DEFA14A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): July 23, 2010

K12 Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-33883	95-4774688
(State or other jurisdiction	(Commission	(I.R.S. Employer
of incorporation)	File Number)	Identification No.)

2300 Corporate Park Drive, Herndon, Virginia	20171
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (703) 483-7000

Not Applicable

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

þ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

     Merger Agreement

     On July 23, 2010, K12 Inc., a Delaware corporation (the “Company” or “K12”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Kayleigh Sub Two LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“LLC Merger Sub”), Kayleigh Sub One Corp., a Delaware corporation and a wholly-owned subsidiary of the Company (“Corporate Merger Sub”), KCDL Holdings, LLC, a Delaware limited liability company (“Seller”), and KC Distance Learning, Inc., a Delaware corporation and a wholly-owned subsidiary of Seller (“KCDL”). Pursuant to the terms of the Merger Agreement, (i) KCDL merged with Corporate Merger Sub, with KCDL continuing as the surviving corporation of the merger (the “First Merger”), and (ii) immediately after the First Merger, KCDL (as the surviving corporation of the First Merger) merged with LLC Merger Sub, with LLC Merger Sub continuing as the surviving entity of the merger (the “Second Merger” and together with the First Merger, the “Mergers”). The Mergers were consummated on July 23, 2010 following the execution of the Merger Agreement.

     As a result of the Mergers, the surviving entity of the Second Merger (which is the predecessor in interest to KCDL) is now a wholly-owned subsidiary of K12. The acquisition of KCDL as a result of the Mergers is referred to as the “Acquisition.” KCDL provides (i) accredited online education directly to families through its Keystone School private school business, (ii) online curriculum and instruction for schools and districts through its Aventa Learning business, and (iii) statewide online schools operated in partnership with public school districts or charter school management organizations to serve the education needs of students in grades 3-12 through its iQ Academies business.

     As consideration in the First Merger, the Company issued a total of 2,750,000 shares of a new series of preferred stock designated as Series A Special Stock, par value $0.0001 per share, of the Company (“Series A Special Stock”). The shares of Series A Special Stock have the terms described below. The Merger Agreement includes a customary adjustment for the net working capital and closing debt of KCDL as of the closing of the Acquisition.

     The Company designated the Series A Special Stock in a Certificate of Designations, Preferences and Relative and Other Special Rights of Series A Special Stock (the “Series A Certificate of Designations”). The Series A Certificate of Designations was filed with the Secretary of State of the State of Delaware and became effective on July 23, 2010. Under the Series A Certificate of Designations, upon issuance of the shares of Series A Special Stock in the Mergers, the holders of the Series A Special Stock have no voting rights and no rights of conversion. However, by the terms of the Series A Special Stock, from and after the approval of voting rights and rights of conversion of the Series A Special Stock by the holders of the outstanding shares of K12 Common Stock as required by the rules of the New York Stock Exchange, the Series A Special Stock shall be entitled to vote on all matters presented to the holders of K12 Common Stock (other than for the election and removal of directors, on which the holders of Series A Special Stock shall have no vote) and the Series A Special Stock shall be convertible into an equal number of shares of common stock, par value $0.0001 per share, of the Company (“K12 Common Stock”), subject to anti-dilution adjustments, at the election of the holder or automatically upon transfer to any person other than an affiliate of Seller (or, as of the stockholder approval, ownership by any person other than Seller or an affiliate of Seller). Holders of the Series A Special Stock have a par value liquidation preference and are entitled to participate on a pro rata basis in all dividends and distributions made to holders of the K12 Common Stock. In the event that the holders of the K12 Common Stock do not approve the voting rights and rights of conversion of the Series A Special Stock by the first anniversary of the closing of the Mergers, the Series A Special Stock shall be redeemable at the option of the holder or the Company at a price per share of the greater of $22.95 or the price per share of the K12 Common Stock as of the date of redemption. Pursuant to the Merger Agreements, the Company has agreed to hold a meeting of stockholders to obtain the approval of the Company’s stockholders to the approval of the voting rights and rights of conversion of the Series A Special Stock.

     The Merger Agreement includes customary representations, warranties and covenants of the parties to the Merger Agreement, including representations and warranties regarding KCDL and its businesses.

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     The Merger Agreement also includes certain post-closing indemnification obligations of the parties to the Merger Agreement, including mutual indemnification obligations for damages resulting from breaches of representations or noncompliance with covenants. These indemnification obligations are subject to limitations as provided in the Merger Agreement, including limitations on the survival of rights to bring claims, deductibles and maximum aggregate collectible amount limitations.

     Voting Agreement

     Concurrently with the execution of the Merger Agreement, the Company, Corporate Merger Sub, LLC Merger Sub and certain stockholders of the Company who are affiliates of Seller entered into a Voting Agreement (the “Voting Agreement”). Pursuant to the Voting Agreement, the stockholders of the Company party thereto agreed to vote in favor of the approval of voting and conversion rights of the Series A Special Stock by the Company’s stockholders and have granted a representative of the Company a proxy to vote such shares in the event the stockholders do not vote in accordance with their obligations under the Voting Agreement. The stockholders of the Company party to the Voting Agreement own an aggregate of 5,230,631 shares of K12 Common Stock.

     Stockholders Agreement

     Concurrently with the execution of the Merger Agreement, the Company, Seller, and certain stockholders of the Company who are affiliates of Seller entered into a Stockholders Agreement (the “Stockholders Agreement”). Pursuant to the Stockholders Agreement, Seller and the other stockholders party to the agreement agreed to a standstill limitation regarding actions related to the acquisition of shares of voting securities of the Company for a term of one year. In addition, Seller and the other stockholders party to the agreement have agreed to be bound by transfer restrictions on their shares of stock of the Company (including the Series A Special Stock acquired in the Mergers) for a term of up to one year from the date of the closing of the Mergers, and the Company has agreed to grant Seller and the other stockholders party to the agreement demand registration rights related to the shares acquired in the Mergers. The Company has agreed that it will pay interest to the holders of Series A Special Stock and has agreed to limitations of the operations of its business if the stockholders of the Company do not approve the voting rights and rights of conversion of the Series A Special Stock and the Company is required to redeem the Series A Special Stock and fails to do so.

     The Merger Agreement, Series A Certificate of Designations, Voting Agreement and Stockholders Agreement are attached as Exhibit 2.1, Exhibit 3.1, Exhibit 4.1 and Exhibit 4.2, respectively, to this Current Report on Form 8-K. The summary descriptions of the Merger Agreement, Series A Certificate of Designations, Voting Agreement and Stockholders Agreement in this Current Report on Form 8-K do not purport to be complete and are qualified in their entirety by reference to each such agreement or instrument, which are incorporated herein by reference. The Merger Agreement contains representations and warranties the parties to the agreement made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the contract by and among the Company, Seller and the other parties thereto and may be subject to important qualifications and limitations agreed to by Company, Seller and the other parties thereto in connection with negotiating its terms. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to stockholders or may have been used for the purpose of allocating risk among Company, Seller and the other parties thereto rather than establishing matters as facts.

*       *       *       *

Additional Information and Where to Find It

     K12 plans to file with the Securities and Exchange Commission (the “SEC”) and mail to its stockholders a proxy statement in connection with the proposed approval of voting rights and rights of conversion of the Series A Special Stock by the holders of the outstanding shares of K12 Common Stock. The proxy statement will contain important information about the Acquisition and the Series A Special Stock and related matters. INVESTORS AND STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT CAREFULLY WHEN IT BECOMES AVAILABLE. Investors and stockholders will be able to obtain free copies of the proxy statement and other documents filed with the SEC by K12 through the web site maintained by the SEC at www.sec.gov. In addition,

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investors and stockholders will be able to obtain free copies of the proxy statement when it becomes available from K12 by contacting Investor Relations by telephone at (703) 483-7000, by mail at K12 Inc., Investor Relations, 2300 Corporate Park Drive, Herndon, Virginia 20171, or by going to K12’s Investor Relations page at www.k12.com.

Participants in Solicitation

     K12 and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of K12 in connection with the solicitation of the proposed approval of voting rights and rights of conversion of the Series A Special Stock. Information regarding the interests of these directors and executive officers will be included in the proxy statement described above. Additional information regarding these directors and executive officers is also included in K12’s proxy statement for its 2009 Annual Meeting of Stockholders, which was filed with the SEC on October 19, 2009. This document is available free of charge at the SEC’s web site at www.sec.gov and from K12 by contacting Investor Relations by telephone at (703) 483-7000, by mail at K12 Inc., Investor Relations, 2300 Corporate Park Drive, Herndon, Virginia 20171, or by going to K12’s Investor Relations page at www.k12.com.

Note on Forward-Looking Statements

     This Current Report on Form 8-K contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “continue” and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include the risks and uncertainties related to KCDL and the Acquisition, the timing of the meeting of stockholders to approve the voting rights and rights of conversion of the Series A Special Stock, the effects of disruption from the transaction making it more difficult to maintain relationships with employees, customers, other business partners or governmental entities, the ability to realize the expected synergies resulting for the transaction in the amounts or in the timeframe anticipated, the ability to integrate KCDL’s businesses into those of K12 in a timely and cost-efficient manner, and risks and uncertainties associated with K12 and its business described in K12’s filings with the Securities and Exchange Commission. Although K12 believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. K12 undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in K12’s expectations except as required by law.

Item 2.01. Completion of Acquisition or Disposition of Assets.

     On July 23, 2010, the Company completed the Acquisition. KCDL’s primary assets consist of customer and supplier agreements and intellectual property. The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference. Seller is an affiliate of Learning Group LLC, which, together with certain affiliates and other members of its reporting group, has beneficial ownership of approximately 5,200,000 shares of K12 Common Stock according to the Schedule 13G/A filed by such persons on February 12, 2010. The consideration to be paid in the Acquisition was determined on an arm’s length basis and, in connection with the approval of the Acquisition, the board of directors of the Company received an opinion from Duff & Phelps LLC that the consideration paid in the Acquisition was fair from a financial point of view to K12 and its stockholders (other than Learning Group LLC and its affiliates) as of the date of the opinion.

Item 3.02. Unregistered Sales of Equity Securities.

     On July 23, 2010, the Company issued 2,750,000 shares of Series A Preferred Stock in connection with the Mergers. The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

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Item 3.03. Material Modification to Rights of Security Holders.

     On July 23, 2010, the Company filed the Series A Certificate of Designations with the Secretary of State of the State of Delaware and issued 2,750,000 shares of Series A Preferred Stock in connection with the Mergers. The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

Item 5.03. Amendments to the Articles of Incorporation or Bylaws; Change in Fiscal Year

     On July 23, 2010, in connection with the Mergers, the board of directors of the Company approved the Series A Certificate of Designations, which was filed with the Secretary of State of the State of Delaware and became effective on July 23, 2010. The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

Item 8.01. Other Events.

     On July 26, 2010, the Company issued a press release announcing the Acquisition. A copy of the press release is attached as Exhibit 99.1 hereto and incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

     (a) Financial Statements of Businesses Acquired. To be filed by amendment. Pursuant to Item 9.01 of Form 8-K, the Company hereby undertakes to file any financial statements required in response to this item related to the Acquisition in an amendment to the Current Report on Form 8-K not later than 71 calendar days after the date that this Form 8-K must be filed.

     (b) Pro Forma Financial Information. To be filed by amendment. Pursuant to Item 9.01 of Form 8-K, the Company hereby undertakes to file any pro forma financial information required in response to this item in an amendment to the Current Report on Form 8-K not later than 71 calendar days after the date that this Form 8-K must be filed.

     (d) Exhibits.

Exhibit No.	Description
2.1	Agreement and Plan of Merger Agreement, dated as of July 23, 2010, by and among K12 Inc., Kayleigh Sub Two LLC, Kayleigh Sub One Corp., KC Distance Learning, Inc. and KCDL Holdings, LLC.
3.1	Certificate of Designations, Preferences and Relative and Other Special Rights of Series A Special Stock, effective as of July 23, 2010.
4.1	Voting Agreement, dated as of July 23, 2010, by and among K12 Inc., Kayleigh Sub Two LLC, Kayleigh Sub One Corp., Learning Group LLC, Learning Group Partners, Knowledge Industries LLC and Cornerstone Financial Group LLC.
4.2	Stockholders Agreement, dated as of July 23, 2010, by and among K12 Inc., KCDL Holdings LLC, Learning Group LLC, Learning Group Partners, Knowledge Industries LLC and Cornerstone Financial Group LLC.
99.1	Press Release, dated July 26, 2010.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	K12 Inc.
July 26, 2010	By:	/s/ Howard D. Polsky
		Name:	Howard D. Polsky
		Title:	General Counsel and Secretary

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Exhibit Index

Exhibit No.	Description
2.1	Agreement and Plan of Merger Agreement, dated as of July 23, 2010, by and among K12 Inc., Kayleigh Sub Two LLC, Kayleigh Sub One Corp., KC Distance Learning, Inc. and KCDL Holdings, LLC.
3.1	Certificate of Designations, Preferences and Relative and Other Special Rights of Series A Special Stock, effective as of July 23, 2010.
4.1	Voting Agreement, dated as of July 23, 2010, by and among K12 Inc., Kayleigh Sub Two LLC, Kayleigh Sub One Corp., Learning Group LLC, Learning Group Partners, Knowledge Industries LLC and Cornerstone Financial Group LLC.
4.2	Stockholders Agreement, dated as of July 23, 2010, by and among K12 Inc., KCDL Holdings LLC, Learning Group LLC, Learning Group Partners, Knowledge Industries LLC and Cornerstone Financial Group LLC.
99.1	Press Release, dated July 26, 2010.

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EX-2.1

Exhibit 2.1
Execution Version

AGREEMENT AND PLAN OF MERGER

by and among

K12 INC.,

KAYLEIGH SUB TWO LLC,

KAYLEIGH SUB ONE CORP.,

KC DISTANCE LEARNING, INC.,

and

KCDL HOLDINGS LLC

Dated as of July 23, 2010

TABLE OF CONTENTS

	Page
ARTICLE I THE FIRST MERGER		2
Section 1.01 First Merger Transaction		2
Section 1.02 Surrender and Exchange of Certificates		4
Section 1.03 Purchase Price Adjustments		4
Section 1.04 The Closing; Closing Deliverables		7
Section 1.05 Tax Treatment		9
ARTICLE II THE SECOND MERGER		9
Section 2.01 Second Merger Transaction		9
Section 2.02 Conversion of Interests		10
Section 2.03 Taking of Necessary Action; Further Action		10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER		11
Section 3.01 Organization		11
Section 3.02 Authorization; Valid and Binding Agreement		11
Section 3.03 Title to Company Common Stock		12
Section 3.04 No Conflict; Required Filings and Consents		12
Section 3.05 Investment		12
Section 3.06 No Public Market		13
Section 3.07 Legends		13
Section 3.08 Accredited Investor		13
Section 3.09 Litigation		13
Section 3.10 Brokerage		14
Section 3.11 Ownership of Parent Common Stock		14
Section 3.12 No Other Representations		14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY		14
Section 4.01 Organization		14
Section 4.02 Subsidiaries		15
Section 4.03 Authorization; Valid and Binding Agreement		15
Section 4.04 No Conflict; Required Filings and Consents		15
Section 4.05 Capitalization		16
Section 4.06 Financial Statements		16
Section 4.07 Liabilities		17
Section 4.08 Absence of Certain Developments		17
Section 4.09 Tax Matters		19
Section 4.10 Contracts and Commitments		19
Section 4.11 Employee Benefit Plans		21
Section 4.12 Employees		21
Section 4.13 Insurance		22
Section 4.14 Sufficiency of Assets		22
Section 4.15 Title to Properties		22
Section 4.16 Intellectual Property		23

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TABLE OF CONTENTS
(continued)

	Page
Section 4.17 Environmental Matters		28
Section 4.18 Affiliated Transactions		28
Section 4.19 Compliance with Legal Requirements		29
Section 4.20 Governmental Licenses and Permits		29
Section 4.21 Litigation		29
Section 4.22 Vendor Relationships		30
Section 4.23 Brokerage		30
Section 4.24 No Other Representations		30
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT, CORPORATE MERGER SUB AND LLC MERGER SUB		30
Section 5.01 Organization		30
Section 5.02 Ownership and Operations of Corporate Merger Sub and LLC Merger Sub		31
Section 5.03 Authorization; Anti-takeover Statute		31
Section 5.04 Valid Issuance of Parent Special Stock		32
Section 5.05 No Conflict; Required Filings and Consents		32
Section 5.06 Capitalization		33
Section 5.07 SEC Filings; Financial Statements		34
Section 5.08 Requisite Vote		35
Section 5.09 No Material Adverse Effect		35
Section 5.10 Tax Matters		35
Section 5.11 Litigation		35
Section 5.12 Form S-3		35
Section 5.13 Brokerage		35
Section 5.14 Opinion of Financial Advisor		35
Section 5.15 No Other Representations		35
ARTICLE VI ADDITIONAL AGREEMENTS; POST-CLOSING COVENANTS		36
Section 6.01 Efforts; Consents; Filings		36
Section 6.02 Pre-Closing Transactions		37
Section 6.03 Delivery of Written Consents		38
Section 6.04 Proxy Statement; Parent Stockholders’ Meeting		38
Section 6.05 Access to Books and Records		40
Section 6.06 Director and Officer Liability and Indemnification		41
Section 6.07 Employee Matters		41
Section 6.08 Non-Competition and Non-Solicitation		43
Section 6.09 Orderly Transition		44
Section 6.10 Tax Matters		47
Section 6.11 Payables at Closing		49
Section 6.12 Acknowledgment by the Parties		49
Section 6.13 Further Assurances		50
Section 6.14 Responsibility for Compliance		50
Section 6.15 Company Confidential Information		50

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TABLE OF CONTENTS
(continued)

	Page
ARTICLE VII INDEMNIFICATION		51
Section 7.01 Survival of Representations, Warranties, Covenants and Agreements		51
Section 7.02 Indemnification by Seller for the Benefit of Parent		52
Section 7.03 Indemnification by Parent for the Benefit of Seller		54
Section 7.04 Manner of Payment		56
Section 7.05 Indemnification Claims Process		56
Section 7.06 Determination of Loss Amount		58
Section 7.07 Limitation on Recourse		59
Section 7.08 Transfer Restrictions in Support of Seller’s Indemnity Obligations		59
Section 7.09 Exclusive Remedy		61
ARTICLE VIII DEFINITIONS		61
Section 8.01 Definitions		61
Section 8.02 Cross-Reference of Other Definitions		72
ARTICLE IX MISCELLANEOUS		74
Section 9.01 Expenses		74
Section 9.02 Notices		74
Section 9.03 Assignment		75
Section 9.04 Severability		76
Section 9.05 References		76
Section 9.06 Mutual Drafting		76
Section 9.07 Amendment and Waiver		76
Section 9.08 Entire Agreement		77
Section 9.09 Incorporation of Annexes, Exhibits and Disclosure Schedules		77
Section 9.10 Counterparts; Facsimile, Electronic Signatures		77
Section 9.11 Waiver of Jury Trial		77
Section 9.12 Specific Performance		77
Section 9.13 Governing Law; Consent to Jurisdiction		78
Section 9.14 No Third-Party Beneficiaries		78
Section 9.15 Representation by Counsel		79

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TABLE OF CONTENTS
(continued)

Exhibits

Exhibit A:	Form of Series A Special Stock Certificate of Designations
Exhibit B:	Form of Stockholders Agreement
Exhibit C:	Form of Voting Agreement
Exhibit D:	Form of Non-Competition and Non-Solicitation Agreement
Exhibit E:	Form of Transition Services Agreement
Exhibit F:	Form of Written Consent
Exhibit G:	Form of Parent Corporate Written Consent
Exhibit H:	Form of Parent LLC Written Consent
Exhibit I:	Form of IP Assignment
Exhibit J:	Form of Bill of Sale
Exhibit K	Form of Limited Guarantee
Annexes
Annex A:	Illustrative Net Working Capital and Closing Debt Calculations
Annex B:	Accounting Principles
Annex C:	Pre-Closing Company Obligations Adjustments

Disclosure Schedules

Seller Parties Disclosure Schedules
Parent Disclosure Schedules

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AGREEMENT AND PLAN OF MERGER

          THIS AGREEMENT AND PLAN OF MERGER (the “Agreement”) dated as of July 23, 2010, is made among K12 Inc., a Delaware corporation (“Parent”), Kayleigh Sub Two LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“LLC Merger Sub”), Kayleigh Sub One Corp., a Delaware corporation and a wholly owned subsidiary of Parent (“Corporate Merger Sub” and together with Parent and LLC Merger Sub, the “Purchaser Parties”), KCDL Holdings LLC, a Delaware limited liability company (“Seller”) and KC Distance Learning, Inc., a Delaware corporation (the “Company”). Each of the Purchaser Parties, the Company and Seller are sometimes referred to herein, individually, as a “Party,” and, collectively, as the “Parties.” Capitalized terms used and not otherwise defined herein have the meanings set forth in Article VIII.

RECITALS

     A. The respective boards of directors of Parent, Corporate Merger Sub and the Company, and the respective managers of Seller and LLC Merger Sub, deem it advisable and in the best interests of each entity and its respective stockholders or members that the Company, Corporate Merger Sub and LLC Merger Sub engage in a business combination in order to advance the long-term strategic business interests of the parties hereto.

     B. The combination of the Company and Corporate Merger Sub shall be effected by a merger of the Company with Corporate Merger Sub with the Company continuing as the surviving corporation of the merger (the “First Merger”), upon the terms and subject to the conditions set forth in this Agreement and in accordance with the General Corporation Law of the State of Delaware (the “DGCL”), in which each share of common stock, par value $0.0001 per share, of the Company (“Company Common Stock”) issued and outstanding immediately prior to the First Merger Effective Time will be converted into the right to receive shares of Series A Special Stock, par value $0.0001 per share, of Parent (“Parent Special Stock”), which shall have the rights, preferences and privileges set forth in the Series A Special Stock Certificate of Designations in the form attached hereto as Exhibit A (the “Series A Special Stock Certificate of Designations”).

     C. Immediately after the First Merger and as part of an integrated plan with the First Merger, the Surviving Corporation shall merge with and into LLC Merger Sub with LLC Merger Sub continuing as the surviving entity of the merger (the “Second Merger” and together with the First Merger, the “Mergers”) and a wholly owned Subsidiary of Parent, upon the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL and the Delaware Act.

     D. As an inducement to the willingness of the Purchaser Parties and Seller to enter into this Agreement, concurrently with the execution of this Agreement, Parent and Seller and Learning Group LLC, an Affiliate of Seller and a holder of Parent Common Stock, and certain other Affiliates of Seller who are holders of Parent Common Stock are entering into and delivering a Stockholders Agreement, dated as of the date hereof (the “Stockholders Agreement”), in the form attached hereto as Exhibit B, governing certain post-Closing rights and obligations between them.

     E. As an inducement to the willingness of the Purchaser Parties to enter into this Agreement, concurrently with the execution of this Agreement, (i) the Purchaser Parties, Learning Group LLC and certain other Affiliates of Seller are entering into and delivering a Voting Agreement, dated as of the date hereof (the “Voting Agreement”), in the form attached hereto as Exhibit C, providing for, among other things, obligations of the holders of Parent Common Stock party thereto to vote their shares of Parent Common Stock in favor of granting the Stockholder Approval; (ii) Parent, the Company, Seller and Knowledge Universe Education L.P., an Affiliate of Seller, are entering into and delivering a Non-Competition and Non-Solicitation Agreement, dated as of the date hereof (the “Non-Competition Agreement”), in the form attached hereto as Exhibit D; and (iii) Learning Group LLC, the Company and Parent are entering into a Limited Guarantee in favor of Parent and the Company (the “Limited Guarantee”) in the form attached hereto as Exhibit K.

     F. For federal income tax purposes, it is intended that the Mergers shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and the Parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a).

     NOW, THEREFORE, in consideration of the premises, representations and warranties and mutual covenants contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

THE FIRST MERGER

     Section 1.01 First Merger Transaction.

     (a) The First Merger. Upon the terms and subject to the conditions hereof, and in accordance with the DGCL, at the First Merger Effective Time, Corporate Merger Sub shall be merged with and into the Company. Following the First Merger Effective Time, the separate corporate existence of Corporate Merger Sub shall cease and the Company shall continue as the surviving corporation (the “Surviving Corporation”) and shall be governed by the DGCL.

     (b) First Merger Effective Time. As soon as practicable after the execution and delivery of the Agreement, the Parties shall cause the First Merger to be consummated by filing a certificate of merger (the “Certificate of Merger”) with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, the DGCL (the date and time of such filing, or if another date and time is specified in such filing, such specified date and time, being the “First Merger Effective Time”).

     (c) Effects of the First Merger. At the First Merger Effective Time, the effect of the First Merger shall be as provided in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the First Merger Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of the Company and Corporate Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the

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Company and Corporate Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

     (d) Certificate of Incorporation and Bylaws. The Company Certificate, as in effect immediately prior to the First Merger Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation immediately after the First Merger Effective Time and the name of the Surviving Corporation shall be “KC Distance Learning, Inc.” The Bylaws of the Company, as in effect immediately prior to the First Merger Effective Time, shall be the Bylaws of the Surviving Corporation immediately after the First Merger Effective Time.

     (e) Directors. The directors of Corporate Merger Sub immediately prior to the First Merger Effective Time shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

     (f) Officers. The officers of the Company immediately prior to the First Merger Effective Time shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

     (g) Conversion of Shares of the Company.

     (i) At the First Merger Effective Time, by virtue of the Merger and without any action on the part of any Party, each share of Company Common Stock issued and outstanding immediately prior to the First Merger Effective Time shall cease to be outstanding and shall be converted into and exchanged for the right to receive shares of Parent Special Stock in an amount equal to the Exchange Ratio. For purposes of the foregoing:

          (A) “Exchange Ratio” means the quotient of (i) the Final Share Number, divided by (ii) the number of shares of Company Common Stock issued and outstanding immediately prior to the First Merger Effective Time (the “Company Common Stock Outstanding”).

          (B) “Final Share Number” means 2,750,000.

At the First Merger Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate previously representing any such shares shall thereafter represent the right to receive a certificate representing the shares of Parent Special Stock into which such Company Common Stock was converted in the Merger. Certificates which immediately prior to the First Merger Effective Time represented outstanding shares of Company Common Stock (the “Certificates”) shall be exchanged for certificates representing whole shares of Parent Special Stock issued in consideration therefor upon the surrender of such certificates in accordance with the provisions of Section 1.02(a), without interest.

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     (h) Conversion of Corporate Merger Sub Common Stock. At the First Merger Effective Time, by virtue of the Merger and without any action on the part of any Party, each share of common stock, par value $0.0001 per share, of Corporate Merger Sub issued and outstanding immediately prior to the First Merger Effective Time shall be converted into and be exchanged for one newly and validly issued, fully paid and non-assessable share of common stock, par value $0.0001 per share, of the Surviving Corporation, so that immediately following the First Merger Effective Time Parent will be the sole and exclusive owner of the outstanding capital stock of the Surviving Corporation.

     Section 1.02 Surrender and Exchange of Certificates.

     (a) Exchange Procedures. Seller shall surrender to Parent at the Closing all Certificates and customary documentation for surrendering such Certificates as reasonably requested by Parent (including in any event a Form W-9), and in exchange therefor Parent shall deliver to Seller at the First Merger Effective Time certificates representing newly and validly issued, fully paid and non-assessable shares of Parent Special Stock issuable pursuant to this Agreement in the amounts and in the names agreed by the parties and on Schedule 1.02(a), such certificates to bear the legend(s) set forth in Section 3.07.

     (b) No Further Ownership Rights in Company Common Stock. At and after the First Merger Effective Time, Seller shall cease to have any rights as a holder of securities of the Company, except for the right to receive the aggregate consideration contemplated under this Agreement upon surrender of the Certificates. After the Closing Date, there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of Company Common Stock which were outstanding immediately prior to the Closing Date.

     (c) No Fractional Shares. No certificate or scrip representing any fractional shares of Parent Special Stock shall be issued pursuant to this Agreement.

     (d) Lost, Stolen or Damaged Stock Certificates. In the event that any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by Seller and, if reasonably required by Parent, the delivery by Seller of a customary indemnification agreement, Parent will pay in exchange for such lost, stolen or destroyed Certificate the consideration payable in respect of the shares of Company Common Stock represented by such Certificate, without any interest thereon.

     Section 1.03 Purchase Price Adjustments.

     (a) Determination of Working Capital Adjustments and Closing Debt Adjustments.

     (i) Post-Closing Statement. As promptly as possible, but in any event within 60 days after the Closing Date, Seller shall cause to be prepared and delivered to Parent a statement setting forth the Net Working Capital and the Closing Debt as of the Adjustment Determination Effective Time (the “Closing Statement”), which Closing Statement shall set forth the components and calculation of Net Working Capital and Closing Debt substantially in the format of the Illustrative Net Working Capital and Closing Debt Calculations set forth on Annex A. During such time and thereafter until

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any dispute with respect to the Closing Statement is resolved, Seller and its accountants shall be permitted reasonable access during normal business hours and in such a manner as to not unreasonably interfere with a Party’s operations to review the Surviving Entity’s books and records and any work papers (including any work papers of Parent’s and the Surviving Entity’s accountants to the maximum extent permitted by applicable professional standards) as is reasonably necessary in connection with Seller’s preparation of the Closing Statement and any dispute with respect thereto, subject to such confidentiality restrictions as the accountants shall reasonably request. Seller and its accountants may make inquiries of Parent, the Surviving Entity and their respective accountants and employees regarding questions concerning or disagreements with the Closing Statement arising in the course of their review thereof, and Parent shall use its, and shall cause the Surviving Entity and its Subsidiaries to use their, commercially reasonable efforts to cause any such accountants and employees to cooperate with and respond to such inquiries and to provide all information in Parent’s, the Surviving Entity’s or their accountants’ possession that is related to such review or the resolution of such disagreements.

     (ii) Determination of Conclusive Net Working Capital and Closing Debt. From and after the date of delivery of the Closing Statement by Seller and thereafter until any dispute with respect to the Closing Statement is resolved, Parent and the Company and their respective accountants shall be permitted reasonable access during normal business hours and in such a manner as to not unreasonably interfere with a Party’s operations to review Seller’s (or its Affiliates’ to the extent relating to the business of the Company or its business) books and records and any work papers (including any work papers of Seller or any of its Subsidiaries’ or Affiliates’ accountants to the maximum extent permitted by applicable professional standards) as is reasonably necessary in connection with Parent’s review of the Closing Statement and any dispute with respect thereto, subject to such confidentiality restrictions as the accountants shall reasonably request. Parent and the Company and their respective accountants may make inquiries of Seller or any of its Affiliates and its or their respective accountants and employees regarding questions concerning or disagreements with the Closing Statement arising in the course of their review thereof, and Seller shall use its, and shall cause its Affiliates and Subsidiaries to use their, commercially reasonable efforts to cause any such accountants and employees to cooperate with and respond to such inquiries and to provide all information in Seller’s or its Affiliates’ or its or their accountants’ possession that is related to such review or the resolution of such disagreements. If Parent has any objections to the Closing Statement, Parent shall deliver to Seller a statement (the “Objections Statement”) in writing providing a description of disputed items contained in the Closing Statement (or specific calculations or methods contemplated thereby) (the “Disputed Items”). If an Objections Statement is not delivered to Seller within the later of (a) 45 days after delivery of the Closing Statement or (b) the 90th day after the Closing Date, the Closing Statement shall be final, binding and non-appealable by the Parties. For 30 days following delivery of the Objections Statement by Parent (the “Resolution Period”), Parent and Seller shall attempt in good faith to resolve their differences with respect to the Disputed Items. Any resolution by Parent and Seller during the Resolution Period as to any Disputed Items shall be set forth in writing and will be final, binding and

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conclusive. If Parent and Seller do not resolve all Disputed Items within the Resolution Period, then all Disputed Items remaining in dispute may be submitted by either Seller or Parent to Ernst & Young LLP, or, in the event that such auditor is unable or unwilling to accept such appointment, to any other independent accounting firm mutually acceptable to Parent and Seller that has not provided services either to Parent or Seller or their respective Affiliates within the prior three year period (the “Independent Auditor”). If any dispute is submitted to the Independent Auditor, each Party will furnish to the Independent Auditor such work papers and other documents and information (to the maximum extent permitted by applicable professional standards) relating to the disputed issues as the Independent Auditor may request and are available to that Party or its independent accountants (including information of the Surviving Entity and its Subsidiaries and information of Seller’s Affiliates) and each Party shall be afforded the opportunity to present the Independent Auditor material relating to the determination and to discuss the determination with the Independent Auditor. Seller and Parent shall instruct the Independent Auditor (i) not to assign a value to any item in dispute greater than the greatest value assigned to such item, or less than the smallest value assigned to such item, in each case, by Parent and Seller, and (ii) subject to clause (i), that the value of all Disputed Items shall be determined in accordance with the Company Accounting Practices and Procedures. It is the intent of Parent and Seller that the process set forth in this Section 1.03 and the activities of the Independent Auditor in connection herewith shall follow rules and procedures customarily used by the Independent Auditor regarding the arbitration of similar financial statement disputes. Parent and Seller shall use their commercially reasonable efforts to cause the Independent Auditor to deliver to Parent and Seller a written determination (such determination to include an explanation in reasonable detail of the reasons for such determination and a work sheet setting forth all material calculations and methods used in arriving at such determination) of the Disputed Items submitted to the Independent Auditor and the resulting effect thereof on the Closing Statement within 30 days of receipt of such Disputed Items, which determination will be final, binding and conclusive and upon which judgment may be entered. The final, binding and conclusive Closing Statement based either upon agreement or deemed agreement by Parent and Seller or the written determination delivered by the Independent Auditor in accordance with this Section 1.03 will be the “Conclusive Closing Statement.” The fees and expenses of the Independent Auditor shall be allocated to be paid by Parent, on the one hand, and/or Seller, on the other hand, based upon the percentage which the portion of the contested amount not awarded to each Party bears to the amount actually contested by such Party, as determined by the Independent Auditor.

     (b) Adjustments.

     (i) Closing Debt Adjustment. If there is any Closing Debt set forth on the Conclusive Closing Statement, Seller shall pay to Parent the amount of such Closing Debt.

     (ii) Net Working Capital Adjustment. If the amount of the Net Working Capital set forth on the Conclusive Closing Statement exceeds $0, Parent shall pay to Seller the amount of the excess. If the amount of the Net Working Capital set forth on

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the Conclusive Closing Statement is less than $0, Seller shall pay to Parent the amount of the shortfall.

     (c) Final Adjustment Amount. Without duplication, all amounts owed pursuant to Section 1.03(b) shall be aggregated, and the net amount (if any) owed by Parent to Seller, on the one hand, or from Seller to Parent, on the other hand, in each case together with interest on such net amount accruing from the Closing Date until the date of payment thereof at an annual rate of five percent (5%) and compounded on a semi-annual basis, collectively is referred to as the “Final Adjustment Amount.” Payment of the Final Adjustment Amount shall be paid by delivery of immediately available funds to an account designated by the recipient Party within five Business Days after the date of final determination and shall be treated for Tax purposes as an adjustment to the aggregate consideration contemplated under this Agreement. Notwithstanding the foregoing, if Disputed Items shall remain in dispute following the Resolution Period, upon demand by either Seller or Parent, the other Party shall pay the amount owned to the other assuming, solely for purposes of this sentence and without any other effect hereunder, that all Disputed Items were resolved as requested by the other Party, and following the determination of the Conclusive Closing Statement, the amounts payable pursuant to Section 1.03(b) and this Section 1.03(c) shall be recalculated to give effect to the payment made as contemplated by this sentence.

     Section 1.04 The Closing; Closing Deliverables.

     (a) The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place on the date hereof simultaneously with the execution and delivery hereof at the offices of Kirkland & Ellis LLP located at 655 Fifteenth Street, N.W., Washington, D.C. 20005, or at such other location or on such other date as is mutually agreed to by Parent and Seller. The date on which the Closing shall occur is referred to herein as the “Closing Date.”

     (b) At or prior to the Closing, Seller or the Company, as applicable, shall have delivered to Parent each of the following:

     (i) a copy of the Company Certificate (certified by the Secretary of State of Delaware) and a certificate of good standing from the State of Delaware for the Company dated within five days of the Closing Date;

     (ii) a certified copy of the written consent of Seller, as the sole stockholder of the Company, in the form of Exhibit F, evidencing the adoption and approval of this Agreement, the First Merger and the other Transaction Documents and the other transactions contemplated hereby and thereby by written consent in accordance with the DGCL and the Company’s organizational documents (the “Seller Written Consent”);

     (iii) a certified copy of the resolutions duly adopted by Seller’s Manager and the Company’s board of directors authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents to which Seller and the Company are a party, and the consummation of all transactions contemplated hereby and thereby;

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     (iv) resignations from the directors of the Company immediately prior to the First Merger Effective Time, to be effective as of the First Merger Effective Time;

     (v) an affidavit, sworn under penalties of perjury, stating that the Company is not a United States real property holding corporation as defined in Section 897 and Section 1445 of the Code, dated as of the Closing Date and in form and substance required under Treasury Regulation Section 1.897-2(h), together with a written authorization for Parent to deliver such notice form to the Internal Revenue Service on behalf of the Company upon Closing;

     (vi) written evidence that the Pre-Closing Transactions have been consummated;

     (vii) a Transition Services Agreement in the form attached hereto as Exhibit E (the “Transition Services Agreement”), executed by Parent, Seller, and any Affiliate of Seller to be party thereto;

     (viii) the Stockholders Agreement, executed by Seller and any Affiliate of Seller to be party thereto;

     (ix) the Voting Agreement, executed by any Affiliate of Seller to be party thereto;

     (x) the Non-Competition Agreement, executed by Knowledge Universe Education L.P.;

     (xi) the Limited Guarantee, executed by Learning Group LLC; and

     (xii) stock certificates representing the Company Common Stock Outstanding with duly issued stock powers.

     (c) At or prior to the Closing, Parent or Corporate Merger Sub, as applicable, shall have delivered to the Company and Seller each of the following:

     (i) certified copies of the resolutions duly adopted by Parent’s board of directors (the “Parent Board”), Corporate Merger Sub’s board of directors and the sole member of LLC Merger Sub which manages LLC Merger Sub authorizing the execution, delivery and performance of this Agreement and the other Transaction Documents to which Parent, LLC Merger Sub and Corporate Merger Sub are a party, and the consummation of all transactions contemplated hereby and thereby;

     (ii) a certified copy of the written consent of Parent, as the sole stockholder of Corporate Merger Sub, in the form of Exhibit G, evidencing the adoption and approval of this Agreement, the First Merger and the other Transaction Documents and the other transactions contemplated hereby and thereby by written consent in accordance with the DGCL and Corporate Merger Sub’s organizational documents (the “Parent Corporate Written Consent”);

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     (iii) a certified copy of the written consent of Parent, as the sole equityholder of LLC Merger Sub, in the form of Exhibit H, evidencing the adoption and approval of this Agreement, the Second Merger and the other Transaction Documents and the other transactions contemplated hereby and thereby by written consent in accordance with the DGCL and Corporate Merger Sub’s organizational documents (the “Parent LLC Written Consent”);

     (iv) the Voting Agreement, executed by the Purchaser Parties;

     (v) the Transition Services Agreement, executed by Parent;

     (vi) the Stockholders Agreement, executed by Parent;

     (vii) the Non-Competition Agreement, executed by Parent; and

     (viii) the Limited Guarantee.

     Section 1.05 Tax Treatment. For federal income tax purposes, it is intended that the Mergers shall qualify as a reorganization within the meaning of Section 368(a) of the Code, and the parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Treasury Regulations Sections 1.368-2(g) and 1.368-3(a).

ARTICLE II
THE SECOND MERGER

     Section 2.01 Second Merger Transaction.

     (a) The Second Merger. Upon the terms and subject to the conditions set forth in this Agreement and the applicable provisions of the DGCL and the Delaware Act, at the Second Merger Effective Time, the Surviving Corporation shall be merged with and into LLC Merger Sub, the separate corporate existence of the Surviving Corporation shall thereupon cease, and LLC Merger Sub shall continue as the surviving entity of the Second Merger. LLC Merger Sub, as the surviving entity of the Second Merger, is sometimes hereinafter referred to as the “Surviving Entity”.

     (b) Second Merger Effective Time. Upon the terms and subject to the conditions hereof, on the Closing Date, immediately after the First Merger Effective Time, Parent, LLC Merger Sub and the Surviving Corporation shall cause the Second Merger to be consummated in accordance with the DGCL and the Delaware Act by filing a certificate of merger (the time of such filing and acceptance by the Delaware Secretary of State, or as otherwise provided in the Certificate of Merger being referred to herein as the “Second Merger Effective Time”).

     (c) Effect of the Second Merger. At the Second Merger Effective Time, the effect of the Second Merger shall be as provided in this Agreement and the applicable provisions of the DGCL and the Delaware Act. Without limiting the generality of the foregoing, and subject thereto, at the Second Merger Effective Time, all rights and property of the Surviving Corporation and LLC Merger Sub shall vest in the Surviving Entity, and all debts and liabilities

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of the Surviving Corporation and LLC Merger Sub shall become the debts and liabilities of the Surviving Entity.

     (d) Surviving Entity Organizational Documents. At the Second Merger Effective Time, the articles of organization and the limited liability company agreement of LLC Merger Sub, as in effect at the Second Merger Effective Time, shall be the articles of organization and the limited liability company agreement of the Surviving Entity immediately after the Second Merger Effective Time until thereafter amended in accordance with applicable Legal Requirement and such articles of organization and limited liability company agreement; provided, however, that, at the Second Merger Effective Time, the articles of organization of the Surviving Entity shall be amended so that the name of the Surviving Entity shall be “KC Distance Learning LLC”.

     (e) Surviving Entity Member. At the Second Merger Effective Time, the initial member of the Surviving Entity shall be the member of LLC Merger Sub immediately prior to the Second Merger Effective Time.

     Section 2.02 Conversion of Interests. Upon the terms and subject to the conditions set forth in this Agreement, at the Second Merger Effective Time, by virtue of the Second Merger and without any action on the part of Parent, LLC Merger Sub, the Surviving Corporation or the holders of any of the following securities, the following shall occur:

     (a) Membership Interests of LLC Merger Sub. Each membership interest of LLC Merger Sub that is issued and outstanding immediately prior to the Second Merger Effective Time shall, by virtue of the Second Merger and without any action on the part of the holder thereof, be converted into the right to receive one membership interest of the Surviving Entity. Each certificate evidencing ownership of such membership interests of LLC Merger Sub shall cease to have any rights with respect thereto except that thereafter it shall evidence ownership of a membership interest of the Surviving Entity.

