Item 1.01 Entry into a Material Definitive Agreement.
As described in more detail below in this Item 1.01 and in Items 5.02 and 5.03, on July 21, 2022, Snap Inc. (the “Company”) entered into a series of transactions that provide for (i) employment agreements (the “Employment Agreements”) with Evan Spiegel and Robert Murphy (each, a “Co-Founder”), pursuant to which Mr. Spiegel will continue to serve as our Chief Executive Officer (“CEO”) and Mr. Murphy will continue to serve as our Chief Technology Officer (“CTO”) for an initial term ending on January 1, 2027, during which they each have agreed to devote substantially all of their professional time to the Company, subject to certain conditions, (ii) the future declaration and payment of a special dividend of one share of Class A common stock on each outstanding share of Snap’s common stock (the “Special Dividend”), which Special Dividend shall not be declared and paid until the later of June 30, 2023 and the first business day following the date on which the 65-Day VWAP (as defined below) equals or exceeds $40 per share, and (iii) additional agreements to be entered into with Messrs. Spiegel and Murphy and certain of their respective affiliates (the “Co-Founder Agreements”) which provide for, among other things, (a) the Co-Founders being required under certain circumstances to convert an equal number of shares of Class B common stock or Class C common stock into Class A common stock in connection with sales by such Co-Founder of shares of Class A common stock received in the Special Dividend, (b) conversion of a Co-Founder’s remaining shares of Class C common stock into Class B common stock at such time as such Class C common stock represents in the aggregate less than 60% of such Co-Founder’s Base Class C Common Stock (as such term is defined in our Amended and Restated Certification of Incorporation) and (c) in the event of any sale or liquidation of the Company following the Special Dividend, shares of Class A common stock, Class B common stock, and Class C common stock are to be treated identically, equally and ratably, on a per share basis, with respect to any consideration received.
Special Dividend
On July 19, 2022, our board of directors, after receiving the recommendation of a special committee of the board of directors (the “Special Committee”), determined that it is advisable and in our best interests, and in the best interests of our stockholders (other than Mr. Spiegel and Mr. Murphy and certain of their respective affiliates that hold shares of our capital stock, as to whom no determination was made), to declare and pay a Special Dividend of one share of Class A common stock as a one-time stock dividend on each outstanding share of Snap’s common stock; provided, however, that the Special Dividend shall not be declared until the later of (i) June 30, 2023 and (ii) the first business day following the date on which the 65-Day VWAP (as defined below) equals or exceeds $40 per share, or, if the board of directors so determines, a date that is within five business days after the later of such two dates. “65-Day VWAP” means the average of the volume weighted average price per share of Class A common stock traded on the New York Stock Exchange, or any other national securities exchange on which the shares of Class A common stock are then traded, for each of the 65 trading days ending on, and including, the first trading day immediately preceding the date of determination of the 65-Day VWAP. If the 65-Day VWAP does not exceed $40 per share by July 21, 2032, the Special Dividend will not be declared and paid and the Co-Founder Agreements shall terminate and be of no further force and effect.
Co-Founder Agreements
In connection with the Special Dividend, our board of directors, after receiving the recommendation of the Special Committee, has approved, and on July 21, 2022 we entered into, Co-Founder Agreements with each of Messrs. Spiegel and Murphy and certain of their respective affiliates (generally, trusts and other estate and philanthropic planning vehicles through which Messrs. Spiegel and Murphy hold all or a portion of their shares of Class A common stock, Class B common stock, and Class C common stock), pursuant to which Messrs. Spiegel and Murphy, and certain of their respective affiliates have agreed, subject to certain exceptions, to convert an equal number of shares of Class B common stock or Class C common stock into Class A common stock (“Paired Conversions”) if such Co-Founder were to sell shares of Class A common stock received on shares of Class B common stock or Class C common stock pursuant to the Special Dividend (“Dividend Share Sales”) if: (1) beginning on June 30, 2023 and ending on January 1, 2027, such Co-Founder (or such Co-Founder’s permitted transferees or qualified trustees) were to engage in Dividend Share Sales or (2) such Co-Founder were to engage in Dividend Share Sales beginning on the date (if any) on which the Co-Founder has neither been a director nor an employee of the Company for the Applicable Number of Years (as defined below) (except if he has been terminated by the Company without Cause, has resigned for Good Reason, has died, or has suffered a Disability Event, as such terms are defined in the Co-Founder Agreements), and ending on the date (if any) on which the Co-Founder resumes service with the Company as a director or employee. “Applicable Number of Years” means a continuous period of two years, except that if the Co-Founder is primarily engaged in public service or philanthropic endeavors while separated from the Company, the Applicable Number of Years means a continuous period of five years.
Notwithstanding the foregoing, none of the Paired Conversions described above shall occur upon (x) a sale of shares of Class A common stock which would qualify as a permitted transfer if such sale were made of shares of Class B common stock or shares of Class C common stock or (y) a donation of shares of Class A common stock to a tax-exempt organization or a sale of shares of Class A common stock the net proceeds of which are donated to a tax-exempt organization.
Additionally, pursuant to the Co-Founder Agreements, after giving effect to the Special Dividend, the Class C common stock held by a Co-Founder and his permitted transferees and qualified trustees will be converted into Class B common stock at such time as such Class C common stock represents in the aggregate less than 60% of such Co-Founder’s Base Class C Common Stock (as such term is defined in our Amended and Restated Certification of Incorporation) (with any shares of Class C common stock transferred to the
1
other Co-Founder and such other Co-Founder’s related entities considered not held by the first Co-Founder for such calculation, except to the extent the first Co-Founder retains voting control over the transferred shares).
Furthermore, the Co-Founder Agreements provide that, in the event of any Liquidation Event (as such term is defined in our Amended and Restated Certification of Incorporation) following the Special Dividend shares of Class A common stock, Class B common stock, and Class C common stock are to be treated identically, equally, and ratably, on a per share basis, with respect to any consideration into which such shares are converted or other consideration paid or otherwise distributed to stockholders of the Company, unless different treatment of each such class is approved in advance by the affirmative vote of the holders of a majority of the outstanding shares of the applicable class treated adversely, voting separately as a class, excluding, in the case of any adverse treatment of the Class A common stock, any shares of Class A common stock held by the Co-Founders, their permitted transferees or their qualified trustees.
The Co-Founder Agreements with Messrs. Spiegel and Murphy may only be amended or waived with the approval of Messrs. Spiegel and Murphy, respectively, and a majority of our independent directors (excluding any party to the Co-Founder Agreements). Should the Special Dividend become payable pursuant to the terms of the Co-Founder Agreements, the Company expects to further amend its Amended and Restated Certificate of Incorporation to increase the number of authorized shares of Class A common stock to permit the Special Dividend to be paid.
The foregoing description of the Co-Founder Agreements is qualified by reference to, and should be read in conjunction with, the full text of the Co-Founder Agreements, which are attached as Exhibits 10.1 and 10.2, respectively, and incorporated by reference.