Item 8.01 Other Events.
On September 14, 2022, 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 $0.83 per each share of
the Company's Common Stock, par value $0.004 per share, to each holder of record
on September 28, 2022. The Distribution is scheduled to be paid on October 12,
2022. Based on the current number of shares outstanding, the aggregate amount of
the Distribution is expected to be approximately $137 million.
The proceeds being distributed are attributable to the release of $71.7 million
of escrowed funds from the Sale plus remaining net proceeds that had yet to be
distributed. This is anticipated to be the final distribution pursuant to the
Plan.
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 $0.83 per share, and holders of restricted and performance stock
units will receive an amount in cash equal to $0.83 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 $800,000.
On September 14, 2022, 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. Except to
the extent described below under "MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
TO THE RECEIPT OF THE DISTRIBUTION," 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).
Notwithstanding the above, the Company is not yet able to finally determine the
amount of net proceeds from the Sale as relevant for purposes of the private
letter ruling described above. If the amount of the Distribution exceeds the net
proceeds from the Sale, a portion of the Distribution could be treated as a
distribution with respect to, rather than in exchange for, stock for U.S.
federal income tax purposes. Accordingly, such portion of the Distribution would
be treated as a dividend for U.S. federal income tax purposes to the extent of
the Company's current or accumulated earnings and profits (as determined for
U.S. federal income tax purposes). 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 a holder's shares, and any amounts in excess of a holder's tax basis will
result in capital gain.
Because a currently undetermined portion of the Distribution could be treated as
a distribution with respect to, rather than in exchange for, stock for U.S.
federal income tax purposes, it is possible that a withholding agent may
withhold tax at a rate of 30% (or such lower rate as may be specified by an
applicable income tax treaty) on the entire amount of the Distribution payable
to a non-U.S. holder (as defined below). Non-U.S. holders should consult their
own tax advisors regarding their particular facts and circumstances, the
procedures for claiming treaty benefits or otherwise establishing an exemption
from U.S. withholding taxes with respect to the Distribution, and any action
that may be taken to mitigate any potential adverse tax consequences.
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."
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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 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 ("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, and except as described below, 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.
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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.
In addition, the Ruling requires that the "net" proceeds of the Sale must be
distributed by December 31, 2022. While the Distribution is intended to be
limited to the remaining net proceeds from the Sale after giving effect to the
prior distributions paid on October 29, 2021 and December 28, 2021 (the "Prior
Distributions"), the Company is not yet able to finally determine the amount of
net proceeds as relevant for purposes of the Ruling. To ensure compliance with
the Ruling, the amount of the Distribution represents the maximum amount of net
proceeds from the Sale currently reasonably determinable.
In the event that the Distribution, together with the Prior Distributions,
represents more than the net proceeds of the Sale, a portion of the Distribution
could be treated as a distribution with respect to, rather than in exchange for,
stock for U.S. federal income tax purposes.
In the event that the Distribution, together with the Prior Distributions,
represents less than the net proceeds of the Sale and the Company is unable to
distribute the remainder of the net proceeds of the Sale before December 31,
2022, the Distribution may not qualify for partial liquidation treatment and the
entire Distribution would be treated as a distribution with respect to, rather
than in exchange for, stock for U.S. federal income tax purposes.
The remainder of this discussion assumes that, for purposes of qualifying as
partial liquidation for U.S. federal income tax purposes, the Distribution
represents an amount equal to or greater than the net proceeds of the Sale.
U.S. Federal Income Tax Treatment to U.S. Holders
Consequences of Distribution to Non-Corporate U.S. Holders
Except as described below, 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
. . .
Item 9.01. Financial Statements and Exhibits.
(a) 99.1 Laureate Education, Inc. Press Release, dated September 14, 2022
(b) 104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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