EDISON SCHOOLS INC, DEF 14A, 2000-10-26

EDISON SCHOOLS INC
DEF 14A, 2000-10-26
EDUCATIONAL SERVICES

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<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential for Use of the Commission
Only (as permitted by Rule 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (sec.) 240.14a-12
</TABLE>

EDISON SCHOOLS INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

------------------------------------------------------------------------

(5) Total fee paid:

------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

------------------------------------------------------------------------

(3) Filing Party:

------------------------------------------------------------------------

(4) Date Filed:

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<PAGE> 2

[EDISON SCHOOLS LOGO]

October 26, 2000

Dear Edison Schools Shareholder:

You are cordially invited to attend the Company's 2000 Annual Meeting of
Shareholders. This will be held at The Harvard Club, 27 West 44th Street, New
York, New York, on Thursday, November 30, 2000, beginning at 10:00 a.m., local
time. This will be the Company's first Annual Meeting of Shareholders since our
initial public offering in November 1999.

The enclosed proxy statement describes the matters that will be presented
at the meeting: (1) the election of eleven directors for next year, (2) the
approval of (i) an amendment to our 1999 Stock Incentive Plan to increase the
number of shares of Class A Common Stock authorized for issuance under the Plan
and (ii) the continuance of the 1999 Stock Incentive Plan, as amended, and (3)
the ratification of the selection of PricewaterhouseCoopers LLP as our
independent auditors for the current fiscal year.

Whether or not you attend the annual meeting, it is important that your
shares be represented and voted. Therefore, I urge you to sign, date, and
promptly return the enclosed proxy in the enclosed postage-paid envelope. If you
decide to attend the annual meeting and vote in person, signing the proxy will
not prevent you from voting your stock as you wish, as the proxy is revocable at
your option.

We look forward to seeing you at the Annual Meeting.

Sincerely,

/s/ H. CHRISTOPHER WHITTLE
--------------------------------------
H. Christopher Whittle
President and Chief Executive Officer
<PAGE> 3

EDISON SCHOOLS INC.
521 FIFTH AVENUE, 15TH FLOOR
NEW YORK, NY 10175

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 30, 2000

The Annual Meeting of Stockholders of Edison Schools Inc. (the "Company")
will be held at The Harvard Club, 27 West 44th Street, New York, New York, on
Thursday, November 30, 2000 at 10:00 a.m., local time, to consider and act upon
the following matters:

1. To elect eleven directors for the ensuing year.

2. To approve (i) an amendment to the Company's 1999 Stock Incentive Plan
to increase the total number of shares of Class A Common Stock
authorized for issuance thereunder from 2,500,000 shares to 4,500,000
shares, and (ii) the continuance of the 1999 Stock Incentive Plan, as
amended.

3. To ratify the selection by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent auditors for the
current fiscal year.

4. To transact such other business as may properly come before the meeting
or any adjournment thereof.

The Board of Directors has no knowledge of any other business to be
transacted at the Annual Meeting.

Holders of record of the Company's Class A Common Stock and Class B Common
Stock at the close of business on October 16, 2000 are entitled to notice of and
to vote at the Annual Meeting and at any adjournments thereof. A list of the
Company's stockholders is open for examination to any stockholder at the
principal executive offices of the Company, 521 Fifth Avenue, 15th floor, New
York, NY 10175 and will be available at the Annual Meeting.

A copy of the Company's Annual Report on Form 10-K for the year ended June
30, 2000, which contains financial statements and other information of interest
to stockholders, accompanies this Notice and the enclosed Proxy Statement.

By Order of the Board of Directors,

/s/ LAURA K. ESHBAUGH
--------------------------------------
Laura K. Eshbaugh
Executive Vice President and Secretary

New York, NY
October 26, 2000

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY
IS MAILED IN THE UNITED STATES. SENDING IN YOUR PROXY WILL NOT PREVENT YOU FROM
VOTING YOUR STOCK AT THE MEETING IF YOU DESIRE TO DO SO, AS YOUR PROXY IS
REVOCABLE AT YOUR OPTION.
<PAGE> 4

EDISON SCHOOLS INC.
521 FIFTH AVENUE, 15TH FLOOR
NEW YORK, NY 10175

PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, NOVEMBER 30, 2000

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Edison Schools Inc. (the "Company") for use
at the Annual Meeting of Stockholders to be held on Thursday, November 30, 2000
and at any adjournment thereof (the "Annual Meeting"). All executed proxies will
be voted in accordance with the stockholders' instructions, and if no choice is
specified, executed proxies will be voted in favor of the matters set forth in
the accompanying Notice of Meeting. Any proxy may be revoked by a stockholder at
any time before its exercise by delivery of written revocation or a subsequently
dated proxy to the Secretary of the Company or by voting in person at the Annual
Meeting. Attendance at the Annual Meeting will not itself be deemed to revoke a
proxy unless the stockholder gives affirmative notice at the Annual Meeting that
the stockholder intends to revoke the proxy and vote in person.

On October 16, 2000, the record date for the determination of stockholders
entitled to vote at the Annual Meeting (the "Record Date"), there were
outstanding and entitled to vote an aggregate of 43,953,599 shares of Class A
Common Stock of the Company, par value $.01 per share ("Class A Common Stock"),
and an aggregate of 3,348,608 shares of Class B Common Stock of the Company, par
value $.01 per share ("Class B Common Stock", and together with the Class A
Common Stock, the "Common Stock"). Each share of Class A Common Stock entitles
the record holder thereof to one vote on each of the matters to be voted on at
the Annual Meeting and each share of Class B Common Stock entitles the record
holder thereof to ten votes on each of the matters to be voted on at the Annual
Meeting, other than the election of directors. Therefore, on each of the matters
to be voted on at the Annual Meeting, other than the election of directors, the
holders of Class A Common Stock will have an aggregate of 43,953,599 votes and
the holders of Class B Common Stock will have an aggregate of 33,486,080 votes.
Holders of Class A Common Stock will be entitled, as a separate class, to elect
seven of the eleven members of the Board of Directors (the "Class A Directors")
and the holders of Class B Common Stock will be entitled, as a separate class,
to elect the remaining four directors (the "Class B Directors"). Holders of both
Class A Common Stock and Class B Common Stock have cumulative voting rights in
the election of their respective directors. Holders of Class A Common Stock and
holders of Class B Common Stock vote together as a single class on all other
matters presented to the stockholders for their vote or approval, except as may
otherwise be required by Delaware law.

Cumulative voting means that a stockholder may, in the election of
directors, cast a total number of votes equal to the number of directors to be
elected multiplied by the number of shares held by the stockholder. The
stockholder may cumulate these votes and cast them all for one candidate or may
allocate them among candidates as the stockholder sees fit. For example, a
stockholder holding 100 shares of Class A Common Stock will be entitled at the
Annual Meeting to cast a total of 700 votes in the election of Class A
Directors. This stockholder could cast these votes in any combination, including
all 700 votes for one nominee or 100 votes for each of the seven nominees.
Cumulative voting is intended to provide holders of smaller blocks of stock with
more meaningful influence in the election of directors than they would have
without cumulative voting.

Please note that, if they act together, the holders of Class B Common Stock
will be able to control the outcome of matters that properly come before the
Company's stockholders for approval at the Annual Meeting.

The Notice of Meeting, this Proxy Statement, the enclosed Proxy Card and
the Company's Annual Report on Form 10-K for the year ended June 30, 2000 are
first being sent or given to stockholders on or about October 26, 2000. The
Company will, upon written request of any stockholder and the payment of an
appropriate processing fee, furnish copies of the exhibits to its Annual Report
on Form 10-K. Please address all such requests to the Company, attention of
Laura K. Eshbaugh, Executive Vice President and Secretary, First Tennessee
Plaza, 800 South Gay Street, Suite 1230, Knoxville, TN 37929.
<PAGE> 5

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 16, 2000 by (i) each
person who owns beneficially more than 5% of the outstanding shares of Common
Stock, (ii) by each director and nominee for director of the Company, (iii) the
Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company who were serving as executive
officers on June 30, 2000 (the "Named Executive Officers") and (iv) by all
executive officers, directors and nominees for director of the Company as a
group. Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.

Except as set forth herein, the business address of the named beneficial
owner is c/o Edison Schools Inc., 521 Fifth Avenue, 15th Floor, New York, NY
10175.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------- ----------------------------
CLASS A CLASS B TOTAL CLASS A CLASS B TOTAL
COMMON COMMON COMMON COMMON COMMON COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK STOCK STOCK(1) STOCK STOCK STOCK(1)
------------------------------------ --------- --------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
D2F2 Foundation(2).................... 1,098,750 188,750 1,287,500 2.4% 5.3% 2.7%
268 Bush Street, PMB No. 4209
San Francisco, CA 94104
Entities Associated with the Sprout
Group(3).............................. 3,125,532 458,396 3,583,928 7.1 13.7 7.6
277 Park Avenue
New York, NY 10172
Investor Investments AB(4)............ 2,817,536 313,066 3,130,602 6.4 9.3 6.6
320 Park Avenue
New York, NY 10022
J.P. Morgan Investment
Corporation(5)........................ 2,560,701 284,531 2,845,232 5.8 8.5 6.0
60 Wall Street
New York, NY 10260
J.W. Childs Investments, L.L.C. ...... 2,715,599 301,737 3,244,818 6.2 9.0 6.4
1 Federal Street
Boston, MA 02110
WSI Inc.(6)........................... 3,291,431 518,395 3,809,826 7.3 15.1 7.9
800 South Gay St.
Knoxville, TN 37929
Vulcan Ventures Incorporated.......... 2,195,123 243,904 2,439,027 5.0 7.3 5.2
110 110th Avenue N.E.
Bellevue, WA 98004
Benno C. Schmidt, Jr.(7).............. 1,055,930 114,144 1,170,074 2.4 3.3 2.4
H. Christopher Whittle(8)............. 4,234,069 1,281,423 5,515,492 9.3 36.2 11.2
John E. Chubb(9)...................... 142,369 18,041 160,410 * * *
Christopher D. Cerf(10)............... 219,149 24,284 243,433 * * *
James L. Starr(11).................... 118,307 13,145 131,452 * * *
Laura K. Eshbaugh(12)................. 117,188 10,722 127,910 * * *
Virginia G. Bonker(13)................ 466,667 51,854 518,521 1.1 1.5 1.1
John W. Childs(14).................... 3,229,232 358,809 3,588,041 7.3 10.7 7.6
Joan Ganz Cooney...................... -- -- -- -- -- --
Ramon C. Cortines..................... -- -- -- -- -- --
Charles J. Delaney(15)................ 1,753,700 177,199 1,930,899 4.0% 5.3% 4.1%
Robert Finzi(16)...................... 3,144,336 458,396 3,602,732 7.1 13.7 7.6
Reverend Floyd H. Flake(17)........... 13,100 483 13,583 * * *
</TABLE>

2
<PAGE> 6

---------------
* Less than 1%.

1. Assumes all shares of Class B Common Stock were converted into Class A
Common Stock.

2. Consists of 1,098,750 shares of Class A Common Stock and 188,750 shares of
Class B Common Stock issuable upon exercise of a warrant that will be
exercisable within 60 days of October 16, 2000.

3. Consists of 160,820 shares of Class A Common Stock and 23,587 shares of
Class B Common Stock held of record by DLJ Capital Corporation, 1,013,683
shares of Class A Common Stock and 148,669 shares of Class B Common Stock
held of record by Sprout Capital VI, L.P., 1,929,055 shares of Class A
Common Stock and 282,917 shares of Class B Common Stock held of record by
Sprout Capital VII, L.P., and 21,974 shares of Class A Common Stock and
3,223 shares of Class B Common Stock held of record by Sprout CEO Fund, L.P.
Of these shares, 2,132,372 shares of Class A Common Stock and 281,206 shares
of Class B Common Stock are subject to a voting trust agreement and are held
and voted by an independent third party as voting trustee.

4. Includes 86,794 shares of Class A Common Stock and 9,646 shares of Class B
Common Stock issuable upon exercise of options that will be exercisable
within 60 days of October 16, 2000.

