TERMS OF THE MERGER AGREEMENT
The following summary describes certain material provisions of the merger agreement. The descriptions of the merger agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. We encourage you to read the merger agreement carefully and in its entirety because this summary may not contain all the information about the merger agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the merger agreement (as qualified by the confidential disclosure letter to the merger agreement) and not by this summary or any other information contained in this proxy statement.
The representations, warranties, covenants and agreements described below and included in the merger agreement (1) were made only for purposes of the merger agreement and as of specific dates; (2) were made solely for the benefit of the parties to the merger agreement; (3) are subject to important qualifications, limitations and supplemental information agreed to by Activision Blizzard, Microsoft and Sub in connection with negotiating the terms of the merger agreement (including disclosures of both publicly available information and confidential information regarding Activision Blizzard included in the confidential disclosure letter to the merger agreement); and (4) may also be subject to a contractual standard of materiality different from those generally applicable to reports and documents filed with the SEC and in some cases were qualified by confidential matters disclosed to Microsoft and Sub by Activision Blizzard in connection with the merger agreement (including in the confidential disclosure letter to the merger agreement). In addition, the representations and warranties may have been included in the merger agreement for the purpose of allocating contractual risk between Activision Blizzard, Microsoft and Sub rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Further, the representations and warranties were negotiated with the principal purpose of establishing the circumstances in which a party to the merger agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise. Activision Blizzard stockholders are not third-party beneficiaries under the merger agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of Activision Blizzard, Microsoft or Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement. In addition, you should not rely on the covenants in the merger agreement as actual limitations on the respective businesses of Activision Blizzard, Microsoft and Sub, because the parties may take certain actions that are either expressly permitted in the confidential disclosure letter to the merger agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The merger agreement is described below, and included as Annex A, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding Activision Blizzard, Microsoft, Sub or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the merger agreement should not be read alone and you should read the information provided elsewhere in this document and in our filings with the SEC regarding Activision Blizzard and our business.
Closing and Effective Time of the Merger
The closing of the merger will take place no later than the third business day following the satisfaction or waiver of all conditions to closing of the merger (described in the section of this proxy statement entitled “Terms of the Merger Agreement — Conditions to the Closing of the Merger” beginning on page ), other than conditions that by their terms are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of each of such conditions, or such other time agreed to in writing by Microsoft, Activision Blizzard and Sub. Concurrently with the closing of the merger, the parties will file a certificate of merger with the Secretary of State of the State of Delaware as provided under the DGCL. The merger will become effective upon the filing and acceptance of the certificate of merger, or at such later time agreed to in writing by the parties and specified in such certificate of merger.
Effects of the Merger; Certificate of Incorporation; Bylaws; Directors and Officers
The merger agreement provides that, subject to the terms and conditions of the merger agreement, and in accordance with the DGCL, at the effective time of the merger, (1) Sub will be merged with and into
Activision Blizzard and Activision Blizzard will become a wholly owned subsidiary of Microsoft and (2) the separate corporate existence of Sub will cease. From and after the effective time of the merger, all of the property, rights, privileges, powers and franchises of Activision Blizzard and Sub will vest in the surviving corporation, and all of the debts, liabilities and duties of Activision Blizzard and Sub will become the debts, liabilities and duties of the surviving corporation.
At the effective time of the merger, the certificate of incorporation of Activision Blizzard as the surviving corporation will be amended and restated in its entirety in the form attached to the merger agreement. The parties will take all necessary action to ensure that, at the effective time of the merger, the bylaws of Sub, as in effect immediately prior to the effective time of the merger, will become the bylaws of the surviving corporation, until thereafter amended.
The parties will take all necessary action to ensure that, effective as of, and immediately following, the effective time of the merger, the board of directors of the surviving corporation will consist of the directors of Sub as of immediately prior to the effective time of the merger, to hold office in accordance with the certificate of incorporation and bylaws of the surviving corporation until their successors are duly elected or appointed and qualified. The parties will take all necessary action to ensure that at the effective time of the merger, the officers of Activision Blizzard as of immediately prior to the effective time of the merger will be the officers of the surviving corporation, until their successors are duly appointed.
