BLOCK, INC. 
Item 8.01 Other Events.
As previously announced, onAugust 1, 2021 (Pacific Daylight Time ) /August 2, 2021 (Australian Eastern Standard Time),Square, Inc. ("Square"), Lanai (AU) 2Pty Ltd , an Australian proprietary company limited by shares and an indirect wholly owned subsidiary of Square ("Lanai"), and Afterpay Limited, an Australian public company limited by shares and listed on theAustralian Securities Exchange ("Afterpay"), entered into a Scheme Implementation Deed pursuant to which, subject to the satisfaction or waiver of the conditions set forth therein, Square will acquire (indirectly through Lanai) all Afterpay ordinary shares pursuant to a court-approved scheme of arrangement under Part 5.1 ofAustralia's Corporations Act 2001 (Cth) (the "Transaction"). OnOctober 5, 2021 , Square filed with theSecurities and Exchange Commission (the "SEC") a definitive proxy statement (the "Definitive Proxy Statement") with respect to the special meeting of Square stockholders scheduled to be held onNovember 3, 2021 in connection with the Transaction (the "Special Meeting").
Litigation Related to the Transaction
In connection with the Transaction, eight lawsuits were filedbetween October 13 and October 25, 2021 against one or more of Square and the directors of Square (collectively, the "Defendants"). One complaint, Bushansky v.Square, Inc. et al., C.A. No. 3:21-cv-08013 (the "Bushansky Complaint"), was filed in theU.S. District Court for the Northern District of California ; one complaint, Duenas v.Square, Inc. et al., C.A. No. 1:21-cv-05822 (the "Duenas Complaint"), was filed in theU.S. District Court for the Eastern District of New York ; three complaints, Fetting v.Square, Inc. et al., C.A. No. 1:21-cv-08589 (the "Fetting Complaint"), Dunlap v.Square, Inc. et al., C.A. No. 1:21-cv-08612 andFranchi v.Square, Inc. et al., C.A. No. 1:21-cv-08673 (the "Franchi Complaint"), were filed in theU.S. District Court for the Southern District of New York ; two complaints, Rosenblatt v.Square, Inc. et al., C.A. No. 1:21-cv-01471 and Sabatini v.Square, Inc. et al., C.A. No. 1:21-cv-01482 (the "Sabatini Complaint"), were filed in theU.S. District Court for the District of Delaware ; and one complaint, Shumacher v.Square, Inc. et al., C.A. No. 2:21-cv-04665, was filed in theU.S. District Court for the Eastern District of Pennsylvania . The complaints generally allege, among other things, that the Defendants disseminated a false or misleading proxy statement regarding the Transaction in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and SEC Rule 14a-9 promulgated thereunder. The complaints allege (1) that the Definitive Proxy Statement filed by Square omitted or misrepresented material information regarding the financial valuation analyses performed by Square's financial advisor in support of its fairness opinion, and in the cases of the Bushansky Complaint, the Duenas Complaint, the Fetting Complaint and the Sabatini Complaint, the deliberations of Square's board of directors leading up to the Transaction, as well as in the cases of the Duenas Complaint, the Fetting Complaint and the Franchi Complaint, potential conflicts of interest involving Square's financial advisor, and (2) that disclosure of material information is necessary for Square's stockholders to make an informed decision regarding whether to vote in favor of the issuance of shares of Square Class A common stock in connection with the Transaction. The complaints further allege that Square's directors are liable for alleged violations as "controlling persons" of Square under Section 20(a) of the Exchange Act. Additionally, two purported Square stockholders sent demand letters alleging similar purported insufficiencies in the disclosures in the Definitive Proxy Statement onOctober 8 andOctober 22, 2021 respectively (such letters, the "Demand Letters" and together with the lawsuits, the "Matters"). Among other relief, the complaints generally seek injunctive relief, including enjoining the Transaction unless and until the Defendants disclose the allegedly omitted material information and rescinding the Transaction in the event the Defendants consummate the Transaction (or awarding rescissory damages), declaratory judgment that the Defendants violated Sections 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9 promulgated thereunder, damages, and an award of attorneys' and experts' fees. Square believes that the claims asserted in the Matters are without merit and that no further disclosure is required under applicable law. However, in order to avoid the risk of the Matters delaying or adversely affecting the Transaction and to minimize the costs, risks, and uncertainties inherent in litigation, and without admitting any liability or wrongdoing, Square has determined to voluntarily supplement the Definitive Proxy Statement as described in this Current Report on Form 8-K. Nothing in this Current Report on Form 8-K shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, Square specifically denies all allegations in the Matters that any additional disclosure was or is required. -------------------------------------------------------------------------------- As a result of supplemental disclosures set forth herein, the plaintiffs in the lawsuits have agreed to voluntarily dismiss their actions with prejudice, and the purported stockholders who sent the Demand Letters have agreed not to file any complaint in connection with the Transaction.
