subject to such award as of immediately prior to the effective time (determined based on target performance levels, as applicable) multiplied by the exchange ratio. In each case of clauses (x) and (y) of this paragraph, the terms and conditions relating to vesting will remain the same with respect to equity awards subject to time-based vesting, and with respect to equity awards subject to performance-based vesting will be converted into time-based vesting equity awards (determined based on target performance levels) that will vest at the conclusion of the original performance period.
Notwithstanding the treatment of outstanding unvested options, RSUs and PSUs described above, prior to the closing date, Microsoft may elect to treat some or all of the awards that would otherwise be converted as set forth herein as if they were vested (i.e., by cancelling and converting an award into the right to receive the merger consideration with respect to each share of Activision Blizzard common stock subject to the award (less the applicable exercise price, in the case of options), less any applicable withholding taxes; provided that for options, such election may apply only to those options that are otherwise scheduled to vest within 120 days following the closing date).
If the treatment described above of an award of stock units or options held by a non-U.S. employee would be prohibited or subject to onerous regulatory requirements or adverse tax treatment under the laws of the applicable jurisdiction (in each case, as reasonably determined by Microsoft), Microsoft will provide compensation to the employee that is equivalent in value to the value that otherwise would have been provided to the employee under the treatment described above, to the extent practicable and as would not result in the imposition of additional taxes under Section 409A of the Code. This compensation will be provided in the form of a cash payment (less applicable taxes) or a new equity award, as reasonably determined by Microsoft.
Interests of the Non-Employee Directors and Executive Officers of Activision Blizzard in the Merger
When considering the recommendation of the Activision Blizzard Board of Directors that you vote to approve the proposal to adopt the merger agreement, you should be aware that our non-employee directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a stockholder. The Activision Blizzard Board of Directors was aware of and considered these interests to the extent such interests existed at the time, among other matters, in evaluating and overseeing the negotiation of the merger agreement, in approving the merger agreement and the merger and in recommending that the merger agreement be adopted by the stockholders of Activision Blizzard.
Accelerated Vesting of Equity Compensation Upon Certain Terminations
None of the Activision Blizzard outstanding equity awards provide for “single trigger” vesting immediately at the effective time (i.e., as a result of the merger without a termination of employment). However, under the terms of the merger agreement, outstanding RSUs held by non-employee directors at the time of the closing of the merger will vest in full and the holder will receive the consideration described above under the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Treatment of Equity Compensation” beginning on page .
Microsoft has agreed that Activision Blizzard may approve, and the Compensation Committee of the Activision Blizzard Board of Directors (which we refer to as the “Compensation Committee”) has approved, that options, RSUs and PSUs that were granted prior to the date of the merger agreement and certain awards granted after the date of the merger agreement that will be outstanding as of closing, as further detailed below, that are converted at the effective time of the merger to Microsoft unvested options and unvested RSUs pursuant to the terms of the merger agreement (such conversion is described above under “Treatment of Equity Compensation”), will vest in full on a “double trigger” basis (i.e., upon a qualifying termination of employment after a specified period following the effective time of the merger), as follows:
•
Any such award that was granted prior to the date of the merger agreement, including to our executive officers, and certain awards granted after the date of the merger agreement that will be outstanding as of closing, will vest in full if, during the 18-month period immediately following the effective time, the employee’s employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the employee for “good reason” (where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined
below) and provided that such acceleration will not modify any more favorable acceleration terms in an arrangement already entered into with such employee.
•
Additionally, pursuant to the merger agreement (as modified by the confidential disclosure letter to the merger agreement), Activision Blizzard and Microsoft agreed that certain of our employees, including executive officers Grant Dixton, Brian Bulatao and Armin Zerza, will be entitled to terminate their employment within 60 days following the six-month anniversary of the effective time, which will be deemed a termination by the executive for “good reason,” entitling the executive officer to the equity acceleration benefits described directly above and the severance benefits under their individual arrangements or, if greater, the enhanced severance plan, each as described below.
Management RSUs
Microsoft has agreed that Activision Blizzard may grant, and the Compensation Committee has approved the grant of up to $50 million in the aggregate of, RSUs to certain members of senior management, including our executive officers (but excluding the Chief Executive Officer), which we refer to as “management RSUs.” No management RSUs have yet been granted as of the date of this proxy statement. To the extent granted, management RSUs would vest in full if, during the 18-month period immediately following the effective time, the employee’s employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the employee for “good reason” (where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined below) and provided that such acceleration would not modify any more favorable acceleration terms in an arrangement already entered into with such employee.
Retention RSUs
Microsoft has agreed that Activision Blizzard may grant RSUs up to a certain aggregate grant date value, and the Compensation Committee has approved that grants of RSUs may be made, to certain employees (but excluding any individual who receives a grant of management RSUs) for retention purposes and to incentivize employees to consummate the transactions contemplated by the merger agreement (which we refer to as “retention RSUs”). No retention RSUs have yet been granted as of the date of this proxy statement. To the extent granted, retention RSUs would vest in full if, during the 18-month period immediately following the effective time, the employee’s employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the employee for “good reason” (where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined below) and provided that such acceleration would not modify any more favorable acceleration terms in an arrangement already entered into with such employee.
Employee RSUs
Prior to the effective time, Activision Blizzard may grant RSUs, up to a certain aggregate grant date value, to employees other than the Chief Executive Officer in the ordinary course of business consistent with past practice of the applicable business unit or functional business unit (which we refer to as “employee RSUs”). No employee RSUs have yet been granted as of the date of this proxy statement. To the extent employee RSUs are granted, certain of the employee RSUs that are granted to certain new employees hired before September 1, 2022, would vest in full if, during the 18-month period immediately following the effective time, the employee’s employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the employee for “good reason” (where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined below) and provided that such acceleration would not modify any more favorable acceleration terms in an arrangement already entered into with such employee.
