KLC or to any other subsidiaries; (d) create liens on assets; (e) engage in transactions with affiliates; (f) sell assets, including capital stock of subsidiaries, except permitted real estate transfers and other permitted transfers; and (g) merge, consolidate or sell all or substantially all of KLC’s assets and the assets of KLC’s subsidiaries except permitted real estate transfers and other permitted transfers. 11.20. Stockholders Agreement of Knowledge Schools, Inc. KLC is a wholly owned subsidiary of KSI, and KS! pursues no other businesses independent of holding KLC’s stock/equity. KSI entered into a Stockholders Agreement on May 9, 2003 with Knowledge Universe Learning Corp. (the “KSI Parent’) and its minority stockholders (the “Stockholders’). The Agreement provides (a) the KSI Parent (and/or any “Parent Entities" designated by the KSI Parent, which include the KSI Parent and/or certain of the Principals and certain affiliates of the KS! Parent and the Principals) with a right of first refusal over proposed transfers of other Stockholders’ shares, subject to certain exceptions; (b) Stockholders, to the extent they are accredited investors, with a right to invest in new issuances of KS! shares; (c) Stockholders with tag-along rights in connection with a transfer of KSI common stock by any of the Parent Entities resulting in the Parent Entities owning less than 60% of KSI common stock then outstanding, or a transfer of securities by any of the Parent Entities resulting in the Parent Entities owning less than a majority of KSI common stock then outstanding. Stockholders are also subject to a drag-along provision, pursuant to which they may be required to sell a pro rata portion of their shares in the event of a proposed transfer of a majority of KSI common stock then outstanding. Each Stockholder and the KSi Parent are entitled ico receive certain financial information from KSI. The Agreement terminates upon a public offering of KSI, at the option of the KSI Parent upen a sale of KSI, or by written agreement of the parties. Knowledge Universe Learning Corp. was liquidated on October 27, 2004 and the shares of KSI were distributed on that date to its sole stockholder, KUE Inc. 9g HOUSE_OVERSIGHT_024532

12. THE REAL ESTATE COMPANY (*“KLC PROPCO”) On November 9, 2005, KLC transferred ownership of 845 ECE centers into wholly owned, bankruptcy remote subsidiaries, which are referred to as KLC PropCo. In October 2005, 713 of the centers were independently appraised at approximately $1.1 billion.*@ KLC PropCo then issued $700 million of CMBS debt secured by the 713 appraised centers and the stock of the CMBS borrower, and $150 million of junior mezzanine debt, the proceeds of which were used to repay KLC OpCo debt. The table below summarizes the revised corporate structure at KLC: $100.0 million Revolver $16.4 millian Capital Leases $260.0 million Sr. Subordinated Notes Operating Company Real Estate Company 845 Properties $699.4 million CMBS Debt KLC PropCo $150.0 rnillion Junior Mezzanine Debt" " Represents face value; book value is approximately $147.3 million. With 845 ECE ceniers in 37 states (as of December 31, 2005), KLC PropCo believes it is the largest private owner of education real estate asseis in the world. The real estate portfolio is geographically diversified without significant concentrations or ties to any single part of the U.S. KLC PropCo leases its centers to KLC OpCo for an aggregate annual rent of $96.3 million. The lease agreement, which was signed in November 2005, carries an initial term of 15 years with two extensions available for five years each and an escalation of rent by the lesser of 7% or the CPI every fifth year. All of the properties have been leased to KLC OpCo on a ‘triple-net” basis, requiring KLC OpCo to fund all property taxes, insurance expenses related to the properties and all maintenance capital expenditures. For the fiscal year ended December 31, 2005, KLC PropCo generated pro forma rental revenue of $96.3 million and EBITDA of $88.1 million. 12.1. KLC PropCo Strategy @ KLC PropCo was separated from KLC OpCo to create a flexible vehicle to address the growing opportunity in education related real estate. The ongoing need for facility-based education is driving increased demand for real estate assets that can accommodate the facilities. 38 Actual appraisal was for 713 centers and the appraised value was $1.1 billion. The $1.25 billion referred fo within this Memorandum is achieved by taking the independent appraisal valuation methodology and extrapoiating it to the remaining 132 centers. 100 HOUSE_OVERSIGHT_024533

H Leverage Greenstreet Real Estate Partners’ significant expertise: — KLC believes it is able to better maximize the potential of its real estate assets by having them managed by a dedicated and highly experienced team at Greenstreet Real Estate Partners rather than having them managed at the operating company level. m Cash generated will be reinvested in acquiring more assets. Diversify the real estate portiolio: — The Greenstreet Real Estate Partners team is actively looking at diversification and reinvestment opportunities for the real estate portfolio. The diversification strategy will include some opportunistic investments in non-education related real estate assets. 42.2. Management Team KLC PropCo is managed by Greensireet Real Estate Partners through a long-term agreement. Greenstreet Real Estate Partners has a highly experienced management team to guide the continued acquisition and diversification of the real estate portfolio. The management team includes Steven Green, Chairman and CEO of Greenstreet Real Estate Partners, Jeffrey Safchik, COO and CFO and Steven Cox, Executive Vice President Real Estate. Greenstreet Real Estate Partners controls a significant portfolio of owned and self-managed real estate and has extensive experience in corporate transactions involving owned real estate. Greenstreet Real Estate Partners operates a private real estate equity platform, having made in excess of $850 million in acquisitions and with assets currently under management (excluding KLC PropCo} of $540 million. It has owned and managed in excess of 10 million square feet of shopping centers with value in excess of $1 billion. The principals of Greensireet Real Estate Partners each have in excess of 20 years in real estate and capital markets. Their biographies can be found in Appendix A. 12.3. Description of the Real Estate Assets The highly diversified portfolio includes 845 properties in 37 states. The properties are primarily one story wood-framed buildings totaling 5,119,320 sq. ft. Some of the larger state concentrations include Texas, California, lIllincis and Virginia. No single state accounts for more than 11% of the total centers (see the Figure below for details on the geographic distribution}. The properties are single-tenanit stand-alone buildings. The average age of the properties is approximately 15 years with 22% of the portfolio built after 1991 and approximately 6% of the facilities being constructed prior to 1979. The centers’ trailing 12 month Utilization was 58.9% as of December 31, 2005. 161 HOUSE_OVERSIGHT_024534

— 845 Centers in 37 States 12.4. Summary Financial Information and Projections Discussion The table below shows KLC PropCo pro forma historical results for 2005 assuming the division of KLC OpCo and KLC PropCo in the series of transactions completed in November 2005 (the “Real Estate Transactions”) and related financing, together with the lease of KLC PropCo-owned centers to KLC OpCo, occurred on January 1, 2004. Projected results presented below are based on assumptions management believes to be reasonable, but which are inherently uncertain and may not be realized. KLC PropCo’s ability to perform as projected depends on a number of variables that cannot be predicted with certainty and actual performance could be adversely affected by a number of factors, including those described in “Risk Factors,” particularly the risk factor related to projected financial statements, elsewhere in this Memorandum. Also see “Forward Looking Statements.” 102 HOUSE_OVERSIGHT_024535

KLC PropCo Summary Historical Pro Forma and Projected Financials Fiscal Year Ended December 31, ($ in millions) 2005 PF 2006P 2007P 2008P 2009P 2010P 2011P Rental Revenue from KLC OpCo $96.3 $96.3 $96.3 $96.3 $96.3 $96.3 $103.0 Other Rental Revenue’ 0.0 0.0 4.6 7.0 9.4 12.1 15.0 Total Revenue $96.3 $96.3 $100.9 $103.3 $105.7 $108.4 $118.0 Operating Expenses 8.3 8.3 8.3 8.3 8.3 8.3 8.3 EBITDA $88.1 $88.1 $92.6 $95.0 $97.4 $100.1 $109.8 DEPRECIATION & AMORTIZATION Depreciation $29.8 $27.0 $26.1 $25.0 $23.8 $22.4 $22.4 Depreciation From New Real Estate 0.0 0.0 2.8 4.2 5.7 TAs 9.1 Operating Income $58.6 $61.1 $63.7 $65.8 $68.0 $70.4 $78.3 INTEREST EXPENSE KLC PropCo Debt $64.3 $64.3 $63.9 $63.5 $63.2 $62.8 $62.5 Deferred Financing Fees 2.1 24 24 24 2.1 24 2.1 Total Interest Expense $66.4 $66.3 $66.0 $65.6 $65.2 $64.9 $64.5 Interest Income 11 41 0.2 0.2 0.2 0.2 0.2 Net Income ($7.0) ($4.2) ($2.0) $0.4 $2.9 $5.8 $14.0 BALANCE SHEET DATA Cash and Equivalents $24.5 $5.0 $5.0 $5.0 $5.0 $5.0 $5.0 Total Debt? 849.4 844.7 839.9 835.3 830.6 826.0 815.8 Net PP&E 687.1 715.6 715.5 716.8 718.6 724.5 740.3 SELECTED CASH FLOW DATA Net Income (Loss) to Common ($7.0) ($4.2) ($2.0) $0.4 $2.9 $5.8 $14.0 + Depreciation 29.8 27.0 26.1 25.0 23.8 22.4 22.4 + Real Estate Reinvestment Depreciation 0.0 0.0 2.8 4.2 5.7 7a 9.1 + Amortization of Financing Fees 2.1 24 2.1 2.1 24 21 2.1 + Non-Cash Interest Expense 2.3 2.3 23 23 2.4 2.4 2.4 + Change in Working Capital NA 0.0 0.6 03 0.3 0.3 1.2 + Change in Other Assets Held for Sale NA 15.8 0.0 0.0 0.0 0.0 0.0 + Change in Other Assets NA 0.0 (0.7) (0.4) (0.4) (0.4) (1.5) + Change in Other Liabilities NA 0.0 48 2.5 2.5 28 10.1 = Operating Cash Flow $27.1 $43.0 $35.9 $36.4 $39.3 $42.6 $59.8 Cash Reinvested in New Real Estate’ $0.0 $55.5 $28.9 $29.4 $32.3 $35.6 $47.2 Assumes reinvestment of all excess cash above $5.0 million at an 8.25% cap rate. ? Junior Mezzanine debt is recorded at face value. Book value is approximately $147.3 million. Rental Revenue Management projects rental revenue to increase at a 4.2% CAGR, from $96.3 million (the annual rent payable pursuant to its leases with KLC OpCo) in 2006 to $118.0 million in 2011. The growth stems from KLC PropCo’s reinvestment of excess cash flow in additional real estate and rent increases in the properties leased to KLC OpCo as described below: Intercompany Rent. KLC PropCo currently leases 847 properties (845 childcare centers) to KLC for a total annual rent payment of $96.3 million. The rent on the properties is fixed for the first five years of the lease, at which point it increases by the lesser of the CPI growth over the five years or 7%. Additional Real Estate. KLC PropCo has projected that it will invest all excess cash (anything over $5.0 million) in additional real estate. The additional real estate may be comprised of either educational or non-educational assets, but will not be leased back to KLC OpCo. KLC PropCo has projected that it will invest its capital at an 8.25% cap rate. 103 HOUSE_OVERSIGHT_024536

Real Estate Company Operating Expenses Greenstreet Real Estate Partners will operate all of the real estate investment functions on behalf of KLC PropCo as detailed in the management agreement. See “Related Party Transactions.” 12.5. Debt Summary The table below shows KLC PropCo’s outstanding capitalization as of December 31, 2005. KLC PropCo Debt Capitalization ($ in millions) 12/31/05 Cash $24.5 CMBS Debt $699.4 Junior Mezzanine Debt' 150.0 Total KLC PropCo Debt $849.4 Net Debt” $824.9 ' Represents face value; book value is approximately $147.3 million. ? Represents total debt less cash. 12.6. Terms of the CMBS Debt KLC PropCo has $699.4 million of CMBS debt which was arranged in connection with the separation from KLC OpCo. KLC PropCo is required to pay interest in cash on a monthly basis at a rate of 5.62% and must meet scheduled amortization requirements on a monthly basis and maturing December 1, 2015. The CMBS debt consists of a $649.5 million mortgage loan and a $50.0 million senior mezzanine loan secured by 713 childhood education centers. The CMBS debt is nonrecourse KLC OpCo. Each of the centers securing the mortgage loan is leased to KLC OpCo pursuant to a master lease. KLC PropCo has entered into asset management agreements with Greenstreet Real Estate Partners (formerly Greenstreet Realty Partners, L.P.) pursuant to which Greenstreet Real Estate Partners provides asset management and consulting services for these centers to KLC PropCo. KLC PropCo has the right under certain circumstances to release, substitute, sell and/or reinvest in properties securing the mortgage loan. Prepayment of the CMBS debt is prohibited through January 1, 2007, after which prepayment is permitted’ in whole or in part, subject to a prepayment premium equal to the greater of 1% or an amount obtained based on a discount to treasury securities. After June 1, 2015, the CMBS debt may be prepaid in whole without premium or penalty. The CMBS debt contains provisions that require KLC PropCo to reserve with the lender of the CMBS debt 50% of excess cash flow generated from the CMBS centers if EBITDA (as adjusted) for KLC OpCo falls below certain levels and 100% if EBITDA (as adjusted) for KLC OpCo falls below certain other levels. 12.7. Terms of the Junior Mezzanine Debt The Junior Mezzanine debt has a face value of $150 million (and was purchased for approximately $147.0 million, reflecting a 2% discount to face value), substantially all of which was provided by the 104 HOUSE_OVERSIGHT_024537

Principals and their affiliates in connection with the Real Estate Transaction. The Junior Mezzanine debt is subordinated to the new CMBS debt. Cash interest is payable on the Junior Mezzanine debt at a rate of 15.13% and payable in kind at a rate of 1.50%. The Junior Mezzanine debt matures in May of 2016. Interest paid in kind may not be paid in cash until the CMBS debt is paid in full. The Junior Mezzanine debt is nonrecourse to KLC OpCo. Prepayment of the Junior Mezzanine debt is prohibited through November 9, 2010, after which prepayment is permitted in whole or in part, subject to a prepayment premium equal to 8.32% for prepayments in the first year, 6.66% for prepayments made in the second year, 4.99% for prepayments made in the third year, 3.33% for prepayments made in the fourth year and 1.66% for prepayments made in the fifth year. After November 9, 2015, the CMBS debt may be prepaid in whole without premium or penalty. 12.8. Terms of the Master Lease As part of the Real Estate Transactions, in November 2005, KLC refinanced its indebtedness and divided KUE into KLC OpCo and KLC PropCo, and KLC OpCo entered into a Master Lease with KLC PropCo for 713 centers. The term of the Master Lease is 15 years and annual rent under the Master Lease is $91 million per year, subject to increases every five years. The Master Lease is a triple net lease that requires KLC OpCo to pay all operational expenses, taxes, utilities, insurance and maintenance costs with respect to the leased centers, and the Master Lease may not be terminated by KLC OpCo. KLC OpCo is required to make certain deposits or to provide letters of credit for taxes, insurance and maintenance of the properties. KLC is also required to deposit rent payments into a segregated deposit account controlled by the CMBS debt lenders. KLC OpCo has the right under certain circumstances to release and substitute properties under the Master Lease. KLC OpCo has entered into separate, substantially smaller leases of KLC PropCo’s remaining properties. 105 HOUSE_OVERSIGHT_024538

13. 12 INC. (“412”) 12, headquartered in McLean, Virginia, is a curriculum company and management company for kindergarten through ninth grade (grades 10-12 currently in development). «712 is the largest operator of K-12 virtual schools in the world, &12’s mission is to enable delivery of world-class education for students in grades K-12, consisting of comprehensive online and offline curriculum that supports numerous applications. 12 has invested more than $70 million in building a state-of-the-art curriculum offering, integrated assessment and the supporting technology delivery systems. 13.1. History k12 was founded in December 1999, with the goal of leveraging technology to create the highest-quality curriculum. 12 launched its first offering in September 2001 for students in grades K-2. This offering was launched in conjunction with several of the world’s leading education experts and included interactive lessons in Language Arts, Math, Science, History, Art and Music. &12 launched grades 3-5 in the fall of 2002, grades 6 and 7 in the fall of 2003, grade 8 in the fall of 2004 and grade 9 in fall of 2005. k12 has continually improved its production process and is now producing courses that are of higher quality and at a lower cost per lesson than it originally produced. Building the service in this modular, roiling fashion allows k12 to capture students at an early stage and to build out its product offerings in alignment with student progress. 13.2. Current Operations k12 provides a world-class education for its students which combines a comprehensive online and offline curriculum with integrated assessments and supporting technology delivery systems. «12 currently provides its education to grades K-9 through more than 7,000 interactive lessons, and is in the process of developing content for grades 10-12. Today, k12 sells its curriculum through the following channels: & Virtual public schools (91% of 2006E Revenue) — k12 ts the largest curriculum and management provider to virtual public schools in the U.S. — k12 offers its curriculum directly to the rapidly growing virtual school market (projected to be offered to 24,000 students in 2007) @ District: managed virtual programs (3% of 2006E Revenue) — k12 sells the curriculum and technology directly to school districts who mange their own virtual schools — This is a fairly new initiative for 12 but is expected to be a larger part of total revenue over time H School districts for traditional classrooms (3% of 2006E Revenue) — k12's science curriculum has been piloted as the science curriculum in various school districts including Philadelphia — Initial results are promising B Direct to consumer (3% of Z006E Revenue) ~—- To parents who prefer home-schooling or want to augment or enhance their children’s public or private school education 106 HOUSE_OVERSIGHT_024539

k12 intends to expand the business to international markets and believes there is a significant worldwide demand for high-quality online curriculum. In the near-term it can do so by serving multinational corporations with large employee bases comprised of expatriates. ki2 generated $6 million of revenue in 2002, its first year of operations, growing to more than $116.0 million projected for FYE June 30, 2006. 13.3. Virtual Schools and District-Managed Virtual Programs (94% 2006E Revenue) The past decade has seen an increase in the number of contracts and charters awarded to Education Management Organizations (“EMOs”), which manage traditional K-12 public schools on behalf of a school district (“contract schools”) or manage charter schools either as the charter holder (“charter schoois”) or under contract with the charter holder (“contract charters"). In the early half of the 1990's, EMOs were mostly contract schools, managing traditional K-12 schools on behalf of schoo! districts. Later, as public money became available to charter schcols through the use of vouchers, these organizations moved toward charter schocl management and contract charter management. A movement toward alternatives to the public school system is expected to generate substantial growth in the for-profit EMO sector. Alternative schools and alternative management pregrams provide a significant opportunity to improve the current educational “product.” Furthermore, under the NCLB, growth in public school management is expected to continue as schcols that fail to achieve “Adequate Yearly Progress” ("AYP”) for four consecutive years are subject to one of the following sanctions: replacement of all or most staff including the principal, state takeover of the school, hiring an outside entity to manage the school, or becoming a charter school. 412 is well positioned to take advantage of these trends. To comply with NCLB, all states submitted a plan to the Department of Education indicating baseline achievements for the 2002-03 school year and how 100% "proficiency" would be achieved by 2013-14. The law mandates that student progress and achievement be measured (“assessed”) by math and reading tests that will be given to every child, every year, beginning in the 2005-06 school year. In addition, a science assessment will be added beginning with the 2006-07 school year. Under Bush administration proposals, by the 2009-10 school year, students will be tested every year from grades 3 to 11. These assessments are considered intermediate benchmarks that measure a school’s ability to demonstrate “Adequate Yearly Progress” (AYP) toward meeting its own goals. Contract Charters. Charter schocls are independent public schools, designed and operated by community groups or non-profit entities, but sponsored by designated local or state educational organizations that monitor their quality and integrity. In return for a large measure of autonomy and freedom from regulation, charter schools are accountable for student academic performance. The Genter for Education Reform estimates that, in the 2004-05 school year, there were 3,345 charter schools serving nearly 894,000 students, representing an estimated 1.6% of total K-12 students. Charter schools now operate in 40 states and the District of Columbia, up from 38 in the 2003-04 school year. In the 2004-05 school year, enrollment in charter schools represented 1.6% of total K-12 enrollment and annual spending on charter schools was $7 million or 1.4% of total spending on all K-12 schools. However, in the decade of 1995-2005 the number of charter schools had grown on average nearly 13% annually while charter school enrollment increased over 20%, clearly outpacing the less than 1% average K-12 enrollment growth over the same period.*” k12 participates In the charter school business by setting up virtual public schools that it manages through a partnership with a non-profit entity. After going through the legislative process at the local or state level and obtaining a charter for a school, k12 sets up a non-profit organization with a principal and the right administrative team to create the school. A12 then enters into a contract with the non-profit organization * Source: Harris Nesbitt, Education and Training, September 2005. 107 HOUSE_OVERSIGHT_024540

