Winners and Losers - Washington Decoded · • RJR NABISCO deal debt virtually eliminated the...

Winners and Losers:Fallout from KKR’s Race for Profit

Contents

Introduction ......................................................................................5The U.S. Economy .............................................................................9The KKR Workforce ........................................................................13Consumers .....................................................................................17Environment ...................................................................................23Conclusion .....................................................................................27Appendices ....................................................................................28Endnotes ........................................................................................32

Introduction

KKR’s Race for Profit 5

A brief look at the record of KKR portfolio companies over the years on a number of vital issues raises real concerns about the long-term effects of the buyout industry on our nation’s economic health, the environment, the safety of the products we use every day, and employees’ basic civil rights.

There is no doubt that KKR is a big winner in the high stakes games for profits. In the last years, Fortune magazine’s estimate of Henry Kravis’s personal fortune has grown from $2.6 billion in 20061 to $5.5 billion in 2007.2 The real question before us is; if KKR is the

biggest winner, who is the biggest loser.

Losers: Taxpayers Debt lies at the very core of the highly profitable buyout game. KKR has the companies it is going to buy borrow a large portion of the money necessary to finance the purchase, frequently tripling the debt of the companies it buys. The tax code allows those companies to then deduct the interest on that debt off their taxes, frequently reducing their income tax obligation to almost nothing. According to a recent Wall Street Journal report, corporate loans like those used to finance buyouts, together with other types of debt issued in recent years, collectively “threaten to deepen the financial system’s wounds and create a growing pileup of shaky assets on the books of banks.”3

Shrinking tax bills.• In The Washington Post, Max Holland described KKR’s skilled use of debt to lower taxes in the RJR Nabisco deal as a “gigantic transfer of wealth from the U.S. Treasury to a small group

of investors skilled in manipulating the tax code.”4 Holland estimated that RJR Nabisco paid $893 million in taxes for the year it was bought out, received $222 million in refunds the following year, and paid just $60 million in taxes for the year after that.5

Having perfected the play on the RJR Nabisco deal, KKR has since sought to replicate its success. Because companies deduct the interest on debt taken on during the buyout process, private equity portfolio companies often pay little to no corporate income tax. While hard numbers are sometimes hard to wrangle out of the buyout industry, a quick look at the tax implication of two deals paints a very disturbing picture. According to an initial analysis using conservative assumptions, we estimate that the government could lose up to $1.2 billion in tax revenue during the expected period of KKR’s investment in SunGard and Biomet. KKR has also invested heavily to defend the tax code it has so skillfully mastered. In 2007, the firm paid more than $2 million for lobbying on Capitol Hill, including lobbying to fight legislation in Congress that

could result in closing tax loopholes.

Losers: Workers Workers have faced some very real and dangerous issues at KKR portfolio companies. While much debate has focused on layoffs by private equity firms, not much attention has been paid to the other problems faced by workers at KKR-controlled companies. KKR portfolio firms have faced claims of racism and sexism and

The buyout industry and its harmful practices are receiving greater scrutiny as Americans struggle with a growing sense of anxiety over the state of the economy and the expanding income gap between the richest 10th of Americans and those in the middle class.

How does the buyout industry’s “see no evil, accept no responsibility” approach to business really impact Main Street America?

With hundreds of thousands of employees, KKR portfolio companies together employ one of the largest private workforces of any U.S.-based firm. While recent reports have focused on the net job loss resulting from leveraged buyouts, there is an additional untold story about the impact of the private equity business model on the rest of the community.

Winners and Losers: Fallout from KKR’s Race for Profit

6 KKR’s Race for Profit

problems with worker safety standards.

Safety standard violations.• KKR portfolio company Toys “R” Us has repeatedly been cited for occupational health and safety standard violations, and at least one

worker was even killed at a Toys “R” Us facility.

Accusations of discrimination. • Workers have brought class action lawsuits against multiple KKR-owned companies for alleged pay and promotion discrimination on the basis of race and gender. In October 2007, Willis Group Holdings announced that it had agreed to pay $8.5 million to current and former female employees to settle a class action lawsuit, filed in 2001, alleging pay and promotion discrimination against women between 1998 and 2001.6 Another sex discrimination case filed in 2006 by female executive Adrianne Cronas, who served as vice president, senior vice president, and executive vice president alleges “systemic” discrimination

against female employees.7

Losers: Consumers KKR portfolio companies employ more than 800,000 people around the world—one of the largest private workforces when compared to other U.S.-based firms, second only to Wal-Mart. We can buy our toys at a Toy’s “R” Us or Dollar General, and in Europe we can fill our prescriptions at Boots. Yet, many products sold at KKR portfolio company stores have had to be recalled due to safety concerns; others have been improperly and illegally marketed, with potentially dangerous consequences; and a KKR portfolio company has even gone so far as to use a youth-friendly cartoon in a

marketing campaign for cigarettes.

Tainted toys. • Toys “R” Us and Dollar General had to pull hundreds of thousands of lead-contaminated children’s products from store shelves in 2007. According to news reports and the web site of the Consumer Product Safety Commission (CPSC), in the two and a half years following the July 2005 buyout of Toys “R” Us and Babies “R” Us by KKR, Bain, and Vornado, at least 391,435 products sold or intended for sale exclusively at Toys “R” Us or Babies “R” Us stores have been pulled from the shelves, more than five times as many as the 74,700 products sold exclusively at their stores that were recalled in the two and a half years prior to the buyout.8

Disturbing synergies.• After KKR invested in RJR Nabisco, the company continued its cartoon Joe Camel ad campaign, which reportedly made Camel cigarettes more appealing to a younger market.9 Meanwhile, a study authored by a professor affiliated with the Harvard School of Public Health cited

analysis showing that the KKR-owned Weekly Reader, a current affairs newsletter distributed U.S. schools, was “less likely [than competitor Scholastic News] to mention short-term consequences of smoking or to give a clear ‘don’t use’ message, but was more likely to present the tobacco industry position on key issues.”10

Losers: The Environment While going “green” is the latest fad for many U.S. corporations, KKR portfolio companies have bucked the trend and instead stand accused of industrial pollution and a lack of transparency when it comes to environmental impact.

Industrial emissions. • In 2005 and 2006, state regulators found higher than average levels of trichloroethylene (TCE), a degreaser often used in industrial applications, in Montgomery County, Pa., air due to industrial emissions.11 Regulators identified Accellent and Superior Tube sites as sources for the TCE, and in light of the test results, Accellent agreed to take some belated steps in an attempt to reduce its emissions. According to a news report, Accellent ranked eighth, nationally, in TCE emissions in 2005, the last year on record at the time of the report.12

Potentially hazardous products.• KKR portfolio company Rockwood Holdings, or its affiliates, have sold wood treated with chromated copper arsenate (CCA), a chemical whose use has reportedly been severely restricted or even banned in wood in countries ranging from Germany to Vietnam to Indonesia.13 Meanwhile, Rockwood and Rockwood affiliates have spent hundreds of thousands of dollars lobbying federal agencies to protect their interests.

8 In Demand and Falling Short

EconomyThe U.S.


KKR Wins Big, But At What Cost To Taxpayers? KKR profits may come at the expense of American taxpayers. Because of debt taken as part of the buyout process, KKR portfolio companies pay little to no corporate income taxes, but then some of these same companies collect millions of taxpayer dollars as

government contractors.

The SUNGARD DATA SYSTEMS buyout could cost •taxpayers more than $500 million over five years.

KKR and its consortium partners took SunGard private in August 2005 for $11.4 billion.15 As a result of the debt taken during the buyout, tax deductible

interest payments rose substantially. The company’s taxes fell from 33 percent of earnings to an estimated 5 percent of earnings before income and taxes. In other words, the government may lose in tax revenues as much as $500 million over five years. Meanwhile, SunGard receives millions of dollars in government contracts. In 2006, SunGard Systems received more than $12 million in federal contracts.16 [See Appendix

1 for tax calculation, assumptions, and methodology.]

BIOMET — a KKR portfolio company — stands •to profit twice over at the expense of American taxpayers, receiving government contracts while paying a low tax rate because of debt taken during its buyout by KKR. If one adds up all the tax implications of the KKR leveraged buyout (LBO) of Biomet, the deal could eliminate up to $798 million in tax revenues during the assumed period of KKR

ownership as a result of the LBO and the tax treatment of private equity deals. All the while, Biomet also receives revenue from federal

contracts. In 2006, Biomet won more than $1.5 million in federal contracts.17 [See Appendix 2 for tax

calculation, assumptions, and methodology.]

RJR NABISCO• deal debt virtually eliminated the company’s tax bill. Because of the debt taken during the KKR buyout, RJR Nabisco replaced taxable income with tax deductible interest write-offs, significantly reducing its corporate income taxes. One author writing in the The Washington Post estimated that RJR Nabisco paid $893 million in taxes in its buyout year, received $222 million in refunds in 1989, and paid just $60 million in 1990.18 This author described the “net effect of the buyout” as “a gigantic transfer of wealth from the U.S. Treasury to a small group of

investors skilled in manipulating the tax code.”19

Beyond these tax implications, at least one KKR portfolio company was accused by the Department of Justice of abusing a government reimbursement system.

MEDCATH-operated• 20 Arizona Heart Hospital was charged with submitted improper Medicare claims.21 KKR and Welsh Carson Anderson & Stowe took heart hospital chain Medcath private in March 1998.22 The company went public in 2001.23 The Department of Justice investigated Arizona Heart Hospital and contended that it had submitted improper Medicare reimbursement claims between 1998 and 2002 in connection with a medical device that had not

Debt lies at the very core of the highly profitable buyout game. KKR has the companies it is going to buy borrow a large portion of the money necessary to finance the purchase, frequently tripling the debt of the companies it buys. The tax code allows those companies to then deduct the interest on that debt off their taxes, frequently reducing their income tax obligation to almost nothing. At the same time, some of these companies enjoy the benefits of lucrative government contracts. And, according to a recent Wall Street Journal report, corporate loans like those used to finance buyouts, together with other types of debt issued in recent years, collectively “threaten to deepen the financial system’s wounds and create a growing pileup of shaky assets on the books of banks.”14

$500MILLION

$798MILLION


received final marketing approval from the Food and Drug Administration. The hospital agreed to pay $5.8 million to settle the lawsuit, without admitting fault, and agreed to enter into a five-year corporate integrity agreement, which governs clinical trial protocol, with the Office of the Inspector General and the

Department of Health and Human Services.24

Deal Debt Creates RiskPiling billions of dollars of debt onto the companies, KKR’s buyouts could increase economic instability, and some analysts have suggested that unappealing LBO left debt on banks’ books could contribute to current

economic uncertainty.25

In the first half of 2007, KKR announced deals valued at $142 billion. KKR contributed just $13.3 billion (9.4 percent of total transaction value) of its own money, and financed the balance with debt as well as equity from other investors.26 The $142 billion in deals was reported to be more than KKR’s combined 2005 and 2006 deals, and more than a third of the firm’s deals since its inception.27 However, the conditions that led Kravis to declare a “golden era” for buyouts in early 200728 changed dramatically in the second half of that year. The overall pace of LBOs declined from $336.4 billion in the first six months of the year to $101.9 billion in the second half of 2007,29 and KKR itself announced only two deals in the second half of 2007, worth less than $4 billion combined.30 Close to 40 bond and loan sales were cancelled or restructured, according to the Economic Times.31

In early July, credit market analysts at Bank of America commented that deals facing push back from debt investors, specifically KKR’s buyouts of Dollar General and U.S. Foodservice, had sought significantly higher debt leverage than other transactions in the marketplace. Analysts surmised that these deals had pushed investors to finally draw a line in the erosion of lending standards.32 According to midsummer news reports, investors rejected initial debt offerings on several KKR deals, including Alliance Boots and U.S. Foodservice.33 Unable to sell the debt, even with

sweetened terms, banks underwriting the financing to these deals held the debt on their own books or quietly unloaded it to hedge funds or other investors for below full value:

Over the summer, the banks underwriting the U.S. Foodservice deal got stuck holding debt that was reportedly trading at least at one point at 91 cents on the dollar, a 10 percent decline in value.34 $16.8 billion in loans for the Alliance Boots deal also proved difficult to market,35 and banks were forced to cancel the sale of $1.4 billion in loans to refinance Maxeda, a Dutch retail company purchased by KKR in 2004, after it was rejected by investors.36 The sale of debt used to finance KKR’s buyout of First Data Corp. was carefully watched, as it marked the re-opening of the debt markets for LBOs. Beginning in September, First Data loans were sold at a 3 percent-4 percent discount, costing underwriters $360 million. Bonds were issued at a loss of $114 million. In December, Bloomberg reported that underwriters still held $10.4 billion of First Data debt that needed to be sold. 37

While some of the LBO debt pipeline had been digested by the market, at year-end lenders were reportedly left with an estimated $161.9 billion in loans and $69.9 billion of bonds to distribute.38 The debt pipeline was eased by the collapse of several deals, including KKR’s buyout of Harman International Industries,39 but observers still expect it to take the better part of a year to be fully cleared.40 The debt overhang has depressed values of buyout debt.41 Recently, low-rated corporate bonds that fueled the buyout boom have plunged in value, increasing the expectation that banks will look to unload buyout debt at steep discounts.42 Bonds for KKR deal Toys “R” Us have sold as low as 68 cents on the dollar, while those for Dollar General have sold as low as 80 cents on the dollar.43 According to BusinessWeek, the current environment will make it difficult for private equity firms to refinance or sell companies they have purchased at a profit anytime soon, “if ever.”44 What measures will KKR take to make a profit from its Toys “R” Us and Dollar General investments?


