% for the 2000 year as compared to
53.4% during the 1999 year. The increase in salaries, wages and benefits
includes incremental labor costs at established schools of $12.3 million, Bright
Start labor costs of $13.1 million, incremental labor costs at new schools of
$6.1 million, increased field management and corporate administration labor
costs of $0.9 million, increased benefit costs of $1.6 million, offset by
reduced incremental labor costs at closed schools of $3.9 million. The increase
in labor costs at established schools was mainly due to a 7.0% increase in
average hourly wage rates and a 1.3% increase in labor hours. New schools
experience higher labor costs relative to revenue as compared to the established
schools.

Facility lease expense. Facility lease expense increased $7.0 million or 17.8%
during the 2000 year as compared the 1999 year. The increase in facility lease
expense was mainly due to higher relative lease costs associated with the Bright
Start schools and the 28 new schools opened in late fiscal 1999 and early fiscal
year 2000, offset by the closures late in fiscal year 2000.

Depreciation. Depreciation expense increased $0.5 million or 3.6% during the
2000 year as compared to the 1999 year. The increase in depreciation was due to
the addition of the Bright Start schools.

Amortization of goodwill and other intangibles. The amortization of goodwill and
other intangibles increased $0.5 million or 21.7% for the 2000 year as compared
the 1999 year. This increase is due to the amortization of goodwill associated
with the Bright Start acquisition.

Restructuring charge. In the third quarter of 2000, management committed to a
plan to close certain schools located in areas where the demographic conditions
no longer support an economically viable operation and to restructure its
operating management to better serve the remaining schools. Accordingly, the
Company recorded a $7.5 million restructuring charge ($4.5 million after tax) to
provide for costs associated with the school closures and restructuring 49
schools. The charge consists principally of $5.9 million for the present value
of rent, real estate taxes, common area maintenance charges, and utilities, net
of anticipated sublease income and $1.1 million for the write-down of fixed
assets to fair market value. At July 1, 2000, the Company had an accrual for the
closing of these Academies of $6.2 million. During fiscal year 2000, 39 schools
were closed. Subsequent to the end of the fiscal year, an additional four
schools have closed in connection with the restructuring plan. By the end of
fiscal year 2001, management plans to address the closing of the remaining six
schools.

19

Other operating costs. Other operating costs increased $10.0 million or 12.5%
during the 2000 year as compared to the 1999 year. Other operating costs include
repair and maintenance, utilities, insurance, marketing, real estate taxes,
food, supplies and transportation. The increase was due primarily to higher
expenses in repairs and maintenance, utilities, real estate taxes, food and
supplies. As a percentage of revenue, other operating costs decreased to 24.2%
in the 2000 year from 24.3% in the 1999 year.

Operating income and EBITDA. As a result of the foregoing, operating income was
$5.1 million for the 2000 year as compared to $18.4 million during the 1999
year. The decline in operating income is principally due to higher costs and the
restructuring charge offsetting the increased revenue. EBITDA is defined as net
income before non-cash restructuring charges, extraordinary items, net interest
cost, taxes, depreciation and amortization. EBITDA was $28.9 million and
$33.7 million for 2000 year and 1999 year, respectively. The decline in EBITDA
is attributed to higher costs offsetting increased revenue.

Interest expense. Net interest expense for the 2000 year increased $1.7 million
from the 1999 year. The increase is mainly a result of additional interest paid
on the Senior Notes due to interest rate swap arrangement, higher average
borrowings under the Revolving Credit facility resulting from the acquisition of
Bright Start, and reduced capitalized interest associated with constructing new
schools.

Income tax rate. After adding back the permanent differences to pretax income,
the effective income tax rate for the 2000 year was approximately 40% as
compared to approximately 49% for the 1999 year. The 1999 year effective income
tax rate was impacted by the resolution of issues raised by the IRS regarding
the Company's benefit plan (see Note 8 to the consolidated financial
statements).

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of liquidity are from cash flows generated by
operations, borrowings on the revolving credit facility under the Credit
Agreement, and sale and leaseback financing for newly constructed schools and
capital contributions expected to be received from Parent in the amount of $11.6
million of convertible preferred stock to LPA pursuant to LPA's commitment. The
Company's principal uses of liquidity are to meet its debt service requirements,
finance its capital expenditures and provide working capital. The Company
incurred substantial indebtedness in connection with the Recapitalization.

Parent and La Petite have entered into the Credit Agreement, as amended,
consisting of the $40 million Term Loan Facility and the $25 million Revolving
Credit Facility. Parent and La Petite borrowed the entire $40 million available
under the Term Loan Facility in connection with the Recapitalization. The
borrowings under the Credit Agreement, together with the proceeds from the sale
of the Senior Notes and the Equity Investment, were used to consummate the
Recapitalization and to pay the related fees and expenses.

The Credit Agreement will terminate on May 11, 2005. The term loan amortizes in
an amount equal to $1.0 million per year in fiscal years 2001 through 2003, $7.8
million in fiscal year 2004, and $27.5 million in fiscal year 2005. The term
loan is also subject to mandatory prepayment in the event of certain equity or
debt issuances or asset sales by the Company or any of its subsidiaries and in
amounts equal to specified percentages of excess cash flow (as defined). On June
30, 2001, there was $37.3 million outstanding on the term loan and $13.0 million
outstanding on the Revolving Credit Facility. La Petite had outstanding letters
of credit in an aggregate amount equal to $8.7 million, and $3.3 million was
available for working capital purposes under the Revolving Credit Facility. The
Company's Credit Agreement, Senior Notes and preferred stock contain certain
covenants that limit the ability of the Company to incur additional
indebtedness, pay cash dividends or make certain other restricted payments.

On November 14, 2001, Parent, La Petite and certain of its senior secured
lenders entered into an amendment to the Credit Agreement. The amendment waived
existing defaults of Parent and La Petite in connection with the failure to
satisfy certain financial covenants for the quarterly periods ended June 30,
2001 and September 30, 2001, and the failure to deliver timely financial
information to the senior secured lenders. Additionally, the amendment revised
certain financial covenant targets for fiscal years 2002, 2003

20

and 2004. The amendment also addressed specific waivers necessary to permit the
issuance of a new class of convertible preferred stock of Parent. In
consideration for the waiver and amendments, Parent is required to issue
additional equity equal to $15.0 million prior to May 14, 2002, with $3.4
million to be issued prior to the effectiveness of the amendment and an
additional $0.825 million to be issued prior to December 31, 2001. Additionally,
as part of the amendment, JPMP agreed to guaranty a portion of the bank debt if
LPA fails to satisfy its commitment to purchase the new equity prior to May 14,
2002 or earlier if the bank debt has been accelerated. The amount of such
guaranty equals the amount of LPA's unfunded commitment to purchase the new
equity, as adjusted from time to time.

On July 21, 1999, the Company acquired all the outstanding shares of Bright
Start for $9.3 million in cash and assumed approximately $2.0 million in debt.
Bright Start operated 43 preschools in the states of Minnesota, Wisconsin,
Nevada, and New Mexico (see Note 11 to the consolidated financial statements).

On December 15, 1999, LPA acquired an additional $15.0 million of redeemable
preferred stock in the Parent and received warrants to purchase an additional
3.0% of the Parent's outstanding common stock on a fully diluted basis at that
time. The proceeds of that investment were contributed to La Petite as common
equity. In connection with such purchase and contribution, the banks waived
their right under the Credit Agreement to require that such proceeds be used to
repay amounts outstanding under the Credit Agreement. The proceeds of such
equity contribution were used to repay borrowings under the revolving credit
facility that were incurred to finance the Bright Start acquisition.

Pursuant to a notice dated November 13, 2001, Parent offered all of its
stockholders the right to purchase up to their respective pro rata amount of a
newly created class of convertible preferred stock and warrants to purchase
common stock of Parent. The convertible preferred stock is junior to the
redeemable preferred stock of Parent in terms of dividends, distributions, and
rights upon liquidation. Up to $4.25 million of convertible preferred stock of
Parent and warrants to purchase 562,500 shares of common stock of Parent were
offered. Stockholders of Parent electing to participate in the offer were
required to commit to purchase a similar percentage of an additional aggregate
amount of convertible preferred stock equal to $10.75 million. At any time, or
from time to time, prior to May 14, 2002, as requested by Parent, the
stockholders of Parent participating in the pre-emptive rights offer are
required to purchase the balance of the convertible preferred stock being
offered thereby. All of the proceeds from the pre-emptive rights offer received
by Parent will be contributed to La Petite as common equity and will be used by
La Petite for general working capital and liquidity purposes.

Pursuant to the pre-emptive offer, on November 15, 2001 LPA acquired $3.4
million of Parent's convertible preferred stock and received warrants to
purchase 452,343 shares of common stock. The proceeds of that $3.4 million
investment were contributed to La Petite as common equity. In connection with
such purchase, the banks waived their right under the Credit Agreement to
require that the proceeds be used to repay amounts outstanding under the Credit
Agreement.

LPA also committed to purchase the balance of the $11.6 million of convertible
preferred stock being offered and not otherwise purchased by the other
stockholders of Parent. Prior to December 31, 2001 LPA is required to purchase
an amount of convertible preferred stock equal to the difference between $0.8
million and the value of the amount of the convertible preferred stock purchased
by other stockholders in connection with the pre-emptive offer. After December
31, 2001, the balance of the convertible preferred stock of Parent to be
purchased by LPA will, as applicable, be purchased at any time, or from time to
time, prior to May 14, 2002 at the request of Parent. If Parent has not
requested that LPA fund its commitment to purchase the balance of the
convertible preferred stock prior to May 14, 2002, LPA has the right to cause
Parent to issue the balance of the convertible preferred stock to LPA. After
giving effect to the investment on November 15, 2001, LPA beneficially owns
approximately 90.0% of Holdings' outstanding common stock on a fully diluted
basis.

In connection with the Amendment to the Credit Agreement and the $15.0 million
of committed capital, management is continuing to review plans and actions that
will enable the Company to improve future operations. However, there can be no
assurance that the Company will be able to do so.

Cash flows from operating activities were $2.8 million during the 52 weeks ended
June 30, 2001, (2001 year) as compared to cash flows from operating activities
of $5.6 million during the 52 weeks ended July 1, 2000, (2000 year). The $2.8
million decrease in cash flows from operations was mainly due to a $4.2 million
decrease in net loss, a $5.1 million change in deferred income taxes, a $3.2
million amortization of transaction adjustment into operations, offset by the
non-cash restructuring charge of $7.5 million in 2000, a $7.0 million net change
in other assets and liabilities and a $0.8 million net change in working
capital.

21

Cash flows used for investing activities were $14.7 million during the 2001 year
as compared to cash flows used of $10.3 million during the 2000 year. The $4.4
million increase in cash flows used for investing activities was principally due
to a $4.5 million increase in maintenance capital expenditures, a $23.2 million
decrease in proceeds from new school sale lease-backs, a $12.9 million decrease
in new school development, and a $10.4 million decrease used for the Bright
Start acquisition.

Cash flows from financing activities were $13.0 million during the 2001 year
compared to cash flows from financing activities of $4.2 million during the 2000
year. The $8.8 million increase in cash flows from financing activities was
principally due to a $0.7 million net decrease in restricted cash requirements,
a $13.0 million increase in net borrowings and a $1.2 million increase in bank
overdrafts related to the timing of monthly expense payments. Restricted cash
investments represent cash deposited in escrow accounts as collateral for the
self-insured portion of the Company's workers compensation insurance coverage.

The Company opened 16 new schools during the 2000 year. The cost to open a new
school ranges from $1.0 million to $1.5 million of which approximately 85% is
typically financed through a sale and leaseback transaction. Alternatively, the
school may be constructed on a build to suit basis, which reduces the working
capital requirements during the construction process. In addition, the Company
intends to explore other efficient real estate financing transactions in the
future.

Purchasers of schools in sale and leaseback transactions have included insurance
companies, bank trust departments, pension funds, real estate investment trusts
and individuals. The leases are operating leases and generally have terms of 15
to 20 years with one or two five-year renewal options. Most of these
transactions are structured with an annual rental designed to provide the
owner/lessor with a fixed cash return on their capitalized cost over the term of
the lease. In addition, many of the Company's leases provide for contingent
rentals if the school's operating revenue exceeds certain levels. Although the
Company expects sale and leaseback transactions to continue to finance its
expansion, no assurance can be given that such funding will always be available.

Total capital expenditures for the 52 weeks ended June 30, 2001 and July 1,
2000, exclusive of the Bright Start acquisition, were $14.9 million and $23.4
million, respectively. The Company views all capital expenditures, other than
those incurred in connection with the development of new schools, to be
maintenance capital expenditures. Maintenance capital expenditures for the 52
weeks ended June 30, 2001 and July 1, 2000 were $14.9 million and $10.4 million,
respectively. For fiscal year 2002, the Company expects total maintenance
capital expenditures to be approximately $14.1 million.

In addition to maintenance capital expenditures, the Company expends additional
funds to ensure that its facilities are in good working condition. Such funds
are expensed in the periods in which they are incurred. The amounts of such
expenses for the 52 weeks ended June 30, 2001 and July 1, 2000 were $12.5
million and $11.9 million, respectively.

INFLATION AND GENERAL ECONOMIC CONDITION

During the past three years (a period of low inflation) the Company implemented
selective increases in tuition rates based on geographic market conditions and
class capacity utilization. During the 2001 year, the Company experienced
inflationary pressures on average wage rates, as hourly rates increased
approximately 8%. Management believes this is occurring industry wide and there
is no assurance that such wage rate increases can be recovered through future
increases in tuition. A sustained recession with high unemployment may have a
material adverse effect on the Company's operations.