“Good Reason” means, subject to certain notice and cure periods, in each case without the prior written consent of the holder: (A) solely for those holders who are eligible for the enhanced severance plan, a material diminution in authorities, duties and responsibilities, as measured in the aggregate, as compared to those prior to the effective time (provided, that the following will not constitute “good reason”: (1) the holder’s continued employment with substantially the same responsibility with respect to Activision Blizzard’s business and operations (e.g., the holder’s title is revised to reflect the holder’s placement within
the overall corporate hierarchy or the holder provides services to a subsidiary, business unit or otherwise) or (2) changes resulting solely from Activision Blizzard ceasing to be a stand-alone public corporation); (B) a material diminution in base salary as in effect immediately prior to the effective time; or (C) a relocation of primary office location by more than 50 miles (provided, that requiring the holder to return to work in the holder’s primary office location after working remotely during the COVID-19 pandemic or continuing to work remotely rather than a primary office location shall not constitute a relocation).
Arrangements with Mr. Kotick
Activision Blizzard previously announced on October 28, 2021 Mr. Kotick’s intent that his base salary would be reduced to California’s minimum annual salary (which is approximately $62,500 for 2022) and that he not be awarded any bonuses or equity grants until the Workplace Responsibility Committee of the Activision Blizzard Board of Directors has determined that Activision Blizzard has made appropriate progress toward achievement of the transformational gender-related goals and other commitments described in such announcement.
•
In connection with the merger, Activision Blizzard and Microsoft agreed that if the Workplace Responsibility Committee of the Activision Blizzard Board of Directors concludes and reports publicly that Activision Blizzard has made appropriate progress toward the achievement of the transformational gender-related goals and other commitments described in Activision Blizzard’s press release on October 28, 2021 (e.g., launching new zero-tolerance harassment policy, increasing the percentage of women and non-binary people in Activision Blizzard’s workforce by 50%, investing $250,000,000 to accelerate opportunities for diverse talent, waiving arbitration of individual sexual harassment claims and increasing visibility on pay equity), then the Activision Blizzard Board of Directors may, no earlier than six months after the date of the merger agreement, in its discretion:
•
grant an annual equity award to Mr. Kotick as set forth in his employment agreement (as may be extended); provided, that any such award may be granted solely in the form of time-based restricted stock units and will have a grant value on the date of grant equal to no greater than the lesser of (x) the 50th percentile of Activision Blizzard’s then applicable group of peer companies’ chief executive officer long-term incentive grants and (y) $22,000,000; and/or
•
provide cash compensation to Mr. Kotick under the existing terms of his employment agreement (as may be extended) and without regard to any waiver of compensation by Mr. Kotick; provided, that (x) his annualized base salary will not exceed $875,000 and (y) his target annual cash bonus would not exceed 200% of his base salary (pro-rated). Any salary increase would be prospective following the Workplace Responsibility Committee’s conclusion and will not be retroactively applied and any bonus in respect of the calendar year in which the compensation is reinstated will be based on 200% of such increased base salary and prorated in respect of the period following the Workplace Responsibility Committee’s conclusion.
Value of Shares and Equity Awards Held by Directors and Executive Officers
The estimated aggregate amount of the merger consideration payable with respect to shares of Activision Blizzard common stock, including vested stock options, held by our non-employee directors and executive officers, as a group (inclusive of such persons who have served at any time since the beginning of 2021), assuming the merger closed on March 8, 2022, is approximately $707 million.
The estimated aggregate value of unvested equity awards held by our non-employee directors and executive officers, including our named executive officers and including such persons who have served at any time since the beginning of 2021, that would accelerate in connection with the merger, assuming the merger closed on March 8, 2022, and, immediately thereafter, the executive officer’s employment was terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the executive officer for “good reason” (where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined above) is approximately $1 million for our non-employee directors, and approximately $56 million for our executive officers. These values do not include any new Activision Blizzard equity awards that may be granted after the date of this proxy statement. These values are calculated by multiplying the number of shares underlying awards by the per share merger consideration (assuming
target performance for PSUs and performance options), less the exercise price for options. For estimates of the value of such unvested equity awards for each of our named executive officers individually, see the section below entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Interests of the Non-Employee Directors and Executive Officers of Activision Blizzard in the Merger — “Golden Parachute Compensation” beginning on page . Certain individuals who were executive officers at any time since the beginning of 2021 — Chris Walther, Dennis Durkin and Claudine Naughton — are no longer employed by Activision Blizzard and these executive officers no longer hold any Activision Blizzard equity awards, whether options, RSUs or PSUs.
Potential Contractual Payments to Executive Officers upon Termination of Employment, Including in Connection with the Merger
We have entered into agreements with our executive officers, including our named executive officers, which would entitle the executives to severance payments and benefits in the event of certain qualifying terminations of employment. In the case of each of our executive officers other than Mr. Kotick, the severance benefits under the enhanced severance plan described below will be greater than the benefits that they would receive under their respective employment agreements.
•
Mr. Kotick’s executive employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” or if he resigns for “good reason” (as each such terms are defined in his agreement), in either case within 12 months after a change of control (which will occur at the effective time), he will be entitled to receive:
•
an amount equal to three times the sum of his annual base salary as in effect immediately prior to the date of the termination of his employment and the target value of his 2016 annual bonus, payable in equal installments over 12 months following the date of the termination of his employment;
•
any earned but unpaid bonuses for prior years;
•
a pro-rated payment of his annual bonus for the year of termination based on the percentage of the fiscal year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;
•
full vesting of his stock options and continued vesting of any unvested stock units based on the actual attainment of underlying performance goals, as if his employment had not been terminated, as applicable (noting that Mr. Kotick does not now hold, and will not be granted prior to the closing of the merger, any performance-based awards); and
•
continued Activision Blizzard-paid health insurance coverage for two years for him and his eligible dependents and reimbursement by Activision Blizzard of the annual premiums for supplemental life insurance benefits, with an annual cap of $80,000 through October 2026.
In connection with the merger agreement, Activision Blizzard and Microsoft agreed that, on or after July 18, 2022 (the date six months following the execution of the merger agreement), the Activision Blizzard Board of Directors may extend Mr. Kotick’s employment agreement by 12 months.