KKR—looking to cash in on the credit crunch? Referring to the current “stressed” credit cycle, David Netjes, co-Founder of the KKR Financial hedge fund, said, “The perfect outcome for us is if this environment would repeat itself day after day for the next several years.”61 KKR recently raised a $1 billion strategic capital fund for its hedge fund in order to capitalize on the current credit crunch and invest in the debt of companies taken private through leveraged buyouts.62 According to the Aug. 16, 2007 issue of Business Week, KKR founder Henry Kravis told investors the firm was focusing on debt investing to make more money from its experience in the area of equity buyouts.”63 In a presentation on Feb. 6, 2008, KKR Financial discussed the “unique knowledge advantage” that KKR had into $231 billion in pipelined LBO debt, 72 percent of which involves deals where

KKR is the buyer, performed due diligence as a potential

buyer, or knows the industry well.64

KKR’s hedge fund raises numerous concerns and questions. The principal concern is that by investing in both the debt and equity side of LBOs, KKR is creating potential conflicts of interest for its institutional clients, such as pension funds and university endowments, which invest only on the equity side. KKR has not addressed how it plans to “balance” any potential conflicts created by the firm’s proposed dual role as both shareholder and bondholder.

equity firms to refinance or sell companies they have purchased at a profit anytime soon, “if ever.”44 What measures will KKR take to make a profit from its Toys “R” Us and Dollar General investments?

KKR 2007 Transactions:

Company45 Sector46 Country47 Transaction Type

Total Transaction48

KKR Investment49 (% Total Transaction)

Total Debt ($ millions)

ProSiebenSat.1 Media Media Germany LBO 4,235 838.9 (20%) 3,70550

Tarkett S.A. Industrial France LBO 1,949 641.1 (33%)

Yageo Corporation Technology Taiwan PIPE 307 102.5 (33%) 204.551

Dollar General Corporation Retail United States LBO 7,600 1,290.9 (17%) 4,632.352

U.S. Food Services Retail United States LBO 7,304 1,115.9 (15%) 3,55053

Tianrui Group Cement Co., Ltd.

Industrial ChinaMinority stake

448 113.6 (25%) 388.754

MMI Holdings Limited Technology Singapore LBO 757 170.5 (23%) 60055

Alliance Boots plc Retail United Kingdom LBO 24,900 2,530.1 (10%) 18,50056

Laureate Education, Inc. Media United States LBO 3,964 400 (10%) 2,38557

Biomet, Inc. Health Care United States LBO 11,594 1,329 (11%) 6,20058

First Data CorporationFinancial Services

United States LBO 29,500 2,550.7 (9%) 24,00059

Energy Future Holdings Limited (formerly, TXU Corp.)

Energy United States LBO 49,000 2,077 (4%) 37,35060

Harman International Industries, Incorporated

Technology United States PIPE 400 171.4 (43%)

U.N. Ro-Ro Isletmeleri A.S. Industrial Turkey LBO €380 910 (42%)

Northgate Information Solutions Plc

Business Services

United Kingdom LBO

KKR WorkforceThe


Workers have faced some very real and dangerous issues at KKR portfolio companies. While much debate has focused on layoffs by private equity firms, not much attention has been paid to the other problems faced by workers at KKR controlled companies. KKR portfolio firms have faced claims of racism and sexism and problems with worker safety and tragic on-the-job injuries.

Claims Of Discrimination On The Job Discrimination based on race and gender has been reported repeatedly by workers at KKR portfolio

companies.

CAPMARK FINANCE is the subject of a pending •lawsuit alleging race discrimination in the workplace. KKR invested in Capmark Finance in March 2006.65 Wanda James Speight, a seven-year employee of Capmark Finance/GMAC Commercial Mortgage Corp., was terminated in May 200666 and filed suit in March 2007.67 The lawsuit claims that Ms. Speight was terminated without warning after positive performance evaluations, and that her termination was racially motivated.68 According to the allegations in Ms. Speight’s complaint, she was, at the time of her termination, the highest-ranking

African American at Capmark Finance Inc.69

WILLIS GROUP HOLDINGS• faces claim of “systemic” sex discrimination against female employees, after agreeing to pay $8.5 million to settle similar allegations. KKR purchased Willis Group Holdings in July 1998. Some shares of Willis were offered publicly in 2001,70 but, according to reports, KKR affiliates continued to hold a stake in the company until at least November 2005.71 In October 2007, Willis Group Holdings announced that it had agreed to pay $8.5 million to current and former female employees to settle a class action lawsuit, filed in 2001, alleging pay and promotion discrimination against women between 1998 and 2001.72 Another sex discrimination case filed in 2006 by female executive Adrianne Cronas, who served as vice president, senior vice president, and executive vice president alleges, “systemic” discrimination against

female employees.73

RANDALL’S-owned Tom Thumb grocery store •employees filed class action lawsuits in 1998 and 1999 that alleged discrimination against African American workers.74 KKR invested in Randall’s in 199775 and announced plans to exit the deal in July 1999.76 Among other things, black employees

claimed that they received lower wages and a lower chance for promotion than their white counterparts.77 In 2001, the class action lawsuit was settled by consent decree that called on Tom Thumb to post notices about open jobs and management positions in its stores,78 to set up a toll free hotline “in order to give its employees an additional communications channel to make complaints of alleged unfair employment practices at Tom Thumb,”79 and to pay

$3,705,000 into a settlement fund.80

SAFEWAY’s female employees reportedly claimed •sex bias in the workplace. KKR bought Safeway in November 1986,81 sold some shares publicly in 1990,82 and slowly reduced its stake through 2000.83 According to a news report, Safeway agreed to pay $7 million in damages and legal fees to settle a lawsuit filed in 1991 in California on behalf of 20,000 class members who had worked for the company since 1989 and who alleged sex bias in the workplace. The settlement reportedly required that Safeway set goals to increase female management numbers and improve its salary structure so that women would not

be encouraged to stay in relatively dead-end jobs.84

TOYS “R” US received a very low 45-point score •(out of a possible 100) on the Human Rights Campaign’s 2008 Corporate Equality Index. KKR and its buyout partners have owned Toys “R” Us since July 2005.85 The rating places Toys “R” Us among just 54 companies, out of 519 companies rated, that received a score of 45 or lower on the equality index.86

Dangerous WorksitesA record of safety violations and on-the-job accidents.

B• etween 2000 and 2007, KKR portfolio companies were cited for 121 OSHA violations and racked up tens of thousands of dollars in fines. 87 Safety inspections followed seven reported on-the-job accidents,88 with at least one involving a worker

death.89

TOYS “R” US facilities have been cited for safety •


violations and have been the site of a worker death. KKR and two other buyers acquired Toys “R” Us in July 2005.90 In December 2005, a Toys “R” Us worker, Andres Cevallos, in Midlothian, Texas, was killed by a stack of pallets that fell from a platform above him, according to reports in documents obtained from the U.S. department of Labor’s Occupational Safety and Health Administration.91 An investigation resulted in a penalty for Toys “R” Us, and documents in the Department’s investigation file include evidence that the pallets crushed Mr. Cevallos because the mezzanine “pallet return” involved in the incident was missing a brake roll mechanism needed to stop the pallets from falling on those below.92 The department’s file also describes employee interviews in which employees “stated that pallet returns are still used even when maintenance has been notified that the brake rolls are missing. The pallet returns are not

shut down.”93

At a Maryland Toys “R” Us distribution center facility in August 2005, an inspection conducted by Maryland Occupational Safety and Health found that guardrails were not fitted on an approximately 25-foot-high runway, among other safety violations.94 According to documents in the Maryland OSH file, the August 2005 inspection followed an injury accident at the facility two months earlier; during interviews related to that accident, employees revealed safety issues of concern beyond those that led to the follow-up inspection. Toys “R” Us was cited by Maryland

Occupational Safety and Health.95

BORDEN CHEMICALS • resin was reportedly the cause of deadly explosions. KKR acquired Borden Inc. in 1995, focused on the company’s chemicals arm, and then sold the company to another private equity firm in August 2004. 96 According to a news report, a Massachusetts foundry accused Borden of failing to disclose the explosive properties of one of

its products, a resin powder, and claimed that the Borden resin caused a 1999 explosion that killed and injured workers. According to the same Associated Press story, Borden reportedly agreed to pay the foundry’s parent company $2.5 million and to pay

more to victims of the blast.97

Workplace exposure to toxic chemicals used by a KKR portfolio company may be associated with

increased cancer risk.

ROCKWOOD HOLDINGS • products may be associated with increased cancer risk. KKR acquired Rockwood Holdings in 2000 and still owns nearly a 51 percent stake in the company.98 Rockwood Holdings and its affiliates market wood treated with chromated copper arsenate (CCA).99 A 2004 EPA assessment of occupational risks for workers exposed to CCA and CCA-treated wood found cause for concern in certain CCA application processes.100i

i The EPA report did not address Rockwood or any other company

specifically and did not address Rockwood’s or any other company’s

manufacturing processes specifically.

Consumers


KKR portfolio companies make and sell hosts of consumer products, from toys to pharmaceuticals. Many KKR portfolio company products have had to be recalled due to safety concerns; others have been improperly and illegally marketed, with potentially dangerous consequences; and a KKR portfolio company has even gone so far as to use a youth-friendly cartoon in a marketing campaign for cigarettes.Product Safety IssuesInadequate product safety controls have resulted in untold numbers of potentially dangerous products making their way onto American store shelves. In the past year, companies in which KKR has major investments have recalled hundreds of thousands of

children’s products posing lead and other hazards.101 102

TOYS “R” US, under KKR ownership, has seen •a spike in recalls in general. According to news reports and the web site of the Consumer Product Safety Commission (CPSC), in the two and a half years following the July 2005 buyout of Toys “R” Us and Babies “R” Us by KKR, Bain, and Vornado, at least 391,435 products sold or intended for sale exclusively at Toys “R” Us or Babies “R” Us stores have been pulled from the shelves, more than five times as many as the 74,700 products sold exclusively at their stores that were recalled in the two and a half years prior to the buyout.103

[See Appendix 3 for Toys “R” Us/Babies “R” Us recall data.]

A total of 346,700 lead-contaminated products sold exclusively by Toys “R” Us or Babies “R” Us were pulled from the shelves in 2007.105 In addition, numerous lead-contaminated toys from Mattel and

other companies were stocked by Toys “R” Us before being recalled.106 In August 2007, The New York Times reported that vinyl bibs sold by Toys “R” Us had been found to contain levels of lead well above the lead paint limit in tests conducted by the Center for Environmental Health and the Times.107 Toys “R” Us did not immediately recall the bibs, claiming that they passed its own independently conducted safety tests in May. The Consumer Product Safety Commission also did not issue a recall, but in May, the agency said that it had tested vinyl bibs from a variety of retailers and warned of a potential risk of lead exposure for babies swallowing pieces of cracked vinyl from used

bibs.108

In September, Toys “R” Us CEO Gerald “Jerry” Storch faced questioning about dangerous toys at a U.S. Senate committee hearing.109 While Toys “R” Us said that it had increased testing and made toy returns easier,110 problems continued. On Oct. 24, 2007, a tester from the Environmental Health Fund, using a hand-held X-ray Fluorescence (XRF) analyzer, found that one part of a Hannah Montana backpack purchased at Toys “R” Us contained up to 6,000 ppm of lead, an alarming 10 times the legal lead paint limit.111 On Jan. 16, 2008, photo frames sold at Babies “R” Us were recalled because of high lead

74,700

391,435Buyout

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Jan-03 Jul-03Jan-04 Jul-04

Jan-05 Jul-05Jan-06 Jul-06

Jan-07 Jul-07Date

Numb

er of

Rec

alls Pre-Buyout (Cum.)

Post-Buyout (Cum.)

