As filed with the Securities and Exchange Commission on September 2, 2022

Registration No. 333-266434

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

CONSTELLATION BRANDS, INC.

(Exact name of registrants as specified in its charter)

 

 

 

Delaware		2080		16-0716709
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code)		(I.R.S. Employer Identification No.)

207 High Point Drive, Building 100, Victor, New York 14564

(585) 678-7100

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

James O. Bourdeau, Esq.

Executive Vice President and Chief Legal Officer

207 High Point Drive, Building 100, Victor, New York 14564

(585) 678-7100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

Carlo Zenkner

Jennifer L. Lee

601 Lexington Avenue

Kirkland & Ellis LLP

New York, New York 10022

(212) 446-4800

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement is declared effective and the satisfaction or waiver of all of the conditions to the proposed reclassification described in the enclosed proxy statement/prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. The proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED SEPTEMBER 2, 2022

 

 

RECLASSIFICATION PROPOSED—YOUR VOTE IS VERY IMPORTANT

PRELIMINARY PROSPECTUS FOR CONSTELLATION BRANDS, INC.

23,205,885 SHARES OF CLASS A COMMON STOCK (NYSE: STZ)

Dear Fellow Stockholder:

On June 30, 2022, Constellation Brands, Inc. (the “Company”) announced a proposed reclassification (the “Reclassification”) of the Company’s common stock. Under the terms of the Reclassification, assuming no adjustment to the mix of consideration (as further described below in this proxy statement/prospectus): (i) each share of Class B Common Stock will be reclassified and converted into one share of Class A Common Stock and the right to receive a cash payment of $64.64, without interest, and (ii) the Company’s restated certificate of incorporation will be amended and restated in the form of the Amended and Restated Charter attached to this proxy statement/prospectus as Annex A in order to effectuate the Reclassification. If the Reclassification is completed, the Company will no longer have any authorized Class B Common Stock, and will instead have only Class A Common Stock and Class 1 Common Stock. The Reclassification will reduce the aggregate voting power of Messrs. Robert and Richard Sands and other members of their extended family and related entities (the “Sands family”) from approximately 60% to approximately 16%. In addition, the Company’s simplified capital structure, combined with new corporate governance features being implemented in connection with the Reclassification, will provide a solid foundation as the Company transitions from a controlled to a non-controlled company and continues to execute its overall strategy to drive growth and shape the future of the Company’s industry by building brands that people love and delivering stockholder value. The Sands Family Stockholders (as defined below) have entered into a reclassification agreement (the “Reclassification Agreement”) with the Company to effect the Reclassification and to memorialize the proposed corporate governance changes and other matters related to the Reclassification that the Sands Family Stockholders and the Special Committee (as defined below) agreed upon in connection with the Reclassification.

The Company is calling a virtual special meeting of its stockholders to be held on [●], [●], 2022 at [●] [a.m./p.m.] (ET) at www.virtualshareholdermeeting.com/STZ2022SM in connection with the Reclassification (the “Special Meeting”). A special committee of independent and disinterested directors (the “Special Committee”) of the Company’s Board of Directors (the “Board”) has unanimously recommended that the Board approve the Amended and Restated Charter and the Reclassification Agreement and declare that the Amended and Restated Charter and the Reclassification Agreement are advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders (as defined below), and the Board has determined and declared that the terms of the Reclassification Agreement and the transactions contemplated thereby, including the Amended and Restated Charter, the Reclassification and the other transactions contemplated by the Reclassification Agreement (the “Other Transactions”), are advisable, fair to and in the best interests of the Company and its stockholders, including the Unaffiliated Class A Holders. The Board has approved and declared advisable and in the best interests of the Company and its stockholders the terms of the Reclassification Agreement, the other Transaction Documents (as defined below) including the Amended and Restated Charter, the Reclassification and the Other Transactions. The Board has recommended that you vote “FOR” the proposal to approve and adopt the Amended and Restated Charter.

We need your vote to approve the proposals described in this proxy statement/prospectus relating to the Reclassification and the adjournment of any meeting, if needed. We urge you to read the accompanying proxy statement/prospectus carefully, and to use the enclosed proxy card(s) or voting instruction card(s) to authorize a proxy to vote your shares in accordance with the Board’s recommendations on the Reclassification Proposal (as defined below), as soon as possible, by telephone or via the Internet, or by signing, dating and returning the enclosed proxy card(s) in the postage-paid envelope(s) provided, whether or not you plan to attend the Special Meeting virtually. Further instructions on how to vote are provided on the enclosed proxy card(s) and voting instruction card(s).

Thank you for your continued support. If you have any questions, please contact Innisfree M&A Incorporated, our proxy solicitor that is assisting us in connection with the Special Meeting, at (866) 239-1763.

Sincerely,

William A. Newlands

President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or the Reclassification, passed upon the merits or fairness of the Reclassification or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

The Reclassification described herein involves risks. See “Risk Factors” beginning on page 23.

This document is dated [●], 2022, and is first being mailed to stockholders on or about [●], 2022.

NOTICE OF VIRTUAL SPECIAL MEETING OF STOCKHOLDERS

 

Date/Time		[●], [●], 2022 at [●] [a.m./p.m.] (ET)
Virtual Meeting Access		To attend the meeting, vote and examine the stockholders list, go to www.virtualshareholdermeeting.com/STZ2022SM. You will need the 16-digit control number included on your proxy card(s) or the voting instructions that accompany your proxy materials. Because the Special Meeting is virtual and being conducted over the Internet, stockholders will not be able to attend the Special Meeting in person.
Items of Business		1. To approve and adopt the Amended and Restated Charter, which would effectuate the Reclassification described in the accompanying proxy statement/prospectus (the “Reclassification Proposal”).
		2. To adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to approve the Reclassification Proposal at the time of the Special Meeting (the “Adjournment Proposal”).
Record Date		Holders of Class A Common Stock and Class B Common Stock as of the record date of [●], 2022 are entitled to notice of and to vote on the matters listed in the proxy statement/prospectus.

BY ORDER OF THE BOARD OF DIRECTORS

JAMES O. BOURDEAU

Secretary

[●], 2022

 

Your vote is important to us, and we encourage you to vote your shares as soon as possible even if you plan to attend the virtual Special Meeting. You can vote in the following ways:

 

Visit the website listed on your proxy card(s) to VOTE VIA THE INTERNET		If you received paper copies of your proxy materials in the mail, sign, date, and return your proxy card(s) in the enclosed envelope to VOTE BY MAIL		Call the telephone number specified on your proxy card(s) or on the website listed on your Notice to VOTE BY PHONE

 

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting to be held on [●], 2022: This Proxy Statement is available on our investor relations website at https://ir.cbrands.com/sec-filings

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about the Company from other documents that the Company has filed with the U.S. Securities and Exchange Commission (the “SEC”) that are not included in or delivered with this proxy statement/prospectus. This allows us to disclose important business and financial information to you by referring you to those documents rather than repeating them in full in this proxy statement/prospectus. The information incorporated by reference is considered to be part of this proxy statement/prospectus and later information filed with the SEC will update or supersede this information. For a listing of documents incorporated by reference herein, please see the section entitled “Where You Can Find More Information.” This information is available for you to review free of charge through the SEC’s website at www.sec.gov/edgar.

You may request copies of this proxy statement/prospectus and any of the documents incorporated by reference herein or other information concerning the Company, without charge, upon written or oral request to the Company’s principal executive offices at the following address and telephone number:

Attention: Investor Relations

Constellation Brands, Inc.

207 High Point Drive, Building 100

Victor, New York 14564

Telephone: (888) 922-2150

In addition, if you have questions about the Reclassification or about this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus or any of the documents incorporated by reference herein, or need to obtain proxy card(s), voting instruction card(s) or other information related to the proxy solicitation, please contact our proxy solicitor in writing or by telephone at the following address and telephone number:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders Call Toll Free: (866) 239-1763

Banks and Brokers Call: (212) 750-5833

You will not be charged for any of these documents that you request.

If you would like to request documents, please do so by [●], 2022 in order to receive them before the Special Meeting.

 

ABOUT THIS PROXY STATEMENT/PROSPECTUS

This document, which forms part of a registration statement on Form S-4 filed with the SEC by the Company (File No. 333-266434), constitutes a prospectus of the Company under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Class A Common Stock into which the shares of Class B Common Stock will be reclassified if the Reclassification described herein is completed. This document also constitutes a proxy statement of the Company under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The terms “Company,” “we,” “our,” or “us” refer to Constellation Brands, Inc.

The Sands Family Stockholders have supplied (i) the number of shares owned beneficially by the Sands Family Stockholders and (ii) the information set forth under the sections entitled “Special Factors—Reasons for the Reclassification; Fairness of the Reclassification—Positions of the Sands Family Stockholders as to Fairness of the Reclassification” and “Special Factors—Reasons for the Reclassification; Fairness of the Reclassification—Purposes and Reasons of the Sands Family Stockholders for the Reclassification.”

You should rely only on the information contained or incorporated by reference herein in connection with any vote, the giving or withholding of any proxy or any investment decision in connection with the Reclassification described herein. No one has been authorized to provide you with information that is different from that contained or incorporated by reference herein. This proxy statement/prospectus is dated [●], 2022, and you should not assume that the information contained herein is accurate as of any date other than such date unless otherwise specifically provided herein. Further, you should not assume that the information incorporated by reference herein is accurate as of any date other than the date of the incorporated document. The mailing of this proxy statement/prospectus to stockholders will not create any implication to the contrary. This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

Table of Contents

 

		Page
Frequently Used Terms			1
Solicitation of Proxies			3
Questions and Answers			4
Summary			12
Information about the Company			12
Special Factors			12
The Reclassification Agreement			17
Material U.S. Federal Income Tax Consequences of the Reclassification			19
Special Meeting of Stockholders			19
Proposals to be Considered and Voted Upon and Board Recommendations			19
Risk Factors			19
Market Prices and Dividend Data			20
Special Note Regarding Forward-Looking Statements			21
Risk Factors			23
The Special Meeting			27
Place, Date and Time			27
Purpose of the Special Meeting			27
Recommendations of the Special Committee and of the Board			27
Record Date; Stock Entitled to Vote			27
Quorum			27
Required Vote; Abstentions			27
Voting by the Company’s Directors and Executive Officers			28
How to Vote			28
No Appraisal Rights			29
Results of the Special Meeting			29
Special Factors			30
Information about the Company			30
Structure of the Reclassification			30
Background of the Reclassification			30
Reasons for the Reclassification; Fairness of the Reclassification			49
Required Vote			59
Financial Opinion of Centerview			59
Other Financial Advisor Presentations			68
Recommendations of the Special Committee and of the Board			70
Regulatory Matters			71
Interests of Certain Persons in the Reclassification			71
Financing of the Reclassification			73
Certain Effects of the Reclassification			74
No Appraisal Rights			76
The Reclassification Agreement			77
Explanatory Note Regarding the Reclassification Agreement			77
Structure of the Reclassification			77
Material Obligations of the Company and the Sands Family Stockholders under the Reclassification Agreement			78
Termination			86
Efforts to Hold Stockholder Vote; Recommendation			87

		Page
Representations and Warranties			87
Conditions to the Company and/or the Sands Family Stockholders’ Obligation to Complete the Reclassification			88
Amendments and Waivers			89
Material U.S. Federal Income Tax Consequences			90
Unaudited Pro Forma Condensed Consolidated Financial Information			95
Description of Common Stock After The Reclassification			100
Comparison of Stockholder Rights			104
Security Ownership of Certain Beneficial Owners and Management			107
Provisions for Unaffiliated Stockholders			112
Legal Matters			112
Experts			112
Proposal 1 – The Reclassification Proposal			113
Proposal 2 – The Adjournment Proposal			113
Where You Can Find More Information			115
Other Business			115
Stockholder Proposals for the 2023 Annual Meeting			116
Annex A – Form of Amended and Restated Charter			A-1
Annex B – Form of Amended and Restated By-Laws			B-1
Annex C – Reclassification Agreement			C-1
Form of Amended and Restated Charter			C-37
Form of Amended and Restated Bylaws			C-45
Form of Amended Board Corporate Governance Guidelines			C-59
Form of Amended Corporate Governance and Responsibility Committee Charter			C-70
Form of Registration Rights Agreement			C-75
Form of Board Anti-Pledging Policy			C-99
Annex D – Opinion of Centerview Partners LLC			D-1
Annex E – Letter from the Sands Family to the Special Committee			E-1
Annex F – Letter from the Special Committee to the Sands Family			F-1

FREQUENTLY USED TERMS

This proxy statement/prospectus generally does not use technical defined terms, but a few frequently used terms may be helpful for you to have in mind at the outset. Unless otherwise specified or if the context so requires, the following terms have the meanings set forth below for purposes of this proxy statement/prospectus:

“Amended and Restated Charter” means the form of the amended and restated certificate of incorporation of the Company, attached to this proxy statement/prospectus as Annex A, which will effect the Reclassification and be in effect at and following the Effective Time.

“Amended Board Corporate Governance Guidelines” means the amended and restated Board corporate governance guidelines of the Company, to be made effective as of the Effective Time, in the form set forth in Annex C.

“Amended Corporate Governance and Responsibility Committee Charter” means the amended and restated Board Corporate Governance and Responsibility Committee charter, to be made effective as of the Effective Time, in the form set forth in Annex C.

“Board” means Board of Directors of the Company.

“Board Anti-Pledging Policy” means the anti-pledging policy of the Company, to be adopted effective as of the Effective Time, in the form set forth in Annex C.

“By-laws” means the form of the amended and restated by-laws of the Company attached to this proxy statement/prospectus as Annex B, which will become effective if the Reclassification occurs.

“Class A Common Stock” refers to Class A Common Stock, par value $0.01 per share, of the Company.

“Class B Common Stock” refers to Class B Common Stock, par value $0.01 per share, of the Company.

“Class 1 Common Stock” refers to Class 1 Common Stock, par value $0.01 per share, of the Company.

“Code” means the United States Internal Revenue Code of 1986, as amended.

“Common Stock” refers to (i) prior to the Reclassification, the Class A Common Stock, the Class B Common Stock and the Class 1 Common Stock, and (ii) following the Reclassification, the Class A Common Stock and the Class 1 Common Stock.

“Company” means Constellation Brands, Inc.

“Effective Time” means the time that the Amended and Restated Charter has been duly filed with the Secretary of State of the State of Delaware (or such later time as the Company and WildStar Partners LLC (“WildStar”) will agree and set forth in the Amended and Restated Charter).

“Family-Related Person(s)” means the Sands Family Stockholders and (i) Marilyn Sands, her descendants (whether by blood or adoption), her descendants’ spouses (including any person married to one of her descendants at the time of such descendant’s death), the descendants of a spouse of her descendant (whether by blood or adoption), her siblings, the descendants of her siblings (whether by blood or adoption), or the estate of any of the foregoing persons, or The Sands Family Foundation, Inc., (ii) trusts which are for the benefit of any combination of the persons described in clause (i), or any trust for the benefit of any such trust, or (iii) partnerships, limited liability companies or any other entities which are controlled by any combination of the persons described in clause (i), the estate of any such persons, a trust referred to in clause (ii) or an entity that satisfies the conditions of this clause (iii).

 

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“IRS” means the United States Internal Revenue Service.

“Reclassification” means the (i) reclassification and conversion of each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time into one validly issued, fully paid and non-assessable share of Class A Common Stock and the right to receive $64.64 in cash, without interest, in each case as such cash and stock consideration may be adjusted pursuant to the terms of the Reclassification Agreement and the Amended and Restated Charter, and (ii) transactions contemplated by the Reclassification Agreement, including the amendment and restatement of the Company’s restated certificate of incorporation in the form of the Amended and Restated Charter. The Reclassification will become effective at the Effective Time.

“Reclassification Agreement” refers to the Reclassification Agreement, dated June 30, 2022, between the Company and the Sands Family Stockholders, as it may be amended from time to time, attached to this proxy statement/prospectus as Annex C.

“Reclassification Proposal” refers to the proposal to approve and adopt the Amended and Restated Charter, which will effectuate the Reclassification.

“Record Date” refers to the close of business on [●], 2022. Holders of Class A Common Stock and/or Class B Common Stock as of the record date are entitled to notice of and to vote on the matters listed in the proxy statement/prospectus.

“Registration Rights Agreement” refers to the Registration Rights Agreement to be entered into by the Company and the Sands Family Stockholders at the Effective Time.

“Sands family” refers to Messrs. Robert and Richard Sands and other members of their extended family and related entities.

“Sands Family Stockholders” means RES Master LLC, RES Business Holdings LP, SER Business Holdings LP, RHT 2015 Business Holdings LP, RSS Master LLC, RSS Business Holdings LP, SSR Business Holdings LP, RSS 2015 Business Holdings LP, RCT 2015 Business Holdings LP, RCT 2020 Investments LLC, NSDT 2009 STZ LLC, NSDT 2011 STZ LLC, RSS Business Management LLC, SSR Business Management LLC, LES Lauren Holdings LLC, MES Mackenzie Holdings LLC, Abigail Bennett, Zachary Stern, A&Z 2015 Business Holdings LP, Marilyn Sands Master Trust, MAS Business Holdings LP, Sands Family Foundation, Richard Sands, Robert Sands, WildStar and Astra Legacy LLC.

“Special Committee” means a special committee of independent and disinterested members of the Board, consisting of Jennifer M. Daniels, Jeremy S. G. Fowden, Jose Manuel Madero Garza and Daniel J. McCarthy.

“Special Meeting” refers to the special meeting of stockholders of the Company, to be held as a “virtual meeting” via online audio broadcast, on [●], [●], 2022 at [●] [a.m./p.m.] (ET) at www.virtualshareholdermeeting.com/STZ2022SM or any adjournment or postponement thereof.

“Transaction Documents” means the Reclassification Agreement, the Amended and Restated Charter, the By-laws, the Registration Rights Agreement, the Amended Corporate Governance and Responsibility Committee Charter, the Amended Board Corporate Governance Guidelines and the Board Anti-Pledging Policy.

“Treasury Regulations” means the United States Treasury regulations promulgated under the Code.

“Unaffiliated Class A Holders” means those holders of shares of Class A Common Stock, excluding shares of Class A Common Stock held, directly or indirectly, by or on behalf of the Sands family, directors of the Company that own, beneficially or of record, shares of Class B Common Stock and any person that the Company has determined to be an “officer” of the Company within the meaning of Rule 16a-1(f) of the Exchange Act.

 

2

SOLICITATION OF PROXIES

The Company is furnishing this proxy statement/prospectus to you in connection with the solicitation by the Board of the enclosed form of proxy for the Special Meeting. The Company will bear the cost of the solicitation of proxies through use of this proxy statement/prospectus, including reimbursement of brokers and other persons holding stock in their names, or in the names of nominees, at approved rates, for their expenses for sending proxy material to principals and obtaining their proxies. The Company has retained Innisfree M&A Incorporated (“Innisfree”) to solicit proxies on behalf of the Company for an estimated fee of up to $150,000.

 

3

QUESTIONS AND ANSWERS

The following are answers to some questions that you, as a stockholder, may have regarding the Reclassification Proposal and the other matter that may be considered at the Special Meeting. The Company urges you to read carefully the remainder of this proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the Reclassification Proposal and the other matter that may be considered at the Special Meeting. For your convenience, these questions and answers have been divided into questions and answers regarding the proposals and questions and answers regarding the Special Meeting and voting. Additional important information is also contained in the Annexes to, and the documents incorporated by reference into, this proxy statement/prospectus. Unless the context requires otherwise, references to a “share” or “shares” without specification refer to shares of any or each of Class A Common Stock and Class B Common Stock, and references to a “stockholder” or “stockholders” refer to a holder of shares of any or each of Class A Common Stock and Class B Common Stock.

Questions and Answers Regarding the Proposals

 

Q.	Why am I receiving this proxy statement/prospectus?

 

A.

You are receiving this proxy statement/prospectus because you owned shares of Class A Common Stock and/or Class B Common Stock at the close of business on the Record Date, which entitles you to notice of and to vote at the Special Meeting. This proxy statement/prospectus describes the matters on which we would like you to vote and provides information on those matters, and you should read it carefully. The enclosed proxy card(s) or voting instruction card(s) allows you to vote your shares without attending the Special Meeting.

Your vote is important. We encourage you to vote as soon as possible.

 

Q.	What matters will be considered at the Special Meeting?

 

A.	Stockholders will be asked to consider and vote upon the following proposals:

 

•

Proposal 1 – Reclassification Proposal: Proposal to approve and adopt the Amended and Restated Charter, which will effectuate the Reclassification; and

 

•

Proposal 2 – Adjournment Proposal: If there are insufficient votes to approve the Reclassification Proposal at the time of the Special Meeting, a proposal to adjourn the Special Meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies.

 

Q.	What stockholder vote is required to approve each proposal brought before the Special Meeting?

 

A.	The stockholder vote required to approve each proposal is as follows:

 

•

Proposal 1 – Reclassification Proposal: Under the Reclassification Agreement, it is a condition precedent to the Company’s and the Sands Family Stockholders’ obligation to complete the Reclassification that not less than 50.3% of the issued and outstanding shares of Class A Common Stock held by the Unaffiliated Class A Holders, vote “FOR” the Reclassification Proposal. The affirmative vote of the holders of (a) a majority of the voting power of the issued and outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote thereon, voting together as a single class and (b) a majority of the issued and outstanding shares of Class B Common Stock is also required for approval of the Reclassification Proposal. Abstentions, if any, will have the effect of votes “AGAINST” the Reclassification Proposal. Your failure to vote or the failure to instruct your broker, bank, trustee or other nominee to vote will have the effect of a vote “AGAINST” the Reclassification Proposal.

 

•

Proposal 2 – Adjournment Proposal: The affirmative vote of the holders of a majority of the votes entitled to be cast by the holders of Class A Common Stock and Class B Common Stock represented,

 

4

in virtual attendance or by proxy, at the Special Meeting and entitled to vote on the matter. Abstentions will have the effect of votes “AGAINST” this proposal. Your failure to vote or the failure to instruct your broker, bank, trustee or other nominee to vote will have no effect on the results of the Adjournment Proposal.

 

Q.	How does the Board recommend that I vote?

 

A.	The Board recommends that stockholders vote “FOR” the Reclassification Proposal and “FOR” the Adjournment Proposal.

 

Q.	What is the Reclassification Proposal?

 

A.

The Reclassification Proposal refers to the proposal to approve and adopt the Amended and Restated Charter, which will effectuate the Reclassification. At the Effective Time, subject to any adjustment pursuant to the terms of the Reclassification Agreement and the Amended and Restated Charter, each share of Class B Common Stock issued and outstanding as of immediately prior to the Effective Time will be reclassified and converted into one validly issued, fully paid and non-assessable share of Class A Common Stock and the right to receive $64.64 in cash, without interest. Thereafter, the Common Stock will consist solely of Class A Common Stock and Class 1 Common Stock.

 

Q.	Was a Special Committee of the Board formed?

 

A.

On April 3, 2022, the Board formed a special committee of independent and disinterested members of the Board consisting of Jennifer M. Daniels, Jeremy S. G. Fowden, Jose Manuel Madero Garza and Daniel J. McCarthy (the “Special Committee”) to review, evaluate and, if applicable, negotiate a reclassification of the Class B Common Stock. Ms. Daniels was selected to serve as Chair of the Special Committee. On June 29, 2022, the Board, based upon the unanimous recommendation of the Special Committee, authorized, approved and declared advisable and in the best interests of the Company and its stockholders the terms of the Reclassification Agreement, the other Transaction Documents, the Reclassification and the Other Transactions. Additional details regarding the Special Committee’s process and the recommendations to the Board are provided in the sections of this proxy statement/prospectus entitled “Special Factors—Background of the Reclassification” and “Special Factors—Reasons for the Reclassification.”

 

Q.	What will happen to shares of Class A Common Stock and Class 1 Common Stock if the Reclassification is completed?

 

A.	Each share of Class A Common Stock and Class 1 Common Stock issued and outstanding immediately prior to the Effective Time will continue in existence after the Effective Time.

 

Q.	What will happen to shares of Class B Common Stock if the Reclassification is completed?

 

A.

At the Effective Time, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time will be reclassified and converted into one validly issued, fully paid and non-assessable share of Class A Common Stock and the right to receive $64.64 in cash, without interest, subject to any adjustment as provided in the Reclassification Agreement and the Amended and Restated Charter. No shares of Class B Common Stock will be authorized following the Effective Time. Each share of Class A Common Stock immediately following the Effective Time will continue to have one vote per share on each matter brought before a meeting of the Company’s stockholders.

 

Q.	How might the consideration in the Reclassification be adjusted?

 

A.	The Reclassification Agreement and the Amended and Restated Charter provide that the Company may adjust downwards the $64.64 cash consideration and adjust upwards the 1:1 share ratio of Class A Common

 

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Stock to Class B Common Stock to provide the holders of Class B Common Stock with a smaller amount of cash consideration and a larger number of shares of Class A Common Stock in lieu thereof, up to a value of $500 million to the extent, in the Company’s reasonable determination (after good faith consultation with WildStar), the Company does not have sufficient available cash on hand immediately prior to the Effective Time to fund the aggregate cash consideration.

 

Q.	When is the Reclassification expected to be completed?

 

A.

If the Reclassification Proposal is approved by the stockholders at the Special Meeting and the other conditions to closing contained in the Reclassification Agreement are either waived or satisfied, the Company expects to complete the Reclassification promptly after the Special Meeting by filing the Amended and Restated Charter with the Secretary of State of the State of Delaware.

 

Q.	What happens if the Reclassification is not completed?

 

A.

If the Reclassification is not approved at the Special Meeting or is not completed for any other reason, all three classes of Common Stock (Class A Common Stock, Class B Common Stock and Class 1 Common Stock) will remain issued and outstanding and the Class A Common Stock and Class B Common Stock shall continue to be listed and traded on the New York Stock Exchange (the “NYSE”).

 

Q.	If I do not vote in favor of the Reclassification, am I entitled to appraisal rights as a stockholder?

 

A.

No appraisal rights under Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”) will be available to holders of our Common Stock with respect to the amendment and restatement of the Company’s restated certificate of incorporation in the form of the Amended and Restated Charter or the Other Transactions.

 

Q.	Are there any risks that I should consider as a stockholder in deciding how to vote?

 

A.	Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on page 23. You also should read and carefully consider the risk factors of the Company contained in the documents that are incorporated by reference herein.

 

Q.	Are any stockholders already committed to vote in favor of the Reclassification Proposal?

 

A.

Yes. Pursuant to the Reclassification Agreement, the Sands Family Stockholders agreed, among other things, to vote all shares of Class A Common Stock and Class B Common Stock owned of record by the Sands Family Stockholders, representing, as of August 26, 2022, approximately 4% of the outstanding shares of Class A Common Stock, approximately 98% of the outstanding shares of Class B Common Stock and approximately 60% of the combined voting power of the outstanding shares of Class A Common Stock and Class B Common Stock when voting together as a single class, “FOR” the Reclassification Proposal (on the terms and subject to the conditions set forth in such agreement). Additional detail regarding the Reclassification Agreement is provided in the section entitled “The Reclassification Agreement” beginning on page 77.

 

Q.	Do any members of management or the Board have interests in the Reclassification that differ from or are in addition to my interests as a stockholder?

 

A.

In considering the recommendations of the Board you should be aware that certain members of management and the Board hold shares of Class B Common Stock and have other interests in the Reclassification that may be different from your interests as a holder of Common Stock. See “Special Factors—Interests of Certain Persons in the Reclassification.” The Special Committee and the Board were aware of and considered those interests, including the interests described in this proxy statement/prospectus, among other

 

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matters, in evaluating, negotiating, and making their related recommendations or approvals, as applicable, regarding the Reclassification Agreement and the Reclassification, and, in the case of the Board, recommending that the Reclassification Proposal be approved and adopted by the Company’s stockholders.

Questions and Answers Regarding the Special Meeting and Voting

 

Q.	Where and when is the Special Meeting?

 

A.

The Special Meeting will be held virtually and conducted exclusively via online audio broadcast. We believe that hosting a virtual meeting enables greater stockholder attendance and participation from any location around the world. You will be able to virtually attend the Special Meeting and vote your shares during the meeting via the Internet by visiting www.virtualshareholdermeeting.com/STZ2022SM on [●], [●], 2022 at [●] [a.m./p.m.] (ET).

 

Q.	How can I participate in the Special Meeting?

 

A.

The Special Meeting will be held entirely online. Stockholders may participate in the Special Meeting by visiting the following website: www.virtualshareholdermeeting.com/STZ2022SM. To participate in the Special Meeting, you will need the 16-digit control number included on your proxy card(s) or on the voting instructions that accompanied your proxy materials. Shares of Class A Common Stock and/or Class B Common Stock held in your name as the stockholder of record may be voted electronically during the Special Meeting. However, even if you plan to virtually attend the Special Meeting online, the Company recommends that you vote your shares in advance at www.proxyvote.com, so that your vote will be counted if you later decide not to attend the Special Meeting.

If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Special Meeting log in page.

 

Q.	How do I vote my shares of Class A Common Stock and/or Class B Common Stock?

 

A.

If your shares of Class A Common Stock and/or Class B Common Stock are owned directly in your name in an account with the Company’s stock transfer agent, Broadridge Corporate Issuer Solutions, Inc., you are considered the stockholder of record of those shares in your account and you have the right to vote those shares. If your shares of Class A Common Stock and/or Class B Common Stock are held in an account with a broker or other nominee, you are considered a “beneficial” stockholder of those shares, which are held in “street name.” The broker or other nominee is considered the stockholder of record for those shares. As a beneficial owner, you have the right to instruct the broker or other nominee how to vote those shares in accordance with the instructions provided by your broker or other nominee.

Stockholders who receive a proxy card for Class A Common Stock and/or a proxy card for Class B Common Stock must sign and return each applicable proxy card in accordance with their respective instructions or submit a proxy by telephone or via the Internet at www.proxyvote.com with respect to Class A Common Stock or Class B Common Stock, as applicable, in order to ensure the voting of the shares of each class owned. The shares represented by your proxy will be voted at the Special Meeting as directed by your proxy or voting instructions.

 

Q.	How can I vote my shares of Class A Common Stock and/or Class B Common Stock without attending the Special Meeting?

 

A.

Detailed instructions for using the telephone and Internet options for voting are set forth on the proxy card(s) and voting instruction card(s) accompanying this proxy statement/prospectus. You may also vote your shares by signing and submitting your proxy card(s) and returning it by mail, if you are the stockholder

 

7

of record, or by following the voting instructions provided by your bank or broker, if you are the beneficial owner but not the stockholder of record. This way your shares of Class A Common Stock and/or Class B Common Stock will be represented whether or not you are able to virtually attend the Special Meeting.

Because the Internet and telephone services authenticate stockholders by use of a control number, you must have the proxy card(s) available in order to use these services to authorize a proxy to vote your shares. Proxies submitted by telephone or Internet must be received by [●] p.m. (ET), on [●], 2022. If you choose to authorize a proxy to vote your shares by telephone or Internet, you do not need to return the proxy card(s).

If you elect to vote by proxy, the proxy holders will vote your shares based on your directions. The proxy holders will vote all proxies in their discretion on any other matters that may properly come before the Special Meeting.

 

Q.	How many shares of Class A Common Stock and Class B Common Stock are entitled to vote at the Special Meeting?

 

A.	As of the Record Date, there were [●] shares of Class A Common Stock and [●] shares of Class B Common Stock outstanding and entitled to vote at the Special Meeting.

 

Q.	What are the voting rights of holders of Class A Common Stock and Class B Common Stock?

 

A.

When holders of Class A Common Stock and holders of Class B Common Stock vote together as a single class, each holder of Class A Common Stock is entitled to one vote for each share of Class A Common Stock registered in such holder’s name and each holder of Class B Common Stock is entitled to ten votes for each share of Class B Common Stock registered in such holder’s name. When holders of Class A Common Stock and holders of Class B Common Stock vote as separate classes, holders of Class A Common Stock and Class B Common Stock are each entitled to one vote per share.

 

Q.	What constitutes a quorum?

 

A.

In order to carry out the business of the Special Meeting, we must have a quorum. The holders of shares of Class A Common Stock and Class B Common Stock representing a majority of the votes entitled to be cast at the Special Meeting by the holders of all outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote, present in person or by proxy, shall constitute a quorum for the meeting. With respect to the separate vote of the holders of a majority of the issued and outstanding shares of Class B Common Stock, the presence in person or by proxy of the holders of at least a majority of the outstanding shares of Class B Common Stock shall constitute a quorum for the meeting.

Action may be taken by one voting group on a matter at the Special Meeting even though no action is taken by another voting group entitled to vote on the matter. Shares of Class A Common Stock and Class B Common Stock represented by a properly completed proxy will be treated as present at the Special Meeting for purposes of determining a quorum, without regard to whether the proxy is marked as casting a vote or abstaining. If a share is present at the Special Meeting, it will be deemed present for quorum purposes throughout the meeting.

Shares of Class A Common Stock and Class B Common Stock held in “street name” will be counted as present for the purpose of determining the existence of quorum so long as the holder of such shares of Class A Common Stock and/or Class B Common Stock has given their broker, bank, trustee or other nominee voting instructions on at least one of the proposals to be brought before the Special Meeting. The proposals for consideration at the Special Meeting are considered “non-routine” matters under NYSE rules, and, therefore, brokers, banks, trustees or other nominees are not permitted to vote on any of the matters to be considered at the Special Meeting if they have not received instructions from the applicable holder of shares of Class A Common Stock and/or Class B Common Stock. As a result, a stockholder’s shares of Class A Common Stock and/or Class B Common Stock will not be counted as present for the purpose of

 

8

determining the existence of a relevant quorum if no instructions have been provided on how to vote on any such proposals. See “—If my shares are held in “street name” by my broker, bank, trustee or other nominee, will my broker, bank, trustee or other nominee vote my shares for me?” Shares of Class A Common Stock and/or Class B Common Stock with respect to which the beneficial owner otherwise fails to vote will not be deemed present at the Special Meeting for the purpose of determining the presence of a quorum.

 

Q.	What happens if I sell my shares before the Special Meeting?

 

A.

The Record Date for stockholders entitled to vote at the Special Meeting is [●], 2022, which is earlier than the date of the Special Meeting. If you sell or otherwise transfer your shares after the Record Date but before the Special Meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares and each of you notifies the Secretary of the Company in writing of such special arrangements, you will retain your right to vote such shares at the Special Meeting but will otherwise have transferred ownership of your shares.

 

Q.	If my shares are held in “street name” by my broker, bank, trustee or other nominee, will my broker, bank, trustee or other nominee vote my shares for me?

