SQ Block Inc

On August 1, 2021 (Pacific Daylight Time) / August 2, 2021 (Australian Eastern Standard Time), Square, Inc. (“Square”), Lanai (AU) 2 Pty Ltd, an Australian proprietary company limited by shares and an indirect wholly owned subsidiary of Square (“Square Acquirer”), and Afterpay Limited, an Australian public company limited by shares and listed on the Australian Securities Exchange (“Afterpay”), entered into a Scheme Implementation Deed (the “Deed”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth therein, Square will acquire all Afterpay ordinary shares (the “Afterpay Shares”) pursuant to a court-approved scheme of arrangement under Part 5.1 of Australia’s Corporations Act 2001 (Cth) (“Corporations Act”) (the “Scheme” and such acquisition, the “Transaction”).

Under the Deed, at the time of implementation of the Scheme, all Afterpay Shares issued and outstanding as of the Record Date (as defined in the Deed) will be transferred to Square Acquirer, and the holders of such Afterpay Shares (“Scheme Participants”) will have the right to receive, for each such share, either (a) where such Scheme Participant is a Share Elected Shareholder (as defined in the Deed), 0.375 shares of Square’s Class A common stock (“New Square Shares”); or (b) where such Scheme Participant is a CDI Elected Shareholder (as defined in the Deed), 0.375 CHESS Depositary Interests (“CDIs”), each representing an ownership interest in a share of Square Class A common stock (“New Square CDIs” and, together with New Square Shares, the “Share Consideration”). The Deed provides that, at any time prior to the submission of Afterpay’s scheme booklet in respect of the Transaction (the “Scheme Booklet”) to the Australian Securities & Investments Commission (“ASIC”), Square may elect to pay 1% of the Scheme consideration in cash in Australian dollars. If Square makes such election, the per share cash payment will be determined based on the volume-weighted average trading price of a share of Square Class A common stock on the New York Stock Exchange (“NYSE”) over a to be determined five trading day period preceding the implementation date for the Scheme and the Share Consideration will be reduced by 1% to 0.37125 New Square Shares or New Square CDIs, as applicable.

Conditions to the Transaction

The respective obligations of Afterpay and Square to consummate the Transaction are subject to the satisfaction or waiver (if applicable) of a number of customary conditions, including: (1) approval by Afterpay’s shareholders of the Scheme in accordance with the Corporations Act; (2) approval by Square’s shareholders of the issuance of New Square Shares and shares of Square Class A common stock underlying New Square CDIs in connection with the Scheme (the “Square Shareholder Approval”); (3) certain regulatory approvals, including, but not limited to, expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval or non-objection by Australia’s Foreign Investment Review Board, New Zealand’s Overseas Investment Office, Spain’s Council of Ministers and the Bank of Spain; (4) compliance by each party in all material respects with such party’s obligations under the Deed; (5) accuracy of each party’s representations and warranties, subject to certain materiality standards set forth in the Deed; (6) non-occurrence of Prescribed Events (as defined in the Deed); (7) non-occurrence of a material adverse effect with respect to each party; (8) sanction of the Scheme by the Supreme Court of New South Wales, or another court of competent jurisdiction under the Corporations Act agreed by the parties (the “Court”); (9) the absence of any governmental order, injunction, decree or ruling prohibiting consummation of the Transaction; (10) issuance of an independent expert report concluding that the Scheme is in the best interests of the Scheme Participants before the Scheme Booklet is submitted to ASIC; and (11) the New Square Shares and New Square CDIs issuable in the Transaction having been approved for listing on the NYSE and Australian Securities Exchange (“ASX”), respectively, and, if required, registered under the Securities Act of 1933, as amended (the “Securities Act”). The closing of the Transaction is expected to occur in the first quarter of calendar year 2022, subject to the satisfaction or waiver of such conditions.

Representations and Warranties; Covenants

The Deed contains customary representations and warranties given by Square and Afterpay. The Deed also contains pre-closing covenants as is customary for transactions of this nature, including, but not limited to, the obligation of Afterpay to conduct its business in the ordinary course in substantially the same manner as previously conducted and covenants by each of the parties to refrain from taking specified actions without the consent of the other party. The parties have agreed to use all reasonable endeavors to, among other things, implement the Scheme as soon as reasonably practicable.

Square’s board of directors has agreed to recommend that Square’s shareholders vote in favor of the Square Shareholder Approval and Afterpay’s board of directors has agreed to recommend that Afterpay’s shareholders vote in favor of the Scheme, with such recommendation in each case subject to customary exceptions. In addition, the Deed provides that,

during the period from the date of the Deed until the termination of the Deed in accordance with its terms, Afterpay is subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions.