5. Includes 161,478 shares of Class A Common Stock and 17,944 shares of Class B
Common Stock held of record by Sixty Wall Street SBIC Fund, L.P., 82,636
shares of Class A Common Stock and 9,184 shares of Class B Common Stock
issuable upon exercise of options held of record by J.P. Morgan Investment
Corporation that will be exercisable within 60 days of October 16, 2000 and
4,160 shares of Class A Common Stock and 464 shares of Class B Common Stock
issuable upon exercise of options held of record by Sixty Wall Street, SBIC
Fund, L.P. that will be exercisable within 60 days of October 16, 2000. Does
not include 1,479,664 shares of Class A Common Stock and 976,302 shares of
Class B Common Stock and 1,716,029 shares of Class A Common Stock and
189,745 shares of Class B Common Stock issuable upon exercise of options
that will be exercisable within 60 days of October 16, 2000 pledged to
Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan
Investment Corporation, by H. Christopher Whittle and WSI Inc., of which
117,500 shares of Class A Common Stock are subject to an option held by
Morgan Guaranty Trust Company of New York. See Footnote 8.

6. Includes 1,462,501 shares of Class A Common Stock and 162,501 shares of
Class B Common Stock held of record by WPA Investment L.P., 337,500 shares
of Class A Common Stock and 37,500 shares of Class B Common Stock held of
record by Whittle Leeds Education Company LLC and 832,596 shares of Class A
Common Stock and 92,512 shares of Class B Common Stock issuable upon
exercise of options that will be exercisable within 60 days of October 16,
2000.

7. Includes 6,165 shares of Class A Common Stock and 685 shares of Class B
Common Stock held of record by Christina W. Schmidt. Mr. Schmidt disclaims
beneficial ownership of all such shares of common stock. Also includes
685,157 shares of Class A Common Stock and 74,356 shares of Class B Common
Stock issuable upon exercise of options that will be exercisable within 60
days of October 16, 2000.

8. Includes 658,834 shares of Class A Common Stock and 225,882 shares of Class
B Common Stock held of record by WSI Inc., 1,462,501 shares of Class A
Common Stock and 162,501 shares of Class B Common

3
<PAGE> 7

Stock held of record by WPA Investment L.P., 337,500 shares of Class A
Common Stock and 37,500 shares of Class B Common Stock held of record by
Whittle Leeds Education Company LLC, 883,433 shares of Class A Common Stock
and 97,233 shares of Class B Common Stock issuable upon exercise of options
that will be exercisable within 60 days of October 16, 2000, and 832,596
shares of Class A Common Stock and 92,512 shares of Class B Common Stock
issuable upon exercise of options held of record by WSI Inc. that will be
exercisable within 60 days of October 16, 2000. H. Christopher Whittle and
WSI Inc. have pledged all of their shares of Class A Common Stock and Class
B Common Stock, including all options to acquire Class A Common Stock and
Class B Common Stock, to Morgan Guaranty Company of New York to secure
personal obligations of Mr. Whittle. Of WSI's shares pledged to Morgan
Guaranty Trust Company of New York, 117,500 shares of Class A Common Stock
are also subject to an option held by Morgan Guaranty Trust Company of New
York.

9. Consists of 142,369 shares of Class A Common Stock and 18,041 shares of
Class B Common Stock issuable upon exercise of options that will be
exercisable within 60 days of October 16, 2000.

10. Consists of 218,549 shares of Class A Common Stock and 24,284 shares of
Class B Common Stock issuable upon exercise of options that will be
exercisable within 60 days of October 16, 2000, and 600 shares of Class A
Common Stock held by a trust for the benefit of Mr. Cerf's children.

11. Consists of 118,307 shares of Class A Common Stock and 13,145 shares of
Class B Common Stock issuable upon exercise of options that will be
exercisable within 60 days of October 16, 2000.

12. Includes 96,499 shares of Class A Common Stock and 10,722 shares of Class B
Common Stock issuable upon exercise of options that will be exercisable
within 60 days of October 16, 2000. Ms. Eshbaugh is not standing for
re-election to the Board of Directors.

13. Consists of 466,667 shares of Class A Common Stock and 51,854 shares of
Class B Common Stock held of record by Blue Rock Capital, L.P. Ms. Bonker is
not standing for re-election to the Board of Directors.

14. Includes 2,715,599 shares of Class A Common Stock and 301,737 shares of
Class B Common Stock held of record by J.W. Childs Investments, L.L.C.

15. Consists of 1,753,700 shares of Class A Common Stock and 177,199 shares of
Class B Common Stock held of record by UBS Capital L.L.C.

16. Includes 160,820 shares of Class A Common Stock and 23,587 shares of Class B
Common Stock held of record by DLJ Capital Corporation, 1,013,683 shares of
Class A Common Stock and 148,669 shares of Class B Common Stock held of
record by Sprout Capital VI, L.P., 1,929,055 shares of Class A Common Stock
and 282,917 shares of Class B Common Stock held of record by Sprout Capital
VII, L.P., and 21,974 shares of Class A Common Stock and 3,223 shares of
Class B Common Stock held of record by Sprout CEO Fund, L.P. Mr. Finzi is
not standing for re-election to the Board of Directors.

17. Consists of 13,100 shares of Class A Common Stock and 483 shares of Class B
Common Stock issuable upon exercise of options that will be exercisable
within 60 days of October 16, 2000.

18. Consists of 2,312,427 shares of Class A Common Stock and 256,939 shares of
Class B Common Stock held of record by J.P. Morgan Investment Corporation,
161,478 shares of Class A Common Stock and 17,944 shares of Class B Common
Stock held of record by Sixty Wall Street SBIC Fund, L.P., 82,636 shares of
Class A Common Stock and 9,184 shares of Class B Common Stock issuable upon
exercise of options held of record by J.P. Morgan Investment Corporation
that will be exercisable within 60 days of June 30, 2000 and 4,160 shares of
Class A Common Stock and 464 shares of Class B Common Stock issuable upon
exercise of options held of record by Sixty Wall Street SBIC Fund, L.P. that
will be exercisable within 60 days of June 30, 2000. Does not include
1,479,664 shares of Class A Common Stock and 976,302 shares of Class B
Common Stock and 1,716,029 shares of Class A Common Stock and 189,745 shares
of Class B Common Stock issuable upon exercise of options that will be
exercisable within 60 days of June 30, 2000 pledged to Morgan Guaranty Trust
Company of New York, an affiliate of J.P. Morgan Investment Corporation, by
H. Christopher Whittle and WSI Inc, of which 117,500 shares of Class A
Common Stock are subject to an option held by Morgan Guaranty Trust Company
of New York. Mr. Fullerton is not standing for re-election to the Board of
Directors.

4
<PAGE> 8

19. Includes 160,820 shares of Class A Common Stock and 23,587 shares of Class B
Common Stock held of record by DLJ Capital Corporation, 1,013,683 shares of
Class A Common Stock and 148,669 shares of Class B Common Stock held of
record by Sprout Capital VI, L.P., 1,929,055 shares of Class A Common Stock
and 282,917 shares of Class B Common Stock held of record by Sprout Capital
VII, L.P., and 21,974 shares of Class A Common Stock and 3,223 shares of
Class B Common Stock held of record by Sprout CEO Fund, L.P. Ms. Hickey is
not standing for re-election to the Board of Directors.

20. Consists of 2,730,742 shares of Class A Common Stock and 303,420 shares of
Class B Common Stock held of record by Investor Investments AB and 86,794
shares of Class A Common Stock and 9,646 shares of Class B Common Stock
issuable upon exercise of options held of record by Investor Investments AB
that will be exercisable within 60 days of October 16, 2000. Mr. Hillstrom
is not standing for re-election to the Board of Directors.

21. Includes 87,500 shares of Class A Common Stock and 86 shares of Class B
Common Stock issuable upon exercise of options that will be exercisable
within 60 days of October 16, 2000.

22. Consists of 1,913 shares of Class A Common Stock and 213 shares of Class B
Common Stock issuable upon exercise of options that will be exercisable
within 60 days of October 16, 2000.

23. Includes an aggregate of 198,791 shares of Class A Common Stock and 26,765
shares of Class B Common Stock issuable upon exercise of options exercisable
within 60 days of October 16, 2000. Also includes other shares described in
footnotes 7 through 22 above.

VOTES REQUIRED

The holders of a majority of the voting power of the Common Stock issued
and outstanding and entitled to vote at the Annual Meeting shall constitute a
quorum for the transaction of business at the Annual Meeting, except that (i)
the holders of a majority of the voting power of the Class A Common Stock issued
and outstanding and entitled to vote at the Annual Meeting shall constitute a
quorum for the election of the Class A Directors and (ii) the holders of a
majority of the voting power of the Class B Common Stock issued and outstanding
and entitled to vote at the Annual Meeting shall constitute a quorum for the
election of the Class B Directors. Shares of Common Stock present in person or
represented by proxy (including shares which abstain or do not vote with respect
to one or more of the matters presented for stockholder approval) will be
counted for purposes of determining whether a quorum exists at the Annual
Meeting.

The affirmative vote of the holders of a plurality of the votes cast by the
holders of Class A Common Stock voting on the matter is required for the
election of the Class A Directors. The affirmative vote of the holders of a
plurality of the votes cast by the holders of Class B Common Stock voting on the
matter is required for the election of the Class B Directors. The affirmative
vote of the holders of a majority of the shares of Common Stock voting on the
matter is required (i) to approve an amendment to the Company's 1999 Stock
Incentive Plan (the "1999 Plan") and the continuance of the 1999 Plan, as
amended, and (ii) to ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors for the current year.

Please note that the persons named in the enclosed proxy will have
discretionary authority to cumulate and distribute votes among the nominees with
respect to which authority was not withheld or, if the proxy either was not
marked or was marked for all nominees, among all nominees. In any case, the
proxies may be voted for less than the entire number of nominees if any
situation arises which, in the opinion of the proxy holders, makes such action
necessary or desirable.

Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as shares voting on such matter. Accordingly, abstentions and "broker
non-votes" will have no effect on the voting on matters (such as the election of
directors and the ratification of the selection of the auditors) that require
the affirmative vote of a plurality or a majority of the votes cast or the
shares voting on the matter.

5
<PAGE> 9

PROPOSAL 1 -- ELECTION OF DIRECTORS

Following the Annual Meeting, the Company's Board of Directors will consist
of 11 directors, seven of which will be elected by the holders of Class A Common
Stock and the remaining four of which will be elected by the holders of Class B
Common Stock.

The persons named in the enclosed proxy will vote to elect, as Class A
Directors, Christopher D. Cerf, Joan Ganz Cooney, Ramon C. Cortines, Reverend
Floyd H. Flake, Jonathan Newcomb, Benno C. Schmidt, Jr. and William F. Weld, and
will vote to elect, as Class B Directors, John W. Childs, Charles J. Delaney,
Jeffrey T. Leeds and H. Christopher Whittle, unless authority to vote for any or
all of the nominees is withheld by marking the proxy to that effect. Virginia G.
Bonker, Laura K. Eshbaugh, Robert Finzi, John B. Fullerton, Janet A. Hickey and
Klas Hillstrom, current directors of the Company, are not standing for re-
election.

Each of the nominees has indicated his or her willingness to serve, if
elected; however, if any nominee should be unable to serve, the person acting
under the proxy may vote the proxy for a substitute nominee designated by the
Board of Directors. The Board of Directors has no reason to believe that any of
the nominees will be unable to serve if elected. Each director will be elected
to hold office until the next annual meeting of stockholders (subject to the
election and qualification of his or her successor and to his or her earlier
death, resignation, or removal).

For each nominee for election as a director, there follows information
given by each concerning his or her principal occupation and business experience
for at least the past five years, the names of other publicly held companies of
which he or she serves as a director and his or her age and length of service as
a director of the Company. There are no family relationships among any of the
directors, nominees for director and executive officers of the Company.
Information with respect to the number of shares of Common Stock beneficially
owned by each director and nominee for director, directly or indirectly, as of
October 16, 2000 appears under the heading "Security Ownership of Certain
Beneficial Owners and Management."

NOMINEES FOR ELECTION AS CLASS A DIRECTORS

CHRISTOPHER D. CERF is 45 years old and has served as the Company's Chief
Operating Officer since May 1999. He also served as the Company's General
Counsel from June 1997 to April 2000. Prior to joining the Company, he was a
partner in the law firm of Wiley, Rein and Fielding from May 1996 to May 1997.
Between 1994 and May 1996, he served in the White House as Associate Counsel to
the President. Mr. Cerf is also a former high school history teacher.