 

A.

If you are a beneficial owner whose Class A Common Stock and/or Class B Common Stock is held of record by a broker, bank, trustee or other nominee, you must instruct the broker, bank, trustee or other nominee how to vote your Class A Common Stock and/or Class B Common Stock. Brokers, banks, trustees and other nominees who hold Class A Common Stock and/or Class B Common Stock in “street name” typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions on how to vote from the beneficial owner. However, brokers, banks, trustees and other nominees typically are not allowed to exercise their voting discretion on matters that are “non-routine” without specific instructions on how to vote from the beneficial owner. Under the current rules of the NYSE, the Reclassification Proposal and the Adjournment Proposal are non-routine. Therefore, brokers, banks, trustees and other nominees do not have discretionary authority to vote on any of the proposals.

A broker non-vote with respect to Class A Common Stock and/or Class B Common Stock occurs when (i) a share of Class A Common Stock and/or Class B Common Stock held by a broker, bank, trustee or other nominee is present or represented at a meeting of holders of Class A Common Stock and/or Class B Common Stock, (ii) the beneficial owner of such share of Class A Common Stock and/or Class B Common Stock has not instructed his, her or its broker, bank, trustee or other nominee on how to vote on a particular proposal and (iii) the broker, bank, trustee or other nominee does not have discretionary voting power on such proposal. Brokers, banks, trustees and other nominees do not have discretionary voting authority with respect to the Reclassification Proposal or the Adjournment Proposal; therefore, if a beneficial owner of shares of Class A Common Stock and/or Class B Common Stock held in “street name” does not give voting instructions to the broker, bank, trustee or other nominee, then those shares of Class A Common Stock and/or Class B Common Stock will not be present via the Special Meeting website or represented by proxy at the Special Meeting because, as stated above, broker non-votes will not count toward quorum requirements. As a result, there will not be any broker non-votes at the Special Meeting.

Please follow the voting instructions provided by your broker, bank, trustee or other holder of record. Please note that you may not vote shares held in “street name” by returning a proxy card directly to the Company or by voting virtually at the Special Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank, trustee or other holder of record. Further, brokers, banks, trustees or other holders of record who hold Class A Common Stock and/or Class B Common Stock on your behalf may not give a proxy to vote those shares without specific voting instructions from you.

Your vote is important and we strongly encourage you to provide voting instructions for your shares by following the instructions provided on the enclosed proxy card(s) or voting instruction card(s). Please vote promptly.

 

9

Q.	What will happen if I fail to vote, abstain from voting or fail to instruct my broker, bank, trustee or other nominee to vote my shares?

 

A.

You are strongly encouraged to vote. Your abstention from voting will have the effect of a vote “AGAINST” the Reclassification Proposal; your failure to vote or the failure to instruct your broker, bank, trustee or other nominee to vote will have the effect of a vote “AGAINST” the Reclassification Proposal. Your abstention from voting will have the effect of a vote “AGAINST” the Adjournment Proposal, while your failure to vote, or your failure to instruct your broker, bank, trustee or other nominee to vote, on the Adjournment Proposal will have no effect on the results of the Adjournment Proposal.

 

Q.	What should I do if I receive more than one proxy card, voting instruction card or other set of proxy materials from the Company?

 

A.

If you hold your shares in multiple accounts or registrations, or in both registered and street name, or you hold multiple classes of Common Stock, you will receive a proxy card and/or voting instruction card for each account and/or class of Common Stock held by you, as applicable. Please sign, date and return all proxy cards you receive from the Company. If you choose to vote your shares by phone or via the Internet, please submit your proxy once for each proxy card you receive. Only your latest-dated proxy for each account and/or class of shares held by you will be voted at the meeting.

 

Q.	Can I change my vote after I have returned a proxy?

 

A.

Yes. You may revoke your proxy at any time before the proxy is exercised by delivering a written revocation to the Secretary of the Company or by submitting a proxy bearing a later date by telephone, via the Internet, or in writing. You may also revoke your proxy by virtually attending and voting at the meeting. However, attendance at the meeting alone will not be sufficient to revoke a proxy.

 

Q.	How are my shares voted if I submit a proxy card but do not specify how I want to vote?

 

A.	If you submit a properly executed proxy card but do not specify how you want to vote, your shares will be voted “FOR” the Reclassification Proposal and “FOR” the Adjournment Proposal.

 

Q.	Who will solicit and pay the cost of soliciting proxies?

 

A.	The Company has engaged Innisfree to assist in the solicitation of proxies. The Company will pay Innisfree an estimated fee of up to $150,000. The Company has also agreed to indemnify Innisfree against certain losses, costs and expenses.

 

Q.	What should I do now?

 

A.

You should read this proxy statement/prospectus carefully in its entirety, including the Annexes, and return your completed, signed and dated proxy card(s) by mail in the enclosed postage-paid envelope(s) or submit your voting instructions by telephone or via the Internet as soon as possible so that your shares of Class A Common Stock and/or Class B Common Stock will be voted in accordance with your instructions.

 

10

Q.	Who can help answer my questions about the Special Meeting or the Reclassification Proposal?

 

A.	If you have questions about the Reclassification or the other matters to be voted on at the Special Meeting or desire additional copies of this proxy statement/prospectus, additional proxy card(s) or additional voting instruction card(s), you should contact our proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders Call Toll Free: (866) 239-1763

Banks and Brokers Call: (212) 750-5833

 

Q.	How can I submit a question to be answered during the Special Meeting?

 

A.

If you wish to submit a question to be answered during the Special Meeting, you may do so. You may submit a question prior to the Special Meeting any time before 11:59 p.m. (ET) on [●], 2022, by logging into www.proxyvote.com and enter your 16-digit control number. Once past the login screen, click on “Question for Management,” type in your question, and click “Submit.”

Questions pertinent to meeting matters will be answered during the Special Meeting, subject to time constraints.

 

Q.	How do I inspect the list of Stockholders of Record?

 

A.

For at least ten days prior to the Special Meeting, a list of stockholders of record as of the Record Date will be available for inspection during ordinary business hours at our offices at 207 High Point Drive, Building 100, Victor, New York 14564. To access the list during the Special Meeting, please visit: www.virtualshareholdermeeting.com/STZ2022SM.

 

Q.	Where can I find the voting results of the Special Meeting?

 

A.	We plan to announce preliminary voting results at the Special Meeting and publish final results on a Form 8-K filed with the SEC following the Special Meeting.

 

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20

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents incorporated herein by reference contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements. The words “anticipate,” “intend,” “expect,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All statements other than statements of historical fact included in this proxy statement/prospectus are forward-looking statements, including, but not limited to, any statements regarding the expected costs and benefits of the Reclassification, the likelihood of satisfaction of certain conditions to the completion of the Reclassification, whether and when the Reclassification will be completed and expected future financial performance.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. In addition to the risks and uncertainties of ordinary business operations and conditions in the general economy and markets in which we compete, our forward-looking statements contained in this proxy statement/prospectus are also subject to the following risks and uncertainties:

 

•

failure to receive stockholder approval of the Reclassification Proposal and any other delays with respect to, or the failure to complete, the Reclassification;

 

•

litigation risks, including risks with respect to the outcome of any legal proceedings that may be instituted against the Company or others relating to the Reclassification;

 

•

water, agricultural and other raw material, and packaging material supply, production, and/or shipment difficulties which could adversely affect our ability to supply our customers;

 

•

the ability to respond to anticipated inflationary pressures, including reductions in consumer discretionary income and our ability to pass along rising costs through increased selling prices, and unfavorable global or regional economic conditions, including economic slowdown or recession;

 

•

the actual impact to supply, production levels, and costs from global supply chain constraints, transportation challenges, wildfires, and severe weather events, due to, among other reasons, actual supply chain and transportation performance and the actual severity and geographical reach of wildfires and severe weather events;

 

•

the actual balance of supply and demand for our products and percentage of our portfolio distributed through any particular distributor due to, among other reasons, actual raw material and water supply, actual shipments to distributors, and actual consumer demand;

 

•

the actual demand, net sales, channel proportions, and volume trends for our products due to, among other reasons, actual shipments to distributors and actual consumer demand;

 

•

beer operations expansion, optimization, and/or construction activities, scope, capacity, costs (including impairments), capital expenditures, and timing due to, among other reasons, market conditions, our cash and debt position, receipt of required regulatory approvals by the expected dates and on the expected terms, results of discussions with government officials in Mexico, the actual amount of non-recoverable brewery construction assets and other costs and expenses, and other factors as determined by management;

 

•

the duration and impact of the COVID-19 pandemic, including but not limited to the impact and severity of new variants, vaccine efficacy and immunization rates, the closure of non-essential businesses, which may include our manufacturing facilities, and other associated governmental containment actions, and the increase in cyber-security attacks that have occurred while non-production employees work remotely;

 

•

the impact of the military conflict in Ukraine and associated geopolitical tensions and responses, including on inflation, supply chains, commodities, energy, and cyber-security;

 

21

•

the amount, timing, and source of funds for any share repurchases or future exercises of the November 2018 Canopy Warrants (as defined in our Annual Report on Form 10-K for the fiscal year ended February 28, 2022 (the “2022 Form 10-K”)), if any, which may vary due to market conditions; our cash and debt position; the impact of the beer operations expansion, optimization, and/or construction activities; the impact of our investment in Canopy; and other factors as determined by management from time to time;

 

•

the amount and timing of future dividends which are subject to the determination and discretion of our Board and may be impacted if our ability to use cash flow to fund dividends is affected by unanticipated increases in total net debt, we are unable to generate cash flow at anticipated levels, or we fail to generate expected earnings;

 

•

the fair value of our investment in Canopy Growth Corporation (“Canopy”) due to market and economic conditions in Canopy’s markets and business locations;

 

•

the accuracy of management’s projections relating to the Canopy investment due to Canopy’s actual results and market and economic conditions;

 

•

the timeframe and amount of any potential future impairment of our Canopy Equity Method Investment (as defined in the 2022 Form 10-K) if our expectations about Canopy’s prospective results and cash flows decline which could be influenced by various factors including adverse market conditions or if Canopy records a significant impairment of goodwill or intangible assets or other long-lived assets, makes significant asset sales, or has changes in senior management;

 

•

the amount of contingent consideration, if any, received in the divestiture of a portion of our wine and spirits business which will depend on actual future brand performance;

 

•

the expected impacts of wine and spirits portfolio refinement activities;

 

•

purchase accounting with respect to any transaction, or the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;

 

•

any impact of U.S. federal laws on Canopy Strategic Transactions (as defined in the 2022 Form 10-K) or upon the implementation of such Canopy Strategic Transactions, or the impact of any Canopy Strategic Transaction upon our future ownership level in Canopy or our future share of Canopy’s reported earnings and losses; and

 

•

our targeted net leverage ratio due to market conditions, our ability to generate cash flow at expected levels, and our ability to generate expected earnings.

Additional important factors that could cause actual results to differ materially from those set forth in or implied by our forward-looking statements contained in this proxy statement/prospectus and the documents incorporated herein by reference are those described in Item 1A. “Risk Factors” of the 2022 Form 10-K as updated by any subsequent Quarterly Reports on Form 10-Q, and our other filings with the SEC. All forward-looking statements speak only as of the date of such statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

 

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RISK FACTORS

In addition to the other information included in and incorporated by reference into this proxy statement/prospectus, including the matters addressed in the section entitled “Special Note Regarding Forward-Looking Statements” beginning on page 21, you should read and carefully consider the following risks before deciding how to vote on the proposals to be considered and voted upon at the Special Meeting. In addition, you should read and consider the risks associated with the businesses of the Company found in the 2022 Form 10-K as updated by any subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 115.

The Reclassification may not benefit the Company or its stockholders.

The Reclassification may not result in an increase in stockholder value or improve the liquidity and marketability of the Company’s equity. The perception of the Reclassification by members of the investment community may cause a decrease in the value of the Class A Common Stock and impair its liquidity and marketability. Furthermore, securities markets worldwide have recently experienced significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could cause a reduction in the market price and liquidity of shares of Class A Common Stock following the Reclassification, particularly if the Reclassification is not viewed favorably by members of the investment community.

The Company will incur significant costs in connection with the Reclassification, which may be in excess of those anticipated by the Company.

The Company has incurred and will continue to incur substantial non-recurring costs and expenses in connection with the negotiation and completion of the Reclassification. These costs and expenses include, among others, the cash payment to the holders of Class B Common Stock, expenses associated with its entry into the New Credit Agreement (as defined herein), costs and expenses of printing and mailing this proxy statement/prospectus, all filing and other fees paid to the SEC in connection with the Reclassification, the Company’s financial and legal advisory and other professional fees incurred related to the Reclassification, reimbursement of the fees and expenses of the Sands Family Stockholders’ financial and legal advisors, which amount is expected to be less than $20 million, and certain payments made to Messrs. Robert and Richard Sands under their current employment agreements with the Company in connection with their retirements at the Effective Time. These costs and expenses, as well as other unanticipated costs and expenses, could have an adverse effect on the financial condition and operating results of the Company.

The Sands Family Stockholders have the most significant voting power in the Company and have interests in the Reclassification that are different from, or in addition to, the interests of other stockholders.

As of August 26, 2022, the Sands Family Stockholders owned of record approximately 4% of the outstanding shares of Class A Common Stock, approximately 98% of the outstanding shares of Class B Common Stock and approximately 60% of the combined voting power of the outstanding shares of Class A Common Stock and Class B Common Stock when voting together as a single class. Assuming no adjustment pursuant to the terms of the Reclassification Agreement and the Amended and Restated Charter, if the Reclassification is completed, the 22,804,987 shares of Class B Common Stock held by the Sands Family Stockholders will be reclassified into 22,804,987 shares of Class A Common Stock. Immediately following the Reclassification, the 22,804,987 shares of Class A Common Stock held by the Sands Family Stockholders will represent approximately 16% voting interest in the Company (based on the Sands Family Stockholders’ beneficial ownership as of, and the number of shares of Class A Common Stock issued and outstanding as of, August 26, 2022).

The Sands Family Stockholders are party to the Reclassification Agreement. Pursuant to the Reclassification Agreement, on the terms and subject to the conditions set forth therein, the Sands Family Stockholders have agreed to vote all of its shares of Class A Common Stock and Class B Common Stock owned of record in favor

 

23

of the Reclassification Proposal and the Adjournment Proposal and against, among other things, any action, agreement or transaction involving the Company or any of its subsidiaries that is intended, or would reasonably be expected, to prevent or materially impair or materially delay the consummation of the Reclassification. In addition, pursuant to the Reclassification Agreement (and each as further described below in this proxy statement/prospectus), (i) WildStar—an entity associated with the Sands family—will be entitled to certain board nomination rights, (ii) Messrs. Robert and Richard Sands will remain members of the Board (of which, initially, Mr. Robert Sands will be Non-Executive Chair) and will be entitled to customary compensation for such Board (and Non-Executive Chair) service as well as certain continuing perquisites described below under “The Reclassification Agreement—Material Obligations of the Company and the Sands Family Stockholders under the Reclassification Agreement—Ongoing Board Roles,” (iii) Messrs. Robert and Richard Sands will receive certain payments under their current employment agreements with the Company in connection with their retirements at the Effective Time as described below under “Special Factors—Interests of Certain Persons in the Reclassification,” (iv) each nominee of WildStar that is a Family-Related Person serving on the Board will be subject to a set of restrictions on pledging as provided in the Reclassification Agreement and described below under “The Reclassification Agreement—Material Obligations of the Company and the Sands Family Stockholders under the Reclassification Agreement—Pledging” that provide greater flexibility than the Board’s Anti-Pledging Policy, (v) the Company has agreed to enter into the Registration Rights Agreement with the Sands Family Stockholders at the Effective Time and (vi) the Company has agreed to reimburse the financial advisory and legal fees and expenses of the Sands Family Stockholders, which amount is expected to be less than $20 million, and to indemnify the Sands Family Stockholders and certain related individuals and entities for out-of-pocket costs and expenses arising out of or resulting from any actions or proceedings related to the Reclassification Agreement or the transactions contemplated thereby, including the Reclassification, other than any claims or proceedings brought by the Company against the Sands Family Stockholders for breach of the Reclassification Agreement.

As a result of their significant voting power and their rights under the Reclassification Agreement, the Sands Family Stockholders have interests in the Reclassification that are different from, or in addition to, the interests of certain other stockholders. The members of the Special Committee were aware of and considered these interests, among other matters, in evaluating and negotiating the Reclassification Agreement and in determining to unanimously recommend that the Board approve the Amended and Restated Charter and the Reclassification Agreement and declare that the Amended and Restated Charter and the Reclassification Agreement are advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders. Further, the members of the Board were aware of and considered these interests, among other matters, when the Board authorized, approved and declared advisable and in the best interests of the Company and its stockholders, the terms of the Reclassification Agreement, the other Transaction Documents, the Reclassification and the Other Transactions.

Certain officers and directors of the Company have interests in the Reclassification that are different from, or in addition to, the interests of other stockholders.

Certain members of the Company’s management and the Board have interests in the Reclassification that are different from, or in addition to, the interests of holders of Class A Common Stock and/or Class B Common Stock. See the section of this proxy statement/prospectus entitled “Special Factors—Interests of Certain Persons in the Reclassification.”

The members of the Special Committee were aware of and considered these interests, among other matters, in evaluating and negotiating the Reclassification Agreement and in determining to unanimously recommend that the Board approve the Amended and Restated Charter and the Reclassification Agreement and declare that the Amended and Restated Charter and the Reclassification Agreement are advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders. Further, the members of the Board were aware of and considered these interests, among other matters, when the Board authorized, approved and declared advisable and in the best interests of the Company and its stockholders, the terms of the Reclassification Agreement, the other Transaction Documents, the Reclassification and the Other Transactions.

 

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If the Reclassification is effected the Sands Family Stockholders will still own a significant amount of our voting stock and will have rights to nominate directors to the Board, and their interests may conflict with those of our other stockholders.

Until the date that is five years after the Effective Time and so long as the Sands Family Stockholders, collectively, have beneficial or record ownership of at least ten percent of the issued and outstanding shares of Class A Common Stock, the Board shall, subject to the procedures and limitations set forth in the Reclassification Agreement, nominate two individuals designated by WildStar for election to the Board at any annual meeting of Company stockholders at which directors are to be elected (or otherwise in connection with any action by written consent pursuant to which a majority of the Board will be elected). So long as the Sands Family Stockholders, collectively, have beneficial or record ownership of less than 10% but at least 9,239,463.1 shares of Class A Common Stock, as adjusted by any stock dividend, stock split, stock combination or similar transaction, the Board shall, subject to the procedures and limitations set forth in the Reclassification Agreement, nominate one individual designated by WildStar for election to the Board at any annual meeting of Company stockholders at which directors are to be elected (or otherwise in connection with any action by written consent pursuant to which a majority of the Board will be elected).

The amount of Class A Common Stock that will be held by the Sands Family Stockholders following the Reclassification, together with the foregoing Board nomination rights, provide the Sands Family Stockholders with significant continued input into the Company’s decisions. The interests of the Sands Family Stockholders with respect to matters potentially or actually involving or affecting the Company and its other stockholders, such as future acquisitions, financings and other corporate opportunities and attempts to acquire the Company, may conflict with the interests of our other stockholders.

The Reclassification may divert the attention of the Company’s management team from its other responsibilities.

The Reclassification could cause the Company’s management team to focus its time and energies on matters related to the consummation of the Reclassification, including any potential litigation or other proceedings, which would otherwise be directed to the business and operations of the Company. Any such diversion on the part of management, if significant, could affect the Company’s ability to operate its business and/or execute its strategy and adversely affect the business and results of operations of the Company. Furthermore, the cost to the Company of defending any litigation or other proceeding relating to the Reclassification could be substantial.

Failure to consummate the Reclassification could adversely affect the price of the Class A Common Stock and/or the Class B Common Stock.

Under the terms of the Reclassification Agreement, the Company and the Sands Family Stockholders’ obligation to consummate the Reclassification is subject to customary conditions. The Company cannot be certain that these conditions will be satisfied. If the Reclassification Agreement is terminated for failure to satisfy a condition precedent or for any other reason, the Company and/or the Sands Family Stockholders may determine to not pursue a reclassification.

If the Reclassification is not completed, the Company’s businesses and financial results may be adversely affected, including as follows:

 

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the Company may experience negative reactions from the financial markets, including negative impacts on the market price of shares of Class A Common Stock and/or Class B Common Stock; and

 

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the Company will have expended substantial time and resources that could otherwise have been spent on the Company’s existing businesses and the pursuit of other opportunities that could have been beneficial to the Company.

 

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The Reclassification Agreement and the Amended and Restated Charter each contain an adjustment mechanism that, if utilized by the Company, would result in the holders of shares of Class B Common Stock, including the Sands Family Stockholders, receiving a portion of the consideration as additional shares of Class A Common Stock in lieu of cash.

The Reclassification Agreement and the Amended and Restated Charter provide that if the Company reasonably determines it does not have available cash on hand immediately prior to the Effective Time to fund the aggregate cash consideration, the Company may decrease the $64.64 cash consideration and increase the 1:1 share ratio of Class A Common Stock to Class B Common Stock to provide the holders of Class B Common Stock with less cash consideration and additional shares of Class A Common Stock in lieu thereof, up to a value of $500 million (to the extent of such cash shortfall).

If the above mechanism is utilized, the number of shares to be issued in lieu of a portion of the cash consideration is calculated based on a per share value equal to the lesser of (i) the volume weighed average price per share of Class A Common Stock for the 10 trading days immediately prior to the second business day prior to the closing date for the Reclassification and (ii) $243.63 (which was the closing price of Class A Common Stock as of the day prior to signing of the Reclassification Agreement).

Although the Company fully expects to have, as of the Effective Time, sufficient financing capacity and cash on hand such that the adjustment mechanism will not be utilized, if that were not the case the holders of shares of Class B Common Stock, including the Sands Family Stockholders, would be entitled to receive up to (depending on the extent of the shortfall) $500 million of additional shares of Class A Common Stock in lieu of an amount of cash consideration equal to such shortfall.

The market price of shares of Class A Common Stock will continue to fluctuate after the Reclassification.

If the Reclassification is completed, holders of Class B Common Stock will become holders of shares of Class A Common Stock. The market price of shares of Class A Common Stock may fluctuate significantly following completion of the Reclassification and holders of our Common Stock could lose some or all of the value of their investment. In addition, the stock market has experienced significant price and volume fluctuations in recent times, which, if they continue to occur, could have a significant adverse effect on the market for, or liquidity of, the shares of Class A Common Stock, regardless of the Company’s actual operating performance.

The market price of shares of Class A Common Stock may decline in the future as a result of the sale of Class A Common Stock held by former Class B Common Stockholders or current Class A Common Stockholders.

Based on the number of shares of Class B Common Stock issued and outstanding as of August 26, 2022 and assuming no adjustment to the mix of consideration pursuant to the terms of the Reclassification Agreement and the Amended and Restated Charter, the Company expects 23,205,885 shares of Class B Common Stock will be reclassified into shares of Class A Common Stock in connection with the Reclassification (which reflects the expected retirement of 5,005,800 shares of Class B Common Stock held in treasury). Following the Reclassification, former Class B Common Stockholders may (subject to such limitations as are imposed on the Sands Family Stockholders pursuant to the Reclassification Agreement) seek to sell the shares of Class A Common Stock into which their shares of Class B Common Stock were reclassified, as well as shares of Class A Common Stock held by such holders before the Reclassification. Other stockholders may also seek to sell the shares of Class A Common Stock held by them following, or in anticipation of, completion of the Reclassification. These sales (or the perception that these sales may occur), coupled with the increase in the outstanding number of shares of Class A Common Stock relative to shares of Class A Common Stock outstanding as of August 26, 2022, may affect the market for, and the market price of, Class A Common Stock in an adverse manner.

 

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THE SPECIAL MEETING

Place, Date and Time

The Special Meeting is scheduled to be held as a “virtual meeting” via online audio broadcast, on [●], [●], 2022 at [●] [a.m./p.m.] (ET) at www.virtualshareholdermeeting.com/STZ2022SM.

Purpose of the Special Meeting

The Special Meeting is being held for the purpose of considering and voting upon:

 

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the Reclassification Proposal; and

 

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the Adjournment Proposal.

Recommendations of the Special Committee and of the Board

The Special Committee and the Board recommend that you vote “FOR” each of the following proposals:

 

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“FOR” the Reclassification Proposal; and

 

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“FOR” the Adjournment Proposal.

Record Date; Stock Entitled to Vote

Only holders of record of our Class A Common Stock and/or Class B Common Stock at the close of business on [●] [●], 2022 are entitled to notice of, and to vote at, the Special Meeting and at any postponement or adjournment thereof.

Quorum

The holders of shares of Class A Common Stock and Class B Common Stock representing a majority of the votes entitled to be cast at the Special Meeting by the holders of all outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote, present in person or by proxy, shall constitute a quorum. With respect to the separate vote of the holders of a majority of the issued and outstanding shares of Class B Common Stock, the presence in person or by proxy of the holders of at least a majority of the outstanding shares of Class B Common Stock shall constitute a quorum for the meeting.

Action may be taken by one voting group on a matter at the Special Meeting even though no action is taken by another voting group entitled to vote on the matter. Shares of Class A Common Stock and Class B Common Stock represented by a properly completed proxy will be treated as present at the Special Meeting for purposes of determining a quorum, without regard to whether the proxy is marked as casting a vote or abstaining. If a share is present at the Special Meeting, it will be deemed present for quorum purposes throughout the meeting.

Required Vote; Abstentions

The vote required to approve each proposal is as follows:

 

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Proposal 1 – Reclassification Proposal: Under the Reclassification Agreement, it is a condition precedent to the Company’s and the Sands Family Stockholders’ obligation to complete the Reclassification that not less than 50.3% of the issued and outstanding shares of Class A Common Stock held by Unaffiliated Class A Holders vote “FOR” the Reclassification Proposal. The affirmative vote of the holders of (a) a majority of the voting power of the issued and outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote thereon, voting together as a single class and (b) a majority of the issued and outstanding shares of Class B Common Stock is also required for approval of the Reclassification Proposal.

 

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Abstentions, if any, will have the effect of votes “AGAINST” the Reclassification proposal. Your failure to vote or the failure to instruct your broker, bank, trustee or other nominee to vote will have the effect of a vote “AGAINST” the Reclassification Proposal.

 

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Proposal 2 – Adjournment Proposal: The affirmative vote of the holders of a majority of the votes entitled to be cast by the holders of Class A Common Stock and Class B Common Stock represented, in virtual attendance or by proxy, at the Special Meeting and entitled to vote on the matter. Abstentions will have the effect of votes “AGAINST” this proposal. Your failure to vote or the failure to instruct your broker, bank, trustee or other nominee to vote will have no effect on the results of the Adjournment Proposal.

When holders of Class A Common Stock and holders of Class B Common Stock vote together as a single class, each holder of Class A Common Stock is entitled to one vote for each share of Class A Common Stock registered in such holder’s name and each holder of Class B Common Stock is entitled to ten votes for each share of Class B Common Stock registered in such holder’s name. When holders of Class A Common Stock and holders of Class B Common Stock vote as separate classes, holders of Class A Common Stock and Class B Common Stock are each entitled to one vote per share.

Voting by the Company’s Directors and Executive Officers

As of August 26, 2022, the directors and executive officers of the Company and their affiliates as a group were entitled to vote 7,064,627 shares of Class A Common Stock and 22,805,251 shares of Class B Common Stock, representing approximately 4% of the issued and outstanding shares of Class A Common Stock, approximately 98% of the issued and outstanding shares of Class B Common Stock and approximately 60% of the combined voting power of the outstanding shares of Class A Common Stock and Class B Common Stock when voting together as a single class. The Company currently expects that its directors and executive officers will vote their shares “FOR” the Reclassification Proposal and “FOR” the Adjournment Proposal.

How to Vote

If you are a stockholder of record at the close of business on the Record Date, you may vote virtually at the Special Meeting or authorize a proxy to vote your shares. You can vote in the following ways:

 

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Vote your shares by Mail: sign, date and mail in your proxy card(s) using the accompanying envelope(s);

 

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Vote your shares by Telephone: submit your vote by calling 1-800-690-6903; or

 

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Vote your shares via the Internet: connect to the following website and follow the directions provided on your proxy card(s) or voting instruction card(s): www.proxyvote.com.

The proxy card(s) also confers discretionary authority on the individuals appointed by the Board and named on the proxy card(s) to vote the shares represented by the proxy card(s) on any other matter that is properly presented for consideration at the Special Meeting and any postponement or adjournment thereof.

Detailed instructions for using the telephone and Internet options for voting are set forth on the proxy card(s) and voting instruction card(s) accompanying this proxy statement. Because the Internet and telephone services authenticate stockholders by use of a control number, you must have the proxy card(s) available in order to use these services to authorize a proxy to vote your shares. Proxies submitted by telephone or Internet must be received by [●] p.m. (ET), on [●], 2022. If you choose to authorize a proxy to vote your shares by telephone or Internet, you do not need to return the proxy card(s).

If you submit a properly executed proxy card but do not specify how you want to vote, your shares will be voted “FOR” the Reclassification Proposal and “FOR” the Adjournment Proposal. The proxy holders will vote all proxies in their discretion on any other matters that may properly come before the Special Meeting.

 

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If your shares of Class A Common Stock and/or Class B Common Stock are held in “street name” by a broker, bank, trust or other nominee, then you are not the stockholder of record. In that case, to vote virtually at the Special Meeting, you must obtain a legal proxy from your broker, bank, trust or other nominee and present it at the Special Meeting.

No Appraisal Rights

No appraisal rights under Section 262 of the DGCL will be available to holders of Common Stock with respect to the amendment and restatement of the Company’s restated certificate of incorporation in the form of the Amended and Restated Charter or the Other Transactions.

Results of the Special Meeting

The preliminary voting results will be announced at the Special Meeting. In addition, within four business days following the Special Meeting, the Company will file the final voting results with the SEC on a Current Report on Form 8-K, provided that the final voting results have been certified within that four business day period. If the final voting results have not been certified within that four business day period, the Company will report the preliminary voting results on a Current Report on Form 8-K at that time and will file an amendment to the Current Report on Form 8-K to report the final voting results within four business days of the date that the final results are certified.

STOCKHOLDERS SHOULD CAREFULLY READ THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE MATTERS TO BE CONSIDERED AND VOTED ON AT THE SPECIAL MEETING.

 

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SPECIAL FACTORS

The descriptions of the material terms of the Reclassification and the Reclassification Agreement set forth below are not intended to be complete descriptions thereof. These descriptions are qualified by reference to (i) the proposed Amended and Restated Charter attached to this proxy statement/prospectus as Annex A, and (ii) the Reclassification Agreement attached to this proxy statement/prospectus as Annex C and incorporated by reference herein. The Company urges all stockholders to read these documents carefully and in their entirety.

Information about the Company

We are an international producer and marketer of beer, wine, and spirits with operations in the U.S., Mexico, New Zealand, and Italy with powerful, consumer-connected, high-quality brands like Corona Extra, Modelo Especial, the Robert Mondavi Brand Family, Kim Crawford, Meiomi, The Prisoner Wine Company, and High West. In the U.S., we are one of the top growth contributors at retail among beverage alcohol suppliers. We are the third-largest beer company in the U.S. and continue to strengthen our leadership position as the #1 high-end beer supplier and the #1 share gainer across the U.S. beer market. Within wine and spirits, we are making solid progress in transforming our brand portfolio to shift to a higher-end focused business to deliver net sales growth and margin expansion. The strength of our brands makes us a supplier of choice to many of our consumers and our customers, which include wholesale distributors, retailers, and on-premise locations. We conduct our business through entities we wholly own as well as through a variety of joint ventures and other entities.

We are a Delaware corporation incorporated in 1972, as the successor to a business founded in 1945. The Company’s headquarters are located at 207 High Point Drive, Building 100, Victor, New York 14564 and the telephone number at this location is (585) 678-7100. Our Class A Common Stock and Class B Common Stock trade on the NYSE under the symbols “STZ” and “STZ.B,” respectively. For additional information about the Company and its businesses, see the section of this proxy statement/prospectus entitled “Where You Can Find More Information.”

Structure of the Reclassification

The Reclassification will be effectuated through an amendment and restatement of the Company’s certificate of incorporation, in the form of the Amended and Restated Charter attached to this proxy statement/prospectus as Annex A. If the Reclassification Proposal is approved and adopted by the stockholders, the Reclassification will become effective upon the filing of the Amended and Restated Charter with the Secretary of State of the State of Delaware (or at such later time as set forth in the Amended and Restated Charter). At the Effective Time, subject to any adjustment pursuant to the terms of the Reclassification Agreement and the Amended and Restated Charter, each share of Class B Common Stock issued and outstanding as of immediately prior to the Effective Time will be reclassified and converted into one validly issued, fully paid and non-assessable share of Class A Common Stock and the right to receive $64.64 in cash, without interest. Immediately following the Effective Time, the Company’s authorized common stock will consist of Class A Common Stock and Class 1 Common Stock. The Company has the ability to substitute up to $500 million of such cash consideration with additional shares of Class A Common Stock if the Company reasonably determines its available cash at the Effective Time is insufficient to pay the total cash consideration.

Background of the Reclassification

Executive Summary

On April 2, 2022, Mr. Robert Sands, on behalf of the Sands family, delivered a non-binding proposal to the Board proposing a reclassification of the Class B Common Stock into Class A Common Stock at a ratio of 1.35 shares of Class A Common Stock for each share of Class B Common Stock. On April 3, 2022, in response to the foregoing proposal, the Board established the Special Committee to review, evaluate, and, if appropriate, negotiate a reclassification of the Class B Common Stock and related aspects of such reclassification.

 

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The Special Committee engaged in a diligent and thoughtful process to achieve what the Special Committee believes to be the best outcome for the Company and the Unaffiliated Class A Holders. The Special Committee held 21 meetings (including the meeting to consider a formal recommendation) prior to making its determinations and delivering its recommendations. The Special Committee also engaged independent advisors and, where appropriate, consulted with members of Company management not affiliated with the Sands family to assist the Special Committee with its mandate.

The Special Committee engaged in a holistic approach in its review of the Reclassification. Prior to responding on any potential premium, the Special Committee made clear to the Sands family that the Special Committee’s receptivity to considering an appropriate premium in a reclassification was tied to the Sands family’s agreement to address a broader set of corporate governance matters at the Company that would align the Company’s governance with that of a non-controlled company. The Sands family and the Special Committee aligned on the types of governance changes that would be made prior to engaging in negotiations related to a potential premium.

