PROXY SUMMARY
This summary highlights selected information from this proxy statement related to the merger (as defined below). This summary may not contain all of the information that is important to you. To understand the merger more fully and for a more complete description of the legal terms of the merger, you should read carefully this entire proxy statement, the annexes to this proxy statement, including the merger agreement (as defined below), and the documents incorporated by reference in this proxy statement. You may obtain the documents and information incorporated by reference in this proxy statement without charge by following the instructions under the section entitled “Where You Can Find More Information” beginning on page . The merger agreement is attached as Annex A to this proxy statement. Important qualifications with respect to the representations, warranties, covenants and agreements included in the merger agreement are set forth in the section of this proxy statement entitled “Terms of the Merger Agreement” beginning on page . We encourage you to read the merger agreement, which is the legal document that governs the merger, carefully and in its entirety.
Except as otherwise specifically noted in this proxy statement or as the context otherwise requires, “Activision Blizzard,” the “Company,” “we,” “our,” “us” and similar words in this proxy statement refer to Activision Blizzard, Inc. including, in certain cases, its subsidiaries. Throughout this proxy statement we refer to Microsoft Corporation, a Washington corporation, as “Microsoft” and to Anchorage Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Microsoft, as “Sub.” In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger (as it may be amended from time to time), dated as of January 18, 2022, by and among Activision Blizzard, Microsoft and Sub, as the “merger agreement.” All references to the “merger” refer to the merger of Sub with and into Activision Blizzard with Activision Blizzard surviving as a wholly owned subsidiary of Microsoft. Activision Blizzard, following completion of the merger, is sometimes referred to in this proxy statement as the “surviving corporation.”
Parties Involved in the Merger (page )
Activision Blizzard, Inc.
Activision Blizzard is a leading global developer and publisher of interactive entertainment content and services. We develop and distribute content and services on video game consoles, personal computers and mobile devices. We also operate esports leagues and offer digital advertising within some of our content. Our objective is to connect and engage the world through epic entertainment by continuing to be a worldwide leader in the development, publishing and distribution of high-quality interactive entertainment content and services, as well as related media, that deliver engaging entertainment experiences to our network of connected players on a year-round basis.
Based upon our organizational structure, we conduct our business through three reportable segments, each of which is a leading global developer and publisher of interactive entertainment content and services based primarily on our internally developed intellectual properties: Activision Publishing, Inc. (which we refer to as “Activision”), Blizzard Entertainment, Inc. (which we refer to as “Blizzard”) and King Digital Entertainment plc (which we refer to as “King”). Activision delivers content through both paid-for and free-to-play offerings and primarily generates revenue from full-game and in-game sales, as well as by licensing software to third-party or related-party companies that distribute Activision products. Activision’s key product franchise is Call of Duty®, a first-person action franchise. Activision also includes the activities of the Call of Duty LeagueTM, a global professional esports league with city-based teams. Blizzard delivers content through both paid-for and free-to-play offerings and primarily generates revenue from full-game and in-game sales, subscriptions and by licensing software to third-party or related-party companies that distribute Blizzard products. Blizzard also maintains a proprietary online gaming service, Battle.net®, which facilitates digital distribution of Blizzard content and selected Activision content, online social connectivity and the creation of user-generated content. Blizzard’s key product franchises include: Warcraft®, which includes World of Warcraft, a subscription-based massive multi-player online role-playing game, and Hearthstone®, an online collectible card game based in the Warcraft universe; Diablo®, an action role-playing franchise; and Overwatch®, a team-based first-person action franchise. Blizzard also includes the activities of the Overwatch League™, a global professional esports league with city-based teams. King delivers content through free-to-play offerings and primarily generates revenue from in-game sales and in-game advertising on the mobile platform. King’s key product franchise is Candy Crush™, a “match three” franchise.
We also engage in other businesses that do not represent reportable segments, including the Activision Blizzard distribution business, which consists of operations in Europe that provide warehousing, logistics and sales distribution services to third-party publishers of interactive entertainment software, our own publishing operations and manufacturers of interactive entertainment hardware.
Activision Blizzard’s principal executive offices are located at 2701 Olympic Boulevard, Building B, Santa Monica, CA 90404.
Activision Blizzard was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992. In connection with the 2008 business combination by and among the Company (then known as Activision, Inc.), Vivendi S.A. and Vivendi Games, Inc., pursuant to which we acquired Blizzard Entertainment, Inc., we were renamed Activision Blizzard, Inc. On February 23, 2016, we acquired King Digital Entertainment plc, a leading interactive mobile entertainment company, by purchasing all of its outstanding shares. Activision Blizzard common stock, par value $0.000001 per share, which we refer to as “Activision Blizzard common stock,” is currently listed on the Nasdaq Global Select Market, which we refer to as “Nasdaq,” under the symbol “ATVI.”
