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skilled personnel could limit the ability of the Company to increase sales of existing products and services and launch new product offerings.

6.1.4 The Company has significant leverage, and expects to incur additional debt, which could result in adverse effects on its financial condition

The Company has significant leverage and expects to incur additional debt in connection with the acquisition and operation of its businesses. Although the Company intends to use leverage in a manner it believes to be prudent, the leveraged capital structure the Company plans to utilize may significantly increase the Company's exposure to adverse economic factors such as rising interest rates, downturns in the economy or deteriorations in the condition of the businesses or their respective industries. If a business cannot generate adequate cash flow to meet debt obligations, the Company may suffer a partial or total loss of capital invested in such business.

The Company's ability to service its substantial indebtedness, and meet its other obligations depends on its future performance, which will be affected by financial, business, economic and other factors, many of which are outside the Company's control. The Company cannot be certain that its cash flow will be sufficient for such purposes. If the Company does not have enough liquidity, it may be required to refinance all or part of its existing debt, sell assets or borrow more money. The Company cannot guarantee that it will be able to do so on favorable terms, if at all. In addition, the terms of existing or future debt agreements, may restrict the Company from pursuing any of these alternatives.

The substantial level of indebtedness incurred by the Company may have the following consequences of potential concern to investors in the Company:

• The Company must use a substantial portion of its cash flow from operations to pay interest and principal on its indebtedness, which reduces the funds available for other business purposes such as capital expenditures;

• The Company's ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired;

• The Company may be limited in its ability to borrow additional funds;

• The Company may have a higher level of indebtedness than some of its competitors, which may put it at a competitive disadvantage and reduce its flexibility in planning for, or responding to, changing conditions in its industry, including increased competition; and

• The Company may be more vulnerable to economic downturns and adverse developments than it would without the leverage.

Adverse developments in the Company's financial condition would have adverse effects upon the business and results of the Company as a whole.

6.1.5 The Company faces intense competition in the early childhood care and education services industry from numerous other types of providers

The early childhood care and education services industry is competitive and highly fragmented. The most important competitive factors generally are quality, convenience and, to a lesser extent, price. The Company's, specifically KLC OpCo's, competition in this industry consists principally of:

• other for-profit, center-based child care providers, including franchise organizations;

• preschool, kindergarten and before and after school programs provided by public schools;

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