Conversion of Shares
Common Stock
At the effective time of the merger, each outstanding share of Activision Blizzard common stock (other than shares held by (1) 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); (2) Microsoft, Sub or their respective subsidiaries (other than a certain wholly owned subsidiary of Activision Blizzard); and (3) Activision Blizzard stockholders who have properly and validly exercised and perfected their appraisal rights under Delaware law with respect to such shares) will be cancelled and automatically converted into the right to receive the per share merger consideration (which is $95.00 per share, without interest thereon and subject to applicable withholding taxes).
Treatment of Equity Compensation
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., RSUs and 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
•
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.
•
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 shall vest at the conclusion of the original performance period.
•
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
•
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.
•
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 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.
Exchange and Payment Procedures
Prior to the closing of the merger, Microsoft will designate a bank or trust company, which we refer to as the “paying agent,” to make payments of the merger consideration to Activision Blizzard stockholders. At or promptly following the effective time of the merger, Microsoft will deposit or cause to be deposited with the paying agent cash sufficient to pay the aggregate per share merger consideration to Activision Blizzard stockholders in accordance with the merger agreement.
As soon as reasonably practicable following the effective time of the merger, the paying agent will send to each holder of record of shares of common stock a letter of transmittal and instructions advising stockholders how to surrender stock certificates and book-entry shares in exchange for the per share merger consideration. Upon receipt of (1) surrendered certificates (or an appropriate affidavit for lost, stolen or destroyed certificates, together with any required bond) with respect to shares of common stock represented by stock certificates or a customary “agent’s message” with respect to book-entry shares representing the shares of common stock and (2) a signed letter of transmittal (in the case of common stock represented by stock certificates) and such other documents as may be required pursuant to such instructions, the holder of such shares will be entitled to receive the per share merger consideration in exchange therefor, without interest. The amount of any per share merger consideration paid to Activision Blizzard stockholders may be reduced by any applicable withholding taxes or other amounts required by applicable law to be withheld.
If any cash deposited with the paying agent is not claimed within one year following the effective time of the merger, such cash will be returned to Microsoft, upon demand, and any stockholders who have not complied with the exchange procedures in the merger agreement will thereafter look only to Microsoft for satisfaction of their claims for payment. None of Microsoft, Sub, Activision Blizzard, the surviving corporation or the paying agent will be liable to any Activision Blizzard stockholder with respect to any cash amounts properly delivered to any public official pursuant to any applicable abandoned property law, escheat law or similar law.
The letter of transmittal will include instructions if a stockholder has lost a share certificate or if such certificate has been stolen or destroyed. In the event that any certificates have been lost, stolen or destroyed, then before such stockholder will be entitled to receive the per share merger consideration, Microsoft or the paying agent may, in its discretion and as a condition precedent to the payment of the merger consideration, require such stockholder to make an affidavit of the loss, theft or destruction and to deliver a bond in such amount as Microsoft or the paying agent may direct as indemnity against any claim that may be made against Microsoft, the surviving corporation or the paying agent with respect to such certificate.
Representations and Warranties
The merger agreement contains representations and warranties of Activision Blizzard, Microsoft and Sub.
Some of the representations and warranties in the merger agreement made by Activision Blizzard are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the merger agreement, “Company Material Adverse Effect” means, with respect to Activision Blizzard, any change, event, violation, inaccuracy, effect or circumstance (each, an “Effect”) that, individually or taken together with all other changes, events, violations, inaccuracies, effects or circumstances that have occurred prior to the date of determination of the occurrence of the Company Material Adverse Effect, (a) has had or would reasonably be expected to have a material adverse effect on the business, assets, liabilities, financial condition or results of operations of Activision Blizzard and its subsidiaries, taken as a whole or (b) would, or would reasonably be expected to, prevent or delay past the Termination Date (as defined below) the ability of Activision Blizzard to consummate the transactions contemplated by the merger agreement, except that, in the case of the foregoing clause (a) only, none of the following (by itself or when aggregated), to the extent occurring after the date of the merger agreement, will be deemed to be or constitute a Company Material
Adverse Effect or will be taken into account when determining whether a Company Material Adverse Effect has occurred or may, would or could occur:
•
changes in general economic conditions in the United States or any other country or region in the world, or changes in conditions in the global economy generally (except to the extent that such conditions disproportionately adversely affect Activision Blizzard relative to other companies operating in the industries in which Activision Blizzard and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such conditions may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
•
changes