Additional information about Activision Blizzard and its subsidiaries is included in documents incorporated by reference in this proxy statement (see the section entitled “Where You Can Find More Information” beginning on page ) and on its website: www.activisionblizzard.com. The information provided or accessible through Activision Blizzard’s website is not part of, or incorporated by reference in, this proxy statement.
Microsoft Corporation
Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more, and is a leader in enabling digital transformation for the era of an intelligent cloud and intelligent edge. Founded in 1975, Microsoft operates worldwide and has offices in more than 100 countries. Microsoft develops and supports a wide range of software, services, devices, and solutions that deliver new opportunities, greater convenience and enhanced value to people’s lives. Microsoft offers an array of services, including cloud-based solutions, that provide customers with software, services, platforms and content. Microsoft’s products include operating systems, cross-device productivity applications, server applications, business solution applications, desktop and server management tools, software development tools, and games. Microsoft also designs and sells devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.
Microsoft’s principal executive offices are located at One Microsoft Way, Redmond, WA 98052. Microsoft’s common stock is listed on Nasdaq under the symbol “MSFT.”
Additional information about Microsoft and its subsidiaries is included in documents filed by Microsoft with the SEC and on its website: www.microsoft.com. The information provided or accessible through Microsoft’s website or filed by Microsoft with the SEC are not part of, or incorporated by reference in, this proxy statement.
Anchorage Merger Sub Inc.
Sub is a Delaware corporation and a wholly owned subsidiary of Microsoft, formed on January 13, 2022 solely for the purpose of engaging in the merger and the other transactions as contemplated under the merger agreement. Upon completion of the merger, Sub will cease to exist.
Certain Effects of the Merger on Activision Blizzard (page )
Upon the terms and subject to the conditions of the merger agreement and in accordance with the applicable provisions of the Delaware General Corporation Law, which we refer to as the “DGCL,” on the closing date and at the time at which the merger will become effective, which we refer to as the “effective time,” Sub will merge with and into Activision Blizzard, with Activision Blizzard continuing as the surviving corporation and a wholly owned subsidiary of Microsoft. As a result of the merger, Activision Blizzard will cease to be a publicly traded company. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation following the effective time.
Effect on Activision Blizzard if the Merger is Not Completed (page )
If the merger agreement is not adopted by Activision Blizzard stockholders or if the merger is not completed for any other reason, Activision Blizzard stockholders will not receive any payment for their shares of Activision Blizzard common stock. Instead, Activision Blizzard will remain an independent public company, Activision Blizzard common stock will continue to be listed and traded on Nasdaq and registered under the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act,” and Activision Blizzard will continue to file periodic reports with the U.S. Securities and Exchange Commission, which we refer to as the “SEC.”
Under certain specified circumstances, Activision Blizzard will be required to pay Microsoft a termination fee upon the termination of the merger agreement, as described under the section entitled “Terms of the Merger Agreement — Termination Fee” beginning on page .
Under certain specified circumstances, Microsoft will be required to pay Activision Blizzard a reverse termination fee upon the termination of the merger agreement, as described under the section entitled “Terms of the Merger Agreement — Reverse Termination Fee” beginning on page .
Merger Consideration (page )
If the merger is completed, at the effective time, and without any action on the part of the holder, each share of Activision Blizzard common stock issued and outstanding immediately prior to the effective time (other than shares of Activision Blizzard common stock (i) held by Activision Blizzard as treasury stock (excluding certain shares held by a wholly owned subsidiary of Activision Blizzard, which shares will remain outstanding and unaffected by the merger), (ii) owned by Microsoft or Sub or any of their respective direct or indirect wholly owned subsidiaries and (iii) held by stockholders who have neither voted in favor of adoption of the merger agreement nor consented thereto in writing and who have properly and validly exercised their statutory rights of appraisal in respect of such shares in accordance with Section 262 of the DGCL, in each case immediately prior to the effective time), and certain equity awards, the treatment of which is described under the sections 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 — Treatment of Equity Compensation” and “Terms of the Merger Agreement — Conversion of Shares — Treatment of Equity Compensation” beginning on pages and , respectively, will be converted into the right to receive $95.00 per share in cash, without interest, which we refer to as the “merger consideration,” less any applicable withholding taxes. All shares, when so converted at the effective time into the right to receive the merger consideration, will automatically be cancelled and will cease to exist.
As described under the section entitled “Terms of the Merger Agreement — Exchange and Payment Procedures” beginning on page , at or promptly following the effective time, Microsoft will deposit, or cause to be deposited, with a designated paying agent (as defined herein) a cash amount in immediately available funds sufficient in the aggregate for the payment of the merger consideration.
