KIP MCGRATH EDUCATION CENTRES LIMITED — Proxy Solicitation & Information Statement 2011

Jun 19, 2011

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Notice of Extraordinary General Meeting and Explanatory Memorandum

An Extraordinary General Meeting of Kip McGrath Education Centres Limited ACN 003 415 889 will be held at Kip McGrath Education Centres Head Office Level 3, 6 Newcomen Street, Newcastle NSW 2300 on 18 July 2011 at 10.00 am AEST

Dear Shareholder

As the new Chairman of Kip McGrath Education Centres Limited (KMEC), with 25 years of education experience including leading a globally distributed network, I am pleased to report to shareholders the KMEC business is progressing well against the future oriented business goals outlined in the 2010 Annual Report as follows:

Online transformation and shared success franchise model

KMEC’s transformation program advances the business from an essentially paper based franchise business with very limited computer support and a fixed fee revenue structure, to a dynamic technologically supported delivery and administration e-learning environment with a percentage of revenue based fee structure. One area of focus has been on streamlining and supporting back room administration to free franchisees and teachers up to tutor more students.

This approach will enable KMEC to scale up the business using the technology and new infrastructure to reduce overheads and achieve increased margins in the business. This is being achieved through:

Phase 1 – the completed new centre management system for franchisees which is now being used by 65 franchisees globally;

Phase 2 – the delivery mechanism for existing materials online which is now in the final beta testing stage before going live in centres worldwide anticipated for implementation by mid 2011; and

Phase 3 – development of the online tutoring application which is now in progress for delivery during the next 12 months following the completion of the first stage of the e-learning environment for centres.

Revenue model change

After two years of discussion and negotiation with the franchise representative councils, franchisees whose contracts become due in Australia from April 2011 have a choice of three contractual arrangements:

• the existing contract for one more term;

• the Partner agreement; or

• the Gold Partner agreement.

The full service franchise agreement now known as the Gold Partner agreement with administration, marketing and management support, has been tested successfully in Australia for the last 15 months. On average centre student numbers have grown faster under this new arrangement than under previous models. The investment by La Jolla Cove Investors Inc., which we announced on 1 February 2011, will enhance the transfer of existing arrangements to the new Gold Partner model including extending it to centres outside Australia.

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Financial position

The business has been through two years of the cultural and technological change process at a time when the strong AUD is adversely affecting profits from centres outside Australia. We have invested heavily in the development of the software and infrastructure within agreed budgets and timeframes, with the majority of the required expenditure behind us and the emphasis shifting to implementation of completed systems.

Future opportunities

The business now has a modern base to expand upon and grow; this growth can be seen in the following identified areas:

1. the addition of more franchisees who are excited about the technology and future of the business;

2. the addition of increased products and subjects to the tuition suite; and the delivery of online tutoring which, due to the convenience, will become increasingly more popular.

The business currently sees over 50,000 students per year with global growth for tutoring increasing due to the global demand for skilled workers. We see student numbers growing further and the addition of online significantly expanding our reach.

The Board of KMEC is optimistic about the changes and the benefits for the franchisees. The global opportunity to expand the business is timely and consistent with social and educational trends for increased choice in the mode of delivery of services for students. The potential growth in student numbers with the more efficient delivery and support systems now offered will ultimately be of benefit to the shareholder.

Extraordinary General Meeting (EGM)

In connection with the La Jolla investment referred to above, a general meeting of shareholders will be held at Kip McGrath Education Centres Limited Head Office, Level 3, 6 Newcomen Street, Newcastle NSW 2300 on 18 July 2011 at 10.00 am AEST. The purpose of the meeting is for shareholders to approve a prior draw down of amounts under a convertible note issued to La Jolla, approve the prior issue of shares to La Jolla and its nominees under the note, and approve a possible future draw down and issue of shares to La Jolla or its nominees under the note, in accordance with the terms of the funding agreement with La Jolla. If the resolutions set out in the Notice of EGM are passed KMEC will refresh its ability to issue further shares of up to 15% of its total shares on issue without additional shareholder approval and, importantly, allow the Company to proceed with further funding from La Jolla.

I encourage you to read the Explanatory Memorandum and look forward to seeing you at the EGM on 18 July 2011.

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Lindy Hyam Chairman 6 June 2011

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Kip McGrath Education Centres Limited (“ Company ”)

IMPORTANT

• 1 To be valid, the proxy form enclosed for use at the meeting must be completed and returned no later than 10.00 am AEST on 16 July 2011.

• 2 This document is important and requires your immediate attention. It should be read in its entirety. If you are in doubt as to any matter in this document, you should consult your legal, financial or other professional advisor immediately.