     (b) Cancellation of Surviving Corporation Common Stock. Each share of Surviving Corporation Common Stock that is issued and outstanding immediately prior to the Second Merger Effective Time (which for avoidance of doubt shall occur after the First Merger Effective Time) shall, by virtue of the Second Merger and without any action on the part of the holder thereof, be converted into the right to receive one membership interest of the Surviving Entity. Each certificate evidencing ownership of such Surviving Corporation Common Stock shall cease to have any rights with respect thereto except that thereafter it shall evidence ownership of a membership interest of the Surviving Entity. As a result of the conversions contemplated by this Section 2.02, Parent shall be the holder of all of the issued and outstanding membership interests of the Surviving Entity immediately following the Second Merger Effective Time.

     Section 2.03 Taking of Necessary Action; Further Action. If, at any time after the First Merger Effective Time or the Second Merger Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Entity with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company, Corporate Merger Sub, the Surviving Corporation and LLC Merger Sub, the board of managers and officers of the Surviving Entity shall take all such lawful and necessary action,

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consistent with this Agreement, on behalf of the Company, Corporate Merger Sub, the Surviving Corporation and LLC Merger Sub.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

          Except as disclosed in the disclosure schedules dated as of the date of this Agreement and delivered by Seller to Parent and Corporate Merger Sub herewith (the “Seller Disclosure Schedules”) (it being understood that the disclosure of any fact or item in any section of the Seller Disclosure Schedules shall, should the existence of such fact or item be relevant to any other section, be deemed to be disclosed with respect to that other section only to the extent that it is reasonably apparent that such fact or item is relevant to such other section), Seller represents and warrants to Parent, Corporate Merger Sub and LLC Merger Sub as of the date of this Agreement that:

     Section 3.01 Organization. Seller is a limited liability company duly organized, validly existing and in good standing under the Legal Requirements of the State of Delaware and is duly qualified or licensed to do business and is in good standing in every jurisdiction in which its ownership or lease of assets or property or the conduct of businesses as now conducted requires it to be so qualified or licensed, except where the failure to be so qualified would not have a material adverse effect on Seller or the Company.

     Section 3.02 Authorization; Valid and Binding Agreement.

     (a) Each of Seller and any of its Affiliates party to any Transaction Documents or any transaction contemplated hereby possesses all requisite corporate or limited liability company power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereunder and thereunder. All corporate or limited liability company actions and proceedings required to be taken by or on the part of Seller or any such Affiliate to authorize and permit the execution, delivery and performance by Seller of this Agreement or any transaction contemplated hereby and by Seller and or any such Affiliate of the other Transaction Documents to which it is a party have been duly and properly taken. This Agreement has been, and each other Transaction Document to which Seller or any such Affiliate is a party has been, duly executed and delivered by Seller and each such Affiliate of Seller. This Agreement constitutes, and each other Transaction Document to which Seller or its Affiliates is a party constitutes when so duly executed and delivered, a valid and binding obligation of Seller and each such Affiliate, enforceable against Seller and each such Affiliate in accordance with its terms, in each case subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar Legal Requirements affecting creditors’ rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

     (b) Seller’s manager has (i) determined that this Agreement and the other Transaction Documents to which Seller is a party and the transactions contemplated hereby and thereby, including the Mergers, in accordance with the DGCL and the Delaware Act, on the terms and

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subject to the conditions set forth herein, are advisable, fair to and in the best interests of Seller in accordance with the DGCL and the Delaware Act, and (ii) approved this Agreement and the other Transaction Documents to which Seller is a party, the execution, delivery and performance of this Agreement and the other Transaction Documents to which Seller is a party and the consummation of the transactions contemplated hereby and thereby, including the Mergers, on the terms and subject to the conditions set forth herein and in accordance with the DGCL and the Delaware Act.

     Section 3.03 Title to Company Common Stock. Seller is the record and beneficial owner of all of the outstanding shares of Company Common Stock, free and clear of all Liens or any other restrictions on transfer other than restrictions on transfer arising under applicable federal and state securities laws.

     Section 3.04 No Conflict; Required Filings and Consents. Neither (x) the execution, delivery and performance of this Agreement and the other Transaction Documents by Seller or any of its Affiliates party to any Transaction Document nor (y) the consummation of the transactions contemplated hereby and thereby, including by any Affiliate of Seller not party to this Agreement or any other Transaction Document, will: (i) conflict with or result in a breach of the certificate of incorporation or bylaws, or other organizational documents, of Seller or any of its Affiliates party to any Transaction Document; (ii) violate any Legal Requirement or decree to which Seller or any of its Affiliates party to any Transaction Document is, or its assets or properties are, subject or that could reasonably give any party a right to rescind the transactions contemplated hereby; or (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any Contract to which Seller or any of its Affiliates party to any Transaction Document is a party or by which it is bound or that could reasonably give any party a right to rescind the transactions contemplated hereby; or (iv) require any material permit, authorization, consent or approval of, or notice to, any Governmental Entity, except (A) in the case of either clause (ii) or (iii), for such conflicts, violations, breaches, defaults, accelerations, rights or failures to give notice as would not materially affect Seller’s ability to consummate the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party, and (B) that Seller makes no representation with respect to the obligation (or lack thereof) of any Party to make any filing under the HSR Act in connection with this Agreement or any other Transaction Document.

     Section 3.05 Investment. Seller is acquiring the Parent Special Stock for investment for its own account and not with a view to, or for sale in connection with, any distribution of such Parent Special Stock or any shares of Parent Common Stock into which the Parent Special Stock may convert in violation of federal and state securities laws. Seller acknowledges that neither the Parent Special Stock nor any shares of Parent Common Stock into which the Parent Special Stock may convert have been registered under the Securities Act or the Exchange Act or any state or foreign securities laws and that neither the Parent Special Stock nor any shares of Parent Common Stock into which the Parent Special Stock may convert may be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of unless such sale, transfer, offer, pledge, hypothecation or other disposition is pursuant to the terms of an effective registration statement under the Securities Act and are registered under any applicable state or foreign

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securities laws or pursuant to an exemption from registration under the Securities Act or the Exchange Act and any applicable state or foreign securities laws.

     Section 3.06 No Public Market. Seller understands that no public market now exists for the Parent Special Stock, and Parent has made no assurances that a public market will ever exist for the Parent Special Stock.

     Section 3.07 Legends. Seller understands that the Parent Special Stock and any Parent Common Stock into which the Parent Special Stock may be converted may bear one or all of the following legends:

     (a) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT OFFER, RESELL, PLEDGE, DISTRIBUTE OR OTHERWISE TRANSFER THE SECURITIES EVIDENCED HEREBY, EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TRANSFER AND OTHER RESTRICTIONS SET FORTH IN A STOCKHOLDERS AGREEMENT, DATED AS OF JULY 23, 2010, AND AN AGREEMENT AND PLAN OF MERGER, DATED AS OF JULY 23, 2010, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE ISSUER. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE, DIRECTLY OR INDIRECTLY, MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT AND AGREEMENT AND PLAN OF MERGER.”; and

     (b) Any legend required by the securities laws of any state to the extent such Legal Requirements are applicable to the Parent Special Stock represented by the certificate so legended.

     Section 3.08 Accredited Investor. Seller is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act, is experienced in evaluating companies such as Parent, is able to independently evaluate the transactions contemplated by this Agreement, has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment and has the ability to bear the economic risks of its investment in Parent.

     Section 3.09 Litigation. There are no Actions pending or, to Seller’s knowledge, threatened against or affecting Seller or any of its Affiliates party to any other Transaction Document or party to any other transaction contemplated hereby which could reasonably be expected to prevent Seller or any such Affiliate from consummating, or is otherwise related to, the transactions contemplated by this Agreement or the other Transaction Document.

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     Section 3.10 Brokerage. No broker, finder, investment banker or other Person is entitled to any brokerage commissions, finders’ fees, commission or similar compensation in connection with the transactions contemplated by this Agreement or the other Transaction Documents based upon arrangements made by or on behalf of Seller or any of its Subsidiaries or Affiliates, that is or will be payable by Seller or any of its Subsidiaries.

     Section 3.11 Ownership of Parent Common Stock. Schedule 3.11 sets forth, as of the date of this Agreement, the number of shares of Parent Common Stock owned of record or beneficially by Seller or any of its Affiliates.

     Section 3.12 No Other Representations. Except for the representations and warranties contained in this Agreement or in any other Transaction Document, Seller makes no express or implied representation or warranty in respect or on behalf of Seller or any of its Affiliates, and Seller disclaims any such representation or warranty, whether by Seller or any of its officers, directors, employees, agents or representatives or any other Person, with respect to the execution and delivery of this Agreement or any other Transaction Document or the consummation of the transactions contemplated hereby and thereby, notwithstanding the delivery or disclosure to Parent, Corporate Merger Sub, LLC Merger Sub or any of their officers, directors, employees, agents or representatives or any other Person of any documentation or other information with respect to the foregoing.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

          Except as disclosed in the disclosure schedules dated as of the date of this Agreement and delivered by the Company to Parent, Corporate Merger Sub and LLC Merger Sub herewith (the “Company Disclosure Schedules” and, together with the Seller Disclosure Schedules, the “Seller Parties Disclosure Schedules”) (it being understood that the disclosure of any fact or item in any section of the Company Disclosure Schedules shall, should the existence of such fact or item be relevant to any other section, be deemed to be disclosed with respect to that other section only to the extent that it is reasonably apparent that such fact or item is relevant to such other section), the Company represents and warrants to Parent, Corporate Merger Sub and LLC Merger Sub as of the date of this Agreement that:

     Section 4.01 Organization. The Company (i) is a corporation duly organized, validly existing and in good standing under the Legal Requirements of the State of Delaware, (ii) has all requisite corporate power and authority to own, operate and lease its properties and to carry on its businesses as now conducted and (iii) is duly qualified or licensed to do business and is in good standing in every jurisdiction in which its ownership or lease of assets or property or the conduct of businesses as now conducted requires it to be so qualified or licensed, except, in the case of clause (iii), where the failure to be so qualified or licensed or in good standing would not, individually or in the aggregate, have a Company Material Impact. The Company has made available to Parent, Corporate Merger Sub and LLC Merger Sub true, correct and complete copies of the Company Certificate and the Company Bylaws as currently in effect. The Company is not in violation of any of the provisions of the Company Certificate or the Company Bylaws.

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     Section 4.02 Subsidiaries. The Company does not own, and during the two years prior to the date hereof has not owned, any stock, partnership interest, joint venture interest or other equity ownership interest in any other Person.

     Section 4.03 Authorization; Valid and Binding Agreement.

     (a) The Company possesses all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which the Company is a party and to consummate the transactions contemplated hereunder and thereunder. All corporate actions and proceedings required to be taken by or on the part of the Company to authorize and permit the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which the Company is to be a party have been duly and properly taken. This Agreement has been, and each other Transaction Document to which the Company is a party has been duly executed and delivered by the Company. This Agreement constitutes, and each other Transaction Document to which the Company is a party constitutes, when so duly executed and delivered, a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, in each case subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar Legal Requirements affecting creditors’ rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

     (b) The board of directors of the Company (at a meeting duly called and held) has unanimously (i) determined that this Agreement and the other Transaction Documents to which the Company is a party and the transactions contemplated hereby and thereby, including the Mergers, in accordance with the DGCL and the Delaware Act, on the terms and subject to the conditions set forth herein, are advisable, fair to and in the best interests of the Company in accordance with the DGCL and the Delaware Act and (ii) approved this Agreement and the other Transaction Documents to which the Company is a party, the execution, delivery and performance of this Agreement and the other Transaction Documents to which the Company is a party and the consummation of the transactions contemplated hereby and thereby, including the Mergers, on the terms and subject to the conditions set forth herein and in accordance with the DGCL and the Delaware Act.

     Section 4.04 No Conflict; Required Filings and Consents. Neither (x) the execution, delivery and performance of this Agreement and the other Transaction Documents by the Company nor (y) the consummation of the transactions contemplated hereby and thereby will: (i) conflict with or result in a breach of the Company Certificate or the Company Bylaws; (ii) violate any Legal Requirement or decree to which the Company is, or its assets or properties are, subject or that could reasonably give any party a right to rescind the transactions contemplated hereby; or (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any Contract to which the Company is a party or by which it is bound or that could reasonably give any party a right to rescind the transactions contemplated hereby; or (iv) require any permit, authorization, consent or approval of any Governmental Entity, except (A) in the case of either clause (ii) or (iii), for such conflicts, violations, breaches, defaults, accelerations, rights or failures to give notice as would not, individually or in the aggregate, have

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a material impact on the Company, and (B) that the Company makes no representation with respect to the obligation (or lack thereof) of any Party to make any filing under the HSR Act in connection with this Agreement or any other Transaction Document.

     Section 4.05 Capitalization.

     (a) Schedule 4.05(a) sets forth, as of the date of this Agreement, the authorized and issued and outstanding shares of each class of capital stock of the Company, the name of each record holder of such shares of the Company’s capital stock, and the number of shares of such class of the Company’s capital stock held of record by each such holder.

     (b) All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable, free and clear of any preemptive rights or Liens. There are no outstanding (i) shares of capital stock, other equity interests or voting securities of the Company (other than shares of capital stock held by Seller set forth on Schedule 4.05(a)), (ii) securities of the Company convertible into or exchangeable for shares of capital stock, other equity interests or voting securities of the Company or (iii) options, warrants, puts, calls, stock appreciation rights, phantom stock, equity or equity-based compensation awards or other rights to acquire from the Company, or other obligations of the Company to issue, deliver or sell, any capital stock, other equity interests or voting securities or securities convertible into or exchangeable for capital stock, other equity interests or voting securities of the Company. There are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire or retire for value any such equity interests of the Company. No such equity interests of the Company are reserved for issuance or are held as treasury shares. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect related to any security of the Company, or by which any of its equityholders is bound, with respect to the governance of the Company or the voting or transfer of any actual or contingent equity interest in the Company. There are no outstanding instruments of indebtedness or other securities having the right to vote on any matters on which holders of the Company’s equity securities may vote.

     Section 4.06 Financial Statements.

     (a) Set forth on Schedule 4.06 are: (i) an unaudited balance sheet as of April 3, 2010, and the related unaudited statements of income and cash flow of the Company for the 3-month period then ended, (ii) an unaudited balance sheet as of May 29, 2010 (the “Latest Company Balance Sheet”), and the related unaudited statements of income and cash flow of the Company for the 1-month period then ended, and (iii) an unaudited balance sheet as of January 2, 2010, and the related unaudited statements of income and cash flow of the Company for the 12-month period then ended (collectively, the “Company Financial Statements”). The Company Financial Statements (including any related footnotes) have been based upon the Company’s books and records, present fairly in all material respects the financial condition and results of operations of the Company as of the times and for the periods referred to therein and have been prepared in accordance with GAAP consistently applied throughout the periods referred to therein (subject to normal year-end audit adjustments, which will not be material in amount or effect, and the absence of footnotes and other presentation items).

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     (b) All accounts receivable and notes receivable of the Company included in the Latest Company Balance Sheet were at such time, and as of the Closing, all accounts receivable and notes receivable of the Company, as of such time, represented or represent bona fide claims of the Company arising from arm’s length sales and deliveries of goods, performance of services and other business transactions in the Ordinary Course of Business. Except to the extent collected prior to the Closing Date, such accounts receivable and notes receivable are, to the Company’s knowledge, valid claims that are collectible by the Company in the Ordinary Course of Business consistent with past practice (subject to reserves for bad debts and allowances for doubtful accounts reflected on the Latest Company Balance Sheet and, in the case of accounts receivable arising since the date of the Latest Company Balance Sheet, additions to such reserves and allowances recorded in the Company’s books and records in accordance with the Company’s Accounting Procedures and Practices). No agreement for deduction, free goods or services, discount or other deferred price or quantity adjustment, that, in each case, would be material in amount or duration, has been made with respect to any accounts receivable of the Company.

     (c) The Company does not have and is not subject to any “Off Balance Sheet Arrangement” (as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act).

     Section 4.07 Liabilities. To the Company’s knowledge the Company does not have any Liability, except (a) Liabilities which individually do not exceed $100,000 or in the aggregate do not exceed $500,000, (b) Liabilities reflected as liabilities in the Latest Company Balance Sheet or disclosed in the notes thereto or in the notes to the other Company Financial Statements, (c) Liabilities which have arisen after the date of the Latest Company Balance Sheet in the Ordinary Course of Business or otherwise in accordance with the terms and conditions of this Agreement, and/or (d) Liabilities that are disclosed in the Company Disclosure Schedules.

     Section 4.08 Absence of Certain Developments. Since January 2, 2010, the Company has operated in the Ordinary Course of Business and there has not been any event or condition that has had a Company Material Adverse Effect. Except as contemplated by this Agreement, since January 2, 2010, the Company (or Seller or any other Affiliate of Seller or any other Affiliate of Seller, in each case, on the Company’s behalf) has not:

     (a) mortgaged, pledged or subjected to any material Lien any tangible assets of the Company except Company Permitted Liens;

     (b) sold, assigned or transferred any material portion of the tangible assets of the Company, except in the Ordinary Course of Business;

     (c) sold, assigned, transferred, licensed, abandoned or disposed of any Intellectual Property, except in the Ordinary Course of Business;

     (d) redeemed or repurchased, directly or indirectly, any shares of capital stock of the Company, effected any recapitalization, reclassification, stock dividend or stock split or like change in the capitalization of the Company, or paid any dividend with respect to the Company’s capital stock or other equity interests (except for dividends in cash);

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     (e) issued, sold or transferred any of its capital stock, securities convertible into its capital stock or warrants, options or other rights to acquire its capital stock;

     (f) failed to make any material capital expenditures or commitments therefor required to be made to maintain the Company’s business and assets in the Ordinary Course of Business;

     (g) changed any of its material financial or Tax accounting policies, practices or procedures, except as required by GAAP or Tax law, as applicable;

     (h) written up, written down or written off the book value of any assets that are, individually or in the aggregate, material to the Company and its Subsidiaries, taken as a whole, other than as may be required by GAAP or applicable Legal Requirement;

     (i) amended or modified its governing documents;

     (j) settled, paid or discharged, any litigation, investigation, arbitration, proceeding or other claim liability or obligation except in the Ordinary Course of Business not in excess of $50,000 individually or $100,000 in the aggregate, excluding any amounts which may be paid under existing insurance policies;

     (k) failed to maintain in full force and effect material insurance policies covering the Company and its Subsidiaries and their respective properties, assets and businesses in a form and amount consistent with the Ordinary Course of Business;

     (l) entered into any new line of business or discontinued any line of business;

     (m) acquired (by merger, consolidation or other combination, or acquisition of stock or assets or otherwise) any corporation, partnership or other business organization, or any division thereof;

     (n) suffered any material damage, destruction or loss (whether or not covered by insurance) materially adversely affecting its properties or business;

     (o) effected any increases or promised any increases in the compensation (including any bonus or benefits) payable or to become payable to any director or officer of the Company or any Business Employee, other than in the Ordinary Course of Business;

     (p) (i) transferred any existing employee of Seller or any Affiliate of Seller from any other operations of Seller or any Affiliate of Seller to the business of the Company or (ii) transferred any existing employee from the business of the Company to any other operations of Seller or any Affiliate of Seller;

     (q) entered into any material closing agreement with respect to Taxes, settled or compromised material Tax liability or consented to any extension or waiver of any statute of limitations relating to material Taxes;

     (r) delayed or postponed the payment of accounts payable and other liabilities of the Company outside the Ordinary Course of Business;

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     (s) cancelled, compromised, waived or released any material right or claim (or series of related rights or claims) of the Company, except in the Ordinary Course of Business;

     (t) materially amended, terminated, transferred, in whole or in part, its rights and interests in or under any Company Real Property Lease; or

     (u) agreed, in writing or otherwise, to do any of the foregoing.

     Section 4.09 Tax Matters. (i) The Company has filed all material Tax Returns required to be filed by it (taking into account all applicable extensions) and all such Tax Returns are complete and correct in all material respects, (ii) all material Taxes of the Company have been paid by the Company and Taxes not yet due and owing have been properly accrued on the Company Financial Statements, (iii) no unresolved material dispute or claim concerning any Tax liability of the Company has been claimed or raised by any authority in writing, (iv) the Company has not waived any statute of limitations in respect of material Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, (v) the Company is not a party to any Tax allocation or sharing agreement or similar agreement that obligates it to make any payment computed by reference to the Taxes, taxable income or taxable losses of any other Person that will be in effect after the Closing Date, (vi) no deficiencies for any material Taxes have been proposed or assessed in writing against or with respect to any Taxes due by or Tax Returns of the Company, (vii) the Company has not been either a “distributing corporation” or a “controlled corporation” in a distribution in which the parties to such distribution treated the distribution as one to which Section 355 of the Code is applicable, and (viii) the Company has not engaged in any transaction that is or would be part of any “reportable transaction” under Sections 6011, 6111 or 6112 of the Code and the regulations thereunder (or any similar provision under any state or local Legal Requirements).

     Section 4.10 Contracts and Commitments.

     (a) The Company is not a party to any written or oral: (i) (A) employment, change in control, retention, severance or similar Contract or (B) collective bargaining agreement; (ii) note, debenture, guarantee, mortgage, loan agreement or indenture relating to Indebtedness for borrowed money or guarantee of any of the foregoing; (iii) lease or agreement under which it is lessee of, or holds or operates any tangible personal property owned by any other party, for which the annual rental exceeds $60,000 and which is not terminable on 60 or fewer days notice by the Company without liability for any material penalty; (iv) lease or agreement under which it is lessor of or permits any third party to hold or operate any tangible personal property, for which the annual rental exceeds $60,000 and which is not terminable on 60 or fewer days notice by the Company without liability for any material penalty; (v) Contract or group of related Contracts with the same party for the purchase of products, services or other tangible personal property by the Company, under which the undelivered balance of such products, services or other tangible personal property has a selling price in excess of $100,000 and which is not terminable on 60 or fewer days notice by the Company without liability for any material penalty; (vi) Contract with any customer of the Company that has generated at least $100,000 of net revenue to the Company during the 12-month period ending April 3, 2010 or that provides for any “most favored nation” pricing or any other similar pricing, or for fixed pricing, and, in each case, which involves amounts in excess of $100,000; (vii) relationship or service agreements between IQ

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Academy and any charter schools or school boards; (viii) Contract that contains covenants that prohibit or limit (in any geographic area) the Company from engaging or competing in any business or with any person, or from providing any services to or acquiring any entity; (ix) Contract that grants to any Person any right of first offer or right of first refusal to purchase, lease, sublease, use, possess or occupy all or any material portion of any fixed tangible assets of the Company, in each case, other than in the Ordinary Course of Business; (x) joint venture, partnership or limited liability company agreement; (xi) Contract, that involves the acquisition from another Person or disposition to another Person (whether by purchase, sale, license, merger or otherwise), directly or indirectly, of a business, assets comprising a business or capital stock or other equity interests of another Person (including the Company), of a type that is not entered into or effected in the Ordinary Course of Business; (xii) Contracts pursuant to which the Company has agreed or is required to provide any third party, including an escrow agent, with access to any Company Software source code; (xiii) settlement agreements relating to Intellectual Property or co-existence or consent-to-use agreements relating to Intellectual Property; (xiv) Contracts or purchase orders for capital expenditures or the acquisition or construction of fixed assets requiring the payment by the Company of an amount in excess of $100,000 and which are not terminable on 60 or fewer days notice by the Company without liability for any material penalty; (xv) material Contract with any vendor for any development, marketing, distribution, hosting or similar arrangement relating to any product or service with a cost equal to at least $100,000 in the last year or which has at least $100,000 of unpaid costs as of the date hereof; (xvi) Contracts to which the Company or one of its Subsidiaries is party that purports to bind Affiliates (other than Subsidiaries) of the Company (or that would purport to bind Parent following the Closing) and which are not terminable on 60 or fewer days notice by the Company without liability for any material penalty; (xvii) Contracts required to be set forth on Schedule 4.16(c) that have a replacement cost and/or total annual license or maintenance fees, or any other expenditure(s), in excess of $60,000; or (xviii) Contract that requires service or performance in excess of 3 years from the date hereof or the expenditure of in excess of $100,000 during any year from and after the date hereof which is not terminable on 60 or fewer days notice by the Company without liability for any material penalty; or (xix) Contract that is otherwise material to the operation of the Company or for which the termination thereof would have a Company Material Impact.

     (b) The Company has made available to Parent, Corporate Merger Sub and LLC Merger Sub copies of all Contracts, including all amendments applicable thereto, required to be listed on Schedule 4.10(a) and Schedule 4.16(c). With respect to the Contracts listed or required to be set forth on either Schedule 4.10(a) or Schedule 4.16(c), (i) except pursuant to or as contemplated by the express terms of such Contracts, such Contracts (x) are in all material respects legal, valid, binding and enforceable in accordance with their respective terms with respect to the Company and, to the Company’s knowledge, each other party to such Contracts, subject to proper authorization and execution of each such Contract by the other party thereto and the limitations of bankruptcy laws, other similar Legal Requirements affecting creditors’ rights and general principles of equity affecting the availability of specific performance and other equitable remedies, and (y) are in full force and effect, (ii) neither the Company nor, to the Company’s knowledge, any other party thereto, is in breach, violation or default in any material respect under any such Contract, (iii) no event or circumstance has occurred that, with the giving of notice or the lapse of time or both, would constitute a default or breach in any material respect

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by the Company under such Contract, and (iv) the Company has not received written notice of cancellation or termination of any such Contract.

     Section 4.11 Employee Benefit Plans.

     (a) Schedule 4.11(a) sets forth a complete list of each Business Employee Benefit Plan. With respect to each Business Employee Benefit Plan, Seller has made available to Parent complete and accurate copies of (i) each Business Employee Benefit Plan document, (ii) the most recent summary plan description of such Business Employee Benefit Plan, and (iii) the most recent Internal Revenue Service determination or opinion letter for such Business Employee Benefit Plan.

     (b) Except as would not reasonably be expected to result in a material liability to the Company, each Business Employee Benefit Plan has been operated in compliance with its terms and all applicable Legal Requirements. Each Business Employee Benefit Plan which is intended to qualify under Section 401(a) of the Code has either received a favorable determination letter from the Internal Revenue Service as to its qualified status or may rely upon a favorable prototype opinion letter from the Internal Revenue Service.

     (c) No Employee Benefit Plan is a Multiemployer Plan or other pension plan subject to Title IV or Part 3 of Title I of ERISA or Section 412 of the Code, and neither the Company nor any ERISA Affiliate of the Company, has sponsored, maintained, participated in, contributed to, or has been required to participate in or contribute to a Multiemployer Plan or other pension plan subject to Title IV or Part 3 of Title I of ERISA or Section 412 of the Code.

     (d) (i) No amount payable or benefit provided as a result of or in connection with the consummation of the transactions contemplated by this Agreement to any Business Employee who is a “disqualified individual” (as such term is defined in Treasury Regulation Section 1.280G-1) will be characterized as an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code), and (ii) neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will accelerate the time of payment or vesting or result in any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or result in any other material obligation pursuant to, any Business Employee Benefit Plan.

     (e) Except as required by applicable Legal Requirement, no Business Employee Benefit Plan provides any of the following retiree or post-employment benefits to any Business Employee: medical, disability or life insurance benefits.

     Section 4.12 Employees. Except for the Business Employees transferred to the Company pursuant to Section 6.02, the Company does not employ, and has not within the past three years employed, any employee. The Company has not within the past three years sponsored, maintained, participated in, entered into, contributed to, and has not been required to sponsor, maintain, participate in or contribute to, any Business Employee Benefit Plan. Schedule 4.12(b) contains a full and complete list of all Business Employees, identifying each Business Employee by name and providing each Business Employee’s position, base salary or rate of commission, target annual bonus or bonus opportunity, and classification as part-time or full-

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time and indicating the approximate percentage of such Business Employee’s business time that has been devoted to the business of the Company during the six-month period preceding the Closing Date. Aside from the Business Employees set forth on Schedule 4.12(b), no other employee of Seller or any of its Affiliates has devoted 50% or more of his or her business time to the Company’s business during the six-month period preceding the Closing Date.

     Section 4.13 Insurance. Schedule 4.13 lists each material insurance policy insuring the Company. All such insurance policies are in full force and effect, and neither the Company nor its Affiliates party thereto is in default in any material respect with respect to its obligations under any of such insurance policies. No notice of cancellation, termination or non-renewal has been received by the Company or its Affiliates party thereto with respect to any such policy, nor has the Company been denied insurance coverage within the three years prior to the date of this Agreement. There are no outstanding unpaid claims under any such policy. Such polices are sufficient in all material respects for compliance with applicable Legal Requirement and all Contracts to which the Company is a party.

     Section 4.14 Sufficiency of Assets. Except for (i) the services to be provided under the Transition Services Agreement, (ii) any assets or personnel that will be transferred, assigned or licensed to the Company pursuant to this Agreement and/or any other Transaction Document and (iii) any other services provided by unaffiliated third parties in the Ordinary Course of Business, the Company owns or has a valid leasehold interest in all of the assets and real property necessary to permit the Company or Parent to operate the Company’s businesses immediately following the Closing Date in all material respects as the Company’s businesses have been operated during the calendar year prior to the date hereof and through immediately prior to the Closing Date. No representation or warranty is made in this Section 4.14 with respect to matters covered by Section 4.16(d) (Intellectual Property).

     Section 4.15 Title to Properties.

     (a) The Company owns good title to, holds pursuant to valid and enforceable leases or otherwise has the legal right to use, all of the material tangible personal property owned by it or used by it in its business currently or during the 18 months prior to the date hereof (except for such personal property sold or disposed of in the Ordinary Course of Business), free and clear of all Liens, except for Company Permitted Liens.

     (b) The Company does not own any real property.

     (c) The real property demised by the lease and sublease agreements described on Schedule 4.15(c) (the “Company Real Property Leases”) constitutes all of the real property leased, subleased, licensed or otherwise occupied by the Company (the “Company Leased Real Property”). The Company Real Property Leases are in full force and effect, enforceable in accordance with their terms, subject to proper authorization and execution of such Company Real Property Lease by the other party thereto and the limitations of bankruptcy laws, other similar Legal Requirements affecting creditors’ rights and general principles of equity affecting the availability of specific performance and other equitable remedies. The Company has made available to Parent, Corporate Merger Sub and LLC Merger Sub true and complete copies of the Company Real Property Leases. (i) Neither the Company nor, to the Company’s knowledge any

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other party to a Company Real Property Lease is in material breach or default under any such Company Real Property Leases or, to the Company’s knowledge, no event has occurred or circumstance exists which, with the delivery of notice or lapse of time, or both, would constitute a material default by the Company under such Company Real Property Leases; (ii) the other party to such Company Real Property Lease is not an Affiliate of, and otherwise does not have any material economic interest in, the Company; (iii) the Company has a good and valid leasehold interest in all Company Leased Real Property and has not collaterally assigned, mortgaged, deeded in trust or granted any other Lien in such Company Real Property Lease or any interest therein other than Company Permitted Liens; (iv) there are no Liens affecting the Company Real Property Leases, other than Company Permitted Liens; (v) the Company Real Property Leases constitute all written and oral agreements of any kind for the leasing, rental, use or occupancy of the Company Leased Real Property and are the result of bona fide arm’s length negotiations between the parties; (vi) no security deposit or portion thereof deposited with respect of any Company Real Property Lease has been applied in respect of a breach or default under such Company Real Property Lease which has not been redeposited in full; (vii) the Company has not subleased, licensed or otherwise granted any Person the right to use or occupy any of the Company Leased Real Property; (viii) the Company does not owe, nor will it owe in the future, any brokerage commissions or finder’s fees with respect to any Company Real Property Lease; and (ix) to the Company’s knowledge, there are no material disputes with respect to the Company Real Property Leases.

     Section 4.16 Intellectual Property.

     (a) Schedule 4.16(a) contains a complete and accurate list of all of the United States and foreign (i) patents and patent applications, (ii) trademark and service mark registrations and applications, (iii) copyright registrations and applications for registration, and (iv) internet domain name registrations held in the name of the Company or, with respect to (i) and (iii), to the extent (if any) used in the Company’s business, and if so used, owned by or held in the name of any Related Party IP Holder (and indicating for each, as applicable, owner of record (with respect to (i) -(iii)) or the registrant (with respect to (iv)), jurisdiction registration and application number and dates) (collectively, “Registered Intellectual Property”).

     (b) Schedule 4.16(b) contains a complete and accurate list of each uniquely identifiable Software program that is material to the conduct of the Company’s business as currently conducted and either owned by (i) the Company or (ii) a Related Party IP Holder.

     (c) Schedule 4.16(c) contains a complete and accurate list of each Contract:

     (i) by which the Company or any Related Party IP Holder grants to any Person any right of first offer or right of first refusal to purchase, license or use any material Company Intellectual Property;

     (ii) by which any Company Intellectual Property is licensed by the Company or any Related Party IP Holder to any Person, and

     (iii) by which the Company or any Related Party IP Holder licenses from another Person any Company Intellectual Property;

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provided, however, in the case of clause (ii) and (iii) above, the Company need not list (x) licenses granted by the Company to its customers in the Ordinary Course of Business, (y) in-bound licenses for Software that is “off-the-shelf” or commercially available on standard terms where the replacement cost and/or the total annual license or maintenance fees are less than $20,000; or (z) other licenses of Intellectual Property granted to the Company by other Persons where the replacement cost and/or and the total annual license or maintenance fees are less than $20,000.

     (d) The Company solely owns (or as of the Closing Date will solely own), free and clear of any Liens, all right, title and interest in and to, or possesses (or as of the Closing Date will possess) the valid and enforceable right to use all Company Intellectual Property, except where the failure to so own or have a valid and enforceable right to use Company Intellectual Property would not have a material impact on the Company’s business.

     (e) All of the Owned Intellectual Property that is material to the Company’s business as currently conducted is valid, subsisting and enforceable and in full force and effect.

     (f) All of the Company Intellectual Property that is or was owned or purportedly owned by the Company during the period beginning January 1, 2009 and ending immediately prior to the Closing (the “IP Reference Period”) and not disposed of in the Ordinary Course of Business shall be owned by the Surviving Entity immediately after the Closing on the same terms and conditions as those under which the Company owned such Company Intellectual Property during the IP Reference Period.

     (g) Taking into account the Transition Services Agreement and any software or hardware that is listed on the schedule of services attached thereto, all of the Company Intellectual Property that is KUOS Curricula which is or was owned or purportedly owned by a Related Party IP Holder during the IP Reference Period and not disposed of in the Ordinary Course of Business shall be owned by the Surviving Entity immediately after the Closing on the same terms and conditions as those under which the Related Party IP Holder owned such Intellectual Property during the IP Reference Period.

     (h) Taking into account the Transition Services Agreement and any software or hardware that is listed on the schedule of services attached thereto, all of the Company Intellectual Property that is, or during the IP Reference Period was, available for use by or for the benefit of the Company during the IP Reference Period and not disposed of in the Ordinary Course of Business shall be available for use by the Surviving Entity on terms and conditions substantially similar to those under which such Company Intellectual Property was available for use by or for the benefit of the Company during the IP Reference Period.

     (i) There are no oppositions, cancellations or other Actions against the Company or any Related Party IP Holder presently pending and served by or before a arbitrator or Governmental Entity or, to the Company’s knowledge, threatened or pending but not yet served, contesting the validity, use, ownership, enforceability or registrability of any of the Company Intellectual Property owned or purportedly owned by the Company or any Related Party IP Holder.

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     (j) In the past thirty-six (36) months neither the Company nor, in connection with any activities conducted on behalf of the Company by a Related Party IP Holder, any Related Party IP Holder, has received any notices of infringement, misappropriation or other violation of any Intellectual Property from any other Person (including any demands that the Company or such Related Party IP Holder license any Intellectual Property).

     (k) There are no Actions presently pending and served by or before an arbitrator or a Governmental Entity or, to the Company’s knowledge, threatened or pending but not yet served, that allege that the Company or, in connection with any Related Party IP, any Related Party IP Holder has infringed, misappropriated or violated the rights of any other Person.

     (l) Except as would not have a material impact on the Company’s business, neither the Company nor the conduct of its business as currently conducted infringes, misappropriates or otherwise violates, or in the last fifty-four (54) months has infringed, misappropriated or otherwise violated any Intellectual Property owned by any other Person.

     (m) To the Company’s knowledge and/or as would not have a material impact on the Company’s business, no Person is currently infringing, misappropriating or otherwise violating any Company Intellectual Property that the Company or a Related Party IP Holder owns or purports to own.

     (n) To the Company’s knowledge, the Company Intellectual Property that the Company or a Related Party IP Holder owns or purports to own is not subject to any outstanding consent, settlement, decree, order, injunction, judgment or ruling restricting the use thereof.

     (o) The Company and each Related Party IP Holder have taken reasonable measures to maintain (i) its respective Registered Intellectual Property, and material unregistered trademarks in which the Company or a Related Party IP Holder has common law rights, and (ii) the trade secret status of its trade secrets.

     (p) It is the Company’s policy to have independent contractors execute confidentiality and work-for-hire agreements, and the forms of such agreements are substantially in the form made available to Parent.

     (q) No current or former employee, consultant or independent contractor of the Company or of any Related Party IP Holder owns or otherwise holds any right, title or interest in or to any Company Intellectual Property that the Company or a Related Party owns or purports to own, or has, or in the last thirty six (36) months has asserted, any claim to any right, title or interest in or to any such Company Intellectual Property.

     (r) Taking into account the Transition Services Agreement and any software and hardware that is listed on the schedule of services attached thereto, the computers, Software, hardware, networks, servers, sites, circuits and platforms and similar IT Assets (whether general or special purpose) that are owned, licensed, leased or controlled by the Company or, to the extent used in the Company’s business, owned by any Related Party (collectively, the “Company Systems”) are sufficient for the conduct of the Company’s business as currently conducted and are in good working order.

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     (s) To the Company’s knowledge, none of the Company Systems are, or in the last twenty-four (24) months have been, subject to any malicious code (including any viruses, bugs, worms, disabling code, time bombs or Trojan horses) that has materially disrupted the Company’s business.

     (t) The Company uses commercially available antivirus software and uses commercially reasonable efforts to protect the Company Software Products and Software used internally by the Company from becoming infected by viruses and other harmful code.

     (u) The Company and any Related Party IP Holder that is doing work for or on behalf of the Company has taken commercially reasonable steps to provide for the security, and integrity of the Company Systems and the back-up and recovery of data and information stored or contained therein or processed or transmitted thereby and to guard against any unauthorized security thereof or other unauthorized access or use of any of the foregoing data or information or the Company Systems owned or controlled by the Company or a Related Party IP Holder that have resulted in, or would reasonably be expected to materially adversely effect, or to result in any material liability of, the Company. The Company has, maintains and complies with commercially reasonable procedures for the retention, back-up and recovery of data, and periodically tests its data back-up processes.

     (v) The Company is not a party to any Contract, or otherwise subject to any duty, which restricts the free use, license or disclosure by the Company of any Software material to the business of the Company owned by the Company or any Related Party IP Holder (excluding any electronic or digital versions of curriculum). Other than to customers to whom the Company has granted a perpetual license, the Company or any Related Party IP Holder has not delivered, licensed or made available to any Person any source code (or any material part thereof) for any Software that is Company Intellectual Property and owned by the Company or any Related Party IP Holder.

     (w) To the Company’s knowledge, no Company Software Products contain Open Source Software.

     (x) Except where there would not have a material impact on the Company’s business, none of the Company’s use of Open Source Software could (i) require, or condition the use or distribution, or access to, any Company Software (including any Company Software Product) on (A) the disclosure, licensing or distribution of any source code for any portion of any Company Software, (B) the licensing of any Company Software for the purpose of making derivative works, or (C) the distribution of any Company Software at no charge, and/or (ii) otherwise impose any limitation, restriction, or condition on the right or ability of the Company to use, license, sell or distribute any Company Software (including any Company Software Product).

     (y) The Company and each Related Party IP Holder is, and has been, in compliance in all material respects with its posted privacy policies and related programs and all applicable data protection, privacy and other applicable Legal Requirements governing the its collection, use, storage, distribution, transfer, import, export, disposal or disclosure (whether electronically or in any other form or medium) of any personally identifiable information or data. Each Related Party IP Holder that collects, uses, stores, distributes, transfers, imports, exports,

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disposes of or discloses personally identifiable information or data on behalf of the Company is, and has been, in compliance in all material respects with its posted privacy policies and related programs and all applicable data protection, privacy and other applicable Legal Requirements governing its collection, use, storage, distribution, transfer, import, export, disposal or disclosure (whether electronically or in any other form or medium) of such personally identifiable information or data.

     (z) To the Company’s knowledge and/or except as would not have a material impact on the Company’s business, there have not been any incidents of data security breaches resulting from the collection, use, storage, distribution, transfer, import, export, disposal or disclosure by the Company of personally identifiable information or data. To the Company’s knowledge and/or except as would not have a material impact on the Company’s business, there have not been any incidents of data security breaches resulting from the collection, use, storage, distribution, transfer, import, export, disposal or disclosure by any Related Party IP Holder of personally identifiable information or data that such Related Party IP Holder collects, uses, stores, distributes, transfers, imports, exports, disposes of or discloses on behalf of the Company.

     (aa) There have been no Actions against the Company by any other Person (including any Governmental Entity) regarding the collection, use, storage, distribution, transfer, import, export, disposal or disclosure of personally identifiable information or data (including as a result of the conduct of the Company’s business or any violation of applicable Legal Requirement). There have been no Actions against any Related Party IP Holder by any other Person (including any Governmental Entity) regarding the collection, use, storage, distribution, transfer, import, export, disposal or disclosure of personally identifiable information or data on behalf of the Company (including as a result of the conduct of such Related Party IP Holder’s business or any violation of applicable Legal Requirement).

     (bb) To the Company’s knowledge, the Company has not experienced any incident in which any personally identifiable information or data was stolen or subject to any unauthorized access or use. To the Company’s knowledge, no Related Party IP Holder has experienced any incident in which any personally identifiable information or data that is used in the Company’s business was stolen or subject to any unauthorized access or use.

     (cc) No Governmental Entity, university, college or other educational institution or research center or other Person has any claim of an ownership interest in any Owned Intellectual Property (including any Company Software Products). To the Company’s knowledge, no Governmental Entity, university, college or other educational institution or research center or other Person has any claim of an ownership interest in any Company Intellectual Property (including any Company Software Products) that is owned or purportedly owned by the Company or a Related Party IP Holder. No Governmental Entity, university, college or other educational institution or research center or other Person has any claim to a share of the Company’s or a Related Party IP Holder’s revenues or profits from, any Company Intellectual Property (including any Company Software Products).

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     Section 4.17 Environmental Matters.

     (a) The Company is, and during the 18 months prior to the date of this Agreement has been, in compliance with all applicable Environmental Requirements, except for such noncompliance as would not have a Company Material Impact.

     (b) The Company has, and during the 18 months prior to the date of this Agreement has had, all material permits, material licenses and other material authorizations required under applicable Environmental Requirements, and is and during the preceding one year prior to the date of this Agreement has been, in compliance with such permits, licenses and authorizations except for such noncompliance as would not have a Company Material Impact.