Supplemental Disclosures to Definitive Proxy Statement
This supplemental information to the Definitive Proxy Statement should be read in conjunction with the Definitive Proxy Statement, which should be read in its entirety. Nothing herein shall be deemed an admission of the legal necessity or materiality of any of the disclosures set forth herein. All page references in the information below are to pages in the Definitive Proxy Statement, and all terms used but not defined below shall have the meanings set forth in the Definitive Proxy Statement.
The following underlined language is added to the thirteenth full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Background of the Transaction" that appears on page 60.
OnMay 17 and 18, 2021,Mr. Dorsey ,Ms. Henry andMr. Grassadonia met withMr. Molnar in person, withMr. Eisen participating by videoconference. The parties had a wide-ranging discussion regarding their respective visions for the future of each company, what an acquisition by Square of Afterpay could achieve and the challenges and opportunities that such an integration would present. The parties agreed to explore further the possibility of an acquisition of Afterpay by Square, with the representatives of Square indicating that they would need to conduct preliminary due diligence on Afterpay before determining whether to make a proposal for a potential acquisition and the terms of any such proposal, including to better understand the potential synergies associated with the combination. At this meeting, the participants discussed whether, in the event the parties were to pursue and consummate a potential transaction and integration of Afterpay into Square's Seller and Cash App ecosystems,Mr. Eisen andMr. Molnar would be willing to continue to lead the respective Afterpay businesses as part of Square's Seller business, led byMs. Henry , and Square's Cash App business, led byMr. Grassadonia . Neither at this meeting nor at any time prior to the execution of the Transaction Agreement did representatives of Square discuss any specific details of post-closing employment or compensation with Messrs. Eisen and Molnar (beyond their general willingness to continue to lead the respective Afterpay businesses following the consummation of a potential transaction), or with any other Afterpay executive. The following underlined language is added to the second full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Opinion of Square's Financial Adviser-Summary of Financial Analyses" that appears on page 74. In performing the financial analyses summarized below and arriving at its opinion, Morgan Stanley utilized and relied upon certain financial projections (a) for Afterpay, set forth in (i) the Afterpay Standalone Projections, (ii) the Afterpay Selected Street Projections, and (iii) the Synergy Projections and (b) for Square, set forth in the Square Consensus Projections, which, in each case, were approved by Square's management for Morgan Stanley's use. For further information regarding the financial projections, see the section titled " -Summary of Certain Financial Projections Provided to Square's Board of Directors and Square's Financial Adviser", beginning on page 69 of this proxy statement. For Afterpay, except as otherwise noted, Morgan Stanley utilized in each of its analyses described below the number of outstanding ordinary shares of Afterpay on a fully diluted basis, based on the following inputs as prepared and provided by Afterpay's management as ofJuly 30, 2021 , and approved by Square's management for Morgan Stanley's use onJuly 30, 2021 , which included (A) 290.1 million ordinary shares outstanding, (B) 1.2 million Afterpay RSU Awards outstanding, (C) 3,816 rights outstanding, (D) 2.8 million Afterpay options outstanding exercisable at a weighted-average exercise price ofA$24.24 per share, and (E) 0.2 million loan shares outstanding exercisable at a weighted-average exercise price ofA$4.77 per share, and assumed a change of control treatment for the outstanding SGX-listed Convertible Notes assuming aDecember 31, 2021 closing date where the outstanding principal will be (i) settled in cash if Afterpay's stock price is below the implied change-of-control conversion price ofA$141.43 and (ii) settled in stock if Afterpay's stock price is above the implied change-of-control conversion price ofA$141.43 . Further, Morgan Stanley utilized in each of its analyses described below the number of outstanding ordinary shares of Afterpay arising from securities issued by certain of Afterpay's subsidiaries. With respect to such ordinary shares, Afterpay's management provided Morgan Stanley with (a) the inputs for Morgan Stanley's use (which were based on Afterpay ordinary shares' closing price as ofJuly 30, 2021 and provided to Morgan Stanley onJuly 30, 