•
Mr. Zerza’s executive employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” (as defined in his agreement) or if he resigns following the relocation of his principal place of business by more than 50 miles in a manner that materially and adversely affects his commute, he will be entitled to receive:
•
continued payment of base salary through the end of the term of his agreement;
•
any earned but unpaid bonuses for prior years;
•
a pro-rated payment of his annual bonus for the year of termination based on the percentage of the year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;
•
if such termination occurs (i) after December 31, 2021 but before March 31, 2022, (ii) after December 31, 2022 but before March 31, 2023 or (iii) after December 31, 2023 but before
March 31, 2024, and Activision Blizzard’s operating income for the year that ended immediately prior to such termination (i.e., 2021, 2022, or 2023) is 90% or more of the applicable operating income objective for such year, as determined by the Compensation Committee, Mr. Zerza would receive a lump sum payment of $950,000; and
•
to the extent termination occurs following the completion of an applicable performance period of the PSU award granted to him on May 6, 2021 that relates to operating income performance, but before the end of the time-vesting period of such PSU award, and provided that the performance objective(s) relating to such PSU award were met, a lump sum cash amount equal to the product of (x) the number of shares he would have received upon vesting of that tranche of the award had it not been canceled upon his termination and (y) the closing price per share of Activision Blizzard common stock on May 6, 2021 (i.e., $93.03), in consideration of the termination of the PSU award prior to its vesting.
•
Mr. Alegre’s executive employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” (as defined in his agreement) or if he resigns following the relocation of his principal place of business by more than 50 miles in a manner that materially and adversely affects his commute, he will be entitled to receive:
•
continued payment of base salary through the end of the term of his agreement;
•
any earned but unpaid bonuses for prior years;
•
a pro-rated payment of his annual bonus for the year of termination based on the percentage of the year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;
•
if such termination of employment occurs (i) after December 31, 2020 but before March 30, 2022, (ii) after December 31, 2021 but before March 30, 2022, and (iii) after December 31, 2022 but before March 30, 2023, and Activision Blizzard’s operating income for the applicable year (i.e., 2020, 2021 or 2022) is 90% or more of the operating income objective for such year, as determined by the Compensation Committee, in each case, a lump sums payment of $1,666,667 (which amounts are cumulative to the extent underlying conditions are met); and
•
to the extent termination occurs following the completion of an applicable performance period of the PSU award granted to him on May 7, 2020, that relates to operating income performance, but before the end of the time-vesting period, and provided that the performance objective(s) relating to such PSU award were met, a lump sum cash amount, equal to the product of (x) the number of shares he would have received upon vesting of that tranche of the PSU award had it not been canceled upon his termination and (y) the closing price per share of Activision Blizzard common stock on May 7, 2020 (i.e., $73.10), in consideration of the termination of the PSU award prior to its vesting.
•
Mr. Dixton’s employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” (as defined in his agreement) or if he resigns following the relocation of his principal place of business by more than 50 miles in a manner that materially and adversely affects his commute, he will be entitled to receive:
•
continued payment of base salary through the end of the term of his agreement;
•
any earned but unpaid bonuses for prior years;
•
a pro-rated payment of his annual bonus for the year of termination based on the percentage of the year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;
•
if such termination occurs (i) after December 31, 2021 but before June 29, 2022 or (ii) after December 31, 2022 but before June 29, 2023, and Activision Blizzard’s operating income for the year that ended immediately prior to such termination (i.e., 2021 or 2022) is 90% or more of the operating income objective for such year, as determined by the Compensation Committee, a lump sum payment equal to $750,000; and
•
to the extent termination occurs following the completion of an applicable performance period of the PSU award granted to him on August 5, 2021 that relates to operating income performance, but before the end of the time-vesting period, and provided that the performance objective(s) relating to such PSU award were met, a lump sum cash amount equal to the product of (x) the number of shares he would have received upon vesting of that tranche of the award had it not been canceled upon his termination and (y) the closing price per share of Activision Blizzard common stock on August 5, 2021 (i.e., $80.32), in consideration of the termination of the PSU award prior to its vesting.
•
Mr. Bulatao’s employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” (as defined in his agreement) or if he resigns following the relocation of his principal place of business by more than 50 miles in a manner that materially and adversely affects his commute, he will be entitled to receive:
•
continued payment of base salary through the end of the term of his agreement;
•
any earned but unpaid bonuses for prior years;
•
a pro-rated payment of his annual bonus for the year of termination based on the percentage of the year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;
•
if termination occurs (i) after December 31, 2021 but before March 31, 2022, (ii) after December 31, 2022 but before March 30, 2023, or (iii) after December 31, 2023 but before March 30, 2024, and Activision Blizzard’s operating income for the year that ended immediately prior to such termination (i.e., 2021, 2022 or 2023) is 90% or more of the operating income objective for such year, as determined by the Compensation Committee, a lump sum payment equal to $950,000; and
•
to the extent termination occurs following the completion of an applicable performance period of the PSU award granted to him on March 9, 2021 that relates to operating income performance, but before the end of the time-vesting period, and provided that the performance objective(s) relating to such PSU award were met, a lump sum cash amount equal to the product of (x) the number of shares he would have received upon vesting of that tranche of the award had it not been canceled upon his termination and (y) the closing price per share of Activision Blizzard common stock on March 9, 2021 (i.e., $92.50), in consideration of the termination of the PSU award prior to its vesting.
As a condition to receipt of the severance payments and benefits described above, each executive officer is required to execute a separation and release of claims agreement in favor of Activision Blizzard and its affiliates and to continue to comply with certain post-termination covenants in favor of Activision Blizzard and its affiliates.
280G Mitigation Actions
The employment agreements of Messrs. Kotick, Zerza, Alegre, Dixton and Bulatao provide for a “best net” approach such that if the payment of any amounts to the executive would subject the executive to the excise tax provisions of Section 280G of the Code, the payments would be reduced to an amount below the threshold at which such penalty tax provisions apply if such a reduction (and the avoidance of such penalty taxes) would be more favorable to the executive on an after-tax basis. While Activision Blizzard may be permitted to take certain actions to reduce the amount of any potential “excess parachute payments” for “disqualified individuals” (each as defined in Section 280G of the Code), the Compensation Committee has not yet approved any specific actions to mitigate the anticipated impact of Section 280G of the Code on Activision Blizzard and any disqualified individuals. Executives are not entitled to receive gross-ups or tax reimbursements from Activision Blizzard with respect to any potential excise taxes.