After the merger is completed, under the terms and conditions of the merger agreement, you will have the right to receive the per share merger consideration, but you no longer will have any rights as an Activision Blizzard stockholder as a result of the merger (except for the right to receive the per share merger consideration and except that stockholders who properly exercise and perfect, and do not validly withdraw or subsequently lose, their demand for appraisal will instead have such rights as granted by Section 262 of the DGCL, as described under the section entitled “Appraisal Rights” beginning on page ).
The Special Meeting (page )
Date, Time and Place
The special meeting of our stockholders, which we refer to as the “special meeting,” will be held on April 28, 2022, at 9:00 a.m., Pacific time.
Due to the public health impact of the coronavirus (COVID-19) and to support the well-being of our employees and stockholders, Activision Blizzard will hold the special meeting virtually via the Internet at http://www.viewproxy.com/atvism/2022. After registering at http://www.viewproxy.com/atvism/2022, you will
receive a meeting invitation by email with your unique join link along with a password prior to the meeting date. You will not be able to attend the special meeting physically in person. For purposes of attendance at the special meeting, all references in this proxy statement to “present in person” or “in person” shall mean virtually present at the special meeting.
Purpose
At the special meeting, we will ask our stockholders of record as of the close of business on March 14, 2022, which we refer to as the “record date,” to consider and vote on the following proposals:
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the adoption of the merger agreement, a copy of which is attached as Annex A to the proxy statement accompanying this proxy statement, which we refer to as the “merger proposal”;
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the approval, by means of a non-binding, advisory vote, of compensation that will or may become payable to the named executive officers of Activision Blizzard in connection with the merger, which we refer to as the “merger-related compensation proposal”; and
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the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to allow time to solicit additional proxies if there are insufficient votes to adopt the merger agreement at the time of the special meeting, which we refer to as the “adjournment proposal.”
Record Date; Shares Entitled to Vote
You are entitled to vote at the special meeting if you owned shares of Activision Blizzard common stock as of the close of business on the record date. You will have one vote at the special meeting for each share of Activision Blizzard common stock you owned as of the close of business on the record date.
Quorum
The presence, in person or by proxy, of the holders of a majority of the voting power of the outstanding shares of Activision Blizzard common stock entitled to vote at the special meeting constitutes a quorum at the special meeting. As of the close of business on the record date, there were 780,922,900 shares of Activision Blizzard common stock outstanding and entitled to vote. If you submit a validly executed proxy by mail, telephone or the Internet, you will be considered a part of the quorum. In addition, abstentions will be counted for purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum. As a result, 390,461,451 shares of Activision Blizzard common stock must be represented, in person or by proxy, to have a quorum. In the event that a quorum is present at the special meeting and there are not sufficient votes at the time of the special meeting to approve the merger proposal, it is expected that the special meeting would be adjourned to allow time to solicit additional proxies if the holders of a majority of the shares of Activision Blizzard common stock entitled to vote which are present, in person or by proxy, approve an adjournment. If a quorum is not present, the special meeting may be (and it is expected that the special meeting would be) adjourned by the presiding person of the meeting pursuant to the authority granted in Activision Blizzard’s bylaws until a quorum is obtained, subject to the terms of the merger agreement.
Required Vote
The affirmative vote of the holders of a majority of the shares of Activision Blizzard common stock outstanding and entitled to vote thereon is required to approve the merger proposal, which we refer to as “stockholder approval.” This means that the proposal will be approved if the number of shares voted “FOR” that proposal is greater than 50% of the total number of shares of our outstanding common stock as of the record date. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the merger proposal.
The affirmative vote of a majority of the voting power of the shares of Activision Blizzard common stock entitled to vote which are present, in person or by proxy, provided a quorum is present, is required to approve, by means of a non-binding, advisory vote, the merger-related compensation proposal. This means that the proposal will be approved if the number of shares voted “FOR” that proposal is greater than 50% of the total number of shares of Activision Blizzard common stock entitled to vote which are present, in
person or by proxy, provided a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the merger-related compensation proposal, and broker non-votes will not have any effect on the merger-related compensation proposal (assuming a quorum is present).
The affirmative vote of a majority of the voting power of the shares of Activision Blizzard common stock entitled to vote which are present, in person or by proxy, provided a quorum is present, is required to approve the adjournment proposal. This means that the adjournment proposal will be approved if the number of shares voted “FOR” that proposal is greater than 50% of the total number of shares of Activision Blizzard common stock entitled to vote which are present, in person or by proxy, provided a quorum is present. Whether or not there is a quorum, the presiding person at the special meeting has the power to adjourn the special meeting from time to time until a quorum is present. Abstentions will have the same effect as a vote “AGAINST” the adjournment proposal, and broker non-votes will not have any effect on the adjournment proposal (assuming a quorum is present).