JOAN GANZ COONEY is 70 years old and is the Chairman, Executive Committee,
of the Children's Television Workshop. Ms. Cooney co-founded the Children's
Television Workshop as its Executive Director in 1968 and was named its
President-CEO in 1970 and Chairman-CEO in 1988. She assumed her present
responsibilities in 1990. Mrs. Cooney is on the Boards of Directors of Johnson &
Johnson, the Metropolitan Life Insurance Company, the Museum of Television and
Radio and The New York and Presbyterian Hospitals, Inc., as well as a Trustee of
the National Child Labor Committee.

RAMON C. CORTINES is 68 years old and has served as a director since July
2000. Mr. Cortines earlier served on the Company's Board of Directors from
October 1999 to November 1999, when he resigned to become the Interim
Superintendent of the Los Angeles Unified School District, a position he held
from November 1999 to June 2000. He has served as Director of the Pew Network
for Standard Space Reform at Stanford University from July 1996 to March 1997
and a senior advisor to the Secretary of Education of the U.S. Department of
Education from November 1995 to December 1999. From February 1999 to June 1999,
Mr. Cortines was a lecturer on education with Harvard University. From January
1998 to October 1998, he served as the Interim Director of the Annenberg
Institute at Brown University. Mr. Cortines served as the Acting Assistant
Secretary for Educational Research and School Improvement at the U.S. Department
of Education from March 1997 to August 1997. From November 1993 to October 1995,
he served as the Chancellor of the New York City Public Schools. Mr. Cortines
serves on the Board of Directors of Scholastic Corporation.

6
<PAGE> 10

REVEREND FLOYD H. FLAKE is 55 years old and has served as President of
Edison Charter Schools since May 2000. He has also served as the senior pastor
of the Allen African Methodist Episcopal Church in Jamaica, Queens since 1976.
Reverend Flake has served as a Senior Fellow at the Manhattan Institute for
Social and Economic Policy since January 1998 and a columnist for the New York
Post since January 1998. Reverend Flake has been a member of the Board of
Directors of the Fannie Mae Foundation since January 1998 and an Adjunct Fellow
on the Advisory Board of the Brookings Institution Center on Urban and
Metropolitan Policy since February 1998. From January 1986 to December 1997,
Reverend Flake served as a member of the United States House of Representatives,
representing the 6th district of New York.

JONATHAN NEWCOMB is 54 years old and has served as the Chief Executive
Officer and Chairman of the Board of Directors of Simon & Schuster, Inc., a
publishing company, since 1988.

BENNO C. SCHMIDT, JR. is 58 years old and has served as the Company's
Chairman of the Board of Directors since March 1997. He also served as the
Company's Chief Executive Officer from 1992 to June 1998, the Company's
President from 1992 to February 1997 and the Company's Chief Education Officer
from July 1998 through April 1999. Mr. Schmidt served as President of Yale
University from 1986 to 1992. He also served as Dean of the Columbia University
School of Law from 1984 to 1986.

WILLIAM F. WELD is 55 years old and has served as director since October
1999. He has been a partner with the law firm of McDermott, Will & Emery since
November 1997. From January 1991 to July 1997, Mr. Weld served as the Governor
of the Commonwealth of Massachusetts. Mr. Weld serves on the Boards of Directors
of Affiliated Managers Group, Inc., IDT Corporation and Ross University.

NOMINEES FOR ELECTION AS CLASS B DIRECTORS

JOHN W. CHILDS is 59 years old and has served as a director since November
1996. He has served as President of J.W. Childs Associates L.P., a private
investment firm, since June 1995. Mr. Childs was previously a Senior Managing
Director at Thomas H. Lee Co., a private investment firm, from 1987 to June
1995.

CHARLES J. DELANEY is 41 years old and has served as a director since July
1999. Mr. Delaney is President of UBS Capital Americas, which is the manager for
two funds established by UBS AG to make private equity investments in the U.S.
and Latin America. Mr. Delaney served as President of UBS Capital LLC from May
1989 to December 1999. UBS Capital Americas and UBS Capital LLC are affiliated
with UBS AG. Mr. Delaney serves on the Boards of Directors for Aurora Foods,
Inc., AuduroNet.com and AMS Holdings Corp.

JEFFREY T. LEEDS is 44 years old and has served as a director since
November 1996. He has been a principal of Leeds Equity Management L.L.C., a
private investment firm, since November 1999. He has also been a principal of
Advance Capital Management L.L.C., a private investment firm, since October
1995, and has served as President of Leeds Group Inc., an investment banking
firm, since January 1993. Mr. Leeds serves on the Boards of Directors of
Elsinore Corporation, TransAct Technologies, Inc. and Argosy Education Group
Inc.

H. CHRISTOPHER WHITTLE, the Company's founder, is 53 years old and has
served as President since March 1997 and as Chief Executive Officer since July
1998. He has served as a director since 1992 and also served as the Company's
Chairman of the Board of Directors from 1992 until March 1995. He is the
President and sole stockholder of WSI Inc. WSI Inc. is a corporation wholly
owned by Mr. Whittle whose current primary purpose is to hold Mr. Whittle's
personal investments. From 1986 to 1994, Mr. Whittle was Chairman and Chief
Executive Officer of Whittle Communications L.P., which developed magazines and
other print publications as well as Channel One, an advertising-supported daily
news and information television program for schools. Before that, Mr. Whittle
was the founder of 13-30 Corporation, the predecessor of Whittle Communications
L.P., and served as the publisher of Esquire magazine from 1979 to 1986.

7
<PAGE> 11

BOARD AND COMMITTEE MEETINGS

The Board of Directors met 10 times (including by teleconference) during
fiscal 2000. Other than Mr. Cortines, each director attended at least 75% of the
meetings of the Board of Directors and of committees on which he or she then
served.

The Board of Directors has a Compensation Committee, currently composed of
Messrs. Childs, Finzi and Leeds, which reviews and approves executive salaries,
bonuses, and benefits and administers stock plans. In addition, the Compensation
Committee consults with the Company's management regarding benefit plans and
compensation policies and practices. The Compensation Committee met seven times
during fiscal 2000.

The Board of Directors also has a Finance and Audit Committee, currently
composed of Ms. Bonker, Ms. Eshbaugh, Mr. Fullerton, Ms. Hickey and Mr.
Hillstrom, which reviews the professional services provided by the Company's
independent accountants, the independence of such accountants from the Company's
management, the Company's annual financial statements and its system of internal
accounting controls. The Finance and Audit Committee also reviews such other
matters with respect to the Company's accounting, auditing, and financial
reporting practices and procedures as it may find appropriate or may be brought
to its attention and approves entering into new school contracts which are
outside certain Board-established criteria. The Finance and Audit Committee met
seven times during fiscal 2000.

On June 20, 2000, an ad hoc committee comprised of Messrs. Whittle, Delaney
and Weld was formed to recommend to the Board of Directors the director nominees
for the coming year. In the future, stockholders wishing to propose director
candidates for consideration by the Company may do so by writing to the
Secretary of the Company and providing information specified in the Company's
Bylaws, including the candidate's name, address and principal occupation. The
Company's Bylaws set forth further requirements for stockholders wishing to
nominate director candidates for consideration by stockholders including, among
other things, that a stockholder must give written notice of an intent to make
such a nomination to the Secretary of the Company not less than 60 days nor more
than 90 days prior to the stockholders' meeting; provided that, in the event
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made, the notice from the stockholder must have been mailed or
delivered to the Secretary not later than the 10th day following the date on
which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever occurs first. A stockholder will only be entitled
to nominate candidates for election as Class A Directors or Class B Directors if
the stockholder holds shares of Class A Common Stock or Class B Common Stock,
respectively.

COMPENSATION OF DIRECTORS

Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors. Stock options and other equity
awards to the Company's non-employee directors may be granted from time to time
pursuant to the 1999 Plan. Other equity awards could include stock appreciation
rights, which represent the right to receive any excess in value of the shares
of Class A Common Stock over the exercise price; restricted stock awards, which
entitle recipients to acquire shares of Class A Common Stock, subject to the
Company's right to repurchase all or part of such shares at their purchase price
in the event that the conditions specified in the award are not satisfied; and
unrestricted stock awards, which represent grants of shares of Class A Common
Stock to participants free of any restrictions under this plan. There has not
yet been a determination of the amount and timing of such grants or awards. No
director who is an employee of the Company receives separate compensation for
services rendered as a director.

Mr. Cortines was granted an option to acquire 5,000 shares of Class A
Common Stock during fiscal 2000 for his services on the Company's Advisory
Board. Such option terminated upon the resignation of Mr. Cortines from the
Advisory Board in November 1999.

8
<PAGE> 12

COMPENSATION OF EXECUTIVE OFFICERS

The table below sets forth, for the years ended June 30, 1999 and 2000, the
total compensation earned by each of the Named Executive Officers. In accordance
with the rules of the Securities and Exchange Commission the compensation set
forth in the table below does not include medical, group life or other benefits
which are available to all of the Company's salaried employees, and perquisites
and other benefits, securities or property which do not exceed the lesser of
$50,000 or 10% of the person's salary and bonus shown in the table. In the table
below, columns required by the regulations of the Securities and Exchange
Commission have been omitted where no information was required to be disclosed
under those columns.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SHARES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) COMPENSATION
--------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
H. Christopher Whittle.............. 1999 $296,636 $ -- 500,000 $ 2,762(2)
President and Chief 2000 309,545 -- 100,000 $ 3,377(2)
Executive Officer
Benno C. Schmidt, Jr.(3)............ 1999 296,636 -- -- 14,760(4)
Chairman of the Board of 2000 309,545 -- 291,500 14,760(4)
Directors
Christopher D. Cerf................. 1999 225,631 50,000 338,000 500(4)
Chief Operative Officer 2000 247,804 50,000(5) -- 1,085(4)
James L. Starr...................... 1999 225,000 40,000 37,500 13,000(6)
Chief Financial Officer and 2000 244,350 40,000(5) -- 13,000(6)
Executive Vice President
John E. Chubb....................... 1999 225,000 40,000 -- 500(4)
Chief Education Officer and 2000 233,532 40,000(5) 120,000 500(4)
Executive Vice President
</TABLE>

---------------
(1) Represents the number of shares covered by options to purchase shares of
Common Stock granted during the respective years. The Company has never
granted any stock appreciation rights.

(2) Represents fees paid to WSI Inc. pursuant to its management agreement with
the Company. Mr. Whittle is the President and sole stockholder of WSI Inc.
For more information on the management agreement, see "Certain
Transactions -- Management Agreement with WSI Inc."

(3) Mr. Schmidt's compensation does not include accrued interest relating to
loans to Mr. Schmidt from the Company . For more information on these loans,
see "Certain Transactions -- Loans to Executives." This interest is not due
until the earlier of February 15, 2002 or the termination of Mr. Schmidt's
employment with the Company.

(4) Represents 401(k) matching contributions and/or life insurance premiums paid
on behalf of the executive.

(5) Estimate.

(6) Represents a payment of $12,500 made pursuant to a relocation arrangement
and 401(k) matching contributions.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth each grant of stock options during the year
ended June 30, 2000 to the Named Executive Officers. All of these options were
granted at or above fair market value as determined by the Board of Directors on
the date of grant. The Company granted no stock appreciation rights during the
year ended June 30, 2000.

9
<PAGE> 13

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SHARES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE(2) DATE 5% 10%
---- ---------- ------------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
H. Christopher Whittle.... 100,000 4.6% $20.75 6/2010 $3,379,956 $ 5,382,016
Benno C. Schmidt, Jr. .... 291,500 13.3 20.75 6/2010 9,852,573 15,688,575
Christopher D. Cerf....... -- -- -- -- -- --
James L. Starr............ -- -- -- -- -- --
John E. Chubb............. 120,000 5.5 20.75 6/2010 4,055,948 6,458,419
</TABLE>

---------------
(1) All of the securities indicated as underlying options granted were shares of
Class A Common Stock.

(2) These options were granted with an exercise price equal to the fair market
value of the Class A Common Stock on the date of grant as determined by the
Company's Board of Directors.