Enhanced Severance Plan
Microsoft has agreed that Activision Blizzard may approve, and the Compensation Committee has approved the key terms of, an enhanced severance plan, which provides that a limited number of covered
employees, including our executive officers, would be entitled to the following benefits in the event their employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries and affiliates without “cause” or by the executive for “good reason” (where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined above), in either case, within 18 months following the effective time (subject to the executive’s execution of Activision Blizzard’s customary release of claims): (i) the greater of (A) either one or two times (depending on level) the sum of the executive’s base salary and target annual cash incentive bonus (excluding any milestone or special bonus payments) and (B) the severance payable under the executive’s employment agreement; (ii) a pro-rated target annual cash incentive bonus payment based on the percentage of the year completed as of the termination date; and (iii) reimbursement of COBRA premiums for a certain period. In the case of each of our executive officers (other than Mr. Kotick), the severance benefits under the enhanced severance plan will be greater than the benefits that they would receive under their respective employment agreements.
The estimated aggregate amount of the cash severance benefits our executive officers, including our named executive officers, would have received upon a qualifying termination of employment under the enhanced severance plan, assuming the merger closed on March 8, 2022, and a qualifying termination of employment occurred immediately thereafter, is approximately $31 million. For estimates of the amounts of such cash severance that each of our named executive officers would have received under the enhanced severance plan individually, see the section below entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Interests of the Non-Employee Directors and Executive Officers of Activision Blizzard in the Merger — “Golden Parachute Compensation” beginning on page .
Omnibus Severance Plan
Microsoft has agreed that Activision Blizzard may approve, and the Compensation Committee has approved the key terms of, an omnibus severance plan, which include that employees of Activision Blizzard as of the effective time (other than those covered under the enhanced severance plan) would be entitled to the following benefits in the event their employment is terminated by Activision Blizzard or its affiliates (including Microsoft) other than for cause within 12 months following the effective time (subject to the applicable employee’s execution of Activision Blizzard’s customary release of claims): (i) the greater of (A) up to 52 weeks’ salary, plus 60 days’ pay, for covered individuals in positions of vice president and above (or, for individuals in positions of senior director and below up to 26 weeks’ salary, plus 60 days’ pay), and (B) the severance payable under any other agreement with the employee, if any; (ii) a pro-rated target annual cash incentive bonus based on the percentage of the year completed as of the termination date; and (iii) reimbursement of one year of COBRA premiums.
Other Arrangements with Microsoft
Except as otherwise set forth herein, as of the date of this proxy statement, none of our executive officers has entered into any agreement with Microsoft regarding employment with, or compensation to be received from, the surviving corporation or Microsoft on a going-forward basis following the closing of the merger and there have been no discussions of any such arrangements between Microsoft and any of our executive officers.
Golden Parachute Compensation
In accordance with Item 402(t) of Regulation S-K, the table below sets forth the estimated amounts of the payments and benefits that each named executive officer of Activision Blizzard would have received in connection with the merger, assuming the merger closed on March 8, 2022 and, immediately thereafter, the employment of the named executive officer was terminated by Activision Blizzard or its affiliates (including Microsoft) without “cause” or the named executive officer resigned for “good reason” (where, for Mr. Kotick, each such term has the meaning set forth in his employment agreement with Activision Blizzard and, for the other executives, “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined above). This compensation is subject to an advisory vote of Activision Blizzard’s stockholders, as described below under the section entitled “Proposal 2: Advisory Vote on Merger-Related Executive Compensation Arrangements” beginning on page .
The calculations in the tables below do not include any new Activision Blizzard equity awards or other compensation increases that may be granted to the named executive officers before the effective time, including management RSUs. In addition to the assumptions regarding the closing date of the merger and termination of the employment of the named executive officers, these estimates are based on certain other assumptions that are described in the footnotes accompanying the tables below. In addition to the named executive officers set forth in the table below, Chris Walther, Dennis Durkin and Claudine Naughton also each served as a named executive officer during fiscal year 2021; however, these individuals would not become entitled to any accelerated payment, vesting or benefits or other compensation as a result of the closing of the merger. Accordingly, the ultimate values to be received by a named executive officer in connection with the merger may differ from the amounts set forth below.
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Officer(1)
|
| |
Cash
($)(2) |
| |
Equity
($)(3) |
| |
Perquisites/
Benefits ($)(4) |
| |
Total
($) |
| ||||||||||||
|
Robert A. Kotick
|
| | | $ | 14,369,130 | | | | | $ | 0 | | | | | $ | 219,762 | | | | | $ | 14,588,892 | | |
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Armin Zerza
|
| | | $ | 4,220,274 | | | | | $ | 20,780,588 | | | | | $ | 49,832 | | | | | $ | 25,050,694 | | |
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Daniel Alegre
|
| | | $ | 5,647,808 | | | | | $ | 17,471,392 | | | | | $ | 49,832 | | | | | $ | 23,169,032 | | |
|
Brian Bulatao
|
| | | $ | 4,183,562 | | | | | $ | 5,789,695 | | | | | $ | 49,832 | | | | | $ | 10,023,089 | | |
|
Grant Dixton
|
| | | $ | 2,728,253 | | | | | $ | 10,506,335 | | | | | $ | 41,238 | | | | | $ | 13,275,827 | | |
(1)
Messrs. Walther and Durkin and Ms. Naughton also each served as named executive officers during Activision Blizzard’s last fiscal year and these former executive officers are not entitled to any amounts in connection with any compensation arrangement as a result of or in connection with the merger.