The Special Committee then delivered a counterproposal on a potential premium (along with more detailed proposals as to the Company’s corporate governance following a reclassification of the Class B Common Stock) to the Sands family, which was an all-cash premium at 16%. This counterproposal on premium reflected, among other things, the Special Committee’s consideration of the Sands family and the Special Committee’s alignment on the corporate governance changes at such time, as well as the lowest potential premium level that could be proposed that would keep the Sands family engaged in negotiations on a Potential Reclassification (as defined below). The Sands family did not accept this counterproposal on premium, and the Special Committee and the Sands family thereafter exchanged, collectively, counterproposals and responses before reaching an agreement that each share of Class B Common Stock would be reclassified and exchanged for one share of Class A Common Stock and receive a cash premium of $64.64, which premium equates to approximately $8.00 of value per share of Class A Common Stock.

In exchange, the Special Committee secured, subject to stockholder approval, an immediate and certain pathway for transitioning the Company to a non-controlled company and significant, meaningful corporate governance changes, including (i) the transition of Messrs. Robert and Richard Sands to non-executive roles on the Board and their acceptance of compensation packages in-line with such roles, (ii) the absence of any contractual right of Mr. Robert Sands to serve as Non-Executive Chairman of the Board for a guaranteed minimum period, (iii) a lock-up on sales by the Sands Family Stockholders of approximately 75% of their Company stock for three years following the Reclassification (subject to certain exceptions, including certain permitted sales), (iv) the Board’s adoption of an anti-pledging policy, with an exception for the Sands family members on the Board that would increase the restrictions on pledging by such persons over time, (v) a standstill applicable to the Sands Family Stockholders, (vi) limited Board nomination rights for the Sands Family Stockholders, which decrease over time, (vii) the Board’s adoption of a majority voting standard for uncontested director elections, and (viii) that the Board would rotate the lead independent director position on the Board at the next available normal cycle opportunity. The Reclassification, if consummated, will result in the Company realizing an estimated $15-20 million in pretax annual compensation savings and, based on the midpoint of such estimated savings, an implied potential value of such executive compensation savings of approximately $300 million and has the potential to drive stockholder value creation through expansion of the Company’s price to next-twelve-months earnings per share multiple.

Further background on the Special Committee’s process and evaluation of the Reclassification is set forth below.

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Background

From time to time over the last several years, members of the Sands family have discussed with members of management and/or directors of the Company the possibility that at some point it may be desirable to seek to make changes to the existing high vote/low vote structure of the Company’s common stock. These conversations have recognized that potential changes could include, among other things, issuing additional high or low vote (or non-voting) stock and/or declassifying the common stock to eliminate the high vote component of the shares of Class B Common Stock.

In addition, from time to time, the Company has considered potential strategic transactions where the existence or treatment of or impact on the high vote component of the shares of Class B Common Stock, or the percentage of the vote that would be held by the Sands family following such transaction, has been an item for discussion (by the Company, the Sands family, and/or the potential counterparties) in connection with consideration or structuring of a potential transaction.

In connection with one such potential strategic transaction, the potential counterparty made clear that the high vote stock would need to be collapsed in connection with the transaction; the Sands family informed the Board that it would be willing to consider a proposal from the Board to declassify the stock for an appropriate premium in connection with the potential strategic transaction to permit the potential strategic transaction to proceed (if such declassification transaction were negotiated and approved in accordance with MFW (as defined below)), and the Board formed a special committee of independent and disinterested directors to consider such declassification. In that situation, for reasons unrelated to the high vote/low vote stock, a determination was made by the full Board not to proceed with the potential strategic transaction and the special committee was disbanded without having made or received any proposal to or from the Sands family.

On April 2, 2022, Mr. Robert Sands, on behalf of the Sands family, delivered a proposal to the Board, in which the Sands family proposed a reclassification of the Company’s common stock structure whereby each share of Class B Common Stock would be converted into 1.35 shares of Class A Common Stock (the “Sands Family Proposal”), and which would reduce the aggregate voting power of the Sands family from approximately 59.5% to 19.7%. The Sands Family Proposal stated that the Sands family believed that the premium included in its proposal was supported by precedent transactions and appropriate given the significant benefits that would accrue to the Company and its stockholders, including increased market demand from investors who prefer single-class structures, and stated that it was not made in connection with or with the intention of facilitating any specific transaction. The Sands Family Proposal was conditioned on the procedures described in Kahn v. M&F Worldwide Corp. and its progeny (collectively, “MFW”) and expressly contemplated that any consideration payable to the holders of Class B Common Stock in a reclassification would have to be approved by a fully empowered special committee of independent directors of the Board and by the holders of a majority of the shares of Class A Common Stock that do not also hold shares of Class B Common Stock. The Sands Family Proposal also contemplated that the Company would fully indemnify and reimburse the Sands family with respect to its participation in a reclassification, including its out-of-pocket expenses.

At a meeting on April 3, 2022, the non-management directors of the Board deemed it advisable and in the best interests of the Company and its stockholders to form the Special Committee, consisting solely of directors of the Company who are independent of and disinterested from, in all material respects, the holders of shares of Class B Common Stock, for the purpose of reviewing, evaluating and, if applicable, negotiating a reclassification of the Class B Common Stock (a “Potential Reclassification”) and related aspects of a Potential Reclassification. The Board established the Special Committee and appointed Jennifer M. Daniels, Jeremy S.G. Fowden, Jose Manuel Madero Garza and Daniel J. McCarthy to the Special Committee. The Board deferred the formal delineation of the scope of the delegation of authority to the Special Committee until the Special Committee retained independent counsel to review such delegation.

Following the April 3, 2022 Board meeting, the Special Committee retained Potter Anderson & Corroon LLP (“Potter Anderson”) as its independent legal advisor and Centerview Partners LLC (“Centerview”) as its

 

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independent financial advisor for purposes of its review, evaluation and negotiation of a Potential Reclassification and related aspects of a Potential Reclassification. The Special Committee determined to engage Potter Anderson and Centerview based upon, among other things, their qualifications, experience and expertise in serving as advisors to special committees of boards of directors, generally and in connection with similar circumstances, and, in the case of Centerview, Centerview’s industry experience, and their respective lack of relationships with the Sands family and affiliates. Engagement letters for each of Potter Anderson’s and Centerview’s engagement with the Special Committee were later executed. Representatives of Centerview delivered Centerview’s customary relationships disclosure memorandum to the Special Committee, dated as of April 21, 2022, which memorandum confirmed the lack of material relationships with the parties listed therein.

On April 8, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance for a portion of the meeting. Representatives of Centerview reviewed with the Special Committee, for reference and discussion purposes, the presentation summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, including, among other things: (i) the Sands Family Proposal, including key questions for consideration; (ii) Centerview’s approach to analyzing and evaluating the Sands Family Proposal; (iii) potential corporate governance changes that could be implemented in connection with a Potential Reclassification; (iv) illustrative possible responses to the Sands family; (v) potential forms of consideration for any premium and the financial markets’ views of a mixture of cash and stock consideration; and (vi) a summary of precedent, publicly available share reclassification transactions and a review of the rationales that supported such precedent transactions based on publicly available information. Representatives of Centerview also provided an overview of the Company’s current capitalization structure and the Sands family’s rights with respect to those shares, including that the Sands family, as the holders of approximately 98% of the shares of Class B Common Stock, had an existing right to convert each share of Class B Common Stock owned by it into one share of Class A Common Stock under the Company’s restated certificate of incorporation, as amended, and, therefore, a “no-premium” deal likely would not be acceptable to the Sands family. The Special Committee and its advisors also discussed the monetary benefit that the Sands family would realize from a consummated Potential Reclassification due to the 10% higher dividend rate of the Class A Common Stock (as compared to the Class B Common Stock). Following the departure of Centerview’s representatives from the meeting, a representative of Potter Anderson advised the Special Committee on the Special Committee’s fiduciary duties and on following a process in accordance with the procedures described in MFW.

On April 15, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson in attendance and with representatives of Centerview in attendance for a portion of the meeting. The Special Committee and a representative of Potter Anderson discussed in-bound stockholder communications regarding the Sands Family Proposal and the development of certain policies and procedures in connection with responding to, and reviewing and evaluating, such communications. The representatives of Centerview reviewed with the Special Committee, for reference and discussion purposes, the presentation summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, including, among other things, (i) a preliminary analysis of select publicly available share reclassifications (involving both a family/founder/controlling shareholder and no family/founder controlling shareholder), including, among other things, the payment of a premium in certain of those reclassifications, and certain corporate governance changes implemented in connection with those reclassifications; (ii) a review of corporate governance considerations, including a review of the Company’s corporate governance profile and potential corporate governance provisions to consider in connection with a potential reclassification; (iii) an overview of market benchmarks and considerations following the announcement of the Sands Family Proposal, including a review of certain select sell-side analyst and investor reactions to the announcement of the Sands Family Proposal, and a preliminary financial analysis of the impact of various exchange premiums on the Class A Common Stock; (iv) a review of certain additional value considerations relating to the Sands family in a Potential Reclassification, including the Sands family’s increased dividend value potential, Messrs. Robert and Richard Sands’ executive compensation and the benefits that Messrs. Robert and Richard Sands would receive in the event each was to retire from his respective executive role and (v) illustrative possible responses to the Sands family and certain considerations to

 

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evaluate in forming a response. In discussing with representatives of Centerview illustrative possible responses, the Special Committee discussed with representatives of Centerview and considered a range of potential outcomes under alternative potential reclassification premiums, including the possibility of delivering a counterproposal that contemplated no premium and that such proposal was likely unacceptable to the Sands family given the premium proposed by the Sands family in its proposal and the Sands family’s pre-existing right to convert its thinly traded shares of Class B Common Stock into highly liquid shares of Class A Common Stock on a 1:1 basis at any time. The Special Committee and its advisors engaged in discussions on various topics raised by representatives of Centerview, including (i) the Company’s corporate governance profile and certain feedback that the Company had received on its corporate governance; and (ii) potential governance changes that the Company could implement in connection with a Potential Reclassification and the timing and advisability of including those changes in a Potential Reclassification. As a result of these discussions, the Special Committee determined that it would be appropriate to explore certain corporate governance changes for the Company that aligned with the resulting effect of engaging in a Potential Reclassification. Following representatives of Centerview’s departure from the meeting, the Special Committee discussed that representatives of Potter Anderson had circulated its comments on the draft Board resolutions for the formation of the Special Committee, that the Special Committee had signed off on those resolutions and that the resolutions had been sent to Company management for distribution to the Board for its approval.

On April 22, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. Representatives of Centerview reviewed with the Special Committee, for reference and discussion purposes, the presentation summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, including, among other things, (i) preliminary financial analyses of a Potential Reclassification, including an overview of market benchmarks; (ii) a preliminary financial analysis of the impact of various exchange premiums on the Class A Common Stock and the potential value creation for the Company over time resulting from a Potential Reclassification; (iii) an updated preliminary analysis of select publicly available share reclassifications; (iv) a preliminary case study of potential annual executive compensation savings if Messrs. Robert and Richard Sands transitioned to non-executive roles in connection with a Potential Reclassification and received compensation in-line with those roles; and (v) perspectives on possible responses to the Sands Family Proposal. The Special Committee and its advisors discussed potential responses and messages to the Sands family, including the Special Committee’s view that a Potential Reclassification should also involve certain corporate governance changes for the Company. After discussion, the Special Committee determined to deliver a response to the Sands family indicating that the Special Committee’s willingness to consider an appropriate premium in a Potential Reclassification was contingent on the Sands family agreeing to certain corporate governance changes for the Company and that a response to the level of any potential premium would only occur following alignment on key corporate governance changes. The Special Committee and representatives of Centerview reviewed the scope of the potential corporate governance changes that the Special Committee could ask that the Company implement in connection with a Potential Reclassification.

On April 25, 2022, pursuant to the Board resolutions adopted on April 3, 2022, the Board adopted resolutions by written consent which further delineated the scope of the delegation of authority by the Board to the Special Committee and which reflected the input of Potter Anderson. These Board resolutions, among other things, provided: (i) the Special Committee with (1) the power to recommend or reject a Potential Reclassification, and (2) the authority to negotiate the structure, form, terms and conditions of a Potential Reclassification and related aspects of a Potential Reclassification; (ii) that a Potential Reclassification and related aspects of a Potential Reclassification would be subject to approval by an MFW compliant stockholder vote; and (iii) that the Board would not recommend a Potential Reclassification without a prior favorable recommendation by the Special Committee.

On April 28, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. Representatives of Centerview reviewed with the Special Committee, for reference and discussion purposes, the presentation summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, including, among other things, (i) an updated

 

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preliminary analysis of the executive compensation savings from Messrs. Robert and Richard Sands transitioning to non-executive roles in connection with a Potential Reclassification and receiving compensation in-line with such roles, which implied estimated annual savings (approximately $16 million pre-tax) and pro forma value of such savings (approximately $300 million post-tax); (ii) an updated preliminary analysis of a Potential Reclassification at a range of illustrative exchange ratios/premiums, which included an overview of the quantum of multiple expansion for the Company that would result in the Company “breaking-even” on a Potential Reclassification; (iii) an updated preliminary analysis of valuation benchmarks for the Company, which implied that, while there may be other reasons beyond control status for the Company’s current trading level if the Company traded at the levels indicated by such benchmarks, there could be potential for value creation over time in excess of the cost of the potential premium at the level contemplated; and (iv) a preliminary analysis of stock versus cash exchange premium considerations, including certain benefits of paying a cash premium in a Potential Reclassification, such as lower pro forma equity ownership by the former holders of Class B Common Stock, reduced dilution for the current holders of Class A Common Stock, and that the current holders of Class A Common Stock would receive a greater share of any value creation following a Potential Reclassification, given the lower dilution. The Special Committee and its advisors also discussed an illustrative corporate governance proposal to the Sands family, the rationale for such changes and the Special Committee’s messaging points related to such proposed changes. Following such discussion, the Special Committee agreed on a proposed package of corporate governance changes to present to the Sands family (which are described below) and instructed representatives of Potter Anderson and Centerview to convey such changes to Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”) and Greenhill & Co. LLC (“Greenhill”), outside legal and financial advisors, respectively, to the Sands family.

On April 29, 2022, representatives of Potter Anderson and Centerview delivered the Special Committee’s proposed corporate governance changes to Wachtell Lipton and Greenhill, with the Special Committee’s messaging, including that the Special Committee’s receptivity to considering an appropriate premium in a Potential Reclassification was tied to the Sands family’s agreement to address a broader set of corporate governance matters at the Company that would align the Company’s governance with that of a non-controlled company, that any response by the Special Committee regarding the level of any premium in a Potential Reclassification would only occur following the alignment of the Sands family and Special Committee on these proposed changes, and that the Special Committee desired for the Company to adopt model corporate governance best practices for a non-controlled company as part of a Potential Reclassification. The proposed corporate governance changes included: (i) renomination rights for the Sands family over time following a Potential Reclassification; (ii) a transition to non-executive roles for Messrs. Robert and Richard Sands, and alignment of their compensation with customary non-executive standards; (iii) certain standstill and lock-up provisions for the Sands family; (iv) a near-term rotation of the lead independent director position; and (v) the transition to a majority vote standard for uncontested director elections (the “Majority Voting Proposal,” and clauses (i) through (v), collectively, the “Special Committee Initial Governance Proposal”).

On May 4, 2022, Wachtell Lipton and Greenhill, on behalf of the Sands family, informed representatives of Potter Anderson and Centerview that the Special Committee Initial Governance Proposal was acceptable, subject to the following changes: (i) the Sands family would have the right to nominate two directors so long as the Sands family collectively owned at least 10% of the outstanding shares of Class A Common Stock and one director so long as the Sands family collectively owned at least 5% of the outstanding shares of Class A Common Stock; and (ii) the standstill would fall away at the end of a fixed period, regardless of whether any Sands family representative was on the Board. Greenhill and Wachtell Lipton also reiterated the Sands family’s firm view that the premium indicated in the Sands Family Proposal was appropriate compensation for giving up control and expressed their rationale for such premium, including that each of the most recent and relevant family or founder reclassification transactions supported their view on a potential premium in the amount specified in the Sands Family Proposal and that, when reviewing precedents where a large family/founder stockholder had moved from a position of clear control to a position of clear non-control, the large family/founder stockholder had received a premium at the higher end of the precedents. They also stated that the Sands family would be open to receiving some or all of a potential premium in cash as opposed to stock. Greenhill and Wachtell Lipton further noted that

 

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the Sands family had expressed a desire for flexibility to sell up to one-third of its equity in the Company in the “near-term” following a consummated Potential Reclassification for purposes of liquidity and diversification in view of the high degree of concentration of the family’s assets in Company equity.

On May 5, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance and with Mr. Garth Hankinson, Executive Vice President and Chief Financial Officer of the Company, in attendance for a portion of the meeting. Mr. Hankinson, at the request of the Special Committee, provided Company management’s views on the form of consideration for a potential premium in a Potential Reclassification and the reasons for such views. Mr. Hankinson also provided certain investor feedback on the Company’s current corporate governance structure and potential corporate governance changes in connection with a Potential Reclassification. Following Mr. Hankinson’s departure from the meeting, representatives of Centerview updated the Special Committee on their and Potter Anderson’s April 29, 2022 and May 4, 2022 conversations with Greenhill and Wachtell Lipton. Representatives of Centerview also presented, for reference and discussion purposes, an updated preliminary analysis of a Potential Reclassification at various potential premiums and summarized precedent examples of governance rights for major stockholders in public companies and certain case studies, as summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”. A representative from Potter Anderson reported that he had received from James O. Bourdeau, Executive Vice President and Chief Legal Officer of the Company, an analysis performed by Company management regarding the retirement payments and benefits for Messrs. Robert and Richard Sands under their respective employment agreements and noted that representatives of Potter Anderson would circulate for the Special Committee’s and Centerview’s review such analyses and an additional analysis performed by a third-party consultant on the payments due and benefits for Messrs. Robert and Richard Sands’ under their respective employment agreements.

On May 11, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance and with a representative of Kirkland & Ellis LLP (“K&E”), outside legal advisor to the Company, and Messrs. Hankinson and Bourdeau in attendance for a portion of the meeting. Representatives of Centerview discussed the indication received from the Sands family’s regarding their monetization intentions following a Potential Reclassification and reviewed certain preliminary financial analyses, for reference and discussion purposes, in connection with such monetization intentions as summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”. Mr. Hankinson, at the request of the Special Committee, reported on Company management’s preliminary perspectives regarding the form of consideration to be paid for a potential premium in a Potential Reclassification, considering the Sands family’s monetization intentions, which such information had been provided to Mr. Hankinson following the Special Committee’s last meeting. Messrs. Hankinson and Bourdeau also discussed the Company’s cash position and certain matters relating to debt incurrence and leverage ratios for the Special Committee’s consideration in evaluating the form of consideration to be used for a potential premium. Mr. Bourdeau also reviewed a proxy advisor’s feedback on the Company, including that the Company lacked an anti-pledging policy for the Company. Following these discussions, Messrs. Hankinson and Bourdeau and the representative of K&E left the meeting, and the Special Committee and its advisors engaged in further discussions relating to the form of consideration to be used for a potential premium, including how such form of consideration could impact any potential multiple uplift that the Company may realize as part of a reclassification, and the perspective of an Unaffiliated Class A Holder towards the different forms of consideration. The Special Committee and representatives of Centerview also discussed that, if the Sands family monetized portions of its equity in the Company following a Potential Reclassification, it would be appropriate for the Special Committee, working with the Company, to define parameters for those sales to ensure that they occurred in an orderly manner. Rather than respond to the premium proposed by the Sands family at that time, the Special Committee instead authorized an additional outreach by representatives of Potter Anderson and Centerview to Greenhill and Wachtell Lipton to discuss, among other things, (i) the Sands family’s perspectives on the form of consideration for a potential premium, and (ii) how the Sands family’s monetization intentions would impact its pledging of Company stock.

 

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Later, on May 11, 2022, at the request of the Special Committee, representatives of Centerview and Potter Anderson contacted Wachtell Lipton and Greenhill to convey the Special Committee’s questions as discussed at the earlier Special Committee meeting.

On May 12, 2022, Wachtell Lipton and Greenhill, on behalf of the Sands family, informed representatives of Centerview and Potter Anderson that: (i) the Sands family had no preference on the form of consideration for a potential premium; (ii) while the Sands family had expressed its monetization intention, it did not view the monetization intention as falling within the scope of the negotiations for a Potential Reclassification but that the Sands family would be open to receiving a proposal on this issue; and (iii) the Sands family would still need the ability to pledge its shares following a consummated Potential Reclassification. Wachtell Lipton and Greenhill also communicated the Sands family’s desire for the Special Committee to deliver a holistic counterproposal on all issues, including premium, in its next communication.

On May 13, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. Representatives of Centerview reported on Potter Anderson and Centerview’s communications with Wachtell Lipton and Greenhill. At the request of the Special Committee, which had asked that Centerview provide an overview of certain remaining materials included in Centerview’s May 11, 2022 presentation, as summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview” to the Special Committee, representatives of Centerview reviewed with the Special Committee, for reference and discussion purposes, among other things, (i) an updated summary of corporate governance rights in precedent, publicly available family or founder share reclassifications and large, single stockholder situations and discussed how such information could inform the Special Committee’s viewpoint on the appropriate proposed corporate governance terms, including the Sands family’s nomination rights following a consummated Potential Reclassification; (ii) certain benefits of paying a potential premium in all cash, including the benefits to the Unaffiliated Class A Holders; (iii) an updated preliminary analysis of a Potential Reclassification at various potential exchange ratios and premiums; and (iv) a preliminary analysis of potential premiums and exchange ratios that could form the basis of the Special Committee’s counterproposal on a potential premium. The Special Committee and representatives of Centerview also discussed the Sands family’s position that, because the Sands family would be transitioning from a position of clear control to a position of a minority stockholder with no control, it was entitled to receive a premium at the higher end of the precedents. The Special Committee and its advisors discussed the proposed corporate governance changes as well as certain illustrative proposals on a potential premium, including the lowest premium level that could potentially be proposed that would keep the Sands family engaged in negotiations on a Potential Reclassification. The Special Committee, after discussion, determined to receive an updated perspective from Company management on the form of consideration for a Potential Reclassification prior to making any decisions on a premium counterproposal to the Sands family.

Later, on May 13, 2022, Messrs. Hankinson and Bourdeau delivered Company management’s updated perspectives on the form of consideration for a Potential Reclassification to the Chair of the Special Committee and representatives of Potter Anderson and Centerview. Mr. Hankinson conveyed that there were certain situations in which cash, as the form of consideration for a potential premium, would be preferable, and other situations in which stock, as the form of consideration for a potential premium, would be preferable. Mr. Hankinson provided additional context on Company management’s targeted leverage ratio limit and conveyed that Company management was expressing a point of view but deferred to the Special Committee to negotiate a Potential Reclassification as the Special Committee deemed appropriate.

On May 15, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. Representatives of Centerview reported on the meeting with Messrs. Hankinson and Bourdeau, as well as discussed the benefits of using all cash consideration in the context of a controlling stockholder that had expressed an intention to monetize up to one third of its stake following the Potential Reclassification. The Special Committee also considered, among other things, that paying a potential premium in all stock may put downward pressure on the market price for the shares of Class A Common Stock

 

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and that paying a premium in all-cash would not be expected to impact the potential for multiple expansion that the Company may realize over time following a Potential Reclassification. The Special Committee and representatives of Centerview also discussed the rationale for why the payment of a premium would be appropriate under these circumstances, including, among other things, that the Special Committee, after considering Centerview’s preliminary financial analyses, believed that there was the possibility of multiple expansion for the Company over time as a result of engaging in a Potential Reclassification. The Special Committee and Centerview further discussed a 16% premium and the rationale for such premium. The Special Committee and its advisors also discussed their belief that this amount was likely the lowest initial counterproposal on a potential premium that the Special Committee could deliver that, in light of the Sands family’s previous communications on the premium, would keep the Sands family engaged in discussions on a Potential Reclassification and ultimately give the Unaffiliated Class A Holders the opportunity to vote on a Potential Reclassification. After discussion, the Special Committee authorized representatives of Potter Anderson and Centerview to deliver a holistic counterproposal to the Sands family, on the terms outlined below and to convey the message that there was likely not a willingness to pay a premium significantly above that level.

On May 17, 2022, representatives of Potter Anderson and Centerview delivered to Wachtell Lipton and Greenhill the Special Committee’s counterproposal to the Sands Family Proposal, which counterproposal included: (i) a 16% all-cash premium to the five-day volume weighted average price for the Class A Common Stock prior to signing (representing approximately 2.0% of the Company’s market capitalization at the time); (ii) the conversion of each share of Class B Common Stock into one share of Class A Common Stock, in addition to the cash premium discussed in clause (i); (iii) a five-year lock-up of the Sands family’s equity stake in the Company; provided, that up to 25% of the remaining stake would be exempted for sales or transfers, with such sales and transfers limited to 1% of the Company’s market capitalization in any six-month period; provided, further, that any daily trading would be limited to 15% of the past 20-day average daily trading volume (“ADTV”) and that the Sands family would be permitted to sell in excess of the 1% market capitalization restriction in a Company-led broadly marketed transaction (but not in excess of the 25% permitted exemption); provided, further, that any participation by the Sands family in any Company share buyback would be done at prevailing market prices or less; (iv) a five-year standstill for the Sands family that would place restrictions on the ability of the Sands family to increase its stake, make proposals and engage in any disparagement of the Company and require that the Sands family representatives would need to leave the Board prior to engaging in any activities otherwise prohibited by the standstill after the five-year period; (v) nomination rights for five-years that would allow the Sands family, during this period, to nominate two Board members so long as they held greater than a 10% stake in the Company and one Board member so long as they held greater than a 5% stake in the Company; (vi) that Mr. Robert Sands would become Non-Executive Chairman of the Board and that Mr. Richard Sands would become a non-executive Board member; (vii) that Mr. Robert Sands and Mr. Richard Sands would receive compensation in-line with a customary Non-Executive Chairman of the Board and non-executive Board member, respectively; (viii) the rotation of the lead independent director at the next available normal cycle opportunity; and (ix) the Majority Voting Proposal. The Special Committee’s advisors also conveyed the Special Committee’s rationale for the potential premium and the governance proposals.

On May 19, 2022, Greenhill and Wachtell Lipton provided the Sands family’s response on the Special Committee’s counterproposal from May 17, 2022 to representatives of Potter Anderson and Centerview, which response accepted such counterproposal with the following changes: (i) increasing the potential premium payable from 16% to 32% (with the mix of consideration to be agreed based on market conditions closer to execution of definitive agreements); (ii) (1) reducing the term of the lock-up period from five years to three years, (2) eliminating certain trading restrictions with respect to the portion of the Sands family’s stake that could be monetized during the lock-up period and removing the prohibition on the Sands family’s participation in any Company buyback or third-party tender offer on the same terms offered to all stockholders, (3) providing that the Sands family’s pledging would continue to be permitted, and (4) providing that the Sands family would receive customary registration rights, subject to the applicable transfer restrictions; (iii) reducing the term of the standstill period from five years to three years and permitting the Sands family to publicly object or oppose proposed change of control M&A transactions, and proposing that any non-disparagement provision be reciprocal with the

 

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Company, if such provision was included at all; (iv) eliminating the five-year sunset for the Sands family’s Board nomination rights; and (v) providing that Mr. Richard Sands would serve as Non-Executive Vice Chairman. As part of the discussions between the respective advisors on May 19, 2022, Wachtell Lipton and Greenhill, on the one hand, and representatives of Centerview and Potter Anderson, on the other, conveyed their client’s respective views on the applicable precedent family or founder reclassifications, the premiums paid in such reclassifications, and the comparability of those reclassifications to a Potential Reclassification.

On May 20, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance and with Messrs. Hankinson and Bourdeau in attendance for a portion of the meeting. The Special Committee, representatives of Centerview and Messrs. Hankinson and Bourdeau discussed certain of the Special Committee’s corporate governance proposals and how Company management’s feedback on the form of consideration for a potential premium had been incorporated into the Special Committee’s proposal. They also discussed certain stockholder feedback on the Sands Family Proposal. Following Messrs. Hankinson and Bourdeau’s departure, representatives of Centerview and Potter Anderson reported on their May 19, 2022 meeting with Greenhill and Wachtell Lipton and the terms of the Sands family’s May 19, 2022 response. Representatives of Centerview also reviewed with the Special Committee, for reference and discussion purposes, the presentation in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, which included, among other things, (i) certain data involving the precedent, publicly available share reclassifications; and (ii) an updated preliminary analysis of premiums paid in recent M&A transactions as compared to deal size. The Special Committee and its advisors discussed, among other things, (i) certain illustrative responses to the Sands family’s governance proposals and related matters that did not address a potential premium; and (ii) a potential premium counterproposal to the Sands family at an 18% all cash premium and the rationale for, and potential viewpoints of, such premium counterproposal. The Special Committee instructed its advisors to draft a counterproposal and potential messaging for such counterproposal based on the discussion at the meeting for further review by the Special Committee.

On May 23, 2022, the Special Committee held a meeting by video conference in two separate sessions, with representatives of Potter Anderson and Centerview in attendance and the other non-management directors of the Board who were not members of the Special Committee in attendance for portions of the meeting. The Special Committee provided a process update for the non-management directors, in which the non-management directors were able to engage in a general question and answer session regarding the Special Committee’s process for a Potential Reclassification. Also, on May 23, 2022, with only the Special Committee and its advisors (and not the non-management directors of the Board who were not members of the Special Committee) in attendance, representatives of Centerview reviewed illustrative proposed terms for a Special Committee reclassification counterproposal and answered questions from the Special Committee and representatives of Potter Anderson. The Special Committee discussed the proposed terms and unanimously approved them, subject to seeking input from Mr. Bourdeau on a mutual non-disparagement provision between the Company and the Sands family in the standstill and on the Special Committee’s pledging proposal. The Special Committee and representatives of Centerview also discussed Centerview’s perspectives on the Sands family’s identified precedent reclassifications, additional supporting analyses for the Special Committee’s position and the Special Committee’s messaging points to the Sands family.

On May 24, 2022, representatives of Potter Anderson and Centerview delivered the Special Committee’s counterproposal to Wachtell Lipton and Greenhill on the Sands family’s May 19, 2022 response, which counterproposal accepted such response with the following changes: (i) decreasing the potential premium payable from 32% to 18%, based on a five-day volume weighted average price for the Class A Common Stock prior to signing (and representing approximately 2.2% of Company’s market capitalization at the time); (ii) clarifying that the consideration for a Potential Reclassification would be one share of Class A Common Stock plus a dollar amount in cash calculated using the premium in clause (i); (iii) reverting to the Special Committee’s prior position that certain permitted sales during the lock-up period (but expressly including block trades) would be limited to 1% of the Company’s market capitalization in any six-month period and that the Sands family would be permitted to sell in excess of such 1% market capitalization restriction but not in excess of the 25%

 

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permitted exemption in a Company-led broadly market transaction; (iv) rejecting the Sands family’s approach on pledging and providing that the Board would adopt an anti-pledging policy in connection with a Potential Reclassification but with an exception for the Sands family, where its pledging would not exceed the current dollar amount and the exception would expire after five years; (v) reinstituting the proposed five-year term for the standstill, rejecting the Sands family’s proposed carveout regarding the ability of the Sands family to publicly object or oppose proposed change of control M&A transactions from the standstill restrictions, and making the non-disparagement provision reciprocal; (vi) reinstituting the five-year sunset for the Sands family’s Board nomination rights; and (vii) rejecting the Sands family’s proposal that Mr. Richard Sands serve as Non-Executive Vice Chairman. Representatives of Centerview also discussed their perspectives on certain precedent family or founder reclassifications identified by the Sands family, additional supporting analyses for the Special Committee’s position on a potential premium and the reactions of certain Unaffiliated Class A Holders to the Sands Family Proposal. Wachtell Lipton and Greenhill raised certain questions and viewpoints on certain of the Special Committee’s proposed terms, including on the pledging terms proposed and amount of a potential premium for a Potential Reclassification. Representatives of Centerview asked that the Sands family respond to the analytical points raised by the Special Committee regarding the precedent family or founder reclassifications and the Special Committee’s supporting analyses.

On May 25, 2022, Greenhill delivered the Sands family’s observations on the precedent family or founder reclassifications and the Special Committee’s supporting analyses and conveyed to representatives of Centerview that the Sands family had other items to discuss on the proposed governance changes but that the Sands family wanted to determine if there was a path to an agreement on a potential premium before discussing the other items.

Later in the day on May 25, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. At that meeting, among other matters, representatives of Centerview reported on Centerview and Potter Anderson’s May 24, 2022 meeting with Greenhill and Wachtell Lipton and reviewed the materials and message provided by Greenhill earlier that day. The Special Committee authorized representatives of Centerview to hold a meeting with Greenhill and convey that the Special Committee desired to consider a holistic response from the Sands family on a potential premium and the proposed corporate governance changes rather than seek a path to an agreement on a potential premium first. The Special Committee also asked representatives of Centerview to inquire further into the Sands family’s monetization intentions following a Potential Reclassification and the rationale for the Sands family’s position on pledging.

Also, on May 25, 2022, as part of a scheduled discussion between representatives of Centerview and Greenhill, a representative of Centerview conveyed the Special Committee’s requests and questions from the meeting earlier that day, and a representative of Greenhill conveyed, among other things, that the Sands family believed that a premium around 30% would be necessary to engage in a Potential Reclassification and that the Sands family would likely not be willing to entertain a premium meaningfully below that level.

On May 26, 2022, following a discussion between representatives of Wachtell Lipton and Potter Anderson, a representative of Wachtell Lipton delivered the Sands family’s response to the Special Committee’s May 24, 2022 counterproposal to representatives of Potter Anderson and Centerview, which response accepted such counterproposal with the following changes: (i) reiterating the Sands family’s prior proposal of a 32% premium based on the five day volume weighted average price for the Class A Common Stock prior to signing (representing approximately 3.8% of the Company’s market capitalization at the time); (ii) noting the Sands family’s openness to cash or a mix of cash and stock as the forms of consideration; (iii) exempting block trades from the 1% of market capitalization trading restriction in any six month period under the Sands family’s permitted exemption during the lock-up period and providing that the Sands family would be permitted to sell in excess of such 1% market capitalization restriction and 15% of ADTV restriction but not in excess of the 25% permitted exemption in block sales or Company-led broadly market transactions, including pursuant to demand registrations; (iv) rejecting the Special Committee’s proposed restrictions on the Sands family’s pledging

 

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following the consummation of a Potential Reclassification and instead proposing that the Sands family’s pledging would not exceed its current dollar amount in the future; and (v) eliminating the five-year sunset on the Sands family’s Board nomination rights.