(3) The 5% and 10% assumed annual rates of compound stock price appreciation are
prescribed by the rules and regulations of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future trading prices of the Class A Common Stock. There can be no assurance
that the actual stock price appreciation over the ten-year option term will
be at the assumed 5% and 10% levels or at any other defined level. Actual
gains, if any, on stock option exercises are dependent on numerous factors,
including the Company's future performance, overall market conditions and
the option holder's continued employment with the Company throughout the
entire vesting period and the option term, which factors are not reflected
in this table. The potential realizable value is calculated by multiplying
the fair market value per share of the Class A Common Stock on the date of
grant as determined by the Board of Directors, which is equal to the
exercise price per share, by the stated annual appreciation rate compounded
annually for the option term, subtracting the exercise price per share from
the product, and multiplying the remainder by the number of shares
underlying the option granted.

OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

The table below sets forth information concerning options exercised by each
of the named executive officers during the year ended June 30, 2000 and the
number and value of unexercised options held by each of the Named Executive
Officers on June 30, 2000. No stock appreciation rights were exercised during
fiscal 2000 by the Named Executive Officers or were outstanding at year end.

OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END(2) AT FISCAL YEAR END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Christopher
Whittle(3)............. 725,000(4) $10,920,313 1,897,334 3,027,666 $5,654,647 $ 573,478
Benno C. Schmidt, Jr. ... -- -- 743,556 291,500 15,319,815 710,531
Christopher D. Cerf...... -- -- 212,500 288,000 3,824,844 3,135,600
James L. Starr........... -- -- 118,116 56,884 1,667,596 740,451
John E. Chubb............ -- -- 180,410 120,000 3,732,232 292,500
</TABLE>

---------------
(1) Represents the difference between the exercise price and the last sales
price of the Class A Common Stock on the date of exercise.

(2) Of the shares indicated as being exercisable under these options, 90% were
Class A Common Stock and 10% were Class B Common Stock.

(3) Includes options held by WSI Inc., a corporation of which Mr. Whittle is the
President and sole stockholder.

10
<PAGE> 14

(4) Represents 652,500 shares of Class A Common Stock and 72,500 shares of Class
B Common Stock.

The value of unexercised in-the-money options at fiscal year-end has been
calculated on the basis of $23.19, which was the last sales price per share of
the Class A Common Stock on June 30, 2000, as reported on the Nasdaq National
Market, less the per-share exercise price.

EMPLOYMENT AGREEMENTS

The Company and H. Christopher Whittle entered into an agreement in July
1999 in which the Company agreed to employ Mr. Whittle through June 30, 2004 at
a annual base salary of $320,366 and subject to annual increases of 8% or more
for successful achievement of the Company's fiscal year business plan. This
agreement replaced Mr. Whittle's prior employment agreement from March 1997, as
amended in December 1997. Mr. Whittle received base compensation of $309,545
during fiscal 2000. Under this agreement, Mr. Whittle is eligible to receive an
annual bonus of up to 50% of his current base salary. The Company has also
agreed to maintain long-term disability insurance and term life insurance in the
amount of $800,000 for Mr. Whittle's benefit. If the Company terminates Mr.
Whittle's employment without cause or if Mr. Whittle terminates his employment
for "good reason," Mr. Whittle will receive as severance pay his then current
base salary and his maximum permitted bonus for the then current year for two
years following the effective date of his termination. If the Company terminates
Mr. Whittle for cause, he is entitled to receive his base salary only through
the effective date of termination. If Mr. Whittle terminates the relationship
without good reason, he is entitled to receive his then current base salary for
twelve months following the effective date of his termination less any amount he
earns as a result of new employment. In addition, if Mr. Whittle terminates his
employment without good reason prior to July 1, 2002, the Company's loans to him
to exercise stock options will become due. Under this agreement, "good reason"
is defined as Mr. Whittle's assignment to materially less significant duties,
the Company's failure to reappoint Mr. Whittle to his then current position or
the Company's failure to perform the Company's material obligations under this
agreement. Mr. Whittle has agreed not to compete against the Company during the
term of his employment and for one year thereafter and not to solicit the
employment or other services of any of the Company's executive employees for one
year after his termination. For more information on the Company's loans to Mr.
Whittle in connection with his exercise of stock options, see "Certain
Transactions -- Loans to Executives."

The Company and Benno C. Schmidt, Jr. entered into an agreement in June
2000 in which the Company agreed to employ Mr. Schmidt until June 2003, with an
annual base salary of $298,080 and subject to annual increases or decreases at
the same time and in the same amount as the Company's Chief Executive Officer.
This agreement replaced Mr. Schmidt's prior employment agreement from March
1997, as amended in December 1997, which expired in June 2000. Mr. Schmidt
received base compensation of $309,545 during fiscal 2000. The agreement
provides that beginning in fiscal 2001 Mr. Schmidt may also receive incentive
bonuses at the discretion of the Board of Directors. Under Mr. Schmidt's
previous agreement, beginning with fiscal 1998 he was eligible for an annual
bonus of up to 50% of his then current base salary. Under the agreement, the
Company maintains term life insurance in the amount of $5.0 million for Mr.
Schmidt's benefit. If the Company terminates Mr. Schmidt's employment without
cause or if Mr. Schmidt terminates his employment for "good reason," Mr. Schmidt
will receive as severance pay his then current base salary and the bonus he
earned from the prior fiscal year for one year following the effective date of
termination. The provisions in Mr. Schmidt's employment contract concerning
termination of Mr. Schmidt's employment by the Company for cause are the same as
Mr. Whittle's described above, except the Company has also agreed to pay Mr.
Schmidt a lump sum of $3.2 million if he is terminated for any reason except
death, though this amount may be used to offset any outstanding balance on two
loans the Company has made to Mr. Schmidt. The Company also agreed to purchase
from Mr. Schmidt the minimum amount of the Company's stock necessary to provide
Mr. Schmidt with enough money to pay the taxes associated with the lump sum
payment. The Company will be unable to claim a deduction for a portion of this
lump sum if the Company pays the lump sum to Mr. Schmidt in connection with the
termination of his employment due to a change in control of the Company. For
more information on the Company's loans to Mr. Schmidt, see "Certain
Transactions -- Loans to Executives." Mr. Schmidt has agreed not to compete
against the Company during the term of his employment and for one year
thereafter.

11
<PAGE> 15

The Company and Christopher D. Cerf entered into an agreement in July 1999
in which the Company agreed to employ Mr. Cerf until June 2002 with an annual
base salary of $240,000. The agreement is annually renewable for successive
one-year terms. This agreement superceded Mr. Cerf's prior employment agreement
from June 1997. Mr. Cerf received base compensation of $247,804 during fiscal
2000. Beginning with fiscal 2000, Mr. Cerf is eligible for an annual bonus of up
to 50% of his base salary based on the Company's achievement of specified
academic and financial performance goals. Under this agreement, Mr. Cerf
received a bonus of $50,000 in August 2000, as well as reimbursement of certain
documented expenses, in connection with his relocation to New York City. The
Company also agreed to maintain long-term disability insurance and term life
insurance in the amount of $800,000 for Mr. Cerf's benefit. If Mr. Cerf is
terminated without cause, he is entitled to receive his base salary for twelve
months following the effective date of his termination less any amount he earns
during the last six months of this period as a result of new employment. If Mr.
Cerf is terminated for cause, he is entitled to receive his base salary only
through the effective date of termination. Mr. Cerf has agreed not to compete
against the Company during his term of employment and for one year thereafter.

The Company and James L. Starr entered into an agreement in April 1998, in
which the Company agreed to employ Mr. Starr until April 2001 at an annual base
salary of $225,000. The agreement is annually renewable for successive one-year
terms. Mr. Starr received base compensation of $244,350 during fiscal 2000. Mr.
Starr is eligible to receive a bonus of up to 33% of his base salary each fiscal
year based upon the reasonable achievement of annual objectives, as well as an
additional $12,500 bonus on each of the first four anniversaries of his
employment. Mr. Starr received relocation expense reimbursement upon his
relocation to the New York City area. The Company also agreed to maintain
long-term disability insurance and term life insurance in the amount of $300,000
for Mr. Starr's benefit. If Mr. Starr is terminated without cause, he is
entitled to receive his base salary for six months following the effective date
of his termination. If Mr. Starr is terminated for cause, he is entitled to
receive his base salary only through the effective date of his termination. Mr.
Starr has agreed not to compete against the Company during the term of his
employment and for one year thereafter.

The Company and John E. Chubb entered into an agreement in March 1995, in
which the Company agreed to employ Mr. Chubb with an annual base salary of
$200,000. Mr. Chubb received base compensation of $233,532 during fiscal 2000.
This agreement also provided for a one-time cash transition payment of $110,000
to Mr. Chubb. In June 2000, the Board of Directors increased Mr. Chubb's base
salary to $240,000 and made him eligible to receive a bonus of up to $100,000
beginning with fiscal 2001. If Mr. Chubb is terminated without cause, he is
entitled to receive as severance pay his base salary for six months following
the effective date of his termination less any amount he earns as a result of
new employment. If Mr. Chubb is terminated for cause, he is entitled to receive
his base salary only through the effective date of termination. Mr. Chubb has
agreed not to compete against the Company during his term of employment and for
one year thereafter.

CERTAIN TRANSACTIONS

LOANS TO EXECUTIVES

Mr. Schmidt borrowed $1.6 million from the Company on June 5, 1992 and
$200,000 from the Company on January 23, 1996, as evidenced by promissory notes.
The promissory notes were amended in October 1999 to provide that they bear
interest at a rate equal to the prime rate in effect from time to time, and that
all principal and accrued interest is due on the earlier of February 15, 2002 or
the termination of Mr. Schmidt's employment with the Company. Prior to this
amendment, the notes bore interest at an annual compound rate of 5.83% and all
principal and accrued interest payable under the notes was due on the earlier of
February 15, 2002 or the termination of Mr. Schmidt's employment with the
Company. The loans are recourse and are secured by a life insurance policy on
Mr. Schmidt. The amount due from Mr. Schmidt under this loan may be offset by
the Company against the amount owed by the Company to Mr. Schmidt under his
severance agreement. The loans do not require periodic interest or principal
payments, and Mr. Schmidt has not made any payments of interest or principal to
date. The balance of principal and interest outstanding under these

12
<PAGE> 16

loans was $1.8 million and $1.0 million, respectively, as of September 30, 2000.
Mr. Schmidt is the Company's Chairman of the Board of Directors.

Mr. Whittle borrowed $6.6 million from the Company on November 15, 1999 and
$1.2 million from the Company on April 13, 2000. The loans represented the total
amount required for Mr. Whittle to purchase the shares upon exercise of his
March 1997 option to purchase 270,000 shares of Class A Common Stock and 30,000
shares of Class B Common Stock at $3.00 per share and his December 1997 option
to purchase 382,500 shares of Class A Common Stock and 42,500 shares of Class B
Common Stock at $3.00 per share and to pay any related income tax obligations.
The Company has also agreed to loan Mr. Whittle any additional amount necessary
to pay any additional taxes or tax penalties incurred by him in connection with
his purchase of the shares. The loans are collateralized by the shares and bear
interest at the greater of the prime rate or the Company's actual borrowing
rate, if any, from time to time, with payment of the principal amount and
accrued interest on the November 1999 loan due in full in November 2004 and
payment of the principal amount and accrued interest on the April 2000 loan due
in full in April 2005. The balance of principal and interest outstanding under
these loans was $7.9 million and $656,000, respectively, as of September 30,
2000. Mr. Whittle is the Company's President and Chief Executive Officer and one
of the Company's directors. See "Option Amendments" below for a discussion of
amendments to these options.

Manuel J. Rivera, the Company's Chief Development Officer, borrowed
$100,000 from the Company on June 9, 2000, as evidenced by a promissory note.
The note is unsecured and bears interest at an annual rate of 11.5%. The note is
due on July 1, 2003. The balance of principal and accrued interest under this
loan was $100,000 and $3,592.95, respectively, as of September 30, 2000.

Tonya G. Hinch, the Company's Executive Vice President, School Operations
Division, borrowed $100,000 from the Company on July 5, 2000 as evidenced by a
letter agreement. The loan does not bear interest and is due June 30, 2003. The
loan is recourse only to the net proceeds to Ms. Hinch from the sale of shares
of the Company's Class A Common Stock and Class B Common Stock acquired by Ms.
Hinch through the exercise of employee stock options.

PAYMENT TO EXECUTIVE

The Company made payments of $100,000 in each of May 2000 and August 2000
to Global Lyceum, Inc., a corporation controlled by Reverend Flake. The payments
were made as compensation for expenses incurred by Global Lyceum, as an
inducement to Global Lyceum not to compete with the Company for five years, and
to release Reverend Flake and two associates from obligations owed to Global
Lyceum. Reverend Flake is the President of Edison Charter Schools.

