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Treasury regulations provide that the anti-inversion legislation is applicable to a foreign partnership that is or becomes a "publicly traded partnership" within two years of the acquisition by it of a U.S. corporation. A "publicly traded partnership" is any partnership (i) interests in which are traded on an established securities market, or (ii) interests in which are readily tradable on a secondary market (or the substantial equivalent thereof). KUE believes that it is not currently a publicly traded partnership and does not intend to become a publicly traded partnership within two years of this offering or the acquisition of KLC and k12. As a result, KUE does not believe the anti-inversion legislation or any regulations promulgated within the scope of the legislation's regulatory authority should apply to KUE although no assurance can be given in this regard or with respect to any new acquisitions of or investment in U.S. corporations. In addition, KUE does not believe that any other Code provision subjecting non-U.S. corporations to U.S. federal income tax should apply to KUE or its subsidiaries, although no assurance can be given in this regards. The promulgation of contrary regulations or a successful challenge of either of these positions by the Internal Revenue Service could materially reduce a holder's after-tax return and, thus, could result in a substantial reduction of the value of the Units.

The remainder of this section assumes that KUE will be treated as a partnership for U.S. federal income tax purposes.

18.2.2 United States Federal Income Taxation of Partners

U.S. Persons

Allocation of Purchase Price. You will be treated as purchasing a Unit consisting of two components, one Common LP Unit and one GP Share. Your purchase price for each Unit will be allocated between one Common LP Unit and one GP Share in proportion to their relative fair market values at the time of your purchase, and this allocation will establish your initial tax basis in both your ownership interest in the Common LP Unit and your GP Share. We will treat the fair market value of each Common LP Share at $999 and the fair market value of each GP Share as $1.

Flow-Through of Taxable Income. KUE will not pay any U.S. federal income tax. Instead, each Partner will be required to report on its income tax return its allocable share (as determined pursuant to the Limited Partnership Agreement) of KUE's income, gains, losses, and deductions without regard to whether corresponding cash distributions are made. The Limited Partnership Agreement authorizes the General Partner to override the allocation provisions of the Limited Partnership Agreement and allocate income, gains, losses and deductions of KUE to the Partners in a manner that achieves the desired economic arrangement of KUE, which is to return each Partner's capital contribution and then for all Partners (including the holder of Profits Participation LP Units) to share in the profits of KUE in proportion to the number of Units held by them.

The IRS may challenge the manner in which income, gains, losses and deductions are allocated to holders of Common LP Units, the General Partner and holders of the Profits Participation LP Units under the Limited Partnership Agreement. For U.S. federal income tax purposes, allocation of any item of income, gain, loss or deduction to a partner in a partnership will be given effect so long as the allocation has "substantial economic effect," or is otherwise in accordance with the partner's interest in the partnership. If an allocation of an item pursuant to the Limited Partnership Agreement does not satisfy this standard or is deemed not to satisfy this standard by the IRS, it will be reallocated by the IRS among the Partners on the basis of their respective interests in KUE (as determined by the IRS), taking into account all facts and circumstances. In such a case, holders of Common LP Units could have additional tax liabilities or suffer adverse tax consequences.

Treatment of Cash Distributions. KUE's distributions to a Partner generally will not be taxable to the Partner for U.S. federal income tax purposes to the extent of such Partner's adjusted tax basis in its Common LP Units immediately before the distribution. Cash distributions in excess of a Limited Partner's adjusted tax basis generally will be considered to be gain from the sale or exchange of the Common LP Units. Any reduction in a Limited Partner's share of KUE's liabilities, if any, for which no Partner bears the

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