(2)
Cash. The amounts in this column reflect the value of the cash severance payments payable to each named executive officer, including a prorated annual bonus for the year of termination. For Mr. Kotick, the amount in this column represents severance and, pursuant to his employment agreement with Activision Blizzard, is equal to three times the sum of his current annual base salary and his 2016 target bonus. For Messrs. Zerza, Alegre, Bulatao and Dixton, the amounts in this column represent severance and a prorated annual bonus payable under the enhanced severance plan. The breakdown of the amounts in this column for Mr. Alegre are $5,400,000 for severance and $247,808 for prorated annual bonus. The breakdown of the amounts in this column for Mr. Zerza are $4,000,000 for severance and $220,274 for prorated annual bonus. The breakdown of the amounts in this column for Mr. Bulatao are $4,000,000 for severance and $183,562 for prorated annual bonus. The breakdown of the amounts in this column for Mr. Dixton are $2,625,000 for severance and $103,253 for prorated annual bonus. The severance and prorated bonus payments are all “double trigger” in nature, which means that payment of these amounts is conditioned upon a qualifying termination of employment on or following the closing of the merger. Messrs. Zerza, Bulatao and Dixton are each entitled to terminate their employment within 60 days following the six-month anniversary of the effective time, which will be deemed a qualifying termination. Under their employment agreements, each of Messrs. Kotick, Zerza, Alegre, Bulatao and Dixton are subject to post-termination covenants, including non-solicitation covenants, in favor of Activision Blizzard and its affiliates.
(3)
Equity. The amounts in this column reflect the aggregate values of the accelerated vesting of the RSUs which would be assumed by Microsoft for Messrs. Zerza, Alegre, Bulatao and Dixton (and for PSUs, assumes target performance). These amounts are “double trigger” in nature, which means that the accelerated vesting is conditioned upon a qualifying termination of employment on or after the closing of the merger. Messrs. Zerza, Bulatao and Dixton are each entitled to terminate their employment within 60 days following the six-month anniversary of the effective time, which will be deemed a qualifying termination. Mr. Kotick does not currently hold any equity awards for which vesting would accelerate upon the closing of the merger or upon a termination of employment following the closing of the merger.
(4)
Perquisites/Benefits. The amounts in this column reflect the value of continued Activision Blizzard-paid health insurance coverage for Mr. Kotick for two years and supplemental life insurance benefits through October 2026 pursuant to his employment agreement with Activision Blizzard, and for Messrs. Zerza, Alegre, Bulatao and Dixton reimbursement of COBRA premiums for two years under
the enhanced severance plan. The amounts in this column are “double trigger” in nature, which means that payment of these amounts is conditioned upon a qualifying termination of employment on following the closing of the merger. Messrs. Zerza, Bulatao and Dixton are each entitled to terminate their employment within 60 days following the six-month anniversary of the effective time, which will be deemed a qualifying termination.
Financing of the Merger
The merger is not conditioned on Microsoft’s ability to obtain financing. Microsoft has represented to Activision Blizzard that it has available, and will have available at the effective time, the funds necessary to pay the aggregate merger consideration, including (i) payments to Activision Blizzard’s stockholders of the amounts due under the merger agreement and (ii) payments in respect of certain of Activision Blizzard’s outstanding equity awards pursuant to the merger agreement.
U.S. Federal Income Tax Consequences of the Merger
The following is a discussion of the U.S. federal income tax consequences of the merger to U.S. Holders (as defined below) that exchange their shares of Activision Blizzard common stock for the merger consideration. This discussion is limited to U.S. Holders and does not address any tax consequences arising under the Medicare contribution tax on net investment income or the alternative minimum tax, U.S. federal non-income tax laws or the laws of any state or local or non-U.S. jurisdiction. This discussion is based upon the Code, the regulations of the U.S. Treasury Department and judicial authorities and published positions of the Internal Revenue Service, which we refer to as the “IRS,” all as currently in effect on the date of this proxy statement. These laws may change or be subject to differing interpretations, possibly retroactively, and any change or differing interpretation could affect the continuing validity of this discussion. We have not sought and do not intend to seek a ruling from the IRS regarding the matters discussed below. This discussion assumes that the merger will be consummated in accordance with the merger agreement and as described in this proxy statement.
If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of Activision Blizzard common stock, the tax treatment of a person treated as a partner in such partnership for U.S. federal income tax purposes generally will depend upon the status of the partner and the activities of the partnership. Such partnerships and partners in such partnerships should consult their tax advisors about the tax consequences of the merger to them.
Holders are urged to consult with their tax advisors as to the specific tax consequences of the merger to them in light of their particular situations, including the applicability and effect of any U.S. federal, state, local or non-U.S. tax laws.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Activision Blizzard 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 other entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia;
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a trust if it (i) is subject to the primary supervision of a U.S. court and one or more United States persons (as defined in Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person; or
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an estate that is subject to U.S. federal income tax on its income regardless of its source.
This discussion assumes that U.S. Holders of Activision Blizzard common stock hold their shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to U.S. Holders in light of their particular circumstances or that may be applicable to U.S. Holders if such holders are subject to special treatment under U.S. federal income tax laws, including any holder that is:
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a bank or other financial institution;
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a tax-exempt or governmental organization;
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a partnership, subchapter S corporation or other pass-through entity or an investor in the foregoing;
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an insurance company;
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a regulated investment company or real estate investment trust;
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a mutual fund;
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a broker or dealer in securities, stocks, commodities or currencies;
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a trader in securities who elects the mark-to-market method of accounting for securities;
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a U.S. expatriate, former citizen or long-term resident of the United States;
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a person who actually or constructively owned more than five percent (5%) (by vote or value) of the outstanding shares of Activision Blizzard common stock at any time during the five-year period ending on the date of the merger;
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an Activision Blizzard stockholder who received Activision Blizzard common stock through the exercise of employee stock options or through a tax-qualified retirement plan or otherwise as compensation;
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a person that has a functional currency other than the U.S. dollar;
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a person subject to special tax accounting rules as a result of any item of gross income with respect to Activision Blizzard common stock being taken into account in an “applicable financial statement” as defined in Section 451(b) of the Code;
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a holder of options granted under any Activision Blizzard benefit plan; or
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an Activision Blizzard stockholder who holds Activision Blizzard common stock as part of a hedge, straddle or a constructive sale or conversion transaction.
Activision Blizzard stockholders that are not U.S. Holders may have different U.S. federal income tax consequences than those described below and are urged to consult with their own tax advisors regarding the tax treatment of the merger to them under U.S. and non-U.S. laws.