whereby 12 sets up and manages the "virtual public’ school. 12 offers an Internet-based curriculum (providing the computer hardware and all necessary materials) outside of the conventional brick-and- mortar setting of traditional public and charter schools. Where legislation has enabled such schools, state education dollars pay for children who enroll in them. Virtual schools generally generate substantially larger profits than conventional for-profit charter schools because they receive the same amount of per- student funding as their traditional public schocl counterparts despite not having to support a physical structure. Virtual schools enable students to receive a comprehensive curriculum along with technical assistance, teacher involvement, compufer equipment, Internet access, and instructional materials, without leaving the public education system. Virtual academies are serving a diverse mix of students. With the same curriculum, k12 is serving both highly gifted children and children with disabilities. The self-paced nature of k12’s curriculum and its interactivity allow k12 to serve a broad array of students. 12's students, currently in virtual schools, come from public or private schooling backgrounds, as well as home schooling backgrounds. A summary of k12's virtual schoo! business is as follows: B «12 manages virtual schools for students in grades K-9 in 11 states (Arizona, Arkansas, California, Colorado, Florida, Idaho, Minnesota, Ohio, Pennsylvania, Texas and Wisconsin) plus the District of Columbia. In the 2006 fiscal year, these schools had a combined enrollment of approximately 18,000 children. i &12 managed schools typically produce test score results which exceed or are equal to state averages at a cost fo the taxpayer that is approximately 70% less than what they would pay for traditional school. & Virtual schocls are funded primarily through local, state, and federal sources, which k12 expects to receive approximately $5,300 per student per school year on average. Therefore, the virtual schools provide access to k12’s world-ciass service and curriculum as well as certified teachers at no cost to the family. EB While many of 412’s virtual academies are charter schools, 412 has virtual schools that are not charter schools but are programs of school districts or other authorized schocl agencies, such as public universities and federal and state agencies. District-Managed Schools, kti2’s district-managed virtual programs operate under the contract schools model. Although somewhat similar to the virtual public schools, contract schools are public schools operated by private organizations based on management agreements with local school boards. Unlike charter schools, contract schools do not require specific statutory authority but are created through a contract between a school management company and a schoo! board in accordance with existing authority. k12 typically employs the district-managed virtual programs in states where the reimbursement rate is low. Two states where 412 currently has district-managed virtual programs are Kansas and Utah. The district-managed virtual programs unit is expected to grow revenue from $3 million in FY 2006 to $11 million in FY 2008. The Pennsylvania Department of Education commissioned KPMG Consulting to study virtual education in that state. The October 2001 study stated that the Pennsylvania Virtual Charter School (which uses the k12 curriculum and management services) “was considered to be the highest quality program based on the curriculum analysis.” 12 believes that the virtual school market has powerful growth prospects which are outlined below: @ Strong reenroilment rates. 412 benefits from stable demand for its curriculum and services which is reflected by current reenrollment rates of approximately 70%. @ Increasing existing school enrollment rates. Existing school enrollments continue to increase at double digit rates. BR Expansion into new states. 412 is currently evaluating opportunities to start new virtual schools in several additional states. 108 HOUSE_OVERSIGHT_024541

™ Grade expansion. 12 continues to expand its curriculum and services and plans to begin development of grades 10-12 in the fall of 2006. & ADA funding. The level of funding generally increases at approximately 2% per year. With four times the number of students of its next competitor, k12 is the largest for-profit manager of virtual schools. Virtual Schools Managed by For-Profit Educational Management Companies Public Schools under Number of which are Students in Virtual Company Location Management Virtual Schools Schools k12 McLean, VA 15 15 14,460 White Hat Management Akron, OH 38 2 3,508 Connections Academy Baltimore, MD 10 10 1,081 Pinnacle Education Tempe, AZ 9 1 212 Sequoia Charter Schools Mesa, AZ 11 1 160 Designs for Learning St. Paul, MN 10 1 50 Note: Schools ranked by students in 2004—05 school-year. Source: Harris Nesbitt based on information compiled by Education Policy Studies Research Unit at Arizona State University. 13.4. Curriculum to School Districts of Traditional Classrooms (3% 2006E Revenue) k12 piloted its core elementary school science program for several school districts, including Philadelphia. The initial results of this pilot program were promising. Case Study: William H. Hunter Elementary School Background, In the Spring of 2004 the School District of Philadelphia wished to give a rebirth to one of its lowest performing schools, the William H. Hunter Elementary School. k12 was selected as a partner to provide innovative curriculum and professional development to implement a learning environment that leverages the latest technology. As part of the k12 implementation, the District outfitted each room with high-speed internet access, a ceiling-mounted data projection system, and interactive whiteboards. The goal was to have Hunter become one of the District's, and the Commonwealth of Pennsylvania’s, first web-based public, traditional schools. Of Hunter's 600 students, 95% qualify for the federal Free and Reduced Lunch program and 25% study English as a Second Language (ESL). Therefore, the move and the District's initiative truly marked a tremendous opportunity for both Hunter's teachers and students alike. Scope of Services. The fall of 2004 marked the official launch of the program and the k12 curriculum was provided for all math, science, art and history courses. This included providing all curriculum components including text books, teacher guides, manipulatives, equipment, assessments, art supplies and all the online lessons and teaching tools for these subjects. The Hunter teaching staff did an impressive job of effectively implementing the program. k12 trainers worked closely with teachers to adopt the new curriculum and to share best methods on applying the technology. Throughout the year, k12 trainers were invited to attend and help present ongoing staff trainings. Additionally, grade level teams and school leaders worked regularly with k12 to develop coherent plans for boosting student achievement. Results / Conclusions: After the first full-year of implementing the k12 program, Hunter achieved impressive gains on the state math exams.” In third grade, there was a 46 percentage point increase (as *° The Pennsylvania Department of Education mandates all public schools in the Commonwealth implement its Pennsylvania System of State Assessment (PSSA). The PSSA is a standards-based exam for measuring specific skills in math and reading, and beginning in 2006-07 science. 109 HOUSE_OVERSIGHT_024542

compared to a 31 point increase for the District). This was a meaningful 86% performing at or above proficient compared to the District's 52% for 2005. In fifth grade, there was 22 percentage point gain (as compared to a 15 point gain for the District). As a result of these scores, the 3rd and 5th grade Year over Year PSSA Math Gains students met or exceeded the absolute AYP ig eee goals for math instruction - a first for the school. (2004 to 2005 % point increase) (Note: k12 did not supply the Reading curriculum, Third Grade therefore, only Math results are applicable to the k12 program). Hunter 46 These gains are an extraordinary achievement for District 31 a school and its district. They are also difficult to maintain over time, however this goal is shared Fifth Grade between the District and k12. The Hunter School accomplished these gains through the staff's hard Hunter 22 work, commitment to their students and — dedication to implementing the k12 program. District 15 New programs often take two to three years to generate similar results. While k12 and the Hunter staff are pleased with the first year’s results, it is only the beginning of a longer effort because, despite the gains, more than half of last year’s fifth graders still did not score at or above their grade level. Therefore, although there is pride in the progress, the overall scores demonstrate how much more is to be done. 13.5. Direct to Consumer (3% of 2006E Revenue) k12 sells its curriculum direct to consumers who either home school their children or use k12’s curriculum to supplement their child’s education. k12 believes that it offers children and their parents an education comparable to that offered in the nation’s best public and private schools, utilizing optimal multimedia methods and research-tested approaches to learning. In addition, integrated assessments allow a parent to test his or her child’s mastery of skills and enables the child to progress at the appropriate pace. Children can move faster through lessons and address more challenging problems, while other children can spend the additional time needed to master certain skills. With k12’s high standards and integrated assessments, a parent can be confident that his or her child has mastered the subject. k12 considers this market a growth area. Educating a child at home full time or part time is a time-consuming and daunting task for parents. Parents and caregivers spend a considerable amount of time searching for curriculum and trying to ensure they are teaching the material adequately to their children. k12 offers a solution to this challenge by offering a comprehensive curriculum for students in grades K-9, complete with specific daily lessons. Parents can purchase individual or multiple courses. Although small, the home-schooling market is growing at a healthy pace. Approximately 1.1 million students—roughly 2% of total K-12 enrollment— were home-schooled in spring 2003, according to the National Center for Education Statistics (NCES). This represents a roughly 30% increase from spring 1999. Most home school parents cited concerns about the school environment (31%), interest in providing religious instruction (30%) and_ overall dissatisfaction with academic instruction (16%) as their reasons for home schooling their children.*° The exam is also used in assessing performance toward No Child Left Behind guidelines for grades 3, 5, 9 and 11. The goal of the exam is for students to score at or above proficient levels. Student results are also used fo determine a school and district's performance in meeting pre- determined goals known as Adequate Yearly Progress (AYP). °° Source: Harris Nesbitt, Education and Training, September 2005. 110 HOUSE_OVERSIGHT_024543

13.6. Product Offering Comprehensive K-9 Curriculum. k12 offers a comprehensive curriculum for grades K-9 directly to the studenis in its virtual academies, directly to consumers and to school districts, summer schools and after- school programs. 12 is creating rich and challenging proprietary educational material based on existing best-of-breed content and traditional methods enhanced by technology. Unlike most computer-based education programs, which rely solely on computers and burden students with mechanical “point and click” exercises, k12 uses the computer as only one among many complementary tools to open children’s minds to the best books and educational material. 412's math, reading and writing curriculum involve a significant amount of off-line work in the form of books, audiotapes, science equipment, art supplies and more. 12 provides some of these materials and others will be recommended but not required. For example, k12’s comprehensive curriculum for students in grades K-9 includes lessons in the following subjects: @ Language Arts. Progresses from a focus in the primary grades on early mastery of reading using phonics-based curriculum reviewed and revised by a team of renowned experts, to, in later grades, a rich program of literature, composition, and language skills; & Math. A solid early foundation in basic math based on a highly respected math curriculum and rigorous math standards; B History. in grades K-4, a proprietary k12 program that offers a chronological overview of history, from the Stone Age to the Space Age, with integrated geography and civics; in middle school, an American History survey based on the celebrated History of the US series, and a World History survey based on a proprietary A12 textbook; Ei Science. A world-class science curriculum focused on hand-on activities and basic principles driven by some of the most ambitious state science standards in the country; M Visual Aris. A curriculum that combines appreciation of historical trends and masterpieces with specific skill building and many opportunities for creative work; and HB Music. In the elementary grades, a proprietary program that engages young children in singing, dancing and creative movement while introducing them to great works of music from around the world. k12’s curriculum and assessment are delivered, in part, through a series of proprietary course modules. k12 delivers material over the internet, but also through other forms of media, including traditional books, video and learning kits. «12’s course modules employ interactive text, audio, videos, CDs, and animated graphics. The Internet-based portion of k12’s courses contains the following features: @ Integration of a diverse mix of materials—visual images and concepts, audio, videos and animated sequences, as well as high-quality written material; Capabilities for users to see an overview of the whole module at a glance; Opportunity for parents to scan and preview modules before guiding students through work; Integrated assessment services; Ability for children, parents, and teachers fo follow students’ progress; Comprehensive teaching guides with “drill down” functionality for those parents requiring more detailed instruction; and @ Proven, standards-based, technologies that provide a satisfactory experience for the current Internet infrastructure. 111 HOUSE_OVERSIGHT_024544

k12 considers the majority of its entire curriculum proprietary, whether k12 is branding existing materials with its logo and modifying the associated lesson plans or creating the entire course from scratch. k12’s K-8 curriculum includes thousands of lessons that consist primarily of existing, high-quality materials that k12 has modified to better suit the needs of student, parent and teacher. 13.7. Management and Board of Directors The following table sets forth certain information regarding k12’s management and directors. For more detailed biographical information, see Appendix A. Name Position Ron Packard Chairman and Founder / acting Chief Executive Officer and member of the Board of Directors John Baule Executive Vice President and Chief Financial Officer Bror Saxberg Senior Vice President of Learning and Content Thomas Boysen Senior Vice President and Chief School Officer Charles Zogby Senior Vice President of Education Policy Peter Stewart Vice President of the Charter School Division Bryan Flood Vice President of Government Relations John Holdren Senior Vice President of Curriculum Name Position Arthur Bilger Managing Member of Shelter Capital Partners Steven B. Fink Chief Executive Officer of Lawrence Investments, LLC Chester Finn President of the Thomas B. Fordham Foundation Lowell J. Milken President and Chief Executive Officer of KUE Andrew H. Tisch Chairman of Executive Committee of Loews Corporation Thomas Wilford Chief Executive Officer of the J.A. and Kathryn Albertson Foundation, Inc. Liza Boyd Vice President Constellation Ventures / Bear Stearns Asset Management 13.8. Summary Financial Information and Projections Discussion The following summary historical financial data and the percentages of expected 2006 revenue presented in the headings above are based on historical financial statements. The following projected financial data presented below is based on assumptions management believes to be reasonable, but which are inherently uncertain and may not be realized. k12’s ability to perform as projected depends on a number of variables that cannot be predicted with certainty and actual performance could be adversely affected by a number of factors, including those described in “Risk Factors,” particularly the risk factor related to projections elsewhere in this Memorandum. Also see “Forward-Looking Statements.” 112 HOUSE_OVERSIGHT_024545

k12 Summary Historical and Projected Financial Information Fiscal Year Ended June 30, ($ in millions) 2002 2003 2004 2005 2006P 2007P Revenue $6.7 $30.9 $71.4 $85.3 $1160 $132.2 Growth 362.1% 131.0% 19.5% 36.0% 14.0% Operating Income ($30.4) ($28.0) ($6.9) ($3.3) $2.0 $6.4 Operating Income (454.3)% (90.4)% (9.7)% (3.8)% 1.7% 4.8% Margin EBITDA ($28.6) ($25.1) ($2.0) $2.2 $5.7 $12.3 EBITDA Margin (427.9)% (87.1)% (2.8) % 2.6% 4.9% 9.3% Net Income ($30.4) ($28.4) ($7.4) ($3.5) $1.3 $5.2 Net Margin (454.5) % (91.7)% (10.4)% (4.1)% 1.1% 3.9% Historically, the majority of k12’s revenue has been from virtual schools and district-managed virtual programs. Traditionally, k12’s revenue growth has been driven by three major factors; (i) the addition of grades, (ii) the addition of states and (iii) same-store growth in existing states. In 2002 k12 began operations in two states (Colorado and Pennsylvania). In 2003 revenue grew to $30.9 million from $6.7 million during the 2002 fiscal year end. Growth was due to the addition of four new states (Ohio, Idaho, California and Arkansas), three new grades and same store sales growth of approximately 40%. During 2004 revenue increased by 131.0% to $71.4 million. Revenue growth during the 2004 fiscal year was due to the addition of five new states (Minnesota, Arizona, Florida, Wisconsin and the District of Columbia) and two new grades. During the 2005 fiscal year k12 began to concentrate on leveraging its scale to achieve profitability by slowing down curriculum production and not aggressively pursuing new states. Revenue grew at a slower rate, but profitability increased as the growth in the existing states continued. Existing state growth is more profitable than new state growth because each new state requires a significant amount of fixed overhead to be added. The projections of financial results presented above are based on the development and expansion of k12’s operations in existing states and grades. Key growth drivers in the near term are expected to include high same-store growth rates and k12's ability to leverage its existing infrastructure for margin improvement. Future drivers of growth at k12 which are not included in the projections are expected to include the addition of new states. In 2006, k12 opened in Texas, Wyoming and Washington. More recently, the Chicago school board approved a virtual public school for the city of Chicago that will be managed by k12. k12 also received a charter in the Sacramento area of California that will allow it to serve a large area in California that it cannot currently serve. 12 is currently continuing to pursue opportunities in several other states. Under k12’s current revenue recognition policy, revenues are principally earned from contractual agreements to provide on-line curriculum, books, materials, computers and to manage and operate virtual charter schools. In most contracts, k12 is responsible to the charter schools for all aspects of the management of schools, including but not limited to the monitoring of the academic achievement of the students, training, and compensation of school personnel; and procurement of curriculum and equipment necessary for operations of the schools. The schools receive funding on a per student basis from the state in which the charter school or school district is located. Where k12 has determined that they are the primary obligor for substantially all expenses under these contracts, k12 records the associated per student revenue received by the school from its state funding school district up to the expenses incurred in accordance with Emerging Issues Task Force (EITF) 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent. k12 has generally agreed to fund any operating losses of the schools in a given school year; however, k12 is not entitled to any revenue in excess of expenses incurred on its contracts, 113 HOUSE_OVERSIGHT_024546

unless k12 incurred excess losses in prior years. For contracts in which 412 is not the primary obligor, k12 records revenue based on its net fees earned per the contractual agreement. Under k12’s current revenue recognition policy, 12 records revenue related to contracts with its virtual academies primarily on a gross basis. As a result, k12 has recorded certain expenses of these virtual academies in revenues and costs and expenses. These expenses were $25.4 million and $29.3 million for the fiscal years ended June 30, 2004 and 2005 respectively. 13.9. k12 Equity k12 has issued and outstanding approximately 45.1 million shares of Series C Preferred Stock, approximately 51.5 million shares of Series B Preferred Stock and approximately 10.0 million shares of Common Stock. The Series C Preferred Stock is senior to the Series B Preferred Stock and the Common Stock and has a liquidation preference equal to the greater of (a) two times the original cost of the Series C Preferred Stock (plus any accrued dividends} or (b) the amount which would be received upon conversion of the Series C Preferred Stock into Common Stock. KUE owns approximately 40.0% of the outstanding Series C Preferred Stock. The Series C Preferred Stock has a dividend rate of 10% per annum, compounded annually with such dividends being paid in the form of additional shares of Series C Preferred Stock. The Series B Preferred Stock is senior to the Common Stock and has a liquidation preference equal to the greater of (a) two times the original cost of the Series B Preferred Stock or (b) the amount which would be received upon conversion cf the Series B Preferred Stock into Common Stock. KUE owns approximately 7.5% of the outstanding Series B Preferred Stock. The holders of the Series B Preferred Stock do not receive dividends. KUE does not own any shares of Common Stock. However, both the Series B Preferred Stock and the Series C Preferred Stock are convertible into ki2 Common Stock, and on an as-if-converted, fully-diluted basis KUE owns approximately 17.9% of k12’s Common Stock. 114 HOUSE_OVERSIGHT_024547

