Item 8.01. Other Events.
On December 3, 2021, the board of directors of Laureate Education, Inc. (the
"Company") approved, pursuant to the previously announced adoption of a plan of
partial liquidation (the "Plan") related to the distribution of net proceeds
from the Company's sale of Walden e-Learning LLC (the "Sale"), the payment of a
special cash distribution (the "Distribution") equal to $0.58 per each share of
the Company's Common Stock, par value $0.004 per share, to each holder of record
on December 14, 2021. The Distribution is scheduled to be paid on December 28,
2021. Based on the current number of shares outstanding, the aggregate amount of
the Distribution is expected to be approximately $105 million.
The proceeds being distributed are mainly attributable to the release of cash
collateral related to regulatory obligations associated with activities of the
divested business. Gross proceeds still remaining to be received from the Sale
include up to $74 million held in escrow. In accordance with the Plan, upon
release of escrow amounts, the Company intends to distribute to stockholders
such remaining net proceeds in the form of a final special distribution before
the end of calendar year 2022.
In connection with the Distribution, the Board approved certain required
adjustments under the Company's equity award compensation plans. Subject to the
payment of the Distribution, the exercise price of the Company's options will be
reduced by $0.58 per share, and holders of restricted and performance stock
units will receive an amount in cash equal to $0.58 per unvested stock unit held
payable when such unit vests. If all outstanding stock units vest, the aggregate
amount to be paid in respect of the units will be approximately $580,000.
On December 3, 2021, the Company issued a press release regarding the
Distribution. A copy of this press release is furnished herewith as Exhibit
99.1.
Summary of Material U.S. Federal Income Tax Consequences to the Receipt of the
Distribution
The Distribution will be taxable to holders of Company common stock. The Company
will treat the Distribution as a partial liquidation for federal income tax
purposes as the Company obtained a private letter ruling from the Internal
Revenue Service that, in summary, provides that the Distribution will be treated
as a distribution in partial liquidation. As a result, each holder of Company
common stock that is not a corporation (for this purpose any stock held by a
partnership, estate or trust will be treated as if it were actually held
proportionately by its partners or beneficiaries) (a non-corporate shareholder)
will be treated as having a portion of their Company common shares redeemed and
will recognize gain or loss equal to the difference between the cash received by
them in the Distribution and their adjusted tax basis in the Company common
stock deemed to have been exchanged therefor. Each corporate shareholder
generally will be required to treat the Distribution as a dividend for federal
income tax purposes to the extent of the Company's current and accumulated
earnings and profits (as determined for federal income tax purposes).
All holders of Company common stock should consult their own tax advisors to
determine the particular tax consequences to them of the Distribution, including
the applicability and effect of any U.S. federal, state, local, non-U.S. and
other tax laws.
For a more detailed discussion of the federal income tax consequences of the
Distribution, see "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE RECEIPT
OF THE DISTRIBUTION."
Material U.S. Federal Income Tax Consequences to the Receipt of the Distribution
The following discussion summarizes the U.S. federal income tax consequences of
the Distribution to U.S. holders and non-U.S. holders (each as defined below).
This discussion is limited to U.S. holders and non-U.S. holders who hold their
shares of Company common stock as a "capital asset" within the meaning of
Section 1221 of the Code (generally, property held for investment). This
discussion is based on the Code, applicable Treasury regulations, judicial
interpretations thereof and administrative rulings and practice, all as in
effect as of the date
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hereof, and all of which are subject to change or differing interpretations,
possibly with retroactive effect. Any such change or interpretation could affect
the accuracy of the statements and conclusions set forth herein.