2021 ) and (b) assumptions and methodologies to use in calculating the number of Afterpay ordinary shares on a fully diluted basis into which such instruments issued by Afterpay's subsidiaries may be converted at different closing prices of Afterpay's ordinary shares. Both (a) and (b) were approved by Square's management for Morgan Stanley's use onJuly 30, 2021 . Such inputs included the following, and resulted in the aggregate number of 11.1 million ordinary shares of Afterpay on a fully diluted basis: (A) US andUK ESOP shares outstanding, (B) shares relating to a -------------------------------------------------------------------------------- put and call option outstanding, (C) shares convertible under convertible notes outstanding and (D) shares relating to deferred consideration outstanding. And for Square, except as otherwise noted, Morgan Stanley utilized in each of its analyses described below the number of outstanding shares of Square's common stock on a fully diluted basis, based on the following inputs as prepared by Square's management as ofJuly 29, 2021 andJuly 30, 2021 , and provided by Square's management to Morgan Stanley for use onJuly 29, 2021 andJuly 30, 2021 , which included (A) 459.7 million shares of common stock outstanding, (B) 10.6 million Square options outstanding exercisable at a weighted-average exercise price of$23.59 per share, (C) 14.4 million Square RSUs and RSAs outstanding, (D)$2,904 million principal of outstanding convertible notes fully settled in stock (net of potential proceeds from note hedges). In addition, for purposes of the financial analyses described below, Morgan Stanley utilized the historical net debt of (i)$353 million for Afterpay and (ii)$(4,344 million) for Square, both of which were based on the closing prices of Afterpay and Square as ofJuly 30, 2021 , respectively (and reflects the value of respective convertible notes based on Afterpay ordinary shares and Square Class A common stock closing prices as ofJuly 30, 2021 , respectively), and provided by respective managements and approved for Morgan Stanley's use by Square's management. The following underlined language is added to, and the crossed out language is deleted from, the first full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Opinion of Square's Financial Adviser-Public Trading Comparables Analysis" that appears on page 74. Morgan Stanley performed a public trading comparables analysis, which attempts to provide an implied value of a company by comparing it to similar companies that are publicly traded. Morgan Stanley reviewed and compared certain financial estimates for Square and Afterpay with comparable publicly available selected equity research analyst estimates for companies, with such companies selected based on Morgan Stanley's professional judgment and experience, that share similar business characteristics and have certain comparable operating characteristics including, among other things, similarly sized revenue and/or revenue growth rates, market capitalizations, profitability, scale and/or other similar operating characteristics (these companies are referred to as the "comparable companies"). The selected equity research analyst estimates for the comparable companies were approved for Morgan Stanley's use by Square's management. These comparable companies were Shopify and Affirm. Square was included as a comparable company for the analysis related to Afterpay, and Afterpay was included as a comparable company for the analysis related to Square. For the purpose of this analysis, Morgan Stanley utilized (i) Shopify Inc., Affirm Holdings, Inc. and Square as comparable companies for Afterpay, and (ii) Shopify Inc., Affirm Holdings, Inc. and Afterpay as comparable companies for Square.
The following underlined language (and the related chart) is added as a new paragraph following the second full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Opinion of Square's Financial Adviser-Afterpay Public Trading Comparables Analysis" that appears on page 75.
The ratios and the relevant multiples are as follows:
AV / Gross Profit / AV / SS EBITDA AV / SS EBITDA/
Public Trading Multiples- AV / Gross Profit Growth (CY 2022E; CY Growth
Comparable Companies (CY 2022E; CY 2023E) (CY 2022E; CY 2023E) 2023E) (CY 2022E; CY 2023E)
Affirm Holdings, Inc. 18.5x; 13.7x 0.55x; 0.41x 30.5x; 23.0x 0.90x; 0.68x
Afterpay 23.6x; 18.1x 0.62x; 0.66x 44.8x; 34.5x 1.18x; 1.26x
Shopify, Inc. 60.4x; 47.1x 2.21x; 1.72x 102.5x; 80.8x 3.74x; 2.95x
Square 22.4x; 17.6x 0.83x; 0.71x 52.4x; 41.6x 1.94x; 1.67x
The following underlined language is added to the third full paragraph in the
section of the Definitive Proxy Statement entitled "The Transaction-Opinion of
Square's Financial Adviser-Afterpay Discounted Equity Value Analysis" that
appears on page 77.