Share Ownership of Activision Blizzard’s Directors and Executive Officers
As of the close of business on March 8, 2022, Activision Blizzard’s directors and executive officers beneficially owned and were entitled to vote, in the aggregate, 6,060,301 shares of Activision Blizzard common stock (excluding any shares of Activision Blizzard common stock that would be delivered upon exercise or conversion of stock options or other equity-based awards), which represented approximately 0.78% of the outstanding shares of Activision Blizzard common stock on that date.
It is expected that Activision Blizzard’s directors and executive officers will vote all of their shares “FOR” the merger proposal, “FOR” the merger-related compensation proposal and “FOR” the adjournment proposal, although none of them has entered into any agreement requiring them to do so.
Voting of Proxies
Any Activision Blizzard stockholder of record entitled to vote at the special meeting may submit a proxy by returning a signed and dated proxy card by mail, in the accompanying prepaid reply envelope, or voting electronically over the Internet or by telephone by following the instructions set forth on the enclosed proxy card or may vote in person by appearing virtually at the special meeting. If your shares are held in a brokerage account at a brokerage firm, bank, broker-dealer or similar organization, then you are the “beneficial owner” of shares held in “street name,” and you should instruct your broker, bank or other nominee on how you wish to vote your shares of Activision Blizzard common stock using the instructions provided by your broker, bank or other nominee on the enclosed voting instruction form. Under applicable stock exchange rules, if you fail to instruct your broker, bank or other nominee on how to vote your shares, your broker, bank or other nominee only has discretion to vote your shares on discretionary matters. Each of the merger proposal, the merger-related compensation proposal and the adjournment proposal are non-discretionary matters, and brokers, banks and other nominees therefore cannot vote on these proposals without your instructions. Therefore, it is important that you cast your vote or instruct your broker, bank or other nominee on how you wish to vote your shares.
If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is exercised at the special meeting by submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy, validly executing another proxy card with a later date and returning it to us so that we receive it prior to the special meeting or virtually attending the special meeting and voting in person. Proxies submitted electronically over the Internet or by telephone must be received by 8:59 p.m., Pacific Time, on April 27, 2022. If you hold your shares of Activision Blizzard common stock in “street name,” you should contact your broker, bank or other nominee for instructions regarding how to change your vote.
Recommendation of Our Board of Directors and Reasons for the Merger (page )
The Activision Blizzard Board of Directors, after considering various factors described under the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Recommendation of Our Board of Directors and Reasons for the Merger” beginning on page , unanimously (i) determined that the terms of the merger agreement and the transactions contemplated thereby are advisable, fair to and in
the best interests of Activision Blizzard and its stockholders; (ii) declared advisable, approved and authorized in all respects the execution and delivery of the merger agreement by Activision Blizzard, the performance by Activision Blizzard of its obligations thereunder, and the consummation of the transactions contemplated thereby, upon the terms and conditions set forth therein; (iii) directed that the adoption of the merger agreement be submitted to a vote at a meeting of the stockholders of Activision Blizzard; and (iv) recommended that Activision Blizzard stockholders adopt the merger agreement.
The Activision Blizzard Board of Directors unanimously recommends that you vote (i) “FOR” the merger proposal, (ii) “FOR” the merger-related compensation proposal and (iii) “FOR” the adjournment proposal.
Opinion of Activision Blizzard’s Financial Advisor (page )
Activision Blizzard has engaged Allen & Company as financial advisor to Activision Blizzard in connection with the merger. In connection with this engagement, Allen & Company delivered a written opinion, dated January 17, 2022, to the Activision Blizzard Board of Directors as to the fairness, from a financial point of view and as of the date of such opinion, of the merger consideration to be received by holders of Activision Blizzard common stock (other than, to the extent applicable, Microsoft, Sub and their respective affiliates) pursuant to the merger agreement. The full text of Allen & Company’s written opinion, dated January 17, 2022, which describes the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken, is attached to this proxy statement as Annex C and is incorporated by reference herein in its entirety. The description of Allen & Company’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of Allen & Company’s opinion. Allen & Company’s opinion and advisory services were intended for the benefit and use of the Activision Blizzard Board of Directors (in its capacity as such) in connection with its evaluation of the merger consideration from a financial point of view and did not address any other terms, aspects or implications of the merger. Allen & Company’s opinion did not constitute a recommendation as to the course of action that Activision Blizzard (or the Activision Blizzard Board of Directors or any committee thereof) should pursue in connection with the merger or otherwise address the merits of the underlying decision by Activision Blizzard to engage in the merger, including in comparison to other strategies or transactions that might be available to Activision Blizzard or which Activision Blizzard might engage in or consider. Allen & Company’s opinion does not constitute advice or a recommendation to any securityholder or other person as to how to vote or act on any matter relating to the merger or otherwise.