14. THE STRUCTURE OF KUE AND THE GENERAL PARTNER The following information is a summary of the principal terms of the organizational documents of KUE and the General Partner. The information below is qualified in its entirety by reference to the Amended and Restated Limited Partnership Agreement of KUE and the organizational documents of the General Partner, including the Amended and Restated Memorandum and Articles of Association of the General Partner and the Agreement Among Members of the General Partner (the “Organizational Documents”), copies of which have been provided or are available upon request. in the event of any inconsistency between the terms herein and the terms of the Organizational Documents, the Organizational Documents shall control. 14.1. KUE KUE is constituted as a Cayman islands exempted limited partnership under the Exempted Limited Partnership Law (2003 Revision) (the “ELP Law’). A Cayman Islands exempted limited partnership is constituted by the signing of the relevant partnership agreement and its registration with the Registrar of Exempted Limited Partnerships in the Cayman Islands. Notwithstanding registration, an exempted limited partnership is not a separate legal person distinct from its partners. Under Cayman Islands law, any property of the exempted limited partnership shall be held or deemed to be held by the general partner, and if more than one then by the general partners jointly upon trust, as an asset of the partnership in accordance with the terms of the partnership agreement. Similarly, the general partner for and on behalf of the partnership incurs the debts or obligations of the exempted limited partnership. Registration under the ELP Law eniails that the partnership becomes subject to, and the limited partners therein are afforded the limited liability and other benefits of the ELP Law. The business of an exempted limited partnership will be conducted by its general partner(s) who will be liable for all debts and obligations of the exempted limited partnership to the extent the partnership has insufficient assets. As a general matter, a limited partner of an exempted limited partnership will not be liable for the debts and obligations of the exempied limited partnership save (i) as expressed in the partnership agreement, (ii) if such limited partner becomes involved in the conduct of the partnership's business or (iii) if such limited partner is obliged pursuant to Section 14(1) of the ELP Law to return a distribution made to it where the exempted limited partnership is insolvent, The Limited Partnership Agreement of KUE limits the liability and reduces the fiduciary duties of the General Partner to the Limited Partners of KUE (the "Limited Partners,” and, together with the General Partner, the “Partners”) to the full extent of applicable law. The Limited Partnership Agreement also restricts the remedies available to the Limited Partners for actions that might otherwise constitute a breach of the General Partner's fiduciary duties owed to the Limited Partners. By purchasing Units, Investors are treated as having consented to various actions contemplated in the Limited Partnership Agreement and conflicts of interest that might otherwise be considered a breach of fiduciary or other duties under applicable Cayman law. 14.2. The General Partner The General Partner is incorporated in the Cayman Islands as an exempted company with limited liability under the Companies Law (2004 Revision) (the “Companies Law’), The Memorandum and Articles of Association comprise the constitution of General Partner. The principal business purpose of the General Partner is to act as the general partner of KUE, tc own interests in KUE and to engage in activities related thereto (the "Business Purpose"), The General Partner will not engage in maierial activities (including holding any material assets or incurring any material liabilities) unrelated to the Business Purpose, The General Partner has no prior operating history or prior business and will not have any substantial assets or 115 HOUSE_OVERSIGHT_024548

jiabilities other than in connection with its acting as general partner of KUE and as described in this Memorandum. The day to day business of the General Partner will be generally be conducted by its directors, although certain matters require the approval of its shareholders pursuant to the Companies Law and the General Partner's Articles of Association. Under Cayman Islands law, a director of a Cayman Islands company is obliged to comply with a number of duties, breach of which may, in certain circumstances, result in personal liability on the part of the director. However, provided a director complies with the fiduciary duties and the requisite duties of care, diligence and skill, the fact that a decision turns out to be wrong, not beneficial, or causes loss, will not of itself necessarily establish personal liability. As a general rule, in the absence of a contractual arrangement to the contrary, the liability of a shareholder of a Cayman Islands exempted company which has been incorporated with limited liability is limited to the amount from time to time unpaid in respect of the par value of, together with the share premium payable on, the shares he holds; the company having a separate legal personality from that of its shareholders, and being separately liable for its own debts due to third parties, However, although there is no decided Cayman Islands authority on the issue, English common law authority (which would be regarded as persuasive, though technically not binding, in the courts of the Cayman Islands), supports the proposition that it in exceptional circumstances it is conceivable that the principle of the separate legal personality of a company could be ignored and the court will “pierce the corporate veil.” Examples might be a company acting as the agent or nominee of its shareholder, incorporation for an illegal or improper purpose, using a company or group of companies as a means of perpetrating a fraud, or using the separate personality of a company to circumvent a pre-existing obligation of its proprietor. 14.3. Classes of Units; Capital Contributions Assuming that 1,000,000 Units are sold to Investors by March 31, 2007, and that the accrued dividends on the preferred limited partner units are paid in cash, approximately 2,530,000 Units will be outstanding. The Investors will own approximately 40% of KUE in the form of Common LP Units and approximately 40% of the General Partner in the form of Class A Shares. The General Partner will be the sole general partner of KUE and will hold approximately 1,000 General Partner Units (“GP Units’) in KUE, representing approximately 0.04% ownership in KUE. The economic interest in KUE represenied by the Common LP Units and the GP Units will be reduced by the Profits Participation LP Units as described below under "Distributions." Assuming that 1,000,000 Units are sold to Investors by March 31, 2007, and that the accrued dividends on the preferred limited partner units are paid in cash, KUE LLC, controlled by the Principals, will hold approximately 1,530,000 Common LP Units representing approximately 60% ownership in KUE and 1,530,000 Class A Shares. The Common LP Units owned by KUE LLC will not be transferable, except (i) to the Principals; (ii) to affiliates of the Principals and/or (iii) to family members and/or charitable organizations in connection with the Principals’ estate planning, unless combined with the corresponding percentage of Class A Shares to form Units and transferred in the form of Units in accordance with the Limited Partnership Agreement. Knowledge Universe Holdings LLC, a Delaware limited liability company (“KUH LLC”) conirolled by the Principals, will hold 900 Class B ordinary shares of the General Partner (the “Class B Shares"). The Class B Shares held by the Principals and their affiliates will not be transferable, except to (i) the Principals; {ii) to the affiliates of the Principals; and/or (iii) to family members and/or charitable organizations in connection with the Principals’ estate planning. The Class B Shares will automatically convert to Class A Shares if the Principals’ aggregate direct and indirect economic interest in KUE is less than 15% of the outstanding Partnership Units (as defined below) of KUE. A limited liability company ("KULG LLC-1"), of which Knowledge Universe Learning Group LLC, a Delaware limited liability company that is controlled by the Principals ("KULG”), and certain other persons 116 HOUSE_OVERSIGHT_024549

designated by KULG are members, will be the holder of the Profits Participation LP Units (the “Profits Participation Limited Partner”) with the economic rights as set forth in “— Distributions” below. KULG LLC- 1 will undertake that no more than 9% of the KUE Partnership Interests outstanding immediately after the final closing of the offering or thereafter will be held directly or indirectly by or for the account of the Principals and their Affiliates through the Profits Participation LP Units of KUE. At least 2/t1ths of the Profits Participation LP Units outstanding will be issued to or reserved for the benefit of members of KULG LLC-1 that are not the Principals or their affiliates, and may include employees, officers, directors, consultants and agents of KUE, its subsidiaries and joint ventures as designated by KULG. At each closing of any sale of Units to investors where the aggregate purchase price of all Units acquired by Investors to date is less than or equal to $1.5 billion (during the Offering Period or thereafter), the Profits Participation Limited Partner will be issued a number of Profits Participation LP Units such that the aggregate shall equal at least 9/11ths of the 11% of “Partnership Units” (Common LP Units, GP Units, and Profits Participation LP Units) that may be represented by Profits Participation LP Units. Additional Profits Participation LP Units will be issued to the Profits Participation Limited Partner, at such time and in such numbers as the Profits Participation Limited Partner will direct, based upon the issuance by the Profit Participation Limited Partner of interests fo members of the Profits Participation Limited Partner (who may include employees, officers, directors, consultants and agents of KUE, its subsidiaries and joint ventures as designated by KULG other than the Principals and their affiliates), the vesting schedule of such interests, and whether certain tax elections are made by the recipients of such interests; provided, however, the total number of Profits Participation LP Units shall not exceed a number equal to eleven percent (11%} of the aggregate number of Partnership Units. Any increase in the number of Profits Participation LP Units following the sale of the first $1.5 billion of Common LP Units to Investors requires a majority vote of the Independent Committee. Subsequent to the completion of this offering, KUE may raise additional capital through the sale of equity or debt securities. KUE will not have any preferred limited partner units outstanding upon completion of this offering but KUE may issue limited partner units with preferences over the Common LP Units in the future and may amend the Limited Partnership Agreement accordingly. Since the General Partner will have a nominal economic interest in KUE, the Class A Shares are expected to have nominal economic value. The Class A Shares are, however, intended to provide Unit holders with certain voting and other governance rights in the General Partner (as described further below) which, in turn, will control KUE. 14.4. Admission of Partners to KUE The General Pariner may admit one or more Persons as additional Partners of KUE on such terms as the General Partner will determine. Upon the admission of additional Partners, the capital accounts of the Partners will be increased or decreased, as the case may be, to reflect the gross asset values of KUE's assets pursuant fo Regulation Section 1.704-1(b)(2){iviig). The amount of any such increase or decrease will be allocated among the Partners whe were Partners immediately prior to the admission of additional Partners as if such increase or decrease constituted income or loss, respectively, in accordance with the allocation provisions of the Limited Partnership Agreement. Not in limitation of the foregoing, Investors admitted during the Offering Period after the first closing of this offering and after September 30, 2006 will pay an additional amount accruing at a rate of 0.67% per month calculated from the first closing date of the offering (pro-rated for partial periods) for each Common LP Units purchased, which will be distributed promptly to the holders of Common LP Units outstanding prior to such admission in proportion to the number of Common LP Units heid by such holders. 117 HOUSE_OVERSIGHT_024550

14.5. Management of KUE and the General Partner; Voting Rights The General Partner will manage and operate KUE, Investors will have no voting rights on matters aifecting KUE business with respect to their Common LP Units in KUE because the Investors will be limited partners of KUE. Notwithstanding the foregoing, subject to certain exceptions set forth in the paragraph below, KUE must obtain the consent of (a) the holders of a majority of the Common LP Units unaffiliated with the Principals to amend the Limited Partnership Agreement in a manner that is adverse to the Common LP Unit holders and (b) the holders of at least 90% of the Common LP Units unaffiliated with the Principals to amend the "Equal Merger Consideration Provision" described herein. [In addition, the General Partner may not take any action to (a) alter or add fo its Articles or (b) alter or add to its Memorandum with respect to any objects, powers or other matters specified therein that would adversely affect the rights of holders of Class A Shares without the affirmative vote of the holders of a majority of the Class A Shares. Notwithstanding the foregoing, the General Partner, acting reasonably and in good faith, may amend the Limited Partnership Agreement without the consent of any Limited Partner (a) to correct any typographical or similar ministerial errors; (b) to delete or add any provision required to be so deleted or added by applicable law or any government official having jurisdiction over KUE; (c) to cure any mistake or ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein; (d) to take such actions as may be necessary (if any) to ensure that KUE will be treated as a partnership for U.S. federal income tax purposes; (e) to reflect the admission of any additional Limited Partner and otherwise to reflect such admission or an additional investment by a Limited Partner on the books and records of KUE pursuant to the General Partner's power of attorney; (f) to take such actions as may be necessary (if any) to ensure that neither of KUE or the General Partner (or any subsidiary of the foregoing) will be subject to regulation under ERISA or the Investment Company Act; (g) to take such actions as may be necessary (if any) to ensure that the General Partner (or any Subsidiary) will not be subject to the Investment Advisers Act; (h) to reflect any increase in the number of Profits Participation LP Units approved by the Independent Committee and related changes in allocation and distribution provision; (i) to make changes negotiated with Limited Partners admitted in any subsequent closing of the offering, so long as such changes do not, in the good faith determination of the General Partner and with the approval of the Independent Committee, adversely affect the rights, obligations and economic interests of the existing Limited Partners; and (j) to the extent necessary to give effect to partnership interests issued to additional Limited Partners after the Offering Period. The General Partner shall provide prompt written notice of any such amendments to the Limited Partners. Holders of Class A Shares of the General Partner will have one vote per share. The holders of Class B Shares will have, in the aggregate, one more vote than the requisite legal vote required to approve particular matters. {n addition, Investors will have the right to elect directors fo the Board of Directors of the General Partner as set forth in “- Board of Directors of the General Partner" below. 14.6. Board of Directors of the General Partner The General Partner will have a Board of Directors initially consisting of up to 13 persons. Following the first closing of the offering and prior to the “Initial Listing” (as defined below), the outside Investor (including its affiliates) holding the greatest number of shares in the General Partner at the first closing of the offering will appoint two directors of the General Partner and the holders of the Class B Shares will appoint the remaining Directors. Following the initial appointment of the Board, the Board may, in its sole discretion, increase the number of directors, including te accommodate investors that invest subsequent to the initial closing of the offering of the Units, provided that the outside Investor appointing two directors pursuant to the paragraph above shall have the right to appoint additional directors as required to maintain a ratio of such Investor's designees to total Board members of not less than 2/15ths. 118 HOUSE_OVERSIGHT_024551

“Independent Directors" of the Board of Directors of the General Partner shall be individuals who (a) are not (i) a Principal, (ii) a family member of a Principal, (iii} an employee of a Principal or any entity controlled by one or more of the Principals, and (b} meet the definition of “independent director’ set forth in Rule 303A.02 of the New York Stock Exchange Listed Company Manual (as if the General Partner, KUE and each of its Subsidiaries were the ‘listed company”) , including any such individuals appointed by the investors who otherwise satisfy the requirements of this definition. At the time of the final closing of this offering, the General Partner will have at least two Independent Directors. After the Initial Listing and sc long as consistent with contractual, listing and licensing obligations, a majority of the board of directors of the listed company will be Independent Directors. 14.7. Initial Listing; Initial Listing Process “Initial Listing” means a listing on a recognized international securities exchange with a substantially concurrent underwritten offering generating gross proceeds of U.S. $200 million or more. “Initial Listing’ refers to the Initial Listing of KUE or any successor or any subsidiary of KUE to which substantially all of KUE's assets and liabilities have been transferred or are held. The General Partner may take and cause KUE to take such actions as the General Partner reasonably deems necessary to complete the Initial Listing on the recognized international securities exchange or exchanges selected by the General Partner, including without limitation a restructuring or reorganization or other transaction or asset transfer between or among KUE and any of its subsidiaries. If the Initial Listing involves the listing of shares or other interests of a subsidiary of KUE, in the General Partner's discretion, KUE may (i} retain some or all of KUE’s interest in such subsidiary not sold in connection with the Initial Listing, (ii) distribute some or all of KUE’s interest in such subsidiary not sold in connection with the Initial Listing to the Partners, (iii) offer Partners the opportunity to exchange their Common LP Units and shares of the General Pariner for interests in such subsidiary, (iv) require Partners to exchange their Common LP Units and shares of the General Partner for interests in such subsidiary, or (v) any combination of the foregoing. Each Partner shall cooperate with the General Partner in connection with the foregoing, including, without limitation, (i) by providing any necessary approvals from such Partner for (a) any merger or consolidation of KUE or a subsidiary then permitted by law into an entity that is eligible to effect such Initial Listing and has no other material business, assets or liabilities, or (b) a transfer of all, substantially all or a portion of the assets and liabilities of KUE to one or more wholly-owned subsidiaries eligible to effect the Initial Listing; (ii} by exchanging such Partner's Common LP Units and shares of the General Partner for shares or other interests of the entity to be listed; (iii) by agreeing to customary “lock- up” (on terms no more restrictive than KUE LLC or its affiliates or any other Common Limited Partner which provides a “lock-up") and other agreements with underwriters; and (iv} by taking such other actions as may be reasonably requested by the General Partner, provided that, in connection with such Initial Listing, no Partner shall be required to contribute additional capital to KUE or the entity effecting the Initial Listing. The economic interests of the Profits Participation Limited Partner shall not be reduced as a result of any actions taken fo effect the Initial Listing. 14.8. Mandatory Conversion of Class B Ordinary Shares The Class B Shares will automatically convert to Class A Shares if the Principals' aggregate economic interest in KUE is less than 15% of the outstanding Partnership Units. 14.9. Distributions Cash and other property may be distributed from KUE after payment of ordinary expenses and all amounts currently due on KUE indebtedness, funding capital expenditures of subsidiaries and joint venture, funding operating and other expenses of KUE, its subsidiaries and joint ventures and after the 119 HOUSE_OVERSIGHT_024552

establishment of reasonably necessary reserves as determined by the General Partner. The General Partner will make distributions at such times as determined by the General Partner. Distributions will be made in the following priority: « First, to the Common Limited Partners and the General Partner in proportion to and to the extent of their unreturned capital contributions, but in no case may a distribution pursuant to this bullet exceed a Partner's positive adjusted capital account balance; « Second, pursuant to Subsections (a) and (b} in proportion as follows: (a) to the Common Limited Partners and the General Pariner in proportion to and to the extent of their undistributed Preferred Returns; and (b) to the Profits Participation Limited Partner in an amount equal to (i) the number of Units held by the Profits Participation Limited Partner, divided by the number of all outstanding Units other than Units held by the Profits Participation Limited Partner, multiplied by (ii) the amount distributed pursuant to Subsection (a) of this bullet, multiplied by (iii} a fraction to be provided by the Profits Participation Limited Partner; provided, however, that the fraction shall not exceed 2/Tiths (unless the Independent Committee has increased the number of Profits Participation LP Units beyond the number initially authorized, in which case the maximum fraction authorized for this purpose would be increased appropriately); e Third, to the Profits Participation Limited Partner in an amount equal to: (a) the number of Units held by the Profits Participation Limited Partner, divided by the number of all outstanding Units other than Units held by the Profits Participation Limited Partner, multiplied by (b) the amount distributed pursuant to Subsection (a) of the above bullet from the inception of KUE, multiplied by (c) a number (expressed as a fraction) equal to 1 minus the fraction used in clause (fii) of the prior bullet for the same distribution (unless the Independent Committee has increased the number of Profits Participation LP Units beyond the number initially authorized, in which case the maximum fraction for this purpose would be modified appropriately), less (d) all amounts previously distributed to the Profits Participation Limited Partner pursuant to this bullet; and « Fourth, to the Common Limited Partners, the Profits Participation Limited Partner, and the General Partner in proportion to the number of Units held by each such Partner. “Preferred Return” means (as to a Common Limited Partner and the General Partner) an amount equal to eight percent (8%) per annum, determined on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days in the period for which the Preferred Return is being determined and be cumulative on the capital contributions of such Partners and shall be calculated from the date of such Pariner’s capital contribution; provided however that in the case of Common LP Units issued upon the conversion of preferred limited partner units at the initial closing of the offering, that the date of Capital Contribution shall be deemed to be the date of the initial closing of the offering solely for purposes of calculating the Preferred Return. To the extent, at the time of any distribution or income or loss allocation pursuant to the Partnership Agreement, the 2/11ths portion of the Profits Participation LP Units has not then been fully allocated by KULG LLC-1 to employees, officers, directors, consultants and agents of KUE, its subsidiaries or joint ventures, then the distribution or income or loss allocation that would otherwise be attributable to such unallocated portion of the Profits Participation LP Units shall be reallocated among the Common Limited Partners and the General Partner in proportion fo their Units for purposes of such distribution or income or loss allocation (including in connection with their Preferred Return). Notwithstanding the foregoing, the Limited Partnership Agreement gives the General Partner the authority to override the distribution provisions of the Limitation Partnership Agreement described above in order to achieve the desired economic arrangement of KUE, which is: (i) first, to return the Partners’ Capital Contributions to them; (ii) second, for the Common Limited Partners and the General Partner to receive their Preferred Return while the Profits Participation Limited Partner concurrently receives an amount equal to a fraction of the amount the Common Limited Partners and the General Partner received 126 HOUSE_OVERSIGHT_024553