In each case, Morgan Stanley then subtracted estimated future net debt (for more
information on calculation of historical net debt amount, see " -Summary of
Financial Analyses") and non-controlling interest of
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Afterpay's management and approved by Square's management for Morgan Stanley's use and adjusted, based on the unaudited projected financial forecasts set forth in " -Summary of Certain Financial Projections Provided to Square's Board of Directors and Square's Financial Adviser" beginning on page 69 of this proxy statement, to reflect future cash flow estimates) to Afterpay's future implied aggregate value to reach a future implied fully diluted equity value. In each case, Morgan Stanley then divided the future implied fully diluted equity value by estimated fully diluted shares outstanding (with such estimates provided by Afterpay's management and approved by Square's management for Morgan Stanley's use and adjusted for estimated increases in basic share count based on the Afterpay Selected Street Projections) to calculate the fully diluted equity value per share. Morgan Stanley then discounted the resulting implied future share price toJuly 30, 2021 , at a discount rate of 9.0%, which rate was selected based on Afterpay's estimated cost of equity, which was arrived at upon the application of Morgan Stanley's professional judgment and experience, taking into account macro-economic assumptions, estimates of risk and other appropriate factors and by applying the capital asset pricing model, to calculate the discounted fully diluted equity value per share. Morgan Stanley then utilized the same methodology in applying a hurdle rate of 15% in its analysis. Based on these calculations, the analysis implied the following value ranges per Afterpay ordinary share: Selected AV Estimated Implied Value per Afterpay Based on Calendar Year 2028 Gross Profit Multiple Ranges Ordinary Share (A$) Estimated Gross ProfitAfterpay Selected Street Projections - 9% Discount Rate 12.5x -18.5x 111 -161Afterpay Selected Street Projections - 15% Hurdle Rate 12.5x -18.5x 85 - 124 Afterpay Standalone Projections - 9% Discount Rate 12.5x -18.5x 220 -325 Afterpay Standalone Projections - 15% Hurdle Rate 12.5x -18.5x 169 -249 Afterpay Standalone Projections Including Synergies - 9% Discount Rate 12.5x -18.5x 305 -452 Afterpay Standalone Projections Including Synergies - 15% Hurdle Rate 12.5x -18.5x 234 -346 The following underlined language is added to the third full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Opinion of Square's Financial Adviser-Square Discounted Equity Value Analysis" that appears on page 77. Morgan Stanley then subtracted Square's estimated future net debt (for more information on calculation of historical net debt amount, see " -Summary of Financial Analyses") and non-controlling interest of$48 million (as such historical balance sheet amounts were provided by Square's management and approved by Square's management for Morgan Stanley's use and adjusted, based on the unaudited projected financial forecasts set forth in " -Summary of Certain Financial Projections Provided to Square's Board of Directors and Square's Financial Adviser" beginning on page 69 of this proxy statement, to reflect future cash flow estimates) to Square's future implied aggregate value to reach a future implied fully diluted equity value. Morgan Stanley then divided the future implied fully diluted equity value by estimated fully diluted shares outstanding (with such estimates provided by Square's management and adjusted for estimated increases in share count in line with equity research analyst estimates) to calculate the fully diluted equity value per share. Morgan Stanley then discounted the resulting implied future share price toJuly 30, 2021 , at a discount rate of 11.2%, which rate was selected based on Square's estimated cost of equity, which was arrived at upon the application of Morgan Stanley's professional judgment and experience, taking into account macro-economic assumptions, estimates of risk and other appropriate factors and by applying the capital asset pricing model, to calculate the discounted fully diluted equity value per share. Morgan Stanley also applied a hurdle rate of 15% in its analysis. Based on these calculations, the analysis implied the following value ranges per share of Square Class A common stock: Selected AV / Implied Value per Based on Calendar Year 2028 Estimated Gross Estimated Gross Profit Share of Square Class A Profit Multiple Ranges Common Stock ($) Square Consensus Projections - 11.2% Discount Rate 12.5x - 18.5x 242 - 354 Square Consensus Projections - 15% Hurdle Rate 12.5x - 18.5x 204 - 299 -------------------------------------------------------------------------------- The following underlined language is added to the second full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Opinion of Square's Financial Adviser-Afterpay Discounted Cash Flow Analysis" that appears on page 78. Morgan Stanley discounted the levered free cash flows and terminal values, using a midyear convention, to present values as ofJuly 30, 2021 , at a discount rate ranging from 8.0% to 10.0%, which discount rates were selected, upon the application of Morgan Stanley's professional judgment and experience and taking into account macro-economic assumptions, estimates of risk and other appropriate factors, to reflect an estimate of Afterpay's cost of equity determined by the application of the capital asset pricing model. Morgan Stanley utilized perpetual growth rates of 3.5% to 4.5% as part of its analyses, with such rates selected by applying Morgan Stanley's professional judgment and experience, taking into account market expectations regarding long-term real growth rate of gross domestic product, inflation and other appropriate factors. The following underlined language is added to the second full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Opinion of Square's Financial Adviser-Square Discounted Cash Flow Analysis" that appears on page 78 and page 79. The free cash flows and terminal