Toys “R” Us/Babies “R” Us Pre- and Post-Buyout Recalls (according to CPSC web site)104:


content in surface paint.112

In November 2007, the California Attorney General and Los Angeles City Attorney sued Toys “R” Us and seventeen companies for manufacturing or selling children’s products with “unlawful quantities of lead.”113

DOLLAR GENERAL recalled hundreds of thousands •of children’s products in 2007, and the Ecology Center has reported that a hand-held XRF test conducted in November 2007 found high lead levels in a pair of sunglasses distributed by Dollar General.123 Approximately 686,000 lead-contaminated products have been recalled since

KKR took Dollar General private in the summer of 2007.124 In August, one month after the sale of Dollar General to KKR and other private equity investors was completed,125 and following lead recalls of Dollar General key chains in the spring,126 the company received a request for information from the House Subcommittee on Commerce, Trade and Consumer Protection.127 According to news reports, the newly KKR-owned Dollar General also received a request to attend a hearing before the subcommittee but failed to appear, eliciting a sharp response from panel chair Bobby Rush (D-Ill.): “If a company like Dollar General can sell their products to my constituents, and make money off my constituents, one would think at a minimum they would appear before this subcommittee.”128 Documents submitted to the committee by Dollar General show that two days after Congress sent Dollar General the request for information, the company filed a report with the Consumer Products Safety Commission regarding an additional 192,000 lead-contaminated key chains,129

which have since been recalled.130

Since October 2007, 63,000 Halloween tumblers,131 51,000 children’s sunglasses, 132 and 380,000 toy cars133 have been recalled because of high lead content. The Ecology Center also reported that its tests, conducted in November 2007 using a hand-held XRF analyzer, found that two items distributed by Dollar General contained lead and arsenic, and reported that one product, the Elmo Take Along card game, was among the most toxic products the Ecology

Center tested.134

BOYDS COLLECTION products were recalled because •

Company Product Recalled Date of Recall Number of Products

Toys “R” Us Military-style toy sets114 October 31, 2007 16,000

Decorating sets115 October 4, 2007 15,000

Vinyl bibs116 August 2007 160,000

Coloring cases117 August 30, 2007 27,000

Military-style toy sets118 March 13, 2007 128,700

Dollar General Children’s sunglasses119 November 8, 2007 51,000

Toy Cars120 November 7, 2007 380,000

Key chains121 October 4, 2007 192,000

Halloween tumblers122 October 4, 2007 63,000

1,032,700

Toys “R” Us and Dollar General Lead Recalls on KKR’s Watch, Voluntary:

Components Lead Cadmium Chlorine/PVC Arsenic Mercury

Red bag material 9,997 0 155,111 984 120

Plasticized playing cards 0 0 0 3 0

Toxic Rating: HIGH LOW MED HIGH HIGH

Other chemicals detected: Bromine, Antimony

Components Lead Cadmium Chlorine/PVC Arsenic Mercury

Frame 1,689 0 0 203 33

Lens 53 0 0 0 0

Toxic Rating: HIGH LOW LOW HIGH LOW

Red Elmo bag with three card games, tested in November 2007135:

Gray/silver boys sunglasses tested in November 2007136:

Ecology Center’s Reported Findings on two items distributed by Dollar General:


of high lead content. Toy drums imported from China by Boyds Collection, in which, according to the company’s most recent (June 2006) SEC filings, KKR owns a major stake,137 were found to contain high levels of lead and were recalled in May 2007.138 In August, Boyds was sent a request for information by the House Subcommittee on Commerce, Trade and Consumer Protection for discussion at a hearing on September 19.139 Boyds’ response letter to Congress reveals that red paint on its toy drums contained 2,395 ppm of lead,140 almost four times the federal lead paint limit.141

EVENFLO saw a huge spike in recalls while it was •under KKR ownership. KKR reportedly owned Evenflo from September 1996 to August 2004. According to the CPSC’s Web site, there were at least seven distinct recalls of Evenflo portable carrier-car seats, cribs, child gates and playpens between 1997 and 2003, while there were just two recalls of Evenflo products between 1984 and 1996, and one recall from 2004 to the present.142 [See Appendix 4 for

Evenflo recall data.]

KKR portfolio companies have engaged in irresponsible

marketing of potentially dangerous products.

JAZZ PHARMACEUTICAL’s subsidiary, Orphan •Medical, was sued by the Department of Justice for off-label marketing of a “date rape drug” and for submitting false claims to the government. Gamma-Hydroxybutyric acid (GHB) one of three government-recognized date rape drugs,143 is sold under the trade name Xyrem by Orphan Medical, a subsidiary of KKR portfolio company Jazz Pharmaceuticals since June 2005.144 Xyrem was approved by the FDA for treatment of cataplexy, a weak muscle condition associated with narcolepsy, and later for a second condition related to narcolepsy.145 A whistle-blower lawsuit alleged that Orphan marketed the drug for off-label uses of Xyrem by Orphan Medical was filed in January 2005, and following an investigation, the government alleged in a related criminal case that off-label marketing occurred between 2003 and 2006, with specific unlawful incidents alleged in November

2005.146

The civil whistle-blower suit claimed that off-label marketing was pushed as a way to boost sales of a drug with a very small market and named a doctor as a defendant who was allegedly hired by Orphan to promote Xyrem for treatment of fatigue, insomnia, and other ailments.147 According to The New York Times, the doctor marketed Xyrem for off-label uses in “hundreds of speeches and seminars

from 2003 to 2006.” 148 The criminal indictment of that doctor accuses him of describing “table salt” as more dangerous than Xyrem and describes an alleged incident of off-label marketing in November 2005.149 Following its investigation, the Department of Justice also concluded that doctors marketing the drug for Orphan induced physicians to prescribe the drug for improper uses—prescriptions then covered by Medicare and Medicaid at a cost of millions of dollars.150 Orphan ultimately pled guilty to criminal charges in 2007 and Jazz agreed to pay $20 million in penalties and compensation,151 including $12.2 million to insurers like Medicare and Medicaid.152 Jazz/Orphan continued to sell Xyrem as of summer 2007 and posted record sales of the drug for the quarter

that ended June 30, 2007.153

TOYS “R” US• placed a toy bead set on the company’s “hot” list that was recalled soon afterward. In September, Toys “R” Us placed Aqua Dots “Super Studio” on its 2007 “Fabulous 15” list of hot holiday toys.154 In November, the Consumer Product Safety Commission recalled Aqua Dots beads after two children in the U.S. reportedly fell into “comatose” conditions after ingesting the Aqua Dots beads,155 which were coated with a chemical that could metabolize into the deadly date rape drug Gamma Hydroxy Butyrate (GHB).156 The GHB precursor 1, 4 butanediol found in the Aqua Dots is designated by the U.S. Food and Drug Administration as a Class I Health Hazard, which means it can cause

life-threatening harm.157

A ROCKWOOD HOLDINGS affiliated company •continues to market wood treated with an arsenic and chromium compound, even though safer products are available.158 Treatment with chromated copper arsenate (CCA), a chemical that contains arsenic and chromium,159 has generally been restricted to wood intended for non residential use since 2003.160 Viance—a firm partly owned by Rockwood Holdings, which was owned by KKR from 2000—2005,161 and in which KKR still owns a nearly 51 percent stake162 —markets CCA-treated wood.163

According to a news account, CCA-treated wood has been banned in several countries, including Switzerland, Vietnam and Indonesia, and severely restricted in others, such as Japan, Sweden and Germany.164 A coalition led by the Environmental Working Group and the Healthy Building Network exerted enough pressure on the EPA and CCA manufacturers to achieve a voluntary phase out of CCA-treated wood for residential use in 2003.165 Despite the existence of safer alternatives, like


alkaline copper quaternary (ACQ) treated wood,166 which Rockwood companies also sell,167 Viance continues to sell CCA-treated wood.168

Astonishingly, marketing materials for a CCA-treated wood product available on Viance’s web site continue to show images of residential use. See http://www.treatedwood.com/products/supatimber/stfactbrochure.pdf.169

RJ REYNOLDS, under KKR, sold •cigarettes using a youth-friendly cartoon camel. After KKR acquired RJR Nabisco in 1989,170 the company reportedly slashed advertising costs except for its advertising campaign featuring a cartoon Joe Camel.171 In 1992, Surgeon General Antonia Novello and the American Medical Association called for an end to cartoon Joe cigarette advertisements, because the appeal to children was too great.172 While RJR denied suggestions that Joe Camel was inducing children to smoke,173 an Associated Press story cited a study showing that three years after cartoon Joe cigarette advertisements appeared, 32.8 percent of underage smokers were smoking Camels, compared to just 0.5 percent years earlier.174

K-III student publications presented tobacco industry •more favorably while under KKR, which was invested in RJR Nabisco at the time. KKR invested in K-III communications (which later became Primedia) in 1989, and still holds a stake in the company.175 In the 1990s, K-III owned the Weekly Reader Corp., which put out two publications targeted at school children: Weekly Reader and Current Events.176 A study authored by a professor affiliated with the Harvard School of Public Health uncovered and described disturbing changes in the way in which tobacco news was presented by the magazines after they came under KKR control, while KKR was also invested in tobacco giant RJ Reynolds (half of RJR Nabisco).177 The study found that “[a]fter KKR’s takeover, [Current Events] gave relatively little space to describe the health consequences of smoking.”178 The study also cited an earlier analysis showing that when Weekly Reader was compared to its competitor, Scholastic News, “the Weekly Reader under KKR was less likely to mention short-term consequences of smoking or to give a clear ‘don’t use’ message, but was more likely to present the tobacco industry

position on key issues.”179

PRIMEDIA• hired Jack Abramoff and reportedly

enlisted Ralph Reed to lobby on behalf of its ad-sponsored educational television station, Channel One. During the time KKR held an investment in Primedia,180 the company’s Channel One television station was criticized for subjecting a captive student audience to advertisements,181 which have reportedly included military recruitment spots.182 Politicians and community groups have sought to take Channel One out of schools.183 In order to protect its interests,184 Primedia hired lobbyists like Jack Abramoff185 and reportedly enlisted the assistance of Ralph Reed in Texas.186 According to a Senate Finance Committee report, Abramoff worked with Primedia to obtain favorable media and other pieces about Channel One, including from anti-tax conservative Grover Norquist.187 Ralph Reed reportedly made phone calls on Channel One’s behalf188 when the Texas Board of Education was considering banning the television station.189

A KKR-controlled company flouted rules and standards applicable to child care facilities.

KINDERCARE violated child care facility standards •while in KKR’s portfolio. KinderCare was a KKR portfolio company from 1997190 to 2004.191 According to a news report, between 2000 and 2003, a Minnesota KinderCare had 73 violations of child care licensing rules, including at least one case of child abuse, and one of child neglect.192 The Minneapolis Star Tribune also reported that the problems found at the facility included the following: “A staff member threw milk in a child’s face; a school-age child left the center unnoticed; another was sent home with an unauthorized adult; a toddler was left alone on the playground for about 15 minutes. There were dozens of problems with discipline, staffing and record-


keeping.”193 The center’s license was suspended by the Minnesota Department of Human Services, although this did not apparently keep it from operating while the company appealed the suspension.194

Alleged Discrimination Against CustomersRace discrimination against customers has been alleged at at least two portfolio companies on KKR’s watch.

TOYS “R” US has been accused of race •discrimination against its customers. KKR, together with Bain and Vornado, acquired Toys “R” Us in July 2005.195 Two African American Toys “R” Us customers, Patricia Drayton and Valerie Kirk, allege that they were asked to present receipts to exit a Bronx Toys “R” Us while white customers were not asked the same.196 Ms. Drayton also alleges that a white fellow shopper approached her after the incident and said that he was upset by how she had been treated, as he had not been asked to present his receipt while exiting the store.197 Drayton and Kirk filed suit in Manhattan federal court in July 2007.198 On Feb. 7, 2008, an amended complaint with 13 individual plaintiffs199 was filed in court, charging that Toys “R” Us has “engaged in a continuing pattern and practice of discriminatory stops, searches, harassment and unequal treatment of the plaintiffs and other African American shoppers at Toys ‘R’ Us stores, while non-African American shoppers were not subjected to a similar treatment.”200i i, The Drayton/Kirk incidents follow a similar 2004 alleged incident involving a black man at a Bronx Toys “R” Us, which also resulted in a lawsuit pending in federal district

court.201

DENNY’S became infamous for racist treatment of •customers in the 1990s. KKR bought a majority stake in Denny’s parent Flagstar in 1992.202 In 1991, a group of high school and college students were allegedly denied service by a Denny’s restaurant in California. That incident and others led to an investigation by the U.S. Department of Justice, and many more alleged incidents of race discrimination at Denny’s were ultimately uncovered—including several in 1993, well into KKR’s ownership. In one of the 1993 incidents, six uniformed U.S. Secret Service officers claimed that they waited for nearly an hour for service while their white colleagues at other tables were served promptly.203 Citing events like these, lawyer John P. Relman of the Washington Lawyers’ Committee for Civil Rights and Urban Affairs was quoted in the San Francisco Chronicle in 1993 as saying: “It is our belief that Denny’s still does not get it and Denny’s should be held accountable

for discrimination that is continuing to occur.”204

The Department of Justice, the Secret Service officers, and other African American Denny’s customers filed a series of race discrimination lawsuits against Denny’s. Denny’s and the Department of Justice entered into a Consent Decree, and as part of that and other settlements Denny’s reportedly agreed to pay tens of millions to class

member claimants (without admitting fault).205

Denny’s also experienced financial trouble, and, when KKR exited its Flagstar investment in 1997, The New York Times headline read: “Buyout Kings flee disaster at Denny’s.”206

Toys “R” Us has also been accused of poor treatment of nursing mothers and immigrant children. Based on its experience with Denny’s, why has KKR not taken a more proactive approach to prevent discrimination against its customers at Toys “R” Us?