An Extraordinary General Meeting of the Company will be held at Kip McGrath Education Centres Limited Head Office, Level 3, 6 Newcomen Street, Newcastle, NSW 2300 on 18 July 2011 at 10.00 am AEST.

Ordinary Business

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1 Resolution 1 – Approval and ratification of partial draw down of convertible note

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

“That, for the purposes of ASX Listing Rule 7.4 and for all other purposes, shareholders approve and ratify the partial draw down of a convertible note issued by the Company to La Jolla Cove Investors, Inc. pursuant to a funding agreement and convertible notes issue announced on 1 February 2011, on the terms and conditions described in the Explanatory Memorandum accompanying this Notice”.

2 Resolution 2 – Authority to make further draw downs under convertible note

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

“That, for the purposes of ASX Listing Rule 7.1 and for all other purposes, shareholders approve the further draw down of amounts up to US$900,000 under the convertible note issued to La Jolla Cove Investors Inc. pursuant to a funding agreement and convertible notes issue announced on 1 February 2011, on the terms and conditions described in the Explanatory Memorandum accompanying this Notice of Meeting”.

3 Other Business

To deal with any other business that may be brought forward in accordance with the Constitution and the Corporations Act, 2001 .

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4 Voting Exclusion Statement

As required by the ASX Listing Rules, the Company will disregard any votes cast on the Resolution referred to above by La Jolla Cove Investors, Inc. and any associate or related party of La Jolla Cove Investors, Inc.

However, the Company need not disregard votes of the above party if:

• (a) it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form; or

• (b) it is cast by the person chairing the Meeting as proxy for a person who is entitled to vote, in accordance with the directions on the Proxy Form to vote as the proxy decides.

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Explanatory Memorandum

The accompanying Explanatory Memorandum forms part of this Notice and should be read in conjunction with it. Terms used in this Notice and Explanatory Memorandum are defined in the Explanatory Memorandum.

By Order of the Board

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Darlene Perks Company Secretary

Date: 6 June 2011

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Explanatory Memorandum

This Explanatory Memorandum forms part of the Notice of Extraordinary General Meeting and is provided to shareholders to explain the Resolution to be put to shareholders at the Extraordinary General Meeting and to assist shareholders to decide how they wish to vote on the Resolutions.

As announced on 1 February 2011 ( Prior Announcement) the Company has entered into a funding agreement ( Funding Agreement) with La Jolla Cove Investors Inc. ( La Jolla ). Under the Funding Agreement, the Company agreed to issue up to three convertible notes to La Jolla with a total issue price of up to US$9 million, being up to US$3 million for each note ( Notes ). The terms of the Funding Agreement are set out in the Prior Announcement.

The first convertible note ( First Note) has been issued by the Company to La Jolla and La Jolla has made payments totalling US$300,000 to the Company under the First Note. La Jolla has converted AU$115,000 (US $119,126) to 1,859,978 ordinary shares ( Initial Shares ) under the Note. There remains US$180,874 ( Drawn Down Amount ) which the Company has drawn down under the First Note which has not been converted to Shares. In accordance with the terms of the Funding Agreement La Jolla may convert the Drawn Down Amount (plus any interest due on the Drawn Down Amount) to Shares using the formula set out below.

Conversion Price Formula

The conversion price for any further Shares to be issued to La Jolla under the First Note will be the lesser of:

• (a) AU$0.75; and

• (b) 80% of the average of the 3 lowest Volume Weighted Average Prices ( VWAP ) during the 21 trading days prior to La Jolla’s election to convert.

The First Note is issued in US dollars. However, conversion into Shares in the Company will be made in Australian dollars based on the exchange rate published by the Reserve Bank of Australia on the conversion date.

Example of a Conversion

If the average of the 3 lowest VWAP during the 21 trading days prior to the election to convert was AU$0.0482 (which is the average of the 3 lowest VWAP during the 21 days up to 24 May 2011) and La Jolla elected to convert AU$180,000 outstanding under the Note (i.e. the approximate Drawn Down Amount), the Company would be required to issue 4,663,212 Shares, but subject to the ownership limitation referred to in the following paragraph.

The Funding Agreement prohibits La Jolla owning in excess of 19.99% of a relevant interest in voting shares of the Company ( Ownership Limitation) without shareholder approval (which would in any event be required under the Corporations Act, 2001 ) and La Jolla has confirmed it has no intention of seeking to exceed the Ownership Limitation. Accordingly, La Jolla cannot currently require conversion under the First Note if to do so would take it above the Ownership Limitation.