pursuant to their Preferred Return (such fraction to be equal to the portion of the Units held by the Profits Participation Limited Partner attributable to members of the Profits Participation Limited Partner other than the Principals), multiplied by the number of Units held by the Profits Participation Limited Partner divided by the number of outstanding Units other than those Units held by the Profits Participation Limited Partner; (iii) third, for the Profits Participation Limited Partner to receive an amount equal to a fraction of the amount the Common Limited Partners and the Genera! Partner received pursuant to their Preferred Return (such fraction fo be equal to the portion of the Units held by the Profits Participation Limited Partner attributable to members of the Profits Participation Limited Partner who are Principals or their affiliates), multiplied by the number of Units held by the Profits Participation Limited Partner divided by the number of outstanding Units other than those Units held by the Profits Participation Limited Partner; and (iv) finally, for all Partners (including the Profits Participation Limited Partner} to share in the profits of the Partnership in proportion to the number of Units held by them. The General Partner may, in its discretion, when establishing the capital structure of subsidiaries or joint ventures, provide for a capital structure which provides for high-vote and low-vote (or non-voting) securities with substantially equivalent economic rights intended to correspond to the voting and economic structure of KUE (taking into account differences in legal form, such that corporate subsidiaries do not have specified distribution or liquidation rights with respect fo common stock). Notwithstanding any contrary provisions below addressing equal merger consideration, to the extent securities of an entity corresponding to the voting structure of KUE are to be distributed tc the Partners, the high-vote securities shall be distributed to KUE LLC for purposes of maintaining the voting structure subsequent to such distribution, as long as the securities otherwise have substantially equivalent economic rights and the high-vote securities have mandatory conversion features equivalent to the mandatory conversion features of the Class B Shares of the General Partner (as discussed below), it being understood that securities with high-voting rights shall not be deemed to have a higher economic value than securities with limited or no voting rights solely by reason of the disparity in voting rights. 14.10. Allocations of Income and Losses In general (and subject to certain special tax and regulatory allocations), income and gains of KUE will be allocated to the Partners in the following priority: ¢ First, to the General Partner in an amount equal to the losses previously allocated to the General Partner pursuant fo the third bullet in the losses allocation from the inception of KUE, fess ail income previously allocated to the General Partner pursuant to this bullet; *« Second, to the Common Limited Pariners and the General Partner in proportion fo and to the extent of the excess of their unreturned capital contributions over their adjusted capital account balances: e Third, pursuant to subsections (a) and (b) in proportion as follows: (a) to the Common Limited Partners and the General Partner in proportion to and to the extent of the excess of: (i} the sum of their unreturned capital contributions and their undistributed Preferred Returns; over (i) their adjusted capital account balances; and (b) to the Profits Participation Limited Partner an amount of income such that the amount of Income allocated pursuant to Subsections (a) and (b) of this bullet are in the same proportions as the distributions pursuant to Subsections (a) and (b) of the second bullet of 14.9 above would be in if cash, in the same amount as the income, were being distributed pursuant to the second bullet of 14.9 above: e Fourth, to the Profits Participation Limited Partner in the amount necessary to ensure, as promptly as possible and to the extent feasible, that the cumulative net income of KUE for all periods since its inception shall have been allocated to the Common Limited Partners, the Profits Participation Limited Partner, and the General Partner in proportion to the number of Units held by each such Partner; and 121 HOUSE_OVERSIGHT_024554

e Fifth, to the Common Limited Partners, the Profits Participation Limited Partner, and the General Partner in proportion to the number of Units held by each such Partner. In general (and subject to ceriain special tax and regulatory allocations), losses and deductions of KUE will be allocated to the Pariners in the following priority: « First, to the Common Limited Partners, the Profits Participation Limited Partner, and the General Pariner in proportion to and to the extent of their positive adjusted capital account balances; e Second, to the Common Limited Partners, the Profits Participation Limited Partner, and the General Partner in proportion to the number of Units held by each such Partner; and « Third, to the General Partner. To the extent, at the time of any distribution or income or loss allocation pursuant to the Partnership Agreement, the 2/1iths portion of the Profits Participation LP Units has not then been fully allocated by KULG LLC-1 to employees, officers, directors, consultants and agents of KUE, its subsidiaries or joint ventures, then the distribution or income or loss allocation that would otherwise be attributable to such unallocated portion of the Profits Participation LP Units shall be reallocated among the Common Limited Partners and the General Partner in proportion to their Units for purposes of such distribution or income or loss allocation (including in connection with their Preferred Return). Notwithstanding the foregoing, the Limited Partnership Agreement gives the General Partner the authority to override the distribution provisions of the Limitation Partnership Agreement described above in order to achieve the desired economic arrangement of KUE, which is: (i) first, to return the Partners’ Capital Contributions to them; (li} second, for the Common Limited Partners and the General Partner to receive their Preferred Return while the Profits Participation Limited Partner concurrently receives an amount equal to a fraction of the amount the Common Limited Partners and the General Pariner received pursuant to their Preferred Return (such fraction to be equal to the portion of the Units held by the Profits Participation Limited Partner attributable to members of the Profits Participation Limited Partner other than the Principals), multiplied by the number of Units held by the Profits Participation Limited Partner divided by the number of outstanding Units other than those Units held by the Profits Participation Limited Partner; (iii) third, for the Profits Participation Limited Partner to receive an amount equal to a fraction of the amount the Common Limited Partners and the General Partner received pursuant to their Preferred Return (such fraction to be equal to the portion of the Units held by the Profits Participation Limited Partner attributable to members of the Profits Participation Limited Partner who are Principals), multiplied by the number of Units held by the Profits Participation Limited Partner divided by the number of outstanding Units other than those Units held by the Profits Participation Limited Partner; and (iv) finally, for all Partners (including the Profits Participation Limited Partner) to share in the profits of the Partnership in proportion to the number of Units held by therm. 14.11. Tax Distributions The General Partner may decide to make a tax distribution from KUE on or before April 1st of any year following a taxable year in which net taxable income was allocated to any Partner. If the General Partner decides to make a tax distribution, then KUE will distribute cash available for distribution, if any, to those Partners receiving an allocation of net taxable income, regardless of whether such net taxable income is actually subject to tax. The amount of net taxable income upon which such a tax distribution will be made will be based on cumulative calculation of net taxable income and net taxable loss which have been allocated to each such Partner from the inception of KUE. Any tax distributions received by a Pariner will be treated as an advance and will offset against any other distributions such Partner is entitled to receive from KUE. 122 HOUSE_OVERSIGHT_024555

Certain Partners contributed appreciated property to KUE in exchange for their interests in KUE. Under the Limited Partnership Agreement, and in accordance with Section 704(c) of the Code and the Treasury regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to KUE must be allocated for tax purposes among the Partners in a manner that takes into account the variation between the adjusted basis of such property to KUE and its fair market value at the time the property was contributed to KUE. As a result of this requirement, it is possible the Partners who contributed appreciated property to KUE will be allocated more income and gains, and therefore be entitled to receive larger tax distributions under the Limited Partnership Agreement, than Partners who acquired their interests in KUE pursuant to this offering. 14.12. Fixed Overhead Payment KUE, and/or one or more of its subsidiaries will pay $20 million annually ta KULG in quarterly installments beginning July 1, 2006 pursuant fo the Fixed Overhead Payment Agreement as an agreed upon payment to provide for the reimbursement of expenses and other costs incurred by KULG on behalf of KUE and its subsidiaries (including, but not limited to, salaries and bonuses of KULG employees providing services to KUE and its subsidiaries, fees and expenses relating te financing transactions and acquisitions, professional fees and other administrative expenses). To the extent that the U.S. $2,500,000 fee payable pursuant to an existing management services agreement with Knowledge Learning Corporation is paid to any person or entity other than a subsidiary of KUE, the amount payable to KULG by KUE will be reduced by the amount of such payment to such other person or entity. The $20 million annual fee will terminate upon the Initial Listing or the sale of KUE to a person or entity that is not a KUE LLC Entity. 14.13. liquidity Period KUE will operate for a period of seven years from the date of the first closing of this offering. If there has not been an Initial Listing by the end of seven years from the date of the first closing of this offering, the Board of Directors of the General Partner will determine whether to pursue a sale of KUE or an Initial Listing (or a dual track process); provided, however, in the event that not less than 75% of the value of KUE at that time is represented by shares of securities listed on one or more recognized international securities exchanges and such shares have been or will be distributed as soon as reasonably practicable thereafter to the Investors and the Investors have received distributions of cash and/or such securities valued at amounts equal fo or in excess of their original capital contributions, then there will be two extensions of one year's duration each (as determined by the Board of Directors of the General Partner) in order for KUE to complete either an Initial Listing or to have the remaining value of KUE represented by shares of securities listed on a recognized international securities exchange and to distribute such shares to the Investors. If the Board determines to pursue a sale of KUE (or an Initial Listing or a dual track process), then the Principals must determine at such time whether they intend to participate as a potential bidder in the sale process. If the Principals elect not to participate as a potential bidder in a sale process, then they will not be allowed to subsequently elect to participate as a potential bidder unless the sale process does not result in a buyer at a price the Independent Committee deems to be "fair." If the sale process results in a transaction that the Independent Committee deems to be "fair", the Principals will be required to sell their entire stake in KUE (Common LP Units and Profits Participation LP Units on an "as converted" basis) on the same terms as the Investors. If the Principals elect to participate as a potential bidder in a sale process, then the sale process will be managed by the Independent Committee and the Principals will be precluded from participating in Board deliberations regarding the sale process. In addition, the Principals will be required to sell their entire stake in KUE on the same terms as the Investors to the winning bidder in the event the Principals do not submit the most attractive bid. 123 HOUSE_OVERSIGHT_024556

In the event that a sale of KUE or an initial Listing has not occurred within nine years from the date the first Investors are admitted to KUE, the Independent Committee shall determine whether to pursue a sale of KUE {or an Initial Listing or a dual track process). A majority vote of the Independent Committee on this issue shall be binding on the Board of Directors of the General Partner and will require the Board of Directors of the General Partner to pursue such action within ninety (90) days. 14.14, Equal Merger Consideration Provision The Principals (through KUE LLC) and the Investors will receive the same consideration per Common LP Unit and/or Class A/Class B Shares in connection with a sale, merger, recapitalization, share repurchase, dividend, or any other transaction where all holders of Common LP Units or shares in the General Partner receive consideration with respect to their Common LP Units or shares, other than with respect to corporate restructuring transactions, such as a holding company merger, conversion of KUE from an exempted limited partnership to a corporation or other entity, change of domicile, or any other transaction that the Independent Committee determines is a “corporate restructuring.” In any such corporate restructuring transaction, the Principals (through KUE LLC) may receive securities with high-voting rights and the Investors may receive securities with limited or no voting rights so long as the consideration received by the Principals (through KUE LLC) and the other Partners per Common LP Unit have substantially equivalent economic provisions, it being understood that securities with high-voting rights shall not be deemed to have a higher economic value than securities with limited or no voting righis solely by reason of the disparity in voting rights. 14.15. Related Party Transactions Related party transactions include transactions between (1) any of the Principals or any affiliates or any entity controlled by any of the Principals, and (2) KUE or any direct or indirect subsidiary or joint venture of KUE involving more than $1 million (including, for the avoidance of doubt, any merger, acquisition, asset purchase or similar transaction between KUE, its subsidiaries or joint ventures, on the one hand, and any person of which fifteen percent (15%) or more of the voting stock (or similar voting interests) is owned by KUE LLC or its affiliates, on the other hand). Related party transactions do not include (a} any transaction solely between or among KUE and any of its direct or indirect subsidiaries or joint ventures in which the Principals do not have any direct or indirect ownership interest (other than as a result of their ownership in the General Partner and KUE), (b) reasonable and customary director, advisory board member, or consultant compensation and benefits (including, without limitation, retirement, health, stock option and other benefit plans) as approved by the Independent Committee, provided that any such compensation, benefits and arrangements to the Principals that do not exceed $1 million in the aggregate annually shall not be subject to such approval and customary indemnification arrangements, (c) transactions and arrangements pursuant to or contemplated by express terms of the Limited Partnership Agreement of KUE, including the "Investment in Subsidiaries" and "“Co-Invest Right" described below, and any payments pursuant thereto, (d) agreements, transactions and arrangements described in “Related Party Transactions” in this Private Placement Memorandum {including any indemnification arrangements, the Fixed Overhead Payment described above and other arrangements and transactions described therein) and any amendment thereto (so long as such amendment is not disadvantageous to the investors as a whole in any material respect) or any transaction contemplated thereby and any payments pursuant thereto, and (e) admissions of any affiliate of the Principals te KUE as a Limited Partner on terms substantially equivalent to concurrent admissions of persons that are not affiliates of the Principals. If the size of the related party transaction is greater than $1 million and equal to or less than $50 million, then either (a) the Independent Committee must approve the transaction or (b) the transaction must be approved by the holders of a majority of the Common LP Units unaffiliated with the Principals. If the size of the related party transaction is greater than $50 million, then the transaction must be approved by both (a} the Independent Committee and (b) the holders of a majority of the Common LP Units unaffiliated with the Principals. 124 HOUSE_OVERSIGHT_024557

14.16. Investment in Subsidiaries and Joint Ventures The Principals will agree (on behalf of themselves and their affiliates) that KUE will be their exclusive vehicle for equity investment opportunities in and acquisitions of for-profit companies engaged primarily in the business of pre-K through 12th grade education of children (other than companies in which the Principals or their affiliates directly or indirectly owns fifteen percent (15%) or more of the voting stock (or similar voting interests) as of the date of the first closing of the offering, which are LeapFrog Enterprises, Inc. and Nobel Learning Communities, Inc.). The Principals will not acquire or make an equity investment in such companies unless such acquisition or investment opportunity has been first presented to the Independent Committee and subsequently declined by the Independent Committee or initially pursued but later abandoned by KUE. For purposes of the foregoing limitation on investment, an equity investment shall not include equity securities that are (a) issued in respect of debt securities in connection with a restructuring, reorganization, sale or other similar transaction in respect of a company; (b) issued in connection with an exchange offer for debt securities; or (c) indirectly owned through a fund or other investment vehicle managed by a person other than any Principal or affiliate of a Principal. The Principals may co-invest with KUE in such companies, subject to the approval of the Independent Committee and the co-investment rights of Investors in the Limifed Partnership Agreement. Not in limitation of any commitments or restrictions the Principals may have entered into, prior to an Initial Listing, KUE may not permit any of its subsidiaries or controlled joint ventures (which shall not include, for the avoidance of doubt, certain exempt companies contempiated by the above paragraph) to issue or grant any equity interests in such subsidiaries or controlled joint ventures to any of the Principals or any of their affiliates (other than KUE, its subsidiaries and controlled joint ventures) unless (i) the Independent Committee has approved and the Investors who are accredited investors (as such term is defined in Regulation D) or otherwise legally eligible to participate are offered the opportunity to participate on the same terms as the Principals and their affiliates and in proportion to their economic ownership of KUE or {if} such subsidiary or joint venture of KUE has completed an initial listing on a recognized international securities exchange. The foregoing restrictions will not apply to the Principals and/or their affiliates: (a) exercising co-investment, purchase or other similar rights in respect of securities of K12 Inc. (including warrants and options) held by them on the first closing of this offering and in respect of securities of K12 Inc. acquired pursuant to co-investment, purchase or other similar rights exercised in accordance with this clause (a); (b) receiving securities of K12 Inc. (including warrants and options) as compensation for services in their capacity as directors (or advisory board members) of K12 Inc.; or (c) exercising or converting any warrants or options (or other securities) held as of the first closing of this offering or acquired pursuant to clause (a) or (b). The General Partner may offer co-investment opportunities to any person (except for the Principals and their affiliates other than KUE’s subsidiaries and joint ventures} to invest with KUE or to invest in a subsidiary or joint venture of KUE. 14.17. Transferability The Common LP Units and the Class A Shares comprising the Units owned by the Investors will not be separately transferable, and the Units are to be transferred as a whole unless otherwise approved by the Board of Directors of the General Partner and the Independent Committee. Units held by an Investor may not be sold, transferred or assigned without the prior written consent of the General Partner, not to be unreasonably withheld. During the first two years after the applicable closing of the offering, the General Partner intends to approve transfers of Units to an affiliate of the Investor in compliance with applicable law. After such time, the General Partner intends to approve transfers of the Units to an affiliate of the Investor or to another Investor (and affiliates thereof), in each case in compliance with applicable law. The General Partner also intends to approve transfers pursuant to the Tag-Along Right and Drag-Along Right provisions described below. 125 HOUSE_OVERSIGHT_024558