TOYS “R” US and BABIES “R” US stores reportedly •challenged mothers’ breast-feeding rights. According to news accounts, a nursing mother claims that employees at the Manhattan flagship Toys “R” Us urged her in 2006 to move to the basement and, when she refused, threatened to call security. The New York Daily News reported that Toys “R” Us admitted offering the mother the “opportunity” to nurse elsewhere but denied doing anything else.207 To protest the store’s alleged conduct, a group of dozens of mothers staged a Times Square Toys “R” Us “nurse-in” in July 2006.208 A reporter also conducted a breastfeeding test at a Babies “R” Us later in 2006 and said that she was asked to move to a breastfeeding room.209

A TOYS “R” US contest discriminated against the •children of immigrants. In January 2007, Toys “R” Us denied the baby of Chinese immigrants a $25,000 New Year’s Baby savings bond because the baby’s mother was not a legal U.S. resident. The baby, Yuki Lin, is an American citizen, and she reportedly won a tie-breaker drawing for the savings bond, but Toys “R” Us had a rule in the sweepstakes that disqualified children whose mothers were not legal residents, so a baby in Georgia was awarded the prize. 210 After political and business leaders in the Chinese American community spoke out against Toys “R” Us, the company belatedly awarded the Chinese American baby girl a second savings bond.211

ii The federal court docket in this case was last accessed Feb. 19,

2008. Toys “R” Us has indicated that it intends to file a motion to

dismiss the plaintiffs’ complaint.

Environment


While going “green” is the latest fad for many U.S. corporations, KKR portfolio companies have bucked the trend and instead stand accused of industrial pollution and a lack of transparency when it comes to environmental impact.Industrial PollutionKKR portfolio companies have been linked to toxic emissions, environmental problems, and possible health

risks.

An ACCELLENT Pennsylvania plant emitted a •potentially toxic compound into surrounding communities. In 2005 and 2006, state regulators found higher than average levels of trichloroethylene (TCE), a degreaser often used in industrial applications, in Montgomery County, Pa., air due to industrial emissions.212 Regulators identified Accellent and Superior Tube sites as sources for the TCE, and in light of the test results, Accellent agreed to take some belated steps in an attempt to reduce its emissions. In 2005, Accellent released 58 tons of TCE into the air.213 Accellent was acquired by KKR and another private equity firm in November 2005, and Accellent is still a KKR portfolio company today.214

According to a news report, Accellent ranked eighth, nationally, in TCE emissions in 2005, the last year on record at the time of the report.215 TCE exposure can affect the human central nervous system and has been associated with cancer and other health problems, according to the EPA.216

BORDEN CHEMICALS has been blamed in news reports and by nearby residents for industrial emissions, noxious odors, and even health problems in communities surrounding its plants. KKR acquired Borden Inc. in 1995, focused on the company’s chemicals arm, and then sold the company to another private equity firm in August 2004. 217 218 According to news reports, Rubbertown, Ky. residents living near an ever-expanding Borden plant expressed concern in 2004 over noxious odors, noise, and even health problems that the residents blamed on Borden’s plant and on a nearby landfull.219 One resident was quoted as saying, “We can’t sit in our yards or open the windows ….We are poisoned by the chemical soup every day.”220 A Time magazine special report described an August 1996 incident during which a “witch’s brew of toxic chemicals”—a combination of ethylene dichloride, vinyl-chloride monomer, and hydrogen chloride—was released outside a Borden plant in Geismar, La. Time reported several more toxic releases that followed at the same plant.221 Time also criticized Borden for receiving tax abatements while doing millions of dollars of serious environmental damage.222 In 2000, the New Orleans Times-Picayune identified Borden Chemicals as one of

the Mississippi corridor’s top 10 polluters.223


Lack Of Corporate Transparency Lack of transparency means that threats to the environment posed by corporate practices may be unknown.

ROCKWOOD HOLDINGS• was found to be among the worst chemical companies in corporate environmental and social responsibility reporting.224 KKR acquired Rockwood Holdings in 2000 and still owns nearly a 51 percent stake in the company.225 A recent study by the Roberts Environmental Center (REC) at Claremont McKenna College, named after and partially funded by an endowment from KKR founding partner George Roberts,226 rated 29 chemical companies according to the quality of their environmental and social responsibility reporting.227 The REC’s mission is to provide students with “a comprehensive and realistic understanding of today’s environmental issues and the ways in which they are being and can be resolved, and to identify, publicize, and encourage policies and practices that achieve economic and social goals in the most environmentally benign and protective manner.”228 It was under this purview that the study was conducted. Rockwood Holdings, in which KKR has a nearly 51 percent stake,229 received a grade of D, 230 on a curved scale. 231 According to the study, Rockwood’s reporting is “very incomplete.” 232 The study concluded that Rockwood needed “substantial improvement” in reporting on emissions, waste disposal, and environmental policy, among many other categories.233 Good quality sustainability reporting should not be conflated with, but is an important part of, good corporate citizenship.

“Greenwashing” might have been employed to push an energy deal through political hurdles.

TXU’s buyers—KKR and other private equity •firms—emphasized steps that may offer only marginal (if any) benefits to consumers and the environment. In February 2007, news broke that KKR and fellow private equity giant TPG were looking to buy Texas-based TXU Energy Corp. (now Energy Future Holdings).234 At that time, activist and political opposition to TXU’s high energy prices and plans to build 11 new coal plants was coming to a head.235 KKR and its private equity partners put a deal on the table that included halting plans to build eight of the 11 coal plants and offering energy consumers a price reduction236 (guaranteed through 2008).237

While the deal was enough for some environmental

groups to OK the buyout, a number of critics pointed to causes for concern. According to some observers, TXU faced such strong community and political opposition that building all 11 new coal plants already seemed unlikely.238 Others decried the fact that adding three highly polluting lignite (a particularly dirty kind of coal)239 plants to the Texas horizon is nothing to celebrate. And for some, the little-publicized detail about nuclear plants replacing some of the coal plants’ energy generation made the deal a step backward. According to Dan Becker of the Sierra Club: “… Coal is bad and nuclear power is worse. There are four major problems with nuclear power: waste, costs, terrorism and accidents. So switching from coal to nuclear power is like giving up smoking and taking up crack.”240

Critics have suggested that TXU’s price cuts came up short because TXU was already overcharging by 20 percent to 25 percent.241 Further, the Dallas Morning News expressed concern that after guaranteed rate cuts end in 2008, TXU could try to pass along some of the costs of the new debt incurred as part of the buyout deal.242 The Dallas Morning News also recently reported that TXU contributed in 2007 to the Center for Energy and Economic Development, a policy organization opposed to a “cap-and-trade” system (whereby companies meet emission standards by trading, buying or selling carbon credits) that is widely regarded as one of best options for curbing carbon dioxide emissions. It was unclear whether TXU made the reported contribution before or after the private equity acquisition.243

Lobbying For Chemical Industry RightsROCKWOOD HOLDINGS has lobbied to protect its •interests in the chemical industry. Since 2002, Rockwood Holdings and its subsidiaries have paid close to $900,000 to Washington D.C., firms that have lobbied the Environmental Protection Agency, the Consumer Product Safety Commission, the U.S. House of Representatives and Senate on chemical industry issues and pesticide policies. 244 [See Appendix 5 for details on Rockwood’s lobbying.]

BORDEN CHEMICALS lobbied on hazardous waste •issues. In 1999 and 2000, Borden hired Hoper Owen Gould & Wilburn to lobby on hazardous waste disposal and transportation issues. Borden paid the firm more than $300,000.245

Conclusion


Buyout firms such as KKR hail their unique ability to create value in newly acquired companies because they “need not concern themselves with the short-term perspectives of the financial markets.”246 This same ownership model frees buyout firms such as KKR to meet the challenges facing us as a nation and to become leaders by voluntarily adopting policies for themselves and their portfolio companies that:

Conserve and protect public health and the •environment by phasing out the use of toxic chemicals in favor of safer substitutes and reducing toxic waste, emissions and effluent, by requiring content and safety information on all products produced or sold by their portfolio companies, and by prioritizing elimination of the most hazardous chemicals, such as lead, from children’s toys;

Ensure that their portfolio companies treat all workers •fairly by adopting and effectively implementing principles that guarantee the right to fair treatment, the right to form a union, a safe workplace, and a workplace free from discrimination;

Ensure that their portfolio companies strictly adhere •to civil rights laws that protect their employees and consumers; and

Ensure that the private equity industry and its buyout •billionaires pay their fair share of taxes.

For our nation to continue to prosper and grow, the responsibility to resolve the problems we face must be shared by all. As co-founders of a firm whose portfolio

companies employ hundreds of thousands of workers, Henry Kravis and George Roberts can and should engage in the debate about how best to safeguard our environment, rebuild the middle class, and protect workers and consumers from dangerous chemicals and products.

By taking direct responsibility for the negative consequences of their portfolio companies’ business practices and their impact on consumers, residents and workers, KKR can become a leader in corporate responsibility and can set a standard that will improve the value of its companies to the communities at large.

Private equity companies play an outsized role in the global economy. Few doubt the power they could wield to set higher standards for the rest of the world.

Sadly, KKR has not met this challenge. Its portfolio companies have been accused of employment discrimination, have had to pull lead-tainted children’s toys from store shelves, have emitted potentially dangerous chemicals into community environments, and have been cited repeatedly for workplace safety violations. KKR and other private equity firms own companies all across the globe, and, if left unchecked, the troubling business practices at their portfolio companies in the United States could become global in nature.


Appendix 1SunGard Data System’s Debt and Taxes

KKR relies on leverage to meet its target returns. One benefit of the significant debt financing KKR uses to acquire portfolio companies is that

they can deduct the interest costs from portfolio companies’ profits, effectively reducing taxable income.

SunGard Data Systems, Inc. Pre- and Post-Deal Interest and Taxes:

($millions)

Pre-Deal Annual Average (2000-2004)

Post-Deal (2006)

Earnings Before Interest and Taxes (EBIT)

$530 $536

Interest Paid $10 $613247

% EBIT 2% 114%

Income Tax Paid $174 $24248

% EBIT 33% 5%

KKR and its consortium partners took SunGard Data System’s Inc. private in August 2005 for $11.4 billion.249 The $36 per share offer

represented a 44.3% premium over the price prior to the company’s confirmation of merger discussions,250 generating an estimated $481 million

in taxes paid by shareholders as a result of the buyout.251 As a result of the transaction, the company’s debt increased from an average of

$287 million from 2000-2004 to $7.4 billion in 2006.252 Due to the increase in debt, SunGard’s post-transaction interest paid increased from

2% to 114% of its earning before interest and taxes (EBIT), and the company’s income taxes paid fell from 33% of EBIT to 5%. If we assume

that over the next 5 years SunGard’s EBIT grows at a rate of 15%, its growth rate from 2000-2004, then from 2006-2010 the company will

generate $3.6 billion in EBIT. Taxed at the pre-transaction average rate of 33%, this would have generated an estimated $1.2 billion in income

taxes. However, at tax rate of 5% the company will pay only $162 million in income taxes during this period.


Appendix 2

Tax Effects of the Biomet Buyout

KKR and its consortium partners bought Biomet for $11.4 billion, with an equity contribution of $5.2 billion, and debt financing totaling $6.6

billion.253 Based on current LIBOR rates and spreads, we assume an average blended interest rate of 8.6% for the debt.254 We also assume

that Biomet will maintain a constant debt load, neither paying down debt nor increasing its leverage during a 5 year holding period.

Over the last 5 years Biomet has grown earnings before taxes (EBT) at a compound annual growth rate of approximately 2%,255 and we assume

that growth rate will continue during the KKR holding period. We assume the length of that period to be 5 years, using the assumption Morgan

Stanley used in its fairness opinion.256 We also assumed that KKR and other equity investors would achieve an IRR of 22.5%, all consistent with

the Morgan Stanley fairness opinion.257

For tax rates, we assume that tax rates effective in 2006 will remain constant throughout the duration of KKR’s ownership of Biomet, including

the effective corporate tax rate, the tax rates for dividends and for capital gains, as well as the tax rate for KKR’s partners’ carried interest.

Finally, we assume that Biomet’s public shareholders are all taxable investors, since it is difficult to calculate the percentage of shares owned

by tax-exempt investors, even though assuming some percentage of tax-exempt investors would exacerbate the effect of the transaction on tax

revenues, since the taxes collected on capital gains created by the LBO exceed the taxes foregone by the lack of dividend payouts.

With those assumptions, here is a summary of our calculations:

With the assumed 2% growth rate, Biomet’s EBT during the KKR holding period would have totaled approximately $2.66 billion. However, the

incremental interest payments on the debt will total approximately $2.86 billion, which could completely wipe out the company’s corporate

tax expense.258 Without those interest payments, Biomet’s corporate tax expense on the $2.66 billion in EBT would have totaled up to $879

million. In addition, if Biomet had remained a public company and continued to pay out dividends at the 24% annual growth rate in dividend

payments that Biomet had from 2003-2007,259 shareholders would have received $644 million in dividends during the KKR holding period. At

the current 15% dividend tax rate, that would have generated up to $97 million in taxes, assuming all shareholders were taxable.

However, it could also be argued that the buyout itself created capital gains that generated taxes above what would have been collected

absent the buyout. The $46/share buyout price represents a 32% premium over the closing stock price of $34.78 on April 3, 2006, the last

trading day prior to public speculation about Biomet executing a significant transaction.260 If one assumes that all holders as of April 4th earned

incremental long-term capital gains of $11.22 per share as a result of the buyout, and that all holders were taxable, then the buyout generated

incremental capital gains taxes of $543 million.