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Resolution 1 – Approval and ratification of partial draw down of convertible note

ASX Listing Rule 7.1 prevents a listed company from issuing, or agreeing to issue, new securities in any 12 month rolling period if, in doing so, it would have issued more than 15% of the total number of securities on issue at the date 12 months prior to the date of issue, unless the issue falls within one of the exceptions set out in Listing Rule 7.1, which includes approval by shareholders.

The First Note and any future Notes to be issued to La Jolla under the Funding Agreement and any Shares issued under the Notes are “equity securities” for the purpose of ASX Listing Rule 7.1.

However, under ASX Listing Rule 7.4 a listed company may seek shareholder approval to ratify a prior issue of securities provided the issue does not fall within one of the exceptions to ASX Listing Rule 7.1 and did not breach the 15% restriction contained in ASX Listing Rule 7.1.

This resolution, if approved, will allow the Company to ‘refresh’ its 15% capacity and make future issues of securities up to the threshold of 15% of its total securities in the 12 month period following the date of the Meeting ( Following 12 Months ) without shareholder approval.

Shareholder approval is now sought pursuant to ASX Listing Rule 7.4 to ratify the partial draw down of the First Note so that the Company retains its capacity to issue up to a full 15% of its total number of securities on issue, if required, in the Following 12 Months without shareholder approval.

ASX Listing Rule 7.5 requires the following information to be given to shareholders for the purpose of obtaining shareholder approval pursuant to ASX Listing Rule 7.4:

• 1 the First Note has been issued to La Jolla and the total number of Initial Shares allotted was 1,859,978 ordinary shares;

• 2 the First Note has an issue price of up to US$3 million. The prices at which the Initial Shares were issued were:

• (a) 242,483 ordinary shares at AU$0.1031 each;

• (b) 431,034 ordinary shares at AU$0.0928 each;

• (c) 538,793 ordinary shares at AU$0.0464 each: and

• (d) 647,668 ordinary shares at AU$0.0386 each.

The issue price of any further Shares ( Further Shares ) issued on conversion of the Drawn Down Amount will be calculated in accordance with the conversion price formula referred to above;

• 3 the Initial Shares and any Further Shares will rank equally with existing Shares;

• 4 the First Note was issued to La Jolla in accordance with the terms of the Funding Agreement and the Issued Shares were issued to La Jolla or its nominees, also in accordance with the terms of the Funding Agreement. Any Further Shares will be issued to La Jolla or its nominees in accordance with the terms of the Funding Agreement;

• 5 the use of the funds raised is for:

• (a) completion of the software for delivery of online content for use in existing and new centres;

• (b) completion of the online tutoring capability for the business; and

• (c) enhancing the transfer of franchisees to the new gold partner full service model franchise agreement; and

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• a voting exclusion statement is included in the Notice.

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Resolution 2 – Authority to make further draw downs under convertible note

As referred to above, ASX Listing Rule 7.1 prevents a listed company from issuing or agreeing to issue new securities in any 12 month rolling period if, in doing so, it would have issued more than 15% of the total of the number of securities on issue at the date 12 months prior to the date of issue, unless the issue falls within one of the exceptions set out in Listing Rule 7.1, which includes approval by shareholders.

The proposed conversion mechanism for the First Note may result in an issue of further Shares under the First Note which exceeds the 15% limit in ASX Listing Rule 7.1. Accordingly shareholder approval for the further draw down of amounts up to US$ 900,000 under the First Note ( Maximum Draw Down ) is sought by the Company, provided draw downs up to the Maximum Draw Down Amount are made within 3 months of the date of the Extraordinary General Meeting (as required by ASX Listing Rule 7.3). Any draw downs after the expiry of this 3 month period may require further shareholder approval.

As the second Note and the third Note which may be issued to La Jolla under the Funding Agreement will be issued beyond this 3 month period, further shareholder approval may be required for their issue.

Under ASX Listing Rule 7.1 Exception 4, an issue of shares on conversion of a convertible security such as the First Note does not count towards the 15% restriction contained in ASX Listing Rule 7.1 (referred to above) if the entity complied with the ASX Listing Rules when it issued the convertible security. Accordingly, the Company will not require further shareholder approval under ASX Listing Rule 7.1 if it issues Shares to La Jolla (or its nominees) on conversion of any further draw down amounts which are approved under this Resolution.

Conversion Price Formula

The conversion price formula for any further Shares to be issued to La Jolla on conversion of any further draw downs under the First Note is as stated above under Resolution 1.