On May 27, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. Representatives of Potter Anderson and Centerview reported on their recent conversations with Wachtell Lipton and Greenhill and the terms of the Sands family’s latest response. The Special Committee and representatives of Centerview also discussed potential counterproposals to the Sands family’s latest response on the proposed governance changes and a potential premium, including certain negotiating strategies in connection with a response on a potential premium, perspectives on a potential response and rationale and anticipated benefits of a Potential Reclassification. A representative of Centerview also reviewed the stockholder and investor perspectives, including certain sell-side analyst reports, that had been compiled by Centerview and distributed to the Special Committee, and the Special Committee and a representative of Centerview discussed potential stockholder and investor perspectives at this premium and at the Sands family’s latest proposed premium. After discussion of potential responses on the proposed governance terms and potential premium, the Special Committee authorized representatives of Centerview and Potter Anderson to deliver a counterproposal to Greenhill and Wachtell Lipton, on the terms outlined below.

On May 31, 2022, representatives of Potter Anderson and Centerview verbally conveyed to Greenhill and Wachtell Lipton the Special Committee’s position that a premium around 20% would be necessary to engage in a Potential Reclassification and there was likely not a willingness to pay a premium meaningfully above that level. Representatives of Potter Anderson and Centerview also delivered the Special Committee’s counterproposal on the proposed corporate governance changes to the Sands family’s May 26, 2022 response, which counterproposal accepted such response on the proposed governance changes with the following changes: (i) rejecting the Sands family’s approach of excluding block trades from the 1% of market capitalization trading restriction in any six month period under the Sands family’s permitted exemption during the lock-up period and reiterating the Special Committee’s prior proposal; (ii) rejecting the Sands family’s proposed exception on pledging and instead proposing a formula for limiting the Sands family’s pledging following a consummated Potential Reclassification to be the lower of the current dollar amount pledged or the dollar amount determined by the current percentage of shares pledged as a percentage of the number of shares held by the Sands family; and (iii) the reinsertion of the proposed five-year sunset on the Sands family’s Board nomination rights. During this meeting, Greenhill and Wachtell Lipton clarified that the Sands family’s proposed monetization intentions were “near-term or medium-term.” Following the meeting, Greenhill requested to review Centerview’s list of precedent reclassifications that, in part, formed the basis for Centerview’s preliminary financial analysis of a Potential Reclassification to assist in the Sands family’s understanding of the Special Committee’s views on a potential premium for a Potential Reclassification.

On June 3, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. Representatives of Potter Anderson and Centerview reported on their May 31, 2022 meeting with Wachtell Lipton and Greenhill. Representatives of Centerview also reviewed Greenhill’s request for Centerview’s list of precedent reclassifications and discussed, among other things, a summary of precedent, publicly available family or founder share reclassifications and other share reclassifications, including certain modifications made therein and different approaches taken by Centerview and Greenhill with respect to the financial metrics on a certain precedent family or founder reclassification. After discussion, the Special Committee authorized representatives of Centerview to share these precedent reclassifications with Wachtell Lipton and Greenhill.

Later, on June 3, 2022, a representative of Centerview distributed its list of precedent reclassifications to Greenhill and Wachtell Lipton. Representatives of Centerview and Greenhill met following this distribution to discuss: (i) the key differences in the respective lists of precedent share reclassifications; (ii) the lower mean and median premium paid in reclassifications on the list of precedents focused on by the Special Committee than the list of precedents provided by the Sands family’s advisors; and (iii) that the Potential Reclassification would be

 

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the largest completed with a premium and that average M&A percentage premiums decline as transaction value increases. Representatives of Centerview also conveyed that given the limited number of precedent reclassifications, any small differences in the list of selected precedents may result in meaningful differences in mean and median metrics.

On June 9, 2022, representatives of Greenhill and Centerview held a meeting to discuss the Sands family’s response to the Special Committee’s latest proposal and among other things: (i) the Sands family’s view of a Potential Reclassification; (ii) the value of a Potential Reclassification for the Unaffiliated Class A Holders; and (iii) how the data from the precedent reclassifications had informed the Sands family’s view on a potential premium in a Potential Reclassification.

Following this meeting, a representative of Wachtell Lipton delivered to representatives of Potter Anderson and Centerview the Sands family’s response to the Special Committee’s May 31, 2022 counterproposal on the proposed corporate governance changes, which response accepted such counterproposal, with the following changes: (i) revising the restrictions on sales by the Sands family pursuant to the permitted exemption during the lock-up period to provide that sales, including block trades, underwritten offerings and daily open market trading, would be limited to 3% of the Company’s market capitalization in any six-month period, of which up to 1% could be open market trades with daily trades limited to 15% of the past 20-day ADTV and that the Sands family would be permitted to sell in excess of such six month restriction and ADTV restrictions but not in excess of the 25% permitted exemption in a Company-led broadly market transaction; (ii) revising the formula for limiting the Sands family’s pledging following a consummated Potential Reclassification to reflect that, for five years, the Sands family’s pledging would be capped at the number of shares or the dollar value of such shares, whichever was higher at signing and, after five years, pledging would be capped at the number of shares or the dollar value of such shares, in each case, not in excess of $3 billion; and (iii) proposing that the Sands family Board nomination rights include (1) for five years, the right to nominate two Board members so long as the Sands family held at least a 10% stake in the Company and one Board member so long as they held at least a 5% stake in the Company, and (2) following the five-year period, the right to nominate one Board member so long as they held at least a 5% stake in the Company. The response delivered by the Sands family also included, among other things, the Sands family’s perspectives for why the Special Committee’s arguments for a materially lower premium had been unpersuasive and reiterated the Sands family’s views that, in cases where a premium is requested as part of a reclassification, there was a clear consistency of levels historically paid in similar situations, particularly where a large stockholder had moved from a position of clear control to a position of clear non-control.

On June 10, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. Representatives of Centerview reported on the June 9, 2022 meeting with Greenhill and the Sands family’s latest proposal. The Special Committee and representatives of Centerview also discussed, among other things, Centerview’s and Greenhill’s perspectives of the precedent reclassifications, arguments made by each side with respect to a potential premium, the quantum of multiple expansion for the Company that would result in the Company “breaking-even” on a Potential Reclassification, and negotiation strategies in connection with prompting a response from, and movement on a potential premium by, the Sands family. The Special Committee and representatives of Centerview also discussed potential responses to the Sands family’s proposed governance changes. After discussion, the Special Committee determined to convey to the Sands family that it: (i) believed that the Sands family and the Special Committee were far apart on a potential premium; (ii) had discussed going “pencils-down” and stopping the process, which the Special Committee did not view as a desirable outcome as it believed that there was value in a Potential Reclassification at this time and a Potential Reclassification was in the best interests of all parties, including the Unaffiliated Class A Holders; and (iii) believed that it was the Sands family’s turn to respond on a potential premium for a Potential Reclassification. The Special Committee also discussed potential responses to the open items in the proposed governance changes and determined to accept the Sands family’s recent proposal on its Board nomination rights, request clarity on the Sands family’s pledging limitations proposal, and reduce the market capitalization limit on certain permitted sales during the lock-up period to 2% of market capitalization. The Special Committee authorized representatives of Centerview to contact Greenhill and relay this message and proposed terms.

 

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Later, on June 11, 2022, a representative of Centerview delivered to a representative of Greenhill the Special Committee’s message on a potential premium and response on the proposed corporate governance changes.

On June 13, 2022, Greenhill conveyed to a representative of Centerview that the Sands family was willing to engage in a Potential Reclassification at a 29% premium and discussed, among other things, the reference precedent reclassifications for such proposal and that the Sands family was not prepared to entertain a premium below that level or to “meet-in-the-middle” on a potential premium. Greenhill also clarified the Sands family’s approach on the pledging limitations, including that it was meant to limit the Sands family’s pledging for the next 5 years at the greater of the number of shares pledged or the value of such shares, in each case, at signing, and following such period, limit the Sands family’s pledging to a maximum of $3 billion.

On June 14, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. A representative of Centerview reported on the June 13, 2022 meeting with Greenhill. The Special Committee and its advisors discussed a counterproposal on a potential premium, including Centerview’s preliminary financial analysis of the precedent, publicly available share reclassifications previously presented to the Special Committee and certain reference points, negotiation strategies and possible viewpoints on a potential premium, and messaging points on the potential multiple expansion to include in a response to the Sands family. The Special Committee discussed and approved a counterproposal on a potential premium at a 21% all-cash premium for a Potential Reclassification and authorized representatives of Centerview to contact Greenhill to convey this counterproposal.

Later, on June 14, 2022, a representative of Centerview delivered to a representative of Greenhill the Special Committee’s counterproposal on a potential premium.

On June 15, 2022, a representative of Greenhill conveyed the Sands family’s response on a potential premium for a Potential Reclassification to a representative of Centerview, which was a 28.3% premium. Representative of Greenhill reiterated that the Sands family was not prepared to “meet in the middle” on a potential premium and had little room to further reduce the potential premium.

Also, on June 15, 2022, a telephonic meeting was held among representatives of Potter Anderson, Wachtell Lipton, Company management, and K&E to discuss the practical difficulties (due to the Class B Common Stock being publicly traded) with calculating the majority-of-the-minority voting standard in the manner indicated in the Sands Family Proposal. The participants discussed potential alternative formulations of the majority-of-the-minority standard that were both administrable and in line with MFW and its progeny. Representatives of Potter Anderson, Wachtell Lipton and K&E later agreed that the majority-of-the-minority standard would be one that was consistent with the authorizing resolutions of the Special Committee. Therefore, representatives of Potter Anderson, Wachtell Lipton and K&E agreed that the standard would exclude shares of Class A Common Stock held, directly or indirectly, by or on behalf of the Sands family, directors of the Company that own, beneficially or of record, shares of Class B Common Stock and any person that the Company has determined to be an “officer” of the Company within the meaning of Rule 16a-1(f) of the Exchange Act. They also agreed that this standard was the best possible administrable standard that excluded only conflicted holders and was consistent with MFW and its progeny. These representatives further agreed that the numerator for purposes of the majority-of-the-minority vote standard should be increased by the number of shares of Class B Common Stock held by persons other than the Sands family, resulting in a vote requirement of at least 50.3% of the shares of Class A Common Stock held by the Unaffiliated Class A Holders (as opposed to a simple majority vote requirement).

On June 17, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. A representative of Centerview reported on the June 15, 2022 meeting with Greenhill. A representative of Centerview also reviewed with the Special Committee, for reference and discussion purposes, the presentation summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, including, among other things, (i) an updated financial analysis of a Potential Reclassification, including an updated preliminary financial analysis of the Company’s trading performance and

 

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an updated preliminary financial analysis of a Potential Reclassification at various potential premiums to the Class A Common Stock price as of June 16, 2022 and at illustrative reference Class A Common Stock prices; (ii) a review of certain analyst perspectives on the Company’s stock price for the Class A Common Stock; (iii) an updated preliminary analysis of valuation benchmarks for the Company, noting that if the Company traded at the levels indicated by these benchmarks, while there may be other reasons beyond control status for the Company’s current trading level, there would be potential for value creation over time in excess of the cost of the potential premium at the level contemplated in connection with a Potential Reclassification; and (iv) the Sands family’s pledging approach and certain historical pledging information on the Sands family. The Special Committee and a representative of Centerview discussed negotiating strategies in connection with a potential premium for a Potential Reclassification. After discussion of the Sands family’s proposed approach on pledging and the potential viewpoints and effects of such proposal, the Special Committee indicated that it was comfortable with the Sands family’s proposed approach.

On June 22, 2022, a representative of Greenhill delivered a letter on behalf of the Sands family to representative of Centerview, which is attached to this proxy statement/prospectus as Annex E. The letter, among other things, set forth that the Sands family was willing to complete a Potential Reclassification at a 28.0% premium and that such premium would be the lowest premium at which the Sands family was comfortable preceding. The letter noted that the Sands family would be prepared to withdraw its proposal, maintain its ability to control the Company through its existing holdings of Class A Common Stock and Class B Common Stock and continue to have the Company governed under the existing governance arrangement if the Special Committee would not support a Potential Reclassification at a 28.0% premium. The letter further stated that, in light of market volatility, the Sands family would contemplate that the holders of shares of Class B Common Stock would have the option to elect at a later date closer to the transaction completion to receive the premium in shares or in cash (based on the volume weighted average price prior to closing), with an appropriate cap on the total amount of cash that could be paid (subject to proration in the event that the holders of Class B Common Stock otherwise elect to receive cash in excess of that amount).

On June 24, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. A representative of Centerview reported on the communications with Greenhill and reviewed the June 22, 2022 Sands family’s letter. The Special Committee and a representative of Centerview reviewed a form of response letter from the Special Committee, including the arguments made and positions taken with respect to the Special Committee’s view on a potential premium for a Potential Reclassification. They also discussed certain negotiation strategies in connection with delivering the letter. They further discussed a range of potential premiums to include in such response letter as well as the value of a Potential Reclassification to the Company and the Unaffiliated Class A Holders. After discussion, the Special Committee determined to submit a response letter to the Sands family, which contained a 23.5% all-cash premium for a Potential Reclassification. The Special Committee also discussed a range of potential premiums that the Special Committee would be comfortable recommending a Potential Reclassification and authorized representatives of Centerview to deliver the letter and to continue to engage in discussions with Greenhill regarding a potential premium.

Later, on June 24, 2022, a representative of Centerview delivered the Special Committee’s letter to Greenhill, which is attached to this proxy statement/prospectus as Annex F. The letter, among other things, described the Special Committee’s viewpoint on the list of precedent transactions shared by the sands family advisors and its view that the percentage premium paid should be inversely related to the market capitalization of the target company, which, given the Company’s significant size relative to the companies in precedent transactions, suggested a lower premium should be paid than was proposed by the Sands family. The letter further provided that the Special Committee would be willing to recommend to the full Board the Proposed Reclassification at a 23.5% all-cash premium.

On June 25, 2022, a representative of Greenhill conveyed to a representative of Centerview that the Sands family was willing to engage in a Potential Reclassification that would result in a $1.5 billion premium for the Sands family. Greenhill explained that the Sands family had requested a “yes” or “no” response to such proposal.

 

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Following this communication, on June 25, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. A representative of Centerview reported on the recent discussions with Greenhill and stated that the Sands family’s recent proposal represented a 26.8% premium to the prior day’s closing price for the Class A Common Stock and a total aggregate premium of $1.53 billion for all holders of Class B Common Stock. A representative of Centerview also reviewed with the Special Committee, for reference and discussion purposes, the presentation summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, including, among other things, a premium comparison for a Potential Reclassification at various Class A Common Stock prices on each of a percentage and dollar amount basis and analyzed a Potential Reclassification at illustrative reference Class A Common Stock prices. The Special Committee and a representative of Centerview discussed the stock price performance of the Company over the prior weeks, certain premiums per share and aggregate premiums for a response to the Sands family and the gap between the Sands family’s latest proposal and the Special Committee’s last proposal on a dollar amount basis. After discussion, the Special Committee determined to submit a counterproposal to the Sands family’s latest response, in which the Special Committee would be willing to recommend a Potential Reclassification at a total aggregate premium of $1.45 billion in cash to the holders of Class B Common Stock, representing a 25.5% premium based on the prior day’s closing price for the Class A Common Stock, and authorized representatives of Centerview to deliver this proposal to Greenhill. The Special Committee also determined that it would be appropriate for representatives of Centerview to respond on a dollar amount basis, given the manner in which the Sands family’s proposal had been delivered. The Special Committee and its advisors also discussed that the Special Committee and the Sands family had not yet directly addressed the Sands family’s request for expense reimbursement and indemnification in connection with a Potential Reclassification. After discussion, the Special Committee determined to reject the Sands family’s request for expense reimbursement and indemnification.

Following the meeting, a representative of Centerview conveyed to Greenhill the Special Committee’s proposal of a total aggregate premium of $1.45 billion in cash to the holders of Class B Common Stock and that the Special Committee had rejected the Sands family’s request for expense reimbursement and indemnification in connection with a Potential Reclassification. Representative of Centerview also conveyed the Special Committee’s view that failure to reach an agreement would be a missed opportunity for the Company and all of the Company’s stockholders. Later, on the same day, Greenhill responded that the Sands family was willing to engage in a Potential Reclassification for an aggregate $1.50 billion premium in cash to the holders of shares of Class B Common Stock and that the Sands family would deliver a counterproposal to the Special Committee on its request for expense reimbursement and indemnification. A representative of Greenhill stated that, if the Special Committee determined to accept this proposal, the Sands family was willing to lock in the price per share for such proposal, regardless of any market fluctuations between the time of agreement and the execution of definitive transaction documentation, absent any extraordinary movement in the stock price of the Company.

Later, on June 25, 2022, the Special Committee reconvened its earlier meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. A representative of Centerview reviewed that the Sands family’s latest proposal, which represented a 26.3% premium based on the prior day’s closing price per share of Class A Common Stock, and $64.64 in cash per share of Class B Common Stock. A representative of Centerview also reviewed with the Special Committee, for reference and discussion purposes, the presentation summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, including, among other things, (i) an updated premium comparison of a Potential Reclassification at various Class A Common Stock prices on each of a percentage and dollar amount basis and an updated preliminary analysis of a Potential Reclassification at illustrative reference Class A Common Stock prices; and (ii) the Special Committee’s last response to the Sands family on the proposed governance changes. After discussion of the Sands family’s response, the Special Committee unanimously determined to proceed with a Potential Reclassification at a $1.5 billion aggregate premium to the holders of Class B Common Stock and with the proposed governance changes, as modified by the Special Committee’s latest positions, subject to the negotiation of definitive transaction documentation.

 

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Following this meeting, a representative of Centerview and Greenhill confirmed on behalf of their respective clients the terms for a Potential Reclassification, which included, (i) an all-cash premium to the holders of Class B Common Stock at $64.64 per share (which premium equates to approximately $8.00 of value per share of Class A Common Stock), representing an aggregate premium of $1.5 billion or $1.473 billion to the Sands Family Stockholders; and (ii) the governance and other items previously agreed to.

On June 25, 2022, representatives of Potter Anderson and Wachtell Lipton separately delivered to representatives of K&E drafts of a potential definitive reclassification agreement. The respective advisors later that day agreed to begin negotiation of the definitive agreements on the basis of the draft prepared by Potter Anderson. On June 26, 2022, representatives of Potter Anderson delivered to Wachtell Lipton drafts of: (i) an Amended and Restated Certificate of Incorporation of the Company, reflecting, among other things, the Potential Reclassification (the “Amended and Restated Charter”); (ii) an Amended and Restated Bylaws of the Company, reflecting, among other things, the Majority Voting Proposal, the elimination of the position of Vice Chairman of the Board, that the position of Chairman of the Board would be a non-executive position and the elimination of the shares of Class B Common Stock from the Company’s capital structure (the “By-laws”); and (iii) a Registration Rights Agreement (the “Registration Rights Agreement”).

On June 27, 2022, representatives of Potter Anderson delivered to Wachtell Lipton drafts of: (i) a Reclassification Agreement, reflecting certain corporate governance terms previously agreed to by the parties (the “Reclassification Agreement”); (ii) a Board anti-pledging policy, reflecting the Board’s adoption of an anti-pledging policy for Board members and executive officers of the Company, subject to the exceptions for the Sands family members serving on the Board (the “Board Anti-Pledging Policy”); (iii) an Amended and Restated Corporate Governance and Responsibility Committee Charter, reflecting, among other things, certain process and procedures associated with the Majority Voting Proposal, certain processes and procedures associated with the Board’s adoption of the anti-pledging policy, the elimination of the position of Vice Chairman of the Board (the “Amended Corporate Governance and Responsibility Committee Charter”); and (iv) an Amended and Restated Board Corporate Governance Guidelines, reflecting, among other things, similar amendments to those proposed for the Amended Corporate Governance and Responsibility Committee Charter (the “Amended Board Corporate Governance Guidelines”).

Also, on June 27, 2022, the Special Committee held a meeting by video conference, with representatives of Potter Anderson and Centerview in attendance. A representative of Centerview reported on a number of open items in the negotiations of the definitive transaction agreements, including the financing for the cash premium, the Sands family’s expense reimbursement and indemnification and mechanical issues involving the $3 billion “hard cap” for the time period following the initial five year period for the Sands family’s pledging exception. After discussion of the open items, options for limiting or narrowing the scope of such requests and viewpoints on such request, the Special Committee provided representatives of Centerview and Potter Anderson with guidance on the open items. A representative of Centerview also reviewed with the Special Committee, for reference and discussion purposes, the presentation summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, including, among other things, (i) Centerview’s updated preliminary analysis of a Potential Reclassification at illustrative reference Class A Common Stock prices; and (ii) summaries of various timeline and process considerations. The Special Committee and representatives of Centerview also discussed the Special Committee’s rationale for a Potential Reclassification.

On June 28, 2022, representatives of Wachtell Lipton delivered to representatives of Potter Anderson and K&E revised drafts of the Amended and Restated Charter, the By-laws, the Reclassification Agreement, the Board Anti-Pledging Policy, the Amended Board Corporate Governance Guidelines and the Registration Rights Agreement. Representatives of Wachtell Lipton also delivered an issues list involving these draft documents to Potter Anderson and K&E. From June 28, 2022 through June 30, 2022, representatives of Potter Anderson, Wachtell Lipton, Centerview and Greenhill, together with assistance from representatives of K&E and the Company, negotiated the final forms of the various transaction related agreements.

 

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Also, on June 28, 2022, the Special Committee held a meeting in-person and by video conference, with representatives of Potter Anderson and Centerview in attendance and with representatives of K&E and Messrs. Hankinson and Bourdeau in attendance for portions of the meeting. At the meeting, with only the Special Committee and its advisors present, a representative of Potter Anderson reviewed the draft transaction documents for the Potential Reclassification. A representative of Centerview also reviewed the issues list circulated by Wachtell Lipton. The Special Committee and its advisors discussed these issues, including the rationale for the Special Committee’s positions on these topics, the Sands family’s arguments with respect to these issues and how such issues would impact the Special Committee’s perspective on recommending a Potential Reclassification. With only the Special Committee and representatives of K&E, Potter Anderson and Centerview in attendance, the Special Committee, its advisors and K&E discussed certain of Wachtell Lipton’s identified issues from a Company perspective, and K&E answered questions and provided feedback on those points. With only the Special Committee, representatives of Potter Anderson and Centerview, and Messrs. Hankinson and Bourdeau in attendance, Mr. Bourdeau discussed certain administrability and compliance considerations relating to the Sands family’s last proposal on the scope of the pledging restrictions, and Mr. Hankinson discussed Company management’s potential financing approach with respect to a Potential Reclassification. With only the Special Committee and representatives of Potter Anderson and Centerview present, the Special Committee discussed a potential counterproposal to the issues identified by Wachtell Lipton, along with certain firm Special Committee views, and authorized representatives of Potter Anderson and Centerview, along with K&E, to meet with representatives of Wachtell Lipton to deliver the Special Committee’s counterproposal.

Representatives of Potter Anderson, Centerview, Wachtell Lipton and K&E engaged in multiple communications following the Special Committee meeting on June 28, 2022 regarding Wachtell Lipton’s issues list and each parties’ viewpoints on the outstanding issues. Following these discussions, and subject to Special Committee approval, the parties resolved the material outstanding issues in the draft transaction documentation as follows: (i) including an “inside date” of three months, combined with an ability of the Company to substitute up to $500 million of the cash premium in shares of Class A Common Stock (which would not be subject to the lock-up or anti-pledging restrictions) in the unexpected event that the Company could not obtain the incremental third party financing sufficient to fund payment of the premium in full in cash; (ii) providing expense reimbursement for the Sands Family Stockholders; (iii) granting a limited indemnity for out of pocket legal expenses (excluding settlements or judgments and excluding claims brought by the Company pursuant to the Reclassification Agreement) incurred by the Sands Family Stockholders (and related individuals and entities) in connection with the Potential Reclassification; (iv) clarifying that the shares of Class 1 Common Stock held by the Sands Family Stockholders would be covered by the post-closing transfer restrictions in the Reclassification Agreement; (v) eliminating the proposed restriction that the Sands Family Stockholders be prohibited from transferring certain shares to an activist or Company competitor during the lock-up period but providing that the Sands Family Stockholders would not be able to transfer shares freely pursuant to a tender or exchange offer that was not approved by the Board during the lock-up period; (vi) clarifying the final details of the Sands family exception to the anti-pledging policy, including the $3 billion cap for the period of time following the initial five year period and the scope of Sands Family Stockholders parties subject to the pledging restrictions; (vii) narrowing the scope of the Company’s remedies in the event of a breach of the Reclassification Agreement by the Sands Family Stockholders; (viii) providing that one Sands family Board nominee, subject to certain requirements, could serve as a non-voting member on each committee of the Board (other than the audit committee); and (ix) authorizing the continuation of certain limited perquisites for Messrs. Robert and Richard Sands. The Special Committee also rejected two proposals from the Sands family that would give Mr. Robert Sands a contractual right to a guaranteed minimum period as Non-Executive Chairman of the Board.

Further, on June 28, 2022, the Special Committee reconvened its earlier meeting by video conference, with only representatives of Centerview and Potter Anderson in attendance. A representative of Centerview reported on the negotiations regarding Wachtell Lipton’s issues list. The Special Committee and its advisors discussed the tentatively agreed-upon positions, as well as the rationale for these positions. After discussion, the Special Committee stated that it approved of the agreed-upon positions. The Special Committee and its advisors also discussed the status of the draft transaction documents. A representative of Centerview reviewed with the Special

 

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Committee, for reference and discussion purposes, the presentation summarized in “Financial Opinion of Centerview Partners LLC—Other Presentations by Centerview”, including, among other things, an overview of Centerview’s presentation materials that Centerview proposed to share with the Board the following day regarding the Special Committee’s process and rationale for the agreed-upon Potential Reclassification.

On June 29, 2022, the Board (other than Mr. Richard Sands and Mr. Robert Sands, who recused themselves from the meeting once discussion of the Reclassification commenced) held a meeting in-person and by video conference, with representatives of K&E in attendance. A representative of the Special Committee outlined to the Board the process that the Special Committee followed and summarized the course of negotiations with the Sands family. Following questions from the Board on this process, a representative of K&E provided an overview of the Board’s fiduciary duties in the context of the Potential Reclassification and reviewed in detail the terms of the Reclassification Agreement and the other transaction documents that had been negotiated with the Sands family. Following extensive questions from the Board, the meeting was adjourned.

On June 29, 2022, the Special Committee held a meeting in-person and by video conference, with representatives of Potter Anderson and Centerview in attendance. A representative of Centerview provided a review of the Special Committee’s negotiations with respect to the Potential Reclassification and an overview of the terms for the Potential Reclassification, including that the premium payable in the Potential Reclassification implied a 26.5% premium based on the closing price for the shares of Class A Common Stock on June 29, 2022. A representative of Centerview also reviewed the key elements of the Special Committee’s evaluation of the Potential Reclassification and key factors analyzed by the Special Committee and its advisors in connection with the Potential Reclassification. At the request of the Special Committee, a representative of Centerview then reviewed with the Special Committee Centerview’s financial analysis of the Reclassification and rendered to the Special Committee its oral opinion, which was subsequently confirmed by delivery of a written opinion, dated such date, that, as of such date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the shares of Class A Common Stock to be retained by the Unaffiliated Class A Holders, solely in their capacity as holders of shares of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any shares of the Class B Common Stock or Class 1 Common Stock held by the Unaffiliated Class A Holders, after giving effect to the Reclassification pursuant to the Reclassification Agreement, are fair, from a financial point of view, to the Unaffiliated Class A Holders, as more fully described below in the section of this proxy statement/prospectus entitled “Special Factors—Financial Opinion of Centerview” beginning on page 59 of this proxy statement/prospectus. A representative of Potter Anderson referred the Special Committee to the fiduciary duty presentation materials that had been recirculated by Potter Anderson and the fiduciary duty review by Potter Anderson at the April 8, 2022 meeting. A representative of Potter Anderson also confirmed the Special Committee’s understanding of their fiduciary duties under Delaware law. A representative of Potter Anderson then reviewed the form of Special Committee resolutions that had been circulated to the Special Committee. After discussion and review of the Special Committee resolutions, the Special Committee unanimously (i) determined that the Amended and Restated Charter, the By-laws, the Reclassification Agreement, the Amended Board Corporate Governance Guidelines, the Amended Corporate Governance and Responsibility Committee Charter, the Board Anti-Pledging Policy and the Registration Rights Agreement are advisable, fair to, and in the best interests of the Company and the Unaffiliated Class A Holders; (ii) recommended that the Board approve the Amended and Restated Charter and the Reclassification Agreement and declare that the Amended and Restated Charter and the Reclassification Agreement are advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders; (iii) recommended that the Board have the Company enter into the Reclassification Agreement in connection with the public announcement of the Potential Reclassification; (iv) subject to Board approval, recommended that the Board (1) submit the approval of the adoption of the Amended and Restated Charter to the stockholders of the Company, and (2) resolve to recommend that the stockholders of the Company approve and adopt the Amended and Restated Charter; (v) recommended that the Board (1) declare that each of the By-laws, the Amended Board Corporate Governance Guidelines, the Amended Corporate Governance and Responsibility Committee Charter and the Board Anti-Pledging Policy is advisable, fair to and in the best interests of the Company and the Unaffiliated Class A

 

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Holders, and (2) approve and adopt, effective as of the upon the filing and effectiveness of the Amended and Restated Charter with the Secretary of State of the State of Delaware (the “Effective Time”), the By-laws, the Amended Board Corporate Governance Guidelines, the Amended Corporate Governance and Responsibility Committee Charter and the Board Anti-Pledging Policy, in each case, subject to receipt of stockholder approval of the Amended and Restated Charter and the filing of the Amended and Restated Charter with the Secretary of State of the State of Delaware; and (vi) recommended that the Board (1) declare that the Registration Rights Agreement is advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders, and (2) approve and adopt, and have the Company enter into, effective as of the Effective Time, the Registration Rights Agreement, in each case, subject to receipt of stockholder approval of the Amended and Restated Charter and the filing of the Amended and Restated Charter with the Secretary of State of the State of Delaware.

Following the Special Committee meeting, the full Board (other than Mr. Robert Sands and Mr. Richard Sands who continued to recuse themselves, including from voting) reconvened. Representatives of Centerview and Potter Anderson joined representatives of K&E. A representative of Centerview presented to and discussed with the Board the financial analyses performed by representatives of Centerview at the direction of the Special Committee. A representative of Centerview further discussed with the Board the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Centerview in preparing its opinion. At the conclusion of this discussion, a representative of Centerview reiterated the opinion that it had rendered to the Special Committee. Following detailed discussion and deliberation the members of the Board present at the meeting unanimously: (i) approved and declared advisable the Reclassification Agreement and the other Transaction Documents and the consummation of the Reclassification and the Other Transactions, (ii) declared that the Reclassification and the Other Transactions are advisable, fair to and in the best interests of the Company and its stockholders, including the Unaffiliated Class A Holders, and (iii) resolved to recommend that the stockholders of the Company adopt and approve the amendment and restatement of the Company’s restated certificate of incorporation in the form of the Amended and Restated Charter.

The Company and the Sands Family Stockholders listed in the Reclassification Agreement entered into the Reclassification Agreement on June 30, 2022. A press release announcing the terms for a reclassification of the shares of Class B Common Stock and associated governance changes was issued shortly thereafter.

Reasons for the Reclassification; Fairness of the Reclassification

Reasons of the Special Committee for the Reclassification

The Special Committee reviewed certain pertinent factors in reaching its determinations that the Transaction Documents are advisable, fair to, and in the best interests of the Company and the Unaffiliated Class A Holders and in making the following unanimous recommendations: (i) that the Board approve the Amended and Restated Charter and the Reclassification Agreement and declare that the Amended and Restated Charter and the Reclassification Agreement are advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders; (ii) that the Board have the Company enter into the Reclassification Agreement in connection with the public announcement of the Reclassification; (iii) subject to Board approval, that the Board (1) submit the approval of the adoption of the Amended and Restated Charter to the stockholders of the Company, and (2) resolve to recommend that the stockholders of the Company approve and adopt the Amended and Restated Charter; (iv) that the Board declare that each of the By-laws, the Amended Board Corporate Governance Guidelines, the Amended Corporate Governance and Responsibility Committee Charter and the Board Anti-Pledging Policy is advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders; (v) that the Board approve and adopt, effective as of the Effective Time, the By-laws, the Amended Board Corporate Governance Guidelines, the Amended Corporate Governance and Responsibility Committee Charter and the Board Anti-Pledging Policy, in each case, subject to receipt of stockholder approval of the Amended and Restated Charter and the filing of the Amended and Restated Charter with the Secretary of State of the State of Delaware; (vi) that the Board declare that the Registration Rights Agreement is advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders; and (vii) that the Board approve and

 

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adopt, and have the Company enter into, effective as of the Effective Time, the Registration Rights Agreement subject to receipt of stockholder approval of the Amended and Restated Charter and the filing of the Amended and Restated Charter with the Secretary of State of the State of Delaware.

The Board (other than Messrs. Robert Sands and Richard Sands, who recused themselves from determinations relating to the Reclassification), also reviewed certain pertinent factors in reaching its determinations that (i) the terms of the Reclassification Agreement and the transactions contemplated thereby, including the Reclassification and the Other Transactions, are advisable, fair to and in the best interests of the Company and its stockholders, including the Unaffiliated Class A Holders, and authorizing and approving the same and (ii) the Amended and Restated Charter should be submitted to the stockholders for their approval and in recommending to the stockholders of the Company to adopt and approve the same.

The discussion of the information and factors that the Special Committee and the Board considered below in making their respective determinations and recommendations is not intended to be exhaustive but includes the material factors considered. In view of the wide variety of factors considered and the complexity of these matters, neither the Special Committee nor the Board found it useful to, and did not attempt to, quantify, rank, or otherwise assign relative weight to these factors. In addition, the individual members of the Special Committee and the Board may have assigned different weight to different factors.