This discussion does not purport to address all aspects of U.S. federal income
taxation that may be relevant to particular holders of shares of Company common
stock in light of their particular facts and circumstances, nor does it apply to
holders of shares of Company common stock that are subject to special rules
under the U.S. federal income tax laws including, for example, banks or other
financial institutions, insurance companies, regulated investment companies,
real estate investment trusts, mutual funds, dealers in securities or
currencies, traders in securities that elect to apply a mark-to-market method of
accounting, tax-exempt entities, entities or arrangements treated as
partnerships for U.S. federal income tax purposes or other flow-through entities
(and investors therein), subchapter S corporations, retirement plans, individual
retirement accounts or other tax-deferred accounts, holders liable for the
alternative minimum tax, U.S. holders having a "functional currency" other than
the U.S. dollar, controlled foreign corporations, passive foreign investment
companies, holders who hold shares of Company common stock as part of a
straddle, constructive sale, conversion transaction or other integrated or risk
reduction transaction, holders required to accelerate the recognition of any
item of gross income as a result of such income being recognized on an
applicable financial statement, holders that actually or constructively hold 5%
or more of the shares of Company common stock, and holders who acquired their
shares of Company common stock through the exercise of an employee stock option
or otherwise as compensation or through a retirement plan. Furthermore, this
discussion does not address any U.S. federal tax considerations other than U.S.
federal income tax considerations, such as the Medicare tax on certain
investment income, estate or gift taxation, or tax considerations arising under
the tax laws of any state, locality or non-U.S. jurisdiction.
For purposes of this discussion, the term "U.S. holder" means a beneficial owner
of shares of Company common stock that, for U.S. federal income tax purposes,
is:
• an individual who is a citizen or resident of the United States;
• a corporation created or organized in or under the laws of the United States,
any state thereof, or the District of Columbia;
• an estate the income of which is subject to U.S. federal income tax
regardless of its source; or
• a trust (a) that is subject to the primary supervision of a court within the
United States and all of the substantial decisions of which are controlled by
one or more U.S. persons or (b) that has a valid election in effect under
applicable Treasury regulations to be treated as a U.S. person for U.S.
federal income tax purposes.
As used herein, the term "non-U.S. holder" means a beneficial owner of shares of
Company common stock that is neither a U.S. holder nor a partnership (including
any entity or arrangement treated as a partnership for U.S. federal income tax
purposes).
If a partnership (or an entity or arrangement treated as a partnership for U.S.
federal income tax purposes) holds shares of Company common stock, the tax
treatment of a partner in such partnership generally will depend on the status
of the partner and the activities of the partnership. Partners of partnerships
holding Company common stock should consult their own tax advisors.
All holders of Company common stock should consult their own tax advisors to
determine the particular tax consequences to them of the Distribution, including
the applicability and effect of any U.S. federal, state, local, non-U.S. and
other tax laws.
Characterization of the Distribution as a Partial Liquidation
The Distribution is intended to be treated as a distribution in partial
liquidation of the Company for U.S. federal income tax purposes that is treated,
in the case of an individual (i.e., non-corporate) shareholder, as a sale or
exchange of a portion of such individual's common stock rather than as a
distribution possibly treated as a dividend. The Company has obtained a private
letter ruling (the "Ruling") from the Internal Revenue Service
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("IRS") that, in summary, provides that the Distribution will be treated as a
distribution in partial liquidation of the Company for U.S. federal income tax
purposes giving rise to the U.S. federal income tax consequences summarized
below.
Pursuant to the Ruling, the Distribution will be treated as a distribution in
partial liquidation of the Company, and thus, capital gain or loss, as
applicable, will be recognized by each of the Company's non-corporate U.S.
holders to the extent of the difference between the amount distributed in the
partial liquidation and the adjusted tax basis of the shares deemed surrendered
in exchange therefor. For the U.S. federal income tax consequences of the
receipt of a Distribution by U.S. holders that are corporations or non-U.S.
holders, respectively, see the sections entitled "U.S. Holders-Consequences of
Distribution to Non-Corporate U.S. Holders" and "Non-U.S. Holders" below.