MANAGEMENT AGREEMENT WITH WSI INC.

On March 15, 1995,the Company entered into a five-year management agreement
with WSI Inc. to provide the Company with professional services, including those
of Mr. Whittle, and cover all related expenses for a fixed annual fee of
$275,000, paid monthly. WSI beneficially owns 3,291,431 shares of Class A Common
Stock and 518,395 shares of Class B Common Stock. In November 1996, a lump sum
payment of $500,000 was made to WSI in lieu of all further fixed fee payments.
The agreement was amended March 1, 1997 to provide only for the payment of fees
and expenses specifically approved by the Board of Directors. Under this
agreement, the Company paid WSI $141,400 in fiscal 1996, $867,619 in fiscal
1997, $65,123 in fiscal 1998, $2,762 in fiscal 1999 and $3,377 in fiscal 2000.
These payments represent reimbursements of Mr. Whittle's and WSI's expenses
incurred in connection with marketing efforts on behalf of the Company,
including staff, office, travel and secretarial expenses, during the period from
March 1995 to March 1997 when he was not an employee of the Company. The Company
no longer pays WSI for Mr. Whittle's services. Pursuant to this agreement, WSI
was also granted options to purchase 382,500 shares of Class A Common Stock and
42,500 shares of Class B Common Stock at an exercise price of $20.00 per share
and 450,000 shares of Class A Common Stock and 50,000 shares of Class B Common
Stock at an exercise price of $40.00 per share. Mr. Whittle, the Company's
President and Chief Executive Officer and one of the Company's directors, is
also

13
<PAGE> 17

the President and sole stockholder of WSI. See "- Option Amendments" below for a
discussion of subsequent amendments to these options.

OPTION AMENDMENTS

In June 1999, the Company amended substantially all of the Company's
then-existing employee stock options to, among other things, (1) extend the
exercise period through the tenth anniversary of the date of grant, (2)
eliminate provisions prohibiting transfers of the shares purchased upon exercise
and (3) eliminate provisions requiring exercise only in full and only on the
first day of the Company's fiscal year. Among the options amended were the
following options held by the Company's executives:

<TABLE>
<CAPTION>
CLASS A CLASS B
OPTION COMMON COMMON
GRANT OPTION PRICE STOCK STOCK
NAME DATE PER SHARE PURCHASABLE PURCHASABLE
---- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
H. Christopher Whittle............... 3-1-97 $ 3.00 270,000 30,000
12-15-97 3.00 382,500 42,500
Benno C. Schmidt, Jr................. 3-15-95 2.50 556,700 61,856
12-15-97 3.00 112,500 12,500
Christopher D. Cerf.................. 6-15-97 3.00 146,250 16,250
James L. Starr....................... 4-20-98 8.00 123,750 13,750
John E. Chubb........................ 3-15-95 2.50 162,369 18,041
Laura K. Eshbaugh.................... 5-15-98 2.50 31,500 3,500
5-15-98 8.00 90,000 10,000
Kathleen M. Hamel.................... 12-14-95 2.50 8,253 917
5-5-98 2.50 9,747 1,083
5-5-98 3.00 2,250 250
5-5-98 8.00 11,250 1,250
10-1-98 12.30 2,250 250
Deborah M. McGriff................... 3-15-95 2.50 37,139
5-5-98 8.00 53,100 5,900
Manuel J. Rivera..................... 3-15-95 2.50 69,588 7,732
12-15-97 3.00 65,412 7,268
</TABLE>

Kathleen M. Hamel is Executive Vice President, Whole District Partnerships.
Deborah M. McGriff is President of Edison Teachers' Colleges.

With respect to the options of Mr. Whittle and Mr. Cerf shown above, the
Company also amended the options to provide that they were immediately fully
vested. Prior to this action, (1) Mr. Whittle's March 1997 option was vested as
to 77% of the shares, (2) Mr. Whittle's December 1997 option vested upon its
tenth anniversary, subject to acceleration upon an initial public offering at a
price of at least $16.00 per share, and (3) Mr. Cerf's option was vested as to
71% of the shares.

14
<PAGE> 18

In July 1999, the Company amended other options held by Mr. Whittle and WSI
to, depending upon the option, (1) extend the exercise period through the tenth
anniversary of the date of grant and (2) modify the vesting provisions. The
following table summarizes these amendments:

<TABLE>
<CAPTION>
CLASS A CLASS B
OPTION COMMON COMMON VESTING
GRANT STOCK STOCK EXERCISE --------------------------------------------------
DATE PURCHASABLE PURCHASABLE PRICE PRIOR AMENDED
------ ----------- ----------- -------- ----------------------- -----------------------
<C> <C> <C> <C> <S> <C>
3-95.. 382,500 42,500 $20.00 100% 100%
3-95.. 450,000 50,000 $40.00 90% 90%
12-97... 675,000 75,000 $16.00 10 years, subject to 10 years, subject to
acceleration if shares acceleration upon IPO
trade at $32 or change in control
12-97... 1,125,000 125,000 $32.00 10 years, subject to 10 years, subject to
acceleration if shares acceleration if shares
trade at $64 trade at $50 or higher
for 90 days or upon
change in control
</TABLE>

In addition, the options which were not fully vested were amended to
provide that vesting accelerates fully, if the Company's Common Stock is then
trading at specified levels, upon termination of Mr. Whittle's employment by the
Company without cause or by him with good reason, upon his death or disability
or upon a change in control of the Company.

After the June and July 1999 amendments, all of the Company's then
outstanding employee stock options had been amended.

INVESTMENT IN APEX ONLINE LEARNING INC.

In July 1999, the Company acquired a 16.5% ownership interest in APEX
Online Learning Inc. for $5.0 million. The Company was obligated to invest up to
an additional $5.0 million in APEX in the future, if a third party were to
invest in APEX. In December 1999, the Company invested all of the additional
$5.0 million, increasing the Company's ownership interest at that time to 19.7%.
H. Christopher Whittle, the Company's President and Chief Executive Officer and
a director, served on APEX's Board of Directors from July 1999 to June 2000.
Vulcan Ventures Incorporated, one of the Company's stockholders, is a
significant stockholder of APEX. One of the Company's former directors served as
Vice President of Vulcan as well as Chairman of the Board of Directors of APEX.
Vulcan owns 2,195,123 shares of the Company's Class A Common Stock and 243,904
shares of the Company's Class B Common Stock. Through its ownership of one share
of Series I Common Stock, Vulcan had the right to elect one representative to
the Company's Board of Directors. This right terminated upon completion of the
Company's initial public offering in November 1999. Vulcan's representative
subsequently resigned from the Company's Board of Directors.

STOCK PURCHASES BY AFFILIATES AND RELATED MATTERS

In June 1999 and July 1999, the Company issued shares of Series F
Convertible Preferred Stock to certain of the Company's existing stockholders
and several new investors at a price of $6.15 per share. In the same
transaction, the Company issued 800,000 shares of Non-Voting Series G
Convertible Preferred Stock to UBS Capital XV LLC and one share of Series I
Common Stock to Vulcan Ventures Incorporated at a price of $6.15 per share. Upon
completion of the Company's initial public offering in November 1999, each share
of Series F Convertible Preferred Stock, Non-Voting Series G Convertible
Preferred Stock and Series I Common Stock converted automatically into 0.45
shares of Class A Common Stock and 0.05 shares of Class B Common Stock.

Vulcan Ventures Incorporated, through its ownership of the share of Series
I Common Stock, was entitled prior to the Company's initial public offering to
elect one representative to the Board of Directors. This right terminated upon
completion of the Company's initial public offering in November 1999, and the
representative of the holder of Series I Common Stock subsequently resigned from
the Board of Directors.

15
<PAGE> 19

Shares sold to affiliates in the first investment installment in June 1999:

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES F
NAME OF INVESTOR PREFERRED STOCK
---------------- ----------------
<S> <C>
J.P. Morgan Investment Corporation................... 395,280
Sixty Wall Street SBIC Fund, L.P..................... 98,820
Investor Investments AB.............................. 494,100
WEG VII L.P.......................................... 441,069
UBS Capital XV LLC................................... 1,773,098
WEG VI L.P........................................... 446,011
Leeds II L.P......................................... 227,111
</TABLE>

Mr. Whittle, the Company's President, Chief Executive Officer and a
director, is the President and sole stockholder of WSI Inc., which controlled
and was the general partner of each of WEG VI L.P. and WEG VII L.P. prior to
their termination in May 2000. Mr. Delaney, one of the Company's directors, was
President of UBS Capital LLC, which was the managing member of UBS Capital XV
LLC prior to its termination in August 1999. Mr. Leeds, one of the Company's
directors, was affiliated with Leeds II L.P. prior to its termination in May
2000.

Shares sold to affiliates in the second investment installment in July
1999:

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF SERIES F
NAME OF INVESTOR PREFERRED STOCK
---------------- ----------------
<S> <C>
WEG V L.P............................................ 149,304
WEG VII L.P.......................................... 75,714
Leeds III L.P........................................ 310,457
J.P. Morgan Investment Corporation................... 244,419
Sixty Wall Street SBIC Fund, L.P..................... 114,413
Investor Investments AB.............................. 358,832
Vulcan Ventures Incorporated......................... 4,878,048
</TABLE>

One of the Company's former directors was Vice President of Vulcan Ventures
Incorporated. Mr. Whittle, the Company's President, Chief Executive Officer and
a director, is the President and sole stockholder of WSI Inc., which was the
general partner of WEG V L.P. prior to its termination in May 2000. Mr. Leeds,
one of the Company's directors, was affiliated with Leeds III L.P. prior to its
termination in May 2000.

In the transactions constituting the June 1999 financing, WEG V L.P., WEG
VI L.P. and WEG VII L.P., all of which were affiliated with WSI Inc., purchased
an aggregate of 1,112,098 shares of Series F Convertible Preferred Stock,
representing 10.4% of the shares of Series F Convertible Preferred Stock issued
in these transactions. In addition, J.P. Morgan Investment Corporation and Sixty
Wall Street SBIC Fund, L.P., both of which are affiliated with J.P. Morgan
Securities Inc., purchased an aggregate of 852,932 shares of Series F
Convertible Preferred Stock, representing 7.9% of the shares of Series F
Convertible Preferred Stock issued in these transactions.

In connection with the above transactions relating to purchases of various
classes of the Company's equity securities, on July 2, 1999, the Company entered
into a Third Amended and Restated Shareholders Agreement with the Company's
then-current stockholders. The Shareholders Agreement provides registration
rights for such stockholders. The Shareholders Agreement also generally permits
such stockholders to have their shares of Common Stock included in any proposed
sale by any other party to such Shareholders' Agreement, if the proposed sale
involves more than 5% of the aggregate number of the then outstanding shares of
Common Stock. This right to participate in certain sales terminates on November
17, 2001.

16
<PAGE> 20

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

This report addresses the compensation policies of the Company applicable
to its officers during fiscal 2000. The Company's executive compensation program
is administered by the Compensation Committee of the Board of Directors (the
"Committee"), which is composed of three non-employee directors. The Committee
is responsible for determining the compensation package of each executive
officer, including the Chief Executive Officer. In fiscal 2000, the Board of
Directors did not modify in any material way or reject any action or
recommendation of the Committee with respect to executive officer compensation.

OVERVIEW AND PHILOSOPHY

The Company's executive compensation program is designed to promote the
following objectives:

- To recognize and reward exceptional performance by the Company's
executives.

- To provide incentives for high levels of current and future performance.

- To align the objectives and rewards of the Company's executives with
those of the stockholders of the Company.

The Committee believes an executive compensation program that achieves
these objectives will properly motivate and compensate the Company's current
officers as well as enable the Company to attract other officers who may be
needed by the Company in the future.

EXECUTIVE COMPENSATION PROGRAM

The Company's executive compensation program consists of base salary,
annual incentive compensation in the form of cash bonuses, and long-term equity
incentives in the form of stock options. Executive officers also are eligible to
participate in certain benefit programs which are generally available to all
employees of the Company, such as life insurance benefits and the Company's
401(k) savings plan.