For a more complete description, see the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Opinion of Activision Blizzard’s Financial Advisor” beginning on page .
Financing of the Merger (page )
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.
Treatment of Equity Compensation (page )
Pursuant to our equity incentive plans, we have granted equity awards with respect to Activision Blizzard common stock in the form of stock options and stock units (i.e., restricted stock units, which we refer to as “RSUs” and performance stock units, which we refer to as “PSUs”). Our executive officers hold options, RSUs, which represent a right to receive shares of Activision Blizzard common stock based on service over a time-based vesting schedule, and PSUs, which represent a right to receive shares of Activision Blizzard common stock ranging from 0 to 125% (and, in some cases, up to 250%) of the target number of shares based on both service over a time-based vesting schedule and achievement of specified performance goals over a specified performance period. Our non-employee directors hold options and RSUs, which represent a right to receive shares of Activision Blizzard common stock, subject to vesting requirements of the underlying equity award, on a specified future date or event, such as a separation from service. The merger agreement provides for the treatment set forth below with respect to outstanding equity awards:
Stock Options
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Each outstanding option to purchase Activision Blizzard common stock granted pursuant to our equity incentive plans that (i) is vested as of immediately prior to the effective time, or (ii) will become vested by its terms at the effective time will be cancelled and converted into the right to receive the merger consideration for each share of Activision Blizzard common stock that would have been issuable upon exercise of such option immediately prior to the effective time, less the applicable option exercise price for each such share of Activision Blizzard common stock underlying such option and any applicable withholding taxes.
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Each option that is outstanding as of immediately prior to the effective time, and is not cancelled and converted as described above, and has an exercise price per share of Activision Blizzard common stock that is less than the merger consideration, will be, as of the effective time and as determined by Microsoft, (x) assumed by Microsoft and converted into a nonqualified stock option or (y) converted into a nonqualified stock option granted pursuant to Microsoft’s equity incentive plans, in either case, in respect of a number of shares of common stock of Microsoft equal to the product (rounded down to the nearest whole share) of (i) the number of shares of Activision Blizzard common stock subject to such assumed option as of immediately prior to the effective time (determined based on target performance levels, as applicable) multiplied by (ii) a fraction (A) the numerator of which is the merger consideration and (B) the denominator of which is Microsoft’s stock price (i.e., the volume weighted average price per share rounded to four decimal places (with amounts of 0.00005 and above rounded up) of common stock of Microsoft on Nasdaq for the five consecutive trading days ending with the last trading day ending immediately prior to the closing date) (which we refer to as the “exchange ratio”), at an exercise price per share of common stock of Microsoft equal to (i) the exercise price of such option divided by (ii) the exchange ratio (rounded up to the nearest whole cent) rounded down to the nearest whole number of shares. In each case of clauses (x) and (y) of this paragraph, the terms and conditions relating to vesting and exercisability will remain the same with respect to Activision Blizzard options subject to time-based vesting, and with respect to Activision Blizzard options subject to performance-based vesting, will be converted into time-based vesting options (determined based on target performance levels) that will vest at the conclusion of the original performance period.
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In the event that the exercise price per share under any option is equal to or greater than the merger consideration, such option will be cancelled as of the effective time without payment therefor and will have no further force or effect.
Stock Units
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Each outstanding award of RSUs or PSUs granted pursuant to Activision Blizzard’s equity incentive plans that (i) is vested as of immediately prior to the effective time, (ii) will become vested by its terms at the effective time or (iii) is granted to a non-employee member of the Activision Blizzard Board of Directors, will, as of the effective time, be cancelled and converted into the right to receive the merger consideration with respect to each share of Activision Blizzard common stock subject to such award, less any applicable withholding taxes.
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Each outstanding award of RSUs or PSUs that is outstanding as of immediately prior to the effective time and is not cancelled and converted as described above, will, as of the effective time, be, as determined by Microsoft, (x) assumed by Microsoft and converted into a stock-based award or (y) converted into a stock-based award pursuant to Microsoft’s equity incentive plans, in either case, in respect of a number of shares of common stock of Microsoft equal to the product (rounded down to the nearest whole share) of (i) the number of shares of Activision Blizzard common stock 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 Internal Revenue Code (which we refer to as 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 (page )
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.
For a more complete description, see the section 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” beginning on page .