     (c) The Company has not, within the 18 months prior to the date of this Agreement, received any written notice, including actions, suits and proceedings, from any government entity or any other Person that alleges that any of them is or was in violation of Environmental Requirements or has any liability arising under or relating to Environmental Requirements, including any investigatory, remedial or corrective obligation, relating to the Company or its current or former facilities, which would reasonably be expected to have a Company Material Adverse Effect and to the Company’s knowledge, no such notice is threatened.

     (d) Except as would not have a Company Material Impact, the Company has not, within the 18 months prior to the date of this Agreement, released, disposed of or arranged for the release or disposal of any Hazardous Material in a manner or to a location that could reasonably be expected to result in liability to the Company under any Environmental Requirement and no Hazardous Material is otherwise present at or about any property or facility currently or, to the Company’s knowledge, formerly, owned, leased or operated by the Company, in amount or condition that could reasonably be expected to result in liability to the Company under or relating to any Environmental Requirement.

     Section 4.18 Affiliated Transactions. Schedule 4.18 contains a complete and correct list of all (i) transactions between the Company and any director, officer, senior employee or Affiliate of the Company, other than compensation paid to directors, officers or employees in the Ordinary Course of Business and (ii) agreements, arrangements or understandings by the Company, on the one hand, and any of its Affiliates, on the other hand, that (x) have been effected or entered into during the 18 months prior to the date of this Agreement and (y) individually required or require payments in excess of $120,000. No officer, director, management-level Business Employee or Affiliate of the Company or Seller (each, individually, a “Related Party” and, collectively, the “Related Parties”) holds or has held during the preceding year, directly or indirectly, (1) to the Company’s knowledge, (A) any 15% or greater equity or ownership interest in or direct employment or consulting relationship with any entity that purchases from or sells or furnishes to the Company any goods or services; or (B) a material beneficial interest in any Contract that required or require payments in excess of $120,000; or (2) any right, title or interest in or to any Intellectual Property used or held for use in or developed for the Company’s business (excluding any Intellectual Property where all right, title and interest in and to such Intellectual Property has been assigned, or will be assigned pursuant to Section 6.02, as of Closing to the Company in connection with the transactions contemplated hereby).

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     Section 4.19 Compliance with Legal Requirements. The Company is, and during the preceding 18 months prior to the date of this Agreement has been, in compliance with all applicable Legal Requirements and applicable regulations of foreign, federal, state, provincial and local Governmental Entities to which the Company is currently or during such time has been subject (including the Children’s Online Privacy Protection Act of 1998, the Family Educational Rights and Privacy Act of 1974, any state or foreign educational records or privacy law, and the Individuals with Disabilities Education Act, in each case to the extent applicable to the Company), except for noncompliance which has not and would not reasonably be expected to result, individually or in the aggregate, in a Company Material Impact. Neither the Company nor, to the Company’s knowledge, any director, officer, agent, employee or other Person acting on behalf of any of the Company, has used any corporate funds of the Company for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, or made any direct or indirect unlawful payments to government officials or employees from corporate funds, or established or maintained any unlawful or unrecorded funds. The Company has not received within the preceding 18 months any notice, action or assertion from any Governmental Entity, nor, to the Company’s knowledge, within the two years prior to the date hereof, has any notice, action or assertion been filed or commenced against the Company, in each case, alleging that the Company is or was not in material compliance with any applicable Legal Requirements or orders, judgments, injunctions or decrees. No representation or warranty is made in this Section 4.19 with respect to compliance with Legal Requirements relating to unlawful contributions or notices from Governmental Entities relating to matters covered by Section 4.09 (Taxes), Section 4.11 (Employee Benefit Plans) or Section 4.17 (Environmental Matters).

     Section 4.20 Governmental Licenses and Permits. Schedule 4.20 contains a list of all material permits and licenses of Governmental Entities (collectively, the “Company Licenses”) owned or possessed or used by the Company and no other permits and licenses of Governmental Entities are required in the conduct of their respective businesses or used by the Company in the conduct of its business, in each case as of the date of this Agreement. All of such Company Licenses held by, used by or issued to the Company are in full force and effect, and the Company or the holder of the Company License is in compliance in all material respects with each such Company License held by, used by or issued to it. No Action is pending, nor to the Company’s knowledge is threatened, to suspend, revoke, revise, limit, restrict or terminate any such Company License or declare any such Company License invalid.

     Section 4.21 Litigation. (i) There are no Actions pending or, to the Company’s knowledge, threatened against, and during the 18 months prior to the date hereof there have not been any Actions pending, or to the Company’s knowledge, threatened against the Company, and (ii) to the Company’s knowledge, there are no Actions pending or threatened against the Company Leased Real Property, in the case of each of (i) and (ii), whether at law or in equity, or before or by any federal, state, municipal or other Governmental Entity, domestic or foreign, which if determined adversely to the Company has resulted or would reasonably be expected to result in a loss (to the Company or, if the Company is or was a plaintiff, suffered by the Company) of in excess of $500,000, individually or in the aggregate, or injunctive relief. The Company is not subject to any material outstanding judgment, order or decree of any court or Governmental Entity.

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     Section 4.22 Vendor Relationships. The Company has not received written notification since the date one year prior to the date hereof from any current or former material or sole source vendor to the Company that could not be replaced without significant interruption in which such vendor has notified of its intent to terminate or fail to renew its relationship with the Company (including with respect to the terms or quantity of business such supplier does with the Company).

     Section 4.23 Brokerage. No broker, finder, investment banker or other Person is entitled to any brokerage commissions, finders’ fees, commission or similar compensation in connection with the transactions contemplated by this Agreement or the other Transaction Documents based upon arrangements made by or on behalf of the Company or any of its Affiliates, that is or will be payable by the Company or any of its Affiliates.

     Section 4.24 No Other Representations. Except for the representations and warranties contained in this Agreement or in any other Transaction Document, the Company makes no express or implied representation or warranty in respect or on behalf of the Company or any of its Affiliates, and the Company disclaims any such representation or warranty, whether by the Company or any of its officers, directors, employees, agents or representatives or any other Person, with respect to the execution and delivery of this Agreement or any other Transaction Document or the consummation of the transactions contemplated hereby and thereby, notwithstanding the delivery or disclosure to Parent, Corporate Merger Sub, LLC Merger Sub or any of their officers, directors, employees, agents or representatives or any other Person of any documentation or other information with respect to the foregoing.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT, CORPORATE MERGER SUB
AND LLC MERGER SUB

          Except as disclosed in the disclosure schedules dated as of the date of this Agreement and delivered by Parent, Corporate Merger Sub and/or LLC Merger Sub to Seller herewith (the “Parent Disclosure Schedules”) (it being understood that the disclosure of any fact or item in any section of the Parent Disclosure Schedules shall, should the existence of such fact or item be relevant to any other section, be deemed to be disclosed with respect to that other section only to the extent that it is reasonably apparent that such fact or item is relevant to such other section), Parent, Corporate Merger Sub and LLC Merger Sub represent and warrant to the Company and Seller as of the date of this Agreement that:

     Section 5.01 Organization. Parent (i) is a corporation duly organized, validly existing and in good standing under the Legal Requirements of the State of Delaware, (ii) has all requisite corporate power and authority to own, operate and lease its properties and to carry on its businesses as now conducted and (iii) is duly qualified or licensed to do business and is in good standing in every jurisdiction in which its ownership or lease of assets or property or the conduct of businesses as now conducted requires it to be so qualified or licensed, except, in the case of clauses (i) through (iii), where the failure to be so qualified or licensed or in good standing would not have a material adverse effect on Parent. The copies of Parent’s Certificate of Incorporation (the “Parent Certificate”) and Bylaws (the “Parent Bylaws”) that are listed as exhibits to Parent’s

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Annual Report on Form 10-K for the year ended June 30, 2009 are true, complete and correct copies thereof as in effect on the date hereof. Parent is not in violation of any of the provisions of the Parent Certificate or Parent Bylaws.

     Section 5.02 Ownership and Operations of Corporate Merger Sub and LLC Merger Sub.

     (a) Corporate Merger Sub and LLC Merger Sub were each formed solely for the purpose of engaging in the transactions contemplated by this Agreement.

     (b) All of the outstanding capital stock of Corporate Merger Sub is owned directly by Parent. Except as arising pursuant to the Mergers, there are no options, warrants or other rights (including registration rights), agreements, arrangements or commitments to which Corporate Merger Sub is a party of any character relating to the issued or unissued capital stock of, or other equity interests in, Corporate Merger Sub or obligating Corporate Merger Sub to grant, issue or sell any shares of the capital stock of, or other equity interests in, Corporate Merger Sub, by sale, lease, license or otherwise. Except as arising pursuant to the Mergers, there are no obligations, contingent or otherwise, of Corporate Merger Sub to repurchase, redeem or otherwise acquire any shares of the capital stock of Corporate Merger Sub.

     (c) All of the outstanding membership interests of LLC Merger Sub are owned directly by Parent. Except as arising pursuant to the Mergers, there are no options, warrants or other rights (including registration rights), agreements, arrangements or commitments to which LLC Merger Sub is a party of any character relating to the issued or unissued membership interests of, or other equity interests in, LLC Merger Sub or obligating LLC Merger Sub to grant, issue or sell any membership interests of, or other equity interests in, LLC Merger Sub, by sale, lease, license or otherwise. Except as arising pursuant to the Mergers, there are no obligations, contingent or otherwise, of LLC Merger Sub to repurchase, redeem or otherwise acquire any membership interests of LLC Merger Sub.

     (d) Except for obligations or liabilities incurred in connection with its incorporation and the transactions contemplated by this Agreement or any Transaction Document, Corporate Merger Sub and LLC Merger Sub have not incurred, directly or indirectly, through any Subsidiary or Affiliate, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any Person.

     Section 5.03 Authorization; Anti-takeover Statute.

     (a) Each of Parent, Corporate Merger Sub and LLC Merger Sub possesses all requisite corporate or limited liability power and authority to execute, deliver and perform its obligations under this Agreement and the other Transaction Documents to which it is a party and to consummate the transactions contemplated hereunder and thereunder. All corporate or limited liability company actions and proceedings required to be taken by or on the part of it to authorize and permit the execution, delivery and performance by it of this Agreement and the other Transaction Documents to which it is a party have been duly and properly taken by Parent, Corporate Merger Sub and LLC Merger Sub, subject, in the case of the issuance of Parent Common Stock upon conversion of the Parent Special Stock, to receipt of the Stockholder

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Approval. This Agreement has been, and each other Transaction Document to which Parent, Corporate Merger Sub or LLC Merger Sub is a party has been, duly executed and delivered by Parent, Corporate Merger Sub and LLC Merger Sub. This Agreement constitutes, and each other Transaction Document to which Parent, Corporate Merger Sub or LLC Merger Sub is a party constitutes, when so duly executed and delivered, a valid and binding obligation of Parent, Corporate Merger Sub and LLC Merger Sub, enforceable against Parent, Corporate Merger Sub and LLC Merger Sub in accordance with its terms, in each case subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar Legal Requirements affecting creditors’ rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

     (b) The respective board of directors or board of managers of Parent, Corporate Merger Sub or LLC Merger Sub has unanimously (i) determined that this Agreement and the other Transaction Documents to which such entity is party and the transactions contemplated hereby and thereby, including the Mergers, in accordance with the DGCL and the Delaware Act, on the terms and subject to the conditions set forth herein, are advisable, fair to and in the best interests of such entity in accordance with the DGCL and the Delaware Act and (ii) approved this Agreement and the other Transaction Documents to which such entity is a party, the execution, delivery and performance of this Agreement and the other Transaction Documents to which such entity is a party and the consummation of the transactions contemplated hereby and thereby, including the Mergers, on the terms and subject to the conditions set forth herein and in accordance with the DGCL and the Delaware Act.

     (c) The Parent Board has taken all necessary actions so that the restrictions on business combinations set forth in Section 203 of the DGCL are not applicable to this Agreement and the transactions contemplated hereby (including the Mergers).

     Section 5.04 Valid Issuance of Parent Special Stock. The Parent Special Stock, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and non-assessable and free of restrictions on transfer other than restrictions on transfer under this Agreement and the other Transaction Documents, applicable state and federal securities laws and Liens or encumbrances created by or imposed by Seller. Assuming the accuracy of the representations of Seller in this Agreement, the Parent Special Stock will be issued in compliance with all applicable federal and state securities laws.

     Section 5.05 No Conflict; Required Filings and Consents. Neither (x) the execution, delivery and performance of this Agreement and the other Transaction Documents by Parent, Corporate Merger Sub or LLC Merger Sub nor (y) the consummation of the transactions contemplated hereby and thereby will: (i) conflict with or result in a breach of the certificate of incorporation or bylaws, or other organizational documents, of Parent, Corporate Merger Sub or LLC Merger Sub; (ii) violate any Legal Requirement or decree to which Parent, Corporate Merger Sub or LLC Merger Sub is, or its assets or properties are subject or that could reasonably give any party a right to rescind the transactions contemplated hereby; or (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice under any Contract to

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which Parent is a party or by which it is bound or that could reasonably give any party a right to rescind the transactions contemplated hereby; or (iv) require any material permit, authorization, consent or approval of, or notice to, any Governmental Entity (other than the filing with the SEC of the Proxy Statement prior to obtaining the Stockholder Approval and a Current Report on Form 8-K relating to the transactions contemplated hereby) in order for the Parties to consummate the Mergers and transactions contemplated, except: (A) in the case of either clause (ii) or (iii), for such conflicts, violations, breaches, defaults, accelerations, rights or failures to give notice as would not materially affect Parent’s ability to consummate the transactions contemplated by this Agreement and the other Transaction Documents to which it is a party; or (B) that none of Parent, Corporate Merger Sub or LLC Merger Sub makes any representation with respect to the obligation (or lack thereof) of any Party to make any filing under the HSR Act in connection with this Agreement or any other Transaction Document.

     Section 5.06 Capitalization.

     (a) The authorized capital stock of Parent consists of 100,000,000 shares of Parent Common Stock and 10,000,000 shares of Parent Preferred Stock. As of July 12, 2010, (i) 30,456,205 shares of Parent Common Stock were issued and outstanding (including 188,139 shares of Parent Restricted Stock), (ii) no shares of Parent Preferred Stock were issued and outstanding; and (iii) no shares of Parent Common Stock were held in treasury. As of July 12, 2010, there were 5,328,322 shares of Parent Common Stock authorized and reserved for future issuance under Parent Stock Plans (including, as of July 12, 2010 outstanding Parent Options to purchase 4,077,868 shares of Parent Common Stock). As of July 12, 2010, 124,505 shares of Parent Common Stock were authorized or reserved for future issuance under outstanding Parent Warrants. Except as set forth above, as of July 12, 2010, no shares of capital stock of, or other equity or voting interests in, Parent, or options, warrants or other rights to acquire any such stock or securities were issued, reserved for issuance or outstanding. All outstanding shares of capital stock of Parent are, and all shares that may be issued pursuant to outstanding awards under Parent Stock Plans or outstanding Parent Warrants will be, when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and non assessable and not subject to preemptive rights.

     (b) All outstanding shares of capital stock of Parent and each of its Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable, free and clear of any preemptive rights. There are no outstanding (i) equity interests or voting securities of Parent, (ii) securities of Parent convertible into or exchangeable for shares of capital stock, other equity interests or voting securities of Parent or (iii) options, warrants, stock appreciation rights, phantom stock, equity or equity-based compensation awards, whether granted under any Parent Stock Plan or otherwise, or other rights to acquire from Parent, or other obligations of Parent to issue, deliver or sell, any capital stock, other equity interests or voting securities or securities convertible into or exchangeable for capital stock, other equity interests or voting securities of Parent except as set forth in Section 5.06(a) or in the Parent SEC Filings.

     (c) The shares of Parent Special Stock, when issued and delivered in accordance with the terms of this Agreement will be duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights.

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     Section 5.07 SEC Filings; Financial Statements.

     (a) Parent has timely filed all registration statements, prospectuses, forms, reports and documents required to be filed by it under the Securities Act or the Exchange Act, as the case may be, since July 1, 2007 (collectively, the “Parent SEC Filings”). Each Parent SEC Filing (i) as of its date complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) did not, at the time it was filed, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, in each case except as corrected by subsequent amendment or Parent SEC Filing filed prior to the date hereof.

     (b) Set forth in the Parent SEC Filings are (i) an unaudited consolidated balance sheet as of March 31, 2010 (the “Latest Parent Balance Sheet”), and the related unaudited consolidated statements of income and cash flow of Parent for the 3-month period then ended and (ii) an audited consolidated balance sheet as of June 30, 2009, and the related audited consolidated statements of income and cash flow of the Company for the 12-month period then ended (together with the Latest Parent Balance Sheet, the “Parent Financial Statements”). Except as set forth in the Parent SEC Filings, such Parent Financial Statements (including the related notes and schedules) have been prepared in accordance with GAAP consistently applied throughout the periods referred to therein and present fairly in all material respects the consolidated financial condition and results of operations of Parent and its Subsidiaries (taken as a whole) as of the times and for the periods referred to therein (subject to normal year-end audit adjustments, which will not be material in amount or effect, and the absence of footnotes and other presentation items).

     (c) Except as set forth in the Parent SEC Filings, Parent maintains a system of internal accounting controls sufficient to provide reasonable assurance that (a) transactions are executed in accordance with management’s general or specific authorizations, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (c) access to assets is permitted only in accordance with management’s general or specific authorization and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Since July 1, 2007, neither Parent nor any of its Subsidiaries has received any notification from its internal audit personnel or its independent public accountants of a “material weakness” in Parent’s internal controls. For purposes of this Agreement, the term “material weakness” shall have the meaning assigned to it in Release 2004 001 of the Public Company Accounting Oversight Board.

     (d) Except as set forth in the Parent SEC Filings, Parent maintains an effective system of “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that is designed to ensure that information required to be disclosed by Parent in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to Parent’s management as appropriate to allow timely decisions

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regarding required disclosure. Parent has carried out all required evaluations of the effectiveness of its disclosure controls and procedures as required by Rule 13a-15 of the Exchange Act.

     Section 5.08 Requisite Vote. The only vote of any class or series of Parent’s capital stock necessary to approve (i) the rights of holders of Parent Special Stock to convert such stock into shares of Parent Common Stock and (ii) the voting rights of the Parent Special Stock, in each case in accordance with the Series A Special Stock Certificate of Designations, is the affirmative vote of a majority of the total votes cast by the holders of Parent Common Stock at the Parent Stockholders’ Meeting (the “Stockholder Approval”).

     Section 5.09 No Material Adverse Effect. Except as set forth in the Parent SEC Filings, since March 31, 2010, there has not been any event, change, development, condition, occurrence or effect that individually or in the aggregate has had a Parent Material Adverse Effect.

     Section 5.10 Tax Matters. It is the present intention of Parent to continue at least one significant historic business line of the Company, or to use at least a significant portion of the Company’s historic business assets in a business, in each case within the meaning of Treasury Regulation Section 1.368-1(d).

     Section 5.11 Litigation. Except as set forth in the Parent SEC Filings, there are no Actions pending or, to Parent’s knowledge, threatened against Parent or its Subsidiaries which could reasonably be expected to prevent Parent or any of its Subsidiaries from consummating, or is otherwise related to, the transactions contemplated hereby or the other Transaction Documents.

     Section 5.12 Form S-3. Parent is eligible to register Parent Common Stock for resale by Seller on a registration statement on Form S-3 under the Securities Act as of the hereof.

     Section 5.13 Brokerage. No broker, finder, investment banker or other Person is entitled to any brokerage commissions, finders’ fees, commission or similar compensation in connection with the transactions contemplated by this Agreement or the other Transaction Documents based upon arrangements made by or on behalf of Parent, Corporate Merger Sub or LLC Merger Sub, that is or will be payable by Parent, Corporate Merger Sub or LLC Merger Sub.

     Section 5.14 Opinion of Financial Advisor. The Parent Board has received the opinion of Duff & Phelps, LLC, substantially to the effect that, as of the date of its opinion, the consideration to be paid in the Mergers is fair to Parent and its stockholders (other than Learning Group LLC and its Affiliates) from a financial point of view. This information is provided for informational purposes only and shall not be relied upon by Seller or the Company or any of their respective Affiliates for any purpose.

     Section 5.15 No Other Representations. Except for the representations and warranties contained in this Agreement, none of Parent, its Subsidiaries (including Corporate Merger Sub and LLC Merger Sub) or any other Person makes any express or implied representation or warranty in respect or on behalf of Parent or its Subsidiaries, and Parent disclaims any such representation or warranty, whether by Parent, any Subsidiary of Parent or any of their respective

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officers, directors, employees, agents or representatives or any other Person, with respect to the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby or the business or assets of Parent and its Subsidiaries, notwithstanding the delivery or disclosure to Seller or Parent or any of their officers, directors, employees, agents or representatives or any other Person of any documentation or other information with respect to the foregoing.

ARTICLE VI

ADDITIONAL AGREEMENTS; POST-CLOSING COVENANTS

     Section 6.01 Efforts; Consents; Filings.

     (a) Each Party shall use its commercially reasonable efforts to provide all notices and obtain all consents necessary under any Contracts, customer orders, licenses, permits and other rights of the Company, including those set forth on Schedule 6.01 and those which require the consent of such parties related to the consummation of the transactions contemplated hereby. The Company shall be responsible for, and shall control any, negotiations with third parties regarding any such consents from and after the Closing. Seller shall not, and shall ensure that its Affiliates do not, (i) propose or agree to the payment of any amounts or to any modification to the terms of any Contract for purposes of obtaining any such consent or (ii) purport to bind Parent, the Company or any of their respective Subsidiaries relating to any of the foregoing. Seller and Parent shall share equally the costs to obtain any such consents, provided, however, that in no event shall Seller or any of its Affiliates be required to (1) expend in excess of $25,000 in the aggregate to obtain any such consents or (2) offer or grant any accommodation (financial or otherwise) to any third party, or agree to any amendment or waiver to any Contract, that would adversely affect the Seller’s Affiliates’ businesses after the Closing, in connection with obtaining such consents.

     (b) Each of the Parties shall use its commercially reasonable efforts to make or cause to be made all filings and submissions required under any Legal Requirements applicable to any Party related to the consummation of the transactions contemplated hereby. Each Party shall coordinate and cooperate with the other Parties in exchanging such information and assistance as such other Party may reasonably request in connection with all of the foregoing.

     (c) Without limiting the generality of the foregoing, Seller shall, and shall cause all of its Affiliates to, consent to the execution and delivery of this Agreement and the other Transaction Documents and of the consummation of the transactions contemplated hereby and thereby, and shall, and shall cause all of its Affiliates to, waive any right of notification, termination, acceleration, or other right of default, breach or conflict under all Contracts to which it is or they are party with the Company (other than this Agreement or any other Transaction Document) and where such right arises as a result of this Agreement, any other Transaction Document or the transactions contemplated hereby or thereby.

     (d) The Parties agree that the transactions contemplated by this Agreement are not subject to the HSR Act notification and waiting requirement.

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     (e) Subject to Section 6.01(d), (i) to the extent required by applicable Legal Requirement, each Party shall supply promptly any information and documentary material that may be requested by any Governmental Entity, and (ii) the Parties shall use their commercially reasonable efforts to (A) resolve any objections, if any, as may be asserted by any Governmental Entity with respect to the transactions contemplated by this Agreement to enable the transactions contemplated by this Agreement to be consummated as promptly as practicable, and (B) obtain any regulatory actions or non-actions, orders, waivers, consents, clearances, extensions and approvals from any Governmental Entity necessary to consummate the transactions contemplated by this Agreement.

     (f) Seller agrees that it will provide any notification known to be required with, or reasonably requested by, an accrediting authority related to a change of control of the Company.

     Section 6.02 Pre-Closing Transactions. Immediately prior to the First Merger Effective Time, Seller shall have consummated and Seller shall have caused its Affiliates and Related Parties to have consummated the following transactions (collectively, the “Pre-Closing Transactions”):

     (a) Terminate the License Agreement, dated January 1, 2009, as amended, between the Company and KU Online Services Inc.;

     (b) Terminate the Master Development Services Agreement, dated January 1, 2009, between the Company and KU Online Services Inc.;

     (c) Terminate the Shared Services Agreement, dated April 28, 2007, between the Company and Knowledge Learning Corporation;

     (d) Terminate the Master Information Technology Outsourcing Services Agreement, dated as of April 28, 2007, as amended, between the Company and Knowledge Universe Pte. Ltd.;

     (e) Enter into the Joint Litigation Agreement, dated as of the date hereof, between Seller and the Company;

     (f) Enter into the Assignment and Assumption Agreement, dated as of the date hereof, between the Company and Seller;

     (g) Enter into an Intellectual Property Assignment in the form attached hereto as Exhibit I (the “IP Assignment”), executed by Seller, and any Related Party IP Holder party thereto;

     (h) Enter into a Bill of Sale in the form attached hereto as Exhibit J (the “Bill of Sale”), executed by Knowledge Learning Corporation and the Company, whereby Knowledge Learning Corporation shall assign the assets listed on Schedule 6.02(h) to the Company;

     (i) Assign all their right, title and interest in and to the KUOS Curricula (including all copyrights therein and all right, title and interest in and to the curricula listed in Schedule A to the IP Assignment) to the Company; and

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     (j) Transfer the employment of each Business Employee to the Company (the “Employee Transfer”) and not transfer the employment of any other person to the Company, and Seller has or has caused Employer to have transferred to the Company all associated employment records of the Business Employees and all rights of Employer or any if its Affiliates as an employer of such Business Employee, including with respect to any rights regarding work done related to the Company, subject to any limitations imposed by any applicable Legal Requirements.

Seller shall ensure after the Closing that its Affiliates shall take all further action, if any, necessary to effect any of the Pre-Closing Transactions.

     Section 6.03 Delivery of Written Consents. Immediately following the execution of this Agreement and prior to the filing of the Certificate of Merger, Parent shall deliver to Seller the Parent Corporate Written Consent and the Parent LLC Written Consent and Seller shall deliver to Parent the Seller Written Consent.

     Section 6.04 Proxy Statement; Parent Stockholders’ Meeting.

     (a) From and after the Closing, Parent shall, and Seller shall cooperate with Parent in order to, prepare and file with the SEC under the Exchange Act, and with all other applicable regulatory bodies, a preliminary proxy statement pursuant to Section 14(a) of Exchange Act (the “Proxy Statement”), which shall include proxy materials for the purpose of soliciting proxies from Parent’s stockholder to obtain the Stockholder Approval at a duly convened stockholders’ meeting at which the Stockholder Approval will be considered (the “Parent Stockholders’ Meeting”). In addition, Parent shall prepare and file with the SEC any other Parent SEC Filings as and when required or requested by the SEC in connection with the transactions contemplated hereby as provided in this Section 6.04. Seller will furnish to Parent all information relating to it or any of its Affiliates required by the Exchange Act and the rules and regulations promulgated thereunder to be set forth in the Proxy Statement and such other filings promptly following request therefor from the Company, and Parent and Seller otherwise shall cooperate with each other in the preparation of the Proxy Statement and any other Parent SEC Filings. Parent acknowledges and agrees that none of the information with respect to Parent or its Subsidiaries to be included in the Proxy Statement will, at the time of the mailing of the Proxy Statement or any amendments or supplements thereto, and at the time of the Parent Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and that the Proxy Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated thereunder. Seller covenants and agrees that none of the information provided by it with respect to Seller, any of its Affiliates or the Company to be included in the Proxy Statement will, at the time of the mailing of the Proxy Statement or any amendments or supplements thereto, and at the time of the Parent Stockholders’ Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Parent shall promptly notify Seller of the receipt of any comments of the SEC with respect to the Proxy Statement or any other Parent SEC Filings related thereto and of any requests by the SEC for any amendment or supplement thereto or for additional

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information related thereto and shall provide to Seller copies of all correspondence between the Company or any representative of Parent and the SEC related thereto. Parent shall give Seller and its counsel the opportunity to review the Proxy Statement and any other Parent SEC Filings related thereto for a reasonable time as is reasonably practicable prior to their being filed with the SEC and shall give Seller and its counsel the opportunity to review all amendments and supplements to the Proxy Statement and all responses to requests for additional information and replies to comments for a reasonable time prior to their being filed with, or sent to, the SEC. Parent shall in good faith consider Seller’s reasonable comments on any such documents. Parent agrees to use its commercially reasonable efforts, after consultation with the other Parties hereto, to respond promptly to all such comments of and requests by the SEC, and resolve all such comments as promptly as reasonably practicable.

     (b) Without limiting the foregoing, Parent (i) will file the preliminary Proxy Statement with the SEC no later than the later of (x) 15 Business Days after the completion of the Company Audited Financial Statements or (y) 15 Business Days after the completion of the filing and mailing of the definitive proxy materials relating to Parent’s 2010 Annual Meeting of holders of Parent Common Stock (“Parent’s 2010 Annual Meeting”), (ii) will file with the SEC and mail to the stockholders of Parent the definitive Proxy Statement and all required amendments and supplements thereto to be mailed to the holders of shares of Parent Common Stock entitled to vote at the Parent Stockholders’ Meeting within five Business Days (or such longer period of time as necessary to complete broker searches) following, as applicable, (x) the tenth calendar day following the date that the preliminary Proxy Statement is filed, in the event that the SEC does not review the Proxy Statement, or (y) the date that the Company is notified by the SEC that the SEC has no further comments on the preliminary Proxy Statement or the most recent amendment thereto filed with the SEC; provided, however, that Parent shall not be required to file or mail the definitive Proxy Statement prior to mailing the Proxy Statement Parent’s 2010 Annual Meeting, and (iii) will duly call, notice and convene and hold the Parent Stockholders’ Meeting not later than 21 Business Days after the Proxy Statement is mailed to its stockholders; provided, however, that Parent shall not be required to hold the Parent Stockholders’ Meeting on or prior to the date of Parent’s 2010 Annual Meeting. Seller acknowledges and agrees that Parent Stockholders’ Meeting may also be Parent’s 2010 Annual Meeting if Parent shall determine that to be advisable. Notwithstanding anything in the foregoing, except for Parent’s 2010 Annual Meeting, under no circumstances will Parent hold a stockholder meeting prior to holding and completing the Parent Stockholders’ Meeting.

     (c) Parent will, promptly upon written request therefor by Seller or the Company, pay or reimburse Seller and the Company for all reasonable and documented out-of-pocket costs incurred from and after July 1, 2010 at the request and direction of Parent in writing for the preparation of information related to Seller or the Company (including, if appropriate, the Audited Company Financial Statements) for inclusion in the Proxy Statement, other than those costs, including legal and other transaction advisory fees and expenses, incurred by or on behalf of Seller or the Company on or prior to the Closing in connection with the negotiation, preparation or execution of this Agreement or the consummation of the Mergers (collectively, the “Seller Proxy Expenses”). Notwithstanding the foregoing, Parent shall have no obligation to reimburse Seller or the Company for any Seller Proxy Expenses (a) that are in excess of the estimates of Seller Proxy Expenses presented to and approved in writing by Parent unless

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subsequent presentment and approval for any such excess amount is obtained, or (b) that are incurred from and after the date on which Parent instructs the Company or Seller that it will not reimburse for any Seller Proxy Expenses that have not been incurred as of such date (until such time as, and solely to the extent that, Parent has withdrawn or modified such instruction); provided, that neither Seller nor the Company shall be obligated to incur further Seller Proxy Expenses or prepare any further information for inclusion in the Proxy Statement upon receipt of such instruction from Parent. For purposes of clarity, the Seller Proxy Expenses that Parent is obligated to pay or reimburse pursuant to this Section 6.04(c) (i) will not be treated as a current liability of the Company for purposes of calculating Net Working Capital Amount and (ii) the full amount of any such Seller Proxy Expenses paid by the Company prior to the Closing and not reimbursed by Parent shall be treated as a current asset of the Company for purposes of calculating the Net Working Capital Amount.

     (d) Parent, acting through the Parent Board, shall include in the Proxy Statement the recommendation of the Parent Board (the “Parent Board Recommendation”) that the stockholders of Parent approve (i) the rights of holders of Parent Special Stock to convert such stock into shares of Parent Common Stock and (ii) the voting rights of the Parent Special Stock, in each case, in accordance with the Series A Special Stock Certificate of Designations. Parent shall use its commercially reasonable efforts to obtain the Stockholder Approval. Neither the Parent Board nor any committee thereof shall withdraw or modify, or propose publicly to withdraw or modify, the Parent Board Recommendation unless and only to the extent that the Parent Board determines, in good faith, after consultation with outside counsel, that it would otherwise constitute a breach of its fiduciary duty to its stockholders to not withdraw or modify the Parent Board Recommendation. In the event the Parent Board determines to withdraw or modify the Parent Board Recommendation, Parent shall promptly notify Seller of such determination in writing, such notice to set forth in reasonable detail the basis for such determination, and shall refrain, and shall cause its Affiliates to refrain, from making any public announcement of such determination until three Business Days after delivery of such notice.

     Section 6.05 Access to Books and Records. Upon request by any Party, each other Party will permit the requesting Party and its authorized representatives with reasonable access (for the purpose of examining and copying), during normal business hours, to all of its or its Affiliates’ books, records, premises, properties and personnel related to the business or assets of the Company; provided, however, that, for the avoidance of doubt, the foregoing shall not require any Person to take any such action if it (x) may result in a waiver or breach of any attorney/client privilege, (y) could reasonably be expected to result in violation of applicable Legal Requirement, or (z) providing such access or information would be reasonably expected to be unreasonably disruptive to its operations. Without limiting the generality of the immediately preceding sentence, such reasonable access may be for the purposes of (i) monitoring or enforcing rights or obligations of any Party under this Agreement or any of the Transaction Documents, (ii) complying with the requirements of any Governmental Entity or (iii) effecting the transactions contemplated hereby. Unless otherwise consented to in writing by the other Party, each Party agrees to maintain, and cause its Affiliates to maintain, the files or records which are contemplated by the first sentence of this Section 6.05 in a manner consistent in all material respects with its document retention and destruction policies, as in effect from time to time, for three years following the Closing Date.

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     Section 6.06 Director and Officer Liability and Indemnification.

     (a) For a period of six years after the Closing, Parent shall not, and shall not permit the Surviving Entity to amend, repeal or modify any provision in the Surviving Entity’s certificate or articles of incorporation or bylaws (or other organizational documents) relating to the exculpation or indemnification of any officers and directors prior to the First Merger Effective Time (unless required by Legal Requirement) unless such amendment would not affect the rights or obligations of the Surviving Entity’s officers and directors for events arising prior to the First Merger Effective Time, it being the intent of the Parties that the officers and directors of the Company shall continue to be entitled to such exculpation and indemnification to the full extent of the law for events arising prior to the First Merger Effective Time. During such period, Parent and the Surviving Entity shall honor the indemnification and other obligations of the Surviving Entity to the officers and directors of the Company prior to the First Merger Effective Time for events arising prior to the First Merger Effective Time to the fullest extent of the law as provided under such certificate or articles of incorporation or bylaws (or other organizational documents).

     (b) In the event that after the Closing Date, the Surviving Entity (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each case, proper provision shall be made so that the successors and assigns of the Surviving Entity, honor the indemnification and other obligations of the Surviving Entity to the officers and directors of the Company prior to the First Merger Effective Time, including under this Section 6.06.

     Section 6.07 Employee Matters.

     (a) Each Business Employee whose employment is transferred pursuant to Section 6.02(a) shall be referred to herein as a “Transferred Employee.” Effective as of the Closing, each Transferred Employee shall cease to be an employee of Knowledge Learning Corporation (“Employer”) or its Affiliates and shall cease to participate in any Business Employee Benefit Plan. Parent and Seller intend and shall each use commercially reasonable efforts to ensure that (1) the Transferred Employees shall have continuous and uninterrupted employment immediately before and immediately after the Closing and (2) for purposes of any Business Employee Benefit Plan providing severance or termination benefits, or any comparable plan, program, policy, agreement or arrangement of Parent or any of its Affiliates, the transactions contemplated by this Agreement shall not constitute a termination of employment of any Transferred Employee prior to or upon the consummation of such transactions.

     (b) For a period of one year from and after the Closing Date, Parent shall provide (or cause the Surviving Entity to provide) each Transferred Employee with (i) base compensation/wage rate that is no lower than that provided to such Transferred Employees as of July 1, 2010; (ii) bonus opportunity that is no less favorable than that provided to similarly situated employees of Parent; and (iii) employee benefits that are no less favorable in the aggregate than those provided to similarly situated employees of Parent. For purposes of eligibility, vesting, participation and benefit accrual under Parents’ and its Affiliates’ plans and programs providing employee benefits to Transferred Employees after the Closing Date (the

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“Post-Closing Plans”), each Transferred Employee shall be credited with his or her years of service with Seller and/or its Affiliates before the Closing Date to the same extent as such Transferred Employee was entitled, before the Closing Date, to credit for such service under substantially similar Business Employee Benefit Plans in which such Transferred Employees participated before the Closing Date, except to the extent such credit would result in a duplication of benefits.

     (c) Without limiting the generality of any other provision of this Agreement, to the extent permitted under each applicable Post-Closing Plan; (i) each Transferred Employee shall be immediately eligible to participate, without any waiting time, in any and all Post-Closing Plans; (ii) for purposes of each Post-Closing Plan providing medical, dental, hospital, pharmaceutical or vision benefits to any employee, Parent shall cause all pre-existing condition exclusions and actively-at-work requirements of such Post-Closing Plan to be waived for such Transferred Employee and his or her covered dependents (unless such exclusions or requirements were applicable under comparable Business Employee Benefit Plans), and (iii) Parent shall cause any co-payments, deductible and other eligible expenses incurred by such Transferred Employee and/or his or her covered dependents during the plan year ending on the Closing Date to be credited for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such Transferred Employee and his or her covered dependents for the applicable plan year of each comparable Post-Closing Plan, on or prior to the Closing Date, Parent shall use its commercially reasonable efforts to amend or modify the applicable Post-Closing Plan to ensure that the provisions of this Section 6.07(c) are permitted by the terms of each applicable Post-Closing Plan.

     (d) Parent shall adopt and, for a period of at least one year following the Closing Date, maintain a severance plan that provides severance payments and benefits to the Transferred Employees that are no less favorable than those that would have been available to such Transferred Employees immediately prior to the Employee Transfer under the Knowledge Learning Corporation Severance Pay Plan, as amended through the date hereof, assuming all eligibility requirements had been satisfied by the Transferred Employees at such time.

     (e) Without limiting the generality of any other provision of this Agreement, on the Closing Date, Parent shall, or shall cause an Affiliate of Parent to, have in effect one or more defined contribution plans that include a qualified cash or deferred arrangement within the meaning of Section 401(k) of the Code (and a related trust exempt from tax under Section 501(a) of the Code) (as applicable, the “Parent 401(k) Plan”). Each Transferred Employee who is eligible to participate in a 401(k) plan maintained by Seller or its Affiliates immediately prior to the Employee Transfer (a “Seller 401(k) Plan”) shall be eligible to participate in the Parent 401(k) Plan as of the Closing Date. Parent shall cause the Parent 401(k) Plan to accept a “direct rollover” to such Parent 401(k) Plan of the account balances of each Transferred Employee (including promissory notes evidencing outstanding loans) under any Seller 401(k) Plan, if such direct rollover is elected in accordance with applicable Law by such Transferred Employee.

     (f) Except as specifically provided in this Section 6.07, nothing in this Agreement shall prohibit or restrict Parent or any of its Affiliates from modifying or amending the terms and conditions of employment of any Transferred Employee (including the terms and conditions of

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any Post-Closing Plan) or terminating the employment of any Transferred Employee after the Closing Date.

     (g) Parent shall cause the Surviving Entity to assume and honor all vacation days and other paid-time-off accrued or earned, but not yet taken, by each Transferred Employee as of the Closing Date, in each case, to the extent set forth on Schedule 6.07(g) which shall be delivered by Seller to Parent no later than five Business Days after the Closing Date.

     (h) Except as otherwise specifically provided in this Section 6.07, effective as of the Closing, Seller shall retain liability and responsibility for all employment and employee-benefits related Liabilities (including those arising under any Business Employee Benefit Plan) that (i) relate to any Business Employee (or any dependent or beneficiary of any Business Employee) and that are incurred or arise as a result of events that occurred prior to or upon Closing, (ii) relate to the Company’s Long Term Incentive Plan, or (iii) arise under any Employee Benefit Plan, and neither Parent nor the Surviving Entity shall have any liability or responsibility for any such Liabilities. For the avoidance of doubt, neither Parent nor the Surviving Entity shall have any liability or responsibility for any Losses for any current or former employee of the Seller or any of its Affiliates that does not become a Transferred Employee.

     (i) Seller shall disclose to Parent, by date and location, all hirings and layoffs of Business Employees in the 90-day period prior to the Closing on Schedule 6.07(i).

     (j) On and following the Closing Date, Seller and Parent (or the Surviving Entity, as applicable) shall reasonably cooperate in all matters reasonably necessary to effect the transactions contemplated by this Section 6.07, including exchanging information and data relating to workers’ compensation, employee benefits and employee benefit plan coverage, and in obtaining any governmental approvals required hereunder, except as would result in the violation of any applicable Legal Requirement, including without limitation, any Legal Requirement relating to the safeguarding of data privacy.

     (k) Notwithstanding any other provision herein to the contrary, the provisions of this Section 6.07 are for the sole benefit of the parties to this Agreement and nothing herein, express or implied, is intended or shall be construed to confer upon or give any person (including for the avoidance of doubt any Transferred Employees), other than the parties hereto and their respective permitted successors and assigns, any legal or equitable or other rights or remedies (with respect to the matters provided for in this Section 6.07 or under or by reason of any provision of this Agreement).

     Section 6.08 Non-Competition and Non-Solicitation. In order to induce Parent to enter into this Agreement and to consummate the transactions contemplated hereby, Seller hereby covenants as follows:

     (a) During a period of 3 years from the Closing Date (the “Restricted Period”), Seller shall not, and shall cause its Subsidiaries not to, operate, own or manage any business which directly competes with the Business, except that the ownership, operation or management of any Permitted Investments shall not be deemed to be a breach of this Section 6.08(a).

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     (b) During the Restricted Period, Seller shall not, and shall cause its direct and indirect controlled Subsidiaries not to, directly or indirectly recruit or solicit for employment, hire or employ, or induce or attempt to induce any termination of employment or hiring or employment of, any Specified Protected Employee. In addition, without limiting the foregoing, during the period of one year from the Closing Date, Seller shall not directly or indirectly recruit or solicit for employment, hire or employ, or induce or attempt to induce any termination of employment or hiring or employment of, any Protected Employee. Notwithstanding the foregoing, nothing in this Section 6.08(b) shall preclude Seller or its direct and indirect controlled Subsidiaries, from (i) hiring any employee who has been terminated by the Surviving Entity or its Affiliates, (ii) employing or contacting any employee who contacts Seller or its direct and indirect controlled Subsidiaries or their respective agents on his or her own initiative without any otherwise prohibited solicitation, or (iii) placing general solicitations not specifically directed at any of the Protected Employees.