Example of a Conversion

If the average of the 3 lowest VWAP during the 21 trading days prior to the election to convert was AU$0.0482 and La Jolla elected to convert US$900,000 outstanding under the First Note, the Company would be required to issue 23,316,062 Shares, but subject to the Ownership Limitation referred to above.

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Information for Shareholders

ASX Listing Rule 7.3 requires the following information to be provided to shareholders:

• 1 the maximum number of Shares into which the First Note can be converted is calculated by applying the formula set out above to the total issue price of the First Note of US$3 million. Based on the average of the 3 lowest VWAP during the 21 trading days up to 24 May 2011, being AU$0.0482 the Company would be required to issue 77,720,207 Shares to La Jolla, but subject to the Ownership Limitation referred to above;

• 2 any further draw downs under the First Note will be made no later than 3 months from the date of the Extraordinary General Meeting, or such later date as approved by ASX by way of ASX granting a waiver from the Listing Rules;

• 3 the First Note has a total issue price of US$3 million; the issue price of Shares on conversion on any further draw down amounts under the First Note will be calculated in accordance with the conversion price formula referred to above;

• 4 the First Note was issued to La Jolla and any further Shares issued on conversion of the First Note may be issued to La Jolla or a person nominated by La Jolla;

• 5 the First Note was issued in accordance with the terms of the Funding Agreement and any further Shares issued on conversion of the First Note will rank equally with the existing Shares;

• 6 paragraph 5 of Resolutions 1 above sets out the intended purpose of the funds to be raised;

• 7 any further draw downs under the First Note will occur progressively over the next 3 months, up to the Maximum Draw Amount; and

• 8 a voting exclusion statement is included in the Notice.

If shareholder approval is not given for each of the Resolutions the Company cannot convert the Drawn Down Amount to Shares and cannot draw down any further amounts under the First Note. Alternative funding would then need to be sought to repay funds to La Jolla and to continue development of the business of the Company as outlined at paragraph 5 of Resolution 1 above.

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Definitions

In this Notice and Explanatory Memorandum:

AU$ or $ means Australian dollars (AUD).

US$ means United States of America’s dollar (USD).

ASX means ASX Limited ACN 008 624 691.

ASX Listing Rules means the listing rules of the ASX.

Board means the board of directors of the Company.

Constitution means the constitution of the Company.

Explanatory Memorandum means the Explanatory Memorandum which is incorporated as part of the Notice of Extraordinary General Meeting.

Extraordinary General Meeting and Meeting means the extraordinary general meeting of the Company to be held at Kip McGrath Education Centres Head Office, Level 3, 6 Newcomen Street, Newcastle NSW 2300 on 18 July 2011 at 10.00 am.

Notice means this Notice of Extraordinary General Meeting and includes the Explanatory Memorandum.

Proxy Form means the proxy form attached to this Notice.

Resolutions mean the resolutions to be put to shareholders at the Meeting as set out in the Notice of the Extraordinary General Meeting.

Shareholder or member means a shareholder in the Company.

Shares or ordinary shares means fully paid ordinary shares in the capital of the Company.

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Proxies

A. Appointing a proxy

Any member who is entitled to attend and vote can appoint a proxy to attend and vote at the Meeting on their behalf. Any member who has two or more votes is entitled to appoint no more than two proxies to vote in his or her stead. If more than one proxy is appointed, each proxy must be appointed to represent a specific portion of the member’s voting rights. A failure to specify the number or proportion of votes each proxy is to receive does not invalidate a proxy as it is deemed that each proxy has been appointed to exercise an equal number of votes with fractions disregarded (s249X of the Corporations Act 2001 (Cth)).

The person or persons so appointed need not necessarily be members of the Company.

A proxy form accompanies this Notice. Instructions for completion of that form are included.

B. Return of Proxy

To be effective, the proxy appointment form (and, if the appointment is signed by an attorney, the authority under which it was signed or a certified copy of the authority) must be received by the Company’s Registrar or at the Company’s registered office not less than 48 hours before the time for holding the meeting, that is prior to 10.00am on 16 July (AEST). You may submit a proxy online at www.investorvote.com.au by following the instructions on the form or return the form by EITHER:

• the reply paid envelope provided which is addressed to Computershare Investor Services Pty Limited at GPO Box 242, Melbourne, VIC, 3001; OR

• facsimile to 1800 783 447 ( or +61 3 9473 2555)

C. Corporate Registration

Corporate members wishing to appoint a representative to attend the Meeting on their behalf must provide that person with a properly executed letter on the member’s letterhead confirming that they are authorised to act as the Company’s representative at the Meeting.