Although the Limited Partnership Agreement of KUE and the organizational documents of the General Partner permit the foregoing transfers and the General Partner has agreed with certain investors to approve such transfers, applicable Caymans Island law gives the General Partner full discretion to approve or disapprove transfers of Units in KUE. Nevertheless, if the General Partner does not approve a permitted transfer, the parties seeking tc effect such transfer may have a claim against the General Partner and KUE. 14.18. Co-Invest Right Prior to the Initial Listing, if KUE proposes to issue for cash any Units or securities convertible into Units, then KUE is required to offer to each Investor that is an accredited investor (as such term is defined in Regulation D) or is otherwise legally eligible to participate in the offering the right to purchase a pro rata portion of such securities. This purchase right does not apply to (i) the first 1.5 miilion Units (including such number of Units issued at the first closing of this offering) issued by KUE to Investors through March 31, 2007, (ii) any public offering of Units or other securities by KUE; (ii} any issuance of Units in connection with a merger, consolidation, transfer of assets or other business combination involving KUE {or its subsidiaries or joint ventures); {iv) any issuance of Units pursuant to any unit option plan, restricted unit plan or other benefit plan, the terms of which are approved by the General Partner, provided that the aggregate amount cf all Units issued pursuant to this clause (iv) (which does not include any Profits Participation LP Units) shall not exceed 10% of all Units outstanding on a fully diluted basis on the date of such issuance without the approval of the Independent Committee and shall in no event exceed 20% of all Units outstanding on a fully diluted basis on the date of such issuance; (v) any issuance of Units in connection with any loan transaction and/or equipment lease, the terms of which are approved by the General Partner; (vi) any issuance of Units pursuant to any transactions, the terms of which are approved by the General Partner primarily for the purpose of (a) joint veniures or strategic alliances, (b) development, production or distribution of the products or services of KUE, its subsidiaries or joint ventures, (c} purchase or licensing of technology, or (d) any other transactions that are primarily for purposes other than raising capital, or (vii) any issuance of Units upon conversion or exercise of any Units issued in compliance with this co-invest right provision; or (viii) any issuance of Units in connection with Unit splits or Unit dividends or reclassifications. Prior to the initial Listing, Investors have substantially equivalent rights with respect to issuances of securities by the General Partner (with the additional exemption on the issuance of up to 10,000 additional Class B Shares to the Principals or any of their Affiliates). 14.19. Tag-Along Right A “Tag-Along Transfer” means a sale or other transfer for economic value of the Common LP Units held by KUE LLC and its affiliates (and, unless otherwise approved by the Board of Directors and the Independent Committee of the General Partner, a corresponding percentage of Class A Shares held by KUE LLC) to a Person that is not KUE LLC or an affiliate ("KUE LLC Entity”). Unless an Initial Listing occurred, a Tag-Along Transfer may not be consummated unless the proposed purchaser offers to each Investor the opportunity fo include a pro rata portion of such Investor’s Units in the Tag-Along Transfer (at the same consideration per Unit received by the KUE LLC Entity}. If the total number of Units and corresponding Class A Shares proposed to be sold to the proposed purchaser exceeds the number of Units and corresponding Class A Shares which the proposed purchaser is willing to purchase, the number of Units and corresponding Class A Shares to be sold will be reduced pro rata based on the total number of Units held by the transferor{s} initiating the Tag-Along Transfer and each participating Investor. Following the Initial Listing, the tag-along right will continue for certain Investors with respect to transfers for value of the Units (or units of the listed entity as the case may be) by the Principals or their affiliates to non-affiliates (excluding transfers on a recognized international securities exchange) above the following 426 HOUSE_OVERSIGHT_024559

thresholds in one or more transactions: {i} 15% of the Principals’ original KUE holdings to any single buyer (or affiliates of that buyer) or (ii) 33% of the Principals’ original KUE holdings in the aggregate. 14.20. Drag-Along Right A "Drag-Along Transfer’ means a sale or other transfer for economic value of a majority of the Common LP Units held by KUE LLC or its affiliates (and, uniess otherwise approved by the Board of Directors and ihe independent Committee of the General Partner, a corresponding percentage of Class A Shares held by KUE LLC), Prior to the Initial Listing, in the event of a Drag-Along Transfer of Common LP Units and corresponding Class A Shares to a proposed purchaser that is not a KUE LLC Entity (a “Proposed Drag- Along Transfer"), KUE LLC may require Investors to sell a pro rata portion (based on the percentage of Units held by KUE LLC being sold in the Proposed Drag-Along Transfer) of their Units and Class A Shares in the Proposed Drag-Along Transfer to the proposed purchaser on the same terms and conditions as KUE LLC in the Proposed Drag-Along Transfer. 14.21. Additional Listing of Investors’ Units Beginning any time after six months after the initial Listing, one or more holders holding an aggregate of $100 million of more of the Units (calculated based on the issue price) may request KUE and the General Partner to take such action as may be necessary (including regulatory and legal actions) for their Units to be freely tradable and not subject to volume restrictions on the international securities exchange on which the Initial Listing occurred; provided that no more than one such action may be required in any 12 month period and customary cut-back and other provisions will apply in any such listing or underwritten transaction, as the case may be. KUE will use its commercially reasonable efforts to cause such action toe cover such holders and the securities of any other holders legally eligible to participate in such action. 14.22. Subsequent Capital Raising Activities Subsequent to the completion of this offering, KUE may raise additional capital through the sale of equity or debt securities. KUE will not have any preferred limited partner units outstanding upon completion of this offering but KUE may issue limited partner units with preferences over the Common LP Units in the future and may amend the Limited Partnership Agreement accordingly. 14.23. Periodic Reporting; Books and Records As soon as practicable after the end of each fiscal year but in no event more than 180 days thereafter, each Partner will be sent audited financial statements of KUE for the prior year. These financial! statements will include: (i} profit and loss statements and (ii) a balance sheet showing KUE's financial position as of the end of that fiscal year. KUE will also provide to each Partner on a semi-annual basis a report concerning KUE’s operations. As soon as practicable after the end of each fiscal year, each Partner will be furnished with all information necessary for the preparation of each Partner's U.S. Federal income tax return and a copy of KUE's federal, state, and local tax or information returns for the year. KUE will maintain at its principal place of business full and complete books and records for KUE including the following: (1) a current list of the full name and last known business or residence address of each Pariner set forth in alphabetical order, together with the capital contribution and share of income and iosses of each Partner; (2) a copy of the Statement filed under to Section 9 of the ELP Law and all amendments thereto; (3) copies of KUE’s federal, state, and local income tax returns and reports, if any, for the six most recent taxable years, to the extent that such exist; (4) copies of the Limited Partnership Agreement and all amendments thereto; and (5) any other information required to be maintained by the ELP Law. Upon the request of a Partner, the General Partner will promptly deliver fo the requesting Partner, at the expense of KUE, a copy of the information listed in the foregoing sentence. 127 HOUSE_OVERSIGHT_024560

The Generai Partner will provide such periodic reports if engaged in any business other than acting as General Partner of KUE or if it owns any material assets other than an interest in KUE. 14.24. Indemnification KUE will indemnify, to the fullest extent permitted by applicable law, the General Partner, and its members, officers, directors, and employees, and at the General Partner's discretion, any other person providing services to KUE, its subsidiaries or joint ventures, ("Indemnified Persons") from and against loss because of any action performed by them on behalf of KUE or of the failure to take any action on behalf of KUE, unless such loss resulted from the indemnified Person acting in bad faith or the willful misconduct, fraud or gross negligence of such Indemnified Person, or a material breach of the Limited Partnership Agreement by such Indemnified Person. Indemnified persons may receive advances or be reimbursed for their expenses. 14,25. Amendment of the Limited Partnership Agreement Generally, the Limited Partnership Agreement may be amended with the consent of the General Partner. Subject to the exceptions specified in the Limited Partnership Agreement, amendments adversely affecting the Common LP Units may not be effected without a majority of the votes represented by Units held by investors. Notwithstanding the foregoing, the General Partner, acting reasonably and in good faith, may amend the Limited Partnership Agreement without the consent of any Limited Partner (a) to correct any typographical or similar ministerial errors; (b) to delete or add any provision required to be so deleted or added by applicable law or any government official having jurisdiction over KUE; (c) to cure any mistake or ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein; (d) to fake such actions as may be necessary (if any} to ensure that KUE will be treated as a partnership for U.S. federal income tax purposes; (e) to reflect the admission of any additional Limited Partner and otherwise to reflect such admission or an additional investment by a Limited Partner on the books and records of KUE pursuant to the General Partner’s power of attorney; (f) to take such actions as may be necessary (if any) to ensure that neither of KUE or the General Partner (or any subsidiary of the foregoing) will be subject to regulation under ERISA or the Investment Company Act; (g) to take such actions as may be necessary (if any) to ensure that the General Partner (or any Subsidiary} will not be subject to the Investment Advisers Act; (h) to reflect any increase in the number of Profits Participation LP Units approved by the Independent Commitiee and related changes in allocation and distribution provision; (i) to make changes negotiated with Limited Partners admitted in any subsequent closing of the offering, so long as such changes do not, in the good faith determination of the General Partner and with the approval of the Independent Committee, adversely affect the rights, obligations and economic interests of the existing Limited Partners: and (j) to the extent necessary to give effect to partnership interests issued to additional Limited Partners after the Offering Period. The General Partner shall provide prompt written notice of any such amendments to the Limited Partners. 14.26. Confidentiality Each Investor is subject to an obligation to keep KUE related information confidential, subject to limited exceptions. KUE or the General Partner will be entitled to enforce such obligations and take such actions to maintain the confidentiality of KUE related information, including without limitation withholding any periodic or financial reports (with the approval of the Independent Committee} from an Investor that has violated its confidentiality obligations. 128 HOUSE_OVERSIGHT_024561

14.27. Jurisdiction Any actions or proceedings under the Limited Partnership Agreement or with respect to the General Partners or this offering and the related agreements are subject to binding arbitration in London, United Kingdom. 14.28. Limitation of Participation Under circumstances where the continuing participation in KUE by an Investor would have a material adverse effect on KUE or a subsidiary, the General Partner may cause an Investor's interest in KUE to be redeemed or transferred. 1 4.29. United States Trade or Business The General Partner will use its reasonable best efforts not to cause or allow KUE to engage in or invest (other than through an entity that is not a pass-through entity} in a pass-through entity (for U.S. federal income tax purposes) that engages in: (i) any commercial activities within the meaning of Section 892(a)(2) of the Code, or (ii) any activity which constitutes the conduct of a trade or business in the United States and generates income which constitutes "effectively connected income” in the hands of a non-U.S. Limited Partner. KUE will not take a position in any United States federal or state income tax return that KUE is engaged in a trade or business in the United States that causes the non-U.S. Limited Partners to have income which constitutes “effectively connected income’ in the hands of non-U.S. Limited Partners. In addition, the General Partner will use its reasonable best efforts to cause KUE not to invest in a U.S. real property interest described in Section 897(c}(1)(A)(i) or the Code, The General Partner may, in its discretion, form a separate investment entity to pursue any investment opportunity that is unavailable to KUE by reason of the foregoing, and may offer co-investment opportunities to the Partners eligible to participate in such opportunities in proportion to their Units or on such other reasonable basis as the General Partner may determine. EACH PROSPECTIVE NON-U.S, LIMITED PARTNER SHOULD REVIEW THE SECTION ENTITLED "CERTAIN INCOME TAX CONSEQUENCES” AND CONSULT ITS TAX AND OTHER ADVISORS IN DETERMINING THE POSSIBLE TAX, EXCHANGE CONTROL OR OTHER CONSEQUENCES TO IT UNDER THE LAWS OF THE U.S. AND OTHER JURISDICTIONS OF WHICH IT IS A CITIZEN, RESIDENT OR DOMICILIARY, IN WHICH IT CONDUCTS BUSINESS OR IN WHICH IT OTHERWISE MAY BE SUBJECT TO TAX, OF THE PURCHASE AND OWNERSHIP OF UNITS. 14.30. Term of KUE; Term of the General Partner The term of KUE will be indefinite, unless terminated earlier as provided for below. The term of the General Partner will be indefinite, unless terminated earlier in accordance with the Organizational Documents. The following events will cause the dissolution of KUE: « The withdrawal, dissolution, bankruptcy, or resignation of a General Partner, unless the business of KUE is continued by the election of a new General Partner by the vote of a majority in number of the Units held by Common Limited Partners within 90 days of the happening of such event; 129 HOUSE_OVERSIGHT_024562

e The agreement of the General Partner and the holders of a majority of the Units held by the Limited Partners holding Common LP Units; e The sale or distribution of all or substantially all of KUE’s assets; or e =@As otherwise provided by law. lf KUE is dissolved and not reconstituted and continued, the General Partner is then required to wind up the affairs of KUE and to liquidate and sell its assets in an orderly manner. Upon the winding up and termination of the business and affairs of KUE, its assets (other than cash) will be sold, its liabilities and obligations to creditors and all expenses incurred in its liquidation will be paid. The net proceeds from such sales (after deducting all selling costs and expenses in connection therewith) and any released reserves will then be distributed to the Partners in accordance with “— Distributions” by the later of the end of the taxable year of KUE which includes the liquidation date or the 90th day following the liquidation date. KUE property will not be distributed in kind to the Partners upon the dissolution and termination of KUE unless otherwise agreed by the General Partner. 130 HOUSE_OVERSIGHT_024563

15. MANAGEMENT INCENTIVE PLANS AND EMPLOYMENT AGREEMENTS Certain key terms of the following incentive plans and employment agreements of the Company, which are subject to and qualified in their entirety by reference to any underlying documentation as applicable, are outlined below. Copies of such documentation have been provided or are available upon request and the summaries below are quajified in their entirety by reference to such documentation. 15.4. Long Term Incentive Plan and Agreements of Knowledge Learning Corporation Effective as of December 6, 2005, KLC put in place a long term incentive plan ("LTIP") for officers, employees or consultants, providing for incentive compensation payments based upon the achievement of certain performance criteria determined by KLC’s Compensation Committee. Under the terms of the long term incentive award agreements entered into with eligible recipients pursuant to the LTIP, if the recipient is terminated by KLC without cause after the first year of any 3-year performance cycle, the first of which begins in 2006, or upon death, permanent disability or retirement after the first 6 months of any performance cycle, the recipient is eligible to receive a pro rata portion of any incentive award earned. The recipient is also eligible to receive a pro rata portion of any incentive award earned in the event of a sale of KLC or a termination of the LTIP. 15.2. Profits Interest Grants KUE expects to grant profits interests in KUE to its (or its subsidiary’s) present and future officers, directors, employees and consultants, aggregating up to 2% of KUE's aggregate profits, subject to increases approved by the Independent Committee. Such grants would be dilutive to the holders of Units. 15.3. Stock Appreciation Rights Plan of Knowledge Schools, inc. KSI established a stock appreciation rights (“SAR") plan for directors, officers, employees or consultants of KS! and its subsidiaries on April 25, 2004, pursuant to which a maximum number of 18,410 phantom shares (which may be converted to options) may be granted and an equivalent of 4,353.860 phantom shares are issued and outstanding. SARs may be granted under the plan until April 24, 2014 and shall vest and become exercisable as set forth in the holder's SAR agreement. These phantom shares will provide the holders with the appreciation in value of the equivalent of 1.6% of KSI's equity (after payment of $7.8 million to KLC’s departing chief executive officer in settlement of his SARs, and based on 273,904.89884 shares as of April 28, 2006). Beginning in 2006, incentive compensation at the KLC level to management will be made through the LTIP described above, while directors of KSI may continue to be granted SAR. 15.4. Stock Option Grants by Knowledge Schools, Inc. Les Biller and Stephen Goldsmith have been granted options to purchase an aggregate of 3,412.6 shares of common stock of KSI. Les Biller is on the Advisory Board of KUE and a director of KSI. Stephen Goldsmith is the Senior Vice President of Strategic Planning & Worldwide Government Programs for KUE and a director of KSI. KSI may issue similar options from time to time. 15.5. Employment Agreements With one exception, the Company's executives do not have long-term employment agreements. KLC entered into an employment agreement with Elanna Yalow as of August 1, 2004 with an employment term 134 HOUSE_OVERSIGHT_024564

of three years, unless terminated earlier, She serves as KLC’s President and COO with a fixed annual base salary of $300,000 plus bonuses, as well as stock appreciation rights. If KLC terminates Ms. Yalow’s employment at any time, other than for death, disability or cause, KLC is required to pay as severance, Ms. Yalow's base compensation for the balance of the severance period. In case of termination after expiration of the employment term, KLC is required to pay, in addition to the severance pay, unpaid base compensation earned as of the date of termination. In connection with employment arrangements for newly hired officers {including Peter Maslen, Derek Feng and Kal Raman), the Company is providing equity-based compensation in amounts to be agreed, which will be subject to customary terms and conditions. 15.6. KULG Arrangements Certain of the executives providing services to KUE and its subsidiaries are employees and officers of, or consultants to, KULG. Stephen Goldsmith, Senior Vice President of KULG, has a three-year employment agreement beginning February 1, 2005, terminable at will by KULG or Mr. Goldsmith, subject to severance benefits in certain circumstances and death and disability benefits. The agreement provides for a $500,000 annual salary and targeted $250,000 discretionary bonus. Nina Rees, Vice President of Strategic initiatives of KULG, has an employment agreement terminable by her or KULG with 90 days’ notice and providing an annuai salary of $180,000 plus a discretionary bonus. Ted Sanders has a 24- month consulting agreement with KULG beginning March 1, 2005 pursuant fo which he receives consulting fees at a $25,000 annual rate for the first 12 months and a $35,000 annual rate for the second 12 months. All of these amounts, together with the compensation of other KULG employees providing services to KUE will be paid from the annual overhead expense payment KUE will pay to KULG, as described in “Related Party Transactions.” 132 HOUSE_OVERSIGHT_024565

16. RELATED PARTY TRANSACTIONS Certain key terms of the following related party transactions of the Company, which are subject to and qualified in their entirety by reference to their respective underlying documentation as applicable, are outlined below. Copies of such documentation have been provided or are available upon request, and the summaries below are qualified in their entirety by reference to such documentation. 16.1. Real Estate Support Management Agreement of Knowledge Learning Corporation KLC entered into a Real Estate Support Management Agreement with Greenstreet Real Estate Partners (formerly Greenstreet Realty Partners, L.P.}, an entity controlled by the Principals, on January 4, 2006, pursuant to which KLC obtains certain real property support services from Greenstreet Real Estate Partners. The Agreement is non-exclusive and the Company may consider and solicit proposals from other entities. Payment obligations are to be provided for in separate agreernents, none of which have been entered into as of the date of this Memorandum. The initial term of the Agreement expires on December 31, 2016 (with automatic one-year extensions unless notice is given to the other party). The Agreement can be terminated by either party for convenience on December 31 in any year or for breach with prior written notice. 16.2. Fixed Overhead Payment Agreement As reimbursement of expenses incurred by KULG, an affiliate of the Company controlled by the Principals, on behalf of KUE and its subsidiaries (including salaries and bonuses of KULG employees providing services to KUE and its subsidiaries, fees and expenses relating to financing transactions and acquisitions, professional fees and other administrative expenses), KUE has an obligation to pay $20 million annually to KULG in quarterly installments beginning July 1, 2006 pursuant to the Fixed Overhead Payment Agreement. Of this amount, $2.5 million will be paid to KUE by KLC pursuant to the existing Management Services Agreement described below. 16.3. Note Payable to KULG by KU Education, Inc. On January 6, 2005, KUE Inc. executed a promissory note in favor cf KULG, an entity controlled by the Principals, in the amount of $200.0 million, the proceeds of which were used in connection with the acquisition of KinderCare by KLC. This note has a seven year maturity and accrues interest at the "reference rate" set by Bank of America plus 1.25% per annum. The note may be prepaid, in whole or in part, without any premium or penalty. KUE Inc. currently owes approximately $183.9 million under the note. 16.4. Asset Management Agreements with Greenstreet Real Estate Partners (formerly Greenstreet Realty Partners, L.P.) Greenstreet Real Estate Partners (formerly Greenstreet Realty Partners, L.P.), an entity controlled by the Principals, entered into asset management agreements dated as of November 9, 2005 with each of KC PropCo Holding | LLC (“PropCo Holding”), KC PropCo, LLC (“PropCo”) and Mini-Skools Limited (“MSL”), each an indirect wholly owned subsidiary of KLC, pursuant to which Greenstreet Real Estate Partners provides asset management and consulting services to PropCo Holding, PropCo and MSL with respect fo the reai property each company respectively owns, in return for a total annuai fee of $8,250,000 payable in 12 equal monthly installments starting December 1, 2005. The initial term expires on December 31, 2016 (with automatic one-year extensions unless notice is given to the other party}, and the Agreement can be terminated for breach with prior written notice. 133 HOUSE_OVERSIGHT_024566

