Subject to approval from the Board of Trustees of Purdue University (“Purdue”) at a Board of Trustees meeting to be held today, Kaplan Higher Education LLC and Iowa College Acquisition, LLC (collectively, “Kaplan”), subsidiaries of Graham Holdings Company, intend to enter into a Contribution and Transfer Agreement (“Transfer Agreement”) to contribute the institutional assets and operations of Kaplan University (“KU”) to a new, nonprofit, public-benefit corporation (“New University”) affiliated with Purdue in exchange for a Transition and Operations Support Agreement (“TOSA”) to provide key non-academic operations support to New University for an initial term of 30 years with a buy-out option after six years.

Subject to the terms and conditions of the Transfer Agreement, KU, which specializes in online education and is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools (“HLC”), will transfer certain assets of its Title IV-authorized and accredited academic institution to New University. New University will operate as a new Indiana public university, as authorized by the Indiana legislature, affiliated with Purdue University and focused on expanding access to education for non-traditional adult learners.

New University will initially consist of the seven schools and colleges that now comprise KU (excluding the Kaplan University School of Professional and Continuing Education (“KU-PACE”)), which together offer more than 100 diploma, certificate, associate, bachelor, masters and doctoral degree programs, as well as 15 campus and learning center locations. Current online and campus KU students, approximately 32,000, will transfer to New University. Current full-time and adjunct faculty and staff at KU, approximately 3,000 employees, will also transfer to New University. New University will be governed by its own board of trustees that will fully control all of the functions of New University, the members of which will be appointed by Purdue. Upon approval by its accreditor, New University will have its own institutional accreditation and maintain its own faculty and administrative operations.

In addition, as part of the transfer of KU’s academic institution, students, academic personnel, faculty and operations, and property leases for KU’s campuses and learning centers, KU also will transfer Kaplan-owned academic curriculum and content related to KU courses (collectively and including such specific assets as described in the Transfer Agreement, the “Institutional Assets”). The transfer does not include any of the assets of KU-PACE, which provides professional training and exam preparation for professional certifications and licensures, nor does it include the transfer of other Kaplan businesses such as Kaplan Test Preparation and Kaplan International.

Kaplan will receive nominal cash consideration upon transfer of KU’s Institutional Assets. In exchange for KU’s Institutional Assets, upon closing of the transactions contemplated by the Transfer Agreement, the parties will enter into the TOSA. Under the TOSA, Kaplan will provide operations support activities to New University including, but not limited to, technology support, help-desk functions, human resources support for transferred faculty and employees, admissions support, financial aid administration, marketing and advertising, back-office business functions, international student recruiting and certain test preparation services.

to the TOSA, Kaplan is not entitled to receive any reimbursement of costs incurred in providing support functions, or any fee, unless and until New University has first covered all of its operating costs. In addition, during each of New University’s first five years, prior to any payment to Kaplan, New University is entitled to a priority payment of $10 million per year beyond costs, which will be paid out of New University’s revenue. To the extent New University’s revenue is insufficient to pay the $10 million per year priority payment, Kaplan is required to advance an amount to New University to cover such insufficiency. In addition, if New University achieves cost savings in its budgeted operating costs, then New University may be entitled to a payment equal to 20 percent of such savings (the “Efficiency Payment”). To the extent that there are sufficient revenues to pay the Efficiency Payment, pay the priority payment and to reimburse New University for its direct expenses, Kaplan will receive reimbursement for Kaplan’s costs of providing the support activities in addition to a fee equal to 12.5 percent of New University’s revenue.

The TOSA has a 30-year initial term, which will automatically renew for five-year periods unless terminated. After the sixth year, New University has the right to terminate the agreement upon payment of a termination fee equal to 1.25 times New University’s revenue for the preceding 12-month period (the “Buy-out Fee”), which payment would be made to a 10-year note, and at New University’s election, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities to the TOSA. At the end of the 30-year term, if New University does not renew the TOSA, New University would be obligated to make a final payment of six times the fees paid or payable during the preceding 12-month period, which payment would be made to a 10-year note, and at New University’s election, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities to the TOSA.

Either party may terminate the TOSA at any time if New University generates (i) $25 million in cash operating losses for three consecutive years or (ii) aggregate cash operating losses greater than $75 million at any point during the initial term. Operating loss is defined as the amount of revenue New University generates minus the sum of (1) New University’s and Kaplan’s respective costs in performing academic and support functions and (2) the $10 million priority payment to New University in each of the first five years. Upon termination for any reason, New University would retain the assets that Kaplan contributed to the Transfer Agreement. Each party also has certain termination rights in connection with a material default or material breach of the TOSA by the other party.

Kaplan, on the one hand, and Purdue, on the other hand, will indemnify each other for damages arising from the indemnifying party’s breaches of its representations and warranties and covenants under the Transfer Agreement as well as for damages arising from certain specified liabilities, subject to certain limitations set forth in the Transfer Agreement.

Consummation of the transactions contemplated by the Transfer Agreement, if entered into, would be subject to various closing conditions, including, among others, regulatory approvals from the U.S. Department of Education, the Indiana Commission for Higher Education and HLC, which is the regional accreditor of both Purdue and Kaplan University, and certain other state educational agencies and accreditors of programs. Kaplan is unable to predict with certainty when and if such approvals will be obtained; however, it expects that all approvals will not be received until the fourth quarter of 2017. If the transaction is not consummated by April 30, 2018, either party may terminate the Transfer Agreement.

There can be no assurances that the Transfer Agreement will be entered into at all or on the terms described above. The description set forth above is qualified in its entirety by the full terms and conditions of the Transfer Agreement, if and when executed and filed.

About GRAHAM HOLDINGS COMPANY (NYSE:GHC)

Graham Holdings Company is a diversified education and media company. The Company’s operations include educational services; television broadcasting; online, print and local television (TV) news; social-media advertising services; home health and hospice care, and manufacturing. The Company’s segments include Kaplan Higher Education (KHE), Kaplan Test Preparation (KTP), Kaplan International, television broadcasting and other businesses. KHE consists of Kaplan University. Kaplan University provides a range of certificate, diploma and degree programs. Kaplan’s KHE division consists primarily of Kaplan University. KTP includes test preparation businesses in pre-college, graduate, health and bar review, as well as businesses in new economy skills training and in career advising. Kaplan International (KI) operates businesses in Europe and the Asia Pacific region. Its other businesses include operations of The Slate Group LLC, which publishes online magazine and additional Websites.

GRAHAM HOLDINGS COMPANY (NYSE:GHC) Recent Trading Information

GRAHAM HOLDINGS COMPANY (NYSE:GHC) closed its last trading session 00.00 at 610.10 with 13,588 shares trading hands.