Finally, KKR and the equity consortium could earn a total profit of $9.1 billion upon selling Biomet after five years. KKR may keep up to 20%

of that profit as its carried interest (as is common in the industry), and under current law KKR’s individual partners’ portions of that carried

interest is taxed at the 15% rate for capital gains. If the tax treatment of carried interest were to be changed from capital gains to ordinary

income, then the increased taxes KKR partners and the equity consortium partners would owe the IRS could be up to $365 million.261

Tax Loss:

Amount ($ millions)

Five years of taxable EBT (879)

Five years of shareholder dividend taxes (97)

Difference in carried interest tax at income v. capital gains rate (365)

Shareholder deal payout taxes 543

Total taxes (798)


Appendix 3Toys “R” Us/Babies “R” Us Recall Data:262

DateNumber Recalled

Recall Cum. Item Brand HazardCompany (role in bringing product to the market)

Jun-03 2,000 2,000Crib Drop-Side Rails

Babi Italia/Jopi Industries Entrapment Babies “R” Us (exclusive retailer)

Nov-03 50,000 52,000 Sidewalk ChalkAgglo Corporation/Toys “R” Us

LeadToys “R” Us (exclusive retailer, importer)

Mar-04 900 52,900 Snail Push Toy Playwell/Babies “R” Us Choking Babies “R” Us (exclusive retailer)

May-04 11,300 64,200 “Passport” Stroller Baby Trend Fall Babies “R” Us (exclusive retailer)

Jan-05 10,500 74,700Fun Years Music Big Drum Musical Set

Kids Station Inc. Choking Toys “R” Us (exclusive retailer)

Sep-05 25,000 25,000 BMX Bicycles World Wide Cycle Supply Inc. Fall Toys “R” Us (exclusive retailer)

Nov-05 335 25,335 “Europe” Crib Delta Enterprise Corp. Lead Toys “R” Us (exclusive retailer)

Aug-06 7,500 32,835Radio-Controlled Airplanes

Spin Master Burn Toys “R” Us (exclusive retailer)

Nov-06 3,000 35,835“Cars” Toy Storage Benches

Delta Enterprise Corp. Lead Toys “R” Us (exclusive retailer)

Mar-07 128,700 164,535“Elite Operations” Toy Sets

Toy Century Industrial Company/Toys “R” Us

Lead, LacerationToys “R” Us (exclusive retailer, importer)

Aug-07 160,000 324,535 Vinyl baby bibs Various Lead Toys “R” Us (exclusive retailer)

Aug-07 27,000 351,535Wooden Coloring Cases

Imaginarium LeadToys “R” Us(exclusive retailer, importer)

Oct-07 15,000 366,535Children’s Decorating Sets

CKI Toys LeadToys “R” Us (exclusive retailer, importer)

Oct-07 16,000 382,535“Elite Operations” Toy Sets

Toy World Group/Chu Tat Toys LeadToys “R” Us (exclusive retailer, importer)

Nov-07 8,900 391,435 Cribs BassettbabyEntrapment, Strangulation

Babies “R” Us (exclusive retailer)

Appendix 4Evenflo Recall Data:263

Date Item Number Brand Hazard

Feb-84 Li’l Squeaker Pacifiers 16,000 Evenflo Choking

Aug-91 Disney Pacifiers N/A Evenflo Choking

Jun-97Happy Camper, Happy Cabana, Kiddie Camper Portable Playyards

1,200,000 Evenflo Sharp edges, Entrapment

Mar-98 On My Way Infant Car Seats/Carriers 800,000 Evenflo Injuries from malfunction

Sep-98 Hike “n Roll Child Carriers 22,000 Evenflo Strangulation

Jun-99 Snugli Soft Carriers 327,000 Evenflo Fall

May-01 Joyride Car Seats/Carriers 3,400,000 Evenflo Fall

Oct-01Home Décor Swing Wooden Baby Gates

20,500 EvenfloAccess to restricted areas, Choking

Jan-03 Portable Wood Cribs 364,000 Evenflo Fall

May-07 Embrace Car Seat/Carrier 450,000 Evenflo Fall


Appendix 5

Rockwood Subsidiary

Lobbying Firm Lobbyist(s) Description of Activity Contacts Dates Payment ($)

Chemical Specialties, Inc.

The Accord Group, Inc.

Patrick Quinn

Environmental and Chemicals/Chemical Industry Issues: “Working with EPA and CPSC on the scientific assessment of treated wood and related issues,” among other things

EPA, CPSC, House, Senate

Oct 02 -June 07 332,500

VianceFerguson Group

Kenneth Brown, Matthew Ward

Environmental Issues; “EPA pesticides policy”

House, Senate Dec 06 – June 07 50,000

Rockwood Specialties, Inc.

Pillsbury Winthrop Shaw Pittman LLP

Peter RobertsonEnvironmental Issues: “Registration of wood preservatives”

EPA, House, Senate

Jul 06 - Jun 07 30,000


Patton Boggs LLP

Joseph Trapasso; Peter Robertson; Gregory Laughlin; Darryl Nirenberg; Charles Phillips; Catherine Conner

Environmental and Chemicals/Chemical Industry Issues: “Registration of ACC and Copper HDO and “Department of Energy Vehicle Technology Funding”

EPA, Council on Environmental Quality, House, Senate

Nov 03 - Jun 06 130,000


Levine & Co. Kenneth LevineChemicals/Chemical Industry Issues: “EPA regulatory issues”

House, Senate Jul 03 – June 07 340,000

882,500

Rockwood Lobbying264:


(Endnotes)

1 “The 400 Richest Americans,” Forbes, September 21, 2006 (http://www.forbes.com/lists/2006/54/biz_06rich400_The-400-Richest-Americans_NameProper_print.html).

2 “The Forbes 400,” Forbes, September 20, 2007 (http://www.forbes.com/lists/2007/54/richlist07_Henry-Kravis_ED7G.html).

3 Rappaport, Liz, Carrick Mollenkamp and Karen Richardson, “New Hitches in Markets May Widen Credit Woes,” The Wall Street Journal, February 11, 2008, p. A1.

4 Max Holland, “Silence of the Corporate Lambs; RJR Nabisco’s Fleecing: Where Was Vernon Jordan?” The Washington Post, December 6, 1992.


6 “Willis Group settles sex bias lawsuit for $8.5 mln,” Reuters, October 22, 2007; “Willis Resolves Class Action Settlement,” October 22, 2007. (http://www.willis.com/news/News_Attachments/Willis_Press_Release_class_action_10222007.pdf).

7 Compl. at 15, Adrianne Cronas v. Willis Group Holdings, No. 06-CV-15295 (S.D. NY filed December 19, 2006); Docket, Adrianne Cronas v. Willis Group Holdings, No. 06-CV-15295 (S.D. NY filed December 19, 2006).

8 “Bain Capital, KKR and Vornado Complete Acquisition of Toys “R” Us, Inc.” KKR, July 21, 2005 (http://kkr.com/news/press_releases/2005/07-21-05.html); Consumer Product Safety Commission online database, accessed December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx); “Toys “R” Us Inc. Announces Precautionary Stop Sale on All Vinyl Bibs,” August 17, 2007 (http://www3.toysrus.com/Investor/pr/081707.html).

9 Martha T. Moore, “RJR Nabisco slims down,” USA Today, August 28, 1989.

10 William DeJong, “When the tobacco industry controls the news: KKR, RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 v.5, pp42-148.

11 “Collegeville Area Air Monitoring Results,” Pennsylvania Department of Environmental Protection, October 15-18, 2007 (http://www.depweb.state.pa.us/southeastro/cwp/view.asp?a=3&Q=532150&pp=3).

12 “Rendell objects to EPA trichloroethylene rule,” Associated Press, April 24, 2007.

13 Sharon Beder, “Arsenic and old wood,” Sydney Morning Herald (Australia), July 16, 2003 (http://homepage.mac.com/herinst/sbeder/arsenic.html).


15 SunGard Data Systems, Inc., Definitive Proxy Statement, Schedule 14A, filed June 27, 2005, p. 49-50 (http://www.sec.gov/Archives/edgar/data/789388/000119312505131157/ddef14a.htm#toc70754_57).

16 Contract summary viewed at fedspending.org, accessed February 7, 2008 (http://www.fedspending.org/fpds/fpds.php?company_name=sungard&sortby=r&detail=0&datype=T&reptype=r&database=fpds&fiscal_year=2006&submit=GO).

17 Contract summary viewed at fedspending.org, accessed February 7, 2008 http://www.fedspending.org/fpds/fpds.php?company_name=biomet&sortby=r&detail=0&datype=T&reptype=r&database=fpds&fiscal_year=2006&submit=GO

18 RJR Nabisco Corp Form 10-K, Filed with the SEC December 31, 1993, p17; Max Holland, “Silence of the Corporate Lambs; RJR Nabisco’s Fleecing: Where Was Vernon Jordan?” The Washington Post, December 6, 1992.


20 Gonzales, Angela, “Heart Hospital parent takes stab at going public again,” The Business Journal, June 1, 2001.

21 “Cardiovascular Disease; Arizona Heart Hospital Reaches Settlement Regarding Clinical Research Matter,” Health Insurance Law Weekly, November 25, 2007.

22 Kristen Hallam, “Medcath accepts leveraged buyout,” Modern

Healthcare, March 16, 1998.

23 “False Claims Act: Arizona Heart Hospital Reaches Settlement,” December 10, 2007 (http://www.surgicenteronline.com/hotnews/7ch10155123.html); “MedCath Corporation Clarifies Affiliate Shareholder Restrictions,” PR Newswire, February 28, 2002 (http://phx.corporate-ir.net/phoenix.zhtml?c=129804&p=irol-newsArticle&ID=538316&highlight=).

24 Settlement Agreement between the US Department of Justice and Arizona Heart Hospital, November 2007 (http://www.crowell.com/pdf/MedicalDevice/Settlement-Agreement_US_Arizona-Heart-Hospital.pdf); “Cardiovascular Disease; Arizona Heart Hospital Reaches Settlement Regarding Clinical Research Matter,” Health Insurance Law Weekly, November 25, 2007.

25 “What’s Behind Private Equity’s Warnings About Debt?” Dealbreaker.com, April 26, 2007 (http://www.dealbreaker.com/2007/04/whats_behind_private_equitys_w.php#more); “LBO debt crisis may be on the horizon,” bloggingbuyouts.com, October 10, 2007 (http://www.bloggingbuyouts.com/2007/10/10/lbo-debt-crisis-may-be-on-the-horizon/).

26 KKR & CO. L.P., Form S1 filed with SEC on November 13, 2007, p. 142-143.

27 “KKR’s ‘one-trick pony’ leads the charge,” Financial Times, May 13, 2007.

28 “Financing woes dim ‘golden era’,” The Economic Times, July 27, 2007.

29 Keogh, Bryan and Pierre Paulden “Citigroup, Goldman Cut LBO Backlog with 10% Discounts,” Bloomberg.com, December 28, 2007.

30 Press releases available at http://www.kkr.com/news/press_releases/2007/12-21-07.html and http://www.kkr.com/news/press_releases/2007/12-13-07.html, accessed January 22, 2008.

31 “Financing woes dim ‘golden era’,” The Economic Times, July 27, 2007.

32 Rosenberg, Jeffrey, “Credit Market Strategist, The Bloom’s Off the Liquidity Rose,” Bank of America Debt Research, July 2, 2007, p. 8.

33 Mollenkamp, Carrick, Jason Singer and Serena Ng, “Red-Flag Sale: LBO Debt Deals Face New Snags,” WJS SHOULD THIS BE Wall Street Journal ?, July 20, 2007 and Ng, Serena, Tim Lauricella and Michael Aneiro, “Market Jitters Stir Come Fears For Buyout Boom,” WSJ SAME?, June 28, 2007.

34 Cimilluca, Dana, “A Novel Theory: Break Up LBOs,” The Wall Street Journal, July 28, 2007, p. B4.

35 Gutscher, Cecile and Edwad Evans, “Deutsche Bank, JP Morgan Cancel KKR Boots Loans Again,” Bloomberg, IS IT BLOOMBERG OR BLOOMBERG.com? BE CONSISTENT August 3, 2007.

36 Gutscher, Ceceli and John Glover, “KKR Cancels $1.4 Billion Loan to Refinance Maxeda LBO,” Bloomberg, July 16, 2007.

37 Keogh, Bryan and Pierre Paulden “Citigroup, Goldman Cut LBO Backlog with 10% Discounts,” Bloomberg.com, December 28, 2007.

38 Id.

39 Donnelly, Chris, “Harman LBO Dropped, Further easing Institutional pipeline,” Standard & Poor’s LCD News, September 24, 2007.

40 Latour, Abby and Matthew Fuller, “Heavy Calendar, Weak US Economy Cloud ’08 HY Outlook,” WHAT IS THE REST OF THIS?

41 Thornton, Emily. “Done Deals in Distress,” BusinessWeek, January 31, 2008.


43 Thornton, Emily. “Done Deals in Distress,” BusinessWeek, January 31, 2008; Andrew Bary, “On Borrowed Time,” Barron’s, December 3, 2007 (http://online.barrons.com/public/article/SB119647328789510311.html?mod=mktw).