     (c) The restrictive covenants contained in this Section 6.08 are each covenants independent of any other provision of this Agreement, and the existence of any claim which any Party may allege against any other party to this Agreement whether based on this Agreement or otherwise, shall not prevent the enforcement of these covenants. Seller acknowledges that Parent, LLC Merger Sub and Corporate Merger Sub are entering into this Agreement and consummating the transactions contemplated hereby in reliance on the goodwill of the Company and the covenants contained in this Section 6.08, such covenants in this Section 6.08 are essential to the protection of Parent and the Surviving Entity and that Parent would not enter into this Agreement or consummate the transactions contemplated hereby but for these covenants. Each of the Parties, on behalf of itself and its Subsidiaries and Affiliates, (i) acknowledge and agrees that the monetary damages for any breach of this Section 6.08 would be inadequate, (ii) agrees and consents that without intending to limit any additional remedies that may be available, temporary and permanent injunctive and other equitable relief may be granted without proof of the inadequacy of legal remedy in any proceeding that may be brought to enforce any of the provisions of this Section 6.08, (iii) hereby waives any and all defenses it may have on the ground of damages as an adequate remedy at law, and (iv) agrees that the prevailing party in any enforcement action or court proceeding under this Section 6.08 shall be entitled to the extent permitted by law to reimbursement from the other party for all of the prevailing party’s reasonable costs, expenses and attorneys’ fees. If a court of competent jurisdiction declares in a final judgment that any term or provision of this Section 6.08 is invalid or unenforceable the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specific words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, in this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.

     Section 6.09 Orderly Transition.

     (a) Company Audit. From and after the Closing, upon the request of Parent, Seller shall, and shall cause each of their respective officers, Affiliates and employees to, provide to Deloitte & Touche LLP, or if D&T is unable or unwilling to do so, another auditor reasonably

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acceptable to Parent and Seller (“D&T”), all information and documents reasonably requested by Parent or D&T and not in the possession of Parent or any of its Subsidiaries, and shall otherwise make themselves reasonably available to Parent and D&T during normal business hours and after reasonably notice, in connection with any audit and review of the Company Financial Statements or any other financial statements of the Company (including any pro forma financial statements required to be included in the Proxy Statement or filed by Parent on a Current Report or Form 8-K as a result of the Mergers), including, if necessary, executing such customary representation letters as shall be reasonably requested by D&T, and to assist Parent or D&T in preparing audited or unaudited historical or pro forma financial statements. The audited financial statements of the Company arising from any such audit shall be referred to as the “Audited Company Financial Statements”. Parent shall be solely responsible for the fees of D&T incurred in connection with such preparation or audit. Parent shall not be obligated to reimburse Seller for the time of Seller’s respective Affiliates or employees required to prepare the Company Financial Statements or to comply with Seller’s other obligations under this Section 6.09(a). Seller shall, and shall cause its Affiliates to, request (including granting access to any relevant audit papers to the maximum extent permitted by applicable professional standards) any of their current or former auditors to cooperate with, and provide all necessary consents with respect to filings with the SEC of Parent (including consents to either directly include in a filing with the SEC or incorporate by reference the auditor’s audit opinion for the respective years), all in connection with information related to the Company, which is required in any filings to be made by Parent with the SEC or required under any securities exchange on which securities of Parent may be listed or traded.

     (b) Insurance. Parent is aware that the Company is covered by group insurance policies maintained by Seller or one or more of Seller’s Affiliates and that the Company may not be covered by such group insurance policies after the Closing for losses arising from events occurring after the Closing Date. Upon request of Parent after the Closing, Seller shall, and shall cause its Affiliates to, use commercially reasonable efforts to notify the insurance carrier under such policies of any available claims for recovery of losses arising out of any events related to the Company or its business occurring on or prior to the Closing Date (to the extent the loss was not paid prior to the Closing Date or was not reflected as a current liability in the Conclusive Closing Statement) and to collect such losses, and shall permit Parent to participate and assist in any claims and collection procedures related thereto, and such Seller shall, or shall cause such Affiliate to, remit to Parent any such proceeds which Seller or such Affiliate is required to remit with respect to such claims made pursuant to this sentence.

     (c) Litigation Support. In the event and for so long as any Party is actively contesting or defending against any Action commenced by any third party with respect to (i) any transaction contemplated by this Agreement or any other Transaction Document or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction on or prior to the Closing involving the Company or its business, the other Party will, and will cause its Affiliates to, cooperate with the contesting or defending Party and its counsel in the contest or defense, make available its and its Affiliates’ personnel and provide such testimony and access to its and its Affiliates’ books and records as shall be reasonably necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to

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indemnification therefor pursuant to Article VII); provided, however, that, for the avoidance of doubt, the foregoing shall not require any Party to take any such action to the extent that (x) it may result in a waiver or breach of any attorney/client privilege, (y) it could reasonably be expected to result in violation of applicable Legal Requirement or increased Taxes for such Party, or (z) providing such access or information would be reasonably expected to be unreasonably disruptive to its operations; provided, further, that, for the avoidance of doubt, as of the First Merger Effective Time, Parent and its Affiliates shall be considered Affiliates of the Company for purposes of the Joint Litigation Agreement and shall cause the Surviving Entity to continue to comply with the obligations of the Company as set forth therein.

     (d) Collections. If and to the extent Seller or its Affiliates receives any payments after the Closing Date which relate to the Company or its business, Seller shall, or shall cause such Person to, forward such payments to the Surviving Entity without undue delay.

     (e) Bank Accounts, Phones, Emails. Seller will, and will cause its Affiliates to, cooperate with Parent to transfer, effective at the Closing, any bank accounts dedicated to the Company or its business, notify any customers of the Company of any post-Closing accounts receivable, account changes, transfer to the name of the Company any phone numbers used by the Business Employees or the Company prior to the Closing and implement a process for forwarding email of the Company and other communications to Parent or the Surviving Entity.

     (f) Referrals. From and after the Closing Date and until one year following the date thereof, Seller shall, and shall cause its Affiliates to, refer all customer or supplier inquiries received by such Person relating to the Company or its business to the Surviving Entity or Parent (other than for referrals for business for which Seller is permitted to engage in pursuant to Section 6.09(a)).

     (g) Books and Records. Seller shall keep and procure that its Affiliates will keep, and the Company shall keep, all business books and records relating to any period prior to the Closing Date in accordance with any applicable Legal Requirement and in any event for at least for five years after Closing.

     (h) Protection of Company Confidential Information. Seller shall, and shall cause each of its Affiliates to, enforce all rights and obligations under any non-disclosure and confidentiality agreement (or similar provision in any other agreement) to which Seller or any such Affiliate is a party (and that is not directly enforceable by the Surviving Entity or its Subsidiaries) restricting the use or disclosure of confidential or proprietary information related to the Company for the benefit of the Company, as requested by Parent or the Surviving Entity and at the cost of the Surviving Entity.

     (i) Credit Support Instruments. Seller shall, and shall cause its Affiliates to, maintain in effect any guarantees, letters of credit, performance bonds, sureties and/or similar assurances of payment issued by or in the name of Seller or any of its Affiliates for or on behalf of the Company in connection with any customer or supplier Contracts or proposals or other business requirements of the Company (the “Credit Support Instruments”) outstanding as of the Closing for three months following the Closing. The Company shall provide replacement Credit Support Instruments (issued instead by or in the name of Parent or the Company) and terminate the

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related Credit Support Instrument issued by or in the name of Seller or any of its Affiliates outstanding as of the Closing and shall reimburse Seller or such Affiliate for any amounts required by Seller or such Affiliate to be paid following the Closing Date on the Credit Support Instruments outstanding as of the Closing until terminated.

     Section 6.10 Tax Matters. The following provisions shall govern the allocation of responsibility as between Parent and Seller for certain tax matters following the Closing Date:

     (a) Responsibility for Filing Tax Returns.

     (i) Tax Periods Ending on or before the Closing Date. Parent shall prepare or cause to be prepared in accordance with the past practice of the Company and file or cause to be filed all Tax Returns for the Company for all periods ending prior to or including the Closing Date which are not filed as of the Closing Date and shall pay all Taxes reflected on such Tax Returns. At least 15 days prior to the date on which each such Tax Return is filed, Parent shall submit such Tax Return to Seller for its review and approval, which approval may not be unreasonably withheld, provided, however, that such approval may be withheld if such Tax Return has not been prepared in accordance with past practice and the filing of such Tax Return is reasonably expected by Seller to adversely affect the Tax liability or the indemnification obligation, in each case, of Seller. Parent shall incorporate into such Tax Return any reasonable comments from Seller regarding such Tax Return.

     (ii) Straddle Periods. Parent shall prepare or cause to be prepared in accordance with the past practice of the Company and file or cause to be filed all Tax Returns of the Company for any period beginning before the Closing Date and ending after the Closing Date (a “Straddle Period”) and shall pay all Taxes reflected on such Tax Returns. At least 15 days prior to the date on which each such Tax Return is filed, Parent shall submit such Tax Return to Seller for its review and approval, which approval may not be unreasonably withheld, provided, however, that such approval may be withheld if such Tax Return has not been prepared in accordance with past practice and the filing of such Tax Return is reasonably expected by Seller to adversely affect the Tax liability or the indemnification obligation, in each case, of Seller. Parent shall incorporate into such Tax Return any reasonable comments from the Seller regarding such Tax Return.

     (b) Cooperation on Tax Matters.

     (i) Parent, the Surviving Entity and its Subsidiaries, and Seller shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Section 6.10 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other Party’s request) the provision of records and information that are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Parties agree (A) to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent

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notified by Parent or Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other parties reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, the Surviving Entity and its Subsidiaries, or Seller, as the case may be, shall allow the other Party to take possession of such books and records.

     (ii) Parent and Seller further agree, upon request, to provide the other with all information that such other Party may be required to report pursuant to Code §6043A and all Treasury Regulations promulgated thereunder, if applicable.

     (iii) The obligations of Parent under Section 6.10(a) and Section 6.10(b) only apply to the extent that, and for so long as, Seller has an obligation to indemnify Parent for Taxes.

     (c) If, subsequent to the Closing, Parent or the Surviving Entity receives notice of any audit, other administrative proceeding or inquiry or judicial proceeding involving Taxes (a “Tax Contest”) with respect to any Tax Return for any Pre-Closing Tax Period with respect to which Parent intends to claim a right to indemnification under this Agreement, Parent shall notify Seller of such notice within 10 days after receipt thereof. If Seller may have an obligation to indemnify the Parent Indemnified Parties pursuant to this Agreement for any losses arising from such Tax Contest, Seller shall have the right to control the conduct and resolution of such Tax Contest, provided, however, that if any of the issues raised in such Tax Contest could have an impact on Taxes or the Tax position of Parent or the Surviving Entity for any Tax period beginning after the Closing Date and that portion of any Straddle Period beginning after the Closing Date (a “Post-Closing Tax Period”), then Seller shall afford Parent the opportunity to participate in the conduct and resolution of the portion of such Tax Contest which could have an impact on Taxes of Parent or the Surviving Entity in such Post-Closing Tax Period. If Seller shall have the right to control the conduct and resolution of such Tax Contest but elects in writing not to do so within 15 days of receiving notice of such Tax Contest, then Parent shall have the right to control the conduct and resolution of such Tax Contest, provided that Parent shall keep Seller reasonably informed of all material developments on a timely basis and Parent shall not resolve such Tax Contest in a manner that could reasonably be expected to have an adverse impact on Seller’s indemnification obligations under this Agreement without Seller’s written consent, which consent shall not be unreasonably withheld; provided that if Seller elects not to control the amount and resolution of the Tax Contest and Seller does not provide its written consent to Parent’s proposed resolution then Seller shall pay Parent’s reasonable costs (including allowable costs of in-house personnel) of conducting such Tax Contest. Subject to the preceding sentence, each Party shall bear its own costs for participating in such Tax Contest.

     (d) Tax-Sharing Agreements. All tax-sharing agreements or similar agreements with respect to or involving Seller, on the one hand, and the Company, on the other hand, shall be terminated as of the Closing Date and, after the Closing Date, none of Seller, the Surviving Entity or its Subsidiaries shall be bound thereby or have any liability thereunder.

     (e) Transfer Taxes. Parent and the Surviving Entity will pay any documentary, stamp, stock transfer, or similar Tax imposed on any Party as a result of the transactions

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contemplated by this Agreement (collectively, “Transfer Taxes”), and any penalties or interest with respect to the Transfer Taxes. Seller agrees to cooperate with Parent and the Surviving Entity in the filing of any returns with respect to the Transfer Taxes, including promptly supplying any information in their possession reasonably requested by Parent and the Surviving Entity that is reasonably necessary to complete such returns.

     (f) Plan of Reorganization. This Agreement is intended to constitute a “plan of reorganization” within the meaning of Treasury Regulation Section 1.368-2(g). Each Party shall use its commercially reasonable efforts to cause the Mergers to qualify, and will not knowingly take any actions or cause any actions to be taken which could reasonably be expected to prevent the Mergers from qualifying, as a reorganization within the meaning of Section 368(a) of the Code. Each Party shall treat and report the Mergers as a reorganization within the meaning of Section 368(a) of the Code (and any comparable state or local tax statute) for all Tax purposes, unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code.

     Section 6.11 Payables at Closing.

     (a) Other than as expressly contemplated by any other Transaction Document, all intercompany notes payable, accounts payable and other obligations due and owing by the Company to any of its Affiliates immediately prior to the Closing shall be due and payable by the Company within 60 days without interest thereon.

     (b) Seller shall provide, in a form reasonably acceptable to Parent, a pay-off letter or other evidence of repayment, cancellation and/or discharge of that certain Promissory Note for $3,300,000, by and between the Company, as borrower, and Knowledge Schools, Inc., as lender, dated March 3, 2008.

     Section 6.12 Acknowledgment by the Parties.

     (a) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT THE REPRESENTATIONS AND WARRANTIES BY THE OTHER PARTIES SET FORTH IN THIS AGREEMENT AND ANY CERTIFICATE DELIVERED HEREUNDER, CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES OF THE OTHER PARTIES IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, AND EACH OF THE PARTIES HERETO UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE EXPRESS OR IMPLIED (INCLUDING, BUT NOT LIMITED TO, ANY RELATING TO THE FUTURE FINANCIAL CONDITION OR PROJECTIONS, RESULTS OF OPERATIONS, ASSETS OR LIABILITIES OF THE COMPANY OR PARENT OR ANY OTHER PERSON) ARE SPECIFICALLY DISCLAIMED BY THE PARTIES.

     (b) In connection with each Party’s investigation of the other Parties, a Party may have received certain projections from or on behalf of another Party. Each Party hereto acknowledges and agrees that there are uncertainties inherent in attempting to make such estimates, projections and other forecasts and plans, and that the receiving Parties are each

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familiar with such uncertainties. No Party makes any representations or warranties whatsoever with respect to such estimates, projections and other forecasts and plans (including the reasonableness of the assumptions underlying such estimates, projections and forecasts).

     Section 6.13 Further Assurances. From time to time, as and when requested by any Party and at such Party’s expense, any other Party shall, or shall cause its Affiliates to, execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as the requesting Party may reasonably deem necessary or desirable to evidence and effectuate the transactions contemplated by this Agreement.

     Section 6.14 Responsibility for Compliance. Seller shall be responsible for ensuring that each of its Affiliates and Related Parties adhere to the terms of this Agreement applicable to such Persons as if such Persons were original parties hereto, shall be responsible for any breach of this Agreement by its Affiliates and Related Parties (regardless of whether or not controlled by Seller) shall take all reasonable measures to avoid any breach of this Agreement by any of its Affiliates or Related Parties. The foregoing obligation shall not limit the remedies available to Parent or the Surviving Entity for any breach of this Agreement by any Person.

     Section 6.15 Company Confidential Information. The Parties intend that the information related to the Company and its businesses, operations, assets and liabilities (“Company Confidential Information”) is held by or controlled by, and is intended to be for the use and benefit of, the Company. Accordingly, Seller agrees that it shall, and it shall cause its Affiliates and its and their directors, officers, employees, agents, consultants and advisors (collectively with Seller, the “Subject Persons”) to, keep confidential and not use or disclose, any Company Confidential Information (other than as expressly contemplated by any other Transaction Document and other than disclosure to its representatives who need to know such information and for whom such Person shall be responsible for their compliance herewith); provided, however, that this Section 6.15 shall not restrict the disclosure or use of Company Confidential Information to the extent such information can be shown to have been (i) in the public domain other than through the disclosure of such information by a Subject Person, (ii) already known to the Subject Person without obligations of confidentiality or other than through the Subject Person’s provisions of services for, or related to the ownership or management of, the Company by any other Subject Person, (iii) acquired after the date of this Agreement on a non-confidential basis from a third party, or (iv) independently generated by such Subject Person without any reference to any other Company Confidential Information. In the event that a Subject Person is required by judicial or administrative process or other Legal Requirement to disclose Company Confidential Information, Seller or the Subject Person shall, if possible, give the Company prompt notice of any such requirement and, at Company’s sole cost and expense, assist the Company in seeking a protective order or other appropriate remedy in response to such requirement. Nothing in this Section 6.15 shall be deemed to be a restriction on any Subject Person’s operation of its business or any other expansion of Section 6.15 or the Non-Competition Agreement.

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ARTICLE VII

INDEMNIFICATION

     Section 7.01 Survival of Representations, Warranties, Covenants and Agreements. The representations and warranties and all covenants and agreements to be performed on or prior to the Closing Date set forth in this Agreement shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby as follows (such date, with respect to each subsection below, is referred to herein as its “Survival Date”) and shall thereafter be of no further force or effect:

     (a) the representations and warranties in Section 3.01 (Organization), Section 3.02 (Authorization; Valid and Binding Agreement), Section 3.03 (Title to Company Common Stock), Section 3.10 (Brokerage), Section 4.01 (Organization), Section 4.02 (Subsidiaries), Section 4.03 (Authorization; Valid and Binding Agreement), Section 4.05 (Capitalization) and Section 4.23 (Brokerage), (each individually, a “Seller Fundamental Representation”), and the representations and warranties in Section 5.01 (Organization), Section 5.02 (Ownership and Operation of Corporate Merger Sub and LLC Merger Sub), Section 5.03 (Authorization; Anti-takeover Statute), Section 5.04 (Valid Issuance of Parent Special Stock), and Section 5.13 (Brokerage) (each individually, a “Parent Fundamental Representation”) shall survive the Closing until the fourth anniversary of the Closing Date;

     (b) the representations and warranties in Section 4.09 (Tax Matters) and Section 4.11 (Employee Benefit Plans), to the extent relating to ERISA matters, shall survive the Closing until 30 days following the expiration of the applicable statute of limitations (including any waivers or extensions thereof agreed to by Parent);

     (c) the representations and warranties in Section 4.06 (Financial Statements), Section 4.07 (Liabilities) and Section 4.19 (Compliance with Legal Requirements) shall survive the Closing until the 18-month anniversary of the Closing Date;

     (d) all other representations and warranties shall survive the Closing until the 12-month anniversary of the Closing Date; and

     (e) all covenants and agreements shall survive the Closing for the term specified, if specified, or indefinitely otherwise.

Except as expressly provided in the immediately preceding sentence, no claim for indemnification hereunder may be made after the expiration of the applicable Survival Date; provided, however, that any indemnity claim (but solely such claim) described in a written notice received by the indemnifying Party prior to the expiration of the applicable time limitations set forth in Section 7.01(a), Section 7.01(b), Section 7.01(c), Section 7.01(d) and Section 7.01(e) above shall survive until the claim is fully resolved.

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     Section 7.02 Indemnification by Seller for the Benefit of Parent.

     (a) Subject to the provisions of this Article VII, from and after the Closing, Seller shall indemnify Parent and its officers, directors, partners, members, employees, agents, subsidiaries, representatives, successors and permitted assigns (collectively, the “Parent Indemnified Parties”) against any Losses that any Parent Indemnified Party suffers as a result of:

     (i) (x) any breach by Seller of any representation and warranty of Seller contained in this Agreement or in any certificate delivered by or on behalf of Seller hereunder at or prior to the Closing and/or (y) any breach by the Company of any representation and warranty of the Company contained in this Agreement or in any certificate delivered by or on behalf of the Company hereunder at or prior to the Closing; provided, that for purposes of determining the amount of Losses suffered as a result of such breach (but, for the sake of clarity, not for purposes of determining whether any such breach has occurred), no effect shall be given to any limitation or qualification as to “materiality”, “material”, “Material Adverse Effect,” “Material Impact” or other similar qualifiers set forth in such representation or warranty (so that the full Loss may be collected subject to the other limitations in this Agreement) other than the following, which will not be disregarded and will be given full effect: (1) any such qualification to the extent that it modifies the obligation to identify, describe or list an item or matter in the Seller Parties Disclosure Schedules; and (2) uses of the phrase “present fairly in all material respects” in Section 4.06 (Financial Statements);

     (ii) any breach or non-fulfillment of any covenant or agreement contained in this Agreement to be performed or complied with by Seller or the Company;

     (iii) (A) any Pre-Closing Taxes or (B) any increase in the Taxes of Parent as a result of the Company’s net operating loss carry forward being less than $4,700,000 as of the First Merger Effective Time, determined as if the Tax year of the Company closed as of the First Merger Effective Time and taking into account all income and deductions that have accrued as of such time; provided, however, no indemnification shall be made pursuant to the foregoing clause (B) in case of any reduction in the Company’s net operating loss carry forward (or increase in Taxes of Parent) created as a result of (i) Parent’s failure to comply with any of the provisions of Section 6.10, or (ii) amending any Tax Return of the Company for any period ending prior to or including the Closing Date without Seller’s consent;

     (iv) any claim by any officer or director of the Company or any of its Subsidiaries for indemnification or reimbursement by the Company or any of its Subsidiaries in connection with any Losses arising out of matters occurring prior to the Closing;

     (v) the Specified Dispute, including any liability related to the subjects and/or agreements of the underlying dispute from which the Specified Dispute arises, including any settlement costs; and/or

     (vi) Seller Expenses.

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     (b) The indemnification provided for in Section 7.02(a), shall be subject to the following limitations:

     (i) Seller shall not have any liability under Section 7.02(a)(i) unless the aggregate of all Losses suffered by the Parent Indemnified Parties relating thereto for which Seller would be liable, but for this Section 7.02(b)(i), exceeds on a cumulative basis $1,000,000 (the “Deductible”), and then only to the extent such Losses exceed the Deductible;

     (ii) Seller’s aggregate liability under Section 7.02(a)(i) shall in no event exceed an amount equal to 15% of the product of the Final Share Number multiplied by the Parent Common Stock Price (the “Cap”);

     (iii) no claim for indemnification by the Parent Indemnified Parties shall be asserted under Section 7.02(a)(i) where the amount that would otherwise be payable by Seller hereunder relating to such claim or any series of related claims is less than $25,000 (the “Minimum Claim Amount”); and

     (iv) in no event will the aggregate liability of Seller for all Losses under Section 7.02(a) claimed by the Parent Indemnified Parties exceed an amount equal to (x) 100% of the product of the Final Share Number multiplied by the Parent Common Stock Price (the “Merger Consideration Cap”) minus (y) the sum of all payments made to the Parent Indemnified Parties (A) by any Service Provider (as defined in the Transition Services Agreement) as compensation for Losses (as defined in the Transition Services Agreement) pursuant to Section 4 or Section 5 of the Transition Services Agreement, (B) the amount of any payments made by Learning Group LLC pursuant to the Limited Guarantee, and (C) the amount of any payments made by Knowledge Universe Education L.P. pursuant to the Non-Competition Agreement; provided, however, that, notwithstanding anything the contrary set forth herein, the Parties acknowledge and agree that this Section 7.02(b)(iv) is not intended to be, and is not, an admission or acknowledgement by any Person that money damages or any other monetary payment would be a sufficient remedy for a breach of this Agreement, or that the inability to obtain a monetary remedy by virtue of the limitations in this Article VII will limit a Party’s ability to obtain injunctive relief or specific performance in accordance with Section 6.08(c), including clause (iii) thereof, or Section 9.12;

provided, however, that none of the Deductible, the Cap or the Minimum Claim Amount will apply to Losses arising from (x) a breach of a Seller Fundamental Representation or (y) actual fraud or a Willful and Material Breach by Seller or the Company.

     (c) Notwithstanding any other provision in this Agreement to the contrary, Seller shall not be liable to, or indemnify, the Parent Indemnified Parties for any Losses (i) to the extent that such Losses result from or arise out of actions taken by the Parent Indemnified Parties or the Surviving Entity, its Subsidiaries or any of their respective Affiliates from and after the Closing Date, (ii) that are punitive, special, consequential, incidental, exemplary or otherwise not actual damages, in the nature of lost profits, or any diminution in value of property or equity (in each case, except to the extent any such Losses are asserted by a third-party unaffiliated with Parent),

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or (iii) for amounts that are included in Net Working Capital or Closing Debt in the Conclusive Closing Statement; provided, however, that the limitations in the foregoing sentence, other than the limitations on punitive and special Losses, will not apply to Losses indemnifiable under Section 7.02(a)(v) in the event of a rescission remedy. The Parent Indemnified Parties shall not use “multiple of profits” or “multiple of cash flow” or any similar valuation methodology in calculating the amount of any Losses; provided, however, that the limitations in the foregoing sentence, other than the limitations on punitive and special Losses, will not apply to Losses indemnifiable under Section 7.02(a)(v). The Parent Indemnified Parties shall not be entitled to recover any Losses relating to any matter arising under one provision of this Agreement to the extent that the Parent Indemnified Parties had already recovered the Loss with respect to such matter pursuant to other provisions of this Agreement.

     (d) The Parent Indemnified Parties shall use commercially reasonable efforts to mitigate all Losses upon and after becoming aware of any event which could reasonably be expected to give rise to Losses.

     Section 7.03 Indemnification by Parent for the Benefit of Seller.

     (a) Subject to provisions of this Article VII, from and after the Closing Date, Parent shall indemnify each Seller and its officers, directors, partners, members, employees, agents, representatives, successors and permitted assigns (collectively, the “Seller Indemnified Parties”) against any Losses which any Seller Indemnified Party suffers as a result of:

     (i) any breach by Parent, LLC Merger Sub or Corporate Merger Sub of any representation and warranty of Parent, LLC Merger Sub or Corporate Merger Sub contained in this Agreement or in any certificate delivered by or on behalf of Parent, LLC Merger Sub or Corporate Merger Sub hereunder; provided, that for purposes of determining the amount of Losses suffered as a result of such breach (but, for the sake of clarity, not for purposes of determining whether any such breach has occurred), no effect shall be given to any limitation or qualification as to “materiality”, “material”, “Material Adverse Effect”, “Material Impact” or other similar qualifiers set forth in such representation or warranty (so that the full Loss may be collected subject to the other limitations in this Agreement) other than the following, which will not be disregarded and will be given full effect: (x) any such qualification to the extent that it modifies the obligation to identify, describe or list an item or matter in the Parent Disclosure Schedules; and (y) uses of the phrase “present fairly in all material respects” in Section 7.07 (SEC Filings; Financial Statements);

     (ii) any breach or non-fulfillment of any covenant or agreement contained in this Agreement to be performed or complied with by Parent, LLC Merger Sub or Corporate Merger Sub; and

     (iii) any claim by any officer or director of the Company for indemnification or reimbursement by the Company in connection with any Losses for which they are entitled to indemnification under the Company Certificate or Company Bylaws arising out of matters occurring after the Closing.

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     (b) The indemnification provided for in Section 7.03(a), shall be subject to the following limitations:

     (i) Parent shall not have any liability under Section 7.03(a)(i) unless the aggregate of all Losses relating thereto for which Parent would be liable, but for this Section 7.03(b)(i), exceeds on a cumulative basis the Deductible, and then only to the extent such Losses exceed the Deductible;

     (ii) Parent’s aggregate liability under Section 7.03(a)(i) shall in no event exceed the Cap;

     (iii) no claim for indemnification by the Seller Indemnified Parties under Section 7.03(a)(i) shall be asserted where the amount that would otherwise be payable by Parent hereunder relating to such claim or any series of related claims is less than the Minimum Claim Amount;

     (iv) in no event will the aggregate liability of Parent for all Losses claimed by the Seller Indemnified Parties under Section 7.03(a) exceed the Merger Consideration Cap; and

     (v) no Seller Indemnified Party may seek indemnification pursuant to Section 7.03(a) with respect to any Loss of any Seller Indemnified Party who is or was an officer or director of the Company resulting from any right of contribution, indemnification or other similar right against the Company that such Seller Indemnified Party may have by virtue of his or her status as an officer or director of the Company, whether arising from any breach of any representation, warranty or covenant set forth in this Agreement or any Transaction Document or otherwise;

provided, however, that none of the Deductible, the Cap or the Minimum Claim Amount will apply to Losses arising from (x) a breach of a Parent Fundamental Representation or (y) actual fraud or a Willful and Material Breach by Parent, Corporate Merger Sub or LLC Merger Sub.

     (c) Notwithstanding any other provision in this Agreement to the contrary, Parent shall not be liable to, or indemnify, the Seller Indemnified Parties for any Losses (i) to the extent that such Losses result from or arise out of actions taken by the Seller Indemnified Parties from and after the Closing Date, or (ii) that are punitive, special, consequential, incidental, exemplary or otherwise not actual damages, in the nature of lost profits, or any diminution in value of property or equity (in each case, except to the extent any such Losses are asserted by a third-party unaffiliated with Parent). The Seller Indemnified Parties shall not use “multiple of profits” or “multiple of cash flow” or any similar valuation methodology in calculating the amount of any Losses. The Seller Indemnified Parties shall not be entitled to recover any Losses relating to any matter arising under one provision of this Agreement to the extent that the Seller Indemnified Parties had already recovered would concurrently recover Losses with respect to such matter pursuant to other provisions of this Agreement.

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     (d) The Seller Indemnified Parties shall use commercially reasonable efforts to mitigate all Losses upon and after becoming aware of any event which could reasonably be expected to give rise to Losses.

     Section 7.04 Manner of Payment.

     (a) Any indemnification payment by Seller pursuant to this Article VII shall be made (i) first, by surrender from Seller of shares of Parent Special Stock or shares of the Parent Common Stock into which such shares may have converted, in each case, in an amount equal to the quotient of (x) the amount of the indemnification payment divided by (y) the average (rounded to the nearest cent) of the per share closing prices of Parent Common Stock as reported by the New York Stock Exchange (the “Exchange”) for the 10 trading days ending on the third trading day prior to the date of payment, and (ii) second, if Seller does not then own sufficient shares of Parent Special Stock or Parent Common Stock, by wire transfer of immediately available funds to one or more accounts designated by Parent. Notwithstanding the foregoing, Seller shall settle the adjustments contemplated by Section 1.03 by wire transfer(s) of immediately available funds to one or more accounts designated by Parent, and such payments shall not be counted for purposes of the application of the Merger Consideration Cap.

     (b) Any indemnification payment by Parent pursuant to this Article VII shall be made by wire transfer(s) of immediately available funds to one or more accounts designated by Seller. No adjustment payments made by Parent pursuant to Section 1.03 shall be counted for purposes of the application of the Merger Consideration Cap.

     (c) All payments shall be made within 5 Business Days after the final determination that an indemnification payment obligation exists.

     (d) Without limiting the foregoing, in no event will Parent or the Surviving Corporation, in connection with any indemnification claim or dispute, set-off, discount, net or otherwise diminish any amounts payable by them to Seller or any of its Affiliates under the Transition Services Agreement.

     Section 7.05 Indemnification Claims Process.

     (a) Notice; Effect of Delay. Any Person making a claim for indemnification under Section 7.02 or Section 7.03 (an “Indemnitee”) shall notify the indemnifying Party (an “Indemnitor”) of the claim in writing, describing the claim, the estimated amount thereof and the basis thereof in reasonable detail; provided, that the failure to so notify an Indemnitor shall not relieve the Indemnitor of its obligations hereunder except to the extent that (and only to the extent that) such failure shall have caused the damages for which the Indemnitor is obligated to be greater than such damages would have been had the Indemnitee given the Indemnitor prompt notice hereunder or is otherwise materially prejudiced thereby.

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     (b) Indemnification Procedures for Third-Party Claims. Except as otherwise provided in Section 7.05(c) with respect to the Specified Dispute and Section 6.10(c) with respect to Tax Contests:

     (i) If such claim, demand, action or proceeding is a third-party claim, demand, action or proceeding, the Indemnitor will have the right to assume at its expense the defense thereof using counsel reasonably acceptable to the Indemnitee (other than as provided in Section 7.05(c)(iii)); provided, however, that Indemnitor shall not be entitled to assume the defense of any third-party claim, or may no longer continue to assume the defense of the third-party claim, if (A) the third-party claim (1) seeks non-monetary relief and (2) if determined adversely to the Indemnitee, could have a material adverse effect on such Indemnitee, (B) the third-party claim involves criminal or quasi-criminal allegations, (C) the third party claim involves a claim that (x) is reasonably expected to result in liability to the Indemnitee in excess of Indemnitor’s indemnification obligations hereunder in light of the limitations set forth herein and (y) the amount of such excess is greater than the aggregate dollar value of the Indemnitor’s indemnification obligations hereunder in light of the limitations set forth herein, or (D) the Indemnitee receives an opinion of counsel that there is a material conflict of interest between the Indemnitor and the Indemnitee in connection with such defense. In the event that the Indemnitor assumes the defense of a third-party claim pursuant to the provisions of the immediately proceeding sentence, the Indemnitee shall have the right to participate in the defense of the third party claim, and may retain separate co-counsel of its choice at its sole cost and expense.

     (ii) If the Indemnitor assumes such defense, the Indemnitor shall be entitled to settle such claims; provided, that the Indemnitor shall obtain the prior written consent of the Indemnitee (which consent shall not be unreasonably withheld or delayed) before entering into any settlement of a claim or ceasing to defend such claim. The Indemnitor shall not be liable for any amount required to be paid by the Indemnitee that exceeds, where the Indemnitee has unreasonably withheld or delayed consent in connection with the proposed compromise or settlement of a third-party claim, the amount for which that third-party claim could have been settled pursuant to that proposed compromise or settlement.

     (iii) If the Indemnitor shall not assume the defense of any such action, lawsuit, proceeding, investigation or other claim, the Indemnitee may defend against such matter as it deems appropriate; provided that (A) the Indemnitee may not settle any such matter without the written consent of the Indemnitor (which consent shall not be unreasonably withheld or delayed) if the Indemnitee is seeking or will seek indemnification hereunder with respect to such matter and (B) the cost of such defense shall be borne by the Indemnitor to the extent they are indemnifiable Losses but in no event will the Indemnitor be obligated to bear more than the reasonable costs and expenses of one counsel to all Indemnitees (plus local counsel, if necessary) arising out of the same or similar set of circumstances.

     (iv) In all cases, the Indemnitee and the Indemnitor shall provide the other with reasonable cooperation in defense of claims or litigation and all aspects of any

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investigation, defense, pretrial activities, trial, compromise, settlement or discharge at the cost and expenses of the Indemnitor, including, but not limited to, by providing the other Party with reasonable access to books, records, employees and officers (including as witnesses) of the Party and its Affiliates.

     (c) Obligations and Process in Respect of the Specified Dispute Earnout Payment.

     (i) In furtherance of the transactions contemplated under the Assignment and Assumption Agreement, the Parties agree that, as soon as practicable after the Closing, the Surviving Entity will deliver the written notice as provided under Section 2.03(c)(iv)(A) of that certain Asset Purchase Agreement between the Company and the plaintiffs party to the Specified Dispute (the “Subject Purchase Agreement”) as provided by Seller, and promptly thereafter, Seller shall pay or cause one of its Affiliates to pay the applicable amount to such plaintiffs (the “Specified Dispute Earnout Payment”) in accordance with Section 2.03(c) of the Subject Purchase Agreement or, at its election, to the court adjudicating the Specified Dispute to be held in escrow during the pendency thereof. The amount of the Specified Dispute Earnout Payment will be determined by Seller in good faith pursuant to the terms of the Subject Purchase Agreement and based upon the financial records of the Company.

     (ii) Parent shall, and shall cause the Surviving Entity to, (x) provide such cooperation and assistance as Seller shall reasonably request in connection with the triggering, calculation and payment the Specified Dispute Earnout Payment, including, if necessary, by appointing Seller as its attorney-in-fact for limited purposes of preparing and delivering notices and other instruments to be prepared and delivered by the Surviving Entity in connection with the foregoing, determining the amount of the Specified Dispute Earnout Payment, negotiating and resolving any disputes with respect thereto in accordance with Section 2.03(c)(viii) of the Subject Purchase Agreement and executing any agreements or other documents memorializing any such resolution and (y) provide Seller with reasonable access during normal business hours, to all of its or its Affiliates’ books, records, employees and officers reasonably deemed by Seller to be necessary for the performance of Seller’s obligations described under clause (i) above.

     (iii) Notwithstanding anything to the contrary in Section 7.05(a) or this Section 7.05(b), the Parties agree that from and after Closing, Seller shall assume and control the defense of the Specified Dispute without the need for any written notice to Seller of such action.

     (d) Non-Third-Party Claims. In the case of non-third-party claims, each Party agrees that the Indemnitee shall reasonably cooperate and assist the Indemnitor in determining the validity of any claim for indemnity by the Indemnitee and in otherwise resolving such matters. Such assistance and cooperation shall include providing reasonable access to and copies of information, records and documents relating to such matters, furnishing employees to assist in the investigation, defense and resolution of such matters.

     Section 7.06 Determination of Loss Amount. The amount of any Loss subject to indemnification under Section 7.02 or Section 7.03 shall be calculated net of any Tax benefit

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actually realized by the Indemnitee as a result of such loss or receipt of indemnification payment and net of (i) the amount of any Loss reflected as a current liability on the Conclusive Closing Statement and (ii) any insurance proceeds or other amounts under indemnification agreements actually received by the Indemnitee on account of such Loss (net of any increase in premiums or retroactive premium adjustment that the Indemnitee can reasonably demonstrate through written records is directly attributable to such recovery). For purposes of the foregoing, the Indemnitee shall be deemed to have “actually realized” a Tax benefit to the extent that the amount of Taxes payable by the Indemnitee as shown on the Indemnitee’s Tax Return for the year in which the Loss is incurred or indemnification payment is made, the succeeding tax year, or any year to which a deduction or loss attributable to such Loss or payment is carried back, is reduced below the amount of Taxes that the Indemnitee would have been required to pay but for the deduction attributable to the indemnifiable Loss or payment. The Indemnitee shall use its commercially reasonable efforts to seek full recovery under all insurance policies and/or indemnification agreements covering any Loss to the same extent as they would if such Loss were not subject to indemnification hereunder. In the event that an insurance or other recovery is made by any Indemnitee with respect to any Loss for which any such Person has received indemnity payments hereunder, then a refund equal to the aggregate amount of the actual recovery shall be made promptly to the Person or Persons that provided such indemnity payments to such Indemnitee (net of any increase in premiums or retroactive premium adjustment that the Indemnitee can reasonably demonstrate through written records is directly attributable to such recovery). The Indemnitor shall be subrogated to all rights of the Indemnitees in respect of any Losses indemnified by the Indemnitor. For Tax purposes, the Parties agree to treat all payments made under this Article VII as adjustments to the aggregate consideration contemplated under this Agreement. Subject to the other provisions of this Article VII, if the Disclosure Schedules shall disclose an estimated loss amount, the Indemnitee shall be entitled to collect any Loss in excess of such amount.

     Section 7.07 Limitation on Recourse. No claim shall be brought or maintained by Parent or the Surviving Corporation or their respective successors or permitted assigns against any officer, director, employee (present or former) or Affiliate of Seller, and no recourse shall be brought or granted against any of them, by virtue of or based upon any alleged misrepresentation or inaccuracy in or breach of any of the representations or warranties of any Party set forth or contained in this Agreement or any exhibit or schedule hereto or any certificate delivered hereunder; provided, however, that following any breach of Section 7.08, this Section 7.07 shall be null and void and any Parent Indemnified Party shall be entitled to bring a claim and collect against any such Affiliate of Seller. Notwithstanding anything to the contrary set forth in this Section 7.07, nothing in this Section 7.07 shall limit any recourse available under any of the Transaction Documents other than as set forth in the Limited Guarantee.

     Section 7.08 Transfer Restrictions in Support of Seller’s Indemnity Obligations. In support of the obligations of Seller under this Article VII, Seller will retain the Parent Special Stock or Parent Common Stock received in connection with this Agreement or thereafter or, if Seller Transfers any such Parent Special Stock or Parent Common Stock, any cash received by it in consideration of such Transfer (such Parent Special Stock, Parent Common Stock and any such cash being referred to herein as “General Indemnity Funds”), subject to the following:

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     (a) General Release Dates.

     (i) Seller will retain General Indemnity Funds with a Fair Market Value equal to no less than 25% of Merger Consideration Cap from the date hereof until the date 180 days following of the Closing Date (the “Initial General Release Date”).

     (ii) From and after the Initial General Release Date until the Second General Release Date, Seller will retain General Indemnity Funds with an aggregate Fair Market Value no less than 15% of Merger Consideration Cap; provided, however, that if there remain in dispute any indemnification claims by the Parent Indemnified Parties that were timely made in accordance with this Article VII on or prior to the Initial General Release Date that are unpaid or remain in dispute as of the Initial General Release Date, then Seller shall retain an additional amount of General Indemnity Funds with a Fair Market Value equal to no less than the aggregate dollar amount of such unpaid and/or disputed claims, with such additional amount to be retained until such claims are no longer in dispute and are paid (if a payment is required thereby) in accordance with this Agreement.

     (iii) From and after the 18-month anniversary of the Closing Date (the “Second General Release Date”) until the Final General Release Date, Seller will retain General Indemnity Funds with an aggregate Fair Market Value no less than 8% of Merger Consideration Cap; provided, however, that if there remain in dispute any indemnification claims by the Parent Indemnified Parties that were timely made in accordance with this Article VII on or prior to the Second General Release Date that are unpaid or remain in dispute as of the Second General Release Date, then Seller shall retain an additional amount of General Indemnity Funds with a Fair Market Value equal to no less than the aggregate dollar amount of such unpaid and/or disputed claims, with such additional amount to be retained until such claims are no longer in dispute and are paid (if a payment is required thereby) in accordance with this Agreement.

     (iv) From and after the fourth anniversary of the Closing Date (the “Final General Release Date”), if there remain in dispute any indemnification claims by the Parent Indemnified Parties that were timely made in accordance with this Article VII on or prior to the Final General Release Date that are unpaid or remain in dispute as of the Final General Release Date, then Seller shall retain an amount of General Indemnity Funds with a Fair Market Value equal to no less than the aggregate dollar amount of such unpaid and/or disputed claims, with such additional amount to be retained until such claims are no longer in dispute and are paid (if a payment is required thereby) in accordance with this Agreement.

