HOUSE_OVERSIGHT_024517.jpg

11.3. School Partnerships Unit (3% of Pro Forma FYE December 31, 2005 Revenue) Through the School Partnerships Unit, KLC OpCo provides customized before and after school educational enrichment and recreational programs for school age and preschool children in partnership with elementary schools. KLC OpCo provides these partnership services primarily through 573 sites in 20 states. Average tuition ranges from $35~$75 per week, payable in advance. Parents account for 94% of total tuition received, while state and grant subsidies account for the remaining 6%. These before and after school programs are typicaliy conducted in collaboration with public schools and located on-site at public school campuses. The success of the programs has led to the development of summer camps, remedial programs, and drop-in care. Programs are operated under the Champions name. Because each program is relatively small (approximately 40 children per program), operating costs associated with running each program are minimal. Little or no capital investment is required and the contracting school typically provides on-site space for the program. Contract tenures range from one year to evergreen. They often stipulate that KLC pays minimum fees to the elementary schools for use of facilities. KLC OpCo's November 2004 acquisition of EdSolutions, Inc. ("ESI") provided it entry into the Supplemental Education Services ("SES") tutoring business. The SES business is part of the federal No Child Left Behind Act's effort to improve the performance of students at failing schools. KLC OpCo operates 72 SES sites. ESI is approved to provide SES in 19 states and our plans call for ESI to serve as a platform for future growth for KLC. 11.4. Distance Learning (1% of Pro Forma FYE December 31, 2005 Revenue) Through its wholly owned subsidiary, KCDL, KLC OpCo also operates accredited high schocl distance learning programs that have served over 200,000 students since 1975. Based in Portland, Oregon, KCDL operates Keystone National High School and iQ Academies. Keystone National High School is one of the largest and most experienced accredited high school distance learning programs in the country. Keystone is a private, diploma granting school with parents or schools paying for individual courses and/or complete curriculum, Keystone served over 14,000 students in 2005 and offers more than 60 distance learning courses. iQ Academies develops and manages online charter schools. It currenily operates one school in Wisconsin, is working on the approval process for another charter in California, and has plans to begin several more charters in the next 12 months. iQ Academies provides support required to launch and operate an online high school including curriculum, instruction, technology, marketing and support. Though only 1% of KLC OpCo’s pro forma revenues, KCDL is highly profitable and accounts for almost 2% of KLC OpCo’s pro forma Adjusted EBITDA. 11.5. Business Strategy KLC OpCo's strategy is to drive revenue growth and enhance profitability through a combination of the following initiatives: @ Expansion of existing business lines. Management believes that the opportunity exists to significantiy expand the scope of its existing business lines: — Community centers. KLC OpCo has substantial experience in selecting and opening new community centers. Over the next six years KLC OpCo plans to open 195 new centers which are expected to generate approximately $200 million of gross revenue. — Employer-sponsored centers. KLC OpCo expects to continue the expansion of its employer- sponsored centers. Over the next six years KLC OpCo plans to open 124 new centers with gross revenue of approximately $120 million. 84 HOUSE_OVERSIGHT_024517