44 Id.

45 Id.

46 Id.

47 Id.

48 Id.


49 Id. Note that this is not the deal equity total, it is the KKR anticipated commitment.

50 ProSeibenSat.1 Media Quarterly Report Q3 2007, January 1, 2007 to September 30, 2007, p.26. Long and short term financial liabilities as of September 30, 2007 (post-deal available debt figure).

51 KKR & CO. L.P., Form S1 filed with SEC on November 13, 2007, p. 143. Calculated as total PIPE investment less KKR reported equity.

52 Dollar General Corp, Form 8K, filed with SEC on June 15, 2007.

53 Ng, Serena, Tim Lauricella and Michael Aneiro, “Market Jitters Stir Come Fears For Buyout Boom,” WSJ WALL STREET JOURNAL?, June 28, 2007.

54 “Manufacturing/Industrial,” Project Finance, May 1, 2007. Debt financed transaction and working capital.

55 Kuo, Patricia, “Leverage buyouts in Asia raise $1.7 billion; KKR and CCMP lead in high-yield loans,” Business Asia by Bloomberg, July 26, 2007, p. 14.

56 Haywood, Kate and Anousha Sakoui, “Alliance Boots Debt Sale Delayed,” WSJ Wall Street Journal?, July 20, 2007.

57 Laureate Education, Inc, Form PREM14C, filed with SEC on July 13, 2007, p. 64-66.

58 Biomet Inc, Form PREM14C, filed with SEC on July 18, 2007, p. 45-46, calculated as Transaction total less equity total.

59 First Data Corp, Form DEFM14A, filed with SEC on June 26, 2007, p.57-59.

60 TXU Corp, Form DEFM14A, filed with SEC on July 25, 2007, p.8.

61 Presentation by KKR Financial at the 2008 Credit Suisse Financial Services Forum, February 6, 2008, accessed from http://www.kkrfinancial.com/kfn/investors/events.cfm February 7, 2008. The quote is from the audio is at precisely 17:35 minutes into the presentation.

62 https://secure.kkrscf.com/login accessed February 7, 2008.

63 Goldstein, Matthew and David Henry, “KKR: Cashing In on Credit Woes,” BusinessWeek, August 16, 2007.

64 Presentation by KKR Financial at the 2008 Credit Suisse Financial Services Forum, February 6, 2008, slide 11.

65 Cormac Doyle, “GMAC Sells 78% of Commercial Mortgage Business, World Markets Analysis, March 24, 2006; “Investor Group Completes Acquisition of Majority Stake in GMAC Commercial Holding Corp.

GMACCH changes its name to Capmark Financial Group Inc.,” March 23, 2006 (http://www.kkr.com/news/press_releases/2006/03-20-06.html)

66 Compl. at 1, Speight v. Capmark Finance Inc. and William F. Aldinger III, No. 07-CV-00890 (E.D. PA filed March 5, 2007).

67 Docket report, Speight v. Capmark Finance Inc. and William F. Aldinger III, No. 07-CV-00890 (E.D. PA filed March 5, 2007).

68 Compl. at 10-1, 20-22, Speight v. Capmark Finance Inc. and William F. Aldinger III, No. 07-CV-00890 (E.D. PA filed March 5, 2007).

69 Compl. at 13, Speight v. Capmark Finance Inc. and William F. Aldinger III, No. 07-CV-00890 (E.D. PA filed March 5, 2007).

70 “Willis’ US Flotation Raises Eyebrows, Post Magazine, April 12, 2001.

71 “Willis Group Announces Secondary Offering for the Sale of Remaining KKR Shares,” Business Wire, November 8, 2005.

72 “Willis Group settles sex bias lawsuit for $8.5 mln,” Reuters, October 22, 2007; “Willis Resolves Class Action Settlement,” October 22, 2007 (http://www.willis.com/news/News_Attachments/Willis_Press_Release_class_action_10222007.pdf).

73 Compl. at 15, Adrianne Cronas v. Willis Group Holdings, No. 06-CV-15295 (S.D. NY filed December 19, 2006); Docket, Adrianne Cronas v. Willis Group Holdings, No. 06-CV-15295 (S.D. NY filed December 19, 2006).

74 Consent Decree. p2, Terry L. Troupe et al. v. Randall’s Food & Drugs Inc. et al., No. 3-98-CV-2462-P (N.D. TX filed February 9, 2001).

75 “Buyout firm to own most of Randalls,” The Houston Chronicle, April 4, 1997.

76 David Snow, “Randall’s, Newsquest Nab Strong Returns for KKR,” BuyOuts, August 16, 1999.

77 Consent Decree. p3, Terry L. Troupe et al. v. Randall’s Food & Drugs

Inc. et al., No. 3-98-CV-2462-P (N.D. TX filed February 9, 2001).




81 Lawrence M. Fisher, “Safeway Buyout: A Success Story,” The New York Times, October 21, 1988 (http://query.nytimes.com/gst/fullpage.html?res=940DE0D8163BF932A15753C1A96E948260&sec=&spon=).

82 “KKR finds added value in floating investments,” Financial News, November 23, 2003.

83 Hung Tran, “KKR Sells Safeway Shares,” BuyOuts, May 15, 2000.

84 “Safeway Sex Bias Suit Settled for $ 5 Million ,” The Associated Press, April 1, 1994.

85 “Bain Capital, KKR and Vornado Complete Acquisition of Toys “R” Us, Inc.,” July 21, 2005 (http://kkr.com/news/press_releases/2005/07-21-05.html); “Current Investments,” KKR website, Accessed February 13, 2008 (http://kkr.com/investments/current-invest.html).

86 Andrea Stone, “Gay rights group raises red flag on Wal-Mart policies; Retail giant has ‘more work to do’ on equality,” USA Today, November 21, 2007 (http://www.usatoday.com/money/industries/retail/2007-11-20-wal-mart-gays_N.htm).

87 U.S. Occupational Safety and Health Inspection Data, osha.gov, Accessed February 6, 2008. Inspection data “Establishment Search” conducted for KKR portfolio companies.

88 U.S. Occupational Safety and Health Inspection Data, osha.gov, Accessed February 6, 2008. Inspection data “Establishment Search” conducted for KKR portfolio companies.

89 U.S. Department of Labor, OSHA file for inspection 30849680 (documents dated May 25, 2006, December 6, 2005, and December 7, 2005).

90 “Bain Capital, KKR and Vornado Complete Acquisition of Toys “R” Us, Inc.,” July 21, 2005 (http://kkr.com/news/press_releases/2005/07-21-05.html); “Current Investments,” KKR website, Accessed February 13, 2008 (http://kkr.com/investments/current-invest.html).

91 .U.S. Department of Labor, OSHA file for inspection 30849680 (documents dated May 25, 2006, December 6, 2005, and December 7, 2005).

92 U.S. Department of Labor, OSHA file for inspection 30864980 (document dated August 2, 2006).

93 Accident Synopsis – Toys “R” Us. December 6, 2005.

94 Maryland Department of Labor, Licensing and Regulation, Citation and Notification of Penalty for Citation 1 Item 1, Inspection 309119162, September 13, 2005, p5.

95 Maryland Department of Labor, Licensing and Regulation, Inspection Report, Inspection 309119162, August 26, 2005, p6.

96 “Apollo to buy Borden; KKR to unload Borden Chemical to another equity firm,” Chemical Week, July 7, 2004 (http://pubs.acs.org/cen/news/8227/8227apollo.html); David Carey, “Hexion rewards Apollo,” Daily Deal/The Deal, November 14, 2006.

97 “Foundry blast victims settle lawsuits for $25 million,” Associated Press, September 26, 2003.

98 MSN Money, “Rockwood Holdings, Inc.: Ownership,” based on SEC filings from 3/15/07, Accessed February 12, 2008 (http://moneycentral.msn.com/ownership?Symbol=ROC); “Current Investments,” KKR website, Accessed February 13, 2008 (http://kkr.com/investments/current-invest.html).

99 Rockwood 2006 Annual Report, p16 (internal numbering) (http://www.rockwoodspecialties.com/rock_english/media/pdf_files/RockAnnlRept_06.pdf).

100 Risk Assessment Science Support Branch, U.S. Environmental Protection Agency, Office of Pesticide Programs Antimicrobials Division, “Human Exposure,” February 18, 2004.

101 Consumer Product Safety Commission online recall database,


accessed December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx); See Appendix 3.

102 “Toys with Highest Levels,” HealthyToys.org, accessed January 22, 2008 (http://healthytoys.org/product.most.php); Statement from XRF analyzer operator Kenny Bruno.

103 “Bain Capital, KKR and Vornado Complete Acquisition of Toys “R” Us, Inc.” KKR, July 21, 2005 (http://kkr.com/news/press_releases/2005/07-21-05.html); Consumer Product Safety Commission online database, accessed December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx); “Toys “R” Us Inc. Announces Precautionary Stop Sale on All Vinyl Bibs,” August 17, 2007 (http://www3.toysrus.com/Investor/pr/081707.html).

104 Consumer Product Safety Commission online recall database, accessed December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx).

105 Consumer Product Safety Commission “Toys “R” Us Recalls “Elite Operations” Toy Sets Due to Violation of Lead Paint Standard,” October 31, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08057.html); Consumer Product Safety Commission, “CKI Recalls Children’s Decorating Sets Due to Violation of Lead Paint Standard; Sold Exclusively at Toys “R” Us,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08008.html); “Toys ‘R’ Us pulls vinyl bibs as precaution against lead problems,” Associated Press, August 17, 2007 (http://www.cnn.com/2007/US/08/17/tainted.bibs.ap/index.html); “Toys ‘R’ Us recalls Chinese art sets,” Associated Press, August 30, 2007 (http://www.usatoday.com/news/nation/2007-08-30-3658467802_x.htm); Consumer Product Safety Commission, “Toys “R” Us Recalls “Elite Operations” Toy Sets Due to Lead and Laceration Hazards,” March 13, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml07/07127.html).

106 Toys “R” Us Product Recalls, Toys “R” Us Corporate Website, Accessed February 12, 2008 (http://www2.toysrus.com/guest/prodRecallsList.cfm).

107 Eric Lipton, “Some Baby Bibs Said to Contain Levels of Lead,” The New York Times, August 15, 2007 (http://www.nytimes.com/2007/08/15/business/15lead.html?_r=1&ref=asia&oref=slogin).

108 Id; Consumer Product Safety Commission, “CPSC Warns About Worn Vinyl Baby Bibs,” May 2, 2007 http://www.cpsc.gov/CPSCPUB/PREREL/prhtml07/07175.html

109 “Senate to hold safety hearing today,” Associated Press, September 12, 2007 (http://www.enn.com/top_stories/article/22964/print).

110 Annys Shin, “On Hill, Toy Firm Officials Apologize and Promise Changes,” Washington Post, September 13, 2007 (http://www.washingtonpost.com/wp-dyn/content/article/2007/09/12/AR2007091202546_pf.html); Toys “R” Us Product Recalls, Toys “R” Us Corporate Website, accessed February 12, 2008 (http://www2.toysrus.com/guest/prodRecallsList.cfm).

111 Bruno statement, supra note 2; Agency for Toxic Substances and Disease Registry, Lead FAQs, accessed September 27, 2007 (http://www.atsdr.cdc.gov/csem/lead/pb_standards2.html).

112 Consumer Product Safety Commission “Photo Frames Recalled by The Gift Wrap Company Due to Violation of Lead Paint Standard,” January 16, 2008 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08165.html).

113 Marc Lifsher and Abigail Goldman, “The state seeks to force Mattel, Toys R Us and 18 other companies to adopt procedures for inspecting products,” Los Angeles Times, November 19, 2007.

114 Consumer Product Safety Commission, “Toys “R” Us Recalls “Elite Operations” Toy Sets Due to Violation of Lead Paint Standard,” October 31, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08057.html).

115 Consumer Product Safety Commission, “CKI Recalls Children’s Decorating Sets Due to Violation of Lead Paint Standard; Sold Exclusively at Toys “R” Us,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08008.html).

116 “Toys ‘R’ Us pulls vinyl bibs as precaution against lead problems,” Associated Press, August 17, 2007 (http://www.cnn.com/2007/US/08/17/tainted.bibs.ap/index.html).

117 “Toys ‘R’ Us recalls Chinese art sets,” Associated Press, August 30, 2007 (http://www.usatoday.com/news/nation/2007-08-30-3658467802_x.htm).

118 Consumer Product Safety Commission, “Toys “R” Us Recalls “Elite Operations” Toy Sets Due to Lead and Laceration Hazards,” March 13,

2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml07/07127.html).

119 Consumer Product Safety Commission, “Children’s Sunglasses Recalled by Dollar General Due to Violation of Lead Paint Standard,” November 8, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08080.html).

120 Consumer Product Safety Commission, “Toy Cars Recalled by Dollar General Due to Violation of Lead Paint Standard,” November 7, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08068.html).

121 Consumer Product Safety Commission, “Key Chains Recalled by Dollar General Due to Risk of Lead Exposure,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08009.html).