In reaching its determinations and recommendations with respect to the Reclassification, the Special Committee, in consultation with its independent legal and financial advisors, and the Board considered the following positive factors:

 

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Alignment of Economic Interests and Voting Rights. Immediately prior to the public announcement of the Reclassification, the outstanding shares of Class B Common Stock, representing approximately 13% of the economic interests of the Company, controlled approximately 59% of the total voting power of the Company’s capital stock, while the outstanding shares of Class A Common Stock, representing approximately 86% of the economic interests of the Company, controlled approximately 41% of the total voting power of the Company’s capital stock. The Reclassification, if consummated, will collapse the Class A Common Stock/Class B Common Stock structure and will align the voting power and economic ownership interests for all holders of Class A Common Stock and former holders of Class B Common Stock. The Reclassification, if consummated, will also, (i) create a unified voting structure where all of the holders of Class A Common Stock entitled to vote on matters submitted for a stockholder vote will have an equal say in the Company’s pro forma governance through the principle of “one share, one vote”; (ii) align the Company’s stockholder voting structure with the vast majority of other public corporations; and (iii) make the Company’s stockholder voting structure consistent with the stated policies of important institutional stockholders, stockholder advocacy groups and proxy advisors. The Reclassification should, therefore, make our Class A Common Stock a more attractive investment.

 

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Elimination of Sands Family Control. Immediately prior to the public announcement of the Reclassification, the Sands family controlled approximately 60% of the aggregate voting power of the Company’s capital stock through the Sands family’s ownership of Class A Common Stock and Class B Common Stock. If the Reclassification is consummated, the Sands family will control approximately 16% of the aggregate voting power of the Company’s capital stock immediately following the Reclassification. Thus, if the Reclassification is consummated, the Sands family would no longer have the ability to exercise a veto power over matters submitted for stockholder approval. The voting power of the Sands family would be reduced to align with its economic interests. Additionally, and importantly, the Sands family would no longer have the power to elect a majority of the Company’s directors.

 

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Restrictions on the Sands Family Following the Reclassification. The Reclassification, if consummated, will result in the Sands family controlling approximately 16% of the aggregate voting power of the Company’s capital stock immediately following the Reclassification. Therefore, the

 

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Sands family will remain, collectively, a large holder of the Company’s capital stock following the Reclassification, although with much less voting power than before the Reclassification. Given the level of Sands family ownership in the post-Reclassification Company and the fact that it will be contractually entitled pursuant to the Reclassification Agreement, through WildStar, to designate two members for nomination to the Board, the Special Committee ensured that the Reclassification Agreement included appropriate safeguards with respect to the Sands family’s involvement as directors and as stockholders of the Company, including, (i) a five-year standstill, which will continue for as long as a director designated by WildStar continues to serve on the Board; (ii) transfer restrictions (subject to certain exceptions) for a three year period on approximately 75% of the Sands family’s shares of Company capital stock, with the shares that may be sold in that three-year period being subject to certain trading restrictions; and (iii) restrictions on pledging that increase over time for the Sands family as long as a Sands family member remains on the Board as a designee of WildStar.

 

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Negotiated Reduction of the Premium Payable for the Reclassification. The Special Committee negotiated a 24% decrease from the initial 35% premium proposed by the Sands family, resulting in a 26.5% premium payable to the holders of Class B Common Stock for engaging in the Reclassification (based on the closing price for the Class A Common Stock on June 29, 2022 (the last trading day before the public announcement of the Reclassification)). The premium is below the percentage premiums paid to the controlling stockholders in three recent and relevant reclassifications, Forest City Realty Trust, Inc. (31%), Stewart Information Services Corporation (35%) and Hubbell Incorporated (28%).

 

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Special Committee Process. The Special Committee, consisting solely of independent and disinterested directors on the Board, negotiated the terms of the Reclassification, including the premium payable for the Reclassification and the related aspects of the Reclassification, and had the authority to recommend that the Board not approve the Reclassification and the related aspects of the Reclassification (and therefore the Board could not have pursued the Reclassification if the Special Committee had recommended against it). The Special Committee conducted an in-depth analytical review of the Reclassification, including holding 21 meetings with its advisors and with members of Company management, when appropriate, to evaluate the Reclassification and the related aspects of the Reclassification. The Special Committee consulted stockholder feedback during the course of its evaluation and engaged in multiple rounds of back-and-forth discussions with the Sands family to reach an agreement on the Reclassification.

 

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Receipt of Fairness Opinion from Centerview. The Special Committee considered the oral opinion of Centerview rendered to the Special Committee on June 29, 2022, which was subsequently confirmed by delivery of a written opinion dated such date, that, as of such date, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the shares of Class A Common Stock to be retained by the Unaffiliated Class A Holders, solely in their capacity as holders of shares of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any shares of the Class B Common Stock or Class 1 Common Stock held by the Unaffiliated Class A Holders, after giving effect to the Reclassification pursuant to the Reclassification Agreement, are fair, from a financial point of view, to the Unaffiliated Class A Holders, as more fully described below in the section of this proxy statement entitled “Special Factors—Financial Opinion of Centerview” beginning on page 59 of this proxy statement/prospectus.

 

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Unaffiliated Class A Holder Approval. The Sands family and the Board, at the outset of the negotiations regarding the Reclassification and the related aspects of the Reclassification, required that the Reclassification be subject to a non-waivable condition of approval by “a majority-of-the-minority” of the Company’s stockholders. Therefore, the Amended and Restated Charter, including the Reclassification therein, will not be adopted unless the Reclassification Proposal is approved by the affirmative vote of not less than 50.3% of the issued and outstanding shares of Class A Common Stock held by the Unaffiliated Class A Holders.

 

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Modernization of Governance Policies. Although not part of the Sands family’s initial proposal, it was important to the Special Committee that, if an appropriate premium were to be paid in a reclassification of the Class B Common Stock, that such reclassification include governance changes consistent with a non-controlled company. The negotiation of these governance changes formed a significant part of the Special Committee’s negotiations with the Sands family. As a result, if the Reclassification is consummated, it will result in meaningful corporate governance changes for the Company. Specifically, a consummated Reclassification will result in: (i) the retirement and transition of Messrs. Robert Sands and Richard Sands to non-executive roles on the Board, the elimination of the Vice Chairman of the Board position, and the payment of annual compensation and benefits (other than certain continuing negotiated perquisites) for Messrs. Robert Sands and Richard Sands in-line with those non-executive roles; (ii) the rotation of the lead independent director position at the next available normal cycle opportunity; (iii) the adoption of a majority voting standard for uncontested director elections; and (iv) the adoption of a Board anti-pledging policy, with permitted pledging by the Sands family directors subject to certain increasing restrictions on pledging activity so long as a Sands family member serves on the Board as a designee of WildStar. In addition, the Sands family currently has the ability, through its aggregate ownership of shares of Class B Common Stock and Class A Common Stock, to elect a majority of the Company’s directors. The Reclassification, if consummated, will permit the Sands family to designate only two directors to the Board, with such rights decreasing over time and contingent upon the Sands family holding certain amounts of the Class A Common Stock.

 

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Benefits for the Unaffiliated Class A Holders Resulting from Ownership in a Non-Controlled Company. If the Reclassification is consummated, the Unaffiliated Class A Holders will transition from being stockholders in a controlled company to stockholders in a non-controlled company, which provides each holder of Class A Common Stock with an equal right to participate in the value and opportunities of the Company following the Reclassification.

 

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Potential to Expand Investor Base. The Reclassification, if consummated, will simplify the Company’s capital structure by eliminating the Class A Common Stock/Class B Common Stock structure and may allow the Class A Common Stock to be held by certain institutional investors and funds whose investment policies do not permit them to invest in companies that have “high-vote” / “low-vote” capital structures. Therefore, the Reclassification may diversify and increase the Company’s stockholder base.

 

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Potential for Additional Stockholder Value Creation. The Special Committee reviewed and considered feedback from major stockholders over time, Wall Street analyst reports and feedback from its advisors, which indicated a potential for increased stockholder value over time following a reclassification. The Special Committee considered that the Company trades at a discount to its peers and that such discount could possibly be due to the Company’s “high-vote” / “low-vote” capital structure. The Reclassification also has the potential to address investor questions regarding the impact of the Sands family’s control on corporate strategy and capital allocation, which, in turn, may result in value creation for the Company and its stockholders over time.

 

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Executive Compensation Savings. Following a consummated Reclassification, Messrs. Robert Sands and Richard Sands will no longer hold executive positions with the Company (and therefore will no longer receive executive compensation packages) and have agreed to accept compensation packages in line with compensation for a non-executive Chairman of the Board and a non-executive director on the Board, respectively, which will result in the Company realizing an estimated $15-20 million in pretax annual compensation savings, which compensation savings have an implied potential aggregate equity value of approximately $300 million based on the midpoint of such estimated savings. The Special Committee considered the potential value from those savings in its decision to recommend the Reclassification.

 

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Sands Family’s Support of the Reclassification. The Sands family has agreed that it will vote all of its shares of Company capital stock, (i) in favor of adopting and approving the Amended and Restated Charter; (ii) against any action, agreement or transaction that would reasonably be expected to result in any of the closing conditions set forth in the Reclassification Agreement not being satisfied on or before June 30, 2023; and (iii) against any other action, agreement or transaction involving the Company or any of its subsidiaries that is intended, or would reasonably be expected, to prevent or materially impair or materially delay the consummation of the Reclassification. This support ensures that the Amended and Restated Charter, including the Reclassification therein, will receive the requisite statutory approval required under Delaware law, but, as noted herein, the consummation of the Reclassification is still conditioned on the affirmative vote of not less than 50.3% of the issued and outstanding shares of Class A Common Stock held by the Unaffiliated Class A Holders.

The Special Committee, in consultation with its independent legal and financial advisors, and the Board also considered the following potential adverse consequences and negative factors, but concluded that the positive factors outweighed these negative factors:

 

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Impact to the Company’s Balance Sheet and Leverage Ratio. The Reclassification, if consummated, would result in the aggregate payment of $1.5 billion (assuming no adjustment in accordance with the Reclassification Agreement and the Amended and Restated Charter) in cash to the holders of Class B Common Stock. The financing for such payment is expected to add additional debt to the Company’s balance sheet and increase the Company’s leverage ratio. While the Company does not expect the payment of such amount to materially impact the Company’s long-term operations, in the near-term the Company may be limited in its ability to engage in certain strategic opportunities as a result of making this payment.

 

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Sands Family’s Monetization Intentions Post-Reclassification. The Sands family informed the Special Committee of its intention to monetize up to one-third of its remaining stake, inclusive of the shares of Class A Common Stock received in the Reclassification, in the near-term or medium-term following a consummated Reclassification. While the Reclassification imposes certain restrictions on the Sands family with respect to the divestiture of such shares of Company capital stock, such divestitures may impact the trading price of the Class A Common Stock.

 

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The Former Holders of Class B Common Stock Will Be Entitled to Receive Higher Dividends on the Shares of Class A Common Stock That They Will Receive in the Reclassification. Under the Company’s restated certificate of incorporation, as amended to date, the holders of Class A Common Stock are entitled, when a cash dividend is to be paid on the shares of Class B Common Stock and the Class 1 Common Stock, to receive a cash dividend that exceeds the amount of the cash dividend paid on each share of Class B Common Stock and Class 1 Common Stock by at least 10%. If the Reclassification is consummated, the former holders of Class B Common Stock will receive one share of Class A Common Stock for each share of Class B Common Stock held by such holders, and, therefore, will be entitled to receive the higher dividend on those shares of Class A Common Stock received following the Reclassification. The Special Committee considered, however, that the holders of Class B Common Stock have a pre-existing right to convert their shares of Class B Common Stock into shares of Class A Common Stock on a 1:1 basis at any time, and, therefore, could convert their shares of Class B Common Stock at any time to receive the higher dividend payable on the shares of Class A Common Stock.

 

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Differing Interests. Certain directors (but not directors who sat on the Special Committee), officers and the holders of shares of Class B Common Stock have interests in the Reclassification and related aspects of the Reclassification that are different from, or in addition to, those interests of the Unaffiliated Class A Holders. In addition, subject to Messrs. Robert and Richard Sands remaining employed through immediately prior to the Effective Time, the Reclassification Agreement provides that Messrs. Robert and Richard Sands will retire as Executive Chairman of the Board and Executive Vice Chairman of the Board, respectively, effective as of the Effective Time. In connection with such

 

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retirements, each individual will be entitled to receive the payments, benefits and other rights due upon a “retirement,” as set forth in Section 6 of their respective Executive Employment Agreements with the Company, each dated as of May 21, 2008. The payments are set forth in greater detail below in the section of this proxy statement entitled “Special Factors–Interests of Certain Persons in the Reclassification” beginning on page 71 of this proxy statement/prospectus. The Special Committee considered that each of Messrs. Robert and Richard Sands is currently eligible for retirement under the terms of his respective Executive Employment Agreement and any other applicable plans of the Company, and accordingly would generally be entitled to these payments, benefits and other rights upon their resignation from employment, without respect to the consummation of the Reclassification.

 

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Payment of Sands Family Expenses and Partial Indemnification for the Sands Family. The Company has agreed to pay or reimburse the Sands family’s legal and financial advisor expenses incurred in connection with the Reclassification Agreement and the Reclassification. The Company has also agreed to indemnify the Sands family for litigation expenses arising out of or resulting from certain claims involving the Reclassification Agreement or the consummation of the Reclassification.

 

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Company Expenses. The Company has incurred and will continue to incur substantial non-recurring costs and expenses in connection with the negotiation and completion of the Reclassification and related aspects of the Reclassification. These costs and expenses include, among other things, the costs and expenses of printing and mailing the proxy statement/prospectus, all filing and other fees paid to the SEC in connection with the Reclassification and related aspects of the Reclassification, and professional fees incurred by the Company and the Sands family relating to the Reclassification and related aspects of the Reclassification.

 

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Failure to Consummate the Reclassification Could Adversely Affect the Prices of the Shares of Class A Common Stock and Class B Common Stock. There is a risk that the Reclassification might not be completed in a timely manner or at all. In that event, there may be certain adverse effects on the market trading prices of the shares of Class A Common Stock and Class B Common Stock.

 

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Impact of Announcement. The uncertainty about the effect of the Reclassification, regardless of whether it is completed, on the Company’s employees, management and other parties could impair the Company’s ability to operate in the ordinary course of business and could cause changes in existing business relationships, and there is the potential for litigation arising in connection with the Reclassification.

In addition to the above, the Board, on behalf of the Company, believes that the Reclassification is fair to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 under the Exchange Act. In assessing the fairness of the Reclassification to the holders of shares of Class B Common Stock not held by the Sands Family Stockholders or other members of the Sands family, the Board noted that the Sands Family Stockholders (which represent approximately 98% of the issued and outstanding shares of Class B Common Stock) negotiated vigorously and that all shares of Class B Common Stock will receive the same consideration in the Reclassification (which such consideration includes the premium described above). Although the Special Committee received an opinion from Centerview relating to the shares of Class A Common Stock to be retained by the Unaffiliated Class A Holders as described in the section of this proxy statement entitled “—Financial Opinion of Centerview” beginning on page 59 of this proxy statement/prospectus, the Board did not obtain any report, opinion or appraisal relating to the fairness of the value offered to the “unaffiliated security holders” as the Board noted that, as outlined in the prior sentence, the Sands Family Stockholders (which represent approximately 98% of the issued and outstanding shares of Class B Common Stock) negotiated vigorously and that all shares of Class B Common Stock will receive the same consideration in the Reclassification.

In assessing the fairness of the Reclassification to the “unaffiliated security holders” the Board did not consider the liquidation value of the Company. This factor is not relevant because the Company is a viable, going concern and is expected to continue to operate its business following the Reclassification. The Board also did not consider the net book value of the Company, which is an accounting concept, as a factor because net book value is not a material indicator of the value of the Company as a going concern, but rather is indicative of historical costs

 

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without regard for the prospects of the Company, market conditions, trends in the industries in which the Company operates or business risks inherent in those industries. The Board also did not seek to determine a going concern value of the Common Stock to determine the fairness of the Reclassification to the Company’s “unaffiliated security holders”. The trading prices of the Class A Common Stock and the Class B Common Stock at any given time generally represent the best available indicator of the Company’s going concern value at that time, so long as the trading price at that time is not impacted by speculative market conditions. The Board considered the current and historical market prices of the Class A Common Stock and Class B Common Stock primarily in connection with understanding the premium payable in the Reclassification in its assessment of the fairness of the Reclassification to the “unaffiliated security holders” because the Board considered the premium payable as a percentage based on precedent reclassifications in which a premium was paid and as a percentage of market capitalization in those precedent reclassifications to be the most appropriate economic metric for assessing the fairness of the Reclassification to the “unaffiliated security holders”. Further, the Board did not consider the relative current and historical market prices for the Class A Common Stock and Class B Common Stock as a relevant factor because the Class B Common Stock has historically traded in line with the Class A Common Stock, has significantly lower liquidity and trading volume than the Class A Common Stock, is almost entirely held by the Sands Family Stockholders, and has significantly different voting, conversion and dividend rights. In assessing the fairness of the Reclassification to the “unaffiliated security holders”, the Board did not consider firm offers in the past two years, if any, for a merger, sale of all or a substantial part of the Company’s assets, or a purchase of a controlling amount of Class A Common Stock or Class B Common Stock (each, a “Sale Transaction”), because the Reclassification is a unique transaction that was being evaluated on a standalone basis, without regard to any other potential transaction that the Company could potentially pursue, and did not preclude the Company from pursuing a Sale Transaction in the future.

Under the Reclassification Agreement, it is a condition precedent to the Company’s and the Sands Family Stockholders’ obligation to complete the Reclassification that not less than 50.3% of the issued and outstanding shares of Class A Common Stock held by the Unaffiliated Class A Holders, vote “FOR” the Reclassification Proposal. The affirmative vote of the holders of (a) a majority of the voting power of the issued and outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote thereon, voting together as a single class and (b) a majority of the issued and outstanding shares of Class B Common Stock is also required for approval of the Reclassification Proposal. Although the Reclassification does not require the approval of at least a majority of “unaffiliated security holders”, the Company does not believe that this factor jeopardizes the fairness of the Reclassification.

As described elsewhere in this proxy statement/prospectus, Mr. Robert Sands and Mr. Richard Sands recused themselves from the relevant portions of the meeting (including abstaining from voting thereat) at which the Reclassification was approved due to their direct and indirect ownership of a material amount of shares of Class B Common Stock. A Special Committee was formed to evaluate the fairness of the Reclassification to the Unaffiliated Class A Holders and, with respect to the holders of Class B Common Stock, the Sands Family Stockholders negotiated vigorously the consideration for the shares of Class B Common Stock (and all shares of Class B Common Stock will receive the same consideration in the Reclassification). A majority of members of the Board who are not employees of the Company did not retain a representative to act solely on behalf of the “unaffiliated security holders” for purposes of negotiating the Reclassification or preparing a report. The Reclassification was approved by a majority of the directors on the Board who are not employees of the Company.

Purposes and Reasons of the Sands Family Stockholders for the Reclassification

Under the SEC rules governing “going private” transactions, which include a solicitation subject to the proxy rules of stockholders in connection with a reclassification of an issuer that causes the delisting or deregistration of a class of equity securities such as the Reclassification, each of the Sands Family Stockholders may be an affiliate of the Company and, therefore, required to express its purposes and reasons for the Reclassification to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 of the Exchange Act, which are the holders of Class B Common Stock that are not affiliates of the Company. Each of the Sands Family Stockholders is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related

 

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rules under the Exchange Act. The views of each of the Sands Family Stockholders should not be construed as a recommendation to any Company stockholder as to how that stockholder should vote their shares of Class A Common Stock or Class B Common Stock on the Reclassification Proposal.

If the Reclassification is completed, the Company’s shares of high-vote Class B Common Stock (including shares held by persons unaffiliated with the Sands family) will be eliminated and cease to be publicly traded. For the Sands Family Stockholders, the primary purpose of the Reclassification is to immediately realize in cash the value of their majority voting control of the Company and to bear the risk and rewards of continued ownership of shares of Class A Common Stock (including shares of Class A Common Stock into which shares of Class B Common Stock are reclassified) after the Reclassification is completed. Following completion of the Reclassification, the Sands family may from time to time dispose of shares of Class A Common Stock, subject to the terms and conditions of the Reclassification Agreement. The Sands Family Stockholders did not consider any alternative means to accomplish the foregoing purposes.

The Sands Family Stockholders believe it is currently an opportune time to pursue the Reclassification for the following reasons:

 

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the fact that the shares of Class A Common Stock into which shares of Class B Common Stock are reclassified are expected to have greater liquidity than the shares of Class B Common Stock currently have;

 

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the fact that the shares of Class B Common Stock are currently subject to a mandatory dividend discount under the Company certificate of incorporation, pursuant to which any cash dividend paid on shares of Class B Common Stock must also be paid on shares of Class A Common Stock in an amount per share greater than the cash dividend paid on each share of Class B Common Stock by at least 10%, and that the shares of Class A Common Stock into which shares of Class B Common Stock are reclassified upon consummation of the Reclassification will not be subject to any such dividend discount;

 

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the fact that the aggregate cash consideration represents a meaningful premium, in exchange for the Sands family’s surrender of majority voting control of the Company;

 

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the fact that the Sands family has increasingly taken steps to decrease their active stewardship of the Company in recent years, including the appointment in March 2019 of the first chief executive officer of the Company not affiliated with the Sands family, and that the descendants of Messrs. Richard Sands and Robert Sands and other members of the Sands family have not demonstrated significant interest in being involved in the business and affairs of the Company on full-time basis;

 

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the fact that, in the absence of a transaction such as the Reclassification, one or more members of the Sands family in the future may from time to time dispose of shares of Class B Common Stock, and, if such dispositions in the aggregate were sufficiently large, the Sands family could lose majority voting control of the Company without receiving any premium; and

 

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the expectation that the changes to the Company’s governance in connection with the consummation of the Reclassification, including alignment of voting rights with economic ownership and restrictions on the Sands family’s ability to seek to influence the business and affairs of the Company, may increase the attractiveness of the Company’s Class A Common Stock to institutional investors and the market more generally, potentially resulting in improved volume and trading prices of the Class A Common Stock.

Position of the Sands Family Stockholders as to Fairness of the Reclassification

Under the SEC rules governing “going private” transactions, which include a solicitation subject to the proxy rules of stockholders in connection with a reclassification of an issuer that causes the delisting or deregistration of a class of equity securities such as the Reclassification, each of the Sands Family Stockholders may be an

 

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affiliate of the Company and, therefore, required to express its beliefs as to the fairness of the Reclassification to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 of the Exchange Act, which are the holders of Class B Common Stock that are not affiliates of the Company. Each of the Sands Family Stockholders is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of each of the Sands Family Stockholders should not be construed as a recommendation to any Company stockholder as to how that stockholder should vote their shares of Class A Common Stock or Class B Common Stock on the Reclassification Proposal.

The Sands Family Stockholders attempted to negotiate with the Special Committee the terms of a transaction that would be most favorable to the Sands family, and not necessarily to the “unaffiliated security holders”. Although an unaffiliated representative to act solely on behalf of such unaffiliated security holders was not retained for purposes of negotiating the Reclassification and/or preparing a report concerning the fairness of the Reclassification, each holder of Class B Common Stock will receive identical per share consideration in the Reclassification and the Sands Family Stockholders, who own approximately 98% of the outstanding shares of Class B Common Stock, were strongly incentivized to negotiate the highest possible premium for holders of Class B Common Stock.

None of the Sands Family Stockholders participated in the deliberations of the Special Committee or the Board regarding, or received advice from the Company’s financial or legal advisors as to, the substantive or procedural fairness of the Reclassification to the Company’s “unaffiliated security holders”. None of the Sands Family Stockholders has performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the Reclassification to the Company’s unaffiliated security holders.

Each of the Sands Family Stockholders believes that the Reclassification is fair to the Company’s “unaffiliated security holders” based on its consideration of the following material factors:

 

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the fact that the “unaffiliated security holders” will receive in the Reclassification the same consideration per share as will be received in respect of the Class B Common Stock held by the Sands family, and which consideration represents a meaningful premium to the market price of both the Class A Common Stock and the Class B Common Stock prior to the announcement of a proposal by members of the Sands family to engage in a reclassification, which premium when added to the per share price of a share of Class A Common Stock on the day prior to the date of execution of the Reclassification Agreement exceeded the highest price at which the Class B Common Stock had ever traded prior to such proposal and was arrived at after an arms’ length negotiation with the Special Committee;

 

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the fact that the shares of Class A Common Stock into which shares of Class B Common Stock held by the Company’s unaffiliated security holders will be reclassified upon the consummation of the Reclassification are expected to have greater liquidity than the shares of Class B Common Stock such holders currently hold;

 

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the fact that the shares of Class B Common Stock are currently subject to a mandatory dividend discount under the Company’s certificate of incorporation, pursuant to which any cash dividend paid on shares of Class B Common Stock must also be paid on shares of Class A Common Stock in an amount per share greater than the cash dividend paid on each share of Class B Common Stock by at least 10%, and that the shares of Class A Common Stock into which shares of Class B Common Stock held by the Company’s unaffiliated security holders will be reclassified upon the consummation of the Reclassification will not be subject to any such dividend discount;

 

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the expectation that the changes to the Company’s governance in connection with the consummation of the Reclassification, including alignment of voting rights with economic ownership and restrictions on the Sands family’s ability to seek to influence the business and affairs Company, may increase the attractiveness of the Company’s Class A Common Stock to institutional investors and the market more generally, potentially resulting in improved volume and trading prices of the Class A Common Stock; and

 

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the fact that the Sands Family Stockholders have agreed to vote their shares of Class A Common Stock and Class B Common Stock in favor of the Reclassification.

The Sands Family Stockholders did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the Reclassification. Rather, each of the Sands Family Stockholders made its fairness determination in respect of the unaffiliated security holders after considering the foregoing factors as a whole. Each of the Sands Family Stockholders believes these factors provide a reasonable basis upon which to form its belief that the Reclassification is fair to the Company’s “unaffiliated security holders”. This belief should not, however, be construed as a recommendation to any Company stockholder to vote in favor of the Reclassification Proposal. None of the Sands Family Stockholders makes any recommendation as to how stockholders of the Company should vote their shares of Class A Common Stock or Class B Common Stock on the Reclassification Proposal.

In assessing the fairness of the Reclassification to the “unaffiliated security holders”, the Sands Family Stockholders did not consider the liquidation value of the Company. This factor is not relevant because the Company is a viable, going concern and is expected to continue to operate its business following the Reclassification. The Sands Family Stockholders also did not consider the net book value of the Company, which is an accounting concept, as a factor because net book value is not a material indicator of the value of the Company as a going concern, but rather is indicative of historical costs without regard for the prospects of the Company, market conditions, trends in the industries in which the Company operates or business risks inherent in those industries. The Sands Family Stockholders also did not seek to determine a going concern value of the Company’s Common Stock to determine the fairness of the Reclassification to the Company’s “unaffiliated security holders”. The Sands Family Stockholders believe the trading prices of the Class A Common Stock and the Class B Common Stock at any given time generally represent the best available indicator of the Company’s going concern value at that time, so long as the trading price at that time is not impacted by speculative market conditions. The Sands Family Stockholders considered the current and historical market prices of the common stock primarily in connection with their understanding of the premium that would be received in connection with the Reclassification. While the Sands Family Stockholders are aware of the consideration of the potential transaction described in the third paragraph of page 32 of this proxy statement/prospectus, the Sands Family Stockholders are not aware of any firm offers by any unaffiliated person during the past two years for the merger or consolidation of the Company with or into another company, or vice versa; the sale or other transfer of all or any substantial part of the assets of the Company; or a purchase of the Company’s securities that would enable the holder to control the Company.

Under the Reclassification Agreement, it is a condition precedent to the Company’s and the Sands Family Stockholders’ obligation to complete the Reclassification that not less than 50.3% of the issued and outstanding shares of Class A Common Stock held by the Unaffiliated Class A Holders, vote “FOR” the Reclassification Proposal. The affirmative vote of the holders of (a) a majority of the voting power of the issued and outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote thereon, voting together as a single class and (b) a majority of the issued and outstanding shares of Class B Common Stock is also required for approval of the Reclassification Proposal. Although the Reclassification does not require the approval of at least a majority of the “unaffiliated security holders”, the Sands Family Stockholders do not believe that this factor jeopardizes the fairness of the Reclassification.

As described elsewhere in this proxy statement/prospectus, Mr. Robert Sands and Mr. Richard Sands recused themselves from the relevant portions of the meeting (including abstaining from voting thereat) at which the Reclassification was approved due to their direct and indirect ownership of a material amount of shares of Class B Common Stock. A Special Committee was formed to evaluate fairness of the Reclassification to the Unaffiliated Class A Holders, and the Sands Family Stockholders negotiated vigorously the consideration for the shares of Class B Common Stock (and all shares of Class B Common Stock will receive the same consideration in the Reclassification). The Reclassification was approved by a majority of the directors on the Board who are not employees of the Company.

 

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Required Vote

The Reclassification Proposal, which would reclassify the Class B Common Stock, includes an amendment and restatement of the Company’s restated certificate of incorporation. The Reclassification cannot be completed unless the Reclassification Proposal is approved and adopted by the affirmative vote of the holders of (a) a majority of the voting power of the issued and outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote thereon, voting together as a single class and (b) a majority of the issued and outstanding shares of Class B Common Stock. Under the Reclassification Agreement, it is a condition precedent to the Company’s and the Sands Family Stockholders’ obligation to complete the Reclassification that not less than 50.3% of the issued and outstanding shares of Class A Common Stock held by the Unaffiliated Class A Holders vote “FOR” the Reclassification Proposal.

Financial Opinion of Centerview

On June 29, 2022, Centerview rendered to the Special Committee its oral opinion, subsequently confirmed by delivery of a written opinion dated such date, that, as of such date and based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, the shares of Class A Common Stock to be retained by the Unaffiliated Class A Holders, solely in their capacity as holders of shares of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any shares of the Class B Common Stock or Class 1 Common Stock held by the Unaffiliated Class A Holders, after giving effect to the Reclassification pursuant to the Reclassification Agreement, are fair, from a financial point of view, to the Unaffiliated Class A Holders.

The full text of Centerview’s written opinion, dated June 29, 2022, which describes the various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion, is attached as Annex D and is incorporated herein by reference. The summary of the written opinion of Centerview set forth below is qualified in its entirety to the full text of Centerview’s written opinion attached as Annex D. Centerview’s financial advisory services and opinion were provided for the information and assistance of the Special Committee (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the Reclassification and Centerview’s opinion only addressed the fairness, from a financial point of view, as of the date thereof, to the Unaffiliated Class A Holders, solely in their capacity as holders of shares of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any shares of the Class B Common Stock or Class 1 Common Stock held by the Unaffiliated Class A Holders, after giving effect to the Reclassification pursuant to the Reclassification Agreement. Centerview’s opinion did not address any other term or aspect of the Reclassification Agreement and the Reclassification and does not constitute a recommendation to any stockholder of the Company or any other person as to how such stockholder or other person should vote with respect to the Reclassification or otherwise act with respect to the Reclassification or any other matter. 

The full text of Centerview’s written opinion should be read carefully in its entirety for a description of the various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Centerview in preparing its opinion.

In connection with rendering the opinion described above and performing its related financial analyses, Centerview reviewed, among other things:

 

•

a draft of the Reclassification Agreement dated June 29, 2022, including the form of amended and restated Certificate of Incorporation and other annexes, exhibits and schedules attached thereto;

 

•

Annual Reports on Form 10-K of the Company for the fiscal years ended February 28, 2022, February 28, 2021 and February 29, 2020;

 

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•

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company;

 

•

certain publicly available research analyst reports for the Company; and

 

•

certain other communications from the Company to its stockholders.

In addition, Centerview reviewed publicly available financial and stock market data, including valuation multiples, for the Company and compared that data with similar data for certain other companies, the securities of which are publicly traded, in lines of business that Centerview deemed relevant. Centerview also compared certain of the proposed financial terms of the Reclassification with the financial terms, to the extent publicly available, of certain other reclassification transactions that Centerview deemed relevant, reviewed certain pro forma effects of the Reclassification on the Company and its capitalization, and conducted such other financial studies and analyses and took into account such other information as Centerview deemed appropriate.

Centerview assumed, without independent verification or any responsibility therefor, the accuracy and completeness of the financial, legal, regulatory, tax, accounting and other information supplied to, discussed with, or reviewed by Centerview for purposes of its opinion and, with the Special Committee’s consent, relied upon such information as being complete and accurate. In addition, at the Special Committee’s direction, Centerview did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet or otherwise) of the Company, nor was Centerview furnished with any such evaluation or appraisal, and Centerview was not asked to conduct, and did not conduct, a physical inspection of the properties or assets of the Company. Centerview assumed, at the Special Committee’s direction, that the final executed Reclassification Agreement would not differ in any respect material to its analysis or its opinion from the draft agreement reviewed by Centerview and that the representations and warranties made by each party to the Reclassification Agreement and related agreements were and would be true and correct in all respects material to Centerview’s analysis. Centerview also assumed, at the Special Committee’s direction, that the Reclassification would be consummated on the terms set forth in the Reclassification Agreement and in accordance with all applicable laws and other relevant documents or requirements, without delay or the waiver, modification or amendment of any term, condition or agreement, the effect of which would be material to Centerview’s analysis or its opinion and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the Reclassification, no delay, limitation, restriction, condition or other change would be imposed, the effect of which would be material to Centerview’s analysis or its opinion. Centerview also assumed that the Reclassification would have the tax consequences described in discussions with, and materials furnished to Centerview by, representatives of the Company. Centerview did not evaluate and did not express any opinion as to the solvency or fair value of the Company or any other person, or the ability of the Company or any other person to pay their respective obligations when they come due, or as to the impact of the Reclassification on such matters, under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. Centerview is not a legal, regulatory, tax or accounting advisor, and it expressed no opinion as to any legal, regulatory, tax or accounting matters.