22

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Current indebtedness consists of Senior Notes in the aggregate principal amount
of $145 million, the term loan under the Credit Agreement in the aggregate
principal amount of $37.3 million at June 30, 2001 and the revolving credit
facility under the Credit Agreement providing for revolving loans to the Company
in an aggregate principal amount (including swingline loans and the aggregate
stated amount of letters of credit) of $25 million. Borrowings under the Senior
Notes bear interest at 10% per annum. Borrowings under the Credit Agreement bear
interest at a rate per annum equal (at the Company's option) to: (a) an adjusted
London inter-bank offered rate ("LIBOR") not to be less than an amount equal to
2.50% per annum, plus a percentage based on the Company's financial performance;
or (b) a rate equal to the higher of The Chase Manhattan Bank's published prime
rate, a certificate of deposit rate plus 1% or the federal funds effective rate
plus 1/2 of 1% plus, in each case, a percentage based on the Company's financial
performance. The borrowing margins applicable to the Credit Agreement are
currently 3.25% for LIBOR loans and 2.25% for ABR loans. The Senior Notes will
mature in May 2008 and the Credit Agreement will mature in May 2005. The term
loan amortizes in an amount equal to $1.0 million in fiscal year 2001 through
2003, $7.8 million in fiscal year 2004 and $27.5 million in fiscal year 2005.
The term loan is also subject to mandatory prepayment in the event of certain
equity or debt issuances or asset sales by the Company or any of its
subsidiaries an in accounts equal to specified percentage of excess cash flow
(as defined).

To reduce the impact of interest rate changes on the term loan, the Company
entered into interest rate collar agreements during the second quarter of fiscal
year 1999. The collar agreements cover the LIBOR interest rate portion of the
term loan, effectively setting maximum and minimum interest rates of 9.5% and
7.9%.

To reduce interest expense on the $145 million Senior Notes, the Company entered
into an interest rate swap transaction with an imbedded collar during the third
quarter of fiscal year 1999. The effect of this transaction is that the fixed
rate debt was essentially exchanged for a variable rate arrangement based on
LIBOR plus a fixed percentage. The imbedded collar covers the LIBOR portion of
variable rate swap, effectively setting maximum and minimum interest rates of
10.9% and 9.2%. On January 11, 2001, the Company entered into an agreement with
the counter party to terminate the interest rate swap on the Senior Notes. The
termination agreement required the Company to pay the counter party $575,000 on
February 28, 2001.

There were no initial costs associated with either the swap or the interest rate
collar agreements as the floor and ceiling cap rates were priced to offset each
other. Any differential paid or received based on the swap/collar agreements is
recognized as an adjustment to interest expense. As of June 30, 2001 the
notional value of such derivatives was $18.6 million. A 1% increase in the
applicable index rate, after giving effect to the interest rate collars, would
result in an interest rate increase of $0.2 million per year.

23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements:

Independent Auditors' Report

Consolidated Balance Sheets as of June 30, 2001 and July 1, 2000

Consolidated Statements of Operations and Comprehensive Operations for
the 52 weeks ended June 30, 2001, 52 weeks ended July 1, 2000, and 44
weeks ended July 3, 1999

Consolidated Statements of Stockholders' Equity (Deficit) for the 52
weeks ended June 30, 2001, 52 weeks ended July 1, 2000, and 44 weeks
ended July 3, 1999

Consolidated Statements of Cash Flows for the 52 weeks ended June 30,
2001, 52 weeks ended July 1, 2000, and 44 weeks ended July 3, 1999

Notes to Consolidated Financial Statements

24

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
LPA Holding Corp.
Overland Park, Kansas

We have audited the accompanying consolidated balance sheets of LPA Holding
Corp. and subsidiaries (the "Company") as of June 30, 2001 and July 1, 2000, and
the related consolidated statements of operations and comprehensive operations,
stockholders' deficit and cash flows for the 52 weeks ended June 30, 2001, the
52 weeks ended July 1, 2000, and the 44 weeks ended July 3, 1999. Our audits
also included the financial statement schedules listed in the Index at Item 14.
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of LPA Holding Corp. and subsidiaries
as of June 30, 2001 and July 1, 2000, and the results of their operations and
their cash flows for the 52 weeks ended June 30, 2001, the 52 weeks ended July
1, 2000, and the 44 weeks ended July 3, 1999, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

As discussed in Notes 3 and 13, the Company was not in compliance as of June 30,
2001 with certain financial covenants contained in its Credit Agreement. On
November 14, 2001, the Company entered into Amendment No. 3 to Credit Agreement
and Waiver (the "Amendment") with its senior secured lenders. The Amendment
waives the events of default and establishes future modified covenants. In
addition, the Amendment provides for specific waivers necessary to permit the
issuance of $15.0 million of a new class of convertible preferred stock of the
Company.

Deloitte & Touche LLP

Kansas City, Missouri
September 14, 2001 (November 15, 2001 as to Note 13)

25

LPA HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------

JUNE 30, JULY 1,
ASSETS 2001 2000
-------- --------
Current assets:
Cash and cash equivalents $ 5,078 $ 4,008
Restricted cash investments (Note 1) 91 837
Accounts and notes receivable, (net of allowance
for doubtful accounts of $537 and $406) 9,920 7,462
Prepaid food and supplies 6,346 7,127
Other prepaid expenses 3,475 5,324
Refundable income taxes (Note 5) 55 109
Deferred income taxes (Note 5) 950
-------- --------
Total current assets 24,965 25,817

Property and equipment, at cost:
Land 5,778 5,886
Buildings and leasehold improvements 85,753 79,568
Equipment 11,491 23,780
Facilities under construction 2,280 2,041
-------- --------
105,302 111,275
Less accumulated depreciation 46,278 54,842
-------- --------
Net property and equipment 59,024 56,433

Other assets (Note 2) 65,108 69,159
Deferred income taxes (Note 5) 16,276 14,238
-------- --------
$165,373 $165,647
======== ========

(continued)

26

LPA HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
- --------------------------------------------------------------------------------

JUNE 30, JULY 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
--------- ---------

Current liabilities:
Overdrafts due banks $ 5,925 $ 4,756
Accounts payable 5,707 8,273
Current reserve for closed academies 3,100 3,268
Current maturities of long-term
debt and capital lease obligations 1,255 1,897
Accrued salaries, wages and other payroll costs 15,495 14,212
Accrued insurance liabilities 2,359 2,586
Accrued property and sales taxes 3,368 3,490
Accrued interest payable 2,487 2,568
Other current liabilities 4,692 5,556
Deferred income taxes (Note 5) 1,629
--------- ---------
Total current liabilities 46,017 46,606

Long-term debt and capital lease obligations (Note 3) 194,648 182,319
Other long-term liabilities (Note 4) 7,060 13,061

Series A 12% redeemable preferred stock ($.01 par value per share);
45,000 shares authorized, issued and outstanding at June 30, 2001 and 54,941 47,314
July 1, 2000 at aggregate liquidation preference of $1,360.563 as of
June 30, 2001 and $1,211.291 as of July 1, 2000 (Note 7)

Stockholders' deficit:
Class A common stock ($.01 par value per share); 950,000 shares 6 6
authorized and 564,985 shares issued and outstanding as of June 30, 2001
and July 1, 2000 (Note 7)

Class B common stock ($.01 par value per share); 20,000 shares
authorized, issued and outstanding as of June 30, 2001 and July 1,
2000 (Note 7)

Common stock warrants (Note 7) 8,596 8,596
Accumulated other comprehensive income 331
Accumulated deficit (146,226) (132,255)
--------- ---------
Total stockholders' deficit (137,293) (123,653)
--------- ---------
$ 165,373 $ 165,647
========= =========

(concluded)

See notes to consolidated financial statements

27

LPA HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE OPERATIONS
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------

52 WEEKS 52 WEEKS 44 WEEKS
ENDED ENDED ENDED
JUNE 30, JULY 1, JULY 3,
2001 2000 1999
---------- --------- ---------
Operating revenue $ 384,837 $ 371,037 $ 281,072

Operating expenses:
Salaries, wages and benefits 216,018 205,665 150,052
Facility lease expense 44,751 46,573 33,670
Depreciation and amortization 15,252 16,335 12,883
Restructuring costs (Note 12) 7,500
Provision for doubtful accounts 4,531 2,931 1,382
Other 87,393 86,948 66,895
--------- --------- ---------

Total operating expenses 367,945 365,952 264,882
--------- --------- ---------

Operating income 16,892 5,085 16,190

Interest expense 23,577 20,880 16,145
Interest income (85) (163) (153)
--------- --------- ---------
Net interest costs 23,492 20,717 15,992
--------- --------- ---------
Income (loss) before income taxes (6,600) (15,632) 198
Provision (benefit) for income taxes (288) (5,085) 995
--------- --------- ---------
Net loss (6,312) (10,547) (797)
--------- --------- ---------

Other comprehensive income
Other comprehensive loss, net (1,565)
Reclassification into operations 1,896
--------- --------- ---------
Total other comprehensive income 331
--------- --------- ---------
Comprehensive loss $ (5,981) $ (10,547) $ (797)
========= ========= =========

See notes to consolidated financial statements.

28

LPA HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS)
- -------------------------

COMMON STOCK
------------ ACCUMULATED TOTAL
NUMBER ACCUMULATED OTHER COMPRE- STOCKHOLDERS
OF SHARES AMOUNT WARRANTS DEFICIT HENSIVE INCOME EQUITY (DEFICIT)
---------------------- ----------------------- ----------------------------------

Balance, August 30, 1998 $ 580,026 $ 6 $ 5,645 $(111,352) $(105,701)

Preferred stock dividend (Note 7) (3,685) (3,685)

Net loss (797) (797)
--------- ----- -------- ---------- --------------- ----------------
Balance, July 3, 1999 580,026 6 5,645 (115,834) (110,183)

Exercise of stock options 4,959 89 89

Issuance of warrants 2,951 2,951

Preferred stock dividend (5,963) (5,963)

Net loss (10,547) (10,547)
--------- ----- -------- ---------- --------------- ----------------
Balance, July 1, 2000 584,985 6 8,596 (132,255) (123,653)

Other comprehensive loss, net (1,565) (1,565)

Reclassification of other 1,896 1,896
comprehensive income into
operations

Buyback of stock options (32) (32)

Preferred stock dividend (7,627) (7,627)

Net loss (6,312) (6,312)
--------- ----- -------- ---------- --------------- ----------------
Balance, June 30, 2001 584,985 $ 6 $ 8,596 $(146,226) $ 331 $ (137,293)
========= ===== ======== ========== =============== ================

See notes to consolidated financial statements.

29

LPA HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------

52 WEEKS 52 WEEKS 44 WEEKS
ENDED ENDED ENDED
JUNE 30, 2001 JULY 1, 2000 JULY 3, 1999
------------- ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,312) $(10,547) $ (797)
Adjustments to reconcile net loss to net cash from operating activities
Restructuring costs 7,500
Amortization of transition adjustment into operations 3,192
Depreciation and amortization 16,364 17,387 13,712
Deferred income taxes 315 (4,831) 708
Changes in assets and liabilities:
Accounts and notes receivable (2,292) 1,199 (1,014)
Prepaid expenses and supplies 2,630 2,187 (5,488)
Accrued property and sales taxes (122) (302) (354)
Accrued interest payable (81) 180 (2,383)
Accounts payable and other accrued liabilities (2,289) (5,511) 9,409
Other changes in assets and liabilities, net (8,613) (1,665) (3,473)
-------- -------- --------
Net cash provided by operating activities 2,792 5,597 10,320
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Bright Start, net of cash acquired (10,361)
Capital expenditures (14,894) (23,412) (31,666)
Proceeds from sale of assets 189 23,432 12,462
-------- -------- --------
Net cash used for investing activities (14,705) (10,341) (19,204)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt and capital lease obligations (1,900) (8,242) (1,692)
Net borrowings under the Revolving Credit Agreement 13,000 4,000
Exercise of stock options 89
Deferred financing costs (346) (818)
Proceeds from issuance (buyback) of redeemable preferred stock
and warrants, net of expenses (32) 14,992
Increase (reduction) in bank overdrafts 1,169 (2,694) 4,560
Decrease in restricted cash investments 746 381 538
-------- -------- --------
Net cash provided by financing activities 12,983 4,180 6,588
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,070 (564) (2,296)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,008 4,572 6,868
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,078 $ 4,008 $ 4,572
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 21,403 $ 19,694 $ 17,699
Income taxes 160 86 275
Cash received during the period for:
Interest $ 92 $ 156 $ 152
Income taxes 43 88 2,122
Non-cash investing and financing activities:
Capital lease obligations of $588, $34 and $29 were incurred
during the 52 weeks ended June 30, 2001, the 52 weeks ended
July 1, 2000 and 44 weeks ended July 3, 1999 respectively,
when the Company entered into leases for new computer equipment.

See notes to consolidated financial statements.