122 Consumer Product Safety Commission, “Dollar General Recalls Tumblers Due to Violation of Lead Paint Standard,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08007.html ); “KKR Completes Acquisition of Dollar General Corporation,” July 6, 2007 (http://www.kkr.com/news/press_releases/2007/07-06-07.html).

123 HealthyToys.org, Elmo Take-along Card Games, Tested November 30, 2007 (http://healthytoys.org/product.details.php?getrecno=1242); HealthyToys.org, Fashion Sunglasses, Tested November 30, 2007 (http://healthytoys.org/product.details.php?getrecno=1247).

124 Consumer Product Safety Commission, “Toys “R” Us Recalls “Elite Operations” Toy Sets Due to Lead and Laceration Hazards,” March 13, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml07/07127.html); Consumer Product Safety Commission, “Toy Cars Recalled by Dollar General Due to Violation of Lead Paint Standard,” November 7, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08068.html); Consumer Product Safety Commission, “Children’s Sunglasses Recalled by Dollar General Due to Violation of Lead Paint Standard,” November 8, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08080.html); Consumer Product Safety Commission, “Key Chains Recalled by Dollar General Due to Risk of Lead Exposure,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08009.html); Consumer Product Safety Commission, “Dollar General Recalls Tumblers Due to Violation of Lead Paint Standard,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08007.html ).

125 Dollar General Corporations, “KKR completes acquisition of Dollar General Corporation,” July 6, 2007 (http://www.secinfo.com/dUM7d.ubz.d.htm).

126 Dollar General Letter to Rep. Bobby Rush (D-IL) in response to House Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protection request for information, September 10, 2007 (http://energycommerce.house.gov/CPSC%20lead/Responses/DollarGeneral.091007.response.082207.pdf).

127 “U.S. panel sets Sept 19 hearing on lead-tainted toys,” Reuters, August 23, 2007 (http://www.reuters.com/article/topNews/idUSN2326759220070823?feedType=RSS&feedName=topNews).

128 Katy Byron, “More lead-paint toy recalls coming, source says,” CNN, September 20, 2007 (http://www.cnn.com/2007/US/09/20/toy.safety/index.html).

129 “U.S. panel sets Sept 19 hearing on lead-tainted toys,” Reuters, August 23, 2007 (http://www.reuters.com/article/topNews/idUSN2326759220070823?feedType=RSS&feedName=topNews); Letter from Dollar General Merchandising to House Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protections, September 10, 2007 (http://energycommerce.house.gov/CPSC%20lead/Responses/DollarGeneral.091007.response.082207.pdf).

130 Consumer Product Safety Commission, “Key Chains Recalled by Dollar General Due to Risk of Lead Exposure,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08009.html).

131 Consumer Product Safety Commission, “Dollar General Recalls Tumblers Due to Violation of Lead Paint Standard,” October 4, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08007.html).

132 Consumer Product Safety Commission, “Children’s Sunglasses Recalled by Dollar General Due to Violation of Lead Paint Standard,” November 8, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08080.html).

133 Consumer Product Safety Commission, “Toy Cars Recalled by Dollar General Due to Violation of Lead Paint Standard,” November 7, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml08/08068.html).

134 “Toys with Highest Levels,” HealthyToys.org, Accessed January 22,


2008 (http://healthytoys.org/product.most.php); HealthyToys.org, Elmo Take-along Card Games, Tested November 30, 2007 (http://healthytoys.org/product.details.php?getrecno=1242); HealthyToys.org, Fashion Sunglasses, Tested November 30, 2007 (http://healthytoys.org/product.details.php?getrecno=1247).

135 HealthyToys.org, Elmo Take-along Card Games, Tested November 30, 2007 (http://healthytoys.org/product.details.php?getrecno=1242).

136 HealthyToys.org, Fashion Sunglasses, Tested November 30, 2007 (http://healthytoys.org/product.details.php?getrecno=1247).

137 Boyds Collection SEC Form 10-Q, Filed June 8, 2006, p11 (http://www.sec.gov/Archives/edgar/data/1074530/000110465906040639/a06-13170_110q.htm); Boyds “suspension of duty to file reports” with the SEC: Boyds Collection SEC Form 15, Filed June 28, 2006 (http://www.sec.gov/Archives/edgar/data/1074530/000110465906044096/a06-14405_11512b.htm). The suspension means that there is no public information on Boyds’ ownership since June 2006.

138 “A Look at Recent U.S. Toy Recalls,” Associated Press, August 15, 2007 (http://biz.yahoo.com/ap/070814/toy_recall_glance.html?.v=5); Consumer Product Safety Commission, “Toy Drums Recalled by The Boyds Collection Ltd. Due to Lead Poisoning Hazard,” May 30, 2007 (http://www.cpsc.gov/cpscpub/prerel/prhtml07/07196.html).

139 “U.S. panel sets Sept 19 hearing on lead-tainted toys,” Reuters, August 23, 2007 (http://www.reuters.com/article/topNews/idUSN2326759220070823?feedType=RSS&feedName=topNews).

140 Boyds Collection Letter to Rep. Bobby Rush (D-IL) in response to House Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protection request for information, August 27, 2007 (http://energycommerce.house.gov/CPSC%20lead/Responses/BoydsCollection.091007.response.082207.pdf).

141 Agency for Toxic Substances and Disease Registry, Lead FAQs, accessed September 27, 2007 (http://www.atsdr.cdc.gov/csem/lead/pb_standards2.html).

142 “KKR Completes Acquisition of Spalding & Evenflo,” September 30, 1996; “Weston Presidio buys Evenflo,” The Deal/Daily Deal, February 9, 2007; Consumer Product Safety Commission Online Recall Database, accessed February 13, 2008 (http://www.cpsc.gov/cgi-bin/firm.aspx).

143 U.S. Department of Health and Human Services website, “Date Rape Drugs,” Accessed October 19, 2007 (http://www.4women.gov/faq/rohypnol.htm#1).

144 George White and Christine Idzelis, “Jazz Pharma makes an off-key debut,” Daily Deal/The Deal, June 4, 2007.

145 U.S. FDA Center for Drug Evaluation and Research website, “Xyrem (sodium oxybate): Questions and Answers,” accessed February 7, 2007 (http://www.fda.gov/cder/drug/infopage/xyrem/xyrem_qa.htm).

146 Alex Berenson, “Indictment of Doctor Tests Drug Marketing Rules,” The New York Times, July 22, 2006 (http://www.nytimes.com/2006/07/22/business/22drugdoc.html?_r=1&pagewanted=2&oref=slogin).

147 Compl. at 4, United States of America v. Orphan Medical et al., No. 05-CV-00387 (E.D. NY filed January 24, 2005, 2008).



150 “U.S. Department of Justice; Officials from U.S. Department of Justice report details of recent activities,” Pharma Investments, Ventures & Law Weekly, October 7, 2007.

151 Alex Berenson, “Maker of Narcolepsy Drug Pleads Guilty in U.S. Case,” The New York Times, July 14, 2007.

152 “U.S. Department of Justice; Officials from U.S. Department of Justice report details of recent activities,” Pharma Investments, Ventures & Law Weekly, October 7, 2007; Jazz Pharmaceuticals Form 10-Q, filed August 10, 2007.

153 Jazz Pharmaceuticals, “Jazz Pharmaceuticals, Inc. Announces Second Quarter 2007 Financial Results,” August 9, 2007 (http://www.

jazzpharma.com/news.php?id=43).

154 “Toys “R” Us announces hot toy list for holiday season 2007,” September 27, 2007 (http://www4.toysrus.com/Investor/pr/092707a.html).

155 “US mother says her son began to stumble and vomit after eating Chinese-made toy, now recalled,” Associated Press, November 7, 2007 (http://www.iht.com/articles/ap/2007/11/08/america/NA-GEN-US-Toys-Date-Rape-Drug.php).

156 “Toys Linked To “Date Rape” Drug Pulled,” CBS News, November 8, 2007 (http://www.cbsnews.com/stories/2007/11/07/health/main3469765.shtml).

157 “US mother says her son began to stumble and vomit after eating Chinese-made toy, now recalled,” Associated Press, November 7, 2007 (http://www.iht.com/articles/ap/2007/11/08/america/NA-GEN-US-Toys-Date-Rape-Drug.php).

158 Supatimber Consumer Information Brochure, Viance Corporate Website, Downloaded February 12, 2007 (http://www.treatedwood.com/products/supatimber/stfactbrochure.pdf).

159 Eric Savitz, “Under Pressure,” Barron’s, June 17, 2002 (http://www.bancca.org/CCA_News/BarronsCCAarticle_061702.html).

160 Consumer Product Safety Commission, “Statement of Chairman Hal Stratton: Regarding No. HP-01-03, a Petition for a Ban on Use of CCA Treated Wood in Playground Equipment,” November 4, 2003 (http://www.cpsc.gov/CPSCPUB/PREREL/prhtml04/04026stratton.html); EPA CCA Fact Sheet, Accessed October 1, 2007 (http://www.epa.gov/oppad001/reregistration/cca/).

161 Richard Teitelbaum, “The KKR Way,” Bloomberg Markets, August 2007 (http://www.bloomberg.com/news/marketsmag/kkr.pdf).

162 MSN Money, “Rockwood Holdings, Inc.: Ownership,” based on SEC filings from 3/15/07, accessed February 12, 2008 (http://moneycentral.msn.com/ownership?Symbol=ROC); “Current Investments,” KKR website, accessed February 13, 2008 (http://kkr.com/investments/current-invest.html).

163 Rockwood Holdings, Inc. SEC Form 10-K, Filed April 2, 2007, p7 (http://www.sec.gov/Archives/edgar/data/1261302/000110465907024694/a07-6010_110k.htm#Item7_ManagementsDiscussionAndAna_193242)

164 Sharon Beder, “Arsenic and old wood,” Sydney Morning Herald (Australia), July 16, 2003 (http://homepage.mac.com/herinst/sbeder/arsenic.html).

165 “About the Safe Playgrounds Project,” nocca.org, accessed February 12, 2008 (http://www.noccawood.ca/links.htm).

166 Jay Romano, “Minimizing contact with chemically treated wood,” New York Times, October 15, 2003 (http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2003/10/15/HO122613.DTL).

167 PreservePlus product page, Viance Corporate Website, accessed February 12, 2008 (http://www.treatedwood.com/products/preserveplus/).

168 Supatimber product page, Viance Corporate Website, accessed February 12, 2008 (http://www.treatedwood.com/products/supatimber/).

169 Supatimber Consumer Information Brochure, Viance Corporate Website, Downloaded February 12, 2007 (http://www.treatedwood.com/products/supatimber/stfactbrochure.pdf).

170 Martha T. Moore, “RJR Nabisco slims down,” USA Today, August 28, 1989.

171 Id.

172 “Doctors Attack Advertising Camel,” The Associated Press, March 10, 1992.

173 Id.

174 “Id.

175 Daniel Gross, “Sub-Primedia,” April 22, 3003 (http://www.slate.com/id/2081824/); “Current Investments,” KKR website, Accessed February 13, 2008 (http://kkr.com/investments/current-invest.html)

176 William DeJong, “When the tobacco industry controls the news: KKR, RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 v.5, p142.

177 William DeJong, “When the tobacco industry controls the news: KKR,


RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 v.5, p142.

178 William DeJong, “When the tobacco industry controls the news: KKR, RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 v.5, p145.

179 William DeJong, “When the tobacco industry controls the news: KKR, RJR Nabisco, and the Weekly Reader Corporation,” Tobacco Control, 1996 v.5, pp142-148.

180 Daniel Gross, “Sub-Primedia,” April 22, 3003 (http://www.slate.com/id/2081824/); “Current Investments,” KKR website, Accessed February 13, 2008 (http://kkr.com/investments/current-invest.html).

181 Todd Shields, “Abramoff probe touches Primedia’s Channel One, MPA,” MediaWeek.com, October 16, 2006 (http://www.mediaweek.com/mw/news/print/article_display.jsp?vnu_content_id=1003254277).

182 Ira Teinowitz, “Primedia employed lobbyist Abramoff for Channel One,” Advertising Age, January 11, 2006 (http://www.commercialalert.org/news/Archive/2006/01/primedia-employed-lobbyist-abramoff-for-channel-one).

183 Andrew Wheat, “Thin Reed; Will Abramoff’s Deep Throat Swallow God’s Mouthpiece?” Texas Observer, January 27, 2006 (http://www.texasobserver.org/article.php?aid=2116).

184 Matthew Conitnetti, “A Decade of Reed,” Weekly Standard, June 27, 2005 (http://www.weeklystandard.com/Content/Public/Articles/000/000/005/732ujayv.asp?pg=2).

185 Ira Teinowitz, “Primedia employed lobbyist Abramoff for Channel One,” Advertising Age, January 11, 2006 (http://www.commercialalert.org/news/Archive/2006/01/primedia-employed-lobbyist-abramoff-for-channel-one).


187 Todd Shields, “Abramoff probe touches Primedia’s Channel One, MPA,” MediaWeek.com, October 16, 2006 (http://www.mediaweek.com/mw/news/print/article_display.jsp?vnu_content_id=1003254277); Committee on Finance, United States Senate, “Minority Staff Report: Investigation of Jack Abramoff’s Use of Tax-Exempt Organizations,” October 2006, pp14-17 (http://finance.senate.gov/press/Bpress/2005press/prb101206.pdf).