Centerview expressed no view as to, and its opinion did not address, the Company’s underlying business decision to proceed with or effect the Reclassification, or the relative merits of the Reclassification as compared to any alternative business strategies or transactions that might be available to the Company or in which the Company might engage. Centerview’s opinion is limited to and addresses only the fairness, from a financial point of view, as of the date of Centerview’s written opinion, to the Unaffiliated Class A Holders, solely in their capacity as holders of shares of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any shares of the Class B Common Stock or Class 1 Common Stock held by the Unaffiliated Class A Holders, of the shares of Class A Common Stock to be retained by the Unaffiliated Class A Holders after giving effect to the Reclassification pursuant to the Reclassification Agreement. Centerview was not asked to, nor did it express any view on, and its opinion did not address, any other term or aspect of the Reclassification Agreement or the Reclassification, including, without limitation, the structure or form of the Reclassification, or any other agreements or arrangements contemplated by the Reclassification Agreement or entered into in connection with or otherwise contemplated by the Reclassification, including, without limitation, the fairness of

 

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the Reclassification or any other term or aspect of the Reclassification to, or any consideration to be received in connection therewith by, or the impact of the Reclassification on, the holders of any other class of securities, creditors or other constituencies of the Company or any other party, including the Sands Family Stockholders, whether relative to the cash payment to holders of Class B Common Stock of $64.64 per share of Class B Common Stock held and the reclassification of each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time into one share of Class A Common Stock (the “Reclassification Consideration”) to be paid in the Reclassification pursuant to the Reclassification Agreement or otherwise. In addition, Centerview expressed no view or opinion as to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to be paid or payable to any of the officers, directors or employees of the Company or any party, or class of such persons in connection with the Reclassification, whether relative to the Reclassification Consideration to be paid in the Reclassification pursuant to the Reclassification Agreement or otherwise. Centerview’s opinion is necessarily based on financial, economic, monetary, currency, market and other conditions and circumstances as in effect on, and the information made available to it as of, the date of its opinion, and Centerview does not have any obligation or responsibility to update, revise or reaffirm its opinion based on circumstances, developments or events occurring after the date of its opinion. Centerview expressed no view or opinion as to any consequence that may result from the Reclassification, including as to the price at which the Company’s common stock would trade at any time, including following the announcement or consummation of the Reclassification. Centerview’s opinion does not constitute a recommendation to any stockholder of the Company or any other person as to how such stockholder or other person should vote with respect to the Reclassification or otherwise act with respect to the Reclassification or any other matter. The issuance of Centerview’s opinion was approved by the Centerview Partners LLC Fairness Opinion Committee.

Summary of Centerview Financial Analysis

The following is a summary of the material financial analyses prepared and reviewed with the Special Committee in connection with Centerview’s opinion, dated June 29, 2022. The summary set forth below does not purport to be a complete description of the financial analyses performed or factors considered by, and underlying the opinion of, Centerview, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by Centerview. Centerview may have deemed various assumptions more or less probable than other assumptions, so the reference ranges resulting from any particular portion of the analyses summarized below should not be taken to be Centerview’s view of the actual value of the Company. Some of the summaries of the financial analyses set forth below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses performed by Centerview. Considering the data in the tables below without considering all financial analyses or factors or the full narrative description of such analyses or factors, including the methodologies and various assumptions underlying such analyses or factors, could create a misleading or incomplete view of the processes underlying Centerview’s financial analyses and its opinion. In performing its analyses, Centerview made various assumptions, followed procedures, and considered matters, qualifications and limitations, many of which are beyond the control of the Company. None of the Company, the Special Committee or Centerview or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of the Company do not purport to be appraisals or reflect the prices at which the Company may actually be sold. Accordingly, the various assumptions and estimates used in, and the results derived from, the financial analyses are inherently subject to substantial uncertainty. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before June 29, 2022 (the last trading day prior to the public announcement of the Reclassification) and is not necessarily indicative of current market conditions.

 

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Selected Precedent Reclassification Transactions Analysis

Centerview reviewed and analyzed certain information relating to the following selected precedent reclassification transactions announced since 2001 involving U.S. domiciled, publicly traded companies with market capitalizations exceeding $500 million (which transactions are referred to as the “selected transactions” in this summary of Centerview’s opinion) that Centerview, based on its experience and professional judgment, deemed relevant to consider in relation to the Company and the Reclassification, in which (i) the subject company at the time of such transaction had two outstanding classes of common stock with different voting rights (referred to in this section as “high-vote” and “low-vote”) and (ii) the high vote shares were held by persons who either held at least 50% of the voting rights of the company or were otherwise able to elect a majority of the board or control the company’s decision to conduct a sale.

No company or transaction used in this analysis is identical or directly comparable to the Company or the Reclassification. The companies included in the selected transactions listed below were selected, among other reasons, based on Centerview’s experience and professional judgment, because they have certain characteristics that, for the purposes of this analysis, may be considered similar to certain characteristics of the Company. The reasons for and the circumstances surrounding each of the selected transactions analyzed were diverse and there are inherent differences in the business, operations, financial conditions and prospects of the Company and the companies included in the selected transactions analysis. Accordingly, Centerview believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected transactions analysis. This analysis involves complex considerations and qualitative judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the selected subject companies and the Company.

Using publicly available information obtained from SEC filings and other data sources as of June 29, 2022, Centerview calculated:

 

(i)

the implied premium per share paid in each of the selected transactions to the holders of high vote shares as a percentage of the low vote share price, calculated as the percentage of (a) the per share consideration paid to the holders of high vote stock, based on the cash and/or stock consideration received by such holders, in excess of (b) the per share consideration paid to holders of the low vote stock, based on the cash and/or stock consideration received by such holders, or the equity value per share of the shares retained by such holders, as applicable, and

 

(ii)

the implied premium paid in each of the selected transactions to the holders of high vote shares in the aggregate, based on such excess aggregate consideration paid to the holders of high vote stock, as a percentage of the aggregate equity market capitalization of the respective company, based on the closing share prices of the publicly traded low vote shares of the respective company prior to announcement of the reclassification transaction.

The results of these analyses and the comparison to the Reclassification are summarized in the table below:

 

Company		Date of Reclassification Transaction		Market Capitalization ($bn)				Premium As a Percentage of Market Capitalization				Percentage Premium
Forest City Realty Trust, Inc.		December 2016		$	4.8				2.2	%			31	%
Stewart Information Services Corporation		January 2016		$	0.8				1.5	%			35	%
Hubbell Incorporated		August 2015		$	5.8				3.4	%			28	%
Aaron’s Inc.		September 2010		$	1.3				0.0	%			0	%
Sotheby’s Holdings, Inc.		September 2005		$	1.1				4.3	%			19	%
The Robert Mondavi Corporation		August 2004		$	0.6				5.9	%			17	%
Commonwealth Telephone Enterprises, Inc.		April 2003		$	0.9				0.8	%			9	%
The Reader’s Digest Association, Inc.		October 2002		$	1.5				2.7	%			22	%
Median				$	1.2				2.5	%			21	%
Mean				$	2.1				2.6	%			20	%
The Company				$	45.3				3.3	%			26.5	%

 

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Other Factors

Centerview noted for the Special Committee certain additional factors solely for informational purposes, including, among other things, the following:

Historical Stock Price and Returns Analysis

Centerview reviewed, for reference and informational purposes only, the historical closing prices of the Class A Common Stock and the Class B Common Stock over the twenty years, ten years, five years, one year, six months and three months periods ending on June 29, 2022, as well as the historical closing prices beginning on April 1, 2022, the last trading day prior to the public Schedule 13D disclosure by the Sands family of its letter to the Board, and ending on June 29, 2022, and then calculated for such historical trading periods (i) the compound annual growth rate (“CAGR”) of each of the Class A Common Stock and Class B Common Stock, (ii) and the average Class B Common Stock volume as a percentage of Class A Common Stock (“Volume Percentage”), and (iii) the average Class B Common Stock premium to the Class A Common Stock. The results of these calculations are summarized below:

 

		20-Year				10-Year				5-Year				1-Year				6-Month(1)				3-Month(1)				Since April 1, 2022(1)
Class A CAGR			+14.8	%			+24.6	%			+4.8	%			+5.5	%			(2.5	)%			+5.1	%			+4.2	%
Class B CAGR			+15.5	%			+26.3	%			+7.5	%			+20.7	%			+11.7	%			+20.5	%			+19.1	%
Average Class B Volume Percentage			0.09	%			0.09	%			0.02	%			0.01	%			0.02	%			0.03	%			0.02	%
Average Class B Percentage Premium			+0.3	%			+0.5	%			+0.8	%			+3.1	%			+6.2	%			+12.0	%			+12.8	%

 

(1)	6-month, 3-month and Since April 1 trading performance not annualized.

Selected Public Company Sum of the Parts Analysis

Centerview reviewed, for reference and informational purposes only, certain financial information of the Company and compared it to corresponding financial information of certain publicly traded (i) beer companies and (ii) wine and spirits companies, that Centerview deemed comparable, based on its experience and professional judgment, to the Company. Although none of the selected companies are directly comparable to the Company, the selected companies listed below were chosen by Centerview, among other reasons, because they are companies with certain operational, business and/or financial characteristics that, for purposes of Centerview’s analysis, may be considered similar to those of the Company. Accordingly, Centerview also made qualitative judgments, based on its experience and professional judgment, concerning differences between the business, financial and operational characteristics of the Company and the selected companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis.

The selected beer companies used in this comparison included: The Boston Beer Company Inc., Heineken N.V., Carlsberg Breweries A/S, Anheuser-Busch InBev SA/NV, Kirin Holdings Company, Limited, Asahi Group Holdings, Ltd, and Molson Coors Beverage Company. The selected wine and spirits companies used in this comparison included: Brown-Forman Corporation, Davide Campari-Milano N.V., The Duckhorn Portfolio, Inc., Remy Cointreau SA, Becle, S.A.B DE C.V., Diageo plc, Treasury Wine Estates Ltd, Pernod Ricard SA and Vintage Wine Estates, Inc.

Using publicly available information obtained from SEC filings and other data sources as of June 29, 2022, Centerview calculated, for each selected company, the company’s closing stock price as of June 29, 2022, as a multiple of Wall Street research analyst consensus estimated earnings per share for the next twelve-month period (“NTM P/E Multiple”). The overall low to high NTM P/E Multiple observed for the selected beer companies was 13.3x to 23.2x with a median on 15.4x. The overall low to high NTM P/E Multiple observed for the selected wine and spirits companies was 17.6x to 35.5x with a median on 23.2x.

 

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Based on the foregoing analysis and other considerations that Centerview deemed relevant in its professional judgment and experience, Centerview selected a range of NTM P/E Multiples of 23.0x to 25.0x for the selected beer companies and a range of 20.0x to 23.0x for the selected wine and spirits companies. In selecting these ranges of multiples, Centerview made qualitative judgments based on its experience and professional judgment concerning differences between the business, financial and operating characteristics and prospects of the Company and the selected companies that could affect their public trading values in order to provide a context in which to consider the results of the quantitative analysis. Based on the relative contribution of 15% for the Company’s wine and spirits business and 85% for the Company’s beer business, Centerview derived an implied weighted average NTM P/E Multiple for the Company of 22.6x to 24.7x, as compared to the Company’s NTM P/E Multiple of 21.0x based on the closing price of the Class A Common Stock as of June 29, 2022, which implied a multiple discount ranging from 1.6x to 3.7x.

Regression Analysis

Centerview performed, for reference and informational purposes only, a regression analysis to evaluate:

 

(i)

the correlation between (a) the estimated revenue growth for each of the selected companies observed under the section “Selected Public Company Sum of the Parts Analysis” above during calendar years 2022 to 2024, and (b) each selected company’s NTM P/E Multiple. This analysis yielded a linear regression line with a correlation value of 69% and indicated an implied NTM P/E Multiple for the Company of 22.9x (applying 50% credit), as compared to the Company’s NTM P/E Multiple of 21.0x based on the closing price of the Class A Common Stock as of June 29, 2022, which implied a multiple discount of 1.9x; and

 

(ii)

the correlation between (a) the estimated operating margin for each of the selected companies during calendar year 2022, and (b) each selected company’s NTM P/E Multiple. This analysis yielded a linear regression line with a correlation value of 61% and indicated an implied NTM P/E Multiple for the Company of 24.7x (applying 50% credit), as compared to the Company’s NTM P/E Multiple of 21.0x based on the closing price of the Class A Common Stock as of June 29, 2022, which implied a multiple discount of 3.7x.

Analyst Price Targets Analysis

Centerview reviewed, for reference and informational purposes only, stock price targets of research analysts for the shares of Class A Common Stock reflected in certain publicly available Wall Street research analyst reports. Centerview noted that the low and high analyst stock price targets in such research analyst reports ranged from $243.00 to $305.00 per share of Class A Common Stock, and the implied NTM P/E Multiple based on such stock price targets ranged from 18.1x to 22.7x, as compared to the Company’s NTM P/E Multiple of 21.0x based on the closing price of the Class A Common Stock as of June 29, 2022.

Analysis of Potential Savings

Centerview reviewed, for reference and informational purposes only, the potential savings to the Company as a result of reduced executive compensation and benefits following consummation of the Reclassification. Centerview estimated that the savings in annual compensation attributable to Messrs. Robert and Richard Sands from their transition to non-executive roles on the Board and receipt of customary compensation in-line with their expected non-executive positions would be approximately $15.0 million to $20.0 million with a midpoint of $17.5 million. Centerview also estimated the implied pro forma equity value of the midpoint of the potential savings, assuming after-tax annual savings of $14.0 million and using the Company’s NTM P/E Multiple of 21.0x based on the closing price of the Class A Common Stock as of June 29, 2022, which analysis indicated an estimated pro forma equity value of the potential savings of $294 million.

 

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General

The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. In arriving at its opinion, Centerview did not draw, in isolation, conclusions from or with regard to any factor or analysis that it considered. Rather, Centerview made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.

Centerview’s financial analyses and opinion were only one of many factors taken into consideration by the Special Committee in its evaluation of the Reclassification and the Reclassification Agreement. Consequently, the analyses described above should not be viewed as determinative of the views of the Special Committee or management of the Company with respect to the Reclassification Consideration or as to whether the Special Committee would have been willing to determine that a different consideration was fair. The Reclassification Consideration was determined through arm’s-length negotiations between the Special Committee and members of the Sands family on behalf of the Sands Family Stockholders, was unanimously recommended by the Special Committee and was approved by the Board. Centerview provided advice to the Special Committee during these negotiations. Centerview did not, however recommend any specific amount of consideration to the Special Committee or that any specific amount of consideration constituted the only appropriate Reclassification Consideration.

Centerview is a securities firm engaged directly and through affiliates and related persons in a number of investment banking, financial advisory and merchant banking activities. In the two years prior to the date of its written opinion, except for Centerview’s engagement by the Special Committee in connection with the Reclassification and other strategic matters as described in the next sentence, Centerview was not engaged to provide financial advisory or other services to the Company. Centerview received approximately $4 million from the Company in connection with Centerview’s engagement by a previously established Special Committee with respect to other strategic matters during such period. In the two years prior to the date of its written opinion, Centerview was not engaged to provide financial advisory or other services to the Sands Family Stockholders, and Centerview did not receive any compensation from the Sands Family Stockholders during such period. Centerview may provide financial advisory and other services to or with respect to the Company or the Sands Family Stockholders or their respective affiliates in the future, for which it may receive compensation. Certain (i) of Centerview and its affiliates’ directors, officers, members and employees, or family members of such persons, (ii) of its affiliates or related investment funds and (iii) investment funds or other persons in which any of the foregoing may have financial interests or with which they may co-invest, may at any time acquire, hold, sell or trade, in debt, equity and other securities or financial instruments (including derivatives, bank loans or other obligations) of, or investments in, the Company, the Sands Family Stockholders or any of their respective affiliates, or any other party that may be involved in the Reclassification.

The Special Committee selected Centerview as its financial advisor in connection with the Reclassification based on Centerview’s lack of relationships with the Sands family and affiliates, and its qualifications, experience and expertise in serving as a financial advisor to special committees of the board of directors, experience and expertise with respect to transactions involving multi-class voting stock structures, industry experience and expertise, and the Special Committee’s satisfaction with its prior work on other strategic matters. Centerview is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Reclassification.

In connection with Centerview’s services as the financial advisor to the Special Committee for the Reclassification, the Company has agreed to pay Centerview an aggregate fee estimated of $5 million, $3 million of which became payable upon the Special Committee’s request that Centerview render an opinion, and $2 million of which is payable contingent upon consummation of the Reclassification. The Company, on behalf of the Special Committee, may pay Centerview a discretionary fee, payable at the Special Committee’s sole and

 

65

absolute discretion. Pursuant to the Special Committee’s engagement letter with Centerview, in determining to pay a discretionary fee, if any, the Special Committee may consider, among other things, the Special Committee’s satisfaction with the services rendered by Centerview and the outcome of the Reclassification for the Unaffiliated Class A Holders. The Special Committee’s engagement letter with Centerview does not provide for a maximum amount of the discretionary fee. The discretionary fee, however, is payable at the Special Committee’s sole and absolute discretion, and there is no guarantee that any discretionary fee would be paid in connection with the Reclassification. In addition, the Company has agreed to reimburse certain of Centerview’s expenses arising, and to indemnify Centerview against certain liabilities that may arise, out of Centerview’s engagement.

Other Presentations by Centerview

In addition to the presentation made to the Special Committee on June 29, 2022, which will be filed with the SEC as an exhibit to the Transaction Statement on Schedule 13E-3 (the “Schedule 13E-3”) and is described above, copies of preliminary illustrative presentations presented or delivered by Centerview to the Special Committee on April 8, 2022, April 15, 2022, April 22, 2022, April 28, 2022, May 5, 2022, May 11, 2022, May 15, 2022, May 20, 2022, May 23, 2022, June 3, 2022, June 10, 2022, June 17, 2022, June 25, 2022 (twice), June 27, 2022, and June 28, 2022 containing preliminary illustrative financial analyses also are attached as exhibits to such Schedule 13E-3. These written presentations and the written opinion will be available for any interested stockholder of the Company to inspect and copy at the Company’s executive offices during regular business hours.

A summary of these preliminary illustrative presentations is provided below. The following summaries, however, do not purport to be a complete description of these preliminary illustrative presentations or of the preliminary financial analyses performed by Centerview.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on April 8, 2022, containing, among other information, (i) a summary of the Sands family’s proposal, including a process timeline and key questions for consideration, (ii) a summary of potential responses to the Sands family’s proposal and frequent rationales for stock reclassifications based on publicly available, precedent situations, (iii) an overview of the Company’s current classes of common stock, and the Sands family’s rights with respect to those shares, (iv) a summary of prior, publicly available share reclassifications and (v) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of April 1, 2022.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on April 15, 2022, containing, among other information, (i) a summary of prior, publicly available share reclassifications, including various case studies, (ii) an overview of the Company’s governance profile as compared to other S&P 500 companies and ISS’ perspectives on the Company, as well as potential governance changes to consider in connection with a potential reclassification, (iii) an overview of market benchmarks and considerations following the announcement of the Sands family’s proposal, including a summary of the analyst and investor reactions to the announcement, (iv) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of April 13, 2022, and (v) perspectives on potential responses to the Sands family’s proposal, including potential outcomes of such responses.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on April 22, 2022, containing, among other information, (i) a preliminary financial analysis of the Reclassification and its potential effects on the Company, (ii) an overview of market benchmarks and considerations following the announcement of the Sands family’s proposal, (iii) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of April 20, 2022, (iv) an analysis of prior, publicly available share reclassifications premiums, and (v) perspectives on potential responses to the Sands family’s proposal.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on April 28, 2022, containing, among other information, (i) a preliminary analysis of executive compensation savings, (ii) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of April 25, 2022, (iii) observations and perspectives on cash versus stock consideration and (iv) illustrative proposed corporate governance responses and talking points for such responses.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on May 5, 2022, containing, among other information, (i) a summary of governance rights in companies with major stockholders and certain case studies, (ii) an analysis of selected prior share reclassifications, and (iii) an analysis of a potential reclassification at various potential premiums based upon a constant stock price for the Class A Common Stock and a constant market capitalization.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on May 11, 2022, containing, among other information, (i) an illustrative partial ownership stake monetization analysis involving the Sands family, (ii) a summary of corporate governance rights in prior, publicly available reclassifications and large, single stockholder situations, (iii) an analysis of premiums paid in prior, publicly available reclassifications, (iv) an analysis of the impact to the “stated” premium in a potential reclassification of paying the consideration in cash or stock and (v) perspectives on potential responses to the Sands family.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on May 15, 2022, containing, among other information, (i) the terms of an illustrative response, (ii) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of May 13, 2022, and (iii) perspectives on cash versus stock consideration.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on May 20, 2022, containing, among other information, (i) a summary of prior, publicly available share reclassifications, (ii) an analysis of premiums paid in recent M&A transactions as compared to deal size, and (iii) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of May 19, 2022.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on May 23, 2022, containing, among other information, (i) illustrative terms for a Special Committee reclassification counterproposal, (ii) a summary of prior, publicly available share reclassifications, (iii) an analysis of premiums paid in recent M&A transactions as compared to deal size, (iv) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of May 19, 2022 and (v) a summary of the Company’s historical trading volume.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on June 3, 2022, containing, among other information, (i) a summary of prior, publicly available family or founder share reclassifications and other share reclassifications, (ii) analysis of premiums paid in recent M&A transactions as compared to deal size, (iii) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of June 1, 2022 and (iv) summary of the Company’s top 25 Class A Common Stock institutional stockholders.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on June 10, 2022, containing, among other information, (i) an illustrative voting analysis and various possible voting scenarios, (ii) an illustrative solicitation process and (iii) a summary of the Company’s top 25 Class A Common Stock institutional stockholders.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on June 17, 2022, containing, among other information, (i) a summary of the Company’s trading performance, (ii) a summary of the Company’s trading multiple benchmarked against certain industry peers, (iii) a summary of analyst perspectives on the Company’s Class A Common Stock price, (iv) an updated preliminary financial analysis of the Reclassification and its potential effects on

 

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the Company, (v) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of June 16, 2022 and (vi) an analysis of the Sands family’s pledging proposal.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on June 25, 2022, containing, among other information, (i) a premium comparison for a potential reclassification at various Class A Common Stock prices and (ii) an analysis of a potential reclassification at illustrative Class A Common Stock reference prices.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on June 25, 2022, containing, among other information, (i) an updated premium comparison for a potential reclassification at various Class A Common Stock prices and (ii) an analysis of a potential reclassification at illustrative Class A Common Stock prices.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on June 27, 2022, containing, among other information, (i) an analysis of a potential reclassification at various potential premiums to the Class A Common Stock as of various recent dates, (ii) a summary of the Special Committee’s rationale for recommending the Reclassification, and (iii) summaries of various timeline and process considerations.

 

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The preliminary illustrative presentation presented or delivered by Centerview to the Special Committee on June 28, 2022, containing information that was materially and substantially the same as the analysis described under “—Summary of Centerview Financial Analysis.”

None of these other preliminary illustrative presentations by Centerview, alone or together, constitute, or form the basis of, an opinion of Centerview with respect to the consideration payable under the Reclassification Agreement, and the preliminary illustrative financial analyses therein were based on economic, monetary, market and other conditions as in effect on, and the information made available to Centerview as of, the dates of the respective presentations.

Other Financial Advisor Presentations

Copies of preliminary illustrative presentations dated August 10, 2021, March 2022, April 2022, May 2022, May 2022, June 9, 2022 and June 29, 2022, each prepared by Greenhill, and dated March 2021, prepared by BofA Securities, Inc. (“BofA Securities”), were reviewed by members of the Sands Family Stockholders, on behalf of the Sands Family Stockholders, and also are attached as exhibits to the Schedule 13E-3. These written presentations will be available for any interested stockholder of the Company to inspect and copy at the Company’s executive offices during regular business hours.

The presentation dated March 2021 was prepared by BofA Securities, in its capacity as financial advisor to the Company in connection with an unrelated potential strategic alternative. At the time of such request, neither the Company nor any of the Sands Family Stockholders were actively considering making a proposal for any reclassification. Based solely on publicly available data, the presentation compared premia received in reclassification transactions where stockholders controlled more than 50% of the voting power prior to the transaction, to those received in reclassification transactions where stockholders had significant ownership but less than 50% of the voting power before the transaction, which distinction was relevant in the context of the potential strategic alternative under consideration. Subsequently, certain of the Sands Family Stockholders, on behalf of the Sands Family Stockholders, reviewed the presentation in connection with their preliminary consideration of whether to pursue a reclassification.

A summary of these presentations is provided below. The following summaries, however, do not purport to be a complete description of these preliminary analysis performed by BofA Securities or Greenhill, as applicable.

 

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The preliminary illustrative presentation prepared by BofA Securities in March 2021, containing, among other information, (i) a review of publicly available reclassification transactions, including

 

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those involving and not involving a change in majority control of the company, (ii) preliminary observations on potential market reaction in the event of a reclassification, and (iii) data on publicly available change of control reclassification transactions and stock performance prior to and following announcement of a reclassification transaction.

 

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The preliminary illustrative presentation delivered by Greenhill to members of the Sands Family Stockholders on August 10, 2021, containing, among other information, (i) methodology used in evaluating trading patterns of controlled companies, (ii) data on the prevalence and performance of controlled companies, (iii) recent trading performance of consumer companies, and (iv) case studies of private equity firms that historically structured as partnerships and transitioned to single class corporations.

 

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The preliminary illustrative presentation delivered by Greenhill to members of the Sands Family Stockholders in March 2022, containing, among other information, (i) ranges of negotiated premia in precedent reclassifications, including a preliminary analysis of precedent reclassifications by transaction type, premium, and form of consideration, (ii) a comparison of premia paid in change of control reclassification transactions and non-change of control reclassification transactions, (iii) a comparison of premia paid in precedent acquisition transactions of dual class public companies, and (iv) illustrative value of a reclassification transaction to holders of shares of Class B Common Stock at various potential premia.

 

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The preliminary illustrative presentation delivered by Greenhill to members of the Sands Family Stockholders in April 2022, containing an analysis of the illustrative impact of a potential share buyback following a reclassification transaction on the Sands Family Stockholders and the Company.

 

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The preliminary illustrative presentation delivered by Greenhill to members of the Sands Family Stockholders in May 2022, containing, among other information, (i) terms of a potential counterproposal by the Sands Family Stockholders to the Special Committee’s most recent proposal as of such time and (ii) preliminary analysis of premia paid in recent precedent reclassification transactions as compared to other precedent transactions.

 

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The preliminary illustrative presentation delivered by Greenhill to members of the Sands Family Stockholders in May 2022, containing, among other information, (i) a list of top shareholders of the Company, including shareholders who provided feedback to the Special Committee regarding a potential reclassification transaction and (ii) a summary of equity research commentary on the Potential Reclassification.

 

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The preliminary illustrative presentation delivered by Greenhill to members of the Sands Family Stockholders on June 9, 2022, containing, among other information, (i) terms of a potential counterproposal by the Sands Family Stockholders to the Special Committee’s most recent proposal as of such time, (ii) data on precedent reclassification transactions with a premium, including the relationship between premium and market capitalization in precedent reclassification transactions, (iii) perspectives on feedback from the investor community as to the Potential Reclassification, and (iv) shareholder voting results in recent reclassification transactions.

 

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The preliminary illustrative presentation delivered by Greenhill to members of the Sands Family Stockholders on June 29, 2022, containing, among other information, (i) a summary of the economic terms of the proposed transaction between the Sands Family Stockholders and the Company and (ii) data on the Potential Reclassification as compared to precedent reclassification transactions in terms of premium and premium as a percentage of market capitalization.

Neither BofA Securities (which was not engaged by the Sands family or the Company in connection with the Reclassification) nor Greenhill delivered an opinion in connection with the Reclassification. None of these preliminary illustrative presentations by BofA Securities or Greenhill, alone or together, constitute, or form the basis of, an opinion of BofA Securities or Greenhill with respect to the consideration receivable under the Reclassification Agreement, and the preliminary illustrative financial analyses therein were based on economic,

 

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monetary, market and other conditions as in effect on, and the information made available to BofA Securities and Greenhill as of, the dates of the respective presentations.

The Company has from time to time engaged BofA Securities as one of its financial advisors in connection with strategic matters due to its industry experience and its qualifications, experience and expertise in serving as a financial advisor to public companies. BofA Securities is an internationally recognized investment banking firm that has substantial experience in a variety of strategic matters involving public companies.

BofA Securities and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to the Company and certain of its affiliates and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as financial advisor to the Company in connection with certain mergers and acquisition transactions, (ii) having acted or acting as a book-running manager, bookrunner, manager and/or underwriter for various debt offerings of the Company, (iii) having acted or acting as a dealer manager for a debt tender offer and certain share repurchases of the Company, (iv) having acted or acting as a dealer for the Company’s commercial paper program, (v) having acted or acting as an administrative agent, bookrunner and arranger for, and/or as a lender under, certain term loans, letters of credit, credit and leasing facilities and other credit arrangements of the Company and/or certain of its affiliates, (vi) having provided or providing certain commodity, derivatives, foreign exchange and other trading services to the Company and/or certain of its affiliates, and (vii) having provided or providing certain treasury management products and services to the Company and/or certain of its affiliates. From July 1, 2020 through June 30, 2022, BofA Securities and its affiliates derived aggregate revenues from the Company and certain of its affiliates of approximately $23 million for investment and corporate banking services. In addition, BofA Securities and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to certain of the Sands Family Stockholders and/or certain of their respective affiliates and have received or in the future may receive compensation for the rendering of these services, including having acted or acting as a lender under credit facilities of certain of the Sands Family Stockholders and/or certain of their respective affiliates.

Based on information furnished by the Sands Family Stockholders, from July 1, 2020 through June 30, 2022, certain of the Sands Family Stockholders and certain of their respective affiliates paid BofA Securities and its affiliates an aggregate amount of approximately $14 million which primarily consisted of interest and other payments related to lending arrangements.

Members of the Sands Family Stockholders selected Greenhill as their financial advisor in connection with the Reclassification based on its industry experience and its qualifications, experience and expertise in serving as a financial advisor to significant stockholders. Greenhill is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Reclassification.

In connection with Greenhill’s services as the financial advisor to the Sands Family Stockholders for the Reclassification, certain of the Sands Family Stockholders have agreed to pay Greenhill an aggregate fee of $8.84 million, $2 million of which became payable upon public announcement of the Reclassification and is creditable once against the aggregate fee paid upon consummation of the Reclassification. Certain of the Sands Family Stockholders have also agreed to reimburse certain of Greenhill’s expenses arising, and to indemnify Greenhill against certain liabilities that may arise, out of Greenhill’s engagement. The Company has agreed to reimburse the Sands Family Stockholders the amount of such aggregate fee and expenses incurred in connection with the Reclassification.

Recommendations of the Special Committee and of the Board

On June 29, 2022, the Special Committee, among other things, unanimously (i) determined that the Transaction Documents were advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders; (ii) recommended that the Board approve the Amended and Restated Charter and the Reclassification Agreement

 

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and declare that the Amended and Restated Charter and the Reclassification Agreement are advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders; (iii) recommended that the Board have the Company enter into the Reclassification Agreement in connection with the public announcement of the Reclassification and (iv) subject to Board approval, recommended that the Board (1) submit the approval of the adoption of the Amended and Restated Charter to the stockholders of the Company and (2) resolve to recommend that the stockholders of the Company approve and adopt the Amended and Restated Charter. Later on June 29, 2022, the Board (at a meeting from which Messrs. Robert and Richard Sands recused themselves from discussions and voting relating to the Reclassification) based upon the unanimous recommendation of the Special Committee, determined and declared that the terms of the Reclassification Agreement and the transactions contemplated thereby, the Reclassification and the Other Transactions, are advisable, fair to and in the best interests of the Company and its stockholders, including the Unaffiliated Class A Holders, authorized and approved the same and directed that the Amended and Restated Charter be submitted to the stockholders for their approval and recommended to the stockholders of the Company to adopt and approve the same. The Board recommends that you vote “FOR” the Reclassification Proposal and “FOR” the Adjournment Proposal.

Regulatory Matters

We are not aware of any material regulatory requirements that must be complied with or regulatory approvals that must be obtained prior to completion of the Reclassification, other than compliance with applicable federal and state securities laws and the filing of the Amended and Restated Charter with the Secretary of State of the State of Delaware.

Interests of Certain Persons in the Reclassification

In considering the recommendation of the Board, stockholders should be aware that some of the Company’s executive officers and directors and their affiliates and the Sands family (including the Sands Family Stockholders), have interests in the Reclassification that are different from, or in addition to, the interests of some or all holders of Class A Common Stock and/or Class B Common Stock.

Certain of our executive officers and directors and their affiliates own beneficial interests in shares of Common Stock as described in the table contained in the section of this proxy statement/prospectus entitled “Security Ownership of Certain Beneficial Owners and Management” and the accompanying notes thereto. As of August 26, 2022, the Sands Family Stockholders owned of record approximately 4% of the outstanding shares of Class A Common Stock, approximately 98% of the outstanding shares of Class B Common Stock and approximately 60% of the combined voting power of the outstanding shares of Class A Common Stock and Class B Common Stock when voting together as a single class. The Sands Family Stockholders are party to the Reclassification Agreement, pursuant to which, among other things, the Sands Family Stockholders agreed to vote all shares of Class A Common Stock and Class B Common Stock owned of record by them in favor of the Reclassification Proposal and the Adjournment Proposal and against any other action, agreement or transaction involving the Company or any of its subsidiaries that is intended, or would reasonably be expected, to prevent or materially impair or materially delay the consummation of the Reclassification. In addition, pursuant to the Reclassification Agreement (and each as further described below in this proxy statement/prospectus), (i) WildStar—an entity associated with the Sands family—will be entitled to certain board nomination rights, (ii) Messrs. Robert and Richard Sands will remain members of the Board (of which, initially, Mr. Robert Sands will be Non-Executive Chair) and will be entitled to customary compensation for such Board (and Non-Executive Chair) service as well as certain continuing perquisites described below under “The Reclassification Agreement—Material Obligations of the Company and the Sands Family Stockholders under the Reclassification Agreement—Ongoing Board Roles,” (iii) Messrs. Robert and Richard Sands will receive certain payments under their current employment agreements with the Company in connection with their retirements at the Effective Time as described in more detail below, (iv) each nominee of WildStar that is a Family-Related Person serving on the Board will be subject to a set of restrictions on pledging as provided in the Reclassification Agreement and described below under “The Reclassification Agreement—Material Obligations of the Company and the Sands Family Stockholders under the Reclassification Agreement—Pledging” that provide greater

 

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flexibility than the Board’s Anti-Pledging Policy, (v) the Company has agreed to enter into the Registration Rights Agreement with the Sands Family Stockholders at the Effective Time and (vi) the Company has agreed to reimburse the financial advisory and legal fees and expenses of the Sands Family Stockholders, which amount is expected to be less than $20 million, and to indemnify the Sands Family Stockholders and certain related individuals and entities for out-of-pocket costs and expenses arising out of or resulting from any actions or proceedings related to the Reclassification Agreement or the transactions contemplated thereby, including the Reclassification, other than any claims or proceedings brought by the Company against the Sands Family Stockholders for breach of the Reclassification Agreement.