30

LPA HOLDING CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Vestar/LPA Investment Corp. (Parent), a privately-held Delaware corporation,
was formed in 1993 for the purpose of holding the capital stock of La Petite
Holdings Corp. (Holdings), a Delaware corporation. Holdings, which has no
independent assets or operations, was formed in 1993 for the purpose of
holding the capital stock of La Petite Acquisition Corp. (Acquisition). On
July 23, 1993, as a result of a series of transactions, Holdings acquired all
the outstanding shares of common stock, par value $.01 (the Common Stock), of
La Petite Academy, Inc., a Delaware corporation (La Petite). The transaction
was accounted for as a purchase and the excess of purchase price over the net
assets acquired is being amortized over 30 years. On May 31, 1997, Holdings
was merged with and into La Petite with La Petite as the surviving
corporation. On August 28, 1997 LPA Services, Inc. (Services), a wholly owned
subsidiary of La Petite, was incorporated. Services provides third party
administrative services on insurance claims to La Petite.

On March 17, 1998, LPA Investment, LLC (LPA), a Delaware limited liability
company owned by an affiliate of J.P. Morgan Partners, LLC (JPMP) and by an
entity controlled by Robert E. King, a director of La Petite, and Parent,
which was renamed LPA Holding Corp., entered into an Agreement and Plan of
Merger pursuant to which a wholly owned subsidiary of LPA was merged into
Parent (the Recapitalization). In the Recapitalization, all of the then
outstanding shares of preferred stock and common stock of Parent (other than
the shares of common stock retained by Vestar/LPT Limited Partnership and
management of La Petite) owned by the existing stockholders of Parent (the
Existing Stockholders) were converted into cash. As part of the
Recapitalization, LPA purchased $72.5 million (less the value of options
retained by management) of common stock of the Parent and $30 million of
redeemable preferred stock of Parent (collectively, the Equity Investment).
In addition, in connection with the purchase of preferred stock of Parent,
LPA received warrants to purchase up to 6.0% of Parent's common stock on a
fully diluted basis. Transaction expenses included in operating expenses
under the caption "Recapitalization Costs" for this period include
approximately $1.5 million in transaction bonuses and $7.2 million for the
cancellation of stock options and related taxes. The Recapitalization was
completed May 11, 1998.

On July 21, 1999, La Petite acquired all the outstanding shares of Bright
Start, Inc. ("Bright Start"). See Note 11 to the consolidated financial
statements.

On December 15, 1999, LPA acquired an additional $15.0 million of Parent's
redeemable preferred stock and received warrants to purchase an additional 3%
of Parent's common stock on a fully-diluted basis. The $15.0 million proceeds
received by Parent was contributed to La Petite as common equity. As a result
of the recapitalization and additional purchase of preferred stock and
warrants, LPA beneficially owns 81.3% of the common stock of Parent on a
fully diluted basis and $45 million of redeemable preferred stock of Parent
(See Note 7 and 13). An affiliate of JPMP owns a majority of the economic
interests of LPA and an entity controlled by Robert E. King owns a majority
of the voting interests of LPA.

Parent, consolidated with La Petite, Bright Start and Services, is referred
to herein as the Company.

The Company offers educational, developmental and child care programs that
are available on a full-time or part-time basis, for children between six
weeks and twelve years old. The Company's schools are located in 35 states
and the District of Columbia, primarily in the southern, Atlantic coastal,
mid-western and western regions of the United States.

31

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Parent and its wholly-owned subsidiary, La Petite and its
wholly-owned subsidiaries, Bright Start and Services, after elimination of
all significant inter-company accounts and transactions.

FISCAL YEAR END - On April 18, 2001, the Company changed its fiscal year end
from the 52 or 53-week period ending on the first Saturday in July to the 52
or 53-week period ending on the Saturday closest to June 30. This change was
made to align the Company's business fiscal year with its tax fiscal year. On
June 10, 1999, the Company changed its fiscal year to be the 52 or 53-week
period ending on the first Saturday in July. Prior to this change, the
Company utilized a fiscal year consisting of the 52 or 53-week period ending
on the last Saturday in August. The report covering the transition period is
presented herein.

USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

RECOGNITION OF REVENUES AND PRE-OPENING EXPENSES - The Company operates
preschool education and child care Academies. Revenue is recognized as the
services are performed. Expenses associated with opening new Academies are
charged to expense as incurred.

DEPRECIATION AND AMORTIZATION - Buildings, leasehold improvements, furniture
and equipment are depreciated over the estimated useful lives of the assets
using the straight-line method. For financial reporting purposes, buildings
are generally depreciated over 29 to 40 years, furniture and equipment over
three to 10 years and leasehold improvements over five to 15 years.

Maintenance and repairs are charged to expense as incurred. The cost of
additions and improvements is capitalized and depreciated over the remaining
useful lives of the assets. The cost and accumulated depreciation of assets
sold or retired are removed from the accounts, and any gain or loss is
recognized in the year of disposal, except gains and losses on property and
equipment that have been sold and leased back, which are recognized over the
terms of the related lease agreements.

EXCESS OF PURCHASE PRICE OVER THE NET ASSETS ACQUIRED - The excess of the
purchase price over the fair value of assets and liabilities acquired related
to the acquisition of La Petite and Bright Start is being amortized over a
period of 30 years and 20 years, respectively, on the straight-line method.

OTHER ASSETS - Other assets include real estate property held for sale, the
loss on real estate sale-leaseback transactions, deposits for rent and
utilities, and the fair value of identifiable intangible assets acquired in
connection with the acquisition of La Petite. The loss on sale-leaseback
transactions is being amortized over the lease life, and the intangible
assets are being amortized over periods ranging from 2 to 10 years on the
straight-line method.

DEFERRED FINANCING COSTS - The costs of obtaining financing are included in
other assets and are being amortized over the life of the related debt.

CASH EQUIVALENTS - The Company's cash equivalents consist of commercial paper
and money market funds with original maturities of three months or less.

32

RESTRICTED CASH INVESTMENTS - The restricted cash investment balance
represents cash deposited in an escrow account as security for the
self-insured portion of the Company's workers compensation and automobile
insurance coverage.

INCOME TAXES - The Company establishes deferred tax assets and liabilities,
as appropriate, for all temporary differences, and adjusts deferred tax
balances to reflect changes in tax rates expected to be in effect during the
periods the temporary differences reverse. Management has evaluated the
recoverability of the deferred income tax asset balances and has determined
that the deferred balances will be realized based on future taxable income.

DISCLOSURES REGARDING FINANCIAL INSTRUMENTS - The carrying values of the
Company's financial instruments, with the exception of the Company's Senior
Notes, preferred stock, and financial derivatives, approximate fair value.
The estimated fair values of Senior Notes and preferred stock at June 30,
2001 were $98.6 million and $61.2 million, respectively. The estimated fair
values of Senior Notes and preferred stock at July 1, 2000 were $85.6 million
and $54.5 million, respectively. The combined estimated fair value of the
Company's interest rate contracts at June 30, 2001 was a liability of
$10,391. Estimates of fair value are obtained from independent broker quotes.

IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.

ADVERTISING COSTS - The Company expenses the production costs of advertising
the first time the advertising takes place, except for direct-response
advertising, which is capitalized and amortized over its expected period of
future benefits. At June 30, 2001, no advertising was reported as an asset.
Advertising expense was $5.4 million for the year ended June 30, 2001.

STOCK-BASED COMPENSATION - The Company accounts for stock compensation awards
under Accounting Principles Board ("APB") Opinion No. 25 that requires
compensation cost to be recognized based on the excess, if any, between the
market price of the stock at the date of grant and the amount an employee
must pay to acquire the stock. The Company has disclosed the pro forma net
income (loss) determined on the fair value method accordance with SFAS
No. 123 (See Note 10).

DERIVATIVE FINANCIAL INSTRUMENTS - The Company utilizes swap and collar
agreements to manage interest rate risks. The Company has established a
control environment that includes policies and procedures for risk assessment
and the approval, reporting, and monitoring of derivative financial
instrument activities. Company policy prohibits holding or issuing derivative
financial instruments for trading purposes. Any differential paid or received
based on the swap/collar agreements is recognized as an adjustment to
interest expense. Amounts receivable or payable under derivative financial
instrument contracts, when recognized, are reported on the Consolidated
Balance Sheet as both current and long term receivables or liabilities. Gains
and losses on terminations of hedge contracts are recognized as other
operating expense when terminated in conjunction with the termination of the
hedged position, or to the extent that such position remains outstanding,
deferred as prepaid expenses or other liabilities and amortized to interest
expense over the remaining life of the position.

SEGMENT REPORTING - The Company has determined that it currently operates
entirely in one segment.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - Effective July 2, 2000, the
Company adopted Statement of Financial Accounting Standards No. 133, as
amended by SFAS Nos. 137 and 138 ("SFAS No. 133"), Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. All
derivatives, whether designated in hedging relationships or not, are required
to be recorded on the balance

33

sheet at fair value. If the derivative is designated as a fair value hedge,
the changes in the fair value of the derivative and of the hedged item
attributable to the hedged risk are recognized in earnings. If the derivative
is designated as a cash flow hedge, the effective portions of changes in the
fair value of the derivative are recorded in other comprehensive income and
are recognized in the income statement when the hedged item affects earnings.
Ineffective portions of changes in the fair value of cash flow hedges are
recognized in earnings. Changes in fair value of derivative instruments that
do not meet hedge accounting criteria are recorded as a component of current
operations. The Company is exposed to credit risk on derivative instruments,
limited to the net interest receivable and the fair market value of the
derivative instrument should the counter-party fail. The contract or notional
value is not at risk in derivative contracts. Credit risk is managed through
the selection of only credit worthy counter-parties and continuing review and
monitoring of counter-parties. The Company is also exposed to market risk
from derivative instruments when adverse changes in interest rates occur.
Market risk is monitored and controlled through adherence to financial risk
policies and periodic review of positions. The adoption of SFAS 133 on July
2, 2000, resulted in a net cumulative transition loss of $2.6 million ($1.6
million net of taxes), which was recorded in other comprehensive income and
represented the market value of derivatives as of the implementation date.
This transition adjustment is amortized from other comprehensive income into
operations over the life of the derivative contracts. During the year ended
June 30, 2001, $3.2 million of derivative losses ($1.9 million net of taxes)
were amortized into operations. The Company has one interest rate swap
contract as of June 30, 2001, which expires on May 15, 2005.

SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after June 30,
2001. This Statement replaces SFAS No. 125 and carries over most of the
provisions without reconsideration. However, SFAS No. 140 does revise the
accounting for securitizations and other transfers of financial assets and
collateral, and requires certain disclosures. This Statement is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after June 30, 2001 and for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for the fiscal year ended June 30, 2001. The
Company has adopted the Statement as of June 30, 2001, which had no impact on
the Company's financial statements as of June 30, 2001.

In June 2001, the Financial Accounting Standards Board ("FASB") approved SFAS
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 will require business combinations entered
into after June 30, 2001 to be accounted for using the purchase method of
accounting. Specifically identifiable intangible assets acquired, other than
goodwill, will be amortized over their estimated useful economic life. SFAS
No. 142 will require that goodwill will not be amortized, but should be
tested for impairment at least annually. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001 to all goodwill and other intangible
assets recognized in an entity's statement of financial position at that
date, regardless of when those assets were initially recognized. Once
adopted, annual goodwill amortization of approximately $2.6 million will
cease. The Company has not yet determined if any impairment charges will
result from adoption of these Statements.

Also, in June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and
reporting for obligations associated with retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and (or) the normal operation
of a long-lived assets, except for certain obligations of lessees. The
Company has not yet determined the impact of the implementation of this
Statement.

In August 2001, The FASB issued SFAS No. 144 Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 modified the financial accounting
and reporting for long-lived assets to be disposed of by sale, and it
broadens the presentation of discontinued operations to

34

include more disposal transactions. The Company has not yet determined the
impact of the implementation of this Statement, which is effective for the
Company's 2003 fiscal year.

RECLASSIFICATIONS - Certain reclassifications to prior year amounts have been
made in order to conform to the current year presentation.

2. OTHER ASSETS
(in thousands of dollars)

JUNE 30, JULY 1,
2001 2000
-------- --------
Intangible assets:
Excess purchase price over net assets acquired $ 74,220 $ 74,220
Curriculum 1,497 1,497
Accumulated amortization (19,356) (16,533)
-------- --------
56,361 59,184

Deferred financing costs 8,769 8,769
Accumulated amortization (3,252) (2,141)
Other assets 3,230 3,347
-------- --------
$ 65,108 $ 69,159
======== ========

3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
(in thousands of dollars)

JUNE 30, JULY 1,
2001 2000
--------- ---------

Senior Notes, 10.0% due May 15, 2008 (a) $ 145,000 $ 145,000
Borrowings under credit agreement (b) 50,250 38,250
Capital lease obligations 653 966
--------- ---------
195,903 184,216
Less current maturities of long-term debt
and capital lease obligations (1,255) (1,897)
--------- ---------
$ 194,648 $ 182,319
========= =========

a) The Senior Notes mature on May 15, 2008. Interest is payable semi-annually
on May 15 and November 15 of each year. Commencing May 15, 2003, the
Senior Notes are redeemable at various redemption prices at Parent and La
Petite's option. The Senior Notes are joint and several obligations of
Parent and its 100% owned subisdiary, La Petite, as co-issuers, and are
fully and unconditionally guaranteed on a joint and several basis by all
of Parent's other subsidiaries, namely, Bright Start and Services. Bright
Start and Services are 100% owned subsidiaries of La Petite. Parent has no
independent assets or operations. There does not exist any restrictions on
the ability of Parent or La Petite to obtain funds from its subsidiaries
by dividend or loan. The Senior Notes contain certain covenants that,
among other things, limit Parent and La Petite's ability to incur
additional debt, transfer or sell assets, and pay cash dividends.