Appraisal Rights (page )
Any shares of Activision Blizzard common stock that are issued and outstanding immediately prior to the effective time and as to which the holders thereof have not voted in favor of the merger proposal and are entitled to demand, and properly demand, appraisal of such shares of Activision Blizzard common stock pursuant to Section 262 of the DGCL and, as of the effective time, have neither failed to perfect, nor effectively withdrawn or lost rights to appraisal under the DGCL, such shares we collectively refer to as the “dissenting shares,” will not be converted into the right to receive the merger consideration, unless and until such holder will have effectively withdrawn or lost such holder’s right to appraisal under the DGCL, or if a court of competent jurisdiction determines that such holder is not entitled to the relief provided by Section 262 of the DGCL, at which time such shares of Activision Blizzard common stock will be treated as if they had been converted into the right to receive, as of the effective time, the merger consideration, less applicable tax withholdings upon surrender of such certificates or book-entry shares that formerly represented such shares of Activision Blizzard common stock, and such Activision Blizzard common stock will not be deemed dissenting shares, and such holder thereof will cease to have any other rights with respect to such Activision Blizzard common stock. Each holder of dissenting shares will only be entitled to such consideration as may be due with respect to such dissenting shares pursuant to Section 262 of the DGCL.
To exercise your appraisal rights, you must submit a written demand for appraisal to Activision Blizzard before the vote is taken on the merger proposal, you must not submit a blank proxy or otherwise vote in favor of the merger proposal and you must continue to hold the shares of Activision Blizzard common stock of record through the effective time. Your failure to follow the procedures specified under the DGCL may result in the loss of your appraisal rights. The DGCL requirements for exercising appraisal rights are described in further detail in this proxy statement, and the relevant section of the DGCL regarding appraisal rights is reproduced and attached as Annex B to this proxy statement. If you hold your shares of Activision Blizzard common stock through a broker, bank or other nominee and you wish to exercise appraisal rights, you should consult with your broker, bank or other nominee to determine the appropriate procedures
for the making of a demand for appraisal by such broker, bank or other nominee. Stockholders should refer to the discussion under the section entitled “Appraisal Rights” beginning on page and the DGCL requirements for exercising appraisal rights reproduced and attached as Annex B to this proxy statement.
U.S. Federal Income Tax Consequences of the Merger (page )
For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined in the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page of this proxy statement) in exchange for such U.S. Holder’s shares of Activision Blizzard common stock pursuant to the merger will generally result in the recognition of gain or loss in an amount measured by the difference, if any, between the cash such U.S. Holder receives in the merger and such U.S. Holder’s adjusted tax basis in the shares of Activision Blizzard common stock surrendered in the merger.
For a more complete description of the U.S. federal income tax consequences of the merger, see the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page of this proxy statement.
You should be aware that the tax consequences to you of the merger may depend upon your own situation. In addition, you may be subject to U.S. federal, state, local or non-U.S. tax laws that are not discussed in this proxy statement. You should therefore consult with your own tax advisor(s) for a full understanding of the tax consequences to you of the merger.
Regulatory Approvals (page )
Under the merger agreement, the merger cannot be completed until (1) the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the “HSR Act,” has expired or been terminated; and (2) the approval or clearance of the merger has been granted under the antitrust and foreign investment laws of certain specified countries. For more information, see the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Regulatory Approvals” beginning on page of this proxy statement.
Legal Proceedings Regarding the Merger (page )
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 as described in the sections entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Pending EEOC Settlement” beginning on page of this proxy statement and “Proposal 1: Adoption of the Merger Agreement — The Merger — Other Pending Employment-Related Matters” beginning on page of this proxy statement and unionization efforts as described in the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Unionization Efforts” beginning on page of this proxy statement.
No Solicitation of Other Offers (page )
Under the merger agreement, from the date of the merger agreement until the effective time of the merger (or the earlier termination of the merger agreement), Activision Blizzard has agreed to cease and cause to be terminated any discussions or negotiations with and terminate any data room or other diligence access of any person, its affiliates and its representatives (as defined below) relating to an acquisition transaction (as defined under the section of this proxy statement entitled “Terms of the Merger Agreement — No Solicitation of Other Offers”) and to request any person who executed a confidentiality agreement in connection with its consideration of acquiring Activision Blizzard to promptly return or destroy any non-public information furnished by or on behalf of Activision Blizzard prior to the date of the merger agreement.