As mentioned above, subject to Messrs. Robert and Richard Sands remaining employed through immediately prior to the Effective Time, the Reclassification Agreement provides that Messrs. Robert and Richard Sands will retire as executive officers of the Company effective as of the Effective Time. In connection with such retirements, each of Messrs. Robert and Richard Sands will be entitled to receive the payments, benefits and other rights due upon a “retirement,” as set forth in Section 6 of their respective employment agreements with the Company, each dated as of May 21, 2008. These payments and benefits are described further in our most recent definitive proxy statement filed on Schedule 14A on June 2, 2022 and generally consist of, in the case of Messrs. Robert and Richard Sands:

 

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a lump sum cash payment equal to three times their base salary and three times the average annual bonus paid to each such person over the prior three fiscal years;

 

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payments equal to the total monthly cost of each such person’s medical and dental coverage in effect at the time of termination extending for 36 months;

 

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outplacement services for a period of up to 18 months;

 

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continued personal use of the Company’s corporate aircraft, when not needed for business purposes, free of charge (except for personal income taxes triggered by such usage which shall be the responsibility of executive), at comparable levels to that provided over the three-year period prior to termination and continued participation in the Company’s annual product allowance program, in each case, for a period of three years following termination; and

 

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following a change-in-control of the Company, payment of any excise taxes, penalties or interest attributed to payments related to a change-in-control under Sections 280G and 4999 of the Code on a grossed-up basis.

The following table presents information concerning the estimated value of the post-termination payments and benefits each of Messrs. Robert and Richard Sands would receive under their respective employment agreements with the Company in connection with a “retirement” as set forth in Section 6 of their respective employment agreements with the Company as of August 26, 2022, and assuming for this purpose a retirement date of November 1, 2022.

 

Name		Severance Pay				Medical and Dental				Aircraft(1)				Product Allowance				Outplacement Services and Relocation Services				Total
Robert Sands		$	11,356,225			$	37,645			$	2,515,178			$	60,000			$	55,000			$	14,024,048
Richard Sands		$	9,665,630			$	36,385			$	4,094,598			$	60,000			$	55,000			$	13,911,613

 

(1)

Reflects the estimated aggregate incremental cost of the aircraft benefit provided under their respective employment agreements with the Company, assuming each of Messrs. Richard Sands and Robert Sands uses the maximum aircraft benefit permitted under such agreements. As described in our most recent definitive proxy statement filed on Schedule 14A on June 2, 2022 and in prior years, the aggregate incremental cost of personal aircraft use by Richard Sands and Robert Sands reported in prior disclosure has been reduced by the amount of voluntary reimbursements to the Company from such individuals pursuant to

 

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our Board-approved voluntary reimbursement program. As the post-retirement aircraft benefit is free of charge, these voluntary reimbursements have been added back for purposes of determining the comparable levels of personal aircraft use for this benefit.

These payments would be made pursuant to the terms of the employment agreements with the Company and in accordance with Section 409A of the Code. Generally, severance pay and six months’ worth of medical and dental payments would be paid on the first business day of the seventh month following the officer’s separation from service with monthly medical and dental payments continuing thereafter until fully paid.

No amounts are reflected in the table above relating to any “gross up” for excise taxes pursuant to Sections 280G and 4999 of the Code as no such payments are anticipated to be payable in connection with the Reclassification.

Further, upon retirement, each of Messrs. Robert and Richard Sands will be eligible for continued vesting of stock option awards (provided they have remained employed through the first day of November of the year of grant) and a pro-rata bonus under the Company’s annual management incentive plan. The values of (i) unvested in-the-money non-qualified stock options held by each of Messrs. Robert and Richard Sands as of August 26, 2022 (based on the NYSE closing price of $251.90 per share of Class A Common Stock on such date) and (ii) the pro-rata bonus payable to each of Messrs. Robert and Richard Sands, based on the average performance over the last three most recently completed bonus years and assuming a retirement date of November 1, 2022 were as follows:

 

Name		Non-Qualified Stock Options				Pro-Rata Bonus(1)
Robert Sands		$	8,117,490			$	1,837,177
Richard Sands		$	6,899,796			$	1,561,601

 

(1)

Pro-rated bonus would be based on actual performance through the end of the fiscal year in which the retirement occurred. For this purpose, amounts have been calculated using an average of the performance attainment for the prior three completed fiscal years and pro-rated for the period from March 1, 2022 to November 1, 2022.

Each of Messrs. Robert and Richard Sands is currently eligible for retirement under the terms of his respective employment agreement with the Company and any other applicable plans of the Company, and accordingly would generally be entitled to these payments, benefits and other rights upon their resignation from employment, without respect to the consummation of the Reclassification.

The members of the Special Committee were aware of and considered these interests, among other matters, in evaluating and negotiating the Reclassification Agreement and unanimously recommending that the Board approve the Amended and Restated Charter and the Reclassification Agreement and declare that the Amended and Restated Charter and the Reclassification Agreement are advisable, fair to and in the best interests of the Company and the Unaffiliated Class A Holders. Further, the members of the Board were aware of and considered these interests, among other matters, when the Board authorized, approved and declared advisable and in the best interests of the Company and its stockholders, the terms of the Reclassification Agreement, the other Transaction Documents, the Reclassification and the Other Transactions.

Financing of the Reclassification

As of May 31, 2022, the Company had available $101.8 million of cash and cash equivalents. On August 9, 2022, the Company, Bank of America, N.A., as administrative agent, and certain other lenders, entered into a Term Loan Credit Agreement (the “New Credit Agreement”), which provides for a delayed single draw term loan in the aggregate principal amount of $1.0 billion, for the purpose of financing a portion of the approximately $1.5 billion cash payment to the holders of Class B Common Stock. The loans made under the New Credit

 

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Agreement will bear interest, at the Company’s option, at Term SOFR (plus an additional credit spread adjustment of 0.10%) or Base Rate (each, as defined in the New Credit Agreement) plus (i) in the case of Term SOFR loans made under the New Credit Agreement, a margin ranging from 0.875% to 1.50% per annum based on the Company’s credit rating as determined by Standard & Poor’s Financial Services LLC (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”) and (ii) in the case of Base Rate loans made under the New Credit Agreement, a margin ranging from 0.00% to 0.50% per annum based on the Company’s credit rating as determined by S&P or Moody’s. Unused commitments under the New Credit Agreement will incur a ticking fee of 0.10% per annum. The New Credit Agreement also contains certain affirmative and negative covenants that the Company considers customary for facilities of this type and which are consistent with the Company’s existing credit facilities. Such covenants include, among other things, restrictions on the incurrence of subsidiary indebtedness, additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous conditions, exceptions, and thresholds. Consistent with the Company’s existing credit facilities, the New Credit Agreement also requires the Company to maintain a minimum Consolidated Interest Coverage Ratio (as defined in the New Credit Agreement) of 2.50:1.00 as of the end of each fiscal quarter and a maximum Consolidated Net Leverage Ratio (as defined in the New Credit Agreement and which shall be calculated net of up to $750 million of unrestricted cash and cash equivalents) of 4.00:1:00 with a step-up to 4.50:1.00 with respect to the four fiscal quarters following a Material Acquisition (as defined in the New Credit Agreement). The New Credit Agreement also contains certain events of default consistent with the Company’s existing credit facilities. Upon the occurrence of an event of default after any applicable grace or cure period, any outstanding loans under the New Credit Agreement may be accelerated and/or the lenders’ commitments under the New Credit Agreement may be terminated. At this time, the Company has not made any arrangements to repay the loans to be made under the New Credit Agreement.

As of May 31, 2022, the Company had $124.0 million of commercial paper outstanding and $2.114 billion available under the Company’s revolving credit facility. In addition to the Company’s commercial paper program and revolving credit facility, the Company also has historically had access to obtain additional financing through the issuance of long-term debt and expects to continue to have the ability to do so. Given that the Company expects to use drawings under the New Credit Agreement to finance a portion of the approximately $1.5 billion cash payment to the holders of Class B Common Stock and the other potential sources of funding described in this paragraph, the Company does not expect the Reclassification to have a material impact on its liquidity position and does not presently have any alternative financing plans.

Whether or not the Reclassification is completed, in general, all fees and expenses incurred in connection with the Reclassification will be paid by the party incurring those fees and expenses, except that the Company has agreed to pay the fees and expenses of the Sands Family Stockholders’ financial and legal advisors, incurred in connection with negotiation, execution and delivery of the Reclassification Agreement and the transactions contemplated thereby, including the Reclassification.

Certain Effects of the Reclassification

The following disclosure addresses certain effects of the Reclassification on affiliated and unaffiliated holders of the Company’s Class B Common Stock.

The terms of the Reclassification do not differentiate between affiliated and unaffiliated shareholders of the Company. Each holder of Class B Common Stock as of immediately prior to the Effective Time, whether or not an affiliate of the Company, will become entitled to receive one validly issued, fully paid and non-assessable share of Class A Common Stock and $64.64 in cash, without interest, per share of Class B Common Stock held.

Similarly, the other effects of the Reclassification (except as otherwise described elsewhere in this proxy statement/prospectus as being solely in favor of WildStar or some or all of the Sands Family Stockholders) are applicable to holders of Class B Common Stock, regardless of whether such holders are affiliated or unaffiliated.

 

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The Company has agreed to pay or reimburse the Sands Family Stockholders for fees and expenses of the Sands Family Stockholders’ legal and financial advisors incurred in connection with the negotiation, execution and delivery of the Reclassification Agreement and consummation of the transactions contemplated by the Reclassification Agreement, including the Reclassification, which amount is expected to be less than $20 million.

The direct and indirect interests in the Company’s net book value and net earnings of the Sands family prior to and immediately after the Reclassification, based on the net book value at May 31, 2022 and net income for the three months ended May 31, 2022, was $2,002.63 million (17.33%) and $67.48 million (17.33%), respectively.

Accounting Treatment of the Reclassification

Assuming no adjustment pursuant to the terms of the Reclassification Agreement and the Amended and Restated Charter, at the Effective Time, each share of Class B Common Stock issued and outstanding as of immediately prior to the Effective Time will be reclassified and converted into one validly issued, fully paid, and non-assessable share of Class A Common Stock and the right to receive $64.64 in cash, without interest. Assuming no adjustment pursuant to the terms of the Reclassification Agreement and the Amended and Restated Charter, the Reclassification will result in 23,205,885 shares of Class B Common Stock being reclassified into an equal number of shares of Class A Common Stock (which reflects the expected retirement of 5,005,800 shares of Class B Common Stock held in treasury), thereby increasing the total number of shares of Class A Common Stock outstanding from 187,264,514 to 210,470,399.

Assuming no adjustment to the mix of consideration pursuant to the Reclassification Agreement and the Amended and Restated Charter, the cash payment to holders of Class B Common Stock, in the aggregate, will be approximately $1.5 billion. Pursuant to the Reclassification Agreement, the Company will use its reasonable best efforts to obtain third party financing sufficient to fund this amount as promptly as reasonably practicable following the Effective Time and in any event on or prior to the date that the Reclassification is required to be consummated pursuant to the terms thereof.

Total fees and expenses incurred or to be incurred by the Company in connection with the Reclassification are estimated at this time to be as follows:

 

		Amount to Be Incurred (in millions)
Financial and legal advisory and other professional fees		$	10.5
SEC filing fees		$	0.7
Proxy solicitation, printing and mailing costs		$	2.2
Sands Family Stockholders financial and legal advisory fees		$	17.7
Total		$	31.1

Delisting of Class B Common Stock

Shares of Class B Common Stock are currently listed and traded on the NYSE under the symbol “STZ.B.” In the Reclassification, the Company’s existing Class B Common Stock will be reclassified into shares of Class A Common Stock. As a result, the Class B Common Stock will be deregistered under the Exchange Act, will be delisted from the NYSE and will cease to be publicly traded.

Material U.S. Federal Income Tax Consequences

The Reclassification is expected to qualify as a recapitalization within the meaning of Section 368(a)(1)(E) of the Code. In connection with the filing of the registration statement of which this proxy statement/prospectus is a part, the Company received a legal opinion from Kirkland & Ellis LLP to the effect that the Reclassification so

 

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qualifies. The opinion is based on representations provided by the Company and on customary assumptions. Accordingly, it generally is expected that the Reclassification will not result in the recognition of any income, gain or loss for U.S. federal income tax purposes, except with respect to any cash received by holders of Class B Common Stock.

Holders of shares of Class A Common Stock and Class B Common Stock should read the section entitled “Material U.S. Federal Income Tax Consequences” for a more complete discussion of the U.S. federal income tax consequences of the Reclassification. Tax matters can be complicated, and the tax consequences of the Reclassification to a particular holder will depend on such holder’s individual facts and circumstances. All holders of Class A Common Stock and Class B Common Stock should consult their own tax advisors to determine the specific tax consequences of the Reclassification to them.

Federal Securities Law Consequences

All shares of Common A Common Stock issued to holders of Class B Common Stock in the Reclassification will be freely transferable, except that any shares of Class A Common Stock held by persons who are deemed to be “affiliates” of the Company under the Securities Act, at the time of the Special Meeting may be resold by such persons only in transactions permitted by Rule 145 under the Securities Act, or as otherwise permitted under the Securities Act. Persons who may be deemed to be affiliates of the Company for such purposes generally include individuals or entities that control, are controlled by or are under common control with the Company and include directors and executive officers of the Company.

No Appraisal Rights

No appraisal rights under Section 262 of the DGCL will be available to holders of Common Stock with respect to the amendment and restatement of the Company’s restated certificate of incorporation in the form of the Amended and Restated Charter or the Other Transactions.

 

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THE RECLASSIFICATION AGREEMENT

This section describes the material terms of the Reclassification Agreement, which was executed on June 30, 2022. The description of the Reclassification Agreement in this section and elsewhere in this proxy statement/prospectus is qualified in its entirety by reference to the complete text of the Reclassification Agreement, a copy of which is attached as Annex C to this proxy statement/prospectus and is incorporated by reference. This summary does not purport to be complete and may not contain all of the information about the Reclassification Agreement that is important to you. You are encouraged to read the Reclassification Agreement carefully and in its entirety.

Explanatory Note Regarding the Reclassification Agreement

The Reclassification Agreement and this summary are included solely to provide you with information regarding its terms. The representations, warranties and covenants made in the Reclassification Agreement by the Company and the Sands Family Stockholders were made solely for the purposes of the Reclassification Agreement and, in some cases, as of specific dates and were qualified and subject to important limitations agreed to in connection with the negotiation of the Reclassification Agreement. In particular, in your review of the representations and warranties contained in the Reclassification Agreement and described in this summary it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the Reclassification Agreement may have the right to not effect the Reclassification and that the representations and warranties may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement/prospectus, may have changed since the date of the Reclassification Agreement. Accordingly, the representations and warranties and other provisions of the Reclassification Agreement should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement/prospectus, the documents incorporated by reference into this proxy statement/prospectus, and reports, statements and filings that the Company and the Sands Family Stockholders file with the SEC from time to time. For more information, see the section of this proxy statement/prospectus entitled “Where You Can Find More Information.”

Structure of the Reclassification

Pursuant to the Reclassification Agreement, following satisfaction or waiver of the conditions set forth therein, the Company will file the Amended and Restated Charter with the Secretary of State of the State of Delaware and by virtue of the effectiveness of such filing (assuming no adjustment to the consideration mix pursuant to the terms of the Reclassification Agreement and the Amended and Restated Charter) each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time will be reclassified and converted into one validly issued, fully paid, and non-assessable share of Class A Common Stock and the right to receive $64.64 in cash, without interest.

If, immediately prior to the closing of the Reclassification, the Company’s and its subsidiaries’ cash and cash equivalents, together with amounts available to be drawn by the Company or any of its subsidiaries pursuant to any financing available to any of them (net of any amounts the Company reasonably expects to draw under the Company’s revolving credit facility to fund the Company’s operations over the following three months), is less than $1,500,028,406.40, then the Company has the right (after good faith consultation with WildStar) to reduce the cash portion of the consideration (up to a maximum reduction of $500,000,000) and increase the stock portion of the reclassification consideration to the Increased Exchange Ratio (as defined in the Reclassification Agreement). The amount by which the exchange ratio would be increased is based on the price per share of Class A Common Stock, with such Class A Common Stock being valued at the lesser of (i) the volume weighted

 

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average price per share of Class A Common Stock for the ten trading days immediately prior to the second business day prior to the closing date of the Reclassification and (ii) $243.63 (which was the price of the Class A Common Stock on the day prior to signing). The Class A Common Stock issued with respect to any increase to the exchange ratio is exempt from the post-closing pledging and transfer restrictions described below.

Material Obligations of the Company and the Sands Family Stockholders under the Reclassification Agreement

Pursuant to the Reclassification Agreement, the Company agreed to submit the Reclassification Proposal to the stockholders of the Company at the Special Meeting. Until the earlier of the closing of the Reclassification and the termination of the Reclassification Agreement, the Sands Family Stockholders irrevocably and unconditionally agreed to appear, in person or by proxy, at the Special Meeting, including any postponement or adjournment of the Special Meeting, or otherwise cause all shares of Class A Common Stock and Class B Common Stock owned of record by the Sands Family Stockholders to be counted as present thereat for purposes of determining a quorum, and vote (or cause to be voted) all shares of Class A Common Stock and Class B Common Stock owned of record by the Sands Family Stockholders:

 

•

in favor of the Reclassification Proposal and any proposal to postpone or adjourn any meeting of the stockholders of the Company at which the Reclassification Proposal is submitted for consideration to a later date, subject to certain limitations described in the Reclassification Agreement, if there are not sufficient votes for approval of the Reclassification Proposal or to establish a quorum for such meeting;

 

•

unless otherwise directed in writing by the Special Committee, against any action, agreement or transaction that would reasonably be expected to result in any of the conditions to the closing of the Reclassification described in the Reclassification Agreement not being satisfied on or before June 30, 2023; and

 

•

against any other action, agreement or transaction involving the Company or any of its subsidiaries that is intended, or would reasonably be expected, to prevent or materially impair or materially delay the consummation of the Reclassification.

In furtherance of the Sands Family Stockholders’ voting obligations described above, the Reclassification Agreement also provides that each member of the Sands Family Stockholders irrevocably appointed designated officers of the Company as the Sands Family Stockholders’ proxy for the purposes of voting all shares of Common Stock held of record by the Sands Family Stockholders consistent with the terms described above.

The Sands Family Stockholders further agreed that, prior to the earlier of the closing of the Reclassification or the termination of the Reclassification Agreement, it shall not transfer any shares of Class A Common Stock or Class B Common Stock, or grant any proxies or any enter voting trust or similar agreement with respect to the voting of such shares (except as set forth in the Reclassification Agreement or otherwise in existence among the Sands Family Stockholders at the time of signing of the Reclassification Agreement). The Company and the Sands Family Stockholders agreed to certain exceptions to this pre-closing transfer restriction, including, as further described below, for (i) transfers by the Sands Family Stockholders to Family-Related Persons, (ii) transfers in connection with bona fide estate, family or tax planning, (iii) transfers where the proceeds are used to pay or repay any borrowings that existed as of the signing of the Reclassification Agreement and become due and payable by any Family-Related Persons (with a maximum of 3,000,000 shares of Class A Common Stock or Class B Common Stock in the aggregate being transferred pursuant to this exception) or any debts, bequests or other liabilities of any Family-Related Persons upon their death, (iv) certain pledges of stock and (v) transfers of shares of Class A Common Stock received in connection with a conversion of Class 1 Common Stock. On July 15, 2022, certain members of the Sands Family Stockholders, sold an aggregate of 2,702,747 shares of Class A Common Stock in a block sale, 2,196,749 of which were converted shares of Class 1 Common Stock. Notwithstanding the foregoing, the Sands Family Stockholders agreed that prior to the earlier of the closing of the Reclassification or the termination of the Reclassification Agreement, it shall continue to hold the

 

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power to vote or direct the voting of at least a majority of the voting power of both (a) all of the issued and outstanding shares of Class B Common Stock and (b) all of the issued and outstanding shares of Class A Common Stock and Class B Common Stock, when voting together as a single class.

Each of the Sands Family Stockholders and the Company have agreed to use reasonable best efforts to take, or cause to be taken, all action, and do or cause to be done all things necessary, proper or advisable under applicable law, as may be required to carry out the provisions of the Reclassification Agreement and to consummate and make effective the transactions contemplated by the Reclassification Agreement.

Provided they remain employees of the Company or a subsidiary through immediately prior to the Effective Time, Messrs. Robert and Richard Sands shall retire (and take all reasonable actions necessary to effect their retirement) as Executive Chairman of the Board and Executive Vice Chairman of the Board, respectively, of the Company effective as of the Effective Time.

Post-Reclassification Governance Covenants

The Company and the Sands Family Stockholders also agreed to certain governance arrangements, effective following the Effective Time.

Ongoing Board Roles

The Company is required to take all necessary action so that Messrs. Robert and Richard Sands become and/or remain, as applicable, Non-Executive Chairman of the Board (for such period of time as decided by the Board) and a Board member, respectively, as of and immediately following the Effective Time. The Board will take all requisite action so that, at the Effective Time, the compensation package for Mr. Robert Sands in respect of his service as Non-Executive Chairman from and after the Effective Time shall be in-line with that of a non-executive chairman for a company of similar size and in the same line of business as the Company. The Board shall take all requisite action so that, at the Effective Time, Mr. Richard Sands shall be compensated in-line with the current non-management Board members in respect of his service as director from and after the Effective Time.

In addition, the Company agreed to continue to provide to each of Messrs. Robert and Richard Sands (1) offices in the Company’s Florida location for up to six months following the Effective Time and (2) administrative support, security and cars and drivers provided to such person as of June 30, 2022, in each case consistent with what was provided to such person as of June 30, 2022 and solely for so long as Mr. Robert Sands or Mr. Richard Sands is a member of the Board.

Board Nomination Rights

The Company and the Sands Family Stockholders agreed to certain Board nomination rights for the benefit of the Sands Family Stockholders and certain limitations on those rights:

 

•

from the Effective Time until the date that is five years after the Effective Time and so long as the Sands Family Stockholders, collectively, has beneficial or record ownership of at least ten percent of the issued and outstanding shares of Class A Common Stock, the Board shall, subject to the procedures and limitations described below, nominate two individuals designated by WildStar for election to the Board at any annual meeting of Company stockholders at which directors are to be elected (or otherwise in connection with any action by written consent pursuant to which a majority of the Board will be elected);

 

•

so long as the Sands Family Stockholders, collectively, have beneficial or record ownership of less than 10% but at least 9,239,463.1 shares of Class A Common Stock (i.e., five percent of the issued and outstanding Class A Common Stock at the time of signing of the Reclassification Agreement) (as may

 

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be adjusted by any stock dividend, stock distribution, stock split, stock combination or similar transaction), the Board shall, subject to the procedures and limitations described below, nominate one individual designated by WildStar for election to the Board at any annual meeting of Company stockholders at which directors are to be elected (or otherwise in connection with any action by written consent pursuant to which a majority of the Board will be elected);

 

•

on and following the first date following the Effective Time on which the Sands Family Stockholders has beneficial or record ownership of less than 9,239,463.1 shares of Class A Common Stock, as adjusted, the Sands Family Stockholders shall cease to have any nomination rights described in the previous two bullets;

 

•

as long as WildStar has the right to designate nominee(s) for election to the Board as described above, and as permitted by applicable law and the rules of the national securities exchange on which the Company’s equity securities are traded or listed, WildStar will be entitled to have its nominee, to the extent then serving on the Board, serve as a non-voting member of each committee of the Board (other than the audit committee);

 

•

the nomination rights described above will cease if the Sands Family Stockholders have made an uncured material breach of the obligations of the Sands Family Stockholders of the post-Reclassification covenants contained in the Reclassification Agreement, as determined in a final non-appealable judgment;

 

•

in addition, and as described in greater detail below, uncured material breaches of the anti-pledging restrictions applicable to certain members of the Sands Family Stockholders will result in (a) WildStar losing its entitlement to designate individuals for nomination to the Board and (b) the resignation of any members of the Board previously designated for nomination by WildStar (subject to the Board’s acceptance of such resignation);

 

•

as long as WildStar is entitled to designate any individual for election to the Board (as described above), the Board will cause such individual(s) to be included in the slate of nominees recommended by the Board to the stockholders of the Company for election as directors at any annual meeting of Company stockholders at which directors are to be elected (or otherwise in connection with any action by written consent pursuant to which a majority of the Board will be elected) and the Company will use the same efforts to cause the election of those nominee(s) as it uses to cause other nominees recommended by the Board to be elected, including soliciting proxies or consents in favor of the election of such nominee(s);

 

•

until the date that is five years after the Effective Time, if the Sands Family Stockholders would cease to have the right to require the Board to nominate two individuals designated by WildStar for election to the Board (as described above) as a result of the Sands Family Stockholders falling below beneficial or record ownership of at least ten percent of the issued and outstanding shares of Class A Common Stock, other than as a result of a sale or other transfer of Class A Common Stock by members of the Sands Family Stockholders, the Sands Family Stockholders shall not lose the right to nominate two individuals unless and until, after one month, the Sands Family Stockholders remain below that threshold. During that one-month period, the standstill restrictions shall not restrict the Sands Family Stockholders from acquiring additional shares of Class A Common Stock, not to exceed beneficial or record ownership of 10.1% of the issued and outstanding shares of Class A Common Stock;

 

•

the initial individuals designated by WildStar will be Messrs. Robert and Richard Sands; and

 

•

the Company’s obligations to have any individual designated by WildStar appointed to the Board or to be nominated for election as a director is subject to (a) such nominee’s satisfaction of all requirements regarding service as a director of the Company under applicable law and stock exchange rules regarding service as a director of the Company, (b) except with respect to Messrs. Robert and Richard Sands, the approval (not to be unreasonably withheld, conditioned or delayed, but subject to the Board’s fiduciary duties in all respects) of a director designee in the reasonable good faith judgment of

 

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the Board based on criteria that is no more burdensome to such designee than criteria to serve as a director set forth in the Company’s Board Corporate Governance Guidelines and the Charter of the Corporate Governance and Responsibility Committee of the Board, in each case, as in effect at the time of the Board’s determination and (c) such nominee including in his or her irrevocable, conditional resignation (in connection with the majority voting provision for uncontested director elections in the By-laws) that such nominee’s resignation will also be effective upon (1) an uncured material breach of the obligations of the Sands Family Stockholders of certain post-Reclassification covenants contained in the Reclassification Agreement, as determined in a final non-appealable judgment and (2) the Board’s acceptance of such resignation. In addition, the Company and WildStar will cooperate in good faith to identify and pre-clear any individuals (other than Messrs. Robert and Richard Sands) to be designated by WildStar in accordance with the designation rights described above in advance of the mailing of the Company’s proxy statement for the Company’s annual meeting.

Post-Closing Transfer Restrictions

From the Effective Time until the date that is three years after the Effective Time, the Sands Family Stockholders will not, directly or indirectly, in any single transaction or series of related transactions, be permitted to transfer shares of the Company’s capital stock held by the Sands Family Stockholders, subject to certain exceptions. For the purpose of these restrictions, transfers include any sale of, any contract or agreement to sell, the grant of an option to purchase or other disposition of shares of the Company’s capital stock, as well as entry into any swap or other arrangement that transfers to another in whole or in part any of the economic consequences of ownership of shares of the Company’s capital stock, for cash or otherwise, or the public announcement of an intention to effect any of those transactions. Exceptions to these restrictions include transfers:

 

•

to any of the Family-Related Persons, but in each case only if such transferee agrees to be bound by the terms of the Reclassification Agreement to the same extent as the transferring member of the Sands Family Stockholders;

 

•

in connection with any bona fide estate, family or tax planning, but only if such transferee agrees to be bound by the terms of the Reclassification Agreement to the same extent as the transferring member of the Sands Family Stockholders;

 

•

to any other person to the extent the transfer has been approved in writing by a majority of the members of the Board, excluding individuals designated for nomination by WildStar;

 

•

to participate in or otherwise in connection with a tender or exchange offer or a merger, stock sale, consolidation or other business combination of the Company, in each case that has been approved or recommended by the Board;

 

•

where the proceeds of such transfer are used to pay or repay any debts, bequests or other liabilities of any member of the Family-Related Persons upon their death;

 

•

subject to the pledging restrictions described below, involving pledges, hypothecations or encumbrances of the Sands Family Stockholders’ shares of Company capital stock to any third-party pledgee with respect to arm’s-length borrowings from third parties by any Family-Related Persons and the transfer of any Sands Family Stockholders’ shares of Company capital stock in connection with any exercise of remedies with respect thereto;

 

•

of shares of Class A Common Stock received by the Sands Family Stockholders issued with respect to any increase to the Reclassification’s exchange ratio as described above; and

 

•

of shares of the Company’s capital stock made by the Sands Family Foundation and the Sands Family Supporting Foundation.

In addition to the exceptions to transfer restrictions described above, the Sands Family Stockholders may also transfer shares of the Company’s capital stock during the three years after the Effective Time in the following

 

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manner, subject to an aggregate cap on transfers pursuant to the below provisions during that three year period of 7,957,925 shares of the Company’s capital stock (the “Maximum Cap”) (as may be adjusted by any stock dividend, stock distribution, stock split, stock combination or similar transaction):

 

•

the Sands Family Stockholders may, in any successive six-month period following the Effective Time, transfer shares of the Company’s capital stock, including any transfers pursuant to a block sale, underwritten offering and open market trades, in an amount that may not exceed, in the aggregate, two percent of the greater of (x) the average market capitalization of the Company, measured in U.S. dollars, in the six months immediately prior to the date of measurement, calculated daily using the stock price for the Class A Common Stock and the most recently publicly available basic shares outstanding and (y) $45,433,978,373.34 (i.e., the Company’s market capitalization on June 29, 2022), so long as (1) open market trades under this exception do not exceed one percent of the Company’s market capitalization (as calculated in the manner described above) in such six-month period and (2) open market trades on any day do not exceed fifteen percent of the average daily trading volume of Class A Common Stock for the four calendar weeks immediately prior to the calendar week of the date of measurement; and

 

•

the Sands Family Stockholders may transfer shares of the Company’s capital stock in excess of the restrictions described in the previous bullet but not in an amount above the Maximum Cap if such transfers occur pursuant to a piggyback registration under the Registration Rights Agreement.

Standstill

From the Effective Time until the later of the date that is five years after the Effective Time and such time as each director nominated to the Board by WildStar pursuant to the Reclassification Agreement resigns from the Board, each member of the Sands Family Stockholders will not, directly or indirectly, other than in a person’s capacity as a member of the Board, and will use its reasonable best efforts to cause its representatives that are acting on its behalf in connection with the Reclassification Agreement to not, directly or indirectly, except with the prior written approval of the Board (excluding nominees of WildStar), among other things:

 

•

acquire or offer to acquire any shares of Company capital stock or other equity interests or other instruments convertible into equity interests of the Company other than shares of Class A Common Stock and Class 1 Common Stock acquired through the Reclassification, conversions of existing shares of Class 1 Common Stock into shares of Class A Common Stock pursuant to the Amended and Restated Charter, annual compensation grants or other equity compensation granted as a result of a member of the Sands Family Stockholders’ status as a member of the Board, in connection with transfers among Family-Related Persons or otherwise in connection with permitted transfers for bona fide estate, family or tax planning as described above, or permitted acquisitions returning the Sands Family Stockholders to ten percent ownership, as described above;

 

•

make or in any way participate in, directly or indirectly, any “solicitation” (as the term is defined in Rule 14a-1 under the Exchange Act, including any otherwise exempt solicitation pursuant to Rule 14a-2(b) under the Exchange Act) to vote or refrain from voting any shares of Company capital stock or other equity interests or other instruments convertible into equity interests of the Company;

 

•

call or seek to call a meeting of stockholders of the Company;

 

•

seek to advise or influence any person with respect to the voting of any shares of Company capital stock or other equity securities or other instruments convertible into equity interests of the Company;

 

•

other than (x) to effectuate the nomination rights described above or (y) actions that are consistent with the Board’s public recommendation on any director nomination or stockholder proposal, seek the removal of any member of the Board (including through any “withhold” or similar campaign) or submit, initiate, participate in or knowingly encourage any director nomination or stockholder proposal with respect to the Company;

 

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•

propose any merger, share exchange, business combination, tender or exchange offer, restructuring, recapitalization, liquidation or similar transaction of or involving, or any sale or other disposition or acquisition of a material portion of the consolidated assets of, the Company;

 

•

act alone or in concert with others to seek to change, control or influence, in any manner, the business, policies or affairs of the Company and its subsidiaries;

 

•

publicly disclose any intention, plan or arrangement, or enter into any negotiations, arrangements or understandings with any person(s), which are inconsistent with any of the restrictions described above;

 

•

advise, knowingly assist, knowingly encourage or direct any person to do any of the things described above; or

 

•

contest the validity of the restrictions described above or make any request to amend, waive or terminate the restrictions described above that would reasonably be expected to require the Company or a member of the Sands Family Stockholders to publicly disclose the request.

The restrictions described above do not limit the ability of the Sands Family Stockholders to (a) vote for or against, grant proxies, written consents or ballots in relation to, tender into or abstain from taking actions in connection with transactions, proposals or other matters initiated and coordinated by other persons unaffiliated with the Sands Family Stockholders and acting independently of, and not in conjunction with or at the behest or instigation of, the Sands Family Stockholders, (b) acquire or propose to acquire any shares of Company capital stock or other equity interests or other instruments convertible into equity interests of the Company from other members of the Sands Family Stockholders or Family-Related Persons or (c) advise, assist, encourage or direct any other member of the Sands Family Stockholders or Family-Related Persons to take actions in respect of Company capital stock or other equity interests or other instruments convertible into equity interests of the Company, including providing advice on voting and disposition of shares of Company capital stock or other equity interests or other instruments convertible into equity interests of the Company.

In addition, until the later of the date that is five years after the Effective Time and such time as each director nominated to the Board by WildStar pursuant to the Reclassification Agreement resigns from the Board, (a) each member of the Sands Family Stockholders will not, and will cause its representatives (acting at the direction of such member of the Sands Family Stockholders) not to, make any public statement that disparages or otherwise calls into disrepute the Company in any manner that could reasonably be expected to damage the business or reputation of the Company and (b) the Company will not, and will cause its subsidiaries and representatives (acting at the direction of the Company or its subsidiaries) not to, make any public statement that disparages or otherwise calls into disrepute the Sands Family Stockholders and the Family-Related Persons in any manner that could reasonably be expected to damage the business or reputation of such persons. The provisions in (a) and (b) above are subject to certain exceptions for compelled testimony or production of information in response to applicable law or any disclosure required by applicable law and do not prohibit any party from reporting what it reasonably believes to be violations of federal law or regulation to any governmental authority pursuant to Section 21F of the Exchange Act or Rule 21F promulgated thereunder.