To reduce interest expense on the $145 million Senior Notes, the Company
entered into an interest rate swap transaction of the same notional amount
with an imbedded collar during the third quarter of fiscal year 1999. The
effect of this transaction was that the fixed rate debt was essentially
exchanged for a variable rate arrangement based on LIBOR plus a fixed
percentage. The imbedded collar covers the LIBOR portion of variable rate
swap, effectively setting maximum and minimum interest rates of 10.9%

35

and 9.2%. On January 11, 2001, the Company entered into an agreement with
the counter party to terminate the interest rate swap on the Senior Notes.
The termination agreement required the Company to pay the counter party
$575,000 on February 28, 2001, which was recorded in interest expense.

b) On May 11, 1998 the Company entered into an agreement (the Credit
Agreement) providing for a term loan facility in the amount of $40.0
million and a revolving credit agreement for working capital and other
general corporate purposes in the amount of $25 million. Borrowings under
the Credit Agreement are secured by substantially all of the assets of the
Parent, La Petite and its subsidiaries. Loans under the Credit Agreement
bear an interest rate per annum equal to (at the Company's option): (i) an
adjusted London inter-bank offered rate (LIBOR) not to be less than an
amount equal to 2.5% per annum, plus a percentage based on the Company's
financial performance or (ii) a rate equal to the higher of Chase's prime
rate, a certificate of deposit rate plus 1%, or the Federal Funds rate
plus 1/2 of 1% plus in each case a percentage based on the Company's
financial performance. The Company is required to pay fees of 0.5% per
annum of the unused portion of the Credit Agreement plus letter of credit
fees, annual administration fees and agent arrangement fees. The Credit
Agreement will mature in May 2005. The term loan amortizes in an amount
equal to $1.0 million in fiscal year 2001 through 2003, $7.8 million in
fiscal year 2004, and $27.5 million in fiscal year 2005. The term loan is
also subject to mandatory prepayment in the event of certain equity or
debt issuances or asset sales by the Company or any of its subsidiaries
and in amounts equal to specified percentage of excess cash flow (as
defined). At June 30, 2001 there was $13.0 million outstanding on the
revolver.

To reduce the impact of interest rate changes on the term loan, the
Company entered into interest rate collar agreements during the second
quarter of fiscal year 1999. The collar agreements cover the LIBOR
interest rate portion of the term loan, effectively setting maximum and
minimum interest rates of 9.5% and 7.9%. As of June 30, 2001, the notional
value of the interest rate collar agreement was $18.6 million.

At June 30, 2001, the Company was not in compliance with certain of the
financial covenants contained in the Credit Agreement. On November 14,
2001, the Company entered into Amendment No. 3 to Credit Agreement and
Waiver (the "Amendment"), which effectively waived the events of default
and established future modified financial covenants (see Note 13). The
Company expects to comply with the amended financial covenants contained
in the Credit Agreement, as amended by the Amendment, throughout fiscal
year 2002. However, there can be no assurance that the Company will be
able to do so. Additionally, the Amendment established revised rates of
interest based on the Company's leverage ratio, as defined.

Scheduled maturities and mandatory prepayments of long-term debt and capital
lease obligations during the five years subsequent to June 30, 2001 are as
follows (in thousands of dollars):

2002 $ 1,255
2003 14,220
2004 7,928
2005 27,500
2006 0
2007 and thereafter 145,000
--------
$195,903
========

36

4. OTHER LONG-TERM LIABILITIES (in thousands of dollars)

JUNE 30, JULY 1,
2001 2000
------- -------

Unfavorable lease, net of accumulated amortization $ 2,542 $ 3,973
Reserve for closed academies 1,858 5,295
Interest rate swap agreement 10 --
Long-term insurance liabilities 2,650 3,793
------- -------
$ 7,060 $13,061
======= =======

In connection with the acquisition of La Petite and Bright Start, an
intangible liability for unfavorable operating leases was recorded and is
being amortized over the average remaining life of the leases.

The reserve for closed academies includes the long-term liability related
primarily to leases for Academies that were closed and are no longer operated
by the Company.

5. INCOME TAXES

The provisions for income taxes recorded in the Consolidated Statements of
Operations consisted of the following (in thousands of dollars):

52 WEEKS 52 WEEKS 44 WEEKS
ENDED ENDED ENDED
JUNE 30, JULY 1, JULY 3,
2001 2000 1999
-------- -------- --------

Refundable (Payable) Currently:

Federal $ 23 $ (8,304) $ 1,426
State 4 (1,612) 277
---------------------------------
Total 27 (9,916) 1,703
---------------------------------
Deferred:
Federal (264) 4,046 (593)
State (51) 785 (115)
---------------------------------
Total (315) 4,831 (708)
---------------------------------
$ (288) $ (5,085) $ 995
=================================

The difference between the provision for income taxes, as reported in the
Consolidated Statements of Operations, and the provision computed at the
statutory Federal rate of 34 percent is due primarily to state income taxes
and nondeductible amortization of the excess of purchase price over the net
assets acquired of $2.6 million, $2.6 million, and $1.8 million in the 52
weeks ended June 30, 2001, July 1, 2000, and the 44 weeks ended July 3, 1999,
respectively. In addition, the 1999 fiscal year provision was impacted by the
resolution of issues raised by the IRS regarding the Company's benefit plan
(see Note 8 to the consolidated financial statements).

Deferred income taxes result from differences between the financial reporting
and tax basis of the Company's assets and liabilities. The sources of these
differences and their cumulative tax effects

37

at June 30, 2001 and July 1, 2000 are estimated as follows (in thousands of
dollars):

JUNE 30, JULY 1,
2001 2000
-------- --------

Current deferred taxes:
Accruals not currently deductible $ 2,519 $ 3,788
Supplies (2,633) (2,985)
Prepaids and other (1,515) 147
-------- --------
Net current deferred tax assets (liabilities) $ (1,629) $ 950
======== ========

Noncurrent deferred taxes:
Unfavorable leases $ 1,032 $ 1,613
Insurance reserves 1,076 1,540
Reserve for closed academies 754 2,150
Carryforward of net operating loss 8,120 3,847
Property and equipment 4,651 4,448
Intangible assets 324 349
Other 319 291
-------- --------
Net noncurrent deferred tax assets $ 16,276 $ 14,238
======== ========

The Company has federal net operating loss carry-forwards of $17.1 million to
offset future taxable income through the tax year 2012 and 2018. Management
believes that the deferred tax assets recorded on the balance sheet are
recoverable and no reserve is required.

6. LEASES

Academy facilities are leased for terms ranging from 15 to 20 years. The
leases provide renewal options and require the Company to pay utilities,
maintenance, insurance and property taxes. Some leases provide for annual
increases in the rental payment and many leases require the payment of
additional rentals if operating revenue exceeds stated amounts. These
additional rentals range from 2% to 10% of operating revenue in excess of the
stated amounts and are recorded as rental expense. Vehicles are also rented
under various lease agreements, most of which are cancelable within 30 days
after a one-year lease obligation. Substantially, all Academy and vehicle
leases are operating leases. Rental expense for these leases were $47.4
million, $52.3 million, and $39.1 million, for the 52 weeks ended June 30,
2001, July 1, 2000, and 44 weeks ended July 3, 1999, respectively. Contingent
rental expense of $2.3 million, $1.9 million and $1.4 million were included
in rental expense for the 52 weeks ended June 30, 2001, July 1, 2000, and the
44 weeks ended July 3, 1999.

Aggregate minimum future rentals payable under facility leases as of June 30,
2001 were as follows (in thousands of dollars):

Fiscal year ending:
2002 $ 41,880
2003 37,104
2004 30,525
2005 24,083
2006 20,485
2007 and thereafter 58,988
------------
$ 213,065
============

38

7. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

The authorized stock of Parent as of June 30, 2001 consists of:

(i) 45,000 shares of Series A Redeemable Preferred Stock, $.01 par value,
(the preferred stock) all of which were issued and outstanding. The
carrying value of the preferred stock is being accreted to its
redemption value of $45.0 million on May 11, 2008. The preferred stock
is non-voting and mandatorily redeemable on May 11, 2008. Dividends at
the rate of 12.0% per annum are cumulative and if not paid on the June
30 or December 31 semi-annual preferred stock dividend dates are added
to the liquidation value. The liquidation value per share was 1,360.563
as of June 30, 2001 and $1,211.291 as of July 1, 2000. The preferred
stock may be exchanged for 12.0% Subordinated Exchange Debentures due
2008, at Parent's option, subject to certain conditions, in whole, but
not in part, on any scheduled dividend payment date. The preferred
stock contains certain restrictive provisions that limit the ability of
Parent to pay cash dividends.

(ii) 950,000 shares of Class A Common Stock, $.01 par value, (the Class A
Common Stock) of which 564,985 shares were issued and outstanding as of
June 30, 2001.

(iii) 20,000 shares of Class B Common Stock, $.01 par value, (the Class B
Common Stock) of which 20,000 shares were issued and outstanding as of
June 30, 2001. The Class B Common Stock votes together with the Class A
Common Stock as a single class, with the holder of each share of common
stock entitled to cast one vote. The holders of the Class B Common
Stock have the exclusive right, voting separately as a class, to elect
one member to the Board of Directors of Parent. Each share of the Class
B Common Stock is convertible at the option of the holder, at any time,
into one share of Class A Common Stock.

(iv) Warrants to purchase 64,231 shares of Class A Common Stock at a
purchase price of $.01 per share any time on or before May 11, 2008.
The Warrants were issued in connection with the sale of Series A
Redeemable Preferred Stock; the Company recognized discounts on the
preferred stock by allocating $8,596,000 to the Warrants representing
the fair value of the Warrants when issued.

8. BENEFIT PLAN

The Company sponsored a defined contribution plan (the "Plan") for
substantially all employees. Until January 1, 1998 eligible participants
could make contributions to the Plan from 1% to 20% of their compensation (as
defined). The Company also made contributions at the discretion of the Board
of Directors. Contribution and plan administration cost expense attributable
to this Plan was $15,679, $0.3 million and $0.3 million for the 52 weeks
ended June 30, 2001, July 1, 2000, and the 44 weeks ended July 3, 1999,
respectively.

The Plan was under audit by the Internal Revenue Service ("IRS") which raised
several issues concerning the Plan's operation. All issues raised by the IRS
have been satisfactorily resolved and the impact on financial position and
results of operations was not material. However, recognizing some inherent
deficiencies in the Plan's design, the Company petitioned the IRS for the
right to terminate the plan effective May 31, 1999, and on January 13, 2000
the Company received a favorable determination from the IRS and terminated
the plan effective May 31, 1999.

The Company sponsored a new defined contribution plan (the "2001 Plan") for
substantially all employees. Eligible participants may make contributions to
the 2001 Plan from 0% to 15% of their compensation (as defined). The Company
may make contributions at the discretion of the Board of Directors. The
Company made no contributions for fiscal year 2001.

39

9. CONTINGENCIES

The Company has litigation pending which arose in the ordinary course of
business. Litigation is subject to many uncertainties and the outcome of the
individual matters is not presently determinable. It is management's opinion
that this litigation will not result in liabilities that would have a
material adverse effect on the Company's financial position.

10. STOCK-BASED COMPENSATION

On August 27, 1995, the Board of Directors of Parent adopted the
"Non-Qualified Stock Option Agreement" (1995 Plan). Under the terms of the
1995 Plan, the Board of Directors in their sole discretion granted
non-qualified stock options, with respect to the common stock of Parent, to
key executives of the Company. Options were granted pursuant to an agreement
at the time of grant, and typically become exercisable in equal cumulative
installments over a five-year period beginning one year after the date of
grant. All such options granted expire on the tenth anniversary of the grant
date. No market existed for the common stock of Parent, but options were
granted at prices that, in the opinion of the Board of Directors, were equal
to or greater than the fair value of the stock at the time of grant.

Effective May 11, 1998, the Board of Directors of Parent adopted the "1998
Stock Option Plan" (1998 Plan). The 1998 Plan provides for the granting of
Tranche A and Tranche B options to purchase up to 60,074 shares of the
Parent's common stock. During the 2001 year, the Board of Directors of
parent amended the 1998 Plan, increasing to 230,000 the number of shares of
the Parent's common stock that may be purchased. Tranche A options were
granted at prices, which approximated the fair value of a share of common
stock of the Parent at the date of grant. These options expire ten years
from the date of grant and become exercisable ratably over 48 months.
Tranche B options were granted at $133.83 per share, expire ten years from
the date of grant and are exercisable only in the event of a change in
control or a registered public offering of common stock which provides
certain minimum returns (as defined).

On August 19, 1999, Parent adopted the 1999 Stock Option Plan for
Non-Employee Directors (1999 Plan). Under the terms of the 1999 Plan, 10,000
shares of Parent's common stock are reserved for issuance to non-employee
directors at prices that approximate the fair value of a share of Parent's
common stock at the date of issuance. Options vest ratably on the last day
of each month over four years following the date of grant, if the person is
a director on that day.