Under the merger agreement, from the date of the merger agreement until the effective time of the merger (or the earlier termination of the merger agreement), Activision Blizzard has agreed to not, and to not authorize or direct, as the case may be, its subsidiaries and its and their respective affiliates, directors, officers, employees, consultants, agents, representatives and advisors, whom we collectively refer to as “representatives,” to, among other things: (1) solicit, initiate, propose or induce the making, submission or announcement of, or knowingly encourage, facilitate or assist, any proposal, offer or inquiry that constitutes, or is reasonably expected to lead to, an acquisition proposal (as defined under the section of this proxy statement entitled “The Merger Agreement — No Solicitation of Other Offers”); (2) furnish or otherwise provide access to any non-public information regarding, or to the business, properties, assets, books, records or personnel of, Activision Blizzard or its subsidiaries to any person in connection with, or with the intent to induce, the making, submission or announcement of, or knowingly encourage, facilitate or assist, an acquisition proposal or any inquiries or the making of any proposal that would reasonably be expected to lead to an acquisition proposal; (3) participate or engage in discussions or negotiations with any person with respect to an acquisition proposal or with respect to any inquiries from third parties relating to making a potential acquisition proposal; (4) approve, endorse or recommend any proposal that constitutes, or is reasonably expected to lead to, an acquisition proposal; (5) enter into any letter of intent, memorandum of understanding, merger agreement, expense reimbursement agreement, acquisition agreement or other contract relating to an acquisition transaction (as defined under the section of this proxy statement entitled “Terms of the Merger Agreement — No Solicitation of Other Offers”); or (6) authorize or commit to do any of the foregoing.
Notwithstanding these restrictions, under certain circumstances prior to the adoption of the merger agreement by Activision Blizzard stockholders, Activision Blizzard may furnish information to, and enter into negotiations or discussions with, a person regarding a bona fide written acquisition proposal that did not result from a breach of Activision Blizzard’s non-solicitation obligations under the merger agreement if
the Activision Blizzard Board of Directors determines in good faith after consultation with Activision Blizzard’s financial advisor and outside legal counsel that (1) such proposal constitutes or is reasonably likely to lead to a superior proposal (as defined in “Terms of the Merger Agreement — No Solicitation of Other Offers”); and (2) failure to do so would be inconsistent with its fiduciary duties pursuant to applicable law. For more information, see the section of this proxy statement entitled “Terms of the Merger Agreement — No Solicitation of Other Offers” beginning on page of this proxy statement.
Activision Blizzard is not entitled to terminate the merger agreement to enter into an agreement for a superior proposal unless it complies with certain procedures in the merger agreement, including engaging in good faith negotiations with Microsoft during a specified period. If Activision Blizzard terminates the merger agreement in order to accept a superior proposal, it must pay a $2,270,100,000 termination fee to Microsoft. For more information, see the section of this proxy statement entitled “Terms of the Merger Agreement — The Recommendation of the Activision Blizzard Board of Directors; Company Board Recommendation Change” beginning on page of this proxy statement.
Change in the Recommendation of the Activision Blizzard Board of Directors (page )
The Activision Blizzard Board of Directors may not withdraw its recommendation that Activision Blizzard stockholders adopt the merger agreement or take certain similar actions other than, under certain circumstances, if it determines in good faith, after consultation with Activision Blizzard’s financial advisor and outside legal counsel, that failure to do so would be inconsistent with the fiduciary duties of the Activision Blizzard Board of Directors pursuant to applicable law and compliance with certain procedures in the merger agreement, including engaging in good faith negotiations with Microsoft during a specified period. If Microsoft terminates the merger agreement because the Activision Blizzard Board of Directors withdraws its recommendation that Activision Blizzard stockholders adopt the merger agreement or takes certain similar actions, then Activision Blizzard must pay a $2,270,100,000 termination fee to Microsoft. For more information, see the section of this proxy statement entitled “Terms of the Merger Agreement — The Recommendation of the Activision Blizzard Board of Directors; Company Board Recommendation Change” beginning on page of this proxy statement.
Conditions to the Closing of the Merger (page )
The obligations of Activision Blizzard, Microsoft and Sub, as applicable, to consummate the merger are subject to the satisfaction or waiver of certain conditions, including (among other conditions), the following:
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the adoption of the merger agreement by the requisite affirmative vote of Activision Blizzard stockholders;
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the expiration or termination of the applicable waiting period under, or obtaining all requisite consents pursuant to, the HSR Act and the antitrust and foreign investment laws of certain specified countries, without the imposition of a burdensome condition, which we refer to as the “regulatory conditions”;
•
the absence of any temporary restraining order, preliminary or permanent injunction or other judgment or order issued by a court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the merger that is in effect, governmental action or statute, rule, regulation or order having been enacted, entered, enforced or deemed applicable to the merger that, in each case, prohibits, makes illegal or enjoins (or seeks to prohibit, make illegal or enjoin) the consummation of the merger or which imposes or seeks to impose a burdensome condition, which we refer to as the “injunction condition”;
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the absence of any Company Material Adverse Effect (as such term is defined in the section of this proxy statement entitled “Terms of the Merger Agreement — Representations and Warranties”) having occurred after the date of merger agreement that is continuing as of the effective time of the merger;
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the accuracy of the representations and warranties of Microsoft and Sub in the merger agreement, subject to applicable materiality qualifiers, as of the date of the merger agreement and as of the effective time of the merger or the date in respect of which such representation or warranty was specifically made;
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the accuracy of the representations and warranties of Activision Blizzard in the merger agreement, subject to applicable materiality qualifiers, as of the date of the merger agreement and as of the effective time of the merger or the date in respect of which such representation or warranty was specifically made; and
•
the performance and compliance in all material respects by Activision Blizzard, Microsoft and Sub of and with their respective covenants and obligations required to be performed and complied with by them under the merger agreement at or prior to the effective time of the merger.