The Ruling relies on certain facts, representations and undertakings from the
Company regarding the past and future conduct of the Company and its
subsidiaries. If, as a result of an IRS audit or otherwise, any of these facts,
representations or undertakings are determined to be incorrect or not otherwise
satisfied, the Company and its shareholders may not be able to rely on the
Ruling and could be subject to different tax consequences, including possibly
significant additional tax liabilities.
One of the several requirements for partial liquidation treatment is that the
distributing company "redeem" its stock in exchange for such distribution.
Interest holders in the Company's equity linked compensation plan are not
receiving any partial liquidation proceeds. In the Ruling, the IRS concluded
that the Distribution will be treated as in full payment in exchange for Company
stock deemed to have been redeemed provided the terms of the Company's equity
linked compensation plans are adjusted to eliminate the effect on the value of
those equity-linked instruments caused by the Distribution, satisfying this
requirement. As described herein, adjustments were approved by the Board and
subsequently will be executed to eliminate the effect of the Distribution on the
value of those instruments.
Another of the several requirements for partial liquidation treatment is that
the "net" proceeds must be distributed by December 31, 2022. While the
Distribution represents a majority of the net proceeds, it does not represent
all of the net proceeds. Although the Company plans on distributing all of the
net proceeds before December 31, 2022, if the Company fails to do so, the
Distribution may not qualify for partial liquidation treatment.
The remainder of this discussion assumes that the Distribution will be treated
as a distribution in partial liquidation for U.S. federal income tax purposes.
U.S. Federal Income Tax Treatment to U.S. Holders
Consequences of Distribution to Non-Corporate U.S. Holders
Each individual (i.e., non-corporate) U.S. holder of Company common stock will,
for U.S. federal income tax purposes, treat the Distribution as the sale of a
portion of such U.S. holder's Company common stock. Accordingly, such U.S.
holder will recognize capital gain or loss, as applicable, equal to the
difference, if any, between the cash received in the Distribution over the tax
basis of the Company common stock that is deemed surrendered. For this purpose,
a shareholder will be deemed to have surrendered a number of shares of Company
common stock equal in value to the portion of the Distribution distributed to
such shareholder. To the extent that any such gain is attributable to the sale
of Company stock held for more than 12 months, it will be long-term capital gain
currently subject to U.S. federal income tax at favorable rates. The
deductibility of capital losses is subject to limitations.
Consequences of Distribution to Corporate U.S. Holders
Corporate U.S. holders generally will be required to treat the Distribution as a
distribution with respect to, rather than in exchange for, stock for U.S.
federal income tax purposes. As a result, the distribution will be treated as a
dividend for U.S. federal income tax purposes to the extent of the Company's
current or accumulated earnings and
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profits (as determined for U.S. federal income tax purposes). To the extent that
the Distribution is treated as a dividend to a corporate U.S. holder, it
generally will be eligible for a dividends-received deduction (subject to
certain requirements and limitations). However, such dividend will be subject to
the "extraordinary dividend" rules. Accordingly, such corporate shareholder
would be required to reduce its basis in its Company common stock (but not below
zero) by the amount of the untaxed portion of the extraordinary dividend. Any of
the untaxed portion of such extraordinary dividend that is not applied to reduce
such corporate shareholder's basis in its Company common stock will be
recognized as capital gain upon the sale or other disposition of such corporate
shareholder's common stock.
To the extent that amounts received pursuant to the Distribution that are
treated as distributions exceed the Company's current and accumulated earnings
and profits, the distribution will first be treated as a non-taxable return of
capital, causing a reduction in the tax basis of such U.S. holder's shares, and
any amounts in excess of the U.S. holder's tax basis will result in capital
gain.
Information Reporting and Backup Withholding
In general, cash received pursuant to the Distribution will be subject to backup
. . .
Item 9.01. Financial Statements and Exhibits.
(a) 99.1 Press Release, dated December 3, 2021, of Laureate Education, Inc.
(b) 104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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