40

Stock option transactions during the past three years have been as
follows:

1998 PLAN 1998
PLAN
1995 PLAN TRANCHE A TRANCHE B 1999 PLAN
---------------------- ---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVG. PRICE OPTIONS AVG. PRICE OPTIONS AVG. PRICE OPTIONS AVG. PRICE
------- ---------- ------- ---------- ------- ---------- ------- ----------

Options outstanding
at August 29, 1998 20,717 $ 19.19 38,850 $ 66.92 13,205 $ 133.83
------ -------- ------- -------- ------ -------- ----- --------

Granted 4,500 $ 66.92 1,200 $ 133.83

Options outstanding
at July 3, 1999 20,717 $ 19.19 43,350 $ 66.92 14,405 $ 133.83
------ -------- ------- -------- ------ -------- ----- --------

Granted 4,400 $ 66.92
Exercised 4,959 $ 18.00
Canceled 11,795 $ 19.01 33,450 $ 66.92 9,605 $ 133.83
------ -------- ------- -------- ------ -------- ----- --------

Options outstanding
at July 1, 2000 3,963 $ 21.22 9,900 $ 66.92 4,800 $ 133.83 4,400 $ 66.92
------ -------- ------- -------- ------ -------- ----- --------

Granted 182,285 $ 66.92
Canceled 750 $ 18.00 2,575 $ 66.92 4,200 $ 133.83 500 $ 66.92
------ -------- ------- -------- ------ -------- ----- --------

Options outstanding
at June 30, 2001 3,213 $ 21.97 189,610 $ 66.92 600 $ 133.83 3,900 $ 66.92
====== ======== ======= ======== ====== ======== ===== ========

Options exercisable
at June 30, 2001 3,213 55,308 1,787
====== ======= ====== =====

Options available for
grant at June 30, 2001 25,374 14,416 6,100
====== ======= ====== =====

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------------------------------------------------------------------------------------

1995 Plan:
$ 18.00 2,463 4.2 years $ 18.00 2,463 $ 18.00
$ 35.00 750 5.5 years $ 35.00 750 $ 35.00
--------------------------------------------------------------------------------------------
$ 18.00 to $ 35.00 3,213 4.5 years $ 21.97 3,213 $ 21.97
============================================================================================

1998 Tranche A:
$ 66.92 189,610 8.8 years $ 66.92 55,308 $ 66.92
============================================================================================

1998 Tranche B
$133.83 600 6.9 years $ 133.83
============================================================================================

1999 Plan
$ 66.92 3,900 8.1 years $ 66.92 1,787 $ 66.92
============================================================================================

The Company accounts for all options in accordance with APB Opinion No.
25, which requires compensation cost to be recognized only on the
excess, if any, between the fair value of the stock at the date of
grant and the amount an employee must pay to acquire the stock. Under
this method, no compensation cost has been recognized for stock options
granted.

41

Had compensation cost for these options been recognized as prescribed
by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss would have been increased by (in thousands) $11 in
2001, $14 in 2000 and $37 in 1999. The Company is privately owned and
there is no market for its stock. The estimated compensation element is
based on the time value of money at the U.S. Treasury rates assuming
that the value of the stock will be at least equal to the grant price
when fully exercisable. The estimated compensation expense above is
assumed to be amortized over the vesting period.

11. ACQUISITION

On July 21, 1999, the Company acquired all the outstanding shares of
Bright Start for $9.3 million in cash and assumed approximately $2.0
million in debt. At the time of the acquisition, Bright Start operated
43 preschools in the states of Minnesota, Wisconsin, Nevada, and New
Mexico with one new school under construction. For the year ended
August 31, 1998, Bright Start had operating revenue of $22.2 million
and at August 31, 1998 total assets were $5.1 million. The acquisition
was accounted for as a purchase and, accordingly, the purchase price
has been allocated to the fair value of net assets acquired and
resulted in an allocation to goodwill of $10.1 million which is being
amortized on a straight-line basis over 20 years. The Company's
financial statements reflect the results of operations of Bright Start
during the period subsequent to July 21, 1999. On an unaudited pro
forma basis, assuming the acquisition had occurred on July 4, 1998, the
Company's operating revenue and net loss for the 52 weeks ended July 3,
1999 would have been $352.0 million and $1.2 million, respectively.

12. RESTRUCTURING CHARGE

In the third quarter of 2000, management committed to a plan to close
certain Academies located in areas where the demographic conditions no
longer support an economically viable operation and to restructure its
operating management to better serve the remaining Academies.
Accordingly, the Company recorded a $7.5 million restructuring charge
($4.5 million after tax) to provide for costs associated with the
Academy closures and restructuring of 49 Academies. The charge
consisted principally of $5.9 million for the present value of rent,
real estate taxes, common area maintenance charges, and utilities, net
of anticipated sublease income, and $1.1 million for the write-down of
fixed assets to fair market value.

As of June 30, 2001, the following costs related to the closings and
restructurings were charged against the 2000 year restructuring
reserve:

FACILITIES & OTHER
RELATED ASSETS COSTS TOTAL
-------------- ------- -------

Reserves recorded in fiscal year 2000 $ 6,989 $ 511 $ 7,500
Amount utilized in fiscal year 2000 (1,234) (149) (1,383)
------- ------- -------
Balance at July 1, 2000 5,755 362 6,117

Amount utilized in fiscal year 2001 (2,222) (139) (2,361)
------- ------- -------
Balance at June 30, 2001 $ 3,533 $ 223 $ 3,756
======= ======= =======

13. SUBSEQUENT EVENTS

On November 14, 2001, the Company and certain of its senior secured
lenders entered into Amendment No. 3 to Credit Agreement and Waiver
(the "Amendment"). The Amendment waived existing defaults in connection
with the failure to satisfy certain financial covenants for the
quarterly periods ended June 30, 2001 and September 30, 2001, and the
failure to deliver timely

42

financial information to the senior secured lenders. Additionally, the
Amendment revised certain future financial covenants. The Company
expects to comply with the financial covenants contained in the Credit
Agreement, as amended, throughout fiscal year 2002. However, there can
be no assurance that the Company will be able to do so. The Amendment
also provided for specific waivers necessary to permit the issuance of
a new class of convertible preferred stock of the Company. In
consideration for the waiver and amendments, the Company is required to
issue additional equity of $15.0 million prior to May 14, 2002, with
$3.4 million to be issued prior to the effectiveness of the Amendment
and an additional $0.825 million to be issued prior to December 31,
2001. As part of the Amendment, JPMP agreed to guarantee a portion of
the bank debt if LPA fails to satisfy its commitment to purchase the
new equity prior to May 14, 2002 or earlier if the bank debt has been
accelerated. The amount of such guaranty equals the amount of LPA's
unfunded commitment to purchase the new equity, as adjusted from time
to time.

The Company offered all of its stockholders the right to purchase up to
their respective pro rata amount of a newly created class of
convertible preferred stock and warrants to purchase common stock. The
convertible preferred stock is junior to the redeemable preferred stock
of Parent in terms of dividends, distributions, and rights upon
liquidation. Up to $4.25 million of convertible preferred stock of
Parent and warrants to purchase 562,500 shares of common stock were
offered. At any time, or from time to time, prior to May 14, 2002, as
requested by Parent, the stockholders of Parent participating in the
offer are required to purchase the balance of the convertible preferred
stock being offered. All of the proceeds received by Parent will be
contributed to La Petite as common equity and will be used by La Petite
for general working capital and liquidity purposes.

Pursuant to the offer, on November 15, 2001 LPA acquired $3.4 million
of Parent's convertible preferred stock and received warrants to
purchase 452,343 shares of common stock. The proceeds were contributed
to La Petite as common equity. In connection with such purchase, the
banks waived their right under the Credit Agreement to require that the
proceeds be used to repay amounts outstanding under the Credit
Agreement. LPA also committed to purchase the balance of the $11.6
million of convertible preferred stock being offered and not otherwise
purchased by the other stockholders of the Company. After giving effect
to the investment on November 15, 2001, LPA beneficially owns
approximately 90.0% of Parent's outstanding common stock on a fully
diluted basis.

In connection with the Amendment to the Credit Agreement and the $15.0
million of committed capital, management is continuing to review plans
and actions that will enable the Company to improve future operations.
However, there can be no assurance that the Company will be able to do
so.

* * * * * * * * *

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

43

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and current position held by the
persons who are the directors and executive officers of the Company:

Name Age Position
- ---- --- --------

Stephen P. Murray ................38 Chairman of the Board and Director
Judith A. Rogala..................60 Chief Executive Officer, President and
Director
Mitchell J. Blutt, M.D ...........44 Director
Terry D. Byers ...................47 Director
Robert E. King ...................65 Director
Brian J. Richmand ................47 Director
Ronald L. Taylor .................57 Director
Damaris M. Campbell ..............48 Vice President, Eastern Region
Jeffrey J. Fletcher ..............49 Chief Financial Officer
Brian J. Huesers .................40 Chief Information Officer
Lisa J. Miskimins ................41 Vice President, Central Region
Rebecca L. Perry .................46 Vice President, Operations
Bill Buckland ....................55 Vice President, People
Amy Larson........................38 Vice President, Marketing

The business experience during the last five years and other information
relating to each executive officer and director of the Company is set forth
below.

Stephen P. Murray became the Chairman of the Board in January 2000 and has been
a Director of the Company since May 1998. Mr. Murray has been a General Partner
of JPMP since 1994. From 1988 to 1994 Mr. Murray was a Principal at JPMP. Prior
thereto, he was a Vice President with the Middle-Market Lending Division of
Manufacturers Hanover. Mr. Murray has a BA from Boston College and a MBA from
Columbia Business School. He also serves as director of The Vitamin Shoppe,
Starbelly, Inc., Home Products International, Inc., Futurecall Telemarketing,
American Floral Services, The International Cornerstone Group, Medical Arts
Press and Regent Lighting Corporation.

Judith A. Rogala became a director and the Chief Executive Officer and President
of the Company in January 2000. From 1997 to 1999 Ms. Rogala was President of
ARAMARK Uniform Services. She was an Executive Vice President of Office Depot
from 1994 to 1997. From 1992 to 1994 she was President and Chief Executive
Officer of EQ (the Environmental Quality Company) and from 1990 to 1992 Ms.
Rogala was President and Chief Executive Officer of Flagship Express. From 1980
to 1990 she was a Senior Vice President at Federal Express. Ms. Rogala has a
B.S. from Roosevelt University and a MBA from the University of New Mexico.

Mitchell J. Blutt, M.D. has been a Director of the Company since May 1998. Dr.
Blutt has served as an Executive Partner of JPMP since 1992. From 1988 to 1992
he was a General Partner of JPMP. Dr. Blutt has a BA and a MD from the
University of Pennsylvania and a MBA from The Wharton School of the University
of Pennsylvania. He is an Adjunct Professor of Medicine at the New York
Hospital/Cornell Medical School. Dr. Blutt is a director of the Hanger
Orthopedic Group, Senior Psychology Services Corporation, Fisher Scientific
International, dj Orthopedics, Inc, dj Orthopedics, LLC, Medsite.com, Palm
Entertainment Corporation, and on the Advisory Boards of the DS Polaris Fund,
Dubilier & Co., The Tinicum Fund, the Global Academy for the Human Genome Human
Being and the Cornell Center for Complementary and Integrative Medicine. He is a
member of the Board of Trustees of the University of Pennsylvania and a member
of the Board of Overseers of the University of Pennsylvania's School of Arts and
Sciences. Dr. Blutt also serves on the International Board of Governors of the
Peres Center for Peace.

44

Terry D. Byers has been a Director of the Company since December 1998. Ms. Byers
has more than 17 years experience in information technology ranging from
hands-on systems design and development to executive management. She has
extensive experience in designing and architecting enterprise-level IT
infra-structures, developing and integrating business information systems,
implementing large ERP applications, and developing and deploying
technology-based solutions to clients. Since 1996, Ms. Byers has been a Senior
Vice President and the Chief Technology Officer for American Floral Services,
Inc. located in Oklahoma City. She holds a Bachelors of Business Administration
degree in Computer Science from the University of Central Oklahoma.

Robert E. King has been a Director of the Company since May 1998. Mr. King is
Chairman of Salt Creek Ventures, LLC, a private equity company he founded in
1994. Salt Creek Ventures, LLC is an organization specializing in equity
investments in technology companies. Mr. King has been involved over the past 33
years as a corporate executive and entrepreneur in technology-based companies.
From 1983 to 1994, he was President and Chief Executive Officer of The Newtrend
Group. Mr. King has participated as a founding investor in five companies. Mr.
King has a B.A. from Northwestern University. He serves on the Board of
Directors of DeVry, Inc., American Floral Services, Inc., COLLEGIS, Inc.,
Premier Systems Integrators, Inc. and eduprise.com, inc.

Brian J. Richmand has been a Director of the Company since May 1998. Mr.
Richmand became a Special Partner of JPMP in January 2000. He was a General
Partner of JPMP from 1993 to 2000. From 1986 to August 1993 Mr. Richmand was a
partner with the law firm of Kirkland & Ellis. He has a B.S. from The Wharton
School of the University of Pennsylvania and a J.D. from Stanford Law School.
Mr. Richmand is a director of Transtar Metals, L.L.C., Riverwood International
Corp., Reiman Publishing, L.L.C., and American Media, Inc.

Ronald L. Taylor has been a Director of the Company since April 1999. Mr. Taylor
has been President and Chief Operating Officer of DeVry, Inc since 1987. He is
Chairman of the Proprietary Schools Advisory Committee for the Illinois Board of
Higher Education; a member of the Institutional Action Committee for the North
Central Association of Colleges and Schools; a Commissioner for the Commission
on Adult Learning and Educational Credentials, American Council on Education; a
mentor for the Next Generation Leadership Institute at Loyola University
Chicago; a member of the Board of Directors of the Illinois State Chamber of
Commerce. He also serves on the Board of Directors of DeVry, Inc. and the Better
Business Bureau of Chicago & Northern Illinois, Inc. Mr. Taylor has a BA from
Harvard University and received his MBA from Stanford University.