For more information, see the section of this proxy statement entitled “Terms of the Merger Agreement — Conditions to the Closing of the Merger” beginning on page of this proxy statement.
Termination of the Merger Agreement (page )
The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after the adoption of the merger agreement by Activision Blizzard stockholders, in the following ways:
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by mutual written agreement of Activision Blizzard and Microsoft;
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by either Activision Blizzard or Microsoft if:
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(1) a permanent injunction or similar judgment or order issued by a court or other legal restraint prohibiting consummation of the merger is in effect, or any action taken by a governmental authority prohibiting the merger has become final and non-appealable; or (2) any statute, regulation or order prohibiting the merger has been enacted (except that a party may not terminate the merger agreement pursuant to this provision if such party’s material breach of any provision of the merger agreement is the primary cause of the failure of the merger to be consummated by the termination date (as defined below));
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the merger has not been consummated before 11:59 p.m., Pacific time, on January 18, 2023, which we refer to as the “termination date,” except that (i) if all conditions have been satisfied (other than those conditions to be satisfied at the time of closing of the merger) or waived (to the extent permitted by applicable law) by that date, but on that date the regulatory conditions or the injunction condition (solely with respect to antitrust, competition or foreign investment laws) has not been satisfied, then the termination date will automatically be extended to 11:59 p.m., Pacific time, on April 18, 2023 and (ii) if all conditions have been satisfied (other than those conditions to be satisfied at the time of closing of the merger) or waived (to the extent permitted by applicable law) by April 18, 2023, but on that date the regulatory conditions or the injunction condition (solely with respect to antitrust, competition or foreign investment laws) has not been satisfied, then the termination date will automatically be extended to 11:59 p.m., Pacific time, on July 18, 2023 (except that a party may not terminate the merger agreement pursuant to this provision if such party’s material breach of any provision of the merger agreement is the primary cause of the failure of the merger to be consummated by the termination date); or
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the Activision Blizzard stockholders do not adopt the merger agreement at the special meeting (except that a party may not terminate the merger agreement if such party’s material breach of the merger agreement is the primary cause of the failure to obtain the approval of the Activision Blizzard stockholders at the special meeting);
• by Activision Blizzard if:
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after a cure period (if capable of being cured by the termination date), Microsoft or Sub has breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements in the merger agreement, such that the related closing condition would not be satisfied (but Activision Blizzard may not so terminate the merger agreement if the breach was cured prior to termination or if its own breach, failure to perform or comply with the merger agreement or inaccuracy of its representations and warranties causes the failure of the closing conditions in respect of Activision Blizzard’s performance of its covenants or accuracy of its representations and warranties to have been satisfied);
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prior to the adoption of the merger agreement by Activision Blizzard stockholders, (1) Activision Blizzard has received a superior proposal; (2) the Activision Blizzard Board of Directors has authorized Activision Blizzard to enter into an agreement to consummate the transaction contemplated by such superior proposal; (3) Activision Blizzard pays Microsoft a $2,270,100,000 termination fee; and (4) Activision Blizzard has complied with its non-solicitation obligations under the merger agreement; and
• by Microsoft if:
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after a cure period (if capable of being cured by the termination date), Activision Blizzard has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements in the merger agreement, such that the related closing condition would not be satisfied (but Microsoft may not so terminate the merger agreement if the breach was cured prior to termination or if its own breach, failure to perform or comply with the merger agreement or inaccuracy of its representations and warranties causes the failure of the closing conditions in respect of Microsoft’s performance of its covenants or accuracy of its representations and warranties to have been satisfied); or
•
the Activision Blizzard Board of Directors has effected a company board recommendation change.
Termination Fee (page )
Activision Blizzard will be required to pay to Microsoft a termination fee of $2,270,100,000 if the merger agreement is terminated in specified circumstances. For more information, see the section of this proxy statement entitled “Terms of the Merger Agreement — Termination Fee” beginning on page of this proxy statement.
Reverse Termination Fee (page )
Microsoft will be required to pay Activision Blizzard a reverse termination fee in an amount ranging from $2,000,000,000 to $3,000,000,000 if the merger agreement is terminated in specified circumstances. For more information, see the section of this proxy statement entitled “Terms of the Merger Agreement — Reverse Termination Fee” beginning on page of this proxy statement.
Neither the SEC nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the merger, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.