Treatment of Equity Awards

Pursuant to the Deed and subject to the Scheme becoming effective, equity awards held by non-employee directors of Afterpay will vest in full and, if timely exercised in the case of Afterpay stock options, participate in the Scheme on the same basis as other Afterpay Shares. Outstanding equity awards of Afterpay and its subsidiaries held by employees will generally be treated as follows: (i) a portion of each Afterpay award will vest immediately following the Scheme becoming effective so that the vested portion of the award equals the number of months of the total applicable vesting period that have elapsed through to the Scheme becoming effective divided by the total number of months in the vesting period, (ii) the vested portion of each Afterpay award will receive New Square Shares (less any exercise price in the case of Afterpay stock options), and (iii) at closing the unvested portion of each Afterpay award will be converted into a Square award of the same character in a manner that preserves its value and generally on the same terms and conditions except that the award will vest on a quarterly basis from the Scheme becoming effective through the last vesting date of the corresponding Afterpay award.

Termination and Termination Fees

The Deed contains certain customary termination rights for both parties, including, among others, if (1) the Scheme is not implemented by August 2, 2022 (the “End Date”), (2) subject to certain exceptions (i) a governmental authority of competent jurisdiction has issued a final, non-appealable order or other legal restraint prohibiting or making illegal the consummation of the Scheme or (ii) a governmental authority that must grant regulatory approval necessary for the Transaction has denied such regulatory approval and such denial has become final and non-appealable, (3) the parties are unable to agree on a revision to the terms of the Scheme after a failure of certain conditions precedent to the Scheme or (4) the Court denies approval of the Scheme, and the parties agree not to appeal the denial or an independent counsel determines that an appeal would be futile. Each party may terminate the Deed if, among other things, (1) the other party’s board of directors has made an adverse change in recommendation or (2) the other party materially breaches a term of the Deed, subject to certain cure periods. In addition, Afterpay may terminate the Deed if Afterpay’s board of directors has determined that a competing transaction constitutes an Afterpay Superior Proposal (as defined in the Deed), subject to Afterpay’s compliance with certain requirements.

Under the Deed, Afterpay will be required to make a payment of A$385 million to Square if (1) the Deed is terminated by Square (i) as a result of an adverse change in recommendation by Afterpay’s board of directors (other than where the change is made due to the withdrawal of the independent expert’s recommendation in circumstances not involving a competing transaction for Afterpay or in circumstances arising as a result of Square’s material breach of the Deed) or (ii) on the basis of a material breach of the Deed by Afterpay, (2) the Deed is terminated by Afterpay upon Afterpay’s board of directors’ determination that a competing transaction constitutes an Afterpay Superior Proposal or (3) a competing transaction for Afterpay is announced before the effective date for the Scheme, and such a competing transaction is completed within 12 months of the End Date.

Under the Deed, Square will be required to make a payment of A$385 million to Afterpay if (1) the Deed is terminated by Afterpay (i) as a result of an adverse change in recommendation by Square’s board of directors (other than where the change is made in circumstances arising as a result of Afterpay’s material breach of the Deed) or (ii) on the basis of a material breach of the Deed by Square, (2) the Deed is terminated by Square or Afterpay for Square’s failure to obtain the Square Shareholder Approval or the Deed is terminated by Afterpay due to the Square Shareholder Approval not being obtained prior to the End Date (in each case provided Square’s board of directors has not changed, withdrawn or adversely modified its recommendation to vote in favor of the Transaction), or (3) a competing transaction for Square is announced before the effective date of the Scheme, and such a competing transaction is completed within 12 months of the End Date.

In the event the Scheme becomes effective, no termination fee will be payable by either party.

Governance

Under the Deed, one of Afterpay’s directors will be appointed to Square’s board of directors as of immediately following the implementation of the Scheme as a Class III director.

Additional Information

The foregoing description of the Transaction, the Scheme and the Deed does not purport to be complete and is qualified in its entirety by reference to the full text of the Deed, which is filed as Exhibit 2.1 to this Current Report on Form 8-K, and is incorporated herein by reference. A copy of the Deed has been included to provide investors with information regarding its terms and is not intended to provide any factual information about Square or Afterpay.

The Deed contains representations, warranties, covenants and agreements, which were made only for purposes of such agreement and as of specified dates. The representations and warranties in the Deed reflect negotiations between the parties to the Deed and are not intended as statements of fact to be relied upon by Square’s or Afterpay’s shareholders or any other person. In particular, the representations, warranties, covenants and agreements in the Deed may be subject to limitations agreed by the parties, including having been modified or qualified by certain confidential disclosures that were made between the parties in connection with the negotiation of the Deed, and having been made for purposes of allocating risk among the parties rather than establishing matters of fact. In addition, the parties may apply standards of materiality in a way that is different from what may be viewed as material by investors. As such, the representations and warranties in the Deed may not describe the actual state of affairs at the date they were made or at any other time and you should not rely on them as statements of fact. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Deed, and unless required by applicable law, Square undertakes no obligation to update such information.