The following discussion does not address the tax consequences of any transactions effectuated before, after or at the same time as the merger, whether or not in connection with the merger, including, without limitation, the tax consequences to holders of options, warrants or similar rights to purchase shares of Activision Blizzard common stock.
Tax Consequences of the Merger
The receipt of the merger consideration by U.S. Holders in exchange for shares of Activision Blizzard common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. Therefore, a U.S. Holder who receives the merger consideration in exchange for shares of Activision Blizzard common stock pursuant to the merger generally will recognize capital gain or loss equal to the difference, if any, between (i) the amount of cash received in the merger and (ii) the U.S. Holder’s adjusted tax basis in its Activision Blizzard common stock exchanged therefor.
A U.S. Holder’s adjusted tax basis in its shares of Activision Blizzard common stock will generally equal the price the U.S. Holder paid for such shares. Capital gains of a non-corporate U.S. Holder will generally be eligible for preferential U.S. federal income tax rates that are applicable to long-term capital gains if the U.S. Holder has held its Activision Blizzard common stock for more than one year as of the effective date of the merger. Capital gains of a non-corporate U.S. Holder will generally be subject to short-term capital gains (and taxed at ordinary income tax rates) if the U.S. Holder has held its Activision Blizzard common stock for one year or less as of the date of the merger. The deductibility of capital losses is subject to limitations. If a U.S. Holder acquired different blocks of Activision Blizzard common stock at different times or different prices, the U.S. Holder must determine its tax basis and holding period separately for each block of Activision Blizzard common stock.
Information Reporting and Backup Withholding
Payments of cash to a U.S. Holder of Activision Blizzard common stock pursuant to the merger may, under certain circumstances, be subject to information reporting and backup withholding. To avoid backup withholding, a U.S. Holder should timely complete and return an IRS Form W-9, certifying that such U.S. Holder is a “United States person” as defined under the Code, the taxpayer identification number provided is correct and such U.S. Holder is not subject to backup withholding. Certain types of U.S. Holders (including, with respect to certain types of payments, corporations) generally are not subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a Holder’s U.S. federal income tax liability if the required information is furnished by such Holder on a timely basis to the IRS.
U.S. Holders are urged to consult their own tax advisors as to the particular tax consequences of the merger, including the effect of U.S. federal, state and local tax laws or non-U.S. tax laws.
The foregoing summary of U.S. federal income tax consequences is for general informational purposes only and does not constitute tax advice. All holders are urged to consult their own tax advisors with respect to the application of U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the U.S. federal non-income tax rules, or under the laws of any state, local, non-U.S. or other taxing jurisdiction.
Regulatory Approvals
General
Activision Blizzard and Microsoft have agreed to use their reasonable best efforts to comply with all regulatory filing and notification requirements and obtain all regulatory approvals required or recommended to consummate the merger and the other transactions contemplated by the merger agreement. These approvals include approval under, or notifications pursuant to, the HSR Act and the competition laws of the European Union, the United Kingdom, China and certain other jurisdictions.
In addition, each of Activision Blizzard and Microsoft have agreed to (1) cooperate and coordinate with each other to make such filings; (2) use its reasonable best efforts to supply the other with any information that may be required in order to make such filings; (3) use its reasonable best efforts to supply any additional information that reasonably may be requested to obtain regulatory approvals; (4) use its reasonable best efforts to take all action necessary to obtain regulatory approvals as soon as practicable; and (5) provide notice to the other party if it plans to participate in any meeting or substantive conversation with any governmental authority with respect to the merger. Microsoft will, after good faith consultation with Activision Blizzard and after considering, in good faith, Activision Blizzard’s views and comments, control and lead all communications, negotiations, timing decisions and strategy on behalf of the parties relating to regulatory approvals.
If and to the extent necessary to obtain regulatory approval of the merger, Microsoft, Sub and, solely to the extent requested by Microsoft, Activision Blizzard will (1) offer, negotiate, commit to and effect, by consent decree, hold separate order or otherwise, (A) the sale, divestiture, license or other disposition of assets (whether tangible or intangible), rights, products or businesses of Activision Blizzard; and (B) any other restrictions on the activities of Activision Blizzard; and (2) contest, defend and appeal any legal proceedings, whether judicial or administrative, challenging the merger agreement or the consummation of the merger. Notwithstanding the foregoing, Microsoft is not required to offer, negotiate, commit to, effect or otherwise take any action that would reasonably be expected to (x) have a material adverse impact on Activision Blizzard and its subsidiaries, taken as a whole, (y) have a material impact on the benefits expected to be derived from the merger by Microsoft or (z) have a more than immaterial impact on any business or product line of Microsoft.
HSR Act and Other Antitrust Matters
Under the HSR Act and the rules promulgated thereunder, the merger cannot be completed until Activision Blizzard and Microsoft file a notification and report form with the Federal Trade Commission,
which we refer to as the “FTC,” and the Antitrust Division of the Department of Justice, which we refer to as the “DOJ,” under the HSR Act and the applicable waiting period has expired or been terminated. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30-calendar day waiting period following the parties’ filing of their respective HSR Act notification forms or the early termination of that waiting period. On March 3, 2022, Activision Blizzard and Microsoft each received a request for additional information and documentary material (which we refer to as a “Second Request”) from the FTC in connection with the FTC’s review of the transaction. The effect of the Second Request is to extend the waiting period imposed under the HSR Act until the 30th day after substantial compliance by Activision Blizzard and Microsoft with the Second Request, unless the waiting period is terminated earlier by the FTC or as otherwise agreed between the parties and the FTC. Completion of the transaction remains subject to the termination or expiration of the waiting period under the HSR Act and the satisfaction or waiver of the closing conditions specified in the merger agreement. The parties expect to complete the transaction in Microsoft’s fiscal year ending June 30, 2023.
At any time before or after consummation of the merger, notwithstanding the termination of the waiting period under the HSR Act, the FTC or the Antitrust Division of the DOJ could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.