Damaris M. Campbell became the Vice President of the Eastern Region for the
Company in June 2000. She is responsible for the supervision of 14 states. From
1997 to 2000, Ms. Campbell was an Area Vice President with supervisory
responsibility for the operations of the Company in five states. She was a
Divisional Director of 54 schools in three states from 1993 to 1997. From 1983
to 1993, she supervised 13 academies in the Charlotte, NC Region. She began her
career with the Company in 1980 as a teacher.

Jeffrey J. Fletcher became Chief Financial Officer of the Company in June 2000.
From 1998 to 2000, Mr. Fletcher was Chief Financial Officer for Hirsh
Industries, Inc. From 1995 to 1998, he provided strategic, finance and
operations consulting services to a variety of businesses including
manufacturers, Internet start-ups, medical services and retailers. Mr. Fletcher
served as Chief Financial Officer of the Environmental Quality Company from 1992
to 1995. Prior to 1992, Mr. Fletcher served in various financial capacities at
Gaylord Container. Mr. Fletcher began his career with Coopers & Lybrand and
Deloitte & Touche. Mr. Fletcher has a B.S. from the University of Iowa and a
M.M. from the Kellogg Graduate School of Management at Northwestern University.

Brian J. Huesers became Chief Information Officer of the Company in June 2000.
From 1999 to 2000 Mr. Huesers was the Chief Information Officer for the Kansas
City, Missouri School District. Mr. Huesers was the Assistant Vice President for
Technical Services at H&R Block, Inc. from 1997 to 1999. From 1984 to 1996 Mr.
Huesers held various positions at H&R Block Tax Services. Mr. Huesers has a BA
from Washburn University.

45

Lisa J. Miskimins became the Vice President of the Central Region of the Company
on June 2000. She is responsible for the supervision of 13 states. From 1997 to
2000, Ms. Miskimins was an Area Vice President with supervisory responsibility
for the operations of the Company in eight midwestern states. She was a
Divisional Director of 50 schools in three states from 1994 to 1997. She began
her career with the Company in 1983 as a Preschool Teacher. Ms. Miskimins has a
B.A. in Elementary Education and English.

Rebecca L. Perry became the Vice President of Operations in April 2000. She was
the Executive Vice President of Operations from 1997 to 2000. From 1993 to 1997,
Ms. Perry was a Senior Vice President and Eastern Operating Officer. From 1988
to 1993, she was Assistant Vice President of Operations with supervisory
responsibility for the operations of the Company in 14 southern and midwestern
states. From 1985 to 1988, she served as Divisional Director of Florida and from
1981 to 1985 she served as Regional Director of Tampa.

Bill Buckland joined the company in July as Vice President, People. From 1993 to
2001 Mr. Buckland was Vice President, Human Resources of Allied Van Lines, Inc.
From 1990 to 1992 he was the Director, Human Resources for SuperAmerica Group, a
subsidiary of Ashland Oil. From 1969 to 1990 Mr. Buckland held various positions
in the Human Resources Department with the Montgomery Ward Company. He has a
B.B.A. from the University of Kentucky.

Amy Larson joined the company August 1 as Vice President, Marketing. From 2000
to 2001 Ms. Larson was Vice President, Customer Experience Marketing, from
iExplore. From 1999 to 2000 Ms. Larson was Sr. Marketing Manager for Peapod.
From 1998 to 1999 she was Vice President, Marketing for the Travel Payment
Services Division of Citigroup. From 1991 to 1998 Ms. Larson held various
managerial positions with the Whirlpool Corporation. Ms. Larson has an M.B.A. in
Finance and Marketing from the University of Illinois, and a B.S. in Business
Information Systems from Illinois State University.

BOARD COMMITTEES AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors has an Audit Committee consisting of Robert E. King and
Stephen P. Murray, and a Compensation Committee consisting of Stephen P. Murray
and Brian J. Richmand. The Audit Committee reviews the scope and results of
audits and internal accounting controls and all other tasks performed by our
independent public accountants. The Compensation Committee determines
compensation for the executive officers and will administer the 1998 Option
Plan. None of the Company's executive officers have served as a director or
member of the compensation committee (or other committee forming an equivalent
function) of any other entity, whose executive officers served as a director of
or member of the Compensation Committee of the Company's Board of Directors.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

The members of the Board of Directors are reimbursed for out-of-pocket expenses
related to their service on the Board of Directors or any committee thereof. In
addition, members of the Board of Directors who are neither officers of the
Company nor employed by JPMP or any of its partners are entitled to receive an
attendance fee of $1,000 for each meeting attended.

On August 19, 1999, Parent adopted the LPA Holding Corp. 1999 Stock Option Plan
for Non-Employee Directors (1999 Plan). The purpose of the plan is to provide a
means for attracting, retaining, and incentivizing qualified directors. Under
the terms of the plan, 10,000 shares of Parent's common stock are reserved for
issuance to non-employee directors.

Non-employee directors may exercise their options to purchase shares of Parent's
common stock once those options have vested. One-forty eighth of the options
become vested on the last day of each month following the date of grant, if the
person is a director on that day. Each option entitles the director to purchase
one share of Parent's common stock. The exercise price will equal the fair
market value on the date of grant of the option to the non-employee director.
Vested options and shares of common stock may

46

be repurchased from any non-employee director who ceases to be a director for
any reason. Any options that have not vested at the time the non-employee
director ceases to be a director are forfeited. For the 52 weeks ended June 30,
2001, options to purchase 182,285 shares of common stock of Parent have been
granted under the plan.

47

ITEM 11. EXECUTIVE COMPENSATION

The following table provides certain summary information concerning compensation
earned for the 52 weeks ended June 30, 2001 (2001), for the 52 weeks ended July
1, 2000 (2000), and for the 44 weeks ended July 3, 1999 (1999), by the Company's
Chief Executive Officer, and the four other most highly compensated executive
officers whose salary and bonus exceeded $100,000 for the fiscal year:

SUMMARY COMPENSATION TABLE
COMPENSATION FOR THE PERIOD

ANNUAL LONG-TERM ALL OTHER
COMPENSATION COMPENSATION COMPENSATION
------------ ------------ ------------

NUMBER OF
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTION/SAR AWARDS
---- ------ ----- -----------------

Judith A. Rogala 2001 $350,000 $175,000 49,810
Chief Executive Officer & President 2000 $180,385(1) 87,500

Jeffrey J. Fletcher 2001 160,150 64,000 20,000
Chief Financial Officer 2000 7,385(2) 25,000

Rebecca L. Perry 2001 151,438 2,000
Vice President Operations 2000 183,729
1999 155,490

Brian J. Huesers 2001 140,000 20,000
Chief Information Officer 2000 10,769(3)

Lisa J. Miskimins 2001 115,780 19,325 $14,879(4)
Vice President, Central Region 2000 74,703 2,000
1999 68,310 750

(1) 2000 compensation covers 27 weeks from December 21, 1999 through July 1,
2000.

(2) 2000 compensation covers three weeks from June 8, 2000 through July 1,
2000.

(3) 2000 compensation covers four weeks from June 1, 2000 through July 1, 2000.

(4) Represents payments made to Ms. Miskimins related to her relocation to the
Chicago, IL area.

48

The following tables present information relating to grants to the named
executive officers of options to purchase common stock of Company:

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES

NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY END (#) AT FY END (2)

SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE

Judith A. Rogala 18,679 / 31,131(1) 0 / 0

Jeffrey J. Fletcher 5,000 / 15,000(1) 0 / 0

Rebecca L. Perry 3,275 / 2,325(1) 0 / 0

Brian J. Huesers 5,000 / 15,000(1) 0 / 0

Lisa J. Miskimins 5,352 / 14,648(1) 0 / 0

(1) The Board of Directors granted to certain key executives Tranche A options
at $66.92 per share, an amount which approximates the fair value of a share
of common stock of the Company at the date of the grant. These options
become exercisable ratably over forty-eight months and expire ten years
from the date of grant.

(2) The equity of the Company is not traded and there is no market for pricing
the value of the options. "In the Money" calculations are based on the
estimated enterprise value of the Company adjusted for debt, preferred
stock, common shares issued and retired, warrants and options and
adjustments for market liquidity and a control premium.

OPTIONS/SAR GRANTS
IN LAST FISCAL YEAR

NUMBER OF POTENTIAL REALIZABLE
SECURITIES % OF TOTAL VALUE (2) AT ASSUMED ANNUAL
UNDERLYING OPTIONS/SAR'S EXERCISE OR RATES OF STOCK PRICE
OPTIONS/SAR'S GRANTED TO BASE PRICE EXPIRATION APPRECIATION FOR OPTION TERM
NAME GRANTED EMPLOYEES ($/SHARE) DATE 5% ($) 10% ($)
---- ------- --------- --------- ---- ------ -------

FISCAL YEAR 2001

Judith A. Rogala 49,810(1) 27% $66.92 December, 2009 $2,096,285 $5,312,398

Jeffrey J. Fletcher 20,000(1) 11% $66.92 June, 2010 $ 841,713 $2,133,065

Rebecca Perry 2,000(1) 1% $66.92 June, 2010 $ 84,171 $ 213,306

Brian J. Huesers 20,000(1) 11% $66.92 June, 2010 $ 841,713 $2,133,065

Lisa J. Miskimins 19,325(1) 11% $66.92 June, 2010 $ 813,305 $2,061,074

(1) Tranche A options

(2) The potential realizable value of the options granted in fiscal year 2001
was calculated by multiplying those options by the excess of (a) the
assumed fair value of a share of common stock at the end of the option's
ten year term, based on a 5% or 10% annual increase in value from the fair
value at date of issue over (b) the base price shown. This calculation does
not take into account any taxes or other expenses which might be owed. The
assumed fair value at a 5% assumed annual appreciation rate over the
10-year term is $109.91 and such value at a 10% assumed annual appreciation
rate over that term is $173.57. The 5% and 10% appreciation rates are set
forth in the Securities and Exchange Commission rules and no representation
is made that the common stock will appreciate at these assumed rates or at
all.

49

EMPLOYMENT CONTRACTS

The Company has entered into an employment agreement with Judith A. Rogala. The
Employment Agreement provides for Ms. Rogala to receive a base salary, subject
to annual performance adjustments, of $350,000 plus a bonus of up to 150% of
base salary. Ms. Rogala was also entitled to receive a cash Interim Bonus with
respect to the Company's fiscal year ending in July 2000 equal to $87,500 and a
Signing Incentive of $1.5 million, vesting at 25% per year, payable on the
fourth anniversary date of employment. The term of the Employment Agreement is
three years subject to one year automatic renewals. The Employment Agreement
also provides that the executive is entitled to participate in the health and
welfare benefit plans available to the Company's other senior executives. The
Employment Agreement provides for severance in the case of termination without
'cause' or a resignation with 'good reason' in an amount equal to one year of
base salary plus a prorated bonus as described in the agreement and a cash lump
sum equal to (a) any compensation payments deferred by Ms. Rogala, together with
any applicable interest or other accruals; (b) any unpaid amounts, as of the
date of such termination, in respect of the Bonus for the fiscal year ending
before the fiscal year in which such termination occurs; (c) the Signing
Incentive Bonus (to the extent not already paid) and (d) the Pro Rata Bonus as
described in the agreement. Included in the severance in the case of termination
without 'cause' or resignation with 'good reason' is one year of coverage under
and participation in the Company's employee benefit program. The Employment
Agreement also contains customary non-disclosure, non-competition and
non-solicitation provision.

1998 OPTION PLAN

The Company adopted the 1998 Plan pursuant to which options, which currently
represents 7.6% of Parent's common stock, on a fully diluted basis, are
available to grant. The 1998 Plan provides for the granting of Tranche A and
Tranche B options to purchase up to 60,074 shares of Parent's common stock. The
options will be allocated in amounts to be agreed upon between LPA and Parent.
Seventy-five percent of the options will vest over four years and twenty-five
percent of the options will vest if certain transactions are consummated which
generate certain minimum returns to LPA. The exercise price for the time vesting
options will be 50% of the per share price paid by LPA for its common stock of
Parent and the exercise price for the remaining options will be 100% of the per
share price paid by LPA for its common stock of Parent. The options expire 10
years from the date of grant.

During fiscal year 2001, the Company amended the 1998 Plan, increasing to
230,000 the number of options available for grant. Options to purchase 190,210
shares of Parent's common stock have been granted.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

All of La Petite's common stock is held by LPA Holding Corp. (Parent). As of
November 27 2001, LPA Investment LLC (LPA) owned 89.6% of the outstanding common
stock of Parent (approximately 90.0% on a fully diluted basis, including the
warrants described below) and Vestar, the former principal stockholder of the
Company, and La Petite's current and former management own approximately 3.6%,
1.8% and 5.0%, respectively, of the outstanding common stock of Parent
(approximately 1.0%, 7.0% and 1.0%, respectively, on a fully diluted basis). In
connection with the purchases of preferred stock of Parent, described below, LPA
received warrants to purchase shares of Parent's common stock that currently
represents the right to acquire 43.0% of Parent's common stock on a fully
diluted basis.

In connection with the recapitalization, LPA purchased redeemable preferred
stock of Parent and warrants to purchase shares of Parent's common stock on a
fully diluted basis for aggregate cash consideration of $30.0 million, the
proceeds of which were contributed by Parent to common equity. On December 15,
1999, LPA acquired an additional $15.0 million of Parent's redeemable preferred
stock and received warrants to purchase an additional 3.0% of Parent's common
stock on a fully diluted basis. The $15.0 million proceeds received by Parent
were contributed to common equity.