189 Andrew Wheat, “Thin Reed; Will Abramoff’s Deep Throat Swallow God’s Mouthpiece?” Texas Observer, January 27, 2006 (http://www.texasobserver.org/article.php?aid=2116).

190 Tanya Bielski, “Deal Market Constricts As First Quarter’s Dollar Volume Dips,” BuyOuts, April 07, 1997; “Investment History,” KKR Corporate Website, Accessed February 19, 2008 (http://www.kkr.com/investments/history.html).

191 “KinderCare Learning Centers and Knowledge Learning Corporation Announce Merger Agreement,” November 5, 2004 (http://kkr.com/news/press_releases/2004/11-05-04.html).

192 Jean Hopfensperger , “Star Tribune Special Report: Examing Day Care,” Star Tribune (Minneapolis, MN) April 24, 2005.

193 Jean Hopfensperger , “Star Tribune Special Report: Examing Day Care,” Star Tribune (Minneapolis, MN) April 24, 2005; Minnesota Department of Human Services Licensing Information, “Kindercare Learning Center,” (http://licensinglookup.dhs.state.mn.us/Details.aspx?l=801275&s=1&t=13).

194 Jean Hopfensperger , “Star Tribune Special Report: Examing Day Care,” Star Tribune (Minneapolis, MN) April 24, 2005; Minnesota Department of Human Services Licensing Information, “Kindercare Learning Center,” (http://licensinglookup.dhs.state.mn.us/Details.aspx?l=801275&s=1&t=13).

195 “Bain Capital, KKR and Vornado Complete Acquisition of Toys “R” Us, Inc.” KKR, July 21, 2005 (http://kkr.com/news/press_releases/2005/07-21-05.html).

196 “Toys “R” Us Denies Discrimination Claim,” Associated Press, July 12, 2007 (http://www.cbsnews.com/stories/2007/07/12/business/main3048330.shtml?source=RSSattr=Business_3048330).

197 Id.

198 Id.

199 Compl. at 9-21, Drayton et al. v. Toys R Us et al., No. 07-CV-6315 (S.D. NY filed February 7, 2008); Docket, Drayton et al. v. Toys R Us et al., No. 07-CV-6315 (S.D. NY filed February 7, 2008).

200 Compl. at 1, Drayton et al. v. Toys R Us et al., No. 07-CV-6315 (S.D. NY filed February 7, 2008); Docket, Drayton et al. v. Toys R Us et al., No. 07-CV-6315 (S.D. NY filed February 7, 2008).

201 “Patron bring discrimination claims against security guards and owner,” Security Law Newsletter, April 2006; Bishop v. Toys “R” Us-NY LLC, 414 F.Supp.2d 385 (S.D.N.Y. Feb. 8, 2006) (available on Lexis). The docket in this case was last accessed on February 19, 2008.

202 Leah Beth Ward, “New Name, Fresh Start,” Charlotte Observer, November 30, 1997; “Investment History,” KKR Corporate Website, Accessed February 19, 2008 (http://www.kkr.com/investments/history.html).

203 “Denny’s begins check reimbursement to settle discrimination lawsuits,” Austin American Statesman, December 12, 1995.

204 “New Race Bias Charges Against Denny’s Restaurants,” San Francisco Chronicle, June 17, 2993.

205 Stuart Gilson, Creating Value through Corporate Restructuring: Case Studies in Bankruptcies, 2001, John Wiley & Sons, p115; “New Race Bias Charges Against Denny’s Restaurants,” San Francisco Chronicle, June 17, 2993; Amended Consent Decree, United States of America v. Flagstar Corporation and Denny’s Inc. 93-cv-20208-JW consolidated with Kristina Ridgeway et al. v. Flagstar Corporation and Denny’s Inc. 93-cv-20202-JW (N.D. Cal.) (http://www.usdoj.gov/crt/housing/documents/dennysettle2.htm#secIII).

206 Floyd Norris, “Buyout Kings Flee Disaster at Denny’s,” The New York Times, March 23, 1997.

207 Dave Goldiner, “Mom: Boobs at Toys “R” Us Hassled me over nursing,” New York Daily News, September 15, 2006 (http://www.nydailynews.com/news/2006/09/15/2006-09-15_mom_boobs_at_toys_r_us_hassled_me_over_n.html).

208 Corky Siemaszko, “Nursing a Grievance,” New York Daily News, September 22, 2006.

209 Tracy Connor, “The Great New York breast-feeding tests,” New York Daily News, October 8, 2006.

210 Nina Bernstein, “First Baby of 2007? Toy Chain’s Prize Runs Afoul of the Immigration Issue,” The New York Times, January 6, 2007.

211 Jennifer Fermino, “’Baby New Year’ retains title,” The New York Post, January 7, 2007.

212 “Collegeville Area Air Monitoring Results,” Pennsylvania Department of Environmental Protection, October 15-18, 2007 (http://www.depweb.state.pa.us/southeastro/cwp/view.asp?a=3&Q=532150&pp=3).

213 “Ambient Air Sampling Project for Trichloroethylene and Other Toxic Air Compounds in the Collegeville Area; Revised Work Plan,” Pennsylvania Department of Environmental Protection Bureau of Air Quality, December 7, 2007, p3 (p5 of PDF) (http://www.depweb.state.pa.us/southeastro/lib/southeastro/collegeville_work_plan_under_epa_grant.pdf).

214 “Investor Group Led by KKR Completes $1.27 Billion Acquisition of Accellent Inc.,” KKR Corporate Website, November 22, 2005 (http://kkr.com/news/press_releases/2005/11-22-05.html).

215 “Rendell objects to EPA trichloroethylene rule,” Associated Press, April 24, 2007.

216 “Trichloroethyene, Hazard Summary-Created April 1992; Revised in January 2000,” U.S. Environmental Protection Agency Website, Accessed February 12, 2008 (http://www.epa.gov/ttn/atw/hlthef/tri-ethy.html).

217 “Apollo to buy Borden; KKR to unload Borden Chemical to another equity firm,” Chemical Week, July 7, 2004 (http://pubs.acs.org/cen/news/8227/8227apollo.html).

218 David Carey, “Hexion rewards Apollo,” Daily Deal/The Deal, November 14, 2006.

219 James Bruggers, “Looking for a way out,” The Courier-Journal (Louisville, KY), October 27, 2003 (http://www.courier-journal.com/cjextra/2003projects/toxicair/1027/wir-7-river1027-10284.html).

220 Gerth Joseph, “Council hears complaints on air pollution;


Rubbertown neighbors frustrated by inaction,” The Courier-Journal (Louisville, KY), February 6, 2004.

221 Paying a price for polluters; Many of America’s largest companies foul the environment but clean up on billions of dollars in tax benefits,” Time Magazine, November 23, 1998.

222 Id.

223 John McQuaid, “Chemical Corridor,” Times-Picayune, May 21, 2000.

224 “2007 Chemicals Industry Report,” Roberts Environmental Center, January 18, 2008, p3 (http://www.roberts.cmc.edu/psi/PDF/chemicals2007.pdf).

225 MSN Money, “Rockwood Holdings, Inc.: Ownership,” based on SEC filings from 3/15/07, Accessed February 12, 2008 (http://moneycentral.msn.com/ownership?Symbol=ROC); “Current Investments,” KKR website, Accessed February 13, 2008 (http://kkr.com/investments/current-invest.html)




229 “Rockwood Holdings Inc.: Ownership,” MSN Money, Accessed February 11, 2008 (http://moneycentral.msn.com/ownership?Symbol=ROC).





234 Elizabeth Souder, “TXU: No one has topped KKR bid,” Dallas Morning News, April 3, 2007 (http://www.dallasnews.com/sharedcontent/dws/bus/coal/stories/040307dnbustxubids.6132be.html).

235 Elizabeth Souder, “TXU wraps up $45 billion sale to private investors: Energy giant to run as 3 separate firms; future for consumers unclear,” Dallas Morning News, October 11, 2007.

236 Id.

237 Elizabeth Souder and Randy Lee, “TXU sale unlikely to help consumers,” Dallas Morning News, June 25, 2007 (http://www.dallasnews.com/sharedcontent/dws/news/dmn/stories/062407dnbustxureport.38feda0.html); “TXU may cut rates by 15%,” Austin Business Journal, May 30, 2007 (http://www.bizjournals.com/austin/stories/2007/05/28/daily12.html?t=printable).

238 Elizabeth Souder and Randy Lee, “TXU sale unlikely to help consumers,” Dallas Morning News, June 25, 2007 (http://www.dallasnews.com/sharedcontent/dws/news/dmn/stories/062407dnbustxureport.38feda0.html).

239 Robert W. Gee and Brett Perlman, “Texas and the environment end up losing in TXU deal,” Austin American-Statesman, March 10, 2007; Randy Lee Loftis and Elizabeth Souder, “TXU sale won’t end coal plant controversy,”

The Dallas Morning News, February 27, 2007 (http://www.dallasnews.com/sharedcontent/dws/bus/stories/022707dnbustxuenviro.17ed8e2.html).

240 “TXU turns to nuclear,” Transcript, Living on Earth, April 13, 2007 (http://www.loe.org/shows/shows.htm?programID=07-P13-00015#feature1); Rhett A. Butler, “TXU hopes to build nuclear reactors instead of coal-fired power plants,” mongabay.com, April 10, 2007.

241 R.G. Ratcliffe, “Legislators move swiftly to review, block TXU sale:

measure would boost utility panel’s authority over proposed deal,” Houston Chronicle, February 28, 2007.

242 Elizabeth Souder and Randy Lee, “TXU sale unlikely to help consumers,” Dallas Morning News, June 25, 2007 (http://www.dallasnews.com/sharedcontent/dws/news/dmn/stories/062407dnbustxureport.38feda0.html).

243 Dave Michaels, “Global-warming legislation may see light of day: cap-and-trade move to limit greenhouse gases has chance,” Dallas Morning News, February 7, 2008; Letter from Eugene Trisko on behalf of the Center for Energy & Economic Development, Inc. (CEED) regarding the Regional Greenhouse Gas Initiative Memorandum of Understanding and draft Model Rules, May 22, 2006 (http://www.rggi.org/docs/ceed_rggi_comments_may_22_2006.pdf).

244 Drawn from records available at Senate Lobbying Disclosure website: http://sopr.senate.gov/cgi-win/m_opr_viewer.exe?DoFn=0). See Appendix 5 for details.

245 Drawn from records available at Senate Lobbying Disclosure website: http://sopr.senate.gov/cgi-win/m_opr_viewer.exe?DoFn=0).

246 KKR Web site, Our approach to Ownership, third graph, http://www.kkr.com/who/approach.html

247 SunGard Data Systems, Inc., Form 10-K, filed March 9, 2007, p. 51.

248 Id.

249 SunGard Data Systems, Inc., Definitive Proxy Statement, Schedule 14A, filed June 27, 2005, p. 49-50.

250 SunGard Data Systems, Inc., Definitive Proxy Statement, Schedule 14A, filed June 27, 2005, p. 24.

251 SunGard Data Systems, Inc., Definitive Proxy Statement, Schedule 14A, filed June 27, 2005. Calculated as Premium of $11.05 per shares multiplied by 290,339,403 outstanding shares taxed at a rate of 15%.

252 SunGard Data Systems, Inc., Form 10-K, filed March 9, 2007, p. 25.

253 Biomet, Inc, Definitive Proxy Statement, Schedule 14A, filed August 8, 2007, p. 44-45.

254 Based on 30-day LIBOR rate on December 10, 2007 of 5.23% plus spreads from “Biomet: Deal Postmortem,” Standard and Poor’s LCD News, September 28, 2007.

255 Compound annual growth rate of EBT including unusual Items for Biomet, Inc. May 31, 2003-May 31, 2007 from Capital IQ.

256 Biomet, Inc, Definitive Proxy Statement, Schedule 14A, filed August 8, 2007, p. 41.

257 Id.

258 While Biomet’s interest payments would be taxable to taxable holders of the debt, most taxable debt is held by tax-exempt investors. Raghavan, Anita, “Debt and the Corporate Tax Base,” The Wall Street Journal, June 16, 2007, p.A5.

259 Compound annual growth rate of dividend payments for Biomet, Inc.2003-2007 from Capital IQ.

260 Biomet, Inc, Definitive Proxy Statement, Schedule 14A, filed August 8, 2007, p. 75.

261 It should be noted that KKR’s limited partners will also pay taxes on their share of the capital gains to the extent that they are taxable. This analysis does not seek to compare this with what Biomet’s public shareholders would have paid in capital gains had the company remained public, since it would be difficult to calculate what Biomet’s public share price would be even with the same growth assumptions, and it is difficult to model capital gains tax collections from the sale of public shares absent a corporate transaction.

262 Consumer Product Safety Commission online database, accessed December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx).

263 Consumer Product Safety Commission online database, accessed December 20, 2007 (http://www.cpsc.gov/cgi-bin/firm.aspx).

264 Drawn from records available at Senate Lobbying Disclosure website: http://sopr.senate.gov/cgi-win/m_opr_viewer.exe?DoFn=0).

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