Foreign Competition Laws
European Union. Both Microsoft and Activision Blizzard conduct business across the European Union in multiple Member States. Under Council Regulation (EC) No. 139/2004 of January 2004, as amended, and the rules and regulations promulgated thereunder, which we refer to as the “EU Merger Regulation,” mergers and acquisitions involving parties with worldwide sales and individual European Union sales exceeding specified thresholds must be notified to, and approved by, the European Commission before they are implemented. Microsoft and Activision Blizzard meet the thresholds set out in the EU Merger Regulation and are therefore obligated to (i) notify the European Commission of Microsoft’s acquisition of Activision Blizzard and (ii) wait to implement the merger until after the European Commission has issued a decision declaring the merger compatible with the common market (and/or if the European Commission has referred any aspect of the merger to one or more competent authorities of a European Union member state under Article 9 of the EU Merger Regulation or an EFTA state under Article 6 of Protocol 24 to the EEA Agreement, until each competent authority has issued a clearance or a confirmation that the merger may proceed). As is customary, Microsoft and Activision Blizzard intend to file a formal notification as soon as is reasonably practicable.
United Kingdom. With respect to the United Kingdom, the parties intend to notify the merger to the Competition and Markets Authority, which we refer to as the “CMA,” under the Enterprise Act 2002. The CMA may issue an order that, among other things, prevents the completion of the merger or prevents the integration of the parties’ businesses. The practical effect of this is typically that the merger may not be completed until the merger has been notified to the CMA and the merging parties have obtained clearance. Microsoft and Activision Blizzard intend to file a formal notification as soon as is reasonably practicable.
China. In addition, under the Antimonopoly Law of the People’s Republic of China, transactions involving parties with sales above certain revenue levels cannot be completed until they are reviewed and approved by the State Administration for Market Regulation, which we refer to as “SAMR.” Microsoft and Activision Blizzard have sufficient revenues to exceed SAMR’s statutory thresholds for review, and completion of the merger is therefore conditioned upon SAMR approval. Microsoft and Activision Blizzard intend to submit a draft notification to SAMR as soon as is reasonably practicable.
The merger is also subject to clearance or approval by competition authorities in certain other jurisdictions. The merger cannot be completed until Microsoft and Activision Blizzard obtain clearance to
consummate the merger or applicable waiting periods (or any extension thereof) have expired or been terminated in each applicable jurisdiction. Microsoft and Activision Blizzard, in consultation and cooperation with each other, will file notifications, as required by competition authorities in certain other jurisdictions, as promptly as practicable after the date of the merger agreement. The relevant competition authorities could take such actions under applicable competition laws as they deem necessary or desirable, including seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or to terminate existing relationships and contractual rights. Any one of these requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the completion, or reduce the anticipated benefits, of the merger. There is no assurance that Microsoft and Activision Blizzard will obtain all required regulatory clearances or approvals on a timely basis or at all. Failure to obtain the necessary clearances in any of these jurisdictions could substantially delay or prevent the consummation of the merger, which could negatively impact both Microsoft and Activision Blizzard.
Foreign Direct Investment Laws
Completion of the merger is further subject to receipt of certain other foreign direct investment review approvals, including notification, clearance and/or expiration or termination of any applicable waiting period in certain specified countries.
Other Regulatory Approvals
One or more governmental bodies may impose a condition, restriction, qualification, requirement or limitation when it grants the necessary approvals and consents to the merger. Third parties may also seek to intervene in the regulatory process or litigate to enjoin or overturn regulatory approvals, which actions could significantly impede or even preclude obtaining required regulatory approvals. There is currently no way to predict how long it will take to obtain all of the required regulatory approvals or whether such approvals will ultimately be obtained, and there may be a substantial period of time between the approval by Activision Blizzard stockholders and the completion of the merger.
Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these regulatory clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the merger or require changes to the terms of the merger agreement. These conditions or changes could result in the conditions to the merger not being satisfied.
Legal Proceedings Regarding the Merger
Following the announcement of the transaction, complaints were filed in the United States District Court for the Southern District of New York, the United States District Court for the Eastern District of New York, the United States District Court for the Central District of California, the United States District Court for the Eastern District of Pennsylvania and the United States District Court for the District of Delaware against Activision Blizzard and its directors: Stein v. Activision Blizzard, Inc. et al., No. 1:22-cv-01560 (S.D.N.Y.); Perry v. Activision Blizzard, Inc. et al., No. 1:22-cv-02074 (S.D.N.Y.); Whitfield v. Activision Blizzard, Inc. et al., 2:22-cv-01182 (E.D.N.Y.); Lande v. Activision Blizzard, Inc. et al., No. 1:22-cv-01267 (E.D.N.Y.); Watson v. Activision Blizzard, Inc. et al., No. 2:22-cv-01268 (C.D. Cal.); Rubin v. Activision Blizzard, Inc. et al., No. 2:22-cv-01343 (C.D. Cal.);Baker v. Activision Blizzard, Inc. et al., No. 2:22-cv-00875 (E.D. Pa.); and David v. Activision Blizzard, Inc. et al., No. 1:22-cv-00339 (D. Del.). The complaints each assert violations of Section 14(a) and Section 20(a) of the Exchange Act and allege that the preliminary proxy statement filed in connection with the proposed transaction between Activision Blizzard and Microsoft omitted certain purportedly material information which rendered the preliminary proxy statement incomplete and misleading. Specifically, the complaints allege that the preliminary proxy statement failed to disclose material information regarding the sales process, Activision Blizzard’s projections and the financial analyses of Activision Blizzard’s financial advisor. The complaints seek, among other things, an order to enjoin the transaction unless and until additional disclosures are issued; and, if the transaction closes, damages. The Watson complaint also alleges that Activision Blizzard’s directors entered into the transaction for self-interested reasons, including receipt of personal benefits in the transaction. It is possible additional
lawsuits against Activision Blizzard, the Activision Blizzard Board of Directors or Activision Blizzard’s officers may be filed prior to the consummation of the transaction.