50

The preferred stock is not redeemable at the option of the holder prior to the
maturity of the notes and dividends are not payable in cash prior to the seventh
anniversary of the consummation of the transactions. Thereafter, Parent may pay
dividends in cash subject to any restrictions contained in our indebtedness,
including the Credit Agreement and the indenture.

Following the consummation of the recapitalization, Parent and its stockholders,
including all holders of options and warrants, entered into a Stockholders'
Agreement. The Stockholders' Agreement contains restriction on the
transferability of Parent common stock, subject to certain exceptions. The
Stockholder' Agreement also contains provisions regarding the designation of
members of the Board of Directors and other voting arrangements. The
Stockholders' Agreement will terminate at such time as Parent consummates a
qualified public offering.

The Stockholders' Agreement restricts transfers of common stock of Parent by,
among other things (i) granting rights to all stockholders to tag along on
certain sales of stock by LPA and management, (ii) granting rights to LPA to
force the other stockholders to sell their common stock on the same terms as
sales of common stock by LPA, and (iii) granting preemptive rights to all
holders of 2% or more of Parent's common stock in respect of sales by other
stockholders.

The Stockholder's Agreement provides that the Board of Directors of Parent shall
consist of 5 to 8 persons as determined pursuant to the Stockholders Agreement.
The Stockholder's Agreement further provides that LPA is entitled to designate
four of the directors, one of whom is entitled to three votes as a director.
Messrs. Murray, Blutt, Richmand and King have been elected as directors pursuant
to this provision with Mr. King being entitled to three votes as a director.
Certain management stockholders of Parent are entitled to elect one director,
currently Ms. Rogala. The Stockholder's Agreement further provides that the
ensuing directors of Parent shall be designated by mutual consent of LPA and the
management stockholders.

The Stockholders' Agreement also contains covenants in respect of the delivery
of certain financial information to Parent's stockholders and granting access to
Parent's records to holders of more than 2% of our Parent's common stock.

A majority of the economic interests of LPA is owned by CB Capital Investors,
LLC (CBCI), an affiliate of JPMP, and a majority of the voting interests of LPA
is owned by an entity controlled by Robert E. King, one of Parent's Directors.
However, pursuant to the LPA Operating Agreement, LPA has granted to CBCI the
right to elect a majority of the directors of LPA if certain triggering events
occur and LPA agreed not to take certain actions in respect of the common stock
of Parent held by LPA without the consent of CBCI.
Accordingly, if certain triggering events occur, through its control of LPA,
CBCI would be able to elect a majority of the Board of Directors of Parent. As a
licensed small business investment company, or SBIC, CBCI is subject to certain
restrictions imposed upon SBICs by the regulations established and enforced by
the United States Small Business Administration. Among these restrictions are
certain limitations on the extent to which an SBIC may exercise control over
companies in which it invests. As a result of these restrictions, unless certain
events described in the operating agreement occur, CBCI may not own or control a
majority of the outstanding voting stock of LPA or designate a majority of the
members of the Board of Directors. Accordingly, while CBCI owns a majority of
the economic interests of LPA, CBCI owns less than a majority of LPA's voting
stock.

In connection with the recapitalization, Parent and its stockholders following
consummation of the recapitalization entered into a Registration Rights
Agreement. The Registration Rights Agreement grants stockholders demand and
incidental registration rights with respect to shares of capital stock held by
them and contains customary terms and provisions with respect to such
registration rights.

Pursuant to a notice dated November 13, 2001, Parent offered all of its
stockholders the right to purchase up to their respective pro rata amount of a
newly created class of convertible preferred stock and warrants to purchase
common stock of Parent. The convertible preferred stock is junior to the
redeemable preferred stock of Parent in terms of dividends, distributions, and
rights upon liquidation. Up to $4.25 million of convertible preferred stock of
Parent and warrants to purchase 562,500 shares of common stock of Parent were
offered. Stockholders of Parent electing to participate in the offer were
required to commit to

51

purchase a similar percentage of an additional aggregate amount of convertible
preferred stock equal to $10.75 million. At any time, or from time to time,
prior to May 14, 2002, as requested by Parent, the stockholders of Parent
participating in the pre-emptive rights offer are required to purchase the
balance of the convertible preferred stock being offered thereby. All of the
proceeds from the pre-emptive rights offer received by Parent will be
contributed to La Petite as common equity and will be used by La Petite for
general working capital and liquidity purposes.

Pursuant to the pre-emptive offer, on November 15, 2001 LPA acquired $3.4
million of Parent's convertible preferred stock and received warrants to
purchase 452,343 shares of common stock. The proceeds of that $3.4 million
investment were contributed to La Petite as common equity. In connection with
such purchase, the banks waived their right under the Credit Agreement to
require that the proceeds be used to repay amounts outstanding under the Credit
Agreement.

LPA also committed to purchase the balance of the $11.6 million of convertible
preferred stock being offered and not otherwise purchased by the other
stockholders of Parent. Prior to December 31, 2001 LPA is required to purchase
an amount of convertible preferred stock equal to the difference between $0.8
million and the value of the amount of the convertible preferred stock purchased
by other stockholders in connection with the pre-emptive offer. After December
31, 2001, the balance of the convertible preferred stock of Parent to be
purchased by LPA will, as applicable, be purchased at any time, or from time to
time, prior to May 14, 2002 at the request of Parent. If Parent has not
requested that LPA fund its commitment to purchase the balance of the
convertible preferred stock prior to May 14, 2002, LPA has the right to cause
Parent to issue the balance of the convertible preferred stock to LPA. After
giving effect to the investment on November 15, 2001, LPA beneficially owns
approximately 90.0% of Holdings' outstanding common stock on a fully diluted
basis.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

J.P. Morgan Securities Inc., or JPMSI, one of the initial purchasers of the old
Senior Notes, is an affiliate of JPMorgan Chase Bank (formerly known as The
Chase Manhattan Bank), an agent and a lender to La Petite under the Credit
Agreement of the Senior Notes, LPA, an affiliate of JPMP and JPMSI, owns 89.6%
of the outstanding common stock of Parent (approximately 90.0% on a fully
diluted basis). LPA owns $45 million of Parent's redeemable preferred stock,
$3.4 million of Parent's convertible preferred stock, and warrants to purchase
43.0% of the common stock of Parent on a fully diluted basis. Certain partners
of JPMP are members of La Petite's Board of Directors (see Item 10). In
addition, CSI, Chase and their affiliates perform various investment banking and
commercial banking services on a regular basis for our affiliates.

In connection with the recapitalization, CBCI entered into an Indemnification
Agreement with Robert E. King, one of Parents' Directors, pursuant to which CBCI
has agreed to indemnify Mr. King for any losses, damages or liabilities and all
expenses incurred or sustained by Mr. King in his capacity as a manager, officer
or director of LPA or any of its subsidiaries, including Parent and La Petite.

Banc of America Securities LLC, one of the initial purchasers of the old Senior
Notes, is an affiliate of Bank of America, an agent and lender under the Credit
Agreement.

In December 1999 and November 2001, Parent sold additional equity in LPA. See
"Item 1. Business - Organization"

52

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

See pages 24 to 41 of this Annual Report on Form 10-K for financial
statements of LPA Holding Corp. as of June 30, 2001 and July 1, 2000
and for the 52 weeks ended June 30, 2001, for the 52 weeks ended July
1, 2000, and for the 44 weeks ended July 3, 1999.

(a) 2. Financial Statement Schedules

The following additional financial data should be read in conjunction
with the consolidated financial statements for the 52 weeks ended June
30, 2001, for the 52 weeks ended July 1, 2000, and for the 44 weeks
ended July 3, 1999. Other schedules not included with these additional
financial statement schedules have been omitted because they are not
applicable or the required information is contained in the consolidated
financial statements or notes thereto.

SCHEDULES

Schedule I - Condensed Financial Information of Registrants

Schedule II - Valuation and Qualifying Accounts

(a) 3. Exhibits

EXHIBIT
NUMBER DESCRIPTION

3.1(i) Amended and Restated Certificate of Incorporation of LPA
Holding Corp.

3.2(i) Certificate of Designations, Preferences and Rights of
Series A Redeemable Preferred Stock of LPA Holding Corp.

3.3(i) Bylaws of LPA Holding Corp.

3.4(i) Amended and Restated Certificate of Incorporation of La
Petite Academy, Inc.

3.5(i) Bylaws of La Petite Academy, Inc.

3.6(v) Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of LPA Holding Corp. filed on
December 13, 1999

3.7(v) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series A Redeemable Preferred
Stock of LPA Holdings Corp. filed on December 13, 1999

3.8(viii) Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of LPA Holding Corp., filed on
November 14, 2001.

3.9(viii) Certificate of Designations, Preferences and Rights of
Series B Convertible Redeemable Participating Preferred
Stock of LPA Holding Corp., filed on November 14, 2001.

4.1(i) Indenture among LPA Holding Corp., La Petite Academy, Inc.,
LPA Services, Inc. and PNC Bank, National Association dated
as of May 11, 1998

4.2(iv) First Supplemental Indenture dated as of July 23, 1999,
among Bright Start, Inc., LPA Holding Corp., La Petite
Academy, Inc., and The Chase Manhattan Bank

10.1(i) Purchase Agreement among Vestar/LPA Investment Corp., La
Petite Academy, Inc., LPA Services, Inc., Chase Securities
Inc. and NationsBanc Montgomery Securities LLC dated May 6,
1998

53

EXHIBIT
NUMBER DESCRIPTION

10.2(i) Exchange and Registration Rights Agreement among La Petite
Academy, Inc., LPA Holding Corp., LPA Services, Inc., Chases
Securities Inc., NationsBanc Montgomery Securities LLC dated
May 11, 1998

10.3(i) Merger Agreement by and between LPA Investment LLC and
Vestar/LPA Investment Corp. dated as of March 17, 1998

10.4(i) Stockholders Agreement among LPA Holding Corp., Vestar/LPT
Limited Partnership, LPA Investment LLC and the management
stockholders dated as of May 11, 1998

10.5(v) Amendment #1 and Consent of the Stockholders Agreement among
LPA Holding Corp., Vestar/LPT Limited Partnership, LPA
Investment LLC and the management stockholders dated as
April 8, 1999.

10.6(i) 1998 Stock Option Plan and Stock Option Agreement for LPA
Holding Corp. dated as of May 18, 1998

10.7(i) Preferred Stock Registration Rights Agreement between LPA
Holding Corp. and LPA Investment LLC dated May 11, 1998

10.8(i) Registration Rights Agreement among LPA Holding Corp.,
Vestar/LPT Limited Partnership, the stockholders listed
therein and LPA Investment LLC, dated May 11, 1998

10.9(i) Credit Agreement dated as of May 11, 1998 among La Petite
Academy, Inc., LPA Holding Corp., Nationsbank, N.A., and The
Chase Manhattan Bank

10.10(i) Pledge Agreement among La Petite Academy, Inc., LPA Holding
Corp., Subsidiary Pledgors and Nationsbank, N.A. dated as of
May 11, 1998

10.11(i) Security Agreement among La Petite Academy, Inc., LPA
Holding Corp., Subsidiary Guarantors and Nationsbank, N.A.
dated as of May 11, 1998

10.12(i) Parent Company Guarantee Agreement among LPA Holding Corp.
and Nationsbank, N.A. dated as of May 11, 1998

10.13(i) Subsidiary Guarantee Agreement among Subsidiary Guarantor of
La Petite Academy, Inc., LPA Services, Inc. and Nationsbank,
N.A. dated as of May 11, 1998

10.14(i) Indemnity, Subrogation and Contribution Agreement among La
Petite Academy, Inc., LPA Services, Inc., as Guarantor and
Nationsbank, N.A. dated as of May 11, 1998

10.19(v) 1999 Stock Option Plan for Non-Employee Directors

10.20(iii) Agreement and Plan of Merger By and Between La Petite
Academy, Inc., LPA Acquisition Co. Inc., and Bright Start,
Inc.

10.21(v) Amendment No. 1, Consent and Waiver dated as of December 13,
1999, to the Credit Agreement dated as of May 11, 1998 among
LPA Holding Corp., La Petite Academy, Inc., Bank of America,
N.A. (formerly known as NationsBank, N.A.) as Administrative
Agent, Documentation Agent and Collateral Agent for the
Lenders and The Chase Manhattan Bank as Syndication Agent

10.22(v) Warrant No. 2 dated as of December 15, 1999, issued by LPA
Holding Corp. to LPA Investment LLC

10.23(v) Amendment No. 1 to the LPA Holding Corp. 1999 Stock Option
Plan for Non-Employee Directors

10.24(vii) Employment Agreement among LPA Holding Corp., La Petite
Academy, Inc., and Judith A. Rogala

12.1* Statement regarding computation of ratios

21.1(vi) Subsidiaries of Registrant

(i) Incorporated by reference to the Exhibits to La Petite
Academy, Inc.'s Registration Statement on Form S-4,
Registration No. 333-56239, filed with the Securities and
Exchange Commission on June 5, 1998.

