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16.5. Management Services Agreement

KLC is a party to a management services agreement with Knowledge Universe Limited LLC, one of our affiliates controlled by the Principals, pursuant to which Knowledge Universe Limited LLC has agreed to provide management, consulting and financial planning services on an ongoing basis to KLC and its subsidiaries. In consideration of these services, KLC is obligated to pay Knowledge Universe Limited LLC an annual management fee of $2.5 million payable in equal quarterly installments on the first day of each calendar quarter in advance, effective January 1, 2005. However, in the event of a payment default under KLC's senior credit agreement or the indenture governing the notes, or a bankruptcy, liquidation or winding-up of KLC, the payment of all accrued and unpaid management fees is subordinated to the prior payment in full of all amounts due and owing under KLC's senior credit facility and the indenture governing the Senior Subordinated Notes.

The management services agreement has a ten-year term which extends automatically on each anniversary of the agreement for one additional year unless either party gives prior notice that the term will not be extended. In addition, the management services agreement provides for the payment to Knowledge Universe Limited LLC of customary fees for services provided in connection with extraordinary services and reimbursement of reasonable out-of-pocket expenses, with limited exceptions.

16.6. KinderCare Acquisition Financing

Affiliates purchased a majority of the $250.0 million of senior subordinated bridge notes that we issued as part of the financing of the KinderCare acquisition, which were repaid with the net proceeds of the Senior Subordinated Notes. In connection with the KinderCare merger and related transactions, KLC paid affiliates of KULG commitment fees, expense reimbursements and other amounts totaling approximately $15.9 million.

16.7. Maron & Sandler

The law firm of Maron & Sandler serves as outside general counsel to us and our affiliates. Messrs. Maron and Sandler are shareholders of Maron & Sandler. Mr. Sandler is a member of the board of directors of KSI and is the General Counsel of KUE. Mr. Maron is a member of the board of directors of both KLC and its parent, KSI. In addition, Mr. Maron holds an interest in an entity that holds common stock of KSI. These shares of common stock amount to a less than 0.1% economic interest in KSI.

16.8. RFG Financial Group, Inc.

RFG Financial Group, Inc., an entity controlled by Ralph Finerman, a member of the boards of directors of KLC and Nextera Enterprises, Inc. and an officer or director of other privately-held affiliates of KLC and Krest LLC, periodically provides financial consulting services to KULG and its affiliates. In addition, Mr. Finerman holds an interest in an entity that holds common stock of KSI. These shares of common stock amount to a less than 0.1% economic interest in KSI.

16.9. Purchase of EdSolutions, Inc.

In November 2004, one of KSI's affiliates acquired ESI in a cash merger transaction for $5.5 million, of which $2.2 million was paid to another of our affiliates in respect of its preferred stock ownership in ESI. Following the closing, the buyer contributed the stock of ESI to KSI in exchange for $5.5 million of preferred stock of KSI, and KSI contributed ESI to KLC. In connection with the KinderCare acquisition, KSI redeemed the preferred stock (including accrued dividends) for $5.6 million.

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