     (b) Notwithstanding the foregoing provisions of this Section 7.08, but subject to the other restrictions on Transfer in this Agreement, Seller may Transfer General Indemnity Funds to any Affiliate, and any such Affiliate, in turn, may further Transfer such General Indemnity Funds to any Affiliate, that, in each case, agrees in writing executed by Parent in a form reasonably acceptable to Parent to be subject to this Section 7.08 and to make available and pay to Parent General Indemnity Funds for indemnification of the Parent Indemnified Parties without qualification (other than as set forth in this Agreement) for satisfaction of indemnification claims

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pursuant to this Agreement. If any such Transfer occurs, then solely for purposes of calculating the minimum amount of General Indemnity Funds that must be retained in accordance with this Section 7.08, Seller will be deemed to have retained any such transferred General Indemnity Funds. The obligation of such Affiliate to be subject to this Section 7.08 and to make available and pay General Indemnity Funds for indemnification of the Parent Indemnified Parties for satisfaction of indemnification claims pursuant to this Agreement shall immediately terminate upon any termination of Seller’s obligations under this Section 7.08 or as otherwise provided in the agreement pursuant to which such Seller agrees to be subject to this Section 7.08.

     (c) In lieu of the obligations set forth in this Section 7.08, Seller and Parent may agree to substitute for this Section 7.08 a limited guarantee of Seller’s indemnification obligations under this Agreement by an Affiliate or Affiliates of Seller that are reasonably acceptable to Parent acting in good faith by execution and delivery of such guarantee by the Parent, Seller and such Affiliate or Affiliates. Parent agrees to consider in good faith any request by Seller to provide such a limited guarantee, and to reasonably cooperate with Seller and its Affiliates to negotiate in good faith and execute such a limited guarantee.

     (d) The provisions of this Section 7.08 shall be in addition to any other limitation on the transfer of contemplated by the Stockholders Agreement and shall not constitute a waiver of any other claim of any other obligation.

     Section 7.09 Exclusive Remedy. The Parties hereto hereby agree that, from and after the Closing Date, the provisions set forth in this Article VII are the exclusive provisions in this Agreement with respect to the liability of any Party for the breach, inaccuracy or nonfulfillment of any representation or warranty or any pre-Closing covenants, agreements or other pre-Closing obligations contained in this Agreement and the sole remedy of the Parent Indemnified Parties and the Seller Indemnified Parties for any claims for breach of representation or warranty or pre-Closing covenants, agreements or other pre-Closing obligations arising out of this Agreement or any Legal Requirement or legal theory applicable thereto; provided, that nothing herein shall preclude any Party from (a) seeking any remedy based upon actual fraud or Willful and Material Breach by any other Party or (b) enforcing its rights in respect of post-Closing covenants, agreements or other post-Closing obligations. Notwithstanding anything to the contrary set forth in this Section 7.09, nothing in this Section 7.09 shall limit any remedy available under any of the Transaction Documents other than as set forth in the Limited Guarantee.

ARTICLE VIII

DEFINITIONS

     Section 8.01 Definitions. For purposes hereof, the following terms, when used herein with initial capital letters, shall have the respective meanings set forth herein:

          “Action” means any action, arbitration, audit, charge, claim, complaint, demand, grievance, hearing, inquiry, investigation, proceeding or suit of any nature (whether criminal, civil, legislative, administrative, regulatory, prosecutorial or otherwise) by or before (or that could come before) any arbitrator or Governmental Entity or similar Person.

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          “Adjustment Determination Effective Time” means 11:59 p.m. (Portland, Oregon local time) on the day immediately preceding the Closing Date.

          “Affiliate” of any Person means any other Person, directly or indirectly controlling, controlled by or under common control with such Person, where “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. For the avoidance of doubt, for purposes of this Agreement or any other Transaction Document, neither Parent nor any of its Subsidiaries (including Corporate Merger Sub, LLC Merger Sub and, after the Closing, the Surviving Corporation and the Surviving Entity) shall be deemed an Affiliate of Seller or any of its other Affiliates. In addition, for purposes of Article III, and for the sake of clarity, from and after the Closing, none of the Company or its Subsidiaries will be considered an Affiliate of Seller or any of Seller’s other Affiliates.

          “Business” means the business of operating, owning or managing virtual charter schools in the United States or private pay online schools with offerings including any of kindergarten through grade 12 in the United States or selling or licensing online courses to schools or school districts in the United States. For purposes of this definition, activities shall not be deemed to be conducted in the United States only if and to the extent that they are not primarily marketed to, directed to or servicing natural Persons whose primary permanent residence, at the time of determination, is located in the United States.

          “Business Day” means each day of the week except Saturdays, Sundays and days on which banking institutions are authorized by applicable Legal Requirement to close in the State of Delaware.

          “Business Employee” means an employee who has devoted at least fifty percent (50%) of his or her time to the business of the Company during the six-month period prior to the Closing and who is included on Schedule 4.12(b) hereto.

          “Business Employee Benefit Plan” means each “employee benefit plan” as defined in Section 3(3) of ERISA (whether or not subject to ERISA) and each other plan, policy, program practice, agreement, understanding or arrangement (whether written or oral) (i) providing compensation or other benefits to any current or former Business Employee (or to any dependent or beneficiary thereof), under which Seller or any Affiliate of Seller has any obligation or liability, whether actual or contingent, including, without limitation, all employment, severance, termination, incentive, bonus, deferred compensation, retention, retirement, pension, savings, profit sharing, retention, change in control, vacation, holiday, cafeteria, medical, health, dependent care, disability, life, accident, fringe benefit, welfare and stock-based or stock-linked compensation plans, policies, programs, agreements, understandings or arrangements or (ii) with respect to which the Company has any liability, whether actual or contingent.

          “Closing Debt” means the aggregate amount of all Indebtedness of the Company outstanding as of the Adjustment Determination Effective Time and which is not (a) categorized as a current liability for purposes of the Net Working Capital Amount, (b) an obligation as lessee under leases for student computers that have been recorded as capital leases in accordance with

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GAAP, (c) a Liability or other amount arising under or relating to the Specified Dispute Earnout Payment or (d) any Liability or other amount reflected on Annex C or other similar Liability of the Company assumed by Seller or its Affiliates (other than the Company and its Subsidiaries) at or prior to the Closing. Closing Debt shall be determined (x) in accordance with the Company Accounting Practices and Procedures and (y) on a pro forma basis as if the transfers contemplated in Section 6.02 and Section 6.07 had taken place as of immediately prior to the Adjustment Determination Effective Time (and, for sake of clarity, without application of any purchase accounting adjustments or allocations that might otherwise be applicable to such transfers under FASB Accounting Standards Codification Topic 805).

          “Company Accounting Practices and Procedures” means the accounting methods, policies, practices and procedures, including recognition, classification, estimation and valuation methodologies set forth on Annex B and used and as applied in Annex A. In the event that the applicable accounting methods, policies, practices and procedures, including recognition, classification, estimation and valuation methodologies set forth on such Annexes do not address a matter to be taken into consideration of the Closing Debt or the Net Working Capital Amount, the Parties shall apply such accounting methods, policies, practices and procedures, including recognition, classification, estimation and valuation methodologies as were applied by the Company in the Company Financial Statements at and for the 12-months ended January 2, 2010.

          “Company Bylaws” means the bylaws of the Company.

          “Company Certificate” means the certificate of incorporation of the Company.

          “Company Intellectual Property” means all Intellectual Property necessary for or used in the conduct of the Company’s business as currently conducted, including curricula-in-process.

          “Company Material Adverse Effect” means any circumstance, condition, factor, change, effect, event, occurrence, state of facts or development that (a) has had or would reasonably be expected to have a material adverse effect on the business, properties, operations, condition (financial or otherwise) or results of operations of the Company; provided, however, that none of the following shall be deemed in themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Company Material Adverse Effect pursuant to clause (a): (i) any adverse change, effect, event, occurrence, state of facts or development attributable to the announcement or pendency of the transactions contemplated by this Agreement; (ii) any adverse change, effect, event, occurrence, state of facts or development attributable to conditions affecting the industry in which the Company participates, the United States economy or any other economy where the Company does business (in each case, as a whole) or the capital markets in general or the markets in which the Company operates; (iii) the effect of any change arising in connection with any “act of God” including weather, natural disasters and earthquakes, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions; or (iv) any adverse change, effect, event, occurrence, state of facts or development arising from or relating to any change in accounting requirements or principles or any change in applicable Legal Requirements, rules or regulations or the interpretation thereof; provided, further, however, that any circumstance,

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condition, factor, change, effect, event, occurrence, state of facts or development described in the foregoing clauses (ii), (iii) or (iv) above shall apply only to the extent such fact, circumstance, event, condition, development, effect, factor, occurrence or change has had a disproportionate effect on the Company as compared to other participants in the industry in which the Company operates or (b) would materially adversely affect the ability of Seller, any of its Affiliates or the Company to consummate the transactions contemplated by this Agreement or the other Transaction Documents on a timely basis.

          “Company Material Impact” means a Company Material Adverse Effect, except that a “material adverse effect” will be deemed to have occurred (subject to the limitations in such definition) where the applicable effect or effects would reasonably be expected to result, individually or in the aggregate, in Losses that exceed $1,250,000.

          “Company Permitted Liens” means (i) any restriction on transfer arising under applicable securities law, (ii) Liens for current Taxes or other governmental charges not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings by the Company; (iii) mechanics’, carriers’, workers’, repairers’, landlords’ and similar statutory Liens arising or incurred in the Ordinary Course of Business for amounts which are not delinquent and which are not, individually or in the aggregate, significant; (iv) zoning, entitlement, building and other land use regulations imposed by Governmental Entities having jurisdiction over the Company Leased Real Property which are not violated by the current use and operation of the Company Leased Real Property; (v) covenants, conditions, restrictions, easements and other similar matters of record affecting title to the Company Leased Real Property which do not materially impair the occupancy or use of the Company Leased Real Property for the purposes for which it is currently used or proposed to be used in connection with the Company’s business; (vi) covenants, conditions, restrictions, easements and other similar matters of record affecting title to the Company Leased Real Property which do not materially impair or interfere with the occupancy, operation or use of the Company Leased Real Property for the purposes for which it is currently operated or used in connection with the Company’s business; (vii) non-monetary Liens which do not materially impair or interfere with the occupancy, operation or use of the Company Leased Real Property for the purposes for which it is currently operated or used in connection with the Company’s business, (viii) Liens arising under worker’s compensation, unemployment insurance, social security, retirement and similar legislation; (ix) purchase money Liens and Liens securing rental payments under capital lease arrangements; and (x) Liens of lessors arising under lease agreements.

          “Company Software Products” means all Software products developed by or on behalf of the Company and sold or licensed or offered for sale or license by or on behalf of the Company.

          “Company’s knowledge” means the actual knowledge, after due inquiry, of Brian Greene, Rene Gonzalez, Elizabeth Large, Donna Lesch, Gregg Levin, Stanley Maron, Michael Neumann, James Snell, Felicia Thornton, Jennifer Woodruff or Caprice Young.

          “Contract” means any agreement, contract, instrument, commitment, lease, guaranty, indenture, license or other arrangement or understanding (and all amendments, side

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letters, modifications and supplements thereto) between parties or by one party in favor of another party, whether written or oral.

          “Delaware Act” means the Delaware Limited Liability Company Act, 6 Del. L. § 18-101, et seq., as amended from time to time.

          “Disclosure Schedules” means the Seller Parties Disclosure Schedules and the Parent Disclosure Schedules collectively.

          “Employee Benefit Plan” means each “employee benefit plan” as defined in Section 3(3) of ERISA (whether or not subject to ERISA) and each other plan, policy, program practice, agreement, understanding or arrangement (whether written or oral) which is now, or was in the past maintained, sponsored or contributed to by Seller or any Affiliate of Seller, and under which Seller or such Affiliate of Seller has any obligation or liability, whether actual or contingent, including, without limitation, all employment, consulting, severance, termination, incentive, bonus, deferred compensation, retention, retirement, pension, savings, profit sharing, retention, change in control, vacation, holiday, cafeteria, medical, health, dependent care, disability, life, accident, fringe benefit, welfare and stock-based or stock-linked compensation plans, policies, programs, agreements, understandings or arrangements.

          “Environmental Requirements” means all Legal Requirements, concerning pollution or protection of the environment, natural resources, or human health or safety including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, processing, discharge, release, threatened release, control, or cleanup of any Hazardous Materials.

          “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

          “ERISA Affiliate” means, with respect to any entity, any other entity (whether or not incorporated) other than such entity that, together with such entity, is required to be treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder.

          “GAAP” means United States generally accepted accounting principles, consistently applied.

          “Governmental Entity” means any (a) province, region, state, county, city, town, village, district or other jurisdiction; (b) federal, provincial, regional, state, local, municipal, foreign or other government or transnational governmental institution; (c) governmental authority or instrumentality of any nature (including any governmental or administrative agency, commission, branch, bureau, department, agency or other entity and any court or other tribunal); (d) official of any of the foregoing, or (e) applicable national securities exchange or national quotation system on which securities issued are listed or quoted.

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          “Hazardous Materials” means all wastes, pollutants, contaminants or hazardous, dangerous or toxic substances or materials including petroleum and petroleum products (including without limitation crude oil and any fraction thereof), asbestos and asbestos-containing materials, polychlorinated biphenyls, toxic mold, and any other substance or material that is regulated pursuant to any Environmental Requirement or the use or release of which could result in liability under any Environmental Requirement.

          “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

          “Indebtedness” means, without duplication, the sum of (i) all obligations of the Company for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, (ii) other indebtedness evidenced by notes, bonds, debentures or other debt securities, (iii) indebtedness of the types described in clauses (i) and (ii) guaranteed, directly or indirectly, in any manner through an agreement, contingent or otherwise, to supply funds to, or in any other manner, invest in, the debtor, or to purchase indebtedness, primarily for the purpose of enabling the debtor to make payment of the indebtedness or to assure the owners of indebtedness against loss, (iv) indebtedness for the deferred purchase price of property or services with respect to which a person is liable, contingent or otherwise, as obligor or otherwise, other than trade payables in the Ordinary Course of Business, (v) all obligations as lessee under leases that have been recorded as capital leases in accordance with GAAP, (vi) all payment obligations under any interest rate swap agreements or interest rate hedge agreements to which the party is a party, (vii) any interest owed with respect to the indebtedness referred to above and prepayment premiums or fees related thereto, and (viii) any obligation to reimburse any bank or other Person for amounts paid under a letter of credit or similar instrument to the extent drawn.

          “Intellectual Property” means all United States and foreign (i) patents, patent applications and patent disclosures, together with all reissues, continuations, continuations-in-part, revisions, divisionals, extensions and reexaminations in connection therewith and counterparts thereof, (ii) trademarks, service marks, trade dress, and all other legally protectable indicia of origin, together with all translations, adaptations and derivations thereof, all trademark registrations and applications for registration and renewals in connection therewith, and all goodwill associated with any of the foregoing, (iii) copyrights, original works of authorship, mask works, database rights and moral rights, and all copyright registrations, applications for registration and renewals in connection therewith and including all Software, and all derivative works of or related to any of the foregoing, (iv) trade secrets and trade secret know-how, (v) rights of publicity to use the names and likeness of individuals and rights of privacy to control one’s persona, and (vii) all rights to sue or recover and retain damages and costs and attorneys’ fees for past, present and future infringement, misappropriation or other violation of any of the foregoing.

          “IT Assets” means all computers, computer systems, Software, firmware, middleware, servers, workstations, routers, hubs, switches, data communication equipment and lines, co-location facilities, telecommunication equipment and lines, and all other information technology equipment, including any outsourced systems and processes (e.g., hosting locations), and all associated documentation owned by the Company or licensed or leased by the Company pursuant to a Contract (excluding any public networks).

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          “KUOS Curricula” means (a) any and all curricula, software (including source code, object code and related documentation), customer and customer prospect data and databases (including any curricula-in-progress) and any intellectual property rights in and to, and any issuances, registrations and applications for, any of the foregoing that KU Online Services Inc., Knowledge Learning Corporation or any other Affiliate owns in whole or in part or in which such Affiliate has an ownership interest that are necessary for the conduct of, or that have been primarily used in, held primarily for use in, or developed for, the Company’s business (including all curricula licensed from KU Online Services Inc. under the License Agreement dated January 1, 2009, as amended); and (b) other Intellectual Property that was developed by any Affiliate of the Company specifically for the Company.

          “Legal Requirement” means any federal, state, provincial, local, municipal, foreign, international, multinational or other order, judgment, decree, constitution, law, ordinance, regulation, statute or treaty.

          “Liability” means any liability, Indebtedness or other debt, obligation, penalty, fine, claim, cause of action or other loss, cost or expense of any kind or nature whatsoever, whether asserted or unasserted, absolute or contingent, known or unknown, accrued or unaccrued, liquidated or unliquidated, and whether due or to become due and regardless of when asserted.

          “Lien” means any security interest, pledge, bailment (in the nature of a pledge or for purposes of security), mortgage, deed of trust, the grant of a power to confess judgment, conditional sales and title retention agreement (including any lease in the nature thereof), charge, encumbrance or other similar arrangement or interest in real or personal property.

          “Losses” means all actual losses, out-of-pocket costs and expenses (including attorneys’ fees and disbursements and any other legal costs) and other liabilities and damages actually incurred by a Party, in each case, to the extent indemnifiable and calculated in accordance with Article VII of this Agreement.

          “Multiemployer Plan” shall have the meaning set forth in Section 3(37) of ERISA.

          “Net Working Capital” means the difference (which may be a negative number) between (a) the Company’s total current assets, minus (b) the Company’s total current liabilities, in each case determined (x) in accordance with the Company Accounting Practices and Procedures and (y) on a pro forma basis as if the transfers contemplated in Section 6.02 and Section 6.07 had taken place as of immediately prior to the Adjustment Determination Effective Time (and, for sake of clarity, without application of any purchase accounting adjustments or allocations that might otherwise be applicable to such transfers under FASB Accounting Standards Codification Topic 805); provided, that none of the Company’s current assets or current liabilities, or the calculation of the Net Working Capital Amount shall include (a) any liability or obligation related to Seller Expenses, (b) any amounts included in the calculation of the Closing Debt, (c) any Liabilities or other amounts arising under or relating to the Specified Dispute Earnout Payment, (d) any Liability or other amount reflected on Annex C or other similar Liability of the Company assumed by Seller or its Affiliates (other than the Company and

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its Subsidiaries) at or prior to the Closing or (e) the current portion of any obligation as lessee under leases for student computers that have been recorded as capital leases in accordance with GAAP. The Parties agree that the reserve established pursuant to that certain Addendum to Merchant Credit Card Agreement dated as of August 10, 2007 between the Company and Chase Paymentech, LLC shall be treated as cash for purposes of calculating Net Working Capital. For the avoidance of doubt, any intercompany notes payable, accounts payable and other obligations due and owing by the Company to any of its Affiliates as of the Adjustment Determination Effective Time, other than those referenced in clause (d) above, will be treated as current liabilities that are a part of Net Working Capital and not as Closing Debt.

          “Net Working Capital Amount” means the Net Working Capital of the Company as of the Adjustment Determination Effective Time giving effect to the transactions contemplated hereby.

          “Open Source Software” means any Software that is subject to the GNU General Public License (GPL), the Lesser GNU Public License (LGPL), any “copyleft” license or any other license that requires as a condition of use, modification or distribution of such Software that such Software or other Software combined or distributed with it be: (i) disclosed or distributed in source code form; (ii) licensed for the purpose of making derivative works; (iii) redistributable at no charge; or (iv) licensed subject to a patent non-assert or royalty-free patent license (and including any other license described by the Open Source Initiative as set forth on www.opensource.org).

          “Ordinary Course of Business” means the ordinary course of business consistent with past practice and custom.

          “Owned Intellectual Property” means Company Intellectual Property that is owned by the Company in whole or in part or in which the Company has an ownership interest or any Related Party IP.

          “Parent Common Stock” means common stock, par value $0.0001 per share, of Parent.

          “Parent Common Stock Price” means $22.95.

          “Parent Material Adverse Effect” means any circumstance, condition, factor, change, effect, event, occurrence, state of facts or development that (a) has had or would reasonably be expected to have a material adverse effect on the business, properties, operations, condition (financial or otherwise) or results of operations of Parent and its Subsidiaries; provided, however, that none of the following shall be deemed in themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Parent Material Adverse Effect pursuant to clause (a): (i) any adverse change, effect, event, occurrence, state of facts or development attributable to the announcement or pendency of the transactions contemplated by this Agreement; (ii) any adverse change, effect, event, occurrence, state of facts or development attributable to conditions affecting the industry in which Parent participates, the United States economy or any other economy where Parent does business (in each case, as a whole) or the capital markets in general

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or the markets in which Parent operates; (iii) the effect of any change arising in connection with any “act of God” including weather, natural disasters and earthquakes, hostilities, acts of war, sabotage or terrorism or military actions or any escalation or material worsening of any such hostilities, acts of war, sabotage or terrorism or military actions; or (iv) any adverse change, effect, event, occurrence, state of facts or development arising from or relating to any change in accounting requirements or principles or any change in applicable Legal Requirements, rules or regulations or the interpretation thereof; provided, further, however, that any circumstance, condition, factor, change, effect, event, occurrence, state of facts or development described in the foregoing clauses (ii), (iii) or (iv) above shall apply only to the extent such fact, circumstance, event, condition, development, effect, factor, occurrence or change has had a disproportionate effect on Parent as compared to other participants in the industry in which Parent operates or (b) would materially adversely affect the ability of any Purchaser Party to consummate the transactions contemplated by this Agreement or the other Transaction Documents on a timely basis.

          “Parent Options” means options to purchase Parent Common Stock.

          “Parent Preferred Stock” means preferred stock of Parent, par value $0.0001 per share.

          “Parent Restricted Stock” means shares of Parent Common Stock awarded under the Parent Stock Plan.

          “Parent’s knowledge” means the actual knowledge, after due inquiry of Bruce Davis, Steve Goetzinger, Keith Haas, Harry Hawks, Chip Hughes, John Olsen, Ronald Packard, Howard Polsky or Christopher Ryan.

          “Parent Stock Plan” means, collectively, the Amended and Restated Stock Option Plan approved in December 2003, the K12 Inc. 2007 Equity Incentive Award Plan and the K12 Inc. 2007 Employee Stock Purchase Plan.

          “Parent Warrants” means warrants for Parent Common Stock.

          “Permitted Investments” means (i) any passive investments in publicly traded companies; (ii) any business engaged in by Seller or any of its direct or indirect controlled Subsidiaries, as of the date hereof (as determined immediately after the First Merger Effective Time giving effect to the disposition of interests of the Company as contemplated hereby); or (iii) any other entity in which Seller or any of its direct or indirect controlled Subsidiaries, has an investment, directly or indirectly, as of the date hereof and any follow on investments in such entity.

          “Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a Governmental Entity or any department, agency or political subdivision thereof.

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          “Pre-Closing Tax Period” means any taxable period ending on or before the Closing Date and with respect to any Straddle Period, the portion of such period ending on the Closing Date. In the case of a Straddle Period, the Taxes allocable to the Pre-Closing Tax Period shall be determined (i) based on a deemed closing of the books at the end of the Closing Date, in the case of income, profits, sales, employment and other Taxes readily apportionable between periods and (ii), in the case of all other Taxes, in proportion to the number of days in the taxable period on and before the Closing Date.

          “Pre-Closing Taxes” means any Taxes (or the non-payment thereof) of the Company or any of its Subsidiaries attributable to any Pre-Closing Tax Period.

          “Protected Employee” means any (i) Business Employee, or (ii) without limiting the generality of clause (i), officer, director or employee of Parent or any of its Subsidiaries, including the Surviving Entity. For avoidance of doubt, the Specified Protected Employees are also Protected Employees.

          “Related Party IP” means Intellectual Property that is owned by a Related Party IP Holder in whole or in part or in which a Related Party IP Holder has an ownership interest to the extent that such Intellectual Property is used in, held for use in, or developed for, the Company for use in its business as currently conducted.

          “Related Party IP Holder” means KU Online Services Inc., Knowledge Learning Corporation and any other Affiliate of the Company that owns in whole or in part, or has an ownership interest in Intellectual Property that is necessary for the conduct of, or that is used in, the Company’s business as currently conducted (including curricula licensed from KU Online Services Inc. under the License Agreement dated January 1, 2009, as amended).

          “Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules promulgated thereunder.

          “Seller Expenses” means all fees and expenses payable to the Company’s and/or Seller’s advisors and other fees from and expenses of professional service firms incurred by the Company or Seller or for which the Company or Seller is liable or responsible in connection with the transactions contemplated by this Agreement in each case to the extent unpaid as of the Closing Date.

          “Seller’s knowledge” means the actual knowledge, after due inquiry, of Brian Greene, Rene Gonzalez, Elizabeth Large, Donna Lesch, Gregg Levin, Stanley Maron, Michael Neumann, James Snell, Felicia Thornton, Jennifer Woodruff or Caprice Young.

          “Software” means computer software of whatever kind or purpose, including source code, executable code, systems, tools, applications, data, databases, firmware, developers kits, utilities, graphical user interfaces, menus, images, icons, and forms, and all software stored or contained therein or transmitted thereby, and including all software implementations of algorithms, models and methodologies (whether in source code or object code) and all descriptions, schematics, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, and all related documentation (including user documentation, user

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manuals, specifications and training materials, relating to any of the foregoing); provided, however, that the curricula, including any electronic or digital versions, owned by the Company or, to the extent used, held for use or developed for the Company’s business, owned by any Related Party, shall not be considered Software for the purposes of this Agreement.

          “Specified Dispute” means the matters set forth on Schedule 7.02(a)(v).

          “Specified Protected Employee” means any of the directors, officers or employees at the director level or above of Parent or any of its Subsidiaries, including the Surviving Entity.

          “Subsidiary or Subsidiaries” means, with respect to any Person of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons owns a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation).

          “Tax” or “Taxes” means (i) any United States federal, state, local or foreign income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, real property gains, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, special assessment, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing and (ii) any amount described in (i) payable as a result of being a member of a consolidated, combined, unitary or similar group.

          “Tax Return” or “Tax Returns” means any return, report, information return or other document (including schedules or any related or supporting information or any amendments thereto) filed or required to be filed with any Governmental Entity or other authority in connection with the determination, assessment or collection of any Tax or the administration of any Legal Requirements, regulations or administrative requirements relating to any Tax.

          “Transaction Documents” means this Agreement, the Stockholders Agreement, the Voting Agreement, the Transition Services Agreement, the Series A Special Stock Certificate of Designations, the Non-Competition Agreement, the Bill of Sale, the IP Assignment, the Limited Guarantee and the other documents contemplated to be delivered or executed in connection herewith.

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          “Transfer” means a sale, transfer, hypothecation, negotiation, pledge, assignment, encumbrance, grant of any option, warrant or other right to purchase, or otherwise disposition, or entering into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, of the economic consequence of ownership of the Parent Special Stock or Parent Common Stock.

          “Willful and Material Breach” means a material breach that is a consequence of an act undertaken by the breaching Party with the actual knowledge that the taking of such act would, or would be reasonably expect to, cause a breach of this Agreement.

     Section 8.02 Cross-Reference of Other Definitions. Each capitalized term listed below is defined in the corresponding Section of this Agreement:

Term	Section No.
“Agreement”	Preamble
“Audited Company Financial Statements”	Section 6.09(a)
“Bill of Sale”	Section 6.02(h)
“Business Intellectual Property”	Section 4.16(d)
“Cap”	Section 7.02(b)(ii)
“Certificate of Merger”	Section 1.01(b)
“Certificates”	Section 1.01(g)(i)
“Closing”	Section 1.04(a)
“Closing Date”	Section 1.04(a)
“Closing Statement”	Section 1.03(a)(i)
“Code”	Recitals
“Company”	Preamble
“Company Common Stock”	Recitals
“Company Common Stock Outstanding”	Section 1.01(g)(i)(A)
“Company Confidential Information”	Section 6.15
“Company Disclosure Schedules”	Article IV
“Company Financial Statements”	Section 4.06(a)
“Company Leased Real Property”	Section 4.15(c)
“Company Licenses”	Section 4.20
“Company Real Property Leases”	Section 4.15(c)
“Company Software”	Section 4.16(v)
“Company Systems”	Section 4.16(r)
“Conclusive Closing Statement”	Section 1.03(a)(ii)
“Corporate Merger Sub”	Preamble
“Credit Support Instruments”	Section 6.09(i)
“Deductible”	Section 7.02(b)(i)
“DGCL”	Recitals
“Disputed Items”	Section 1.03(a)(ii)
“D&T”	Section 6.09(a)
“Employee Transfer”	Section 6.02(j)
“Employer”	Section 6.07(a)

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Term	Section No.
“Exchange”	Section 7.04(a)
“Exchange Ratio”	Section 1.01(g)(i)(A)
“Final Adjustment Amount”	Section 1.03(c)
“Final General Release Date”	Section 7.08(a)
“Final Share Number”	Section 1.01(g)(i)(B)
“First Merger”	Recitals
“First Merger Effective Time”	Section 1.01(b)
“General Indemnity Funds”	Section 7.08
“Indemnitee”	Section 7.05(a)
“Indemnitor”	Section 7.05(a)
“Independent Auditor”	Section 1.03(a)(ii)
“Initial General Release Date”	Section 7.08(a)
“IP Assignment”	Section 6.02(g)
“IP Reference Period”	Section 4.16(f)
“Latest Company Balance Sheet”	Section 4.06(a)
“Latest Parent Balance Sheet”	Section 5.07(b)
“Limited Guarantee”	Recitals
“LLC Merger Sub”	Preamble
“Merger Consideration Cap”	Section 7.02(b)(iv)
“Mergers”	Recitals
“Minimum Claim Amount”	Section 7.02(b)(iii)
“Non-Competition Agreement”	Recitals
“Objections Statement”	Section 1.03(a)(ii)
“Parent”	Preamble
“Parent Board”	Section 1.04(c)(i)
“Parent Board Recommendation”	Section 6.04(d)
“Parent Bylaws”	Section 5.01
“Parent Certificate”	Section 5.01
“Parent Corporate Written Consent”	Section 1.04(c)(ii)
“Parent Disclosure Schedules”	Article V
“Parent Financial Statements”	Section 5.07(b)
“Parent 401(k) Plan”	Section 5.07(b)
“Parent Fundamental Representation”	Section 7.01(a)
“Parent Indemnified Parties”	Section 7.02(a)
“Parent LLC Written Consent”	Section 1.04(c)(iii)
“Parent SEC Filings”	Section 5.07(a)
“Parent Special Stock”	Recitals
“Parent Stockholders’ Meeting”	Section 6.04(a)
“Parent’s 2010 Annual Meeting”	Section 6.04
“Party”	Preamble
“Post-Closing Plans”	Section 6.07(b)
“Post-Closing Tax Period”	Section 6.10(c)
“Pre-Closing Transactions”	Section 6.02
“Proxy Statement”	Section 6.04(a)
“Purchaser Party”	Preamble
“Registered Intellectual Property”	Section 4.18

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Term	Section No.
“Related Party”	Section 4.18
“Resolution Period”	Section 1.03(a)(ii)
“Restricted Period”	Section 6.08(a)
“SEC”	Section 5.07(d)
“Second General Release Date”	Section 7.08(a)
“Second Merger”	Recitals
“Second Merger Effective Time”	Section 2.01(b)
“Securities Act”	Section 3.07(a)
“Seller”	Preamble
“Seller Disclosure Schedules”	Article III
“Seller Fundamental Representation”	Section 7.01(a)
“Seller Indemnified Parties”	Section 7.03(a)
“Seller Parties Disclosure Schedules”	Article IV
“Seller Proxy Expenses”	Section 6.04(c)
“Seller Written Consent”	Section 1.04(b)(ii)
“Seller 401(k) Plan”	Section 5.07(b)
“Series A Special Stock Certificate of Designations”	Recitals
“Specified Dispute Earnout Payment”	Section 7.05(c)
“Stockholder Approval”	Section 5.08
“Stockholders Agreement”	Recitals
“Straddle Period”	Section 6.10(a)(ii)
“Subject Person”	Section 6.15
“Subject Purchase Agreement”	Section 7.05(c)
“Survival Date”	Section 7.08(a)
“Surviving Corporation”	Section 1.01(a)
“Surviving Entity”	Section 2.01(a)
“Tax Contest”	Section 6.10(c)
“Transfer Taxes”	Section 6.10(e)
“Transferred Employee”	Section 6.07(a)
“Transition Services Agreement”	Section 1.04(b)(vi)
“Voting Agreement”	Recitals

ARTICLE IX

MISCELLANEOUS

     Section 9.01 Expenses. Except as otherwise expressly set forth herein or in the Stockholders Agreement, each Party each of the Parties hereto shall bear, without right of reimbursement from the other, all costs and expenses incurred by it incident to the preparation, execution and delivery of this Agreement and the other Transaction Documents and the performance of its obligations hereunder and thereunder, including fees and disbursements of legal counsel, accountants, and consultants employed by the Parties in connection with the transactions contemplated by this Agreement and the other Transaction Documents.

     Section 9.02 Notices. All notices, requests, demands, claims and other communications which are required or may be given under this Agreement shall be in writing and shall be

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deemed to have been duly given when received if personally delivered; when transmitted if transmitted by facsimile (with written confirmation of transmission); the Business Day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and five Business Days after the date mailed by certified or registered mail, postage prepaid, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to:

Notices to any of the Purchaser Parties, the Company, the Surviving Corporation or the Surviving Entity:

K12 Inc.
2300 Corporate Park Drive
Herndon, VA 20171
Attn: General Counsel
Fax: (703) 483-7496

with a copy, which shall not constitute notice, to:

Kirkland & Ellis LLP
601 Lexington Avenue
New York, New York 10022
Attn: David Fox
          William B. Sorabella

Fax: (212) 446-6460

Notices to Seller:

c/o Knowledge Learning Corporation
650 NE Holladay, Suite 1400
Portland, Oregon 97232
Attn: General Counsel
Fax: (503) 736-1391

with a copy, which shall not constitute notice, to:

Latham & Watkins LLP
355 South Grand Ave.
Los Angeles, California 90071
Attn: Thomas C. Sadler
Fax: (213) 891-8763

     Any Party may change the address to which notices, requests, demands, claims, and other communications required or permitted hereunder are to be delivered by giving the other Party(ies) notice in the manner herein set forth.

     Section 9.03 Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs, successors and permitted assigns, but neither this

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Agreement nor any of the rights or obligations hereunder may be assigned (i) by Parent, Corporate Merger Sub or LLC Merger Sub without the prior written consent of Seller and/or (ii) by Seller or the Company without the prior written consent of Parent.

     Section 9.04 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced as a result of any rule of law or public policy, all other terms and other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are fulfilled to the greatest extent possible.

     Section 9.05 References. The table of contents and the section and other headings and subheadings contained in this Agreement and the exhibits hereto are solely for the purpose of reference, are not part of the agreement of the parties hereto, and shall not in any way affect the meaning or interpretation of this Agreement or any exhibit hereto. All references to days or months shall be deemed references to calendar days or months. All references to “$” or “dollars” shall be deemed references to United States dollars. Unless the context otherwise requires, any reference to a “Section,” “Exhibit,” or “Schedule” shall be deemed to refer to a section of this Agreement, exhibit to this Agreement or a schedule to this Agreement, as applicable. Any reference to any federal, state, county, local or foreign statute or Legal Requirement shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. For all purposes of and under this Agreement, (i) the word “including” shall be deemed to be immediately followed by the words “without limitation”; (ii) words (including defined terms) in the singular shall be deemed to include the plural and vice versa; (iii) words of one gender shall be deemed to include the other gender as the context requires; (iv) “or” is not exclusive; and (v) the terms “hereof,” “herein,” “hereto,” “herewith” and any other words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including the exhibits hereto and the Disclosure Schedules) and not to any particular term or provision of this Agreement, unless otherwise specified.

     Section 9.06 Mutual Drafting. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

     Section 9.07 Amendment and Waiver.

     (a) This Agreement may not be amended except in a written instrument executed by the Parties. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound thereby.

     (b) Except where a specific period for action or inaction is provided herein, neither the failure nor any delay on the part of any Party in exercising any right, power or privilege

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under this Agreement or any other Transaction Document shall operate as a waiver thereof, nor shall any waiver on the part of any Party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. The failure of a Party to exercise any right conferred herein within the time required shall cause such right to terminate with respect to the transaction or circumstances giving rise to such right, but not to any such right arising as a result of any other transactions or circumstances.

     Section 9.08 Entire Agreement. This Agreement, the Transaction Documents and the Nondisclosure Agreement, dated February 23, 2010, by and between the Company and Parent, constitute the entire agreement between the Parties and supersede any prior understandings, agreements or representations (whether written or oral) by or between the Parties, written or oral, to the extent they relate in any way to the subject matter hereof. Without limiting the foregoing, in no event shall Parent have any obligations for Seller Expenses arising under the letter agreement, dated as of May 17, 2010, by and between Seller and the Company.

     Section 9.09 Incorporation of Annexes, Exhibits and Disclosure Schedules. The Annexes and Exhibits to this Agreement and the Disclosure Schedules are incorporated herein by reference and made a part hereof.

     Section 9.10 Counterparts; Facsimile, Electronic Signatures. This Agreement may be executed in multiple counterparts, any one of which need not contain the signatures of more than one Party, but all such counterparts taken together shall constitute one and the same instrument. This Agreement or any counterpart may be executed and delivered by facsimile copies or delivered by electronic communications by portable document format (.pdf), each of which shall be deemed an original.

     Section 9.11 Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS; (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS; (C) IT MAKES SUCH WAIVERS VOLUNTARILY; AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.

     Section 9.12 Specific Performance. Each of the Parties acknowledges and agrees that the other parties to this Agreement would be irreparably damaged in the event that any of the terms or provisions of this Agreement are not performed in accordance with their specific terms

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or otherwise are breached. Therefore, notwithstanding anything to the contrary set forth in this Agreement, each of the parties to this Agreement hereby agrees that the other parties to this Agreement shall be entitled to an injunction or injunctions to prevent breaches of any of the terms or provisions of this Agreement and to enforce specifically the performance by such first Party under this Agreement, and each Party to this Agreement hereby agrees to waive the defense in any such suit that the other parties to this Agreement have an adequate remedy at law and to interpose no opposition, legal or otherwise, as to the propriety of injunction or specific performance as a remedy, and hereby agrees to waive any requirement to post any bond in connection with obtaining such relief. The equitable remedies described in this Section 9.12 shall be in addition to, and not in lieu of, any other remedies at law or in equity that the parties to this Agreement may elect to pursue.

     Section 9.13 Governing Law; Consent to Jurisdiction. All matters relating to the interpretation, construction, validity and enforcement of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of Legal Requirements of any jurisdiction other than the State of Delaware. Each of the parties to this Agreement hereby irrevocably and unconditionally submits, for itself and its assets and properties, to the exclusive jurisdiction of any Delaware State court in New Castle County, or Federal court of the United States of America, sitting within New Castle County in the State of Delaware, and any respective appellate court, in any action or proceeding arising out of or relating to this Agreement, the agreements delivered in connection with this Agreement, or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment relating thereto, and each of the parties to this Agreement hereby irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts; (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Delaware State court or, to the extent permitted by applicable Legal Requirement, in such Federal court; (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in any such Delaware State or Federal court; and (iv) waives, to the fullest extent permitted by applicable Legal Requirement, the defense of lack of personal jurisdiction or an inconvenient forum to the maintenance of such action or proceeding in any such Delaware State or Federal court. Each of the parties to this Agreement hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Legal Requirement. Each of the parties to this Agreement hereby irrevocably consents to service of process in the manner provided for notices in Section 9.02. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by applicable Legal Requirement.

     Section 9.14 No Third-Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement; provided, that any Person that is not a Party but, by the terms of Section 6.06 or Section 7.03(a)(iii), is entitled to indemnification, shall be considered a

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third-party beneficiary of this Agreement, with full rights of enforcement as though such Person was a signatory to this Agreement.

     Section 9.15 Representation by Counsel. Each Party represents and agrees with each other that it has been represented by or had the opportunity to be represented by, independent counsel of its own choosing, and that it has had the full right and opportunity to consult with its respective attorney(s), that to the extent, if any, that it desired, it availed itself of this right and opportunity, that it or its authorized officers (as the case may be) have carefully read and fully understand this Agreement in its entirety and have had it fully explained to them by such Party’s respective counsel, that each is fully aware of the contents thereof and its meaning, intent and legal effect, and that it or its authorized officer (as the case may be) is competent to execute this Agreement and has executed this Agreement free from coercion, duress or undue influence.

*       *       *       *

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     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement and Plan of Merger on the first date written above.

COMPANY:
KC DISTANCE LEARNING, INC.
By: Name:	/s/ Stanley E. Maron Stanley E. Maron
Its:	Secretary
SELLER:
KCDL HOLDINGS LLC
By:	/s/ Stanley E. Maron
Name:	Stanley E. Maron
Its:	Manager

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PARENT:
K12 INC.
By:	/s/ Howard D. Polsky
Name:	Howard D. Polsky
Its:	General Counsel and Secretary
CORPORATE MERGER SUB:
KAYLEIGH SUB ONE CORP.
By:	/s/ Harry T. Hawks
Name:	Harry T. Hawks
Its:	President and Treasurer
LLC MERGER SUB:
KAYLEIGH SUB TWO LLC
By:	/s/ Harry T. Hawks
Name:	Harry T. Hawks
Its:	President and Treasurer

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EX-3.1

Exhibit 3.1

K12 INC.

CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND
RELATIVE AND OTHER SPECIAL RIGHTS OF
SERIES A SPECIAL STOCK

Pursuant to Section 151 of the General
Corporation Law of the State of Delaware

          K12 Inc. (hereinafter referred to as the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “DGCL”), in accordance with the provisions of Section 151 of the DGCL, as amended, does HEREBY CERTIFY that the following resolution has been duly adopted by the Board of Directors of the Corporation (the “Board”):

          RESOLVED, that, pursuant to the authority granted to and vested in the Board under Article IV of the Third Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), the Board hereby authorizes and declares it to be advisable that a new series of shares of preferred stock of K12 designated as “Series A Special Stock” consisting of 2,750,000 shares be, and it hereby is, created and approved for issuance, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof be, and hereby are, as set forth in the Certificate of Designations, Preferences and Relative and Other Special Rights of Series A Special Stock (capitalized terms used and not otherwise defined herein have the meanings set forth in Section I):

          A. Designation and Size of Issue.

               1. The designation of the series of Preferred Stock, $0.0001 par value per share (the “Preferred Stock”) shall be “Series A Special Stock” (the “Series A Special Stock”), and the number of shares constituting the Series A Special Stock shall be Two Million Seven Hundred and Fifty Thousand (2,750,000) shares.

               2. Any share of Series A Special Stock that at any time has been redeemed or otherwise reacquired by the Corporation shall, after such redemption or other acquisition, resume the status of undesignated Preferred Stock until the Board once more designates such share as part of a particular series.