16.5. Management Services Agreement KLC is a party to a management services agreement with Knowledge Universe Limited LLC, one of our affiliates controlled by the Principals, pursuant to which Knowledge Universe Limited LLC has agreed to provide management, consulting and financial planning services on an ongoing basis to KLC and its subsidiaries. In consideration of these services, KLC is obligated te pay Knowledge Universe Limited LLC an annual management fee of $2.5 million payable in equal quarterly installments on the first day of each calendar quarter in advance, effective January 1, 2005. However, in the event of a payment default under KLC’s senior credit agreement or the indenture governing the notes, or a bankruptcy, liquidation or winding-up of KLC, the payment of all accrued and unpaid management fees is subordinated to the prior payment in full of all amounts due and owing under KLC's senior credit facility and the indenture governing the Senior Subordinated Notes. The management services agreement has a ten-year term which extends automatically on each anniversary of the agreement for one additional year unless either party gives prior notice that the term will not be extended. In addition, the management services agreement provides for the payment to Knowledge Universe Limited LLC of customary fees for services provided in connection with extraordinary services and reimbursement of reasonable out-of-pocket expenses, with limited exceptions. 16.6. KinderCare Acquisition Financing Affiliates purchased a majority of the $250.0 million of senior subordinated bridge notes that we issued as part of the financing of the KinderCare acquisition, which were repaid with the net proceeds of the Senior Subordinated Notes. In connection with the KinderCare merger and related transactions, KLC paid affiliates of KULG commitment fees, expense reimbursements and other amounts totaling approximately $15.9 million. 16.7. Maron & Sandler The law firm of Maron & Sandler serves as outside general counsel to us and our affiliates. Messrs. Maron and Sandler are shareholders of Maron & Sandler. Mr. Sandler is a member of the board of directors of KSI and is the General Counsel of KUE. Mr. Maron is a member of the board of directors of both KLC and its parent, KSI. In addition, Mr. Maron holds an interest in an entity that holds common stock of KSI. These shares of common stock amount to a less than 0.1% economic interest in KSI. 16.8. RFG Financial Group, Inc. RFG Financial Group, inc., an entity controlled by Ralph Finerman, a member of the boards of directors of KLC and Nextera Enterprises, Inc. and an officer or director of other privately-held affiliates of KLC and Krest LLC, periodically provides financial consulting services to KULG and its affiliates. In addition, Mr. Finerman holds an interest in an entity that holds common stock of KSI. These shares of common stock amount to a less than 0.1% economic interest in KSI. 16.9. Purchase of EdSolutions, Inc. In November 2004, one of KSI's affiliates acquired ES! in a cash merger transaction for $5.5 million, of which $2.2 million was paid to another of our affiliates in respect of its preferred stock ownership in ESI. Following the closing, the buyer contributed the stock of ESI to KSI in exchange for $5.5 million of preferred stock of KSI, and KSI contributed ESI to KLC. In connection with the KinderCare acquisition, KSI redeemed the preferred stock (including accrued dividends) for $5.6 million. 134 HOUSE_OVERSIGHT_024567

16.10. Indebtedness of KUE with affiliates The proceeds of the $150 million term loan facility that KUE entered into on March 29, 2006 with an affiliate of Credit Suisse, one of the Agents (as described in “Knowledge Universe Education (KUE) — Term Loan Facility”), were used to repay existing debt of KUE to entities controlled by Michael Miiken. 16.11. A12 An affiliate of Michael Milken and Lowell Milken owns the &72 trademark and related domain names, and licenses them to k72 for $25,000 annually pursuant to a perpetual license. An affiliate of Michael Milken and Lowell Milken owns (i) 3,106,774 shares of common stock of 72, (ii) warrants to purchase 53,364 shares of k12 common stock at $1.60 per share and (iii) warrants to purchase 1,164,179 shares of k12 Series B Preferred Stock at $1.34 per share. 16.12. Condors LLC Condors LLC, substantially all of which is owned by the Principals, is the lender under the Junior Mezzanine Loan entered into in connection with the new CMBS financing. HOUSE_OVERSIGHT_024568

17. ELIGIBLE INVESTORS 17.1. UNITED STATES SECURITIES ACT OF 1933 The Units will not be registered under the Securities Act, in reliance upon the exemption from registration provided by Section 4({2) of the Securities Act and will not be registered under the securities laws of any jurisdiction. Accordingly, the Units are initially being offered and sold only to “accredited investors.” Each investor is required to enter into a Subscription Agreement to purchase the Units. In the Subscription Agreement, it will be required to represent, among other customary private placement representations, as follows: « that it is an “accredited investor” (as such term is defined in Regulation D under the Securities Act); « that it has carefully read and understood this Memorandum and the organizational documents of KUE in their entirety and that it has relied on such documents in making its investment decision; e that it has had an opportunity to receive answers from KUE to its questions regarding the Units and other matters pertaining to its investment, and it has obtained all additional information it has requested from KUE to verify the accuracy of the information furnished to it; « that it is capable of evaluating the merits and risks of purchasing the Units and of making an informed investment decision with respect thereto; e that its financial situation is such that it can afford to bear the economic risk of holding the Units as an illiquid investment for an indefinite period of time, and it can afford to suffer the complete loss of its investment; s that itis acquiring the Units for its own account for investment purposes only and not with a view to resale or distribution; and « that if understands that it must bear the economic risk of an investment in the Units for an indefinite period of time. In the Subscription Agreement, each investor will be required to represent whether or not it is a U.S. Person or non-U.S. Person (as such terms are defined in Regulation S under the Securities Act). Each non-U.S. Person will be required to represent: « whether it is purchasing the Units in an offshore transaction within the meaning of Regulation S; and * thatitis eligible to purchase the Units under the laws applicable to it. 136 HOUSE_OVERSIGHT_024569

A copy of the form of the Subscription Agreement will be provided. Each investor should carefully read the Subscription Agreement in its entirety so as to fully understand the representations and warranties it is required to make pursuant to the Subscription Agreement. The Units cannot be resold or otherwise transferred unless they are subsequently registered under the Securities Act and other applicable securities laws, or exemptions from such registration requirements are available. It is not contemplated that registration of the Units under the Securities Act or other securities laws will ever be effected. There is no public market for the Units, and none is expected to develop. Therefore, an investor that purchases the Units may be required to hold the Units for an indefinite period of time. The Units, if certificated, will bear a legend describing such transfer limitations. 17.2. United States Employment Retirement Income Security Act of 1974 An investment in the Units and the underlying Common LP Units and Class A Shares by certain U.S. employee benefit plans is subject to additional considerations because the investments of such plans are subject to the fiduciary responsibility and prohibited transaction provisions of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and restrictions imposed by Section 4975 of the U.S. Internal Revenue Code of 1986, as amended (the “IRC”). For these purposes the term “employee benefit plan” includes, but is not limited to, qualified pension, profit-sharing and stock bonus plans, Keogh plans, simplified employee pension plans and tax deferred annuities or IRAs established or maintained by an employer or employee organization. Among other things, such employee benefit plans should give consideration to: « whether the investment is prudent under ERISA. e whether in making the investmeni, that plan will satisfy the diversification requirements of ERISA; and « whether the investment will result in recognition of unrelated business taxable income by the pian and, if so, the potential after-tax investment return. The person with investment discretion with respect to the assets of an employee benefit plan, often called a fiduciary, should also determine whether an investment in the Units and the underlying Common LP Units and Class A Shares is authorized by the appropriate governing instrument and is a proper investment for the plan. Section 406 of ERISA and Section 4975 of the IRC also prohibit employee benefit plans, and also [RAs that are not considered part of an employee benefit plan, from engaging in specified transactions involving “plan assets" with parties that are “parties in interest” under ERISA or “disqualified persons” under the IRC with respect to the plan. In addition to considering whether the purchase of Units and the Common LP Units and Class A Shares is a prohibited transaction, a fiduciary of an employee benefit plan should consider whether the plan will, by making such an investment, be deemed to own an undivided interest in the assets of KUE or the General Partner, with the result that KUE or the General Partner would be subject to the regulatory restrictions of ERISA, including its prohibited transaction rules, as well as the prohibited transaction rules of the IRC. The U.S. Department of Labor regulations under ERISA provide guidance with respect to whether the assets of an entity in which employee benefit plans acquire equity interests would be deemed “plan assets” under some circumstances. Under these regulations, an entity's assets would not be considered to be “plan assets” if, among other things: {a} the equity interests acquired by employee benefit plans are publicly offered securities, Le., the equity interests are widely held by 100 or more investors independent of the 137 HOUSE_OVERSIGHT_024570

issuer and each other, freely transferable and registered under some provisions of the federal securities laws; (b) the entity is an “operating company," meaning it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority-owned subsidiary or subsidiaries; or (c) the entity is a “venture capital operating company,” meaning that at least 50% of its assets, determined on certain testing dates, are invested in operating companies with respect to which the entity has contractual management rights which the entity actually exercises in the ordinary course of its business; or (d) there is no significant investment by benefit plan investors, which is defined to mean that less than 25% of the value of each class of equity interest is held by the employee benefit plans referred to above, IRAs and other employee benefit plans not subject to ERISA, including U.S. and non-U.S. governmental plans. The General Partner intends to operate the General Partner and KUE in such fashion that, for purposes of the plan asset regulations, the assets of KUE and the General Partner will not be considered assets of any plan investing in KUE and the General Partner. The Limited Partnership Agreement (and the organizational documents of the General Partner) will confer on the General Partner (and the Principals) the authority to take any action necessary or desirable in order to prevent Company assets and General Partner assets from being considered to be plan assets, including the authority to restructure any aspects of KUE and the authority to cause the redemption or sale of Units held by some or ail plan investors. KUE is considering whether and to what extent to permit plan investors to invest in the Units. Due to the complexity of the applicable rules and the penalties imposed upon persons involved in prohibited transactions, it is particularly important that potential purchasers that are plans consult with their counsel regarding the consequences under ERISA of their acquisition and ownership of the Units. Employee benefit plans that are governmental pians (as defined in Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are not subject to ERISA requirements but may be subject to analogous provisions under applicable state, local or non-U.5. law. 17.3. Anti-Money Laundering — Cayman Islands In order to comply with regulations aimed at the prevention of money laundering in any applicable jurisdictions, the General Partner and KUE are required to adopt and maintain anti-money laundering procedures, and may require prospective investors to provide evidence to verify their identity. Accordingly, the General Partner (and its directors) reserve the right to request such information as they consider necessary to verify the identity of a prospective investor. Where permitted, and subject to certain conditions, the General Partner and KUE may also delegate the maintenance of its anti-money laundering procedures (Including the acquisition of due diligence information) to a suitable person. The General Partner (and Its directors} may refuse to accept any subscription application if a prospective investor delays in producing or fails to produce any information required by the General Partner (and its directors) for the purpose of verification and, in that event, any funds received will be returned without interest to the account from which the moneys were originally debited. The General Partner and KUE also reserve the right to refuse to make any redemption payment to a shareholder of the General Partner or a partner of KUE, as applicable, if hey suspect or are advised that the payment of redemption proceeds to such person might result in a breach of applicable anti-money laundering or other laws or regulations by any person in any relevant jurisdiction, or if such refusal is considered necessary or appropriate to ensure the compliance by the General Partner and KUE with any such laws or regulations in any applicable jurisdiction. 138 HOUSE_OVERSIGHT_024571

If any person resident In the Cayman Islands knows or suspects that another person is engaged in money laundering or is involved with terrorism or terrorist property and the information for that knowledge or suspicion came to their attention in the course of their business the person will be required to report such belief or suspicion to either the Financial Reporting Authority of the Cayman Islands, pursuant to the Proceeds of Criminal Conduct Law (2005 Revision) if the disclosure relates to money laundering or to a police officer of the rank of constable or higher if the disclosure relates to involvement with terrorism or terrorist property, pursuant to the Terrorism Law. Such a report shall not be treated as a breach of confidence or of any restriction upon the disclosure of information imposed by any enactment or otherwise. 17.4. Foreign Corrupt Practices Act The General Partner, KUE, its subsidiaries and joint ventures intend to comply with applicable provisions of the Foreign Corrupt Practices Act (“ECPA”) in connection with their business activities worldwide. The FCPA prohibits corrupt payments to foreign officials (including any officer or employee of a foreign government, a public international organization, or any department or agency thereof, or any person acting in an official capacity, regardless of rank or position}, parties or candidates to obtain or retain business or securing any improper advantage and the FCPA prohibits paying, offering, promising to pay, directly or indirectly, money or anything of value in connection therewith. investors will be required to provide information on whether they are foreign officials, and confirm that they have not paid, offered to pay or promised to pay and do not intend to pay, offer to pay or promise to pay, directly or indirectly, money or anything of value to any foreign official, party or candidate to obtain or retain business (whether with a government or agency or instrumentality thereof or otherwise) for or on behalf of KUE, its subsidiaries or joint ventures or to secure an improper advantage for KUE or its subsidiaries or joint ventures in any country. 139 HOUSE_OVERSIGHT_024572

18. CERTAIN INCOME TAX CONSEQUENCES The following summary of the taxation of KUE and the taxation of the Partners of KUE is based upon current law and does not purport to be a comprehensive discussion of all the tax considerations that may be relevant to a decision to purchase Units. Legislative, judicial or administrative changes may be forthcoming that could affect this summary. TO ENSURE COMPLIANCE WITH U.S. TREASURY DEPARTMENT REGULATIONS, WE ADVISE YOU THAT: (i) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES CONTAINED HEREIN IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY INVESTORS FOR THE PURPOSE OF AVOIDING TAX-RELATED PENALTIES UNDER THE U.S. INTERNAL REVENUE CODE OR APPLICABLE STATE OR LOCAL TAX LAW PROVISIONS; (ii) SUCH DISCUSSION IS BEING USED IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF TREASURY REGULATIONS) BY THE COMPANY OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; (iii) INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. PROSPECTIVE INVESTORS (INCLUDING ALL NON-U.S. PERSONS AS DEFINED BELOW) SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF OWNING COMMON LP UNITS UNDER THE LAWS OF THEIR COUNTRIES OF CITIZENSHIP, RESIDENCE, ORDINARY RESIDENCE, OR DOMICILE. 18.1. Cayman Taxation There is, at present, no direct taxation in the Cayman Islands. The Government of the Cayman Islands, will not, under existing legislation, impose any income, corporate or capital gains tax, estate duty, inheritance tax, gift tax, or withholding tax upon KUE, its partners, the General Partner, or its shareholders. Similarly interest, dividends and gains payable to KUE and all distributions by KUE to its partners will be received free of any Cayman Islands income or withholding taxes. KUE has registered as an exempted limited partnership under Cayman Islands law and KUE has received an undertaking from the Governcr-in-Cabinet of the Cayman Islands to the effect that, for a period of 50 years fram the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations shall apply to KUE or to any partner of KUE in respect of the operations or assets of KUE or the interest of a partner in KUE; and may further provide that any such taxes or any tax in the nature of estate duty or inheritance tax shall not be payable in respect of the obligations of KUE or the interests of the partners in KUE. The General Partner of KUE has registered as an exempted company under Cayman [slands law and the General Partner has received an undertaking from the Governor-in-Cabinet of the Cayman Islands that, in accordance with section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, for a pericd of 20 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied cn profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (i) on the shares of the General Partner or (ii} by way of the withholding in whole or in part of a payment of dividend or other distribution of income or capital by the General Partner to its shareholders. The Cayman Islands does not have a double tax treaty with the United States or any other country. 140 HOUSE_OVERSIGHT_024573

18.2. United States Federal Income Taxation The following summary sets forth the material U.S. federal income tax considerations related to the purchase, ownership, and disposition of Common LP Units. Unless otherwise stated, this summary deals only with partners that are U.S. Persons (as defined below) who purchase their Common LP Units in this offering and who hold their Common LP Units as capital assets within the meaning of Section 1221 of the Code. The following discussion is only a discussion of the material U.S. federal income tax matters as described herein and does not purport to address ail of the U.S. federal income tax consequences that may be relevant to a particular Limited Pariner of KUE (“Limited Partner’) in light of such Limited Partner's specific circumstances. In addition, except as expressly stated, the following summary does not address the U.S. federal income tax consequences that may be relevant to special classes of Limited Partners who may be subject to special rules or treatment under the Code, such as financial institutions, insurance companies, regulated investment companies, real estate investment trusts, partnerships, or other pass- through entities, dealers or traders in securities, tax-exempt organizations, expatriates, any person who owns or is deemed to own, for U.S. federal income tax purpose, 10% or more of the total combined voting power of all classes of voting stock of the corporate subsidiaries of KUE, persons that have a "functional currency" other than the United States dollar, and any individual who is a non-U.S. Person (as defined below} and who is present in the U.S. for 183 days or more in a taxable year. This discussion does not include any description of the tax laws of any state or local governments within the U.S. No ruling has been or will be sought from the IRS regarding any matter discussed herein. Counsel to KUE has not rendered any legal opinion regarding any tax consequences relating to KUE or an investment in KUE. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the positions taken by KUE as set forth below. For purposes of this discussion, the term “U.S. Person" means (1) a citizen or resident of the U.S., (2) a corporation created or organized in or under the laws of any Stafe of the U.S. (including the District of Columbia}, (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source, (4) a trust if either (a) a court within the U.S. is able to exercise primary supervision over the administration of such trust and one cr more U.S, Persons have the authority to control all substantial decisions of such trust or (b) the trust has a valid election in effect to be treated as a U.S. Person for U.S. federal income tax purposes, or (5) any other person or entity that is treated for U.S. federal income tax purposes as if it were one of the foregoing. The term "“non-U.S. Person” means any person other than a U.S. Person. 18.2.1 United States Federal Income Taxation of KUE and its Subsidiaries Partnership Status of KUE. KUE believes that it should be classified as a partnership for United States federal income tax purposes. Accordingly, KUE fs not a taxable entity and incurs no U.S. federal income tax liability. Instead, each Partner will be allocated its share of KUE’s income or loss, as the case may be, for United States federal income tax purposes as set forth in the Limited Partnership Agreement. [n addition, each U.S. Partner's share of income or loss from KUE generaily will be required to be includable in income for state and local tax purposes in the jurisdiction in which the investor is a resident and in the jurisdictions in which KUE operates. Each U.S. Partner will be responsible for paying the income tax on that portion of KUE’s income allocated to such investor. No assurances can be given that any cash distribution will be made from KUE to the partners to pay such income tax liabilities. Under the Code, certain non-U.S corporations may be treated as U.S. corporations for U.S. federal income tax purposes, thereby subjecting such non-U.S. corporations to U.S. federal income tax on their income. Recently enacted U.S. tax legislation includes one such provision. Under this legislation, referred to as the anti-inversion legislation, non-U.S. corporations that acquire interests in a U.S. corporation or partnership and meet certain ownership, operational and other tests may be treated as U.S. corporations for federal income tax purposes. The legislation grants broad regulatory authority to the U.S. Secretary of Treasury to provide such regulations as may be appropriate to determine whether a non-US. corporation is treated as a U.S. corporation or as are necessary to carry out the intent of the provision, including adjusting its application as necessary to prevent the avoidance of its purpose. Recently issued 141 HOUSE_OVERSIGHT_024574