values were discounted, using a midyear convention, to present values as ofJuly 30, 2021 , at a discount rate ranging from 10.0% to 12.0%, which discount rates were selected, upon the application of Morgan Stanley's professional judgment and experience and taking into account macro-economic assumptions, estimates of risk, Square's capital structure and other appropriate factors, to reflect an estimate of Square's weighted average cost of capital determined by the application of the capital asset pricing model. Morgan Stanley utilized perpetual growth rates of 3.5% to 4.5% as part of its analyses, with such rates selected by applying Morgan Stanley's professional judgment and experience, taking into account market expectations regarding long-term real growth rate of gross domestic product, inflation and other appropriate factors. The resulting aggregate value was then adjusted for net debt and non-controlling interest to derive the implied equity value. The following underlined language is added to the first full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Opinion of Square's Financial Adviser-Precedent Transactions Premia" that appears on page 79. Morgan Stanley performed an illustrative precedent premia analysis for Afterpay by reviewing selected all-stock transactions for acquired companies inthe United States ,Australia and outside ofthe United States andAustralia . Among the transactions observed by Morgan Stanley for the purpose of this analysis, there were 15 transactions in theU.S. , four inAustralia and five international transactions. Morgan Stanley noted the distributions of the (i) implied premium to the acquired company's closing share price on the last trading day prior to announcement (or the last trading day prior to the share price being affected by acquisition rumors or similar merger-related news); and (ii) the implied premium to the acquired company's average closing share price during the one month preceding the announcement (or the last trading day prior to share price being affected by acquisition rumors or similar merger-related news). The median premia to spot for theU.S. transactions, Australian transactions and international transactions were 22%, 26% and 7%, respectively, and the median premia to 1-month average for theU.S. transactions, Australian transactions and international transactions were 23%, 29% and 15%, respectively. Based on the analysis of minimum and maximum observed premia for such selected transactions and applying Morgan Stanley's professional judgment and experience, Morgan Stanley selected representative ranges of premia and applied such ranges to (i) the closing trading price as ofJuly 30, 2021 (the last full trading day prior to the meeting of Square's board of directors to approve the Transaction Agreement and the Transaction) for Afterpay ordinary shares for the one-day premia and (ii) Afterpay's one month average closing price for the one-month premia. For the one-day premia, the per share distribution range was$96 -$150 , and for the one-month premia, the distribution range was$113 -$193 . The following underlined language is added to the first full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Opinion of Square's Financial Adviser-Equity Research Analysts' Future Price Targets" that appears on page 80. Morgan Stanley noted certain future public market trading price targets for Afterpay ordinary shares and Square Class A common stock prepared and published by equity research analysts prior toJuly 30, 2021 (the last full trading day prior to the
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meeting of Square's board of directors to approve the Transaction Agreement and the Transaction). Morgan Stanley utilized 17 such price targets for Afterpay and 43 for Square. These targets reflected each analyst's estimate of the future public market trading price of such shares. Morgan Stanley discounted the range of analyst price targets per share for the Afterpay ordinary shares by one year at a rate of 9.0%, which discount rate was selected by Morgan Stanley, upon the application of its professional judgment and experience and taking into account macro-economic assumptions, estimates of risk and other appropriate factors, to reflect Afterpay's cost of equity. Morgan Stanley discounted the range of analyst price targets per share for the Square Class A common stock by one year at a rate of 11.2%, which discount rate was selected by Morgan Stanley, upon the application of its professional judgment and experience and taking into account macro-economic assumptions, estimates of risk and other appropriate factors, to reflect Square's cost of equity. These calculations resulted in a range of discounted price targets for Afterpay ordinary shares ofA$33 toA$161 per share and a range of$157 to$342 per share of Square Class A Common Stock. In addition, the median discounted price targets for (i) Afterpay ordinary shares wasA$138 per share and (ii) Square Class A common stock was$252 per share. The following underlined language is added to, and the crossed out language is deleted from, the sixth full paragraph in the section of the Definitive Proxy Statement entitled "The Transaction-Opinion of Square's Financial Adviser-General" that appears on page 81 and page 82. Under the terms of its engagement letter, Morgan Stanley provided Square with financial advisory services and a financial opinion in connection with the Transaction, described in this section and attached to this proxy statement asAnnex C. Square has agreed to pay Morgan Stanley for its services a fee of approximately$30 million ,$25 million of which will be paid upon the closing of the Transaction, and$5 million of which was paid upon the public announcement of the Transaction and an additional discretionary fee of up to$15 million , which amount, if any, will be determined in the sole discretion of Square, taking into consideration, among other factors, any change in the scope and length of Morgan Stanley's engagement, as well as quality of work, value added, . . .
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