Pledging

The Board also agreed to adopt an anti-pledging policy applicable to the Board and the officers of the Company who are subject to the reporting requirements of Section 16 of the Exchange Act, which generally prohibits the pledging, hypothecation or otherwise encumbering shares of the Company’s stock as collateral for indebtedness. Those directors nominated by WildStar for appointment to the Board are not subject to the Anti-Pledging Policy and are instead subject to certain limitations on pledging set forth in the Reclassification Agreement (provided that such limits do not apply to shares of Class A Common Stock received by the Sands Family Stockholders issued with respect to any increase to the Reclassification’s exchange ratio as described above, if any), including:

 

•

from the Effective Time until the date that is five years after the Effective Time, the number of shares of the Company’s capital stock owned of record by the Sands Family Stockholders and pledged,

 

83

hypothecated or otherwise encumbered, which otherwise would be covered by the Board’s Anti-Pledging Policy will not exceed, at any given time, the higher of (x) the number of shares of the Company’s capital stock having $4,054,204,438 in value, calculated based on the volume weighted average price of Class A Common Stock for the twenty trading days immediately prior to the date of measurement, or (y) the number of shares pledged by the Sands Family Stockholders as of June 30, 2022 (which total number of pledged shares was 16,640,826 shares of Class A Common Stock and Class B Common Stock, and as may be adjusted by any stock dividend, stock distribution, stock split, stock combination or similar transaction); and

 

•

following the date that is five years after the Effective Time and until no member of the Board is both nominated by WildStar and is a Family-Related Person, the number of shares of the Company’s capital stock pledged, hypothecated or otherwise encumbered, which otherwise would be covered by the Board’s Anti-Pledging Policy, will not exceed, as measured on each of March 1 and September 1 of each calendar year following the date that is five years after the Effective Time, the number of shares of Company capital stock having $3,000,000,000 in value (adjusted for certain increases in the Consumer Price Index), calculated based on the volume weighted average price of Class A Common Stock for the twenty trading days immediately prior to the date of measurement.

The Sands Family Stockholders will use their reasonable best efforts to ensure that all shares of Company capital stock or other equity interests or other instruments convertible into equity interests of the Company beneficially owned by a member of the Board designated by WildStar who is also a Family-Related Person is in compliance with the anti-pledging restrictions above applicable to such person. In the event of a material breach of the applicable pledging restrictions or any pledging policy or restriction of the Company, including the Board Anti-Pledging Policy, the applicable members of the Sands Family Stockholders will have 120 calendar days to cure such material breach. If the material breach has not been cured as of the 120th calendar day following receipt of written notice from the Board, then, unless and until such breach is cured, WildStar will not be entitled to the Board nomination rights described above and any members of the Board previously designated for nomination by WildStar will resign from the Board (subject to Board acceptance of the resignations). The Sands Family Stockholders will also use their reasonable best efforts to cause each member of the Board designated by WildStar who is also a Family-Related Person to disclose to the Company (x) the shares of Company capital stock or other equity interests or other instruments convertible into equity interests of the Company beneficially owned by such person at the end of each of the Company’s second and fourth fiscal quarters and (y) pledges, hypothecations or other encumbrances of such shares of Company capital stock or other equity interests or other instruments convertible into equity interests of the Company beneficially owned by such person that would be covered by the Board’s Anti-Pledging Policy at the end of each of the Company’s second and fourth fiscal quarters.

If there are no Family-Related Persons serving on the Board, then neither any pledging policy nor similar restriction of the Company, including the Board Anti-Pledging Policy, nor the restrictions set forth in the Reclassification Agreement shall apply to the Sands Family Stockholders. Neither any pledging policy nor other similar restriction of the Company, including the Board Anti-Pledging Policy, nor the restrictions in the Reclassification Agreement shall apply to shares owned by any member of the Sands Family Stockholders that are not beneficially owned by any member of the Board.

The Sands Family Stockholders and the Company agreed that the sole and exclusive remedy for a breach of the pledging policies and restrictions described above, which will apply only following a determination in a final non-appealable judgment that a material breach of the pledging policies and restrictions described above has occurred, will be the immediate and irrevocable termination of the nomination rights of the Sands Family Stockholders and WildStar described above.

By-law Changes

Furthermore, pursuant to the Reclassification Agreement, the Company agreed that the Company’s existing by-laws would be amended and restated effective as of the Effective Time, substantially in the form set forth in

 

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Annex B, to make certain conforming changes in connection with the adoption of the Amended and Restated Charter and with the Reclassification Agreement. The By-laws also include certain other changes to update the existing by-laws of the Company in accordance with best corporate practices, including, among other things:

 

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adoption of a majority voting standard for uncontested director elections, with a plurality voting carveout for contested director elections;

 

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a requirement that stockholders nominating directors to the Board certify their compliance with the SEC’s universal proxy rules;

 

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specification that special meetings of the Board may be called by a majority of the whole Board, as well as by the Chair of the Board, the Company’s chief executive officer and certain officers of the Company;

 

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revisions to the advance notice requirements for stockholders making director nominations, including (a) establishing clear eligibility requirements for requesting the Company’s director and officer questionnaire and other nomination materials and providing that the Company has five business days to respond to such requests and (b) enhancing the Company’s ability to request supplemental information from Board nominees after the nomination deadline;

 

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clarifications that a meeting of the Company’s stockholders may be held in a hybrid format as opposed to solely in-person or remotely;

 

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provision for the chair of a meeting of the Company’s stockholders to prescribe restrictions on the use of cellular phones, audio or video recording devices and similar devices at a meeting of the Company’s stockholders;

 

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eliminating references to the Chair of the Board position as an officer of the Company and specifying that the Chair of the Board has the customary duties and authority of a Chair of the Board;

 

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conforming changes in response to certain amendments to the DGCL that took effect on August 1, 2022, including (a) updating the methods for giving notice of adjourned stockholder meetings to address the adjournment of virtual meetings and (b) eliminating the requirement that a stocklist be made available during meetings of the Company’s stockholders; and

 

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eliminating gender-specific references throughout the By-laws, as well as references to the Vice Chairman of the Board position.

Amended and Restated Charter

Pursuant to the Reclassification Agreement, the Company’s certificate of incorporation will be amended and restated to reflect the terms of the Reclassification, as further described in the section entitled “Comparison of Stockholder Rights,” to eliminate the Class B Common Stock and to provide that conversions of shares of Class 1 Common Stock into Class A Common Stock may occur in connection with certain registered offerings.

Other Governance Changes

In addition, pursuant to the Reclassification Agreement, the Company agreed that the Board Corporate Governance Guidelines and the Corporate Governance and Responsibility Committee Charter would be amended and restated effective as of the Effective Time, to reflect modernizing, clarifying and conforming changes in connection with the Amended and Restated Charter and By-laws. The Board intends to have the Board rotate the lead independent director position on the Board at the next available normal cycle opportunity following the Effective Time.

Registration Rights Agreement

The Registration Rights Agreement provides that, in connection with the closing of the Reclassification, the Company and the Sands Family Stockholders will enter into the Registration Rights Agreement pursuant to

 

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which the Sands Family Stockholders will be provided certain rights relating to the registration of their Common Stock.

Other Covenants

The Company and the Sands Family Stockholders also agreed that:

 

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the Company will pay or reimburse the Sands Family Stockholders for fees and expenses of the Sands Family Stockholders’ legal and financial advisors incurred in connection with the negotiation, execution and delivery of the Reclassification Agreement and consummation of the transactions contemplated by the Reclassification Agreement, including the Reclassification, which amount is expected to be less than $20 million;

 

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the Company will indemnify the Sands Family Stockholders, the Family-Related Persons and certain related individuals and entities of each for any out-of-pocket costs and expenses arising out of or resulting from any actions or proceedings related to the Reclassification Agreement or the transactions contemplated thereby, including the Reclassification. However, the Company’s indemnification obligations to the above mentioned parties do not extend to any loss, liability or damage pursuant to a judgment, order, decree or settlement of such action or proceeding or to any actions or proceedings brought by the Company against the Sands Family Stockholders for breach of the Reclassification Agreement;

 

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the Company will use reasonable best efforts to, substantially concurrently with or prior to the closing of the Reclassification, prepare and file a “shelf” registration statement, in a form reasonably acceptable to WildStar, pursuant to Rule 415 promulgated under the Securities Act relating to the shares of Common Stock beneficially owned by the Sands Family Stockholders after giving effect to the Reclassification, together with, if requested by WildStar no later than 15 days prior to the anticipated date of the closing of the Reclassification Agreement, an associated prospectus supplement;

 

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the Company will use its reasonable best efforts to cause the shares of Class A Common Stock into which the Class B Common Stock shall be reclassified pursuant to the Reclassification to be approved for listing on the NYSE, subject to official notice of issuance, as promptly as practicable after June 30, 2022, and in any event prior to the Effective Time; and

 

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the Company will use its reasonable best efforts to consummate and obtain, as promptly as reasonably practicable following June 30, 2022 and in any event on or prior to the consummation of the Reclassification, third party financing sufficient to fully fund the maximum cash amount payable to holders of Class B Common Stock in the Reclassification in accordance with the terms of the Reclassification Agreement.

Termination

The obligations of the Company and the Sands Family Stockholders under the Reclassification Agreement are subject to certain rights of termination. Subject to certain requirements and exceptions, the Company may terminate the Reclassification Agreement if there has been a breach by the Sands Family Stockholders of their representations, warranties, covenants or agreements contained in the Reclassification Agreement that would cause a failure of the relevant closing conditions and such breach has not been waived by the Company or, if capable of being cured, remains uncured within the specified cure period. Subject to certain requirements and exceptions, WildStar, on behalf of the Sands Family Stockholders, may terminate the Reclassification Agreement if there has been a breach by the Company of its representations, warranties, covenants or agreements contained in the Reclassification Agreement that would cause a failure of the relevant closing conditions and such breach has not been waived by the Sands Family Stockholders or, if capable of being cured, remains uncured within the specified cure period. Additionally, subject to certain exceptions, there are mutual termination rights that include,

 

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but are not limited to, the right of either the Company or the Sands Family Stockholders to terminate the Reclassification Agreement:

 

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if the closing contemplated by the Reclassification Agreement does not occur on or prior to June 30, 2023;

 

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if requisite stockholder approvals of the Amended and Restated Charter are not obtained in accordance with the terms of the Reclassification Agreement at the Special Meeting; or

 

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if any permanent legal restraint has been issued or come into effect that permanently prevents, prohibits or enjoins the consummation of the Reclassification or the Amended and Restated Charter from becoming effective, and such legal restraint has become final and non-appealable.

The Reclassification Agreement provides that the Company will not exercise any of the above termination rights unless and until the action has been approved by the Special Committee.

Efforts to Hold Stockholder Vote; Recommendation

The Company agreed to (i) submit the approval and adoption of the Amended and Restated Charter to a stockholder vote and (ii) use reasonable best efforts to cause the Special Meeting to be held as promptly as reasonably practicable following the effectiveness of the registration statement. The Reclassification Agreement provides that, subject to the requirements of applicable law, the Company may, and in the case of clause (c) below upon the request of WildStar for periods not to exceed ten business days in any single such postponement or adjournment or three months in the aggregate, shall, postpone or adjourn the Special Meeting (a) if a quorum has not been established; (b) to allow reasonable additional time for the filing and mailing of any supplement or amendment to this proxy statement/prospectus as may be required under applicable law and for such supplement or amendment to be disseminated and reviewed by the Company’s stockholders sufficiently in advance of the Special Meeting; (c) to allow reasonable additional time to solicit additional proxies, if and to the extent the required stockholder approvals would not otherwise be obtained; or (d) with the prior written consent of WildStar; provided, however, that, unless otherwise agreed to by WildStar, the Special Meeting will not be postponed or adjourned under clauses (a) or (c) for more than ten business days in any single such postponement or adjournment or three months in the aggregate.

The Company further agreed to (i) include in this proxy statement/prospectus the Board’s recommendation that the Company’s stockholders approve and adopt the Reclassification Proposal and (ii) use its reasonable best efforts to solicit proxies from the Company’s stockholders in favor of the Reclassification Proposal and to take all other action reasonably necessary to secure the requisite stockholder approvals.

Representations and Warranties

The Reclassification Agreement contains representations and warranties by each of the parties. These representations and warranties have been made solely for the benefit of the other party to the Reclassification Agreement and:

 

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may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; and

 

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may apply standards of materiality in a way that is different from what may be viewed as material by you or other investors.

Accordingly, the representations and warranties and other provisions of the Reclassification Agreement should not be read alone, but instead should be understood in the context in which they were given and read together with the information provided elsewhere in this proxy statement/prospectus and in the documents incorporated by reference herein. See the section of this proxy statement/prospectus entitled “Where You Can Find More Information.”

 

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The representations and warranties made by the Company in the Reclassification Agreement relate to, among other topics, the following:

 

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valid existence and corporate power and authority of the Company relative to the execution, delivery and performance of the Reclassification Agreement;

 

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capital structure of the Company;

 

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the absence of conflicts with, or violations of, the organizational documents of the Company, any note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligation to which the Company or any of its subsidiaries is a party (other than any compensation or similar plan or arrangement), or any governmental order or law applicable to the Company;

 

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the Board’s authorization and approval of the Amended and Restated Charter, the Reclassification Agreement and related transaction documents and the Reclassification, and the recommendation to Company stockholders that they approve and adopt the Reclassification Proposal;

 

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accuracy of information supplied or to be supplied in the registration statement and this proxy statement/prospectus;

 

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receipt by the Special Committee of an opinion from Centerview; and

 

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absence of certain litigation.

The representations and warranties made by the Sands Family Stockholders in the Reclassification Agreement relate to, among other topics, the following:

 

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valid title to the shares of Common Stock owned of record by the Sands Family Stockholders;

 

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valid existence and corporate power and authority or individual capacity, as applicable;

 

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authority of the Sands Family Stockholders relative to execution and delivery of the Reclassification Agreement and the absence of conflicts with, or violations of, organizational documents of the Sands Family Stockholders or any governmental order or law applicable to the Sands Family Stockholders;

 

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consents and approvals relating to the Reclassification;

 

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absence of certain litigation;

 

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accuracy of information supplied or to be supplied in the registration statement and this proxy statement/prospectus; and

 

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absence of finders’ fees.

Conditions to the Company and/or the Sands Family Stockholders’ Obligation to Complete the Reclassification

Under the terms of the Reclassification Agreement, the Company and the Sands Family Stockholders’ obligation to complete the Reclassification is subject to customary conditions, including, among others:

 

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the adoption and approval of the Reclassification Proposal by the affirmative vote of the holders of (a) not less than 50.3% of the issued and outstanding shares of Class A Common Stock held by the Unaffiliated Class A Holders, (b) a majority of the voting power of the issued and outstanding shares of Class A Common Stock and Class B Common Stock entitled to vote thereon, voting together as a single class and (c) a majority of the issued and outstanding shares of Class B Common Stock;

 

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the effectiveness of the Company’s Registration Statement on Form S-4 of which this proxy statement/prospectus forms a part, and the absence of any SEC stop order suspending effectiveness;

 

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the absence of any governmental order or law preventing, prohibiting or enjoining the Reclassification or the Amended and Restated Charter from becoming effective; and

 

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the approval by the NYSE, subject to official notice of issuance, of the listing of the shares of Class A Common Stock into which the Class B Common Stock will be reclassified.

Under the terms of the Reclassification Agreement, the Company’s obligation to complete the Reclassification is also subject to, among others, the following customary conditions:

 

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the accuracy of the representations and warranties of the Sands Family Stockholders (subject to a materiality standard); and

 

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the Sands Family Stockholders shall have performed in all material respects all of the obligations under the Reclassification Agreement required to be performed by the Sands Family Stockholders at or before to the closing.

Under the terms of the Reclassification Agreement, the Sands Family Stockholders’ obligation to complete the Reclassification is also subject to, among others, the following customary conditions:

 

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the accuracy of the representations and warranties of the Company (subject to a materiality standard);

 

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the Company shall have performed in all material respects all of the obligations under the Reclassification Agreement required to be performed by the Company at or before the closing; and

 

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the execution and delivery of a counterpart to the Registration Rights Agreement by the Company.

Amendments and Waivers

Amendment. The Reclassification Agreement may not be altered, amended or supplemented except by an agreement in writing signed by the Company and WildStar. The Company may not agree to amend the Reclassification Agreement before the Effective Time unless and until such amendment is approved by the Special Committee.

Waiver. At any time prior to the Effective Time, with certain exceptions, any party may (i) waive any inaccuracies in the representations and warranties of any other party contained in the Reclassification Agreement or in any document delivered pursuant to the Reclassification Agreement or (ii) waive compliance by any other party with any of the agreements or conditions contained in the Reclassification Agreement. The Company may not waive any right or condition to its obligations under the Reclassification Agreement before the Effective Time unless and until such waiver is approved by the Special Committee.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a general discussion of the material U.S. federal income tax consequences of the Reclassification to “U.S. holders” and “non-U.S. holders” (each as defined below) of shares of Class A Common Stock and/or Class B Common Stock. This discussion is based on the Code, Treasury Regulations promulgated thereunder, rulings and other administrative pronouncements issued by the IRS, and judicial decisions, all as in effect on the date of this information statement, and all of which are subject to change at any time, possibly with retroactive effect.

This discussion only addresses holders of shares of Class A Common Stock and/or Class B Common Stock that hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion is for general information only and does not address all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of its particular circumstances or to holders subject to special rules under the Code (including, but not limited to, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, traders in securities who elect to apply a mark-to-market method of accounting, entities or arrangements treated as partnerships for U.S. federal income tax purposes or other flow-through entities (and investors therein), subchapter S corporations, holders that hold shares of Class A Common Stock and/or Class B Common Stock as part of a hedge, straddle, conversion, synthetic security, integrated investment, or constructive sale transaction, U.S. holders having a “functional currency” other than the U.S. dollar, holders who acquired shares of Class A Common Stock and/or Class B Common Stock upon the exercise of employee stock options or otherwise as compensation, holders who are liable for the alternative minimum tax, certain former citizens or former long-term residents of the United States, “controlled foreign corporations,” “passive foreign investment companies,” or any holder that owns, directly, indirectly or constructively, 5% or more of the number of shares of Class A Common Stock, the number of shares of Class B Common Stock, or the aggregate number of shares of Class A Common Stock and Class B Common Stock). This discussion also does not address any tax consequences arising under the alternative minimum tax, the 3.8% Medicare contribution tax on net investment income, nor does it address any estate (except to the limited extent set forth below) or gift tax considerations or any other tax considerations under state, local or foreign laws or U.S. federal laws that do not pertain to the U.S. federal income tax.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes, holds shares of Class A Common Stock and/or Class B Common Stock, the tax treatment of a person treated as a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Persons that for U.S. federal income tax purposes are treated as a partner in a partnership holding shares of Class A Common Stock and/or Class B Common Stock should consult their tax advisors regarding the U.S. federal income tax consequences of the Reclassification to them.

ALL HOLDERS OF SHARES OF CLASS A COMMON STOCK AND/OR CLASS B COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE RECLASSIFICATION TO THEM, INCLUDING THE APPLICATION AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of shares of Class A Common Stock and/or Class B Common Stock that is, for U.S. federal income tax purposes:

 

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an individual who is a citizen or resident of the United States,

 

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a corporation (or any other entity treated as a corporation) created or organized in the United States or under the laws of the United States, any state thereof, or the District of Columbia,

 

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an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source, and

 

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a trust if (i) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

For purposes of this discussion, the term “non-U.S. holder” means a beneficial owner of Class A Common Stock and/or Class B Common Stock that is neither a U.S. holder nor a partnership for U.S. federal income tax purposes.

The Reclassification is expected to qualify as a recapitalization within the meaning of Section 368(a)(1)(E) of the Code. In connection with the filing of the registration statement of which this proxy statement/prospectus is a part, the Company has received a legal opinion from Kirkland & Ellis LLP to the effect that the Reclassification so qualifies. The opinion is based on representations provided by the Company and on customary assumptions. If any such representation or assumption is inaccurate, the tax consequences of the Reclassification could differ from those described below. No ruling has been or will be sought from the IRS as to the U.S. federal income tax consequences of the Reclassification and an opinion of counsel is not binding on the IRS or any court. Accordingly, no assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.

Accordingly, the material U.S. federal income tax consequences of the Reclassification to U.S. holders and non-U.S. holders of shares of Class A Common Stock and/or Class B Common Stock are as follows:

Material U.S. Federal Income Tax Consequences of the Reclassification to U.S. Holders

U.S. holders of Class A Common Stock. A U.S. holder of shares of Class A Common Stock (but not Class B Common Stock) generally should not be affected by the Reclassification for U.S. federal income tax purposes. Such a U.S. holder generally would not recognize gain or loss, and such a U.S. holder’s basis and holding period in its Class A Common Stock would not be affected, in each case for U.S. federal income tax purposes.

U.S. holders of Class B Common Stock. A U.S. holder of shares of Class B Common Stock generally would recognize gain, but not loss, on the Reclassification in an amount equal to the lesser of (i) the amount of cash received pursuant to the Reclassification or (ii) the excess, if any, of (a) the sum of such amount of cash and the fair market value of the shares of Class A Common Stock deemed received by such holder in the deemed exchange of the holder’s shares of Class B Common Stock pursuant to the Reclassification over (b) such holder’s adjusted tax basis in the shares of Class B Common Stock deemed surrendered pursuant to the Reclassification. The aggregate tax basis of the shares of Class A Common Stock deemed received in the deemed exchange of the holder’s shares of Class B Common Stock pursuant to the Reclassification generally would be equal to the aggregate tax basis in the shares of Class B Common Stock deemed surrendered, decreased by the amount of cash received and increased by the amount of gain recognized on the deemed exchange (regardless of whether such gain is classified as capital gain or dividend income). Any such gain would be capital gain provided that one of the Section 302 tests described below was satisfied. The holding period of any shares of Class A Common Stock deemed received in the deemed exchange for shares of Class B Common Stock pursuant to the Reclassification generally would include the holding period of the shares of Class B Common Stock deemed surrendered.

If a U.S. holder acquired different blocks of Class B Common Stock at different times or different prices, the holder should consult its own tax advisor regarding the manner in which cash and shares of Class A Common Stock deemed received in the Reclassification should be allocated among different blocks of Class B Common Stock.

If none of the Section 302 tests described below were satisfied, the U.S. holder’s gain recognized generally would be treated as a dividend distribution under Section 301 of the Code to the extent of such holder’s ratable share of our accumulated earnings and profits (as determined under U.S. federal income tax principles) and then

 

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as capital gain. U.S. holders that are corporations should consult their tax advisors regarding the potential application of the “extraordinary dividend” provisions of the Code.

Any recognized gain (other than gain treated as dividend income) generally would be long-term capital gain if, as of the date of the Reclassification, the U.S. holder’s holding period with respect to the Class B Common Stock deemed exchanged is more than one year. Certain non-corporate holders, including individuals, are currently taxed at preferential rates on long-term capital gains and, provided certain holding period and other requirements are met, on “qualified dividend income.”

Section 302 Tests. One of the tests set forth below must be satisfied with respect to a U.S. holder of Class B Common Stock in order for gain recognized by such holder upon the deemed redemption of such shares of Class B Common Stock deemed received pursuant to the Reclassification to be treated as a capital gain.

 

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Substantially Disproportionate Test. The Reclassification generally would result in a “substantially disproportionate” redemption with respect to a holder of Class B Common Stock if, among other things, immediately after the Reclassification, (i) the ratio of voting stock owned by such holder to all the voting stock of the Company was less than 80% of the same ratio immediately prior to the Reclassification and (ii) the ratio of Common Stock owned by such holder to all Common Stock of the Company was less than 80% of the same ratio immediately prior to the Reclassification. In a published ruling, the IRS has indicated that in situations in which more than one class of common stock is outstanding, the above tests are applied in an aggregate and not a class-by-class manner. This ruling applied the test described in clause (i) above by reference to the voting power of the stock owned by the holder, and stated that the determination described in clause (ii) above is made by reference to fair market value.

 

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Not Essentially Equivalent to a Dividend Test. The receipt of cash in the Reclassification would be treated as “not essentially equivalent to a dividend” if the reduction in a holder’s proportionate interest in the Company as a result of the Reclassification constituted a “meaningful reduction” of the holder’s proportionate interest in the Company. Whether a holder meets this test will depend on the holder’s particular facts and circumstances. The IRS has indicated in a published revenue ruling that even a small reduction in the percentage interest of a stockholder whose relative stock interest in a publicly held corporation is minimal and who exercises no control over corporate affairs should constitute a “meaningful reduction.”

 

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Complete Termination Test. A U.S. holder of shares of Class B Common Stock may be able to satisfy the “complete termination” test if (i) the holder sells or otherwise disposes of all of that holder’s shares of Common Stock contemporaneously with the completion of the Reclassification and as part of a single integrated plan which includes participation by the holder in the Reclassification, as discussed below, and (ii) with respect to any shares of Common Stock constructively owned, is eligible to waive, and effectively waives, constructive ownership of such shares. However, there exists uncertainty as to whether the “complete termination” test applies in such circumstances. U.S. holders wishing to satisfy the “complete termination test” should consult their own tax advisors.

In applying the Section 302 tests, holders must take into account not only shares of Common Stock that they actually own, but also shares they are treated as owning under the constructive ownership rules of Section 318 of the Code. Under the constructive ownership rules, a holder is treated as owning any shares that are owned (actually and in some cases constructively) by certain related individuals and entities as well as shares that the holder has the right to acquire by exercise of an option or warrant or by conversion or exchange of a security. Due to the factual nature of the Section 302 tests, holders should consult their tax advisors to determine whether the receipt of cash in the Reclassification qualifies for capital gain and/or dividend treatment in their particular circumstances.

No assurance can be given that a U.S. holder will be able to determine in advance whether the deemed redemption of the U.S. holder’s shares of Class B Common Stock pursuant to the Reclassification will be treated

 

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as a capital gain or a dividend. Contemporaneous acquisitions or dispositions of Company stock by a holder may be deemed to be part of a single integrated transaction and, if so, may be taken into account in determining whether any of the Section 302 tests, described above, are satisfied.

Material U.S. Federal Income Tax Consequences of the Reclassification to Non-U.S. Holders

Non-U.S. holders of Class A Common Stock. A non-U.S. holder of shares of Class A Common Stock (but not Class B Common Stock) generally should not be affected by the Reclassification for U.S. federal income tax purposes. Such a non-U.S. holder generally would not recognize gain or loss, and such non-U.S. holder’s basis and holding period in its Class A Common Stock would not be affected, in each case for U.S. federal income tax purposes.

Non-U.S. holders of Class B Common Stock. In general, the U.S. federal income tax consequences of the Reclassification to non-U.S. holders of shares of Class B Common Stock will be the same as those described above for U.S. holders, except that, subject to the discussion below regarding potential dividend treatment, such a non-U.S. holder generally will not be subject to U.S. federal income tax or withholding tax on any gain realized in connection with the Reclassification unless:

 

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such gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment of the non-U.S. holder in the United States); or

 

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the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year in which the gain is realized and certain other conditions are met; or

 

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the Company is or has been a U.S. real property holding corporation (a “USRPHC”) for U.S. federal income tax purposes at any time within the shorter of the five-year period ending on the date of the Reclassification and the non-U.S. holder’s holding period and certain other conditions are satisfied. The Company believes that it currently is not, and does not anticipate becoming, a USRPHC.

Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net basis at the regular graduated U.S. federal income tax rates in the same manner as if such non-U.S. holder were a U.S. person. A non-U.S. holder that is a corporation also may be subject to an additional branch profits tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on its “effectively connected earnings and profits” for the taxable year, subject to certain adjustments. Gain described in the second bullet point above will be subject to U.S. federal income tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty), but may be offset by U.S. source losses, if any, of the non-U.S. holder.

As discussed above under “Material U.S. Federal Income Tax Consequences of the Reclassification to U.S. Holders,” gain recognized in connection with the Reclassification by a non-U.S. holder of Class B Common Stock could be treated as a dividend. Any amount so treated generally would be subject to U.S. withholding tax at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) unless the dividend is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment of the non-U.S. holder in the United States). To the extent the applicable withholding agent is unable to determine the amount subject to such withholding with respect to a non-U.S. holder, the withholding agent may withhold at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) of the entire amount of cash consideration payable to that non-U.S. holder pursuant to the Reclassification. If a withholding agent withholds amounts from the cash consideration so payable to a non-U.S. holder, that non-U.S. holder may, under certain circumstances, obtain a refund of any excess withholding by timely filing an appropriate claim with the IRS. Non-U.S. holders should consult their own tax advisors regarding the application of the foregoing rules in light of their particular facts and circumstances, the procedures for claiming treaty benefits or otherwise establishing an exemption from U.S. withholding tax with respect to any portion of the cash consideration payable pursuant to the Reclassification, and the possible benefits of selling their shares of Class A Common Stock (and considerations relating to the timing of such sales).

 

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Information Reporting and Backup Withholding

A U.S. holder may, under certain circumstances, be subject to information reporting and backup withholding at the applicable rate (currently, 24%) with respect to any cash received pursuant to the Reclassification, unless such holder properly establishes an exemption or provides its correct tax identification number and otherwise complies with the applicable requirements of the backup withholding rules. Certain holders (such as corporations and non-U.S. holders) are exempt from backup withholding. Non-U.S. holders may be required to comply with certification requirements and identification procedures in order to establish an exemption from information reporting and backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules can be refunded or credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the IRS in a timely manner.

The preceding discussion is intended only as a summary of material U.S. federal income tax consequences of the Reclassification. It is not a complete analysis or discussion of all potential tax effects that may be important to a particular holder. All holders of shares of Class A Common Stock or Class B Common Stock should consult their own tax advisors as to the specific tax consequences to them of the Reclassification, including tax reporting requirements, and the applicability and effect of any federal, state, local and non-U.S. tax laws.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma condensed financial statements (the “pro forma financial information”) have been derived from the historical condensed consolidated financial statements of the Company incorporated by reference into this proxy statement/prospectus. This pro forma financial information should be read in conjunction with:

 

•

the accompanying notes to the pro forma financial information;

 

•

the Company’s historical consolidated financial statements as of and for the year ended February 28, 2022, included in the 2022 Form 10-K and incorporated by reference into this proxy statement/prospectus;

 

•

the Company’s historical consolidated financial statements as of and for the quarter ended May 31, 2022, included in the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2022, and incorporated by reference into this proxy statement/prospectus; and

 

•

the other information contained in or incorporated by reference into this proxy statement/prospectus.

In the Reclassification, assuming no adjustment pursuant to the terms of the Reclassification Agreement and the Amended and Restated Charter, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time will be reclassified and converted into one validly issued, fully paid and non-assessable share of Class A Common Stock and the right to receive $64.64 in cash, without interest. The pro forma adjustments to the pro forma financial information represent events that are (i) directly attributable to the Reclassification and (ii) factually supportable.

The unaudited pro forma condensed consolidated statements of comprehensive income (loss) present the effects of the Reclassification for the year ended February 28, 2022 and the quarter ended May 31, 2022, in each case as if the Reclassification was completed as of March 1, 2021. The unaudited pro forma condensed consolidated balance sheet presents the effects of the Reclassification as of May 31, 2022, as if the Reclassification was completed as of that date.

Assumptions and estimates underlying the pro forma adjustments, which are preliminary and have been made solely for the purposes of developing the pro forma financial information, are described in the accompanying notes and should be read in connection with the unaudited pro forma condensed financial statements. The pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the financial position that would have been achieved had the Reclassification taken place as of the date indicated, or the future financial position of the Company.

 

95

Constellation Brands, Inc. and Subsidiaries

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS)

For the Year Ended February 28, 2022

(in millions, except per share data)

 

		Actual				Adjustments						Pro Forma
Sales		$	9,529.1			$	—					$	9,529.1
Excise taxes			(708.4	)			—						(708.4	)
Net sales			8,820.7				—						8,820.7
Cost of product sold			(4,113.4	)			—						(4,113.4	)
Gross Profit			4,707.3				—						4,707.3
Selling, general, and administrative expenses			(1,711.4	)			17.5			(a)			(1,693.9	)
Impairment of brewery construction in progress			(665.9	)			—						(665.9	)
Gain (loss) on sale of business			1.7				—						1.7
Operating income (loss)			2,331.7				17.5						2,349.2
Income (loss) from unconsolidated investments			(1,635.5	)			—						(1,635.5	)
Interest expense			(356.4	)			(52.1	)		(b)			(408.5	)
Loss on extinguishment of debt			(29.4	)			—						(29.4	)
Income (loss) before income taxes			310.4				(34.6	)					275.8
(Provision for) benefit from income taxes			(309.4	)			8.3			(c)			(301.1	)
Net income (loss)			1.0				(26.3	)					(25.3	)
Net (income) loss attributable to noncontrolling interests			(41.4	)			—						(41.4	)
Net income (loss) attributable to CBI		$	(40.4	)		$	(26.3	)				$	(66.7	)
Net income (loss) per common share attributable to CBI:
Basic—Class A Common Stock		$	(0.22	)		$	(0.13	)				$	(0.35	)
Basic—Class B Common Stock		$	(0.20	)		$	0.20					$	—
Diluted—Class A Common Stock		$	(0.22	)		$	(0.13	)				$	(0.35	)
Diluted—Class B Common Stock		$	(0.20	)		$	0.20					$	—
Weighted average common shares outstanding:
Basic—Class A Common Stock			167.431				23.225						190.656
Basic—Class B Common Stock			23.225				(23.225	)					—
Diluted—Class A Common Stock			167.431				23.225						190.656
Diluted—Class B Common Stock			23.225				(23.225	)					—

 

(a)	Pro forma adjustment to eliminate an estimated $17.5 million in annual compensation attributable to Messrs. Robert and Richard Sands incurred during the year ended February 28, 2022.

(b)

Pro forma adjustment to record an estimated increase in interest expense of $52.1 million related to the issuance of $1.0 billion pursuant to the New Credit Agreement and $500.0 million of short-term debt as if the debt was outstanding on March 1, 2021. The final terms of the short-term debt will be subject to market conditions and interest rates may change materially from the assumptions described below:

 

Debt Instrument		Interest Rate*				Pro Forma Interest Expense (in millions)
$1.0 billion New Credit Agreement			3.684%			$	36.8
$500.0 million short-term debt			3.050%				15.3
						$	52.1

 

*

Interest rates in effect as of August 26, 2022

 

(c)	Pro forma adjustment to record the (provision for) benefit from income taxes of the pro forma adjustments at the combined federal statutory and state rate of 24% for the year ended February 28, 2022.

 

96