Following the announcement of the transaction, Activision Blizzard also received demands from purported stockholders for books and records pursuant to 8 Del. C. § 220. Among other things, the demands seek to investigate purported breaches of fiduciary duty related to the proposed transaction. Specifically, the demands seek to investigate Mr. Kotick’s role in the proposed transaction with one of the demands alleging that Mr. Kotick’s position at Activision Blizzard was at risk given workplace issues and he chose to pursue a transaction rather than resign. Such demand further alleges that Mr. Kotick agreed to a price range without authorization from the Activision Blizzard Board of Directors and that the Activision Blizzard Board of Directors allowed Mr. Kotick to control the transaction process. Such demand also alleges that the transaction price is inadequate because Microsoft’s opportunistic offer took advantage of Activision Blizzard’s purportedly depressed stock price and that management may have attempted to validate the consideration through downward adjustments to the Long-Range Plan (as defined under the section of this proxy statement entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Background of the Merger”).
In addition, we are subject to legal proceedings regarding workplace and employee concerns, and unionization efforts, as described below.
Pending EEOC Settlement
In September 2021, we entered into a proposed consent decree with the U.S. Equal Employment Opportunity Commission (which we refer to as the “EEOC”) to settle claims regarding certain employment practices. The consent decree is subject to approval by the United States District Court, Central District of California, and, among other things, provides for the creation of an $18 million settlement fund for eligible claimants; upgrading Activision Blizzard policies, practices, and training to further prevent and eliminate harassment and discrimination in its workplaces, including implementing an expanded performance review system with a new equal opportunity focus; and providing ongoing oversight and review of Activision Blizzard’s training programs, investigation policies, disciplinary framework and compliance by appointing a third-party equal opportunity consultant whose findings will be regularly reported to the Activision Blizzard Board of Directors as well as the EEOC. There can be no assurance that the consent decree will be approved by the court. The California Department of Fair Employment and Housing (which we refer to as the “DFEH”) filed a motion to intervene in the matter, seeking to object to the consent decree, including the amount of the settlement fund; and has appealed denial of that motion.
Further information about these matters can be found in Activision Blizzard’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022 (which we refer to as the “2021 10-K”), which is incorporated by reference in this proxy statement.
Other Pending Employment-Related Matters
On July 20, 2021, the DFEH filed an action (which we refer to as the “DFEH Matter”) in the Los Angeles County Superior Court of the State of California against Activision Blizzard, Blizzard Entertainment and Activision Publishing (which we refer to, together, as the “Defendants”), captioned DFEH v. Activision Blizzard, Inc., et al., No. 21STCV26571 (Cal. Super. Ct., L.A. Cty.). The DFEH alleges violations of the California Fair Employment and Housing Act and the California Equal Pay Act. The DFEH filed a First Amended Complaint in the DFEH Matter on August 23, 2021. The Defendants moved to dismiss the First Amended Complaint; the motion was heard on February 15, 2022. The Defendants’ motion was denied in part and granted in part, with the DFEH having leave to further amend with respect to the granted portion. In addition, the Activision Blizzard Board of Directors recently received notice of an investigation by the DFEH and investigatory subpoenas.
On August 3, 2021, a putative class action was filed in the United States District Court, Central District of California, entitled Gary Cheng v. Activision Blizzard, Inc., et al., No. 2:21-cv-06240-PA-JEM (C.D. Cal.). Plaintiffs purport to represent a class of Activision Blizzard shareholders who purchased stock between February 28, 2017 and November 16, 2021, and assert claims under Sections 10(b) and 20(a) of the Exchange Act against Activision Blizzard and five current or former officers. Beginning on August 6,
2021, three putative shareholder derivative actions were filed in California Superior Court, County of Los Angeles, and those cases have now been consolidated in an action entitled York County on Behalf of County of York Retirement Fund v. Robert A. Kotick, et al., No. 21STCV28949 (Cal. Super. Ct., L.A. Cty.). On November 15, 2021, a putative shareholder derivative action was filed in the United States District Court, Central District of California, entitled Luke Kahnert v. Robert A. Kotick, et al., No. 2:21-cv-08968-PA-JEM (C.D. Cal.). The putative derivative actions collectively assert claims on Activision Blizzard’s behalf against thirteen current or former officers and directors for breach of fiduciary duty, corporate waste, unjust enrichment, misappropriation, contribution, and alleged violation of Section 14(a) of the Exchange Act based on allegations similar to those in the DFEH Matter and in the securities class action. Activision Blizzard is named as a nominal defendant. In addition, the plaintiffs in the Kahnert action sought leave to amend their complaint to assert putative class claims for breach of fiduciary duty against Activision Blizzard’s directors in connection with the proposed acquisition by Microsoft, along with an aiding and abetting claim against Microsoft. Specifically, the proposed amended complaint alleges that Activision Blizzard’s directors entered into the transaction pursuant to a flawed and conflicted process allegedly designed to absolve the directors from liability for failure to oversee Activision Blizzard in connection with the DFEH Matter and the SEC, securities and derivative matters. Plaintiffs also claim that Microsoft was aware of the directors’ and officers’ purported breaches of fiduciary duty by virtue of the public allegations, and nonetheless agreed to transaction terms that unjustly reward the individual defendants. Defendants opposed Plaintiffs’ motion for leave to amend and the Court denied the motion in an order dated March 4, 2022.
Activision Blizzard is cooperating with an investigation by the SEC regarding disclosures on employment matters and related issues including responding to subpoenas from the SEC. The SEC has also issued subpoenas to a number of current and former executives and other employees in connection with this matter.
On March 3, 2022, a complaint was filed in the Superior Court of the State of California, County of Los Angeles, captioned Moynihan & Moynihan v. Activision Publishing, Inc., No. 22STCV07890 (Cal. Super. Ct., L.A. Cty.). The complaint asserts claims for wrongful death, work environment sexual harassment and failure to prevent harassment in connection with the death of a female employee.
Further information about these matters, to the extent they were filed by the filing date of the 2021 10-K, can be found in the 2021 10-K, which is incorporated by reference in this proxy statement.
Unionization Efforts
Activision Blizzard’s employees in the U.S. are not covered by collective bargaining agreements. At Raven Software, one of our studios, the Communications Workers of America has filed a petition to represent a unit of employees, and the National Labor Relations Board will oversee the election process, including a determination of the appropriate set of employees who would be included in any bargaining unit (and thus participate in the election on potential unionization).
Further information about these matters can be found in the 2021 10-K, which is incorporated by reference in this proxy statement.