Treasury regulations provide that the anti-inversion legislation is applicable to a foreign partnership that is or becomes a “publicly traded partnership” within two years of the acquisition by it of a U.S. corporation. A “publicly traded partnership” is any partnership (i) interests in which are traded on an established securities market, or (if) interests in which are readily tradabie on a secondary market (or the substantial equivalent thereof). KUE believes that it is not currently a publicly traded partnership and does not intend to become a publicly traded partnership within two years of this offering or the acquisition of KLC and 412, AS a result, KUE does not believe the anti-inversion legislation or any regulations promulgated within the scope of the legislation’s regulatory authority should apply to KUE although no assurance can be given in this regard or with respect to any new acquisitions of or investment in U.S. corporations. In addition, KUE does not believe that any other Code provision subjecting non-U.S. corporations to U.S. federal income tax should apply to KUE or its subsidiaries, although no assurance can be given in this regards. The promulgation of contrary regulations or a successful challenge of either of these positions by the Internal Revenue Service could materially reduce a holder's after-tax return and, thus, could result in a substantial reduction of the value of the Units. The remainder of this section assumes that KUE will be treated as a partnership for U.S. federal income tax purposes. 18.2.2 United States Federal Income Taxation of Partners U.S. Persons Allocation of Purchase Price. You will be treated as purchasing a Unit consisting of two components, one Common LP Unit and one GP Share. Your purchase price for each Unit will be allocated between one Common LP Unit and one GP Share in proportion to their relative fair market values at the time of your purchase, and this allocation will establish your initial tax basis in both your ownership interest in the Common LP Unit and your GP Share. We will treat the fair market value of each Common LP Share at $999 and the fair market value of each GP Share as $1. Flow-Through of Taxable Income. KUE will not pay any U.S. federal income tax. Instead, each Partner will be required to report on its income tax return its allocable share (as determined pursuant fo the Limited Partnership Agreement) of KUE's income, gains, losses, and deductions without regard to whether corresponding cash distributions are made. The Limited Partnership Agreement authorizes the General Partner to override the allocation provisions of the Limited Partnership Agreement and allocate income, gains, losses and deductions of KUE to the Partners in a manner that achieves the desired economic arrangement of KUE, which is to return each Pariner's capital contribution and then for all Partners (including the holder of Profits Participation LP Units) to share in the profits of KUE in proportion to the number of Units held by them. The IRS may challenge the manner in which income, gains, losses and deductions are allocated to holders of Common LP Units, the General Partner and holders of the Profits Participation LP Units under the Limited Partnership Agreement. For U.S. federal income tax purposes, allocation of any item of income, gain, loss or deduction io a partner in a partnership will be given effect so long as the allocation has “substantial economic effect,” or is otherwise in accordance with the partner's interest in the partnership. If an allocation of an item pursuant to the Limited Partnership Agreement does not satisfy this standard or is deemed not to satisfy this standard by the IRS, it will be reallocated by the IRS among the Partners on the basis of their respective interests in KUE (as determined by the IRS), taking into account all facts and circumstances. In such a case, holders of Common LP Units could have additional tax liabilities or suffer adverse tax consequences. Treatment of Cash Distributions, WKUE's distributions to a Partner generally will not be taxable to the Partner for U.S. federal income tax purposes to the extent of such Partner’s adjusted tax basis in its Common LP Units immediately before the distribution, Cash distributions in excess of a Limited Partner's adjusted tax basis generally will be considered to be gain from the sale or exchange of the Common LP Units. Any reduction in a Limited Partner's share of KUE's liabilities, if any, for which no Partner bears the 142 HOUSE_OVERSIGHT_024575

economic risk of loss, known as “nonrecourse liabilities,” will be treated as a deemed distribution of cash to that Partner. A decrease in a Partner's percentage interest in KUE because of KUE’s issuance of additional limited partner units (“Limited Partner Units"} would decrease such Partner's share of Company nonreccurse liabilities, if any, and thus would resuit in a corresponding deemed distribution of cash. Treatment of In-Kind Distributions. KUE's distribution of property (other than cash) to a Partner generally will not be taxable to the Partner unless the property is a “marketable security” and the exceptions to the requirement for recognition of gain upon distributions of marketable securities do not apply. Marketable securities, for these purposes, include actively traded securities or equity interests in another entity that are readily convertible into or exchangeable for cash or other marketable securities. If the distributed property constitutes a marketable security, the property would be treated as cash and the Partner would recognize gain, but not loss, to the extent described above. Basis of Common LP Units. A Limited Partner will have an initial tax basis for its Common LP Units equal to the amount it paid for the Common LP Units plus its share of Company nonrecourse liabilities, if any. That basis will be increased by the Limited Partner’s share of Company income and by any increases in its share of Company nonrecourse liabilities, if any. That basis will be decreased, but not below zero, by distributions from KUE, by the Limited Partner’s share of KUE losses, by any decrease in its share of Company nonrecourse liabilities, if any, and by its share of Company expenditures that are not deductible in computing KUE’s taxable income and are not required to be capitalized. Limitations on Deductibility of Company Losses. The deduction by a Limited Partner of its share of Company lasses will be limited to the adjusted tax basis in its Common LP Units. Limited Partners should be aware that they could be subject to various other limitations on their ability to deduct their allocable shares of Company losses (or items of deductions). Such limitations include, but are not limited to, those relating to "investment interest" expense under Section 163(d) of the Code, "miscellaneous itemized deductions" under Section 67 of the Code, certain other itemized deductions of high income individuals under Section 68 of the Code, the “at risk” rules under Section 485 of the Code, and the deductibility of capital losses under the Code. Prospective investors should consult their tax advisors with respect to the potential application of such rules to their particular situation. Allocation of income, Gain, Loss, and Deduction. If KUE has a net profit or net loss, its items of income, gain, loss, and deduction will be allocated among the Partners in accordance with the provisions of the Limited Partnership Agreement. Dispositions of Common LP Units — Recognition of Gain or Loss. A Limited Partner will recognize gain or loss on a sale of Common LP Units equal to the difference between the amount realized and the Limited Partner's adjusted tax basis for the Common LP Units sold. A Limited Partner's amount realized will be measured by the sum of cash or the fair market value of other property received plus its share of Company nonrecourse liabilities, if any. Generally, gain or loss recognized by a Limited Partner on the sale or exchange of Common LP Units will be taxable as capital gain or loss and as long-term capital gain or loss if the Common LP Units were held for more than twelve months. Non-U.S. Persons Withholding. Ownership of Common LP Units by non-U.S. Persons raises special U.S. federal income tax considerations. To the extent that KUE receives dividends from a U.S. subsidiary, distributions of such dividend income to Limited Partners who are non-US. Persons will be subject to U.S. withholding at a rate of 30%, Certain countries have tax treaties with the U.S. that reduce or eliminate the withholding requirement. To fhe extent that KUE receives dividends from a non-U.S. subsidiary, distributions of such dividend income to Limited Partners who are non-U.S. Persons will not be subject to U.S. tax, unless such income were deemed to be effectively connected with a trade or business conducted by KUE in the U.S. KUE will be required to pay withholding tax with respect to the portion of KUE’s income that is “effectively connected” with the conduct of a U.S. trade or business and which is allocable to non-U.S. Persons. Any amounts KUE is required to remit to taxing authorities will be treated as a distribution to the Partner on whose behalf the withholding is being paid and will be charged against current and/or future 143 HOUSE_OVERSIGHT_024576

distributions such Pariner would otherwise be entitled fo. If KUE is required to withhold on amounts in excess of cash distributions, Partners shall be required to contribute to KUE cash in an amount by which such required withholding exceeds any such distributions. Gain on Sale. A Limited Partner that is a non-U.S. Person will be subject to U.S. federal income tax upon the sale or exchange of its Common LP Units to the extent that such Limited Partner recognizes gain Upon such sale or exchange and such gain is effectively connected with a U.S. trade or business. U.S. Real Property Holding Corporation. lf a direct U.S. subsidiary of KUE is or were to become a "United States Real Property Holding Corporation," or "USRPHC" (as defined below), certain disposition of Common LP Units by a Limited Partner that is a non-U.S. Person would result in such Limited Partner being subject to U.S. federal income tax in respect of the portion of the gain recognized on such disposition that is attributable to such subsidiary. in addition, if a direct U.S. subsidiary of KUE is or were to become a USRPHC, certain dispositions of such subsidiary by KUE would result in Limited Partners who are non-U.S. Persons being subject to U.S. federal income tax in respect of their allocable share of the gain recognized by KUE on such disposition. Generally, a corporation is a USRPHC if the fair market value of its "U.S. real property interests" equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. KUE believes that each of its direct U.S. subsidiaries is not currently a USRPHC for U.S. federal income tax purposes. However, no assurances can be given in this regard. Furthermore, it is possible that in the future one of KUE’s subsidiaries may become a USRPHC if, for example, the value of the U.S. real estate holdings of such subsidiary increases sufficiently. Limited Partners that are non-U.S. Parsons are urged to consult their tax advisors regarding the potential application of the USRPHC rules to their investment in KUE. Administrative Matters Backup Withholding. For each calendar year, KUE will report to its U.S. Partners and to the Internal Revenue Service the amount of distributions that it pays, and the amount of tax (if any) that it withholds on these distributions. Under the backup withholding rules, a U.S. Limited Partner may be subject to backup withholding tax with respect to distributions uniess a Limited Partner: (i) is a corporation or comes within another exempt category and demonstrates this fact when required or (ii} provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding tax and otherwise complies with the applicable requirements of the backup withholding tax rules. Exempt Limited Partners who are U.S. Persons should indicate their exempt status on a properly completed IRS Form W-8BEN. Backup withholding is not an additional tax, the amount of any backup withholding from a payment to a Limited Partner will be allowed as a credit against such Limited Partner's U.S. federal income tax liability. Nominee Reporting. Persons who hold an interest in KUE as a nominee for another Person are required to furnish to KUE: (a) the name, address, and taxpayer identification number of the beneficial owner and the nominee, (b) whether the beneficial owner is: (4} a person thatis nota U.S. Person, (2) a foreign government, an international organization, or any wholly-owned agency or instrumentality of either of the foregcing, or (3) a tax-exempt entity; (c) the amount and description of the Limited Partner Units held, acquired, or transferred for the beneficial owner, and 144 HOUSE_OVERSIGHT_024577

(d) specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales. Filing Requirements. Limited Pariners who are U.S. Persons will be required to fite an IRS Form 8865 with the Partner's U.S. Federal Income tax return for the taxable year in which the Limited Partner purchases the Common LP Units. Investors who are U.S. Persons may, depending upon the size of their invesiment in the General Partner, be required to file an IRS Form 5471 with the investor's U.S. federal income tax return for the taxable year in which the investor purchases Common LP ordinary shares in the General Partner. Additionally, depending on the type of non-U.S. investments KUE makes, investors who are U.S, Persons may be required to file additional IRS Forms such as a Form 54771 in subsequent years. This discussion of tax Consequences and tax withholding is a general discussion and is not intended to be all inclusive nor a substitute for careful tax planning. Accordingly, each prospective purchaser of Common LP Units is urged to consult with their own tax advisors with specific reference to their own tax situation. 145 HOUSE_OVERSIGHT_024578

19. APPENDICES INDEX TO THE APPENDICES 19.1. APPENDIX A: DETAILED BIOGRAPHIES KUE MANAGEMENT 148 KUE ADVISORY BOARD 152 KLC MANAGEMENT 153 REAL ESTATE MANAGEMENT TEAM / GREENSTREET REAL ESTATE PARTNERS 155 KSI BOARD OF DIRECTORS 156 k12 MANAGEMENT 157 19.2 APPENDIX B: KLC MD&A FOR 2005, 2004 AND 2003 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 158 RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003 19.3 APPENDIX C: KLC MD&A FOR FIRST QUARTER 2006 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 179 RESULTS OF OPERATIONS FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2006 19.4 APPENDIX D: KLC MD&A FOR SECOND QUARTER 2006 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 197 RESULTS OF OPERATIONS FOR THE QUARTERLY PERIOD ENDED JULY 1, 2006 19.5 APPENDIX E: FINANCIAL STATEMENTS INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 222 146 HOUSE_OVERSIGHT_024579

19.1. Appendix A: Detailed Biographies 147 HOUSE_OVERSIGHT_024580

KUE Management At the conclusion of this offering, the KUE management team will consist of the following individuals. Principals Michael Mifken, Co-Founder and Chairman Mr. Milken is Co-Founder and Chairman of KUE. One cf America’s leading philanthropists, he was called “The Man Who Changed Medicine’ in a Fortune magazine cover story that chronicled his three decades of efforts to accelerate medical solutions. He Co-Founded the Milken Family Foundation in 1982 to advance programs in medical research and education. In 1993, Mr. Milken expanded his medical philanthropy by launching the Prosiate Cancer Foundation, the world's largest private source of funding for research on that disease. A decade later, he concluded that progress wasn’t coming fast enough, so he founded FasterCures, which seeks to shorten the path to breakthroughs for all deadly diseases. Mr. Milken also chairs the Milken Institute, a think tank who conferences feature opinion leaders and government officials from around the world. Among the many awards Mr. Milken has received is the Marcus Garvey Award for major contributions to the formation and inspiration of African-American businesses. He earned his bachelor’s degree at the University of California at Berkeley, and his MBA from the University of Pennsylvania’s Wharton School, Steven Green, Vice Chairman Steven Green, who served as the 12th U.S. Ambassador to the Republic of Singapore from 1997 to 2001, is Vice Chairman of KUE and Chairman and CEO of Greenstreet Real Estate Partners, a professional real estate firm. Ambassador Green previously served as Chairman and CEO of Samsonite Corporation, which was the major operating subsidiary of Astrum International Corporation. As Chairman of Astrum, Ambassador Green spearheaded the operating company’s expansion into emerging markets in Eastern Europe, the CIS, Asia and the Middle East. In 1992, he opened the first American retailing center on Red Square. In 1995, President Clinton appointed him to the President's Export Council, where he served on the Executive Committee and chaired the Strategic Communications Committee. Ambassador Green is also Chairman and Chief Executive Officer of K1 Ventures Limited, a publicly traded investment company in Singapore, and is a board member of Greensireet Realty, a company that manages a large portfolio of education-related real estate. [In addition to his corporate responsibilities, he has been active in U.S. civic affairs, serving as a contributing trustee and director for a number of community and national organizations, including the University of Miami, the U.S. Chamber of Commerce and serves as Honorary Consul General of Singapore in Miami, Florida. The Green Family Foundation endows special projects in community and national service. Lowell Milken, Co-Founder, President and Chief Executive Officer Lowell Milken is President and Chief Executive Officer of KUE. He is also Chairman of London-based Heron International, a worldwide leader in property development and investment; Chairman of KU Education, Inc., a leading company in ECE and K-9 educational programs and services; and Chairman and Co-Founder of the Milken Family Foundation. Under his leadership, the Milken Family Foundation has become one of the most innovative private foundations in the U.S., developing groundbreaking programs in K-12 education. Mr. Milken created the Foundation’s National Educator Award program, which today is the largest teacher-recognition program in the U.S. Dubbed the “Oscars of Teaching” by Teacher Magazine, it has awarded more than $50 million to honor more than 2,100 K-12 teachers and principals. Mr. Milken also launched the Teacher Advancement Program ("TAP") in 1999 as a comprehensive school reform to attract, develop, motivate and retain high quality teachers for America’s schools. Today TAP schools are operating in 12 states impacting thousands of teachers and ten of thousands of students. Mr. Milken serves as Chairman of the Institute for Excellence in Teaching which among its many activities is the operation of the Teacher Advancement Program. Widely known as an educational pioneer and innovator, Mr. Milken has been recognized by numerous awards from such 148 HOUSE_OVERSIGHT_024581

organizations as the National Association of State Boards of Education, the Horace Mann League, and the National Association of Secondary School Principals. Mr. Milken earned his bachelor’s degree from the University of California at Berkeley, and his law degree from the University of California, Los Angeles. Other Executives Ted Sanders, Viee Chairman Ted Sanders is Vice Chairman of KUE, as well as the Executive Chairman of Cardean Learning Group, which develops online post-secondary education and degree programs. Mr. Sanders previously served as the President of the Education Commission of the States and as Deputy U.S. Secretary of Education under President George H.W. Bush. He has been the Chief State School Officer in three U.S. states (Nevada, Illinois and Ohio} and University President at Southern Illinois University. He serves as an advisor to the School Evaluation Services Division of Standard and Poor’s, the PDK Gallup Poll, MetaMetrics Inc., and the Government Accountability Office. He holds a doctor of education degree in educational administration and higher education from the University of Nevada at Reno. Stephen Goldsmith, Senior Vice President, Strategic Planning and Worldwide Government Programs Stephen Goldsmith is the Senior Vice President of Strategic Planning & Worldwide Government Programs for KUE. Mr. Goldsmith is also a Milken Institute Senior Fellow and the Dan Paul Professor of Government at Harvard University’s Kennedy School of Government, is a nationally recognized expert on government management, reform and innovation. He is the author of several books, most recently, Governing by Network: The New Face of the Public Sector, and his columns have frequently been published in such papers as The Wall Street Journal and The New York Times. While serving two terms as Mayor of Indianapolis, he earned a national reputation for innovations in government as he reduced the city’s bureaucracy, taxes, and counter-preductive regulations, ail while identifying more than $400 miilion in savings, which he then reinvested in a transformation of downtown indianapolis and its urban neighborhoods. His work in Indianapolis has been cited as a national model. Prior to his two terms as Mayor, he was Marion County District Attorney for 12 years. Mr. Goldsmith formerly served as Special Advisor to President Bush, and Chief Domestic Policy advisor to President Bush in the 2000 presidential campaign. Nina Shokraii Rees, Senior Vice President, Strategic Initiatives Nina Rees is Senior Vice President of Strategic Initiatives for KUE, where she is responsible for furthering the company’s goals of providing the highest-quality and most effective early childhood education and on finding innovative ways to improve K-12 educational outcomes. Before jaining KUE, Ms. Rees had nearly 15 years of relevant experience in Washington, D.C., most recently as the Assistant Deputy Secretary for Innovation and Improvement at the U.S. Department of Education. In this post, she oversaw the administration of 28 grant programs and coordinated the implementation of several provisions of the No Child Leff Behind Act. Prior to joining the Education Department, Ms. Rees served as a Domestic-Policy Adviser to Vice President Dick Cheney, and was involved in the effort to enact No Child Left Behind. She also served as the Senior Education Analyst at the Heritage Foundation. Ms. Rees spent two years on the staff of Rep. Porter Goss, R-Florida., while earning her master’s degree in international transactions from George Mason University, and received her bachelor's degree in psychology from Virginia Polytechnic Institute and State University. Ms. Rees is fluent in French and Persian. 149 HOUSE_OVERSIGHT_024582