BASE SALARY. At the beginning of each year, the Committee establishes an
annual salary plan for the Company's senior executive officers based on
recommendations made by the Company's Chief Executive Officer. Salary
determinations depend both upon the Company's financial performance and upon the
individual's performance as measured by specific objectives.

ANNUAL INCENTIVE COMPENSATION. The Company's executive bonus program is
designed to provide its senior executive officers with cash incentives to
achieve the Company's financial and student achievement goals. At the beginning
of each year, the Committee establishes target annual bonuses for each executive
officer, based on recommendations made by the Company's Chief Executive Officer,
which the executive will receive if his or her targeted objectives for the year
are achieved. Cash bonuses are paid annually. For fiscal 2000, estimated annual
cash bonuses for the Named Executive Officers totaled $140,000. Messrs. Whittle
and Schmidt elected not to participate in the executive bonus program for fiscal
2000.

LONG-TERM EQUITY INCENTIVES. The Company's stock option program is
designed to promote the identity of long-term interests between the Company's
employees and its stockholders and to assist in the retention of employees. The
size of an executive's option grant is generally intended by the Committee to
reflect the executive's position with the Company and his or her contributions
to the Company. Executive stock options typically vest over a five-year period,
based partially on tenure and partially on specified measurements of the annual
performance of the Company and/or the executive, to encourage continued
employment by the Company. In fiscal 2000, all stock options were granted at an
option price equal to the fair market value of the Class A Common Stock on the
date of the grant.

BENEFITS

The Company's executive officers are entitled to receive medical and life
insurance benefits and to participate in the Company's 401(k) retirement savings
plan on the same basis as other full-time employees of the Company. The amount
of perquisites, as determined in accordance with the rules of the Securities and

17
<PAGE> 21

Exchange Commission relating to executive compensation, did not exceed 10% of
salary and bonus for fiscal 2000 for any of the Named Executive Officers.

SUMMARY OF COMPENSATION OF CHIEF EXECUTIVE OFFICER

In fiscal 2000, Mr. Whittle, the Company's Chief Executive Officer,
received base compensation of $309,545. Mr. Whittle elected not to participate
in the executive bonus program for fiscal 2000.

COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)

Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation in excess of $1 million paid to
the corporation's Chief Executive Officer and four other most highly paid
executive officers. Qualifying performance-based compensation will not be
subject to the deduction limitation if certain requirements are met. The
Committee periodically reviews the potential consequences of Section 162(m) and
may structure the performance-based portion of its executive compensation to
comply with certain exemptions in Section 162(m). However, the Committee
reserves the right to use its judgment to authorize compensation payments that
do not comply with the exemptions in Section 162(m) when the Committee believes
that such payments are appropriate and in the best interests of the
stockholders, after taking into consideration changing business conditions or
the officer's performance.

JOHN W. CHILDS
ROBERT FINZI
JEFFREY T. LEEDS

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of the Compensation Committee are Messrs. Childs, Finzi
and Leeds. No executive officer of the Company has served as a director or
member of the compensation committee (or other committee serving an equivalent
function) of any other entity, one of whose executive officers served as a
director or member of the Compensation Committee of the Company. See "Certain
Transactions" for a description of certain relationships and transactions
between the Company and affiliates of Mr. Leeds.

COMPARATIVE STOCK PERFORMANCE

The following graph compares the cumulative total stockholder return on the
Class A Common Stock of the Company from November 17, 1999 (the first trading
date following the Company's initial public offering) to June 30, 2000 with the
cumulative total return of (i) U.S. companies listed in the Standard & Poors 500
(the "S&P 500 Index") and (ii) a peer group, selected by the Company, consisting
of companies that provide various educational services (the "Peer Group"). The
Peer Group is composed of Apollo Group, Inc., Career Education Corporation,
Corinthian Colleges, Inc., DeVry Inc., Education Management Corporation, ITT
Educational Services, Inc., Nobel Learning Communities, Inc., and Sylvan
Learning Systems, Inc. (the "Peer Index"). This graph assumes the investment of
$100.00 on November 17, 1999 in the Company's Class A Common Stock, the S&P 500
Index and the Peer Index, and assumes any dividends are reinvested.

18
<PAGE> 22

COMPARISON OF 7 MONTH CUMULATIVE TOTAL RETURN*

AMONG EDISON SCHOOLS INC., THE S&P INDEX AND A PEER GROUP

[LINE GRAPH]

<TABLE>
<CAPTION>
EDISON SCHOOLS INC. S&P 500 PEER GROUP
------------------- ------- ----------
<S> <C> <C> <C>
Nov 99 100.00 100.00 100.00
Dec 99 87.50 108.04 93.16
Mar 00 109.03 110.52 121.85
Jun 00 128.82 107.58 120.36
</TABLE>

PROPOSAL 2 -- APPROVAL OF AMENDMENT TO 1999 STOCK INCENTIVE PLAN AND APPROVAL OF
THE CONTINUANCE OF THE 1999 STOCK INCENTIVE PLAN

On October 20, 2000, the Board of Directors adopted a resolution, subject
to stockholder approval, to approve an amendment (the "Amendment") to the 1999
Plan to increase the total number of shares of Class A Common Stock authorized
for issuance thereunder from 2,500,000 shares to 4,500,000 shares.

The Board has adopted the Amendment because it believes that the number of
shares currently available under the 1999 Plan will not be sufficient to satisfy
the Company's incentive compensation needs through fiscal 2001. The Board of
Directors believes that continued grants of stock options, as well as grants of
restricted stock and other stock-based awards, will be an important element in
attracting and retaining the employees who will be necessary for the Company's
growth and success.

As of June 30, 2000, approximately 1,100,000 shares of Class A Common Stock
were available for issuance under the 1999 Plan.

Section 162(m) of the Internal Revenue Code, as amended (the "Code"),
generally disallows a tax deduction to public corporations for compensation in
excess of $1 million paid to the corporation's chief executive officer and four
other most highly compensated officers. Qualifying performance-based
compensation is not subject to the deduction limitation if certain requirements
are met. In particular, income recognized upon the exercise of a stock option is
not subject to the deduction limitation if, among other things, the option was
issued under a plan approved by the stockholders, which plan provides a limit on
the number of shares that may be issued under the plan to any individual.

19
<PAGE> 23

In order for options and restricted stock granted under the 1999 Plan, as
amended by the Amendment, to comply with Section 162(m) after the Annual
Meeting, the continuance of the plan must be approved by the stockholders. If
the stockholders do not approve the continuance of the 1999 Plan, the Company
will not grant any future options or make any further restricted stock awards
under the 1999 Plan.

SUMMARY OF THE 1999 PLAN

The following is a summary of the material provisions of the 1999 Plan.

DESCRIPTION OF AWARDS

The 1999 Plan provides for the grant of incentive stock options within the
meaning of Section 422 of the Code ("incentive stock options"), options not
intended to qualify as incentive stock options ("non-statutory stock options"),
restricted stock awards and other stock-based awards, including the grant of
shares based upon certain conditions, the grant of securities convertible into
Class A Common Stock and the grant of stock appreciation rights. Generally,
awards under the 1999 Plan are not assignable or transferable except by will or
the laws of descent and distribution.

INCENTIVE STOCK OPTIONS AND NON-STATUTORY STOCK OPTIONS. Optionees receive
the right to purchase a specified number of shares of Class A Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Subject to the limitations
described below, options may be granted at an exercise price which may be less
than, equal to, or greater than the fair market value of the Class A Common
Stock on the date of grant. Under present law, however, incentive stock options
and options intended to qualify as performance-based compensation under Section
162(m) of the Code may not be granted at an exercise price less than the fair
market value of the Class A Common Stock on the date of grant (or less than 110%
of the fair market value in the case of incentive stock options granted to
optionees holding more than 10% of the voting power of the Company or its parent
or subsidiary corporations). Incentive stock options may not be granted for a
term in excess of ten years (or more than five years in the case of incentive
stock options granted to optionees holding more than 10% of the voting power of
the Company or its parent or subsidiary corporations). Payment for Class A
Common Stock upon exercise of incentive stock options and non-statutory stock
options may be made (i) in cash or by check, payable to the order of the
Company; (ii) except as the Board of Directors may otherwise provide in a
particular option agreement, by delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price, or delivery by the participant to
the Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price; (iii) by delivery of shares of Class A
Common Stock valued at their fair market value as determined by the Board of
Directors in good faith and owned by the participant for at least six months;
(iv) to the extent permitted by the Board of Directors (a) by delivery of a
promissory note of the participant to the Company on terms determined by the
Board of Directors or (b) by payment of such other lawful consideration as the
Board may determine; or (v) through any combination of the foregoing methods of
payment.

RESTRICTED STOCK AWARDS. Restricted stock awards entitle recipients to
acquire shares of Class A Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable awards are not satisfied prior to the end
of the applicable restriction period established for such award.

OTHER STOCK-BASED AWARDS. Under the 1999 Plan, the Board of Directors has
the right to grant other awards based upon the Class A Common Stock having such
terms and conditions as the Board may determine, including the grant of shares
based upon certain conditions, the grant of securities convertible into Class A
Common Stock and the grant of stock appreciation rights.

ELIGIBILITY TO RECEIVE AWARDS

Officers, employees, directors of, and consultants and advisors to the
Company and its subsidiaries (and any individuals who have accepted an offer for
employment) are eligible to be granted awards under the 1999 Plan. Under present
law, however, incentive stock options may be granted only to employees. The
maximum

20
<PAGE> 24

number of shares with respect to which awards may be granted to any participant
under the 1999 Plan may not exceed 1,000,000 shares per calendar year.

As of June 30, 2000, the Company had 202 full-time headquarters employees
and 10 non-employee directors. In addition, 62 principals, approximately 2,000
teachers and approximately 1,600 members of administrative staff and management
worked in the Company's schools at the end of the 1999-2000 school year. All
full-time headquarters employees and non-employee directors were eligible to
participate in the 1999 Plan, and except in location where governmental or other
restrictions were applicable, most of those people working full time in the
Company's schools were eligible to participate in the 1999 Plan. The number of
individuals receiving awards varies from year to year depending on various
factors, such as the number of promotions and the Company's hiring needs during
the year, and thus the Company cannot now determine future award recipients.
From the initial adoption of the 1999 Plan through June 30, 2000, the Company
granted the following options to the individuals and groups listed below:

<TABLE>
<CAPTION>
TOTAL
WEIGHTED SHARES
AVERAGE SUBJECT TO
EXERCISE OPTION
NAME OF INDIVIDUAL TITLE/POSITION PRICE GRANTS
------------------ -------------- -------- ----------
<S> <C> <C> <C>
H. Christopher Whittle............ President and Chief Executive $20.75 100,000
Officer, Director and Director
Nominee
Benno C. Schmidt, Jr. ............ Chairman of the Board of Directors 20.75 291,500
and Director Nominee
Christopher D. Cerf............... Chief Operating Officer and -- --
Director Nominee
James L. Starr.................... Chief Financial Officer and -- --
Executive Vice President
John E. Chubb..................... Chief Education Officer and 20.75 120,000
Executive Vice President
John W. Childs.................... Director and Director Nominee -- --
Joan Ganz Cooney.................. Director Nominee -- --
Ramon C. Cortines................. Director and Director Nominee -- --
Charles J. Delaney................ Director and Director Nominee -- --
Reverend Floyd H. Flake........... President of Edison Charter 21.31 150,000
Schools and Director Nominee
Jeffrey T. Leeds.................. Director and Director Nominee -- --
Jonathan Newcomb.................. Director Nominee -- --
William F. Weld................... Director and Director Nominee -- --
All current directors who are not
executive officers, as a
group........................... NA -- --
All current executive officers, as
a group......................... NA 20.77 846,500
All employees who are not
executive officers, as a
group........................... NA 19.68 553,189
</TABLE>

On October 20, 2000, the last reported sale price of the Company's Class A
Common Stock on the Nasdaq National Market was $29.875 per share.

ADMINISTRATION

The 1999 Plan is administered by the Compensation Committee. Subject to the
provisions of the 1999 Plan, the Compensation Committee has the authority to
select the persons to whom awards are granted and determine the terms of each
award, including (i) the number of shares of Class A Common Stock covered by
options and the dates upon which such options become exercisable, (ii) the
exercise price of options, (iii) the duration of options and (iv) the number of
shares of Class A Common Stock subject to any restricted stock or other
stock-based awards and the terms and conditions of such awards, including
conditions for repurchase,

21
<PAGE> 25

issue price and repurchase price. The Board of Directors may delegate to one or
more executive officers of the Company the power to make awards and exercise
such other powers as the Board may determine, subject to certain limitations.