54

(ii) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 10-K for the Fiscal Year ended August 29, 1998,
filed with the Securities and Exchange Commission on
November 24, 1998

(iii) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on December 7, 1999

(iv) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 10-Q/A for the 16 weeks ended October 23, 1999,
filed with the Securities and Exchange Commission on
December 16, 1999

(v) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on December 21, 1999

(vi) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form S-4 Post Effective Amendment #1, filed with the
Securities and Exchange Commission on December 23, 1999

(vii) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on February 16, 2000

(viii) Incorporated by reference to the exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on November 16, 2001.

(*) Filed herein

(b) Reports on Form 8-K

During the last quarter of fiscal 2001, the Company filed a
Form 8-K dated April 18, 2001 announcing the change of
Company's fiscal year end from the 52/53 period ending on
the first Saturday in July to the 52/53 period ending on the
Saturday closest to June 30.

(c) Supplemental information to be furnished with reports filed pursuant to
Section 15(d) of the Act by Registrants which have not registered
securities pursuant to Section 12 of the Act

Except for a copy of this Annual Report on Form 10-K, no
annual report to security holders covering the registrants'
last fiscal year or proxy materials will be sent to security
holders.

55

LPA HOLDING CORP.

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------

JUNE 30, JULY 1,
BALANCE SHEETS 2001 2000
--------- ---------

ASSETS:
Investment in La Petite Academy, Inc. $ (27,188) $ (21,207)

--------- ---------
$ (27,188) $ (21,207)
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Payable to La Petite Academy, Inc. 55,164 55,132
--------- ---------
Total current liabilities 55,164 55,132

Series A 12% redeemable preferred stock ($.01 par value per share);
45,000 shares authorized, issued and outstanding at June 30, 2001 at
aggregate liquidation preference of $1,360.563 and $1,211.291 as of
July 1, 2000 (Note 7) 54,941 47,314

Stockholders' deficit:
Class A common stock ($.01 par value per share); 950,000 shares
authorized and 564,985 issued and outstanding as of June 30, 2001 and
July 1, 2000 6 6

Class B common stock ($.01 par value per share); 20,000 shares
authorized, issued and outstanding as of June 30, 2001 and July 1, 2000

Common stock warrants 8,596 8,596
Accumulated other comprehensive income 331
Accumulated deficit (146,226) (132,255)
--------- ---------
Total stockholders' deficit (137,293) (123,653)
--------- ---------
$ (27,188) $ (21,207)
========= =========

56

LPA HOLDING CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------

52 WEEKS 52 WEEKS 44 WEEKS
ENDED ENDED ENDED
JUNE 30, JULY 1, JULY 3,
STATEMENTS OF OPERATIONS 2001 2000 1999
-------- -------- --------

Equity in net loss of La Petite Academy, Inc. (5,981) (10,547) (797)
-------- -------- --------

Net loss $ (5,981) $(10,547) $ (797)
======== ======== ========

See notes to consolidated financial statements included in Part II of the Annual
Report on Form 10-K.

57

LPA HOLDING CORP.

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------

52 WEEKS 52 WEEKS 44 WEEKS
ENDED ENDED ENDED
JUNE 30, JULY 1, JULY 3,
STATEMENTS OF CASH FLOWS 2001 2000 1999
-------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,981) $(10,547) $ (797)
Adjustments to reconcile net loss to net cash from operating
activities:
Equity in net loss of La Petite Academy, Inc. 5,981 10,547 797
-------- -------- --------

Net cash from operating activities $ - $ - $ -
======== ======== ========

See Notes to Consolidated Financial Statements included in Part II of the Annual
Report on Form 10-K.

58

LPA HOLDING CORP.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------

ALLOWANCE FOR DOUBTFUL ACCOUNTS

BALANCE AT CHARGED TO BALANCE AT
JULY 1, COSTS AND JUNE 30
DESCRIPTION 2000 EXPENSES WRITE-OFFS 2001
---------- ---------- ---------- ----------

Allowance for doubtful accounts $ 406 $ 4,531 $ 4,400 $ 537
---------- ---------- ---------- ----------

BALANCE AT CHARGED TO BALANCE AT
JULY 3, COSTS AND JULY 1,
DESCRIPTION 1999 EXPENSES WRITE-OFFS 2000
---------- ---------- ---------- ----------

Allowance for doubtful accounts $ 306 $ 2,931 $ 2,831 $ 406
---------- ---------- ---------- ----------

BALANCE AT CHARGED TO BALANCE AT
AUGUST 29, COSTS AND JULY 3,
DESCRIPTION 1998 EXPENSES WRITE-OFFS 1999
---------- ---------- ---------- ----------

Allowance for doubtful accounts $ 196 $ 1,382 $ 1,272 $ 306
---------- ---------- ---------- ----------

(continued)

59

LPA HOLDING CORP.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------

RESERVE FOR CLOSED
ACADEMIES

BALANCE AT CHARGED TO BALANCE AT
JULY 1, COSTS AND CHARGED TO JUNE 30,
DESCRIPTION 2000 EXPENSES RESERVE 2001
---------- ---------- ---------- ----------

Reserve for Closed Academies $ 8,563 $ 426 $ 4,031 $ 4,958
---------- ---------- ---------- ----------

BALANCE AT CHARGED TO BALANCE AT
JULY 3, COSTS AND CHARGED TO JULY 1,
DESCRIPTION 1999 EXPENSES RESERVE 2000
---------- ---------- ---------- ----------

Reserve for Closed Academies $ 4,048 $ 7,500 $ 2,985 $ 8,563
---------- ---------- ---------- ----------

BALANCE AT CHARGED TO BALANCE AT
AUGUST 30, COSTS AND CHARGED TO JULY 3,
DESCRIPTION 1998 EXPENSES RESERVE 1999
---------- ---------- ---------- ----------

Reserve for Closed Academies $ 5,417 $ $ 1,369 $ 4,048
---------- ---------- ---------- ----------

(concluded)

60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on November 27, 2001.

LPA Holding Corp.

/s/ Jeffrey J. Fletcher
-------------------------------------
By: Jeffrey J. Fletcher

Chief Financial Officer and duly authorized representative of the registrant

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed by the following persons on
behalf of the registrant and in the capabilities indicated on November 27, 2001.

/s/ Judith A. Rogala /s/ Stephen P. Murray
- -------------------------------------- -------------------------------------
By: Judith A. Rogala By: Stephen P. Murray
Chief Executive Officer, President and Chairman of the Board and Director
Director

/s/ Mitchell J. Blutt, M.D. /s/ Brian J. Richmand
- -------------------------------------- -------------------------------------
By: Mitchell J. Blutt, M.D. By: Brian J. Richmand
Director Director

/s/ Robert E. King /s/ Terry D. Byers
- -------------------------------------- -------------------------------------
By: Robert E. King By: Terry D. Byers
Director Director

/s/ Ronald L. Taylor
- --------------------------------------
By: Ronald L. Taylor
Director

61

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on November 27, 2001.

La Petite Academy, Inc.

/s/ Jeffrey J. Fletcher
-------------------------------------
By: Jeffrey J. Fletcher
Chief Financial Officer and duly
authorized representative of the
registrant

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed by the following persons on
behalf of the registrant and in the capabilities indicated on November 27, 2001.

/s/ Judith A. Rogala /s/ Stephen P. Murray
- -------------------------------------- -------------------------------------
By: Judith A. Rogala By: Stephen P. Murray
Chief Executive Officer, President and Chairman of the Board and Director
Director

/s/ Mitchell J. Blutt, M.D. /s/ Brian J. Richmand
- -------------------------------------- -------------------------------------
By: Mitchell J. Blutt, M.D. By: Brian J. Richmand
Director Director

/s/ Robert E. King /s/ Terry D. Byers
- -------------------------------------- -------------------------------------
By: Robert E. King By: Terry D. Byers
Director Director

/s/ Ronald L. Taylor
- --------------------------------------
By: Ronald L. Taylor
Director

62

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

3.1(i) Amended and Restated Certificate of Incorporation of LPA
Holding Corp.

3.2(i) Certificate of Designations, Preferences and Rights of
Series A Redeemable Preferred Stock of LPA Holding Corp.

3.3(i) Bylaws of LPA Holding Corp.

3.4(i) Amended and Restated Certificate of Incorporation of La
Petite Academy, Inc.

3.5(i) Bylaws of La Petite Academy, Inc.

3.6(v) Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of LPA Holding Corp. filed on
December 13, 1999

3.7(v) Certificate of Amendment of the Certificate of Designations,
Preferences and Rights of Series A Redeemable Preferred
Stock of LPA Holdings Corp. filed on December 13, 1999

3.8(viii) Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of LPA Holding Corp., filed on
November 14, 2001.

3.9(viii) Certificate of Designations, Preferences and Rights of
Series B Convertible Redeemable Participating Preferred
Stock of LPA Holding Corp., filed on November 14, 2001.

4.1(i) Indenture among LPA Holding Corp., La Petite Academy, Inc.,
LPA Services, Inc. and PNC Bank, National Association dated
as of May 11, 1998

4.2(iv) First Supplemental Indenture dated as of July 23, 1999,
among Bright Start, Inc., LPA Holding Corp., La Petite
Academy, Inc., and The Chase Manhattan Bank

10.1(i) Purchase Agreement among Vestar/LPA Investment Corp., La
Petite Academy, Inc., LPA Services, Inc., Chase Securities
Inc. and NationsBanc Montgomery Securities LLC dated May 6,
1998

EXHIBIT
NUMBER DESCRIPTION

10.2(i) Exchange and Registration Rights Agreement among La Petite
Academy, Inc., LPA Holding Corp., LPA Services, Inc., Chases
Securities Inc., NationsBanc Montgomery Securities LLC dated
May 11, 1998

10.3(i) Merger Agreement by and between LPA Investment LLC and
Vestar/LPA Investment Corp. dated as of March 17, 1998

10.4(i) Stockholders Agreement among LPA Holding Corp., Vestar/LPT
Limited Partnership, LPA Investment LLC and the management
stockholders dated as of May 11, 1998

10.5(v) Amendment #1 and Consent of the Stockholders Agreement among
LPA Holding Corp., Vestar/LPT Limited Partnership, LPA
Investment LLC and the management stockholders dated as
April 8, 1999.

10.6(i) 1998 Stock Option Plan and Stock Option Agreement for LPA
Holding Corp. dated as of May 18, 1998

10.7(i) Preferred Stock Registration Rights Agreement between LPA
Holding Corp. and LPA Investment LLC dated May 11, 1998

10.8(i) Registration Rights Agreement among LPA Holding Corp.,
Vestar/LPT Limited Partnership, the stockholders listed
therein and LPA Investment LLC, dated May 11, 1998

10.9(i) Credit Agreement dated as of May 11, 1998 among La Petite
Academy, Inc., LPA Holding Corp., Nationsbank, N.A., and The
Chase Manhattan Bank

10.10(i) Pledge Agreement among La Petite Academy, Inc., LPA Holding
Corp., Subsidiary Pledgors and Nationsbank, N.A. dated as of
May 11, 1998

10.11(i) Security Agreement among La Petite Academy, Inc., LPA
Holding Corp., Subsidiary Guarantors and Nationsbank, N.A.
dated as of May 11, 1998

10.12(i) Parent Company Guarantee Agreement among LPA Holding Corp.
and Nationsbank, N.A. dated as of May 11, 1998

10.13(i) Subsidiary Guarantee Agreement among Subsidiary Guarantor of
La Petite Academy, Inc., LPA Services, Inc. and Nationsbank,
N.A. dated as of May 11, 1998

10.14(i) Indemnity, Subrogation and Contribution Agreement among La
Petite Academy, Inc., LPA Services, Inc., as Guarantor and
Nationsbank, N.A. dated as of May 11, 1998

10.19(v) 1999 Stock Option Plan for Non-Employee Directors

10.20(iii) Agreement and Plan of Merger By and Between La Petite
Academy, Inc., LPA Acquisition Co. Inc., and Bright Start,
Inc.

10.21(v) Amendment No. 1, Consent and Waiver dated as of December 13,
1999, to the Credit Agreement dated as of May 11, 1998 among
LPA Holding Corp., La Petite Academy, Inc., Bank of America,
N.A. (formerly known as NationsBank, N.A.) as Administrative
Agent, Documentation Agent and Collateral Agent for the
Lenders and The Chase Manhattan Bank as Syndication Agent

10.22(v) Warrant No. 2 dated as of December 15, 1999, issued by LPA
Holding Corp. to LPA Investment LLC

10.23(v) Amendment No. 1 to the LPA Holding Corp. 1999 Stock Option
Plan for Non-Employee Directors

10.24(vii) Employment Agreement among LPA Holding Corp., La Petite
Academy, Inc., and Judith A. Rogala

12.1* Statement regarding computation of ratios

21.1(vi) Subsidiaries of Registrant

(i) Incorporated by reference to the Exhibits to La Petite
Academy, Inc.'s Registration Statement on Form S-4,
Registration No. 333-56239, filed with the Securities and
Exchange Commission on June 5, 1998.

(ii) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 10-K for the Fiscal Year ended August 29, 1998,
filed with the Securities and Exchange Commission on
November 24, 1998

(iii) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on December 7, 1999

(iv) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 10-Q/A for the 16 weeks ended October 23, 1999,
filed with the Securities and Exchange Commission on
December 16, 1999

(v) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on December 21, 1999

(vi) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form S-4 Post Effective Amendment #1, filed with the
Securities and Exchange Commission on December 23, 1999

(vii) Incorporated by reference to the Exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on February 16, 2000

(viii) Incorporated by reference to the exhibits to LPA Holding
Corp.'s Form 8-K, filed with the Securities and Exchange
Commission on November 16, 2001.

(*) Filed herein