Jeffrey Safchik, Chief Financial Officer Jeffrey Safchik is the Chief Financial Officer of KUE. Mr. Safchik is also Managing Director and Chief Financial Officer of Greenstreet Real Estate Partners and also is one of its founders. He serves in a similar capacity for all the Greenstreet financial companies. Mr. Safchik is also Chief Operating Officer and Chief Financial Officer of k1Ventures, a publicly traded Singapore-based investment company. Previously, Mr. Safchik was CFO of a real-estate company that managed more than 11 million square feet of retail and commercial property across the U.S. He has served as CFO for a billion-dollar retailer, where he managed the company's financial affairs and was directly involved in its restructuring and strategic planning. Mr. Safchik graduated from Pace University in New York, received his master's degree in taxation from St. John’s University, and has attended advanced finance and real estate courses at the Massachusetts Institute of Technology and New York University. He serves as a Trustee for the Green Family Foundation, is Chairman of the University of Miami Department of Pediatrics Children’s Council and is active in a number of charities including the Marian Center for Under-privileged Children and the United Way. Richard Sandler, General Counsel Richard Sandler is General Counsel for KUE. Mr. Sandler is also Executive Vice President of the Milken Family Foundation and has been involved with the Foundation since its inception. A shareholder in the law firm of Maron & Sandler, he has practiced law since 1973, and specializes in real estate transactions and general securities and business law. He has aiso been involved since 1983 in consulting with respect to business acquisitions. Mr. Sandler is a member of the State Bar of California and has served on various boards of educational and philanthropic institutions, including the Executive Board of Heal L.A., as a Trustee of Brentwood Schcol, and on the Board of the Foundations of the Milken Families. Mr. Sandler received a bachelor’s degree from the University of California, Berkeley, and his juris doctorate degree from the UCLA School of Law. Adam Cohn, Senior Vice President, Business Development Adam Cohn is Senior Vice President of Business Development at KUE where he is responsible for investments, financings and business development for Knowledge Universe and its portfolio companies. Mr. Cohn has been at KUE, or related entities, since March of 2000. He has overseen the acquisitions and related financings of KinderCare Learning Centers Inc. and Aramark Educational Resources by Knowledge Learning Corporation. Previously, Mr. Cohn was with Whitney & Co., a leading private equity firm. Prior to Whitney & Co., Mr. Cohn was an investment banker in the Financial Sponsors Group at Bankers Trust Company and Deutsche Bank. Mr. Cohn serves on several private and public company board of directors. Mr. Gohn has a BS in Business from Skidmore College and a MBA from Columbia University. Geoffrey Moore, Senior Vice President, Corporate Communications Geoffrey Moore is Senior Vice President of Communications at KUE. He has also provided communications counsel to FasterCures, the Milken Institute, the Prostate Cancer Foundation and related organizations for several years. Prior to joining Knowledge Universe in 1998, Mr. Moore was Senior Vice President of Strategic Communications for Dow Jones Markets, a unit of Dow Jones, publisher of The Wall Street Journal. We served for 22 years in a wide range of communications management and speechwriting positions for IBM in the U.S. and Japan. Earlier, he was an Assistant to New York Governor Nelson Rockefeller, Press Secretary to U.S. Senate Minority Leader Hugh Scott, and Director of Public Information for the U.S. Equal Employment Opportunity Commission. His opinion articles have been published in The New York Times and other major publications. He graduated with a degree in political science from the University of Pennsylvania and studied law and public policy at that university's law school. Michael Neumann, Vice President, Business Development Michael Neumann ts a Vice President of Business Development at KUE, where he works on investments, financings and business development for Knowledge Universe and its portfolio companies. Mr. Neumann has been at KUE, or related entities, since 2002. He has worked on the acquisitions and related financings of KinderCare Learning Centers Inc. and Aramark Educational Resources by Knowledge 150 HOUSE_OVERSIGHT_024583

Learning Corporation. Previously, Mr. Neumann was with TCW / Crescent Mezzanine where he completed mezzanine financings primarily for leveraged buyout transactions. Prior thereto, Mr. Neumann worked in the investment banking division of Deutsche Bank (Bankers Trust) in the Financial Sponsors Group. Mr. Neumann earned a Bachelors of Business Administration from the University of Notre Dame. 151 HOUSE_OVERSIGHT_024584

KUE Advisory Board Les Bilfer Leslie Biller is retired Vice Chairman & Chief Operating Officer of Wells Fargo & Company. Mr. Biller joined Wells Fargo in 1998, when it merged with Norwest Corporation. Prior to that, he spent nearly 11 years at Norwest, where he held various executive positions including Executive Vice President and head of Strategic Planning and Acquisitions, Executive Vice President and head of the company’s South Central Community Banking operations, and President and Chief Operating Officer. Before joining Norwest, he was Executive Vice President and head of Consumer Markets at Bank of America, based in San Francisco. Mr. Biller joined Bank of America in 1985 as the Senior Vice President of International Consumer Markets. Prior to that, he was with Citicorp for 12 years, where he was a Regional Business Manager, U.K. Region; and Vice President and Business Manager, Italy. Mr. Biller serves on the Board of Directors of Ecolab Inc., and is a director of the Los Angeles Urban League, the Auiry Museum of Western Heritage, and is a Founders Circle member of the Fulfillment Fund. He earned his MBA from Xavier University in Cincinnati, Ohio, and holds a bachelor’s degree in chemical engineering from City College of New York. Ted Mitchell Ted Mitchell was recently named CEO of the New Schools Venture Fund after having served on the New Schools Board of Directors for seven years. Mr. Mitchell previously served as president of Occidental College for six years. Immediately prior to Occidental, he served as Vice President for Education and Strategic Initiatives of the J. Paul Getty Trust. He was also the Deputy to the President at Stanford University, Vice Chancellor at UCLA, and a Professor of Education at Dartmouth. Mr. Mitchell is an Education Advisor to California Senator Dianne Feinstein and served as a Senior Education Advisor to Los Angeles Mayor Richard Riordan. Tsvi Gal As Chief Technology Officer for Deutsche Bank Asset Management ("Deutsche Bank”), Tsvi Gal is responsible for constructing an industry leading, state of the art, evolutionary architecture which has competitively positioned Deutsche Bank for future growth through innovation, processing scale and efficiency. Prior to joining Deutsche Bank, Mr. Gal was responsible for overseeing global IT operations at Warner Music Group ("WMG"), formerly part of the Time Warner family of operations and now a privately- held multinational music and publishing company. He lent his considerable global technical expertise to the task of integrating WMG's global systems and exploring technological synergies, as well as maximizing the opportunities presented by new technologies. Prior to joining WMG, Mr. Gal held the role of president of AT&T's ATT.COM from 2000 to 2002, where he was responsible for AT&T’s E*Business and E*commerce activities. In this position, he oversaw the revitalization of AT&T's presence in the market ensuring its transition into a modern era electronic business market leader. Earlier, Mr. Gai was the Chief Technology Officer for Enterprise Technology services at Merrill Lynch & Company, where he helped build the electronic trading system. From 1996 to 1999, he was Executive Vice President and CIO of North America Applications ABN AMRO Bank, one of the world’s largest global banks. Mr. Gal is a computer-science graduate of Rutgers University, and holds an MBA from Golden Gate University. 452 HOUSE_OVERSIGHT_024585

KLC Management KLC Key Management Years with Industry Name Position Company Exp. Elanna Yalow President and COO 16 19 Dan Jackson CFO 9 9 Toni Jaffe SVP of Human Resources 1 1 Eva Kripalani SVP & General Counsel 9 9 Marcy Suntken SVP of School Partnerships 14 20 Dan Frechiling SVP of Business Development 1 1 Sharon Bergen SVP of Education and Training 18 18 Steve Brown President, KCDL 1 1 Total 69 78 Average 8.6 9.7 Elanna Yalow, Ph.D., President and Chief Operating Officer Dr. Yalow has been President and Chief Operating Officer of KLC since January 1996, having joined the company in 1989 to initiate development of the employer-sponsored services division. Currently, Dr. Yalow is responsible for supervising all center operations and support functions. Her educational degrees include a Ph.D. in educational psychology from Stanford University School of Education in 1980 with an emphasis on the design and evaluation of educational programs for children as well as an M.B.A. from Stanford University’s Graduate School of Business in 1989. With a background in educational research and development, Dr. Yalow contributed to numerous statewide and national curriculum development and assessment projects. Dr. Yalow has written extensively on matters related to the education of young children. Mark Moreland, Executive Vice President, Finance and Chief Financial Officer Mr. Moreland is Executive Vice President and Chief Financial Officer of Knowledge Learning Corporation (KLC). Mr. Moreland joined KLC during 2006. Prior to joining KLC, Mr. Moreland was Interim CFO with Movie Gallery, Inc.; the $2.6 billion holding company of the Movie Gallery and Hollywood Video movie rental stores with 4,700 stores nationwide. Before being appointed interim CFO, Mr. Moreland served as Senior Vice President, Finance and Treasurer. Before joining Movie Gallery, he was with Kmart Corporation in both merchandising finance and treasury capacities, last holding the role of Divisional Vice President, Assistant Treasurer. Mr. Moreland has also worked with Deloitte Consulting, Blue Shield of California and the U.S. General Accounting Office. Mr. Moreland earned an MBA from the University of Michigan and a B.S. in Economics from the University of Texas at Arlington. Eva Kripalani, Senior Vice President and General Counsel Ms. Kripalani became KLC’s Senior Vice President and General Counsel in January 2005. Prior to that, Ms. Kripalani served as Senior Vice President, General Counsel and Secretary of KinderCare since July 2001. She joined KinderCare in July 1997 as Vice President, General Counsel and Secretary. Prior to joining KinderCare, Ms. Kripalani was a partner in the law firm of Stoel Rives LLP in Portland, Oregon, where she had worked since 1987. Ms. Kripalani received her J.D., magna cum laude, from the 153 HOUSE_OVERSIGHT_024586

Willamette University College of Law in 1986 and her B.S. in Finance-Law, magna cum laude, from Portland State University in #983. Dan Frechtling, Senior Vice President, Marketing and Business Development Mr. Frechtling was named Senior Vice President, Marketing and Business Development in 2005. Prior to joining KLC, Mr. Frechtling served as Vice President, Strategy and Business Development and Director, Marketing at Mattel. He was Vice President, Corporate Development at Stamps.com and Senior Associate at McKinsey & Company. He serves on the board for the Portland-Suzhou Sister City Association. Mr. Frechtling graduated from Northwestern University in 1893 and earned his MBA from Harvard Business School in 1997. Sharon Bergen, Senior Vice President, Education and Training Ms. Bergen joined KLC in 1997 and has held several progressively responsible positions in the Education and Training Department uniil her promotion to Vice President in 2002 and her current position in 2005. As Senior Vice President of Education and Training, Ms. Bergen oversees company-wide curriculum program development, implementation and training activities. Ms. Bergen earned a B.S. in Child Development from Minnesota State University and an M.A. in Early Childhood Education from Concordia University. Her career includes a rich variety of professional experiences in the early childhocd field including prior work with several child care companies and non-profit agencies. She is a member of numerous educational organizations, including the National Association for the Education of Young Children (NAEYC) and the American Society of Training and Development (ASTD), and serves on a variety of advisory councils, task forces and committees within the early childhood profession. 154 HOUSE_OVERSIGHT_024587

Real Estate Management Team / Greenstreet Real Estate Partners Steven Green, Chairman and Chief Executive Officer See KUE Advisory Board section for complete biography Jeffrey Safchik, Chief Operating Officer and Chief Financial Officer See KUE Advisory Board section for complete biography Steven Cox, Executive Vice President, Real Estate Mr. Cox has over 25 years of real estate development, investment, and asset management experience. Prior to joining Greenstreet, Mr. Cox was Managing Principal of Tishman Heskin Partners. Tishman Heskin is a national real estate investment and asset management firm focused upon opportunistic acquisitions of real estate and loan assets. At Tishman Heskin, Mr. Cox's activities included all aspects of strategic direction, market analysis, acquisition, positioning / re-positioning, leasing, and disposition of over $245 million of real estate nationwide. Since 1992, during Mr. Cox's term at Tishman Heskin Partners, the company consistently delivered above average returns to its investors, many of whom were offshore private clients. His experience in co-investing as a principal with globally oriented private clients provides Mr. Cox with a firm understanding of his primary role of investment origination on behalf of GCP. Prior associations include the Heskin Group, Towle Heskin Partners, Heskin Signet Partners and TCF Service and Mortgage Corporation. In 1986, as a founding member and principal of the Heskin Group (the managing member of the Towle Heskin Partners and Heskin Signet Partners), Mr. Cox oversaw the asset management direction and disposition of over $1 billion in real estate and loan assets together with financial and sale advisory assignments covering assets in excess of $2 billion in book value. Mr. Cox holds a B.S.B. in Finance with additional studies in Economics from the University of Minnesota, 155 HOUSE_OVERSIGHT_024588

KSI Board of Directors Les Biller, Director See KUE Advisory Board section for complete biography. Ralph Finerman, Director Mr. Finerman became a director of KLC in 1999. Mr. Finerman is the President of RFG Financial Group, Inc., a position he has held since 1994. Mr. Finerman is a CPA and an attorney and practiced in New York prior to forming RFG Financial Group, Inc. in 1994. Mr. Finerman also serves as a director of Nextera Enterprises, Inc. and as an officer or director of other privately-held affiliates of KLC and Krest LLC. Stephen Goldsmith, Director See KUE Management section for complete biography. Steven Green, Director See KUE Management section for complete biography. Stanley E. Maron, Director Mr. Maron became a director of KLC in 2004. Mr. Maron is a senior shareholder in the law firm of Maron & Sandler, a position he has held since September 1994. Mr. Maron is also a director of LeapFrog Enterprises, Inc. and Nextera Enterprises, Inc., and serves as an officer or director of various other privately-held affiliates of KLC and Krest LLC. Loweil Milken, Director See KUE Management section for complete biography. Wendi Murdoch, Director Wendi Murdoch is currently an advisor to News Corporation on its business development in the Asia Pacific region. Mrs. Murdoch is responsible for identifying and evaluating business opportunities in new media and the Internet, managing relationships with government organizations and officials, recruiting personnel and locating local partners. Previously, she served as the Vice President of News Corporation's Asian satellite network, the Hong Kong based Star TV. In that capacity she was instrumental in formulating STAR Sports and ESPN Asia. Mrs, Murdoch holds a Bachelors degree in economics from California State University at Northridge and an MBA from Yale University. Jeff Safchik, Director See KUE Management section for complete biography. Richard Sandler, Director See KUE Management section for complete biography. 156 HOUSE_OVERSIGHT_024589

k12 Management Ron Packard, Chairman and Founder Mr. Packard serves as Chairman of the Executive Committee of k12 and as acting Chief Executive Officer. Prior to co-founding k12 and since 1997, Mr. Packard has been an executive officer of KU Schools, whose subsidiaries and business ventures include early childhood education, charter school education, and after school programs. From 1994 to 1997, Mr. Packard served as President of Forestal Trillium Limitada, a South American company. Mr. Packard also has worked as a consultant for McKinsey & Company and a mergers and acquisitions specialist at Goldman Sachs. Mr. Packard also serves on the Advisory Board for Department of Defense Schocls. Mr. Packard holds a B.S. and B.A. from the University of California at Berkeley and an M.B.A. from the University of Chicago. He is also a Chartered Financial Analyst. John Baule, Executive Vice President of Operations and Chief Financial Officer Mr. Baule previously served as CFO for Headstrong, a global consultancy based in Fairfax, Virginia, from 1999 to 2004. At Headstrong he was responsible for activities ranging from raising funds, to strategy, to daily process improvement on a global basis. Mr. Baule acted as Mead-Johnson's CFO in their international office in Hong Kong. Prior to Headstrong, Mr. Baule spent nine years at Bristol Myers-Squibb in a variety of international accounting and finance roles. Mr. Baule began his career at KPMG. He holds a B.B.A, in accounting from the College of William and Mary in Williamsburg, VA. Bror Saxberg, Senior Vice President, Learning and Content Bror Saxberg serves as Senior Vice President of Learning and Content of k12. From 1998 to 2000, Dr. Saxberg served as Vice President of Operations at Knowledge Testing Enterprises, a developer of Web- based assessments for IT skills, where he was responsible for technology, testing and operations. From 1995 to 1997, Dr. Saxberg served as Publisher and General Manager of DK Multimedia, and he has also worked as a consultant for McKinsey & Co. Dr. Saxberg holds a B.S. from the University of Washington, an M.A. from Oxford University, a Ph.D. from MIT and an M.D. from Harvard University. Thomas Boysen, Senior Vice President, Chief School Officer Mr. Boysen serves as Senior Vice President and Chief School Officer of k12. Previously, ha was COO of the Los Angeles Unified School District. Prior to this, Mr. Boysen was State Commissioner of Education in the State of Kentucky. He has aiso served as superintendent of schools for the San Diego Unified and Conejo Valley Unified school districts. Charles Zogby, Senior Vice President, Education Policy Mr. Zogby, serves as Senior Vice President of Education Policy. Previously, he served as Secretary of Education for the Commonwealth of Pennsylvania, where he helped craft one of the most successful and comprehensive education reform agendas in modern Pennsylvania history and lead the state’s development and legislative passage of the U.S.’ first comprehensive cyber charter school law. Prior to his appointment, Mr. Zogby served as Pennsylvania Gov. Ridge’s policy director, where he was responsible for coordinating policy development and initiatives across 18 executive branch agencies, Mr. Zogby earned a bachelor’s degree in economics from St. Lawrence University and his law degree, with distinction, from George Mason University School of Law. John Holdren, Senior Vice President, Curriculum Mr. Holdren serves as Senior Vice President of Curriculum of k12. From 1997 to 2000, Mr. Holdren served as Vice President and Director of Research and Publications at Core Knowledge Foundation. While at Core Knowledge Foundation, Mr. Holdren oversaw the development of the Core Knowledge Sequence: Content Guidelines for Grades K-8 and co-edited the Core Knowledge Series resource books. Mr. Holdren also has taught literature and writing at the University of Virginia and Harvard University. Mr. Holdren holds a B.A. from The Johns Hopkins University and an M.A. from the University of Virginia. 157 HOUSE_OVERSIGHT_024590

19.2. Appendix B: Knowledge Learning Corporation: Management’s Discussion & Analysis of Financial Condition and Results of Operations for the Fiscal Years Ended December 31, 2005, 2004 and 2003 158 HOUSE_OVERSIGHT_024591