D. Entitlement to Vote

The Board has determined, for the purposes of voting at the Meeting being convened by this Notice, the Company’s shares will be taken to be held by the persons who are registered holders at 7.00 pm on 16 July 2011 (AEST). Accordingly, share transfers registered after that time will be disregarded in determining entitlements to attend and vote at the meeting.

E. Attendance

Appointing a proxy does not mean that you are unable to attend the Meeting, however, your attendance at the Meeting will suspend the proxy’s rights to speak and vote. Accordingly, you will be asked to revoke your proxy when registering at the Meeting.

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Lodge your vote:

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Online:

www.investorvote.com.au

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By Mail:

Computershare Investor Services Pty Limited GPO Box 242 Melbourne Victoria 3001 Australia

000001 000 KME MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

Alternatively you can fax your form to (within Australia) 1800 783 447 (outside Australia) +61 3 9473 2555

For Intermediary Online subscribers only (custodians) www.intermediaryonline.com

For all enquiries call:

(within Australia) 1300 552 270 (outside Australia) +61 3 9415 4000

Proxy Form

Vote online 24 hours a day, 7 days a week:

www.investorvote.com.au

Cast your proxy vote

Review and update your securityholding

Your secure access information is: Control Number: 999999 SRN/HIN: I9999999999

PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confidential.

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For your vote to be effective it must be received by 10.00 am (AEST) Saturday 16 July 2011

How to Vote on Items of Business

Signing Instructions for Postal Forms

All your securities will be voted in accordance with your directions.

Individual: Where the holding is in one name, the securityholder must sign.

Appointment of Proxy

Joint Holding: Where the holding is in more than one name, all of the securityholders should sign.

Voting 100% of your holding: Direct your proxy how to vote by marking one of the boxes opposite each item of business. If you do not mark a box your proxy may vote as they choose. If you mark more than one box on an item your vote will be invalid on that item.

Power of Attorney: If you have not already lodged the Power of Attorney with the registry, please attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please sign in the appropriate place to indicate the office held. Delete titles as applicable.

Voting a portion of your holding: Indicate a portion of your voting rights by inserting the percentage or number of securities you wish to vote in the For, Against or Abstain box or boxes. The sum of the votes cast must not exceed your voting entitlement or 100%.

Appointing a second proxy: You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you appoint two proxies you must specify the percentage of votes or number of securities for each proxy, otherwise each proxy may exercise half of the votes. When appointing a second proxy write both names and the percentage of votes or number of securities for each in Step 1 overleaf.

Attending the Meeting

Bring this form to assist registration. If a representative of a corporate securityholder or proxy is to attend the meeting you will need to provide the appropriate “Certificate of Appointment of Corporate Representative” prior to admission. A form of the certificate may be obtained from Computershare or online at www.investorcentre.com under the information tab, "Downloadable Forms".

A proxy need not be a securityholder of the Company.

Comments & Questions: If you have any comments or questions for the company, please write them on a separate sheet of paper and return with this form.

GO ONLINE TO VOTE, or turn over to complete the form

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916CR_0_Sample_Proxy/000001/000001/i

MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

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I9999999999
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Change of address. If incorrect, mark this box and make the correction in the space to the left. Securityholders sponsored by a broker (reference number commences with ’ X ’) should advise your broker of any changes.

I 9999999999

I ND

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Proxy Form

Please mark

to indicate your directions

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Appoint a Proxy to Vote on Your Behalf

XX

I/We being a member/s of Kip McGrath Education Centres Limited hereby appoint

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the Chairman of the meeting

OR

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PLEASE NOTE: Leave this box blank if you have selected the Chairman of the Meeting. Do not insert your own name(s).

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, as the proxy sees fit) at the Extraordinary General Meeting of Kip McGrath Education Centres Limited to be held at Kip McGrath Education Centres Head Office, Level 3, 6 Newcomen Street, Newcastle on Monday, 18 July at 10.00 am (AEST) and at any adjournment of that meeting.

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Items of Business

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PLEASE NOTE: If you mark the Abstain box for an item, you are directing your proxy not to vote on your behalf on a show of hands or a poll and your votes will not be counted in computing the required majority.

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• 1 Approval and ratification of partial draw down of convertible note

• 2 Authority to make further draw downs under convertible note

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The Chairman of the Meeting intends to vote undirected proxies in favour of each item of business.

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Signature of Securityholder(s) This section must be completed.

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Individual or Securityholder 1 Securityholder 2 Securityholder 3
Sole Director and Sole Company Secretary Director Director/Company Secretary
Contact
Contact Daytime
Name Telephone Date / /
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