          B. Dividends.

               1. General. Except as set forth in Section B.2, the holders of Series A Special Stock shall be entitled to participate in all dividends and distributions declared or paid on or with respect to Common Stock of the Corporation (the “Common Stock”), and any such dividends and distributions will be paid to the holders of Common Stock and the holders of Series A Special Stock then outstanding pro rata in accordance with the number of shares of Common Stock then outstanding plus the aggregate Adjusted Share Amounts for each holder of Series A Special Stock as if such amounts were calculated as of the Close of Business on the record date for such dividend or distribution. Each holder of Series A Special Stock shall be paid

its pro rata share of such dividends and distributions as if such holder had been the holder of the number of shares of Common Stock equal to such holder’s Adjusted Share Amount as of the Close of Business on the record date for such dividend.

               2. Voting Securities. Without the affirmative vote of the holders of a majority of the then-outstanding shares of Series A Special Stock, voting as a separate class at a meeting (which may be a meeting solely of the holders of Series A Special Stock), the Corporation shall not declare or pay any dividend or distribution on or in respect of Series A Special Stock that is payable in Voting Securities; provided, however, that if the Corporation shall declare or pay any distribution on or with respect to Common Stock of the Corporation that is payable in Voting Securities, then in accordance with Section F below, such dividends or distributions shall result in either (i) an adjustment to the Conversion Rate applicable to each holder of outstanding shares of Series A Special Stock or (ii) the issuance of additional shares of Series A Special Stock to each such holder, at the election of the Corporation.

          C. Liquidation Rights; Reorganization Event Rights.

               1. Liquidation Rights.

                    (a) In the event of a Liquidation, each holder of Series A Special Stock then outstanding shall be entitled to receive out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to shareholders of the Corporation, and after satisfaction of all liabilities and obligations to creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other class or series of capital stock of the Corporation that ranks junior to the Series A Special Stock an amount (with respect to each holder of Series A Special Stock, its “Liquidation Preference”) equal to the product of (i) $0.0001 and (ii) such holder’s Adjusted Share Amount, as if such amount was calculated immediately prior to such Liquidation. If the assets of the Corporation or proceeds thereof are not sufficient to pay each holder of Series A Preferred Stock its Liquidation Preferences in full, the amounts paid to the holders of Series A Preferred Stock shall be paid pro rata in accordance with the respective aggregate Liquidation Preferences of the holders of Series A Preferred Stock.

                    (b) After payment in full of each holder of Series A Special Stock’s Liquidation Preference, each holder of Series A Special Stock then outstanding shall be entitled to participate with (i) the holders of Common Stock and (ii) the other holders of Series A Special Stock in the distribution of the remaining assets of the Corporation available for distribution to its stockholders, and any such distribution shall be paid to the holders of Common Stock and the holders of Series A Special Stock then outstanding pro rata in accordance with the number of shares of Common Stock then outstanding plus the aggregate Adjusted Share Amounts for each holder of Series A Special Stock as if such amounts were calculated immediately prior to such Liquidation. Each holder of Series A Special Stock shall be paid its pro rata share of such distribution as if such holder had been the holder of the number of shares of Common Stock equal to such holder’s Adjusted Share Amount, as if such amount was calculated immediately prior to such Liquidation

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               2. Reorganization Event Rights.

                    (a) Without the affirmative vote of the holders of a majority of the then-outstanding shares of Series A Special Stock, voting as a separate class at a meeting (which may be a meeting solely of the holders of Series A Special Stock), the Corporation shall not:

                         (i) consolidate or merge the Corporation with or into another person (other than a merger or consolidation in which the Corporation is the continuing corporation and in which the shares of Common Stock outstanding immediately prior to the merger or consolidation are not exchanged for cash, securities or other property of the Corporation or another corporation);

                         (ii) sell, transfer, lease or otherwise convey to another person all or substantially all the property and assets of the Corporation in a transaction (other than a Liquidation) that will immediately be followed by a dissolution; or

                         (iii) reclassify, recapitalize or change any outstanding shares of the Corporation’s stock or other outstanding equity interests other than in connection with a stock split, reverse stock split, stock dividend, change in par value, increase in authorized shares, designation or issuance of new classes of equity securities or any event that does not require the approval of the Corporation’s stockholders pursuant to the Certificate of Incorporation;

each of which is referred to as a “Reorganization Event,” but in each case only in the event that each holder of Series A Special Stock outstanding immediately prior to such Reorganization Event will not either receive or have the right to elect to receive for each share of Series A Special Stock an amount of cash, securities or other property equal to the product of (i) such holder’s Adjusted Share Amount and (ii) the greatest amount of cash, securities or other property paid in consideration of one share of Common Stock pursuant to the terms of such Reorganization Event, if any; provided, that if, in connection with such Reorganization Event, a purchase, tender or exchange offer shall have been made to and accepted by the holders of the outstanding shares of Common Stock that has not also been made to the holders of the Series A Special Stock on substantially identical terms, each holder of Series A Special Stock shall receive, or shall have the right to elect to receive, out of funds legally available therefor, upon the surrender of such holder’s Series A Special Stock certificate or certificates, duly endorsed, or delivery of a Lost Stock Affidavit in lieu thereof, the greatest amount of cash, securities or other property which such holder of Series A Special Stock would have received had it owned in lieu thereof a number of shares of Common Stock equal to its Adjusted Share Amount immediately prior to the expiration of such purchase, tender or exchange offer and had accepted such purchase, tender or exchange offer in connection with the consummation of such Reorganization Event. The cash, securities or other property that the holders of Series A Special Stock will receive or have the right to receive in connection with the foregoing is referred to herein as the “Exchange Property.”

                    (b) In the event that holders of shares of Common Stock have the opportunity to elect the form of Exchange Property to be received in such transaction, the

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holders of Series A Special Stock will be given the same opportunity to elect the form of Exchange Property to be received in such transaction.

                    (c) Notwithstanding the foregoing, if requested in writing by the holders of a majority of the then-outstanding shares of Series A Special Stock, the Corporation agrees to use its reasonable efforts to structure any Reorganization Event so that, in lieu of the right to receive Exchange Property in accordance with the foregoing, each holder of Series A Special Stock will be entitled to elect to receive as a result of such Reorganization Event any securities that constitute the Exchange Property (with cash portion thereof unchanged) in the form of securities with rights, preferences and privileges that are no less favorable than those in effect for the Series A Special Stock immediately prior to the consummation of such transaction. This clause (d) of Section C.2 shall not require any action that the Board of Directors of the Corporation or a committee thereof has determined in good faith would be detrimental to the Corporation or the holders of the shares of Common Stock.

          D. Voting Rights.

               1. Prior to Stockholder Approval. Prior to the receipt of the Stockholder Approval, holders of Series A Special Stock shall have no voting rights except (i) as set forth in the Certificate of Incorporation and/or this Certificate of Designations or (ii) as required by Law.

               2. Following Stockholder Approval.

                    (a) Following the receipt of the Stockholder Approval, holders of the Series A Special Stock shall be entitled to vote in the manner set forth in clause (b) below on all matters presented to the holders of Common Stock, other than the election or removal of directors, on which the holders of Series A Special Stock shall have no voting rights. Except (i) as set forth in the Certificate of Incorporation and/or this Certificate of Designations or (ii) as required by Law, the holders of Series A Special Stock shall not have a right to any separate vote of holders as a class or any special protections on any matters (voting or otherwise) and shall vote together with the holders of Common Stock on all matters for which they are entitled to vote.

                    (b) In the event that any holder of outstanding shares of Series A Special Stock is entitled to vote as set forth in clause (a) above, such holder shall be entitled to cast such number of votes with respect to such matter as is equal to such holder’s Adjusted Share Amount, as if such amount was calculated at the time of the record date for any such vote.

               3. Protective Covenants. Notwithstanding Section D.1 above, in addition to any other vote required by Law, the affirmative vote of holders of a majority of the then-outstanding shares of Series A Special Stock voting as a separate class at a meeting (which may be a meeting solely of the holders of Series A Special Stock), shall be required to:

                    (a) increase or decrease the number of authorized shares of Series A Special Stock except as set forth in (i) Section E.3(d) or (ii) the Stockholders Agreement, or create or issue any equity securities of the Corporation or securities convertible into Series A Special Stock;

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                    (b) on any date following July 23, 2011, convene a meeting of the Corporation’s stockholders to consider or vote upon the Stockholder Approval, or submit or permit the submission of the Stockholder Approval to a vote or consent of the Corporation’s stockholders; or

                    (c) alter, amend, repeal or waive this Certificate of Designations, the Certificate of Incorporation or the bylaws of the Corporation (directly or indirectly by operation of Law, merger, consolidation or otherwise) in any way that adversely affects the rights, privileges or preferences expressly afforded the Series A Special Stock or is otherwise disproportionately disadvantageous to or adversely affects the holders of Series A Special Stock relative to the effect of such action on the holders of Common Stock (other than with respect to those matters that are expressly contemplated hereby), it being understood that affording the holders of the Series A Special Stock with rights, privileges or preferences with the same rights, privileges or preferences of the holders of Common Stock shall in no event be deemed to be disproportionately disadvantageous.

          E. Conversion Rights.

               1. Prior to Stockholder Approval. Prior to the receipt of the Stockholder Approval, the holders of Series A Special Stock shall have no right to convert outstanding shares of Series A Special Stock into shares of Common Stock.

               2. Optional Conversion; Automatic Conversion.

                    (a) Following the receipt of the Stockholder Approval, any holder of Series A Special Stock may elect to convert all or any portion of the shares of Series A Special Stock held by such holder at such time into the number of shares of Common Stock equal to such holder’s Adjusted Share Amount, as if such amount was calculated immediately prior to such conversion.

                    (b) Upon or following the receipt of the Stockholder Approval, each holder’s shares of Series A Special Stock then outstanding shall automatically convert into the number of shares of Common Stock equal to such holder’s Adjusted Share Amount, as if such amount was calculated immediately prior to such conversion, upon (i) a transfer of the Series A Special Stock to any person other than Holdings or an affiliate of Holdings who has signed a Supplemental Stockholders Agreement (or in the event that the Series A Special Stock is held by any such other person at the time of such approval, at the Close of Business on the date of receipt of the Stockholder Approval) or (ii) at the Close of Business on the date, if any, as such holder of the Series A Special Stock has received all consents and approvals required under (A) applicable non-competition, restraint of trade or pre-acquisition notification laws, (B) control share and other anti-takeover laws, and (C) the DGCL, for such holder to acquire and own all of the shares of Common Stock issuable upon such conversion of all shares of Series A Special Stock held by such holder. In the case of clause (iii) above, the conversion will be deemed to have occurred on the earlier of (x) the first day after the holder and the Corporation have agreed in writing that all such consents and approvals have been obtained, or (y) the twentieth day following delivery of written notice to the holder requesting proof that any such consent or

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approval has not been received if the holder has not delivered reasonably satisfactory proof thereof by such date.

               3. Mechanics of Conversion.

                    (a) Before any holder of Series A Special Stock shall be entitled to convert such shares into shares of Common Stock, and to receive certificates therefor, such holder shall surrender the Series A Special Stock certificate or certificates, duly endorsed, or deliver a Lost Stock Affidavit, at the office of the Corporation or of any transfer agent for the Series A Special Stock, and shall notify the Corporation that such holder elects to convert such Series A Special Stock; provided, however, that in the event of an automatic conversion pursuant to Section E.1(b) above, the outstanding shares of Series A Special Stock shall be converted automatically without any further action by the holders of such stock and whether or not the certificates representing such stock are surrendered to the Corporation or its transfer agent, and the certificates that previously represented shares of Series A Special Stock shall thereafter represent only the shares of Common Stock into which such shares were automatically converted.

                    (b) The Corporation shall, as soon as practicable after delivery of the Series A Special Stock certificates (but in no event later than three (3) Business Days after the date of delivery), issue and deliver to such holder of Series A Special Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled and a check payable to the holder in the amount equal to the sum of (i) any declared but unpaid dividends on the converted Series A Special Stock. Such certificate(s) shall be free from all restrictive legends unless the Corporation delivers to such holder an opinion of counsel reasonably satisfactory to such holder to the effect that the shares issued upon such conversion require such restrictive legends pursuant to Rule 144 under the Securities Act. The Corporation shall use commercially reasonable efforts to deliver such shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions, if available. Such conversion shall be deemed to have been made immediately prior to the Close of Business on the date of surrender of the Series A Special Stock certificates or delivery of the Lost Stock Affidavit, in either case indicating the shares of Series A Special Stock to be converted, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock on such date.

                    (c) No fractional shares of Common Stock shall be issued to holders of Series A Special Stock upon conversion. All shares of Common Stock (including fractional shares thereof) that would be issuable upon conversion of more than one (1) share of Series A Special Stock by a holder thereof shall be aggregated for purposes of determining whether such conversion would result in the issuance of any fractional shares of Common Stock. If after such aggregation, such conversion would result in the issuance of any fractional share of Common Stock, the number of shares of Common Stock issuable shall be rounded up to the nearest whole share.

                    (d) The conversion date shall be the date on which the shares of Series A Special Stock (or Lost Stock Affidavit) and applicable notice of election to convert are received by the Corporation. The holder of Series A Special Stock entitled to receive the

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Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of such conversion date, and such holder shall cease to be a record holder of the Series A Special Stock on that date. Any shares of Series A Special Stock so converted shall be retired and canceled and shall not be reissued.

                    (e) If fewer than all the shares of Series A Special Stock represented by any certificate are converted pursuant to this Section E, a new certificate shall be issued representing the non-converted shares of Series A Special Stock without charge to the holder thereof.

               4. Reservation of Stock Issuable Upon Conversion. Upon obtaining the Stockholder Approval, the Corporation shall at all times thereafter reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Special Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of the Series A Special Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Special Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

          F. Dilution Adjustments. The Conversion Rate used in determining the Adjusted Share Amount shall be adjusted from time to time (successively and for each event described below) as follows:

               1. Adjustment for Stock Splits and Combinations; Certain Dividends and Distributions. If the Corporation shall at any time or from time to time after the Issue Date (i) effect a subdivision of the outstanding Common Stock or combine the outstanding shares of Common Stock or (ii) make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock not received by holders of the Series A Special Stock following approval contemplated by Section 2 if required, then the Conversion Rate shall be adjusted based on the following formula:

CR₁ = CR₀ x (OS₁ / OS₀)

               Where:

CR0 =	the Conversion Rate in effect immediately prior to the Close of Business (1) on the effective date of such share split or combination or (2) on the record date for such dividend or distribution, as applicable.
CR1=	the adjusted Conversion Rate in effect immediately after the Close of Business (1) on the effective date of such share split or combination or (2) on the record date for such dividend or distribution, as applicable.

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OS0=	the total number of shares of Common Stock outstanding immediately prior to the Close of Business (1) on the effective date of such share split or combination or (2) on the record date for such dividend or distribution, as applicable.
OS1=	the total number of shares of Common Stock outstanding immediately after the Close of Business (1) on the effective date of such share split or combination or (2) on the record date for such dividend or distribution, as applicable.

provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Rate shall be recomputed accordingly as of the Close of Business on such record date and thereafter the Conversion Rate shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.

          2. Adjustment for Distribution of Options, Rights and Warrants. If the Corporation shall at any time or from time to time after the Issue Date distribute to all or substantially all holders of outstanding shares of Common Stock any Voting Securities consisting of options, rights or warrants entitling such holders to subscribe for or purchase shares of Common Stock at a price per share less than the average Closing Price on the ten (10) trading days immediately preceding the record date of such distribution not received by holders of the Series A Special Stock following approval contemplated by Section 2 if required, the Conversion Rate shall be adjusted based on the following formula:

CR₁ = CR₀ x (OS₀ + X) / (OS₀ + Y)

               Where:

CR0 =	the Conversion Rate in effect immediately prior to the Close of Business on the record date for such distribution.
CR1 =	the adjusted Conversion Rate in effect immediately after the Close of Business on the record date for such distribution.
OS0 =	the total number of shares of Common Stock outstanding immediately prior to the Close of Business on the record date for such distribution.
X =	the total number of shares of Common Stock issuable pursuant to such options, rights or warrants.
Y =	the number of shares of Common Stock equal to the quotient of the aggregate price payable to exercise such options, rights or warrants, divided by the Average Closing Price calculated as of Close of Business on the record date for such distribution.

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provided, however, that to the extent that such shares of Common Stock are not delivered pursuant to any such options, rights or warrants that are non-transferable upon the expiration or termination of such options, rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect had the adjustments made upon the distribution of such options, rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered.

          3. Adjustment for Other Distributions.

               (a) Subject to clause (b) below, if the Corporation shall at any time or from time to time after the Issue Date, by dividend or otherwise, distribute to all or substantially all holders of its Common Stock any Voting Securities, including, without limitation, rights or warrants to acquire Voting Securities (other than Common Stock as covered by Section F.1), but excluding (i) distributions pursuant to Section C above, (ii) dividends or distributions as to which an adjustment under Section F.1 or Section F.2 hereof shall apply, and (iii) Spin-Offs to which the provision set forth below in this Section F.3 shall apply (any of such Voting Securities, hereinafter called the “Distributed Property”), in each case to the extent not received by holders of the Series A Special Stock following approval contemplated by Section 2 if required, then, in each such case the Conversion Rate shall be adjusted based on the following formula:

CR₁ = CR₀ x SP₀ / (SP₀ — FMV)

               Where:

CR0 =	the Conversion Rate in effect immediately prior to the Close of Business on the record date for such distribution.
CR1 =	the adjusted Conversion Rate in effect immediately after the Close of Business on the record date for such distribution.
SP0 =	the Average Closing Price calculated as of the record date of such distribution.
FMV =	the Fair Market Value of the portion of the Distributed Property with respect to each outstanding share of Common Stock on the record date for such distribution.

provided, however, that if the then Fair Market Value of the portion of the Distributed Property so distributed applicable to one share of Common Stock is equal to or greater than SP₀ as set forth above, then in lieu of the foregoing adjustment, the Corporation shall issue to each holder of Series A Special Stock on the date such Distributed Property is distributed to holders of Common Stock, but without requiring such holder to convert its shares of Series A Special Stock, additional shares of Series A Special Stock with an aggregate value equal to the Fair Market Value of the amount of Distributed Property such holder would have received had such holder owned a number of shares of Common Stock equal to the Conversion Rate on the record date fixed for determination for shareholders entitled to receive such distribution; provided, that for this purpose the per share value of the Series A Special Stock so issued shall be equal to SP₀,

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as if SP₀ were recalculated to subtract FMV from each Closing Price included in the calculation of the applicable Average Closing Price.

               (b) With respect to an adjustment pursuant to clause (a) above where there has been a payment of a dividend or other distribution on the Common Stock payable in Voting Securities of or relating to a subsidiary of the Corporation or other business unit of the Corporation not received by holders of the Series A Special Stock following approval contemplated by Section 2 if required (a “Spin-Off”), the Conversion Rate in effect immediately before the Close of Business on the tenth (10^th) trading day immediately following, and including, the effective date of the Spin-Off shall be adjusted on the tenth (10^th) trading day immediately following, and including, the effective date of the Spin-Off based on the following formula:

CR₁ = CR₀ x (FMV + MP₀ ) / (MP₀)

               Where:

CR0 =	the Conversion Rate in effect immediately prior to the Close of Business on the tenth (10th) trading day immediately following, and including, the effective date of the Spin-Off.
CR1 =	the adjusted Conversion Rate in effect from and after the Close of Business on the tenth (10th) trading day immediately following, and including, the effective date of the Spin-Off.
MP0 =	the Average Closing Price calculated immediately following, and including, the effective date of the Spin-Off.
FMV =	the average of the closing prices of the capital stock or other equity interests distributed to the holders of Common Stock applicable to one (1) share of Common Stock over the 10 (ten)-trading day period, immediately following, and including, the effective date of the Spin-Off.

               (c) For purposes of this Section F.3, Section F.2 and Section F.1, any dividend or distribution to which this Section F.3 is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock to which Section F.1 or Section F.2 applies (or both), shall be deemed instead to be (1) a dividend or distribution of Voting Securities other than such shares of Common Stock or rights or warrants to which Section F.1 or Section F.2 applies (and any Conversion Rate adjustment required by this Section F.3 with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such options, rights or warrants to which Section F.1 or Section F.2 applies (and any further Conversion Rate adjustment required by Section F.1 and Section F.2 with respect to such dividend or distribution shall then be made), except (A) “the Close of Business on the record date of such dividend or distribution” shall be substituted for “the Close of Business (1) on the effective date of such share split or combination or (2) on the record date for such dividend or distribution, as applicable” and “the Close of Business on the record date for such distribution”

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within the meaning of Section F.1 and Section F.2 and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed “outstanding immediately prior to the Close of Business on (1) on the effective date of such share split or combination or (2) on the record date for such dividend or distribution, as applicable” within the meaning of Section F.1.

               (d) If the Corporation shall, at any time or from time to time while any of the Series A Special Stock is outstanding, distribute options, rights or warrants to all or substantially all holders of Common Stock entitling the holders thereof to subscribe for, purchase or convert into Voting Securities (either initially or under certain circumstances), which options, rights or warrants, until the occurrence of a specified event or events not received by holders of the Series A Special Stock following approval contemplated by Section 2 if required (“Trigger Event”): (1) are deemed to be transferred with such shares of Common Stock; (2) are not exercisable; and (3) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section F.3 (and no adjustment to the Conversion Rate under this Section F.3 shall be required), until the occurrence of the earliest Trigger Event and a distribution or deemed distribution under the terms of such options, rights or warrants at which time an appropriate adjustment (if any is required) to the Conversion Rate shall be made in the same manner as provided for under this Section F.3. If any such options, rights or warrants are subject to events, upon the occurrence of which such options, rights or warrants become exercisable to purchase different Voting Securities, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and record date with respect to new options, rights or warrants for purposes of this Section F.3 (and a termination or expiration of the existing rights or warrants without exercise by any of the holders thereof). In addition, in the event of any distribution (or deemed distribution) of options, rights or warrants (of the type described in the preceding sentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Rate under this Section F.3 was made, (1) in the case of any such options, rights or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a distribution under this Section F.3, equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such options, rights or warrants (assuming such holder had retained such options, rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such options, rights or warrants that shall have expired or been terminated without exercise by any holders thereof, the Conversion Rate shall be readjusted as if such options, rights or warrants had not been issued.

          4. Adjustment for Tender Offer or Exchange Offer. If the Corporation (or any subsidiary of the Corporation) shall at any time or from time to time after the Issue Date make a payment of cash or other consideration in respect of a tender offer or exchange offer for all or any portion of the Common Stock in which all holders of the Series A Special Stock did not have an opportunity to participate on a pro rata basis and on substantially identical terms, where such cash and the value of any such other consideration included in the payment per share of Common Stock validly tendered or exchanged exceeds the Closing Price on the trading day next succeeding the last date (the “Expiration Date”) on which tenders or exchanges may be

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made pursuant to such tender or exchange offer (as it may be amended), the Conversion Rate shall be adjusted based on the following formula:

CR₁ = CR₀ x (AC + (OS₁ x SP₁)) / (OS₀ x SP₁)

                  Where:

CR0 =	the Conversion Rate in effect immediately prior to the Close of Business on the Expiration Date.
CR1 =	the adjusted Conversion Rate in effect immediately after the Close of Business on the Expiration Date.
AC =	aggregate value of all cash and the Fair Market Value of any other consideration paid or payable for shares purchased in such tender offer or exchange offer
OS0 =	the total number of shares of Common Stock outstanding immediately prior to the Close of Business on the date such tender offer or exchange offer expires.
OS1 =	the total number of shares of Common Stock outstanding immediately after the Close of Business on the date such tender or exchange offer expires (after giving effect to such tender offer or exchange offer).
SP1 =	the Average Closing Price calculated as of the trading day succeeding the Expiration Date.

          5. De Minimis Carry Forwards. Notwithstanding anything in the forgoing provisions of this Section F, the Corporation will not be required to adjust the Conversion Rate unless the adjustment would result in a change of at least 0.5% of the Conversion Rate. In that case the Corporation will carry forward any adjustments that are less than 0.5% of the Conversion Rate and make such carried forward adjustments, regardless of whether the aggregate adjustment is less than 0.5%, upon any conversion of Series A Special Stock or upon any redemption thereof.

          6. Issuance of Additional Shares of Series A Special Stock. Notwithstanding the adjustment provisions described above, in the event that the outstanding shares of Series A Special Stock are not convertible into shares of Common Stock in accordance with the terms of Section E at the time of any adjustment to the Conversion Rate, the Corporation shall calculate the Adjusted Share Amount for each holder of Series A Special Stock at the time immediately following such adjustment and, to the extent such Adjusted Share Amount is greater than the number of shares of Series A Special Stock then held by such holder, the Corporation shall issue, as a dividend to such holder, additional shares of Series A Special Stock such that, immediately following such dividend, such holder’s Adjusted Share Amount equals the number of outstanding shares of Series A Special Stock then held; provided, that if such issuance would

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result in the issuance of any fractional share of Series A Special Stock, such fractional share shall be rounded up to the nearest whole share of Series A Special Stock.

          7. Certificate as to Adjustment / Additional Shares. Upon the occurrence of each adjustment or readjustment of the Conversion Rate pursuant to this Section F (including any adjustments that would result in the issuance of additional shares of Series A Special Stock), the Corporation at its expense shall, as promptly as reasonably practicable, but in any event not later than three (3) Business Days thereafter, either (i) if the outstanding shares of Series A Special Stock are then convertible to shares of Common Stock, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Special Stock a certificate setting forth such adjustment or readjustment (including such holder’s then current Adjusted Share Amount) or (ii) if the outstanding shares of Series A Special Stock are not then convertible to shares of Common Stock, compute the number of additional shares of Series A Special Stock to be issued in accordance with the terms hereof and furnish to each holder of Series A Special Stock a certificate or certificates evidencing such additional shares, and, in either case, showing in detail the facts upon which such adjustment or readjustment or additional share issuance, as applicable, is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series A Special Stock (but in any event not later than three (3) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth such holder’s then current Adjusted Share Amount.

          G. Redemption.

               1. Redemption at the Holder’s Option. In the event that the Stockholder Approval is not obtained on or prior to the first anniversary of the Issue Date, each holder of the Series A Special Stock then outstanding shall have the right at any time thereafter until the third anniversary of the Issue Date to require the Corporation to redeem all or any portion of such holder’s Series A Special Stock, out of funds legally available therefor, for cash in an amount equal to such holder’s Redemption Value; provided, however, that the Corporation shall not be required to redeem pursuant to this Section G.1 (i) any shares of Series A Special Stock if the Stockholder Approval has been obtained as of the effective time of such redemption and/or (ii) more than one-half of the total Series A Special Stock issued as of the Issue Date during any twelve-month period; provided further, that clause (ii) above shall not apply to such redemption either (x) on and after the date of consummation of any Fundamental Change and/or (y) if the Corporation shall fail to redeem any shares of Series A Special Stock in accordance with this Certificate of Designation.

               2. Exercise of Holder’s Redemption Right. Any holder of Series A Special Stock who has the right to redeem such Series A Special Stock pursuant to Section G.1 may elect to exercise its redemption right by (i) providing written notice to the Corporation of its intention to exercise such redemption right and the number of the shares of Series A Special Stock held by the holder to be redeemed and (ii) surrendering the duly endorsed certificate(s) or delivering the Lost Stock Affidavit, as applicable, to the Corporation for such shares of Series A Special Stock to be redeemed, at the office of the Corporation or of any transfer agent for the Series A Special Stock. Subject to the limitations set forth in Section G.1, provided that the Corporation has sufficient legally available funds, the Corporation shall be obligated to redeem the total number of shares of Series A Special Stock specified in such notice by remitting payment to the redeeming holder in the amount of such holder’s Redemption Value within five

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(5) Business Days following the Corporation’s receipt of such notice (the “Holder’s Redemption Date”). In the event that the Corporation fails to redeem the total number of shares of Series A Special Stock specified in such notice prior to or on the Holder’s Redemption Date, each holder of Series A Special Stock providing such notice shall have the right, but not the obligation, to rescind such election by providing written notice of such rescission to the Corporation and, following receipt of such notice, the Corporation shall not have the right to effect such redemption. To the extent the Corporation fails to redeem such shares of Series A Special Stock prior to or on the Holder’s Redemption Date and the holder of such shares of Series A Special Stock does not rescind the exercise of such redemption right, the Redemption Value of such holder shall be the greater of (i) such holder’s Redemption Value calculated as of the Holder’s Redemption Date and (ii) such holder’s Redemption Value calculated as of the date such redemption is effected by the Corporation.

               3. Redemption at the Corporation’s Option.

                    (a) In the event that the Stockholder Approval is not obtained prior to or on the first anniversary of the Issue Date, the Corporation shall have the right at any time thereafter until the third anniversary of the Issue Date to redeem all or any portion of the outstanding shares of Series A Special Stock held by each holder thereof, out of funds legally available therefor, for cash in an amount equal to each such holder’s Redemption Value.

                    (b) In the event that (i) less than 15% of the total amount of Series A Special Stock issued as of the Issue Date remains outstanding at any time following the Issue Date, or (ii) any person or group of related persons is listed as the registered owner of 90% or more of the total amount of each other series of capital stock of the Corporation and such person or group has agreed in a legally enforceable contract between such person or group, on the one hand, and the Corporation, on the other hand, to consummate a short form merger in accordance with Section 253 of the DGCL (or any applicable successor provision) immediately following such redemption of the Series A Special Stock, the Corporation shall have the right to redeem all, but not less than all, of the outstanding shares of Series A Special Stock held by each holder thereof, out of funds legally available therefor, for cash in an amount equal to each such holder’s Redemption Value.

               4. Exercise of the Corporation’s Redemption Right. The Corporation shall exercise its redemption right by providing written notice to each holder of Series A Special Stock to be redeemed at least ten (10) Business Days prior to the date fixed for such redemption (or five (5) Business Days in case of a redemption pursuant to Section G.3(b)(i)). Each notice of redemption shall state: (1) the redemption date; (2) the number of shares of Series A Special Stock to be redeemed; (3) such holder’s Redemption Value; and (4) the manner in which certificates for such shares of Series A Special Stock are to be surrendered for payment of such Redemption Value. Following the receipt of such written notice by such holders of Series A Special Stock, the Corporation shall not have the right to revoke, rescind or otherwise fail to effect such redemption unless such redemption is prohibited by Law. To the extent the Corporation fails to redeem such shares of Series A Special Stock prior to or on the date fixed for such redemption, the Redemption Value of each holder of such shares of Series A Special Stock shall be the greater of (i) such holder’s Redemption Value calculated as of the fixed redemption date and (ii) such holder’s Redemption Value calculated as of the date such redemption is effected by the Corporation.

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               5. Partial Redemption.

                    (a) In the event that the Corporation elects to redeem a portion of the shares of Series A Special Stock less than the total number of shares then outstanding pursuant to Section G.3 above, the shares to be redeemed shall be selected by the Corporation pro rata from the holders of Series A Special Stock then outstanding.

                    (b) If fewer than all the shares of Series A Special Stock represented by any certificate are redeemed pursuant to this Section G, a new certificate shall be issued representing the unredeemed shares of Series A Special Stock without charge to the holder thereof.

               6. Redemption Following a Record Date. If the date of redemption of any shares of Series A Special Stock pursuant to this Section G occurs after the Close of Business on the record date with respect to payment of any dividend to the holders of Common Stock of the Corporation, but prior to the corresponding dividend payment date, each holder of such shares of Series A Special Stock shall be entitled to (i) if such dividend is a dividend not payable in Voting Securities, receive payment of such dividend in accordance with Section B.1, or (ii) if such dividend is a dividend payable in Voting Securities, the appropriate adjustment to such holder’s Adjusted Share Amount (whether by adjustment to such holder’s Conversion Rate or by issuance of additional shares of Series A Special Stock) in accordance with Section F for purposes of calculating such holder’s Redemption Value in connection with such redemption.

          H. Notice.

               1. Generally. Other than as set forth in Section H.2 below, all notices, requests, demands, claims and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by facsimile (with written confirmation of transmission); the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and five (5) days after the date mailed by certified or registered mail, postage prepaid, if sent by certified or registered mail, return receipt requested

               2. Notice of Record Date. In the event: (i) that the Corporation declares a dividend (or any other distribution) on Common Stock payable in Voting Securities or other securities of the Corporation or any other assets or property of the Corporation; (ii) that the Corporation subdivides or combines its outstanding shares of Common Stock; (iii) of any reclassification of the Common Stock (other than a subdivision or combination of outstanding shares of Common Stock or a stock dividend or stock distribution on the Common Stock); or (iv) of a Liquidation or Reorganization Event, then the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Series A Special Stock, and shall deliver to the holders of the Series A Special Stock, no later than five (5) Business Days following the date specified in the following clauses (x) and (y), a notice stating (x) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or (y) the date on which such

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Liquidation or Reorganization Event is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such Reorganization Event or Liquidation.

          I. Definitions. For purposes hereof, the following definitions shall apply:

     “Adjusted Share Amount” means, with respect to any holder of outstanding shares of Series A Special Stock, the product of the Conversion Rate in effect at the time of calculation of such amount, multiplied by the number of outstanding shares of Series A Special Stock held by the applicable holder at the time of calculation of such amount.

     “Average Closing Price” means the average Closing Price during the ten (10)-trading day period prior to the date of calculation of such average.

     “Business Day” means each day of the week except Saturdays, Sundays and days on which banking institutions are authorized by applicable Law to close in the State of Delaware.

     “cash” means U.S. legal tender.

     “Close of Business” means 5:00 p.m., New York City time, on any Business Day.

     “Closing Price” means the price per share of the final trade of the Common Stock on the applicable trading day on the applicable Exchange. If the Common Stock is not listed or admitted to trading on a national securities exchange on an applicable trading day, but is listed or admitted to trading and on one or more regional securities exchanges, then the Closing Price shall mean the average price per share of the final trade of the Common Stock on the applicable trading day on each such regional securities exchange. If the Common Stock not listed or admitted to trading on any national or regional securities exchange on the applicable trading day, but is otherwise actively traded over-the-counter, the Closing Price will be the last quoted bid price for the Common Stock in the over-the-counter market on the relevant date as reported by the Pink Sheets LLC or other similar organization. If a Closing Price cannot be calculated on any applicable trading day in accordance with the foregoing, then the Closing Price on such day shall be the price, as determined in good faith by the Board, at which a willing seller would sell and a willing buyer would buy a share of Common Stock in an arm’s-length negotiated transaction without time or financing constraints and not taking into account any discount for lack of control or for illiquidity (whether such illiquidity results from the absence of an active trading market or from any legal or contractual restrictions on the buyer’s ability to re-sell such share of Common Stock).

     “Conversion Rate” means 1.0, subject to adjustment pursuant to Section F.

     “Exchange” means the New York Stock Exchange or such other principal national securities exchange on which the Common Stock is listed or admitted to trading.

     “Fair Market Value” means (i) with respect to cash or cash equivalents, the amount of such cash or cash equivalents, (ii) with respect to any security listed on a national securities exchange or otherwise traded on any national securities exchange or other trading system, the

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average price per share of the final trade of such security as reported on such exchange or trading system for each of the ten (10) trading days prior to the date of determination and (iii) with respect to property other than cash or securities of the type described in clauses (i) and (ii), the cash price, as determined in good faith by the Board, at which a willing seller would sell and a willing buyer would buy such property in an arm’s-length negotiated transaction without time constraints and not taking into account any discount for lack of control or for illiquidity (whether such illiquidity results from the absence of an active trading market for such property or from any legal or contractual restrictions on the buyer’s ability to re-sell such property).

     “Fundamental Change” means a Reorganization Event after the consummation of which neither the Common Stock nor the correlative securities of the surviving entity in such Reorganization Event are listed or quoted on an Exchange.

     “Holdings” means KCDL Holdings LLC, a Delaware limited liability company.

     “Issue Date” means the date on which the Series A Special Stock is issued by the Corporation.

     “Law” means any federal, state, provincial, local, municipal, foreign, international, multinational or other order, judgment, decree, constitution, law, ordinance, regulation, statute or treaty.

     “Liquidation” means any voluntary or involuntary liquidation, dissolution or winding up of the Corporation. The sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of the Corporation shall not be deemed a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other corporation or person or the merger, consolidation or any other business combination transaction of any other corporation or person into or with the Corporation be deemed to be a voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation.

     “Lost Stock Affidavit” means an affidavit, executed by the appropriate holder of Series A Special Stock indicating that the certificate(s) evidencing the shares of Series A Special Stock held by such holder have been lost, stolen or destroyed.

     “Redemption Value” means the product of such holder’s Adjusted Share Amount, as if such amount was calculated immediately prior to such redemption (or, if the holder elects to require the Corporation to redeem less than all of the outstanding shares of Series A Special Stock held by such holder pursuant to Section G.1, the product of such other number of shares selected for redemption by such holder, multiplied by the Conversion Rate then in effect), multiplied by the Series A Redemption Price.

     “Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules promulgated thereunder.

     “Series A Redemption Price” means the greater of (i) the Average Closing Price of the Common Stock issuable to the holders of Series A Special Stock if the then outstanding shares of

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Series A Special Stock had been converted into Common Stock pursuant to Section E as of the effective date of redemption, (ii) $22.95; provided, however, that this amount shall be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Series A Special Stock), reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to Series A Special Stock occurring on or after the Issue Date and prior to the applicable redemption, or, solely in the case of a redemption pursuant to Section G.3(b)(ii), (iii) the highest per share price paid by such person or group of related persons described in clause (ii) of Section G.3(b) for shares of Common Stock during the six (6)-month period prior to such redemption; provided, that to the extent such redemption pursuant to Section G.3(b)(ii) occurs following the receipt of the Stockholder Approval, the Series A Redemption Price shall mean only the amount calculated pursuant to this clause (iii).

     “Stockholder Approval” means the affirmative vote of a majority of the total votes cast by the holders of Common Stock at a duly convened stockholders’ meeting to approve (i) the rights of holders of Series A Special Stock to convert such stock into shares of Common Stock in Section E and (ii) the voting rights of the Series A Special Stock contained in Section D.2.

     “Stockholders Agreement” means that certain Stockholders Agreement, dated as of July 23, 2010, by and among the Corporation, Holdings and the other stockholders of the Corporation party thereto.

     “Supplemental Stockholders Agreement” has the meaning as set forth in the Stockholders Agreement.

     “Voting Security” means (i) any securities of the Corporation entitled, in the ordinary course, to vote generally in the election of directors and not solely upon the occurrence and during the continuation of certain specified events, (ii) any securities (excluding, for the avoidance of doubt, Series A Special Stock) or other instruments which are convertible into or exercisable or exchangeable for any securities described in clause (i), (iii) any rights to purchase or otherwise acquire any securities described in clause (i), and (iv) any securities or other instruments described in clause (i), (ii) or (iii) that are issued as a dividend or distribution on any securities or other instruments described in clause (i), (ii) or (iii).

{Signature page follows}

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     IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations to be signed and attested this 23rd day of July, 2010.

K12 INC.
By:	/s/ Howard D. Polsky
Name:	Howard D. Polsky
Title:	General Counsel and Secretary

EX-4.1

Exhibit 4.1
EXECUTION COPY

VOTING AGREEMENT

     This VOTING AGREEMENT (this “Agreement”) is entered into as of July 23, 2010 by and among K12 Inc., a Delaware corporation (“Parent”), Kayleigh Sub Two LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent (“LLC Merger Sub”), Kayleigh Sub One Corp., a Delaware corporation and a wholly owned subsidiary of Parent (“Corporate Merger Sub”), Learning Group LLC, a Delaware limited liability company and a stockholder of Parent (“LG”), Learning Group Partners, a California general partnership and a stockholder of Parent (“LGP”), Knowledge Industries LLC, a California limited liability company and a stockholder of Parent (“KI”), Cornerstone Financial Group LLC, a California limited liability company and a stockholder of Parent (“Cornerstone” and together with LG, LGP and KI, each a “Stockholder” and collectively the “Stockholders”). Each of Parent, LLC Merger Sub, Corporate Merger Sub and each of the Stockholders are sometimes referred to herein individually as a “Party,” and collectively as the “Parties.”

RECITALS

     WHEREAS, in connection with the execution and delivery of this Agreement, Parent, LLC Merger Sub, Corporate Merger Sub, KCDL Holdings LLC, a Delaware limited liability company (“Seller”), and KC Distance Learning, Inc., a Delaware corporation (the “Company”), are entering into an Agreement and Plan of Merger, dated as of the date hereof (as the same may be amended from time to time, the “Merger Agreement”), providing for, among other things, the merger of the Company with and into Corporate Merger Sub, with the Company continuing as the surviving corporation in the merger (the “First Merger”), and immediately thereafter the merger of the Company with and into LLC Merger Sub, with LLC Merger Sub continuing as the surviving entity in the merger (the “Second Merger” and together with the First Merger, the “Mergers”), upon the terms and subject to the conditions set forth in the Merger Agreement;

     WHEREAS, the Merger Agreement contemplates that Parent shall seek to obtain the Stockholder Approval (as defined in the Merger Agreement) following the closing of the Mergers;

     WHEREAS, as a condition to their willingness to enter into the Merger Agreement, Parent, LLC Merger Sub and Corporate Merger Sub have requested that each Stockholder makes certain representations, warranties, covenants and agreements with respect to the shares of common stock, par value $0.0001 per share, of Parent (the “Shares”) Beneficially Owned (as defined below) by such Stockholder; and

     WHEREAS, in order to induce Parent, LLC Merger Sub and Corporate Merger Sub to enter into the Merger Agreement, each Stockholder is willing to make certain representations, warranties, covenants and agreements as provided herein.

     NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt, sufficiency and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

     1. Stockholder Shares. Each Stockholder represents and warrants to Parent, LLC Merger Sub and Corporate Merger Sub that (a) Annex A to this Agreement sets forth the number

and nature of ownership of Shares or any other capital stock of Parent (other than any shares of Series A Special Stock acquired pursuant to the Merger Agreement) of which such Stockholder is the record or Beneficial Owner (the “Stockholder Shares”) and number and nature of ownership of any outstanding warrants, options or other derivative, convertible or exchangeable securities, whether or not vested or exercisable, for Shares or any other capital stock of Parent with the right to vote generally on matters submitted to a vote of Parent’s stockholders of which such Stockholder is the record or Beneficial Owner (the “Derivative Securities”); (b) Stockholder lawfully Beneficially Owns all of the Stockholder Shares and the Derivative Securities set forth on Annex A as Beneficially Owned by it free and clear of all liens, claims, charges, security interests or other encumbrances that would limit or affect its ability to perform its obligations hereunder, and except as created pursuant to this Agreement, there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which such Stockholder is a party relating to the pledge, disposition or voting of any Shares, and there are no voting trusts or voting agreements with respect to its Stockholder Shares or the Derivative Securities; (c) such Stockholder has full power and authority to execute, deliver and perform its obligations under this Agreement; and (d) this Agreement has been duly executed and delivered by such Stockholder and constitutes a valid and binding obligation of such Stockholder in accordance with its terms, subject in the case of this clause (d) to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar Legal Requirement (as defined in the Merger Agreement) affecting creditors’ rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). As used in this Agreement, a person shall “Beneficially Own” a security if such person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, would be deemed to beneficially own such security within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the terms “Beneficially Owned” and “Beneficial Owner” shall have correlative meanings.

     2. Agreement to Vote Shares; Irrevocable Proxy.

          (a) Each Stockholder agrees to vote its Stockholder Shares and any New Shares (as defined in Section 5), and to cause any holder of record of such Shares or New Shares to vote, (i) in favor of the adoption of each matter constituting or in furtherance of the Stockholder Approval at every meeting of the stockholders of Parent at which any such matter is considered and at every adjournment or postponement thereof; (ii) against any action or agreement that would prevent, impede, interfere with or adversely affect the receipt of the Stockholder Approval or any portion thereof; and (iii) against any action or agreement that would result in a breach in any material respect of any covenant or any other obligation of any party under the Merger Agreement or any agreement contemplated thereby, including, without limitation, the Certificate of Designation of the Series A Special Stock, par value $0.0001 per share, of Parent (the “Series A Special Stock”) to be issued in connection with the consummation of the First Merger.

          (b) Each Stockholder hereby revokes any and all previous proxies granted with respect to its Stockholder Shares. Each Stockholder hereby appoints Parent and any designee of Parent, and each of them individually, as its proxies and attorneys-in-fact, with full power of substitution and resubstitution, to vote or act by written consent during the term of this

2

Agreement with respect to its Stockholder Shares and any New Shares in accordance with, and only for the limited purposes expressly set forth in, Section 2(a) if and only if Parent or its designee determines in good faith that such Stockholder (i) has failed to vote (whether by proxy, in person or by written consent and with written notice from Parent prior to the holding of such vote), or (ii) has attempted to vote, in either case in a manner which is inconsistent with the terms of this Agreement; provided, however, that no prior notice, consent or period for objection is require to exercise such proxy. This proxy is given to secure the performance of the duties of such Stockholder under this Section 2. The proxy and power of attorney granted hereunder by each such Stockholder shall be irrevocable during the term of this Agreement, shall be deemed to be coupled with an interest sufficient in law to support an irrevocable proxy and shall revoke any and all prior proxies granted by such Stockholder. The power of attorney granted by each such Stockholder herein is a durable power of attorney and shall survive the dissolution, bankruptcy, death or incapacity of such Stockholder. The proxy and power of attorney granted hereunder shall terminate upon the termination of this Agreement.

          (c) Parent and its designees may not exercise the irrevocable proxy described in clause (b) above on any other matter except as provided above. Each Stockholder shall retain at all times the right to vote the Stockholder Shares in such Stockholder’s sole discretion and without any other limitation on all matters other than those set forth in clause (a) above that are at any time or from time to time presented for consideration to Parent’s stockholders generally.

     3. No Voting Trusts or Other Arrangements. Each Stockholder agrees that it will not, and will not permit any entity under Stockholder’s control to, (i) deposit any of the Stockholder Shares or Derivative Securities in a voting trust, (ii) grant any proxies with respect to the Stockholder Shares or Derivative Securities other than pursuant to Section 2, or (iii) subject any of the Stockholder Shares or Derivative Securities to any arrangement with respect to the voting of the Stockholder Shares or Derivative Securities other than agreements entered into with Parent, Corporate Merger Sub or LLC Merger Sub.

     4. No Solicitations; Exclusivity. Each Stockholder agrees that it will not, and will not permit any person or representative under Stockholder’s control or taking action at its discretion or direction to, (a) solicit proxies or become a “participant” in a “solicitation” (as such terms are defined in Regulation 14A under the Exchange Act) in opposition to or competition with the receipt of the Stockholder Approval or otherwise encourage or assist any party in taking or planning any action which would impede, interfere with or attempt to discourage the timely consummation of the Mergers or the timely receipt of the Stockholder Approval; (b) directly or indirectly encourage, initiate or cooperate in a stockholders’ vote or action by consent of Parent’s stockholders in opposition to or in competition with the timely consummation of the Mergers or the timely receipt of the Stockholder Approval; or (c) become a member of a “group” (as such term is used in Rule 13d-5 under the Exchange Act) with respect to any voting securities of the Company for the purpose of opposing or competing with the timely receipt of the Stockholder Approval.

     5. Additional Purchases; Further Assurances.

          (a) Each Stockholder agrees that all Shares that Stockholder purchases, acquires the right to vote or share in the voting of, or otherwise acquires Beneficial Ownership of

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after the execution of this Agreement, whether by the exercise of the Derivative Securities or otherwise (“New Shares”), shall be subject to the terms of this Agreement to the same extent as if they constituted Stockholder Shares.

          (b) From time to time, as and when requested by any Party and at such Party’s expense, any other Party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as the requesting Party may reasonably deem necessary or desirable to evidence and effectuate the transactions and agreements contemplated by this Agreement.

     6. SEC Filings; Consent. Each Stockholder consents and authorizes Parent and their respective Affiliates to (a) publish and disclose in the Proxy Statement (as defined in the Merger Agreement), any Current Report of the Company on Form 8-K and any other documents required to be filed with the Securities and Exchange Commission or any regulatory authority in connection with the Merger Agreement, this Agreement or the solicitation of votes related to the Stockholder Approval, Stockholder’s identity and ownership of the Shares and the nature of its commitments arrangements and understandings under this Agreement; provided, that prior to the publication or disclosure of such information, Parent shall consult with the Stockholders regarding such publication or disclosure and give the Stockholders a reasonable opportunity to review and comment thereon in each case to the extent practicable or permitted by law; and (b) file this Agreement as an exhibit to any required filing with the Securities and Exchange Commission or any regulatory authority relating to any such matter.

     7. Termination. This Agreement shall terminate upon the written agreement of the Parties to terminate this Agreement or automatically upon the earliest to occur of (a) the receipt of the Stockholder Approval; (b) the date on which the Merger Agreement is terminated; or (c) 18 months from the effective date of this Agreement. No termination hereof shall relieve any Party from liability for any breach of this Agreement occurring prior to the date of termination.

     8. Notices. All notices, requests, demands, claims and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by facsimile (with written confirmation of transmission); the Business Day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and five Business Days after the date mailed by certified or registered mail, postage prepaid, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent to:

     Notices to Parent, Corporate Merger Sub or LLC Merger Sub, to:

K12 Inc.
2300 Corporate Park Drive
Herndon, Virginia 20171
Attn: General Counsel
Fax: (703) 483-7496

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with a copy, which shall not constitute notice, to:

Kirkland & Ellis LLP
601 Lexington Avenue
New York, New York 10022
Attn: David Fox
         William B. Sorabella
Fax: (212) 446-6460

     Notices to any Stockholder, to:

the name of such Stockholder
c/o Maron & Sandler
1250 Fourth Street, Suite 550
Santa Monica, California 90401
Attn: Stanley E. Maron
Fax: (310) 570-4901

with a copy, which shall not constitute notice, to:

Latham & Watkins LLP
355 South Grand Ave.
Los Angeles, California 90071
Attn: Thomas C. Sadler
Fax: (213) 891-8763

Any Party may change the address to which notices, requests, demands, claims, and other communications required or permitted hereunder are to be delivered by giving the other Party(ies) notice in the manner herein set forth.

     9. Miscellaneous.

          (a) Expenses. All expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the Party incurring such expenses.

          (b) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced as a result of any rule of law, or public policy, all other terms and other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are fulfilled to the greatest extent possible.

          (c) Assignment; Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs, successors and permitted

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assigns, but neither this Agreement nor any of the rights or obligations hereunder may be assigned (whether by operation of law, through a change in control or otherwise) (i) by Parent, LLC Merger Sub or Corporate Merger Sub without the prior written consent of LG; provided, however, that LLC Merger Sub or Corporate Merger Sub may assign their rights and obligations under this Agreement in whole to any other subsidiary of Parent having the same corporate form in connection with a similar assignment of such Party’s rights under the Merger Agreement without the consent of any other Party hereto and/or (ii) by any Stockholder without the prior written consent of Parent.

          (d) Entire Agreement. This Agreement, along with the Merger Agreement and the other agreements contemplated thereby, constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements or representations by or between the Parties, written or oral, to the extent that they relate in any way to the subject matter hereof.

          (e) Amendment and Waiver.

               (i) This Agreement may not be amended except in a written instrument executed by the Parties; provided, however, that the agreement of any other Stockholder shall not be required to change the rights or obligations of any Stockholder if such Stockholder agrees in a writing executed by such Stockholder and Parent, Corporate Merger Sub and LLC Merger Sub. Any extension, waiver or consent of any provision hereof shall only be valid if set forth in an instrument in writing signed by the party or parties hereto to be bound thereby. No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the Party to be bound thereby.

               (ii) Except where a specific period for action or inaction is provided herein, neither the failure nor any delay on the part of any Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of any Party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. The failure of a Party to exercise any right conferred herein within the time required shall cause such right to terminate with respect to the transaction or circumstances giving rise to such right, but not to any such right arising as a result of any other transactions or circumstances.

          (f) Governing Law; Consent to Jurisdiction. All matters relating to the interpretation, construction, validity and enforcement of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than the State of Delaware. Each of the Parties hereby irrevocably and unconditionally submits, for itself and its assets and properties, to the exclusive jurisdiction of any Delaware State court in New Castle County, or Federal court of the United States of America, sitting within New Castle County in the State of Delaware, and any respective appellate court, in any action or proceeding arising out of or relating to this Agreement, the agreements delivered in connection with this Agreement, or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment relating thereto, and each of the Parties hereby irrevocably and

6

unconditionally (i) agrees not to commence any such action or proceeding except in such courts; (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Delaware State court or, to the extent permitted by law, in such Federal court; (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in any such Delaware State or Federal court; and (iv) waives, to the fullest extent permitted by law, the defense of lack of personal jurisdiction or an inconvenient forum to the maintenance of such action or proceeding in any such Delaware State or Federal court. Each of the Parties hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each of the Parties hereby irrevocably consents to service of process in the manner provided for notices in Section 8. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by applicable law.

          (g) Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS; (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS; (C) IT MAKES SUCH WAIVERS VOLUNTARILY; AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9(g).

          (h) Specific Performance. Each of the Parties acknowledges and agrees that the other Parties would be irreparably damaged in the event that any of the terms or provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Therefore, notwithstanding anything to the contrary set forth in this Agreement, each of the Parties hereby agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of any of the terms or provisions of this Agreement and to enforce specifically the performance by such first Party under this Agreement, and each Party hereby agrees to waive the defense in any such suit that the other Parties have an adequate remedy at law and to interpose no opposition, legal or otherwise, as to the propriety of injunction or specific performance as a remedy, and hereby agrees to waive any requirement to post any bond in connection with obtaining such relief. The equitable remedies described in this Section 9(h) shall be in addition to, and not in lieu of, any other remedies at law or in equity that the Parties may elect to pursue.

          (i) References. The headings and subheadings contained in this Agreement and the annexes hereto are solely for the purpose of reference, are not part of the agreement of

7

the parties hereto, and shall not in any way affect the meaning or interpretation of this Agreement or any exhibit hereto. All references to days or months shall be deemed references to calendar days or months. All references to “$” or “dollars” shall be deemed references to United States dollars. Unless the context otherwise requires, any reference to a “Section” or “Annex” shall be deemed to refer to a section of this Agreement or an annex to this Agreement, as applicable. Any reference to any federal, state, county, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, including any successor thereto, unless the context requires otherwise. For all purposes of and under this Agreement, (i) the word “including” shall be deemed to be immediately followed by the words “without limitation”; (ii) words (including defined terms) in the singular shall be deemed to include the plural and vice versa; (iii) words of one gender shall be deemed to include the other gender as the context requires; (iv) “or” is not exclusive; and (v) the terms “hereof,” “herein,” “hereto,” “herewith” and any other words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including the annexes hereto) and not to any particular term or provision of this Agreement, unless otherwise specified. Any reference to “written” or comparable expressions includes a reference to facsimile transmission or comparable means of communication but shall not refer to e-mail or other electronic communication.

          (j) Representation by Counsel. Each Party represents and agrees with each other that it has been represented by or had the opportunity to be represented by, independent counsel of its own choosing, and that it has had the full right and opportunity to consult with its respective attorney(s), that to the extent, if any, that it desired, it availed itself of this right and opportunity, that it or its authorized officers (as the case may be) have carefully read and fully understand this Agreement in its entirety and have had it fully explained to them by such Party’s respective counsel, that each is fully aware of the contents thereof and its meaning, intent and legal effect, and that it or its authorized officer (as the case may be) is competent to execute this Agreement and has executed this Agreement free from coercion, duress or undue influence.

          (k) Mutual Drafting. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

          (l) Counterparts; Facsimile and Electronic Signatures. This Agreement may be executed in multiple counterparts, any one of which need not contain the signatures of more than one Party, but all such counterparts taken together shall constitute one and the same instrument. This Agreement or any counterpart may be executed and delivered by facsimile copies or delivered by electronic communications by portable document format (.pdf), each of which shall be deemed an original instrument.

{Remainder of page intentionally left blank.}

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     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above.

Parent K12 INC.
By:	/s/ Howard D. Polsky
	Name:	Howard D. Polsky
	Title:	General Counsel and Secretary
LLC Merger Sub KAYLEIGH SUB TWO LLC
By:	/s/ Harry T. Hawks
	Name:	Harry T. Hawks
	Title:	President and Treasurer
Corporate Merger Sub KAYLEIGH SUB ONE CORP.
By:	/s/ Harry T. Hawks
	Name:	Harry T. Hawks
	Title:	President and Treasurer

{Signature Page to Voting Agreement}

LG LEARNING GROUP LLC
By:	/s/ Stanley E. Maron
	Name:	Stanley E. Maron
	Title:	Secretary
LGP LEARNING GROUP PARTNERS
By:	/s/ Stanley E. Maron
	Name:	Stanley E. Maron
	Title:	Secretary
LI KNOWLEDGE INDUSTRIES LLC
By:	/s/ Stanley E. Maron
	Name:	Stanley E. Maron
	Title:	Secretary
Cornerstone CORNERSTONE FINANCIAL GROUP LLC
By:	/s/ Stanley E. Maron
	Name:	Stanley E. Maron
	Title:	Secretary

{Signature Page to Voting Agreement}

Annex A

Stockholder Shares and Derivative Securities

Holder	Shares
Learning Group LLC	4,665,083 shares of common stock
Learning Group Partners	399,171 shares of common stock
Knowledge Industries LLC	82,503 shares of common stock
Cornerstone Financial Group LLC	83,874 shares of common stock

EX-4.2

Exhibit 4.2
Execution Version

STOCKHOLDERS AGREEMENT

BY AND AMONG

K12 INC.,

KCDL HOLDINGS LLC,

LEARNING GROUP LLC,

LEARNING GROUP PARTNERS,

KNOWLEDGE INDUSTRIES LLC,

AND

CORNERSTONE FINANCIAL GROUP LLC

DATED AS OF JULY 23, 2010

TABLE OF CONTENTS

	Page
1. Definitions		1
2. Standstill		9
3. Lock Up; Transfer Restrictions		10
4. Registration Rights		12
5. Number and Availability of Authorized Shares		20
6. Redemption; Failure to Redeem		20
7. Representations and Warranties		23
8. Amendment and Waiver		23
9. Severability		24
10. Entire Agreement		24
11. Successors and Assigns		24
12. Counterparts		24
13. Specific Performance		24
14. Notices		25
15. Delivery by Facsimile or Email		25
16. Governing Law; Consent to Jurisdiction		26
17. Waiver of Jury Trial		26
18. Business Days		27
19. Mutual Drafting		27
20. Interpretation		27
21. No Third Party Beneficiaries		27
22. Responsibility for Compliance		27
23. Effectiveness		28

STOCKHOLDERS AGREEMENT

     THIS STOCKHOLDERS AGREEMENT (this “Agreement”) is made as of July 23, 2010 by and among K12 Inc., a Delaware corporation (the “Company”), KCDL Holdings LLC, a Delaware limited liability company (“Holdings”), Learning Group LLC, a Delaware limited liability company (“LG”), Learning Group Partners, a California general partnership (“LGP”), Knowledge Industries LLC, a California limited liability company (“KI”), and Cornerstone Financial Group LLC, a California limited liability company (“Cornerstone” and collectively, with LG, LGP and KI, the “Stockholders”). The Company, Holdings, LG and the Stockholders are referred to herein each individually as a “Party” and collectively as the “Parties”.

     WHEREAS, in connection with the execution and delivery of this Agreement, the Company, Kayleigh Sub Two LLC, a Delaware limited liability company, Kayleigh Sub One Corp., a Delaware corporation, Holdings and KC Distance Learning, Inc., a Delaware corporation (“KCDL”), are entering into the Agreement and Plan of Merger, dated as of the date hereof (the “Merger Agreement”), pursuant to which each share of common stock, par value $0.0001 per share, of KCDL issued and outstanding immediately prior to the Effective Time (as defined below) is to be converted into the right to receive shares of Series A Special Stock, $0.0001 par value per share, of the Company (“Series A Special Stock”) on the terms and subject to the conditions set forth therein;

     WHEREAS, the Series A Special Stock shall be convertible into shares of Company Common Stock (as defined below) from and after the receipt of the Stockholder Approval (as defined below) and shall have the other rights, preferences and privileges set forth in the Certificate of Designations (as defined below);

     WHEREAS, the Knowledge Universe Group (as defined below), of which Holdings is a part, Beneficially Owns (as defined below) shares of Company Common Stock (as defined below);

     WHEREAS, as a condition to each Party’s willingness to enter into the Merger Agreement, the Parties have agreed to enter into this Agreement to establish certain arrangements with respect to the Series A Special Stock and Company Common Stock Beneficially Owned or that will be Beneficially Owned by the Stockholders following the Closing Date; and

     WHEREAS, the Merger Agreement contemplates that this Agreement will be executed concurrently with the execution of the Merger Agreement and will become effective simultaneously with the execution and delivery thereof.

     NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties to this Agreement hereby agree as follows:

     1. Definitions. As used in this Agreement, the following terms shall have the respective meanings ascribed to them in this Section 1:

     “Acquisition” means (i) any direct or indirect acquisition or purchase, in a single transaction or a series of transactions, by a Person (including the Company) or Group of (A) 35% or more of the assets (including capital stock of the Subsidiaries of the Company or the Company’s successor) of the Company, its successors and its and their Subsidiaries, taken as a whole, or (B) 35% or more of the outstanding shares of Company Common Stock; (ii) any tender offer or exchange offer that, if consummated, would result in any Person or Group owning, directly or indirectly, 35% or more of the outstanding shares of Company Common Stock; or (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution, binding share exchange or similar transaction involving the Company, its successors or its and their Subsidiaries pursuant to which any Person or Group (or the stockholders or other equity owners of any Person or members of a Group) or the Company, respectively, would own, directly or indirectly, 35% or more of any class of any class of voting stock or securities convertible into or exercisable for voting stock of the Company or such Person, respectively, or of the surviving entity in a merger or the resulting direct or indirect parent of the Company or such Person, respectively, or such surviving entity.

     “Acquisition Proposal” means any inquiry, proposal or offer relating to an Acquisition.

     “Affiliate” of any particular Person means any other Person that directly or through one or more intermediaries is controlling, controlled by or under common control with such particular Person. For the purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of a Person whether through the ownership of voting securities, contract or otherwise. For the avoidance of doubt, for purposes of this Agreement, from and after the date hereof, neither the Company nor any of its Subsidiaries (including the Surviving Entity) shall be deemed an Affiliate of Holdings or any of its Affiliates.

     “Agreement” has the meaning set forth in the preamble hereto.

     “Beneficially Own” with respect to any securities shall mean having “beneficial ownership” of such securities (as determined pursuant to Rule 13d-3 under the Exchange Act). The terms “Beneficially Own,” “Beneficially Owned,” “Beneficially Owning” and “Beneficial Ownership” shall have correlative meanings. For purposes of determining Beneficial Ownership, shares of Company Common Stock into which shares of Series A Special Stock may be convertible, irrespective of any condition to such conversion set forth in the Certificate of Designations that may be in effect, shall be deemed Beneficially Owned by the holder of such share of Series A Special Stock.

     “Block Transferee” has the meaning set forth in Section 3(b)(i).

     “Board” has the meaning set forth in Section 2(d).

     “Business Day” means any day other than a Saturday, Sunday, a legal holiday under the laws of the State of New York or a day on which banking institutions located in New York are authorized or required by law to close.

2

     “Certificate of Designations” means the certificate of designations of the Series A Special Stock.

     “Closing Date” has the meaning set forth in the Merger Agreement.

     “Collection Costs” has the meaning set forth in Section 6(c).

     “Company” has the meaning set forth in the preamble hereto.

     “Company Common Stock” means the common stock of the Company, par value $0.0001 per share, and any other common stock of the Company that may be issued from time to time.

     “Constructive Transfer” shall mean, with respect to any Voting Security, (i) a short sale with respect to such security, (ii) entering into or acquiring an offsetting derivative contract with respect to such security, (iii) entering into or acquiring a futures or forward contract to deliver such security or (iv) entering into any other hedging or other derivative transaction that has the effect of materially changing the economic benefits and risks of ownership but, in the case of each of (i) through (iv), only to the extent that any of the foregoing results, or would result upon settlement, in a transfer of voting power with respect to such a Voting Security.

     “Cornerstone” has the meaning set forth in the preamble hereto.

     “Covered Security” means the Series A Special Stock, any equity securities issued as a dividend or distribution thereon, and any equity securities of the Company issued upon conversion or exercise of any of the foregoing, including any shares of Company Common Stock issued upon conversion, if any, of the Series A Special Stock.

     “De Minimis Transfers” means Transfers not to exceed an aggregate of 100,000 shares of Series A Special Stock and/or shares of Company Common Stock.

     “Demand Notice” has the meaning set forth in Section 4(a)(i).

     “Demand Offering” has the meaning set forth in Section 4(a)(i).

     “Effective Time” has the meaning set forth in the Merger Agreement.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder.

     “Excluded Distribution” means any distribution or dividend of Series A Special Stock or Company Common Stock by any Knowledge Universe Stockholder to any member, partner or other equity holder that is not an Affiliate of any Knowledge Universe Stockholder, but only if such distribution or dividend occurs after January 1, 2011.

     “Governmental Entity” means any (a) province, region, state, county, city, town, village, district or other jurisdiction; (b) federal, provincial, regional, state, local, municipal, foreign or other governmental or transnational institution; (c) governmental authority or instrumentality of

3

any nature (including any governmental or administrative agency, branch, bureau, department or other entity and any court or other tribunal); (d) official of any of the foregoing; or (e) applicable national securities exchange or national quotation system on which securities issued are listed or quoted.

     “Group” has the meaning assigned to it in Section 13(d)(3) of the Exchange Act.

     “Holdings” has the meaning set forth in the preamble hereto.

     “Indebtedness” means any indebtedness of the Company or its Subsidiaries, whether or not contingent, (i) in respect of borrowed money or (ii) evidenced by bonds, notes, debentures or similar instruments. In addition, the term “Indebtedness” includes all (A) Indebtedness of others secured by a lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person), (B) to the extent not otherwise included, any guarantee by the specified Person of any Indebtedness of any other Person, and (C) except in connection with a merger, acquisition or other similar transaction the consummation of which does not adversely affect the Company’s obligations under Section 6(a) below, (x) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, and (y) Indebtedness secured by a lien encumbering any asset acquired by such specified Person.

     “Indemnified Party” has the meaning set forth in Section 4(f)(iii).

     “Indemnifying Party” has the meaning set forth in Section 4(f)(iii).

     “Inspectors” has the meaning set forth in Section 4(b)(i)(9).

     “KCDL” has the meaning set forth in the preamble hereto.

     “Knowledge Universe Group” means (i) Holdings, (ii) LG, (iii) Knowledge Universe Learning Group LLC, (iv) LGP, (v) Hampstead Associates, L.L.C., (vi) Cornerstone, (vii) KI, (viii) Ridgeview Associates, LLC and (ix) any other Affiliate of any of the foregoing.

     “Knowledge Universe Stockholders” means Stockholders who are members of the Knowledge Universe Group.

     “KI” has the meaning set forth in the preamble hereto.

     “Law” means any applicable foreign, United States federal, state or local law, rule or regulation.

     “LG” has the meaning set forth in the preamble hereto.

     “LGP” has the meaning set forth in the preamble hereto.

     “Lock Up Period” means the 180 calendar days following the Closing Date.

     “Losses” has the meaning set forth in Section 4(f)(i).

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     “Merger Agreement” has the meaning set forth in the recitals hereto.

     “Mergers” has the meaning set forth in the Merger Agreement.

     “NYSE” means the New York Stock Exchange.

     “Parent Indemnified Parties” has the meaning set forth in the Merger Agreement.

     “Party” has the meaning set forth in the preamble hereto.

     “Permitted Transferee” means with respect to any Stockholder, as applicable, (i) a spouse or lineal descendant (whether natural or adopted), sibling, parent, heir, executor, administrator, testamentary trustee, lifetime trustee or legatee of such Stockholder, or any corporation, partnership, limited liability company or other entity all of the beneficial ownership interests of which are held by one or more of the foregoing Persons, (ii) any trust, the trustees of which include only Persons named in clause (i) and the beneficiaries of which include only the Stockholder and one or more Persons named in clause (i), and the beneficiary or beneficiaries authorized or entitled to receive distributions from any such trust, or (iii) any other Affiliate of the Stockholder.

     “Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a Governmental Entity or any department, agency or political subdivision thereof.

     “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, and investigation or partial proceeding, such as a deposition), whether commenced or known to the Company to be threatened.

     “Prospectus” means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus.

     “Records” has the meaning set forth in Section 4(b)(i)(9).

     “Redemption Default” has the meaning set forth in Section 6(b)(i).

     “Redemption Default Payment” has the meaning set forth in Section 6(b)(i).

     “Redemption Default Period” has the meaning set forth in Section 6(b)(i).

     “Registrable Securities” means all (i) shares of Company Common Stock issued or issuable pursuant to the conversion of Series A Special Stock or paid as a dividend or stock split with respect thereto, or (ii) if all shares of Company Common Stock have been issued upon

5

conversion of the Series A Special Stock, shares of Company Common Stock held by any Stockholder who is member of the Knowledge Universe Group prior to the Closing Date in an amount not greater than the amount of shares of Company Common Stock contemplated by clause (i) then held by members of the Knowledge Universe Group; provided, however, that as to any Company Common Stock constituting Registrable Securities, such stock will cease to be Registrable Securities when (x) they have been effectively registered or qualified for sale by a Prospectus filed under the Securities Act and disposed of in accordance with the Registration Statement covering therein, (y) they have been sold to the public pursuant to Rule 144 or Rule 145 promulgated pursuant to the Securities Act or other exemption from registration under the Securities Act, or (z) they have been acquired by the Company or any of its Subsidiaries. For avoidance of doubt, in no event shall the amount of Registrable Securities exceed the number of shares of Company Common Stock issued to be issuable pursuant to the conversion of Series A Special Stock or paid as a dividend or stock split with respect thereto.

     “Registration Statement” means any registration statement of the Company that covers Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including pre- and post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.

     “Schedule of Stockholders” means the list of Stockholders set forth on the schedule of stockholders, attached as Exhibit A hereto.

     “SEC” means the United States Securities and Exchange Commission.

     “Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules promulgated thereunder.

     “Series A Redemption Price” has the meaning set forth in the Certificate of Designations.

     “Series A Special Stock” has the meaning set forth in the recitals hereto.

     “Shelf Registration” has the meaning set forth in the Merger Agreement.

     “Standstill Termination Date” means the earliest to occur of (i) the first anniversary of the Closing Date; (ii) the fifth Business Day after the date on which the Board publicly announces its intention to solicit an Acquisition Proposal with respect to the Company (other than an issuance of securities), or publicly approves, accepts, authorizes or recommends to the Company stockholders the approval of an Acquisition Proposal with respect to the Company (other than an issuance of securities), but only if prior to such fifth Business Day the Company has not offered to Stockholders who are members of the Knowledge Universe Group that they may make a confidential proposal to the Board regarding the same form of Acquisition Proposal, which the Stockholders will agree to not disclose to any other Person (other than their Affiliates); and (iii) the fifth Business Day after the date on which the Company publicly announces that it has entered into a definitive agreement with any party (other than a wholly-owned Subsidiary) providing for an Acquisition Proposal with respect to the Company, but only if prior to such fifth Business Day the Company has not offered to Stockholders who are members of the Knowledge

6

Universe Group that they may make a confidential proposal to the Board regarding the same form of Acquisition Proposal, which the Stockholders will agree to not disclose to any other Person (other than their Affiliates).

     “Stockholder Approval” has the meaning set forth the Merger Agreement.

     “Stockholders” has the meaning set forth in the preamble hereto. Each Stockholder is individually referred to as a “Stockholder”. A Stockholder shall also include any counter-party who has entered into a Supplemental Stockholders Agreement as a contemplated hereby.

     “Subsidiary” or “Subsidiaries” means, with respect to any Person of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons owns a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity’s gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation).

     “Supplemental Stockholders Agreement” means an agreement with the Company that is substantially identical to this Agreement, but which binds the counter-party thereto only to such restrictions and obligations, and which entitles such counter-party thereto only to those rights, which apply to such counter-party based on such Person’s identity and status contemplated hereby (including as a Block Transferee or Permitted Transferee), the Transfer giving rise to such Supplemental Stockholders Agreement and the date on which such Transfer occurs. A Supplemental Stockholders Agreement shall only be deemed to have been executed for purposes of this Agreement when it has been executed and delivered by the Company and such counter-party.

     “Surviving Entity” has the meaning set forth in the Merger Agreement.

     “Suspension Event” means any of the following: (i) the post-effective receipt from the SEC of any request for amendments or supplements to, additional information in respect of, or other comments to, any Registration Statement or Prospectus included therein; (ii) the issuance by the SEC, any state securities commission or any other Governmental Entity of any stop order or other order or injunction suspending the effectiveness of the Registration Statement, or the initiation of any proceedings for that purpose; (iii) the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) (A) the occurrence or existence of any pending corporate development with respect to the Company or (B) the happening of any event that, in either case, requires the Company to make changes in a Registration Statement or Prospectus in order that such Registration Statement or Prospectus does not contain an untrue statement of a material fact nor omit to state

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a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading; or (v) the good faith determination by the Board that it would be seriously detrimental to the Company for sales of Registrable Securities pursuant to the Registration Statement or the activities with respect thereto to be undertaken for a certain period of time.

     “Suspension Period” has the meaning set forth in Section 4(d)(i).

     “Total Voting Power” means, at any time, the total number of votes then entitled to be cast by the holders of the outstanding shares of Series A Special Stock, Company Common Stock and any other Voting Securities; provided, however, that, solely for purposes of computing the Total Voting Power, (A) shares of Series A Special Stock shall be considered outstanding Voting Securities and (B) any other securities convertible into or exercisable or exchangeable for Voting Securities shall be considered outstanding Voting Securities to the extent that such underlying security(ies) would be Beneficially Owned at that time.

     “Transaction Document” has the meaning set forth in the Merger Agreement.

     “Transfer” means a sale, transfer, hypothecation, negotiation, pledge, assignment, encumbrance, grant of any option, warrant or other right to purchase, or otherwise disposition, or entering into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, of the economic consequence of ownership of the Series A Special Stock or Company Common Stock. For purposes of Section 3(c), a Transfer shall also include a Constructive Transfer.

     “Transfer Restriction Termination Date” means the earlier of the (a) first (1^st) anniversary of the Closing Date and (b) the date on which the aggregate number of shares of Company Common Stock Beneficially Owned by the Knowledge Universe Stockholders or any other Stockholder who has executed a Supplemental Stockholders Agreement pursuant to Section 3, individually or in the aggregate, is less than ten percent (10%) of the Total Voting Power as of such date.

     “Underwriter” means, with respect to any Underwritten Offering, a securities dealer who purchases any Registrable Securities as a principal in connection with a distribution of such Registrable Securities and not as part of such dealer’s market-making activities.

     “Underwritten Offering” means a public offering of securities registered under the Securities Act in which an Underwriter, placement agent or other intermediary participates in the distribution of such securities.

     “Voting Agreement” means the Voting Agreement, dated as of the date hereof, by and among the Company, LG and certain other members of the Knowledge Universe Group.

     “Voting Securities” means any securities of the Company entitled, in the ordinary course, to vote generally in the election of directors and not solely upon the occurrence and during the continuation of certain specified events.

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     2. Standstill. Except as expressly provided in this Agreement or as otherwise requested or consented to by the Company in writing, each Knowledge Universe Stockholder and each Block Transferee who has executed a Supplemental Stockholders Agreement (including a Permitted Transferee thereof) covenants and agrees that, from and after the date hereof until the Standstill Termination Date, such Stockholder shall not, and shall cause each of its Affiliates not to, directly or indirectly:

     (a) acquire, offer to acquire, or agree to acquire, by purchase, gift or otherwise, directly or indirectly, the Beneficial Ownership of any additional securities of the Company such that, after giving effect to such acquisition, the Knowledge Universe Stockholders and any Block Transferee who has executed a Supplemental Stockholders Agreement pursuant to Section 3, individually or in the aggregate, would have Beneficial Ownership equal to or greater than thirty-five percent (35%) of the Total Voting Power (including after giving effect to the shares of Company Common Stock Beneficially Owned by the Knowledge Universe Group as of the date hereof), except pursuant to a stock split, stock dividend, rights offering, recapitalization, reclassification or similar transaction;

     (b) make, or in any way participate, directly or indirectly, in any “solicitation” of “proxies” to vote (as such terms are defined in Rule 14a-1 under the Exchange Act), or consent of, any holders of any securities of the Company, except as provided in the Merger Agreement;

     (c) form, join, encourage or in any way participate in the formation of, any “person” or “group” within the meaning of Section 13(d)(3) of the Exchange Act with respect to any Voting Securities, except (i) to the extent any such group could be deemed formed with respect to this Agreement or any conduct by Stockholders contemplated hereunder and/or (ii) for any “group” consisting solely of the Knowledge Universe Stockholders, Permitted Transferees and/or any “person” that is a member of the Knowledge Universe Group;

     (d) seek election to or seek to place a representative on the board of directors of the Company (the “Board”) or seek removal of any member of the Board;

     (e) enter into or agree, offer, propose or seek to enter into, or otherwise be involved in or part of, directly or indirectly, any Acquisition involving the Company or any of its Subsidiaries;

     (f) disclose or announce any intention, plan or arrangement to do any of the activities contemplated by this Section 2;

     (g) seek or request to have the Company waive, amend or modify, or otherwise consent to any action inconsistent with, any of the provisions contained in this Section 2; or

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     (h) actively assist or finance any Person (including any other Stockholder other than such Stockholders’ Affiliates) to do, or enter into any arrangements or understandings with any other Person (including any other Stockholder other than such Stockholders’ Affiliates) with respect to, any of the activities contemplated by this Section 2;

provided, however, (i) none of the foregoing shall prohibit or in any way limit (A) any discussions or other communications between or among the Knowledge Universe Stockholders, their Permitted Transferees and their respective Affiliates; or (B) any Knowledge Universe Stockholder or their respective Affiliates from soliciting, offering, seeking to effect or negotiating with any Person with respect to transfers of shares of Series A Special Stock or shares of Company Common Stock permitted by Section 3 without taking other actions expressly prohibited hereby, and (ii) none of the restrictions in this Section 2 will restrict or otherwise apply to any Person who receives Series A Special Stock or Company Common Stock in an Excluded Distribution.

This Section 2 shall terminate and be of no further force or effect on the first day following the Standstill Termination Date; provided, however, that such termination shall not relieve any Party of liability for such Party’s breach of this Section 2 prior to such termination.

     3. Lock Up; Transfer Restrictions.

     (a) Lock Up.

          (i) During the Lock Up Period, no Stockholder shall, or shall permit any of its Affiliates to, Transfer any shares of Series A Special Stock or shares of Company Common Stock, except (A) to a Permitted Transferee of such proposed transferor, (B) in a transaction approved by the Board, (C) in a bona fide gift to any charitable organization, or (D) De Minimis Transfers.

          (ii) No share of Series A Special Stock or Company Common Stock shall be Transferred pursuant to this Section 3(a) to any Permitted Transferee of the applicable Stockholder unless and until such Permitted Transferee shall have executed a Supplemental Stockholders Agreement.

          (iii) This Section 3(a) shall terminate and be of no further force or effect on the first day following the Lock Up Period; provided, however, that such termination shall not relieve any Party of liability for such Party’s breach of this Section 3(a) prior to such termination.

     (b) Block Transfer Restrictions.

          (i) From and after the Lock Up Period, no Knowledge Universe Stockholder or any other Block Transferee executing a Supplemental Shareholders Agreement as contemplated by this Section 3 shall, or shall permit any of its Affiliates to, Transfer any shares of Series A Special Stock or shares of Company Common Stock to any Person or Group (other than any member of the Knowledge Universe Group who has executed a Supplemental Stockholders Agreement) that, to the actual knowledge of such Person after reasonable inquiry,

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Beneficially Owns or after such Transfer would Beneficially Own more than 9.9% of the Total Voting Power (a “Block Transferee”); provided, however, that this Section 3(b) shall not restrict or otherwise apply to (A) the Transfer of securities to an Underwriter for distribution in any bona fide underwritten distribution, (B) a Transfer to any Block Transferee who, concurrently with the effectiveness of such Transfer, executes a Supplemental Stockholders Agreement, (C) a Transfer to any Person who is not a Block Transferee, (D) any Transfer approved by the Board, or (E) De Minimis Transfers.

          (ii) No share of Series A Special Stock or Company Common Stock shall be Transferred pursuant to this Section 3(b) to any Affiliate of a Knowledge Universe Stockholder or any Block Transferee unless and until such Affiliate or Block Transferee shall have executed a Supplemental Stockholders Agreement.

          (iii) This Section 3(b) shall terminate and be of no further force or effect on the first day following the Transfer Restriction Termination Date; provided, however, that such termination shall not relieve any Party of liability for such Party’s breach of this Section 3(b) prior to such termination.

     (c) Restrictions in Support of Voting Agreement.

          (i) No Stockholder shall Transfer or engage in any Constructive Transfer of any Voting Security (not including the Series A Special Stock) or other security that is exercisable or convertible (whether or not such exercise or conversion right is vested or exercisable) into a Voting Security except for any Transfer (A) to any Person who is also a stockholder party to the Voting Agreement, (B) to any other Person if such Person, prior to or concurrently with such Transfer, shall have executed (x) a Supplemental Stockholders Agreement and (y) an agreement with the Company that is substantially identical to the Voting Agreement, or (C) that is a De Minimis Transfer.

          (ii) This Section 3(c) shall terminate and be of no further force or effect on the first to occur after the Closing Date of (x) the Parent Stockholders’ Meeting (as defined in the Merger Agreement) at which the Stockholder Approval is considered and voted upon or (y) the first anniversary of the Closing Date.

     (d) Transfer in Violation Null and Void. Any attempt by any Stockholder or any of its Affiliates to Transfer any share of Series A Special Stock or Company Common Stock not in compliance with this Section 3 shall be null and void, and the Company shall be permitted to cause any transfer agent not to give effect in the Company’s stock records to any such attempted Transfer. Each Stockholder hereby agrees to authorize and permit the Company to notify its transfer agent that this Agreement places limits on the transfer of such shares.

     (e) Non-Exclusive Limitation. The restrictions on Transfer set forth in this Section 3 shall be in addition to any other limitation on the Transfer of any security contemplated by the Merger Agreement.

     (f) Exclusion for Distributions to Non-Affiliates. Notwithstanding anything in this Agreement to the contrary, none of the restrictions in this Section 3 will restrict or otherwise

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apply to (i) an Excluded Distribution or (ii) any subsequent Transfer by a Person who received Series A Special Stock or Company Common Stock in an Excluded Distribution.

     4. Registration Rights.

     (a) Registration.

          (i) Demand. At any time and from time to time from after the later of (x) the expiration of the Lock Up Period or (y) the receipt of the Stockholder Approval one or more Stockholders holding a majority in interest of the Registrable Securities held by all Stockholders may request that the Company effect the registration of all or any part of the Registrable Securities held by the Stockholders in an Underwritten Offering by the Stockholders (a “Demand Offering”) by giving written notice to the Company of such demand (a “Demand Notice”). Each Demand Notice shall specify the number of shares of Registrable Securities proposed to be sold and the intended method of disposition thereof. Within ten (10) Business Days after the receipt of any Demand Notice, the Company will notify each other Stockholder who did not initially join in such request. Within ten days after receipt of such notice from the Company, any such Stockholder may request in writing that some or all of its Registrable Securities be included in such Demand Offering, and the Company shall include in the Demand Offering the Registrable Securities of each such Stockholder requested to be so included, subject to the other terms and conditions set forth herein.

          (ii) As soon as reasonably practicable, but in no event later than 60 days after receipt of the Demand Notice given in accordance with Section 4(a)(i) except as otherwise provided in herein, the Company shall file a Registration Statement with the SEC with respect to the Registrable Securities required to be included therein as provided in Section 4(a)(i) and shall use its commercially reasonable efforts to effect the Demand Offering as expeditiously as possible; provided, however, that (A) the Company shall not be obligated to effect a Demand Offering pursuant to this Section 4(a): (1) more than once in any 9-month period and (2) more than two times in the aggregate and (B) the Registrable Securities for which a Demand Offering has been requested (including, for this purpose, Registrable Securities that non-initiating Stockholders request be included in such Demand Offering in accordance with the last sentence of Section 4(a)(i)) shall not be less than the lesser of (x) 750,000 Registrable Securities and (y) the total amount of Registrable Securities then-outstanding.

          (iii) Underwriter. The Stockholder delivering the Demand Notice will select the lead Underwriter and any additional Underwriters in connection with the applicable Demand Offering with the consent of the Company (such consent not to be unreasonably withheld or delayed). The right of any Stockholder to participate in a Demand Offering pursuant to this Section 4(a) will be conditioned upon such Stockholder’s participation in such underwriting and the inclusion of such Stockholder’s Registrable Securities in the underwriting, and each such Stockholder will enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for such underwriting. If any Stockholder disapproves of the terms of the underwriting, such Stockholder may elect to withdraw therefrom by written notice to the Company, the managing Underwriter and the other Stockholders participating in the Demand Offering as provided in Section 4(a)(iv).

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          (iv) Withdrawal of Offering. The Stockholders holding a majority of the Registrable Securities to be included in the Demand Offering will be permitted to rescind a Demand Notice and any Stockholder may request the removal of any Registrable Securities held by them from any Demand Offering at any time prior to the effectiveness of the Demand Offering; provided that, if such Stockholders rescind a Demand Notice, no Stockholder may deliver a Demand Notice for 6 months following such rescission and the Stockholders shall be required to reimburse the Company for all costs and expenses incurred by the Company in connection with the Demand Offering contemplated by the rescinded Demand Notice.

          (v) Reductions in Securities to be Registered. Notwithstanding the foregoing, if the lead Underwriter in any Demand Offering advises the Company or any Stockholder in writing that in its reasonable opinion, the number of shares of Company Common Stock (including any Registrable Securities) that the Company, the Stockholders and any other Persons intend to include in any Registration Statement is such that the success of any such offering would be materially and adversely affected, including the price at which the securities can be sold or the number of Registrable Securities that any participant may sell, then the number of shares of Company Common Stock to be included in the Registration Statement will be so included in the following order of priority: (1) first, Registrable Securities of the Stockholders, pro rata on the basis of the aggregate number of Registrable Securities owned by each such Stockholder, (2) second, Registrable Securities of the Company that have been requested to be so included, and (3) third, any securities any other Person included, pro rata on the basis of the aggregate number of shares of Company Common Stock owned by each such Person, in each case as necessary to reduce the total number of securities to be included in any such registration statement to the number recommended by such lead Underwriter; provided, that the number of Registrable Securities held by the Stockholders to be included in any Demand Offering shall not be reduced unless all other securities are first entirely excluded from such Demand Offering.

     (b) Registration Procedures.

          (i) In connection with, and subject to the limitations of, the Company’s registration obligations hereunder, from and after the delivery of a Demand Notice (until properly rescinded as provided hereby), other than in the case of clause (1) below (which shall occur at the time provided therein), the Company shall use its reasonable best efforts (unless a different standard is provided below) to:

               (1) (A) on or as soon as practicable after the later of (x) the expiration of the Lock Up Period or (y) the receipt of the Stockholder Approval, file a supplemental application for the listing of the Registrable Securities (determined without regard to any unknown dividend or stock split) on the NYSE and authorization for quotation on the NYSE of all Registrable Securities (determined without regard to any unknown dividend or stock split), in each case, to the extent such Registrable Securities are not already listed and authorized for quotation on the NYSE and (B) use its commercially reasonable efforts to cause the supplemental listing application to be approved as soon as practicable thereafter, but in any event no later than the effective date of any Registration Statement used to effect a Demand Offering;

               (2) no fewer than five (5) Business Days prior to the initial filing of a Registration Statement or Prospectus and no fewer than three (3) Business Days prior to the

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filing of any amendment or supplement thereto (other than any document that would be incorporated or deemed to be incorporated therein by reference), furnish to the Stockholders copies of all such documents proposed to be filed (including, without limitation, at least one conformed copy of the Registration Statement and each amendment thereto, including financial statements (but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference and all exhibits)), which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review and comment of the Stockholders;

               (3) (A) use its commercially reasonable efforts to prepare and file with the SEC such amendments, including post-effective amendments, to the Registration Statement as may be reasonably necessary to keep such Registration Statement effective until the completion of the Demand Offering to which such Registration Statement relates (including the completion of sales to the Underwriters pursuant to any “greenshoe” or over-allotment option), except as otherwise contemplated by this Agreement, (B) cause the related Prospectus to be supplemented by any required Prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 promulgated under the Securities Act, and (C) respond as promptly as reasonably practicable to any comment from the SEC with respect to the Registration Statement and, at the request of any Stockholder, as promptly as reasonably practicable, provide such Stockholder true and complete copies of all correspondence from and to the SEC relating to the Registration Statement;

               (4) promptly notify the Stockholders of any Suspension Event;

               (5) use its reasonable efforts to avoid the issuance of, or if issued, to obtain the withdrawal of, any order enjoining or suspending the use or effectiveness of the Registration Statement, or to obtain the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment;

               (6) deliver, without charge, to the Stockholders as many copies of the Prospectus or Prospectuses (including each form of Prospectus) and each amendment or supplement thereto as the Stockholders reasonably request;

               (7) prior to any public offering of Registrable Securities, (A) use its reasonable efforts to register, qualify or cooperate with the Stockholders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as is reasonably requested in writing, and (B) keep each such registration or qualification (or exemption therefrom) effective during the period such registration statement is required to be kept effective and do any and all other acts or things necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by the registration statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it (x) to general service of process in any such jurisdiction where it is not then so subject or (y) to any tax in any such jurisdiction where it is not then so subject;

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               (8) use commercially reasonable efforts to (A) enter into customary agreements and (B) take such other actions as are reasonably requested by the Stockholders in order to expedite or facilitate the disposition of such Registrable Securities, including, if applicable, preparing for and participating in a “road show,” seeking to obtain and deliver to each Underwriter and Stockholder a comfort letter from the independent registered public accounting firm for the Company and other customary selling efforts as the Underwriters or the Stockholders reasonably request in order to expedite or facilitate such disposition;

               (9) make available for inspection by the Stockholders, any Underwriter participating in any disposition of such Registrable Securities, and any legal counsel, accountant or other agent retained by any Stockholder or Underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company then in the possession of the Company (collectively, the “Records”) as will be reasonably necessary to enable them to conduct reasonable due diligence investigation with respect to the Company and the related Registration Statement and prospectus, and cause the employees, agents and representatives of the Company and its Subsidiaries to supply all information reasonably requested by any such Inspector, in each case during reasonable business hours and in a manner so as to not be unreasonably disruptive to the business of the Company; provided, however, that (w) the Company shall not be obligated to provide any Records or other information to any Inspector who has not executed a confidentiality agreement in a form reasonably acceptable to the Company, (x) Records and information obtained hereunder will be used by such Inspector only to conduct such due diligence, (y) Records or information that the Company determines, in good faith, to be confidential or competitively sensitive will not be required to be disclosed to such Inspector unless (A) the disclosure of such Records or information is necessary to avoid or correct a material misstatement or omission in a Registration Statement or related Prospectus or (B) the release of such Records or information is ordered by a Governmental Entity and (z) the foregoing shall not require the Company to provide any Records or information if doing so (A) may result in a waiver or breach of any attorney/client privilege or other privilege of the Company, or (B) could reasonably be expected to result in violation of an applicable Legal Requirement; and

               (10) in connection with any Demand Offering, enter into a commercially reasonable written agreement with each Underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between such Underwriter and companies of the Company’s size and investment stature in the context of an Underwritten Offering of a selling stockholder and, to the extent practicable, on terms consistent with underwriting agreements entered into by the Company in the past if applicable; provided, however, that the Company shall not be obligated to enter into such underwritten agreement unless each participating Stockholder has completed and executed all such other documents customary in similar offerings, including any reasonable questionnaires, powers of attorney, holdback agreements, letters and other documents customarily required under the terms of such underwriting arrangements.

     (c) Conditions to Offerings. The obligations of the Company to take the actions contemplated by this Section 4 with respect to a Demand Offering will be subject to the following conditions:

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          (i) The Company may require the Stockholders as to which any registration is being effected to furnish to the Company such information regarding the such Stockholder and/or the distribution of such Registrable Securities as the Company may from time to time reasonably require for inclusion in a Registration Statement, but, in each case, only as it determines in good faith is required by the Securities Act or under state securities or blue sky laws; and the Company may exclude from such registration the Registrable Securities of any Stockholder who fails to furnish such information within a reasonable time after receiving such request and may delay any filing or taking of action required by this until such information is provided; and

          (ii) In any Demand Offering, the participating Stockholders will enter into an underwriting agreement in accordance with Section 4(b)(i)(10) above with the Underwriter(s) selected for such underwriting, and in any event shall execute and provide such other documents customary in similar offerings or otherwise required by this Section 4.

     (d) Blackout Period.

          (i) The Company’s obligations pursuant to Section 4(a), Section 4(b) and Section 4(c) hereof will be suspended upon the occurrence of any Suspension Event; provided, that (x) any all such suspensions will not exceed seventy-five (75) calendar days in the aggregate in any consecutive 12-month period; but provided further that such number of days shall be increased thereafter by the number of days for which the Company has used its reasonable best efforts to eliminate Suspension Events caused by events outside of its ability to control, and (y) the Company shall not register any securities for its own account or that of any other stockholder during such period other than (1) a registration relating to the sale of securities to employees of the Company or a Subsidiary pursuant to a stock option, stock purchase, or similar plan; (2) a registration relating to a “SEC Rule 145 transaction”; and/or (3) any registration statement that relates to the underlying cause of any such Suspension Event (the period during which such obligations are suspended is referred to herein as a “Suspension Period”).

          (ii) From and after the delivery of a Demand Notice (until properly rescinded as provided herein), the Company will promptly give each Stockholder written notice of any Suspension Event, containing the approximate length of the anticipated delay, and will notify each Stockholder upon the termination of any Suspension Period.

          (iii) Each Stockholder agrees that upon receipt of any notice from the Company of the occurrence of a Suspension Event, such Stockholder will immediately discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until it is advised in writing by the Company that the use of the Prospectus may be resumed.

     (e) Registration Expenses.

          (i) Except as otherwise provided herein, with respect to the first Demand Offering, all fees and expenses incident to the Company’s performance of or compliance with its obligations under this Section 4 (excluding any underwriting discounts and selling commissions) will be borne by the Company whether or not any Registration Statement is filed or becomes

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effective and whether or not any securities are issued or sold pursuant to any Registration Statement. The fees and expenses referred to above shall include (1) all registration and filing fees (including fees and expenses (x) with respect to filings required to be made with the Financial Industry Regulatory Authority, Inc. and (y) in compliance with federal or state securities laws), (2) reasonable and customary printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing or reproducing Prospectuses), (3) fees, disbursements and expenses of counsel for the Company, (4) Securities Act liability insurance, if the Company desires such insurance, (5) fees and expenses of all other Persons retained by the Company (including the fees and expenses charged by the Company’s independent registered public accounting firm for providing any comfort letter) and (6) fees of transfer agents and registrars. With respect to the second Demand Offering, the expenses referenced above in this Section 4(a)(i) shall be borne severally by the Stockholders selling Registrable Securities therein in proportion to the Registrable Securities so sold.

          (ii) The Stockholders shall bear, and shall reimburse the Company for, (1) any underwriting discounts and selling commissions applicable to Registrable Securities offered for the Stockholders respective accounts pursuant to any Registration Statement, (2) any other costs and expenses incurred by the Stockholders in connection with the performance of and compliance with their obligations under this Section 4, (3) any other expenses required by a Legal Requirement to be paid as a selling stockholder, (4) any other costs or expenses of any of the Stockholders, including the fees, disbursements and expenses of legal counsel, the Underwriters and any of its counsel, (5) any transfer taxes applicable to the sale of Registrable Securities hereunder, (6) any costs and expenses incurred by any person in connection with any “road show” or other selling efforts requested by the Stockholders, and (7) any fees and expenses to be borne by the Stockholder as contemplated by any provision of this Section 4.

     (f) Indemnification.

          (i) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Stockholder and its officers, directors, agents, partners, members, stockholders and employees of each of them, each Person who controls any such Stockholder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable Legal Requirement, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of Prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433 promulgated under the Securities Act) or in any amendment or supplement thereto or in any preliminary Prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of Prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433 promulgated under the Securities Act) or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements, alleged untrue statements, omissions or

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alleged omissions are based upon information regarding or provided by any Stockholder, any of its related persons or any Underwriter, broker-dealer or selling agent for use therein.

          (ii) Indemnification by Stockholders. Each Stockholder shall, notwithstanding any termination of this Agreement, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable Legal Requirements, from and against all Losses, as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of Prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433 promulgated under the Securities Act), or in any amendment or supplement thereto, or arising out of or related to any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, or any form of Prospectus (including, without limitation, any “issuer free writing prospectus” as defined in Rule 433 promulgated under the Securities Act) or supplement thereto, in light of the circumstances under which they were made) not misleading to the extent, but only to the extent, that such untrue statements, alleged untrue statements, omissions or alleged omissions are based solely upon information regarding or provided by such Stockholder, any of its related persons, or any underwriter, broker-dealer or selling agent for use therein. In no event shall the liability of any selling Stockholder hereunder be greater in amount than the dollar amount of the net proceeds received by such Stockholder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

          (iii) Conduct of Indemnification Proceedings.

               (1) If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party may assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party

               (2) An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have received an opinion of counsel that there is a conflict of interest if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the

18

Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party); provided that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

               (3) All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section 4(f)) shall be paid to the Indemnified Party, as incurred, promptly upon receipt of written notice thereof to the Indemnifying Party; provided that the Indemnifying Party may require such Indemnified Party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder.

               (4) In all cases, the Indemnified Party and the Indemnifying Party shall provide the other with reasonable cooperation in defense of claims or litigation and all aspects of any investigation, defense, pretrial activities, trial, compromise, settlement or discharge at the cost and expenses of the Indemnifying Party, including, but not limited to, by providing the other party with reasonable access to books, records, employees and officers (including as witnesses) of the party and its Affiliates.

          (iv) The indemnity agreements contained in this Section 4(f) are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties and are not in diminution or limitation of the indemnification provisions under the Merger Agreement.

     (g) Facilitation of Sales Pursuant to Rule 144. To the extent it shall be required to do so under the Exchange Act, the Company shall use its commercially reasonable efforts to (i) timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 promulgated under the Securities Act), and (ii) take such further action as any Stockholder may reasonably request, all to the extent required from time to time to enable the Stockholders to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144 promulgated under the Securities Act. Upon the request of any Stockholder in connection with that Stockholder’s sale pursuant to Rule 144 promulgated under the Securities Act, the Company shall deliver to such Stockholder a written statement as to whether it has complied with such requirements.

     (h) Assignment of Registration Rights; Eligible Stockholders. The registration rights under this Section 4 will be deemed to have been validly assigned (together with all related obligations under this Section 4) upon the occurrence of both of (i) a Transfer of Registrable Securities in compliance with this Agreement by a Stockholder to a Person who, after such Transfer, Beneficially Owns at least 50,000 shares of Registrable Securities (subject to

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appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations) and (ii) the execution by such Person of a Supplemental Stockholders Agreement. No such assignment will result in the elimination of registration rights in favor of the Stockholder effecting such Transfer to the extent that, after such Transfer, such Stockholder continues to hold Registrable Securities. Notwithstanding anything to the contrary set forth in this Section 4, no Stockholder executing a Supplemental Stockholders Agreement hereto other than those contemplated by clause (i) of this Section 4(h) shall have any rights under this Section 4. Except as set forth in this Section 4(h), the registration rights under this Section 4 may not be assigned without the Company’s consent, which may be given or withheld in its sole discretion.

     (i) Termination. The obligations of the Company under this Section 4 (other than those obligations pursuant to Section 4(f), which shall survive) shall terminate and be of no further force or effect on the first to occur of (i) the 5-year anniversary of the Closing Date, (ii) the date on which the second Demand Offering has been completed, or (iii) the date on which there shall cease to be any outstanding Registrable Securities held by any Knowledge Universe Stockholder or any other Stockholder who has executed a Supplemental Stockholders Agreement and has registration rights pursuant to Section 4(h), including upon the redemption of all shares of Series A Special Stock or following a Reorganization Event (as defined in Certificate of Designations) in which the Series A Special Stock or Company Common Stock shall cease to be outstanding and registered pursuant to Section 12(b) or 12(g) of the Exchange Act; provided, however, that such termination shall not relieve any Party of liability for such Party’s breach of this Section 4 prior to such termination, and any obligation of any Party to pay any expenses contemplated by Section 4(e) shall survive until such payments are made in full.

     5. Number and Availability of Authorized Shares.

     (a) Authorized Shares of Series A Special Stock. From time to time, to the extent necessary to comply with its obligations under Section F.5 of the Certificate of Designations, the Company shall amend the Certificate of Designations to increase the number of authorized shares constituting the Series A Special Stock by further resolution duly adopted by the Board or any duly authorized committee thereof stating that such increase has been so authorized.

     (b) Reserved for Issuance. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Series A Special Stock such number of shares of Series A Special Stock as shall from time to time be sufficient to comply with its obligations under Section F.5 of the Certificate of Designations.

     6. Redemption; Failure to Redeem.

     (a) Redemption; Efforts to Comply.

          (i) Redemption. If Stockholder Approval is not obtained by the first (1^st) anniversary of the Closing Date, the Company will redeem the shares of Series A Special Stock as and to the extent required by the Certificate of Designations following a valid request therefor by a holder of Series A Special Stock.

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          (ii) Efforts to Comply. Without limiting the foregoing, the Company agrees that it will not, nor will it permit any of its Subsidiaries to, enter into any contract (written or otherwise) or other agreement that will expressly prohibit or, upon any default or breach thereof (whether with or without notice or the passage of time or both), would expressly prohibit the Company’s ability to redeem the Series A Special Stock as and to the extent required by the Certificate of Designations. In addition, from and after the later to occur of (x) the date of the Parent Stockholder Meeting (as defined in the Merger Agreement) if the Stockholder Approval is not obtained at such meeting and (y) the ten-month anniversary of the Closing, but in no event later than the first anniversary of the Closing Date, the Company agrees that (A) it will not, nor will it permit any of its Subsidiaries to, take any action or refrain from taking any action that, in any such case, would reasonably be expected to prohibit or materially limit the Company’s ability to redeem the Series A Special Stock as and to the extent required by the Certificate of Designations, other than with respect to ordinary course of business activities the absence of which would significantly impair the value of the Company’s business, and (ii) it will take, and will cause its Subsidiaries to take, commercially reasonable actions not prohibited by Legal Requirements and which are reasonably necessary to facilitate the redemption of the shares of Series A Special Stock as and to the extent required by the Certificate of Designations that may occur following the first anniversary of the Closing, including, if and only to the extent necessary to eliminate any capital deficit that might otherwise prohibit such redemption under applicable Legal Requirements, by revaluing its and its Subsidiaries’ assets to reflect market value and thereby eliminate any such capital deficit.

          (iii) Termination. The obligations of the Company under this Section 6(a) shall terminate and be of no further force or effect on the first to occur of the Stockholder Approval and the redemption of all shares of Series A Special Stock; provided, however, that such termination shall not relieve any Party of liability for such Party’s breach of this Section 6(a) prior to such termination.

     (b) Remedies Upon Redemption Default.

          (i) Redemption Default. If the Company fails to honor the redemption obligations set forth in Section 6(a)(i) following a valid request therefor by a holder of Series A Special Stock (such failure, a “Redemption Default”), including, for the avoidance of doubt, as a result of the lack of funds legally available therefor or because such redemption is prohibited by Legal Requirements, then each Stockholder holding Series A Special Stock with respect to which a Redemption Default has occurred will be entitled to receive from the Company payments (collectively, “Redemption Default Payments”) equal to the amount of the interest on the applicable unpaid portion of the Series A Redemption Price payable for such shares of Series A Special Stock determined in accordance with this Section 6(b). Redemption Default Payments will initially be payable in cash at an annual rate of eight percent (8%), and the interest rate payable on amounts due will increase by one percent per annum (1%) on each anniversary of the Redemption Default. Redemption Default Payments shall be computed on the basis of a 360-day year consisting of twelve 30-day months, shall accrue from the date of the applicable Redemption Default until such Redemption Default has been cured and the applicable Redemption Default Payments paid in full (such period, the “Redemption Default Period”), shall compound on a semi-annual basis, and shall be payable in cash quarterly in arrears on each January 1, April 1, July 1 and October 1 following the applicable Redemption Default until paid

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in full. Upon any Transfer of shares of Series A Special Stock prior to the Stockholder Approval, the transferor Stockholder shall transfer with such Series A Special Stock to the transferee any right it has to any Redemption Default Payments with respect to such shares and agrees that it shall not seek any Redemption Default Payments with respect to shares Transferred by such Stockholder from the Company.

          (ii) Limitations on Certain Activities. During the pendency of any Redemption Default, the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly (1) declare or pay any dividend or make any other payment or distribution on account of its securities (other than dividends or distributions from wholly-owned Subsidiaries), (2) purchase, redeem or otherwise acquire or retire for value any of its or their securities (other than as contemplated by the Merger Agreement), (3) purchase, redeem, defease or otherwise acquire or retire for value prior to its maturity any Indebtedness of the Company or its Subsidiaries, unless so doing eliminates a limitation on the redemption of the Series A Special Stock, (4) make any capital investment other than capital investments the absence of which would significantly impair the value of the Company’s business, (5) create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to any Indebtedness except (x) ordinary course letters of credit, performance bonds and other similar credit support instruments that are necessary to maintain the normal operation of business or (y) to the extent such Indebtedness is created, incurred or issued in connection with a substantially concurrent redemption to cure an applicable Redemption Default in whole or in part, and/or (6) issue any security of the Company or its Subsidiaries that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, unless such maturity, redemption or other right shall be expressly junior to the right of redemption of the holders of the Series A Special Stock.

     (c) Remedies; Maximum Damages. The rights to Redemption Default Payments shall be in addition to any other rights available to each affected Stockholder (including pursuant to Section 13). However, notwithstanding anything to the contrary set forth in this Agreement, the Merger Agreement, the Certificate of Designations or any other Transaction Document, the maximum aggregate liability of the Company or any of its Subsidiaries relating to or arising out of the failure of the Company to redeem the Series A Special Stock as and to the extent set forth in the Certificate of Designations shall be the sum of (i) the applicable redemption price therefor, (ii) the amount of Redemption Default Payments contemplated by this Section 6 and (iii) if applicable, Collection Costs; and upon payment thereof, neither the Company nor any of its Subsidiaries shall have any further liability relating to or arising out of any such matter, whether at law or equity, in contract, in tort or otherwise, relating to or arising therefrom. In the event that (x) a Stockholder commences an action to recover any payment contemplated by this Section 6 from and after the time that such Stockholder has validly requested redemption of some or all of its Series A Special Stock and there has been a Redemption Default and (y) a court of competent jurisdiction determines in such action that the Company has breached this Section 6, the Company shall be liable for, and shall pay to such Stockholder upon request, the reasonable legal fees and expenses of legal counsel incurred by such Stockholder in connection with enforcing such breach (“Collection Costs”).

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     7. Representations and Warranties. Each Stockholder (as to himself, herself or itself only) represents and warrants to the Company and each other Stockholder that:

     (a) each Stockholder is the record owner of the number of shares of Company Common Stock set forth opposite such Stockholder’s name on the Schedule of Stockholders attached as Exhibit A hereto, and Exhibit A accurately reflects the number of shares of Company Common Stock and Series A Special Stock to be Beneficially Owned by such Stockholder as of the Closing Date;

     (b) this Agreement has been duly authorized, executed and delivered by each Stockholder and constitutes the valid and binding obligation of each Stockholder, enforceable against such Stockholder in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar Legal Requirement affecting creditors’ rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law);

     (c) each Stockholder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement;

     (d) the execution, delivery and performance by each Stockholder of this Agreement and the consummation by each Stockholder of the transactions contemplated hereby will not, with or without the giving of notice or lapse of time, or both, (i) violate any provision of a Legal Requirement to which such Stockholder is subject, (ii) violate any order, judgment or decree applicable to such Stockholder or (iii) conflict with, or result in a breach or default under, any term or condition of any agreement or other instrument to which such Stockholder is a party or by which such Stockholder or any of such Stockholder’s assets or properties is bound; and

     (e) except for the representations and warranties contained in this Agreement or in any other Transaction Document, no Stockholder makes any express or implied representation or warranty in respect or on behalf of such Stockholder or any of its Affiliates, and such Stockholder disclaims any such representation or warranty, whether by the Stockholder or any of its officers, directors, employees, agents or representatives or any other Person, with respect to the execution and delivery of this Agreement or any other Transaction Document or the consummation of the transactions contemplated hereby and thereby.

     8. Amendment and Waiver.

     (a) Except as otherwise provided herein, the provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and Stockholders holding a majority in interests of the Series A Special Stock held by all Stockholders. The Company will promptly deliver a copy of each such amendment to each Stockholder and each such amendment shall be binding upon each Party hereto; provided that the failure to deliver a copy of such amendment shall not impair or affect the validity of such amendment.

     (b) Except where a specific period for action or inaction is provided herein, neither

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the failure nor any delay on the part of any Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of any Party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other such right, power or privilege. The failure of a Party to exercise any right conferred herein within the time required shall cause such right to terminate with respect to the transaction or circumstances giving rise to such right, but not to any such right arising as a result of any other transactions or circumstances.

     9. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced as a result of any rule of law or public policy, all other terms and other provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated by this Agreement are fulfilled to the greatest extent possible.

     10. Entire Agreement. This Agreement, including the Exhibits and Schedules hereto, along with the Merger Agreement, the Voting Agreement and Certificate of Designations constitute the entire agreement between the Parties and supersedes any prior understandings, agreements or representations by or between the Parties, written or oral, to the extent that they relate in any way to the subject matter hereof.

     11. Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, permitted assigns, heirs, executors and administrators of the Parties hereto. Except as otherwise expressly provided herein, (i) no Stockholder may assign any of its rights or obligations hereunder without the prior written consent of the Company and (ii) the Company may not assign any of its rights or obligations hereunder without the prior written consent of Stockholders holding a majority in interest of either the Series A Special Stock held by all Stockholders, if outstanding, or the Registrable Securities held by all Stockholders.

     12. Counterparts. This Agreement may be executed in multiple counterparts (including by means of telecopied or electronic signature pages), any one of which need not contain the signatures of more than one Party, but all such counterparts taken together shall constitute one and the same instrument.

     13. Specific Performance. Each of the Parties acknowledges and agrees that the other Parties would be irreparably damaged in the event that any of the terms or provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Therefore, each of the Parties hereby agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of any of the terms or provisions of this Agreement and to enforce specifically the performance by such first Party under this Agreement, and each Party hereby agrees to waive the defense in any such suit that the other Parties have an adequate remedy at law and to interpose no opposition, legal or otherwise, as to the propriety of injunction

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or specific performance as a remedy, and hereby agrees to waive any requirement to post any bond in connection with obtaining such relief. The equitable remedies described in this Section 13 shall be in addition to, and not in lieu of, any other remedies at law or in equity that the Parties may elect to pursue.

     14. Notices. All notices, requests, demands, claims and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when received if personally delivered; when transmitted if transmitted by facsimile (with written confirmation of transmission); the Business Day after it is sent, if sent for next day delivery to a domestic address by recognized overnight delivery service (e.g., Federal Express); and five (5) business days after the date mailed by certified or registered mail, postage prepaid, if sent by certified or registered mail, return receipt requested. For the Stockholders, such Stockholder’s address will be deemed to be the address indicated on the Schedule of Stockholders, as indicated by the Company’s records, or such address or the attention of such other Person as the recipient party has specified by prior written notice to the sending party. The Company’s address as of the date hereof is:

K12 Inc.
2300 Corporate Park Drive
Herndon, VA 20171
Attention: General Counsel
Facsimile: (703) 483-7496

with a copy, which shall not constitute notice to the Company, to:

Kirkland & Ellis LLP
601 Lexington Avenue
New York, New York 10022
Attention: David Fox, Esq.
                 William B. Sorabella, Esq.
Facsimile: (212) 446-6460

Any Party may change the address to which notices, requests, demands, claims, and other communications required or permitted hereunder are to be delivered by giving the other Party(ies) notice in the manner herein set forth.

     15. Delivery by Facsimile or Email. This Agreement, the agreements referred to herein, and each other agreement or instrument entered into in connection herewith or therewith or contemplated hereby or thereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine or email with scan or facsimile attachment, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any Party hereto or to any such agreement or instrument, each other Party hereto or thereto shall re-execute original forms thereof and deliver them to all other Parties. No Party hereto or to any such agreement or instrument shall raise the use of a facsimile machine or email to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or email as

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a defense to the formation or enforceability of a contract, and each such Party forever waives any such defense.

     16. Governing Law; Consent to Jurisdiction. All matters relating to the interpretation, construction, validity and enforcement of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than the State of Delaware. Each Party hereby irrevocably and unconditionally submits, for itself and its assets and properties, to the exclusive jurisdiction of any Delaware State court in New Castle County, or Federal court of the United States of America, sitting within New Castle County in the State of Delaware, and any respective appellate court, in any action or proceeding arising out of or relating to this Agreement, the agreements delivered in connection with this Agreement, or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment relating thereto, and each Party hereby irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts; (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Delaware State court or, to the extent permitted by law, in such Federal court; (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in any such Delaware State or Federal court; and (iv) waives, to the fullest extent permitted by law, the defense of lack of personal jurisdiction or an inconvenient forum to the maintenance of such action or proceeding in any such Delaware State or Federal court. Each Party hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party hereby irrevocably consents to service of process in the manner provided for notices in Section 14. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by applicable law.

     17. Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS; (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS; (C) IT MAKES SUCH WAIVERS VOLUNTARILY; AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 17.

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     18. Business Days. If any time period for giving notice or taking action hereunder expires on a day which is not a Business Day, the time period shall automatically be extended to the Business Day immediately following such day.

     19. Mutual Drafting. The Parties have participated jointly in the negotiation and drafting of this Agreement. Accordingly, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any Party hereto by virtue of the authorship of any of the provisions of this Agreement.

     20. Interpretation. The headings and subheadings contained in this Agreement and the annexes hereto are solely for the purpose of reference, are not part of the agreement of the parties hereto, and shall not in any way affect the meaning or interpretation of this Agreement or any exhibit hereto. All references to days or months shall be deemed references to calendar days or months. All references to “$” or “dollars” shall be deemed references to United States dollars. Unless the context otherwise requires, any reference to a “Section” or “Annex” shall be deemed to refer to a section of this Agreement or an annex to this Agreement, as applicable. Any reference to any federal, state, county, local or foreign statute or Legal Requirement shall be deemed also to refer to all rules and regulations promulgated thereunder, including any successor thereto, unless the context requires otherwise. For all purposes of and under this Agreement, (i) the word “including” shall be deemed to be immediately followed by the words “without limitation”; (ii) words (including defined terms) in the singular shall be deemed to include the plural and vice versa; (iii) words of one gender shall be deemed to include the other gender as the context requires; (iv) “or” is not exclusive; and (v) the terms “hereof,” “herein,” “hereto,” “herewith” and any other words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including the annexes hereto) and not to any particular term or provision of this Agreement, unless otherwise specified. Any reference to “written” or comparable expressions includes a reference to facsimile transmission or comparable means of communication but shall not refer to e-mail or other electronic communication.

     21. No Third Party Beneficiaries. This Agreement shall be binding upon and inure solely to the benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

     22. Responsibility for Compliance. Each Stockholder shall be responsible for ensuring that its Affiliates and representatives adhere to the terms of this Agreement applicable to such Persons as if such Persons were original parties hereto, shall be responsible for any breach of this Agreement by its Affiliates and representatives and shall take all reasonable measures to avoid any breach of this Agreement by its Affiliates or representatives. The foregoing obligation shall not limit the remedies available to the Company for any breach of this Agreement by any Person.

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     23. Effectiveness. This Agreement shall become effective immediately upon the execution and delivery hereof.

{Remainder of page intentionally left blank.}

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     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the day and year first above written.

K12 INC.
By:	/s/ Howard D. Polsky
Name:	Howard D. Polsky
Title:	General Counsel and Secretary
KCDL HOLDINGS LLC
By:	/s/ Stanley E. Maron
Name:	Stanley E. Maron
Title:	Manager
LEARNING GROUP LLC
By:	/s/ Stanley E. Maron
Name:	Stanley E. Maron
Title:	Secretary
LEARNING GROUP PARTNERS
By:	/s/ Stanley E. Maron
Name:	Stanley E. Maron
Title:	Secretary
KNOWLEDGE INDUSTRIES LLC
By:	/s/ Stanley E. Maron
Name:	Stanley E. Maron
Title:	Secretary
CORNERSTONE FINANCIAL GROUP LLC
By:	/s/ Stanley E. Maron
Name:	Stanley E. Maron
Title:	Secretary

{Signature Page to Stockholders Agreement}

EXHIBIT A

SCHEDULE OF STOCKHOLDERS

(DATED AS OF JULY 23, 2010)

			Number of Shares of
	Number of Shares of		Series A Special
	Company Common		Stock Obtained at the
Name and Address of Stockholder	Stock		Closing
KCDL Holdings LLC		0		2,750,000
Learning Group LLC		4,665,083		—
Learning Group Partners		399,171		—
Knowledge Industries LLC		82,503		—
Cornerstone Financial Group LLC		83,874		—

The address for each of the foregoing is:

the name of such Stockholder
c/o Maron & Sandler
1250 Fourth Street, Suite 550
Santa Monica, California 90401
Attn: Stanley E. Maron
Fax: (310) 570-4901

with a copy, which shall not constitute notice, to:

Latham & Watkins LLP
355 South Grand Ave.
Los Angeles, California 90071
Attn: Thomas C. Sadler
Fax: (213) 891-8763

A-1 

EX-99.1

For Immediate Release:

K12 Inc. Announces Acquisition of KC Distance Learning, Inc.

U.S. leader in online learning expands offerings for schools and families domestically and
internationally

Herndon, VA, July 26, 2010 — K12 Inc. (NYSE: LRN), one of the nation’s largest providers of proprietary curriculum and online school programs for students in kindergarten through high school, announced today the all-stock acquisition of KC Distance Learning, Inc. (KCDL), a privately-held, nationally-recognized provider of distance learning programs for middle and high school students, with a newly-issued class of non-voting shares having a value of $63.1 million under the terms of the Merger Agreement.

The acquisition bolsters K12’s position as a leader in K-12 online education and a premier provider of virtual school solutions. The move adds a new line of products and services to K12’s robust offerings for public and private schools, international schools, and individual consumers. Additionally, K12® significantly increases the size of its online private school offering through the acquisition of KCDL.

“K12 is excited about the acquisition of KC Distance Learning and the opportunity to deliver a greater variety of products and services to more customers,” said Ron Packard, founder and CEO of K12 Inc. “By incorporating KCDL’s offerings into K12’s portfolio of high quality products and services, we will be able to expand our online course and virtual school program offerings to provide customers with more options and greater flexibility. This will also enable us to scale at a faster rate to meet the exploding demand from families, teachers and administrators for online learning solutions, while maintaining K12’s high standards of quality and excellence. The complementary nature of KCDL’s businesses allows us to scale these new businesses and deliver the products and services in a more cost efficient manner.”

“K12 is committed to our mission of delivering a world-class education to every child by empowering families, teachers and school administrators with excellent education programs,” said Mr. Packard. “K12 will continue to leverage our vast experience and expertise on behalf of our customers and passionately work to ensure that every child reaches his or her full potential.”

KCDL, headquartered in Portland, OR, has three brands that provide quality education products and services to districts, public and private schools, and directly to families: Aventa Learning^TM, The Keystone^TM School and iQ Academies®.

Aventa Learning offers an extensive catalog of engaging courses and effective instructional services for schools and school districts designed to give educators innovative online content and services to enhance their education programs. Aventa, which is accredited by the Northwest Association of Accredited Schools, has over 140 core, elective and AP® courses in grades 6-12 that provide organizations high quality and cost-effective online learning solutions, from credit recovery courses to full-scale virtual school programs.

The Keystone School is a leading online private school for middle school and high school students. The school, also accredited by the Northwest Association of Accredited Schools, was established in 1974 and has served over 250,000 students from 84 countries in its history. It provides a flexible learning experience for full-time and part-time students and offers a wide range of courses supported by experienced, certified teachers.

iQ Academies operates statewide online public schools in partnership with school districts or public charter schools to serve the education needs of middle and high school students. iQ Academies are offered in six states: Kansas, Minnesota, Nevada, Texas, Washington, and Wisconsin.

In fiscal year 2009 (FY 2009), KCDL’s combined education channels delivered an estimated 176,000 course enrollments to 67,000 students in over 1,800 schools and organizations.

“In joining forces, K12 and KCDL will provide students, families, and educators with even greater access to high quality online education solutions,” said Caprice Young, CEO of KCDL. “It expands our ability to support the highly customized solutions educators require to create hybrid learning environments tailored to the individual needs of students.”

Financial Highlights of the KC Distance Learning Acquisition:

The KC Distance Learning product offering augments K12’s online learning offerings and will allow the Company to reach and meet the needs of a broader group of students, teachers and school administrators. The acquisition provides the opportunity to realize cost efficiencies and greater revenues. As a result, the acquisition is expected to enhance the Company’s growth over time. Giving effect to certain transaction and transition related expenses, the transaction is expected to be slightly dilutive on earnings per share in FY 2011 and accretive on earnings per share by FY 2012. K12 is on a June 30 Fiscal Year.

Unaudited Financial Results of KC Distance Learning:

The following financial results are unaudited. For the three months ending March 31, 2010, KCDL reported revenues of $8.9 million, reflecting a growth rate of 23.0% over the same period in the prior year. For calendar year 2009, KCDL reported revenues of $34.7 million, reflecting a growth rate of 47.1% over the prior year.

The transaction closed on July 23, 2010. Further disclosures including audited calendar year 2009 financial statements and pro forma financial statements will be included in K12’s future 8-K filings with the SEC.

Terms of the KC Distance Learning Acquisition:

As consideration in the transaction, K12 issued a total of 2.75 million shares of a new series of stock designated as the Series A Special Stock to the prior owner of KCDL, KCDL Holdings LLC, which is an affiliate of Learning Group LLC. The holders of the Series A shares initially have no voting rights and no rights of conversion. However, K12 has agreed to hold a meeting of stockholders to obtain the approval of K12’s stockholders for voting rights and rights of conversion of the Series A shares. After stockholder approval of the voting rights and rights of conversion of the Series A shares, the holders of Series A shares will be entitled to vote on all matters presented to the holders of K12 common stock (other than for the election and removal of directors, on which the holders of Series A shares shall have no vote) and the Series A shares shall be convertible into an equal number of shares of K12 common stock. Holders of the Series A shares have a par value liquidation preference and are entitled to participate on a pro rata basis in all dividends and distributions made to holders of the K12 common stock. In the event that the K12 stockholders do not approve the voting rights and rights of conversion of the Series A shares by the first anniversary of the closing of the acquisition, the Series A shares will be redeemable at the option of the holder or K12 at a price per share of the greater of $22.95 or the price per share of the K12 common stock at the date of redemption.

K12 expects to convene a special meeting of the K12 stockholders in the Fall 2010 to consider the approval of the voting rights and rights of conversion of the Series A shares. K12 has entered into a voting agreement with Learning Group LLC and certain of its affiliates pursuant to which they have agreed to vote their shares of K12 common stock equal to approximately 17.2% of the outstanding shares in favor of the approval of the voting rights and rights of conversion of the Series A shares.

As a part of the transaction, KCDL Holdings LLC and certain of its affiliates that are stockholders of K12 entered into a stockholders agreement pursuant to which they have agreed to be bound by transfer restrictions on their shares of stock of K12 (including the newly-issued Series A shares) for a term of up to one year from the date of the closing of the acquisition and agreed to other restrictions regarding their shares and activities.

Advisors to K12 in the Acquisition:

In evaluating the transaction, among other information, the K12 Board of Directors received an opinion from its financial advisor, Duff & Phelps LLC, that the consideration paid in the acquisition was fair from a financial point of view to K12 and its stockholders (other than Learning Group LLC and its affiliates) as of the date of the opinion. Kirkland & Ellis LLP served as legal counsel to K12.

About K12 Inc.:

K12 Inc. (NYSE: LRN), a technology-based education company, is the nation’s largest provider of proprietary curriculum and online education programs for students in kindergarten through high school. K12 provides its innovative, award-winning curriculum and academic services to online public and private schools, traditional classrooms, blended school programs, and directly to families.

In partnership with school district and charter schools, K12 operates online public schools in 25 states and the District of Columbia. K12 also operates the K12 International Academy^TM, an accredited, diploma-granting online private school serving students worldwide.

K12 has provided over 1.5 million courses to more than 150,000 students worldwide, and has received numerous awards and honors for academic achievement and innovation. Over 95 percent of parents surveyed are satisfied with the K12 program and agree that their children have benefited academically with K12.

K12 provides courses in English/Language Arts, Math, Science, History, Music, and Art. The K12 High School program offers students a catalog of more than 130 core, elective, and AP® courses. K12’s powerspeaK¹²® world language program provides courses for students in grades 3-12 in Spanish, French, German, Latin, and Chinese.

More information can be found at www.K12.com.

Forward-Looking Statements:

This press release contains forward-looking statements within the meaning of federal securities regulations. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “continue” and other similar terms and phrases, including references to assumptions and forecasts of future results. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: the reduction of per pupil funding amounts at the schools we serve; reputation harm resulting from poor performance or misconduct of other virtual school operators; challenges from virtual public school opponents; failure of the schools we serve to comply with regulations resulting in a loss of funding; discrepancies in interpretation of legislation by regulatory agencies that may lead to payment or funding disputes; termination of our contracts with schools due to a loss of authorizing charter; failure to renew existing contracts with schools; KCDL’s businesses and the acquisition, the timing of the meeting of stockholders to approve the voting rights and rights of conversion of the Series A Special Stock; the effects of disruption from the transaction making it more

difficult to maintain relationships with employees, customers, other business partners or governmental entities; the ability to realize the expected synergies resulting for the transaction in the amounts or in the timeframe anticipated; the ability to integrate KCDL’s businesses into those of K12 in a timely and cost-efficient manner; increased competition; and other risks and uncertainties associated with our business described in the Company’s filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of July 26, 2010, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations except as required by law.

Additional Information and Where to Find It:

K12 plans to file with the Securities and Exchange Commission and mail to its stockholders a proxy statement in connection with the proposed approval of voting rights and rights of conversion of the Series A Special Stock by the holders of the outstanding shares of K12 common stock. The proxy statement will contain important information about the acquisition of KC Distance Learning, Inc. and the Series A Special Stock and related matters. INVESTORS AND STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT CAREFULLY WHEN IT BECOMES AVAILABLE. Investors and stockholders will be able to obtain free copies of the proxy statement and other documents filed with the SEC by K12 through the web site maintained by the SEC at www.sec.gov. In addition, investors and stockholders will be able to obtain free copies of the proxy statement when it becomes available from K12 by contacting Investor Relations by telephone at (703) 483-7000, by mail at K12 Inc., Investor Relations, 2300 Corporate Park Drive, Herndon, Virginia 20171, or by going to K12’s Investor Relations page at www.k12.com.

Participants in Solicitation:

K12 and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of K12 in connection with the solicitation of the proposed approval of voting rights and rights of conversion of the Series A Special Stock. Information regarding the interests of these directors and executive officers will be included in the proxy statement described above. Additional information regarding these directors and executive officers is also included in K12’s proxy statement for its 2009 Annual Meeting of Stockholders, which was filed with the Securities and Exchange Commission on October 19, 2009. This document is available free of charge at the SEC’s web site at www.sec.gov and from K12 by contacting Investor Relations by telephone at (703) 483-7000, by mail at K12 Inc., Investor Relations, 2300 Corporate Park Drive, Herndon, Virginia 20171, or by going to K12’s Investor Relations page at www.k12.com.

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© 2010 K12 Inc. K¹², powerspeaK¹² and iQ Academies are registered trademarks, and the K¹² logo, Aventa Learning, Keystone and K¹² International Academy are trademarks of K12 Inc. or its subsidiaries. All other trademarks are the property of their respective owners.

Contacts:

Keith Haas
SVP, Finance and Investor Relations
703-483-7077
khaas@K12.com

Jeff Kwitowski
VP, Public Affairs
703-483-7281
jkwitowski@K12.com