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6.1.13 The Company may not engage in certain businesses

On February 24, 1998, without admitting or denying liability, Michael R. Milken consented to the entry of a final judgment in the U.S. District Court for the Southern District of New York in Securities and Exchange Commission v. Michael R. Milken et al., which judgment was entered on February 26, 1998 restraining and enjoining Michael Milken from associating with any broker, dealer, investment advisor, investment company or municipal securities dealer, and from violating Section 15(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). On March 11, 1991, in the action entitled In the Matter of Michael R. Milken, the SEC instituted a proceeding pursuant to Section 15(b)(6) of the Exchange Act and ordered that Michael Milken be barred from association with any broker, dealer, investment advisor, investment company or municipal securities dealer. On April 24, 1990, concurrently with a plea agreement covering criminal violations of federal securities laws, Michael Milken also consented, without admitting or denying liability, to the entry of a final judgment in the U.S. District Court for the Southern District of New York in the civil action entitled Securities and Exchange Commission v. Drexel Burnham Lambert Incorporated, et al., restraining and enjoining Michael Milken from engaging in transactions, acts, practices and courses of business which constitute or would constitute violations of, or which aid and abet or would aid and abet violations of, Sections 7(c), 7(f), 9(a)(2), 10(b), 13(d), 14(e), 15(c)(3) and 17(a)(1) of the Exchange Act, and Regulations T and X and Rules 10b-5, 10b-6, 13d-1, 13d-2, 14e-3, 15c3-1, 17a-3 and 17a-4 promulgated thereunder, and Section 17(a) of the Securities Act.

The Company cannot be in the business of or associated with a broker, dealer, investment company, investment advisor, or municipal securities dealer (collectively, "prohibited businesses"). As a result, the Company cannot pursue any acquisitions or investments that may have the effect of the Company being in any prohibited business. This could adversely affect the Company's ability to make and/or hold investments or acquisitions which may otherwise be consistent with its business objectives.

6.1.14 Litigation and adverse publicity concerning alleged incidents at KLC or other child care centers could hurt KLC's reputation

KLC is subject to claims and litigation arising in the ordinary course of business, including claims and litigation involving allegations of physical or sexual abuse of children. Any such allegations, claims or lawsuits, either individually or in the aggregate, may have a material adverse effect on KLC OpCo's financial position, operating results or cash flows.

Personal trust and parent referrals play a key role in the child care business. KLC believes its success is directly related to its reputation and favorable brand identity. KLC is periodically subject to claims and litigation alleging negligence, inadequate supervision and other grounds for liability arising from injuries or other harm to children. In addition, claimants may seek damages from KLC for child abuse, sexual abuse or other criminal acts arising out of alleged incidents at KLC's centers. There are lengthy statute of limitations periods applicable to child abuse and personal injury claims. Such claims may typically be brought until a number of years after a claimant reaches the age of majority. Any adverse publicity concerning such incidents at one of KLC's child care centers, or child care centers generally, could greatly damage KLC's reputation and could have an adverse effect on occupancy levels at KLC's centers.

6.1.15 KLC's insurance policies may be inadequate to cover claims, and KLC may be unable to maintain existing coverage in the future at reasonable prices

Some operators of child care centers have experienced difficulty obtaining general liability insurance or other liability insurance that covers child abuse. KLC maintains insurance policies to protect against relevant liability exposures in amounts KLC considers to be appropriate. In addition, KLC's owned centers are covered by blanket insurance policies, including property insurance. Although KLC has not historically had to pay any claims exceeding its coverage, claims in excess of, or not included within, its coverage may be asserted. To the extent that any claims are not covered by insurance, KLC will be forced to cover the associated costs itself, which will reduce the amount of cash KLC has available for other business purposes.

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