The Compensation Committee may amend, modify or terminate any outstanding
award, including without limitation, substituting therefor another award of the
same or a different type, changing the date of exercise or realization, and
converting an incentive stock option into a non-statutory stock option, subject
to the participant's consent if such amendment, modification or termination
would materially or adversely affect the participant. The Compensation Committee
may also accelerate the date on which an option, restricted stock award or a
stock-based award becomes exercisable, becomes free of its restrictions or
conditions or becomes realizable, as the case may be.

Upon the occurrence of any stock split, reverse stock split, stock
dividend, recapitalization, combination of shares, reclassification of shares,
spin-off or other similar change in capitalization or event, or any distribution
to holders of Class A Common Stock other than a normal cash dividend, the Board
of Directors will make adjustments to the number and class of securities
available under the 1999 Plan, the maximum number of shares with respect to
which awards may be granted to any participant under the 1999 Plan, the number
and class of security and exercise price subject to each outstanding option, the
repurchase price subject to each outstanding restricted stock award, and the
terms of each other outstanding stock-based award to the extent that the Board
of Directors determines in good faith that such adjustments are necessary and
appropriate.

In the event of a proposed liquidation or dissolution of the Company, the
Board of Directors shall upon written notice to the participants provide that
all then unexercised options will (i) become exercisable in full as of a
specified time at least 10 business days prior to the effective date of such
liquidation or dissolution and (ii) terminate effective upon such liquidation or
dissolution, except to the extent exercised before such effective date. The
Board of Directors may specify the effect of a liquidation or dissolution on any
restricted stock award or other award granted under the 1999 Plan at the time of
the grant of such award.

In the event of an Acquisition Event (as defined in the 1999 Plan) or a
written commitment by the Company with respect to an Acquisition Event, the
Board of Directors is required to provide for outstanding options to be assumed
or substituted for by the acquiring or succeeding corporation. However, if the
acquiring or succeeding corporation does not agree to assume, or substitute for,
such options, then the Board will provide that all options will become
exercisable in full as of a specified time prior to the Acquisition Event and
will terminate immediately prior to the consummation of such Acquisition Event,
except to the extent exercised by the participants before the consummation of
such Acquisition Event. In addition, upon the occurrence of an Acquisition
Event, the repurchase and other rights of the Company under each outstanding
restricted stock award shall inure to the benefit of the Company's successor and
shall apply to the cash, securities or other property which the Class A Common
Stock was converted into or exchanged for pursuant to such Acquisition Event in
the same manner and to the same extent as they applied to the Class A Common
Stock subject to such restricted stock award. The Board will specify the effect
of an Acquisition Event on any other stock-based award granted under the 1999
Plan at the time of the grant of such award.

If any award expires or is terminated, surrendered, canceled or forfeited,
the unused shares of Class A Common Stock covered by such award will again be
available for grant under the 1999 Plan, subject, however, in the case of
incentive stock options to any limitations under the Code.

The 1999 Plan will remain in effect until October 2009 (except that it will
continue in effect as to equity-related securities outstanding on that date),
unless earlier terminated by the Board of Directors. The Board of Directors may
amend, suspend or terminate the 1999 Plan or any portion thereof at any time.

22
<PAGE> 26

FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the United States federal income tax
consequences that generally will arise with respect to awards granted under the
1999 Plan and with respect to the sale of Class A Common Stock acquired under
the 1999 Plan.

INCENTIVE STOCK OPTIONS

In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Stock"). The
exercise of an incentive stock option, however, may subject the participant to
the alternative minimum tax.

Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.

If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term gain if the participant has held the ISO Stock for more than one year
prior to the date of sale.

If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss in an amount equal to the excess of the
exercise price over the sale price of the ISO Stock. This capital loss will be a
long-term loss if the participant has held the ISO Stock for more than one year
prior to the date of sale.

NON-STATUTORY STOCK OPTIONS

As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a non-statutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
non-statutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Class A Common
Stock acquired through the exercise of the option ("NSO Stock") on the Exercise
Date over the exercise price.

With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the difference between the sale price of the NSO
Stock and the participant's tax basis in the NSO Stock. This capital gain or
loss will be a long-term capital gain or loss if the participant has held the
NSO Stock for more than one year prior to the date of the sale and will be
short-term capital gain or loss if the participant has held the NSO Stock for a
shorter period.

RESTRICTED STOCK

A participant will not recognize taxable income upon the grant of a
restricted stock award unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the Grant Date, then the participant
will recognize ordinary compensation income, for the year in which the award is
granted, in an amount equal to the excess of the fair market value of the Class
A Common Stock at the time the award is granted over the purchase price paid for
the Class A Common Stock. If such election is made and the participant
subsequently forfeits some or all of the shares, then the participant generally
will not be entitled to any refund of taxes paid as a result of the Section
83(b) Election. If a Section 83(b) Election is not made, then the participant
will recognize ordinary compensation income at the time that the forfeiture
provisions or restrictions on transfer lapse in an amount equal to the excess of
the fair market value of the Class A Common Stock at the time of
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<PAGE> 27

such lapse over the original purchase price paid for the Class A Common Stock.
The participant will have a tax basis in the Class A Common Stock acquired equal
to the sum of the price paid and the amount of ordinary compensation income
recognized either at the time of the Section 83(b) Election is made or at the
time the forfeiture provisions or transfer restrictions lapse, as applicable.

Upon the disposition of the Class A Common Stock acquired pursuant to a
restricted stock award, the participant will recognize a capital gain or loss in
an amount equal to the difference between the sale price of the Class A Common
Stock and the participant's tax basis in the Class A Common Stock. This capital
gain or loss will be a long-term capital gain or loss if the shares are held for
more than one year. For this purpose, the holding period shall begin on the day
after the date on which the forfeiture provisions or restrictions lapse if a
Section 83(b) Election is not made, or on the day after the award is granted if
a Section 83(b) Election is made.

OTHER STOCK-BASED AWARDS

The tax consequences associated with any other stock-based award granted
under the 1999 Plan will vary depending on the specific terms of the award.
Among the relevant factors are whether or not the award has a readily
ascertainable fair market value, whether or not the award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property to
be received by the participant under the award, and the participant's holding
period and tax basis for the award or underlying Class A Common Stock.

TAX CONSEQUENCES TO THE COMPANY

The grant of an award under the 1999 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option acquired under the 1999 Plan nor the sale of any Class A Common Stock
acquired under the 1999 Plan will have any tax consequences to the Company. The
Company generally will be entitled to a business-expense deduction, however,
with respect to any ordinary compensation income recognized by a participant
under the 1999 Plan, including in connection with a restricted stock award or as
the result of the exercise of a non-statutory stock option or a Disqualifying
Disposition. Any such deduction will be subject to the limitations of Section
162(m) of the Code.

PROPOSAL 3 -- RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS

The Board of Directors has selected the firm of PricewaterhouseCoopers LLP
as the Company's independent auditors for the current fiscal year.
PricewaterhouseCoopers LLP (or its predecessor, Coopers & Lybrand L.L.P.) has
served as the Company's independent auditors since the Company's formation in
1992. Although stockholder approval of the Board of Directors' selection of
PricewaterhouseCoopers LLP is not required by law, the Board of Directors
believes that it is advisable to give stockholders an opportunity to ratify this
selection. If this proposal is not approved at the Annual Meeting, the Board of
Directors may reconsider its selection of PricewaterhouseCoopers LLP.

Representatives of PricewaterhouseCoopers LLP are expected to be present at
the Annual Meeting and will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.

SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Each of Reverend Floyd H. Flake, David A. Graff (Senior Vice President and
General Counsel), Kathleen M. Hamel and Tonya G. Hinch were late in filing their
initial Form 3 stating their beneficial ownership of equity securities of the
Company. Each of H. Christopher Whittle, Benno C. Schmidt, Jr., John E. Chubb,
David A. Graff, Kathleen M. Hamel and Tonya G. Hinch were late in reporting the
grant to them by the Company of an option to purchase shares of Class A Common
Stock.

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<PAGE> 28

OTHER MATTERS

The Board of Directors does not know of any other matters that may come
before the Annual Meeting. However, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.

All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews, and the Company reserves the right to retain
outside agencies for the purpose of soliciting proxies. Brokers, custodians and
fiduciaries will be requested to forward proxy soliciting material to the owners
of stock held in their names, and, as required by law, the Company will
reimburse them for their out-of-pocket expenses in this regard.

STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING

To be considered for inclusion in the proxy statement for the 2001 Annual
Meeting, stockholder proposals must be submitted to the Secretary of the Company
at its principal executive offices at 521 Fifth Avenue, 15th Floor, New York,
New York 10175, no later than the close of business on June 26, 2001.

If a stockholder of the Company wishes to present a proposal directly at
the 2001 Annual Meeting, but does not wish to have the proposal considered for
inclusion in the proxy statement, such stockholder must also give written notice
to the Secretary of the Company at the address noted above. The Secretary must
receive such notice not less than 60 days nor more than 90 days prior to the
2001 Annual Meeting; provided that, in the event that less than 70 days' notice
or prior public disclosure of the date of the 2001 Annual Meeting is given or
made, notice by the stockholder must be received not later than the close of
business on the 10th day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever occurs
first. If a stockholder fails to provide timely notice of a proposal to be
presented at the 2001 Annual Meeting, the proxies designated by the Board of
Directors of the Company will have discretionary authority to vote on any such
proposal. The Company reserves the right to reject, rule out of order, or take
other appropriate action with respect to any proposal that does not comply with
these and other applicable requirements.

By Order of the Board of Directors,

/s/ LAURA K. ESHBAUGH
--------------------------------------
Laura K. Eshbaugh
Executive Vice President and Secretary

October 26, 2000

THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. STOCKHOLDERS WHO ATTEND
THE MEETING MAY VOTE THEIR STOCK PERSONALLY EVEN IF THEY HAVE SENT IN THEIR
PROXIES.

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<PAGE> 29

APPENDIX A

EDISON SCHOOLS INC.

1999 STOCK INCENTIVE PLAN

1. PURPOSE

The purpose of this 1999 Stock Incentive Plan (the "Plan") of Edison
Schools Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company's stockholders by enhancing the Company's ability to
attract, retain and motivate persons who make (or are expected to make)
important contributions to the Company by providing such persons with equity
ownership opportunities and performance-based incentives and thereby better
aligning the interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall include
any of the Company's present or future subsidiary corporations as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code") and any other business venture
(including, without limitation, joint venture or limited liability company) in
which the Company has a significant interest, as determined by the Board of
Directors of the Company (the "Board").

2. ELIGIBILITY

All of the Company's employees, officers, directors, consultants and
advisors (and any individuals who have accepted an offer for employment) are
eligible to be granted options, restricted stock awards or other stock-based
awards (each, an "Award") under the Plan. Each person who has been granted an
Award under the Plan shall be deemed a "Participant".

3. ADMINISTRATION, DELEGATION

(a) Administration by Board of Directors. The Plan will be administered by
the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan or in any Award. No
director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.

(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.

(c) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). If and when the Class
A Common Stock, $.01 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code ("Section 162(m)") and a "non-employee director" as defined in Rule
16b-3 promulgated under the Exchange Act. All references in the Plan to the
"Board" shall mean the Board or a Committee of the Board or the executive
officer referred to in Section 3(b) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or executive
officer.
<PAGE> 30

4. STOCK AVAILABLE FOR AWARDS

(a) Subject to adjustment under Section 8, Awards may be made under the
Plan for up to 2,500,000 shares of Common Stock. If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.

(b) Per-Participant Limit. Subject to adjustment under Section 8, for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares of Common Stock with respect to which an Award may be
granted to any Participant under the Plan shall be 1,000,000 per calendar year.
The per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m).

5. STOCK OPTIONS

(a) General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option shall be designated a "Nonstatutory Stock Option".

(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.

(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.

(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement. No option will be granted for a term in excess of
10 years.

(e) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.

(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:

(1) in cash or by check, payable to the order of the Company;

(2) except as the Board may, in its sole discretion, otherwise provide
in an option agreement, by (i) delivery of an irrevocable and unconditional
undertaking by a creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price or (ii) delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company
cash or a check sufficient to pay the exercise price;

(3) when the Common Stock is registered under the Exchange Act, by
delivery of shares of Common Stock owned by the Participant valued at their
fair market value as determined by (or in a manner approved by) the Board
in good faith ("Fair Market Value"), provided (i) such method of payment is
then permitted under applicable law and (ii) such Common Stock was owned by
the Participant at least six months prior to such delivery;

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<PAGE> 31

(4) to the extent permitted by the Board, in its sole discretion, by
(i) delivery of a promissory note of the Participant to the Company on
terms determined by the Board or (ii) payment of such other lawful
consideration as the Board may determine; or

(5) by any combination of the above permitted forms of payment.

6. RESTRICTED STOCK

(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price from
the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each, a
"Restricted Stock Award").

(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or, if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.

7. OTHER STOCK-BASED AWARDS

The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.

8. ADJUSTMENTS FOR CHANGES IN COMMON STOCK AND CERTAIN OTHER EVENTS

(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.

(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.

(1) Definition. An "Acquisition Event" shall mean: (a) any merger or
consolidation of the Company with or into another entity as a result of
which the Common Stock is converted into or

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<PAGE> 32

exchanged for the right to receive cash, securities or other property or
(b) any exchange of shares of the Company for cash, securities or other
property pursuant to a statutory share exchange transaction.

(2) Consequences of an Acquisition Event on Options. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide
that all outstanding Options shall be assumed, or equivalent options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof). For purposes hereof, an Option shall be considered to be assumed
if, following consummation of the Acquisition Event, the Option confers the
right to purchase, for each share of Common Stock subject to the Option
immediately prior to the consummation of the Acquisition Event, the
consideration (whether cash, securities or other property) received as a
result of the Acquisition Event by holders of Common Stock for each share
of Common Stock held immediately prior to the consummation of the
Acquisition Event (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the
outstanding shares of Common Stock); provided, however, that if the
consideration received as a result of the Acquisition Event is not solely
common stock of the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise
of Options to consist solely of common stock of the acquiring or succeeding
corporation (or an affiliate thereof) equivalent in fair market value to
the per share consideration received by holders of outstanding shares of
Common Stock as a result of the Acquisition Event.

Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board shall, upon written notice to
the Participants, provide that all then unexercised Options will become
exercisable in full as of a specified time prior to the Acquisition Event
and will terminate immediately prior to the consummation of such
Acquisition Event, except to the extent exercised by the Participants
before the consummation of such Acquisition Event; provided, however, that
in the event of an Acquisition Event under the terms of which holders of
Common Stock will receive upon consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to such Acquisition Event (the
"Acquisition Price"), then the Board may instead provide that all
outstanding Options shall terminate upon consummation of such Acquisition
Event and that each Participant shall receive, in exchange therefor, a cash
payment equal to the amount (if any) by which (A) the Acquisition Price
multiplied by the number of shares of Common Stock subject to such
outstanding Options (whether or not then exercisable) exceeds (B) the
aggregate exercise price of such Options.

(3) Consequences of an Acquisition Event on Restricted Stock
Awards. Upon the occurrence of an Acquisition Event, the repurchase and
other rights of the Company under each outstanding Restricted Stock Award
shall inure to the benefit of the Company's successor and shall apply to
the cash, securities or other property which the Common Stock was converted
into or exchanged for pursuant to such Acquisition Event in the same manner
and to the same extent as they applied to the Common Stock subject to such
Restricted Stock Award.

(4) Consequences of an Acquisition Event on Other Awards. The Board
shall specify the effect of an Acquisition Event on any other Award granted
under the Plan at the time of the grant of such Award.

9. GENERAL PROVISIONS APPLICABLE TO AWARDS

(a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.

(b) Documentation. Each Award shall be evidenced by a written instrument
in such form as the Board shall determine. Each Award may contain terms and
conditions in addition to those set forth in the Plan.

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<PAGE> 33

(c) Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.

(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.

(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, when the Common Stock is registered under the Exchange Act,
Participants may, to the extent then permitted under applicable law, satisfy
such tax obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.

(f) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.

(g) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.

(h) Acceleration. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of restrictions in full or in part or that any other Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.

10. MISCELLANEOUS

(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.

(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the record date and
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.

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(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant that is intended to comply with Section 162(m) shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders to the extent
stockholder approval is required by Section 162(m) in the manner required under
Section 162(m) (including the vote required under Section 162(m)). No Awards
shall be granted under the Plan after the completion of ten years from the
earlier of (i) the date on which the Plan was adopted by the Board or (ii) the
date the Plan was approved by the Company's stockholders, but Awards previously
granted may extend beyond that date.

(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that to the extent required by
Section 162(m), no Award granted to a Participant that is intended to comply
with Section 162(m) after the date of such amendment shall become exercisable,
realizable or vested, as applicable to such Award, unless and until such
amendment shall have been approved by the Company's stockholders as required by
Section 162(m) (including the vote required under Section 162(m)).

(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.

Adopted by the Board of Directors
on October 4, 1999

Approved by the Stockholders
on October 26, 1999

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<PAGE> 35

AMENDMENT NO. 1
TO THE
1999 STOCK INCENTIVE PLAN
OF
EDISON SCHOOLS INC.

The 1999 Stock Incentive Plan (the "Plan") of Edison Schools Inc. is hereby
amended as follows (all capitalized terms used herein and not defined herein
shall have the respective meanings ascribed to such terms in the Plan):

1. The first sentence of Section 4(a) of the Plan shall be deleted in its
entirety and replaced with the following:

"(a) Number of Shares. Subject to adjustment under Section 8, Awards
may be made under the Plan for up to 4,500,000 shares of Common Stock."

2. Except as aforesaid, the Plan shall remain in full force and effect.

Adopted by the Board of Directors
on October 20, 2000.

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<PAGE> 36
PROXY
Class A Common Stock
EDISON SCHOOLS, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 30, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY AND SHOULD BE RETURNED AS SOON AS POSSIBLE

The undersigned, having received notice of the Annual Meeting of Stockholders
and the Board of Directors' proxy statement therefor, and revoking all prior
proxies, hereby appoint(s) Laura K. Eshbaugh, David A. Graff and James L Starr,
and each of them, attorneys or attorney of the undersigned (with full power of
substitution in them and each of them) for and in the name(s) of the undersigned
to attend the Annual Meeting of Stockholders of EDISON SCHOOLS INC. (The
"Company") to be held on Thursday, November 30, 2000 at 10:00 a.m. at The
Harvard Club, 27 West 44th Street, New York, New York, and any adjournments
thereof, and there to vote an act upon the following matters proposed by the
Company in respect of all shares of Class A Common Stock of the Company which
the undersigned may be entitled to vote or act upon with all the powers the
undersigned would possess if personally present.

In their discretion, the proxy holders are authorized to vote upon such other
matters as may properly come before the meeting or any adjournments thereof. The
shares represented by this proxy will be voted as directed by the undersigned.
Unless otherwise indicated below, the proxy holders are authorized to cumulate
and distribute votes among the nominees for election as directors with respect
to which authority is not withheld or, if the proxy is either not marked or is
marked for all nominees, among all nominees. If no direction is given with
respect to any election to office or proposal, this proxy will be voted as
recommended by the Board of Directors. Attendance of the undersigned at the
meeting or at any adjournment thereof will not be deemed to revoke this proxy
unless the undersigned shall revoke this proxy in writing.

[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE USING DARK INK ONLY.

1. To elect the following seven Directors for the ensuing year (except as
marked below):

Christopher D. Cerf, Joan Gauz Cooney, Ramon C. Cortines,
Reverend Floyd H. Flake, Jonathan Newcomb,
Benno C. Schmidt, Jr., William F. Weld

[ ] FOR ALL NOMINEES
except as marked to the right)

[ ] WITHHOLD

(INSTRUCTIONS: To withhold a vote (except as for an individual nominee(s), write
the name of such nominee(s) in the space provided below. Your shares will be
voted for the remaining nominee(s).)

_________________________________

(If you desire to allocate votes among the nominees, write the name(s) of the
nominee(s) and the number of votes allocated to such nominee(s) in the space
provided below. The total number of votes cast must not exceed SEVEN times the
total number of shares of Class A Common Stock you hold.)

_________________________________
<PAGE> 37
2. To approve (i) The continuance of the Company's 1999 Stock Incentive Plan and
(ii) an amendment to such Plan described in the Proxy Statement to which this
proxy relates.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the current year.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDERS(S). IF NO OTHER INDICATION IS MADE, THE
PROXIES SHALL VOTE "FOR" ALL DIRECTOR NOMINEES AND "FOR" PROPOSALS 2 AND 3, A
VOTE "FOR" ALL DIRECTOR NOMINEES AND A VOTE "FOR" PROPOSALS 2 AND 3 ARE
RECOMMENDED BY THE BOARD OF DIRECTORS.

IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENT
THEREOF.

Dated: __________________ , 2000

________________________________
Signature

________________________________
Signature if held jointly

Note: Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by authorized officer, giving full title. If a
partnership, please sign in partnership name by authorized person, giving full
title.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE.

<PAGE> 38
PROXY
CLASS B COMMON STOCK

EDISON SCHOOLS INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 30, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY AND SHOULD BE RETURNED AS SOON AS POSSIBLE

The undersigned, having received notice of the Annual Meeting of
Stockholders and the Board of Directors' proxy statement therefor, and revoking
all prior proxies, hereby appoint(s) Laura K. Eshbaugh, David A. Graff and James
L Starr, and each of them, attorneys or attorney of the undersigned (with full
power of substitution in them and each of them) for and in the name(s) of the
undersigned to attend the Annual Meeting of Stockholders of EDISON SCHOOLS INC.
(the "Company") to be held on Thursday, November 30, 2000 at 10:00 a.m. at The
Harvard Club, 27 West 44th Street, New York, New York, and any adjournments
thereof, and there to vote and act upon the following matters proposed by the
Company in respect of all shares of Class B Common Stock of the Company which
the undersigned may be entitled to vote or act upon with all the powers the
undersigned would possess if personally present.

In their discretion, the proxy holders are authorized to vote upon such
other matters as may properly come before the meeting or any adjournments
thereof. The shares represented by this proxy will be voted as directed by the
undersigned. Unless otherwise indicated below, the proxy holders are authorized
to cumulate and distribute votes among the nominees for election as directors
with respect to which authority is not withheld or, if the proxy is either not
marked or is marked for all nominees, among all nominees. IF NO DIRECTION IS
GIVEN WITH RESPECT TO ANY ELECTION TO OFFICE OR PROPOSAL, THIS PROXY WILL BE
VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS. Attendance of the undersigned at
the meeting or at any adjournment thereof will not be deemed to revoke this
proxy unless the undersigned shall revoke this proxy in writing.

[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE USING DARK INK ONLY.

1. To elect the following four Directors for the ensuing year (except as marked
below): John W. Childs, Charles J. Delaney, Jeffrey T. Leeds, H. Christopher
Whittle

[ ] FOR ALL NOMINEES
(except as marked to the right)

[ ] WITHHOLD

INSTRUCTIONS:

To withhold a vote for an individual nominee(s), write the name of such
nominee(s) in the space provided below. Your shares will be voted for the
remaining nominee(s).

If you desire to allocate votes among the nominees, write the name(s) of the
nominee(s) and the number of votes allocated to such nominee(s) in the space
provided below. The total number of votes cast must not exceed FOUR times the
total number of shares of Class B Common Stock you hold.
<PAGE> 39
2. To approve (i) an amendment to the Company's 1999 Stock Incentive Plan
described in the Proxy Statement to which this proxy relates and (ii) the
continuance of such Plan, as amended.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the current year.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS MADE, THE
PROXIES SHALL VOTE "FOR" ALL DIRECTOR NOMINEES AND "FOR" PROPOSALS 2 AND 3, A
VOTE "FOR" ALL DIRECTOR NOMINEES AND A VOTE "FOR" PROPOSALS 2 AND 3 ARE
RECOMMENDED BY THE BOARD OF DIRECTORS.

IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENT
THEREOF.

Dated: ___________________________, 2000

________________________________________
Signature

________________________________________
Signature if held jointly

Note: Please sign exactly as name
appears hereon. When shares are held by
joint owners, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by authorized officer,
giving full title. If a partnership,
please sign in partnership name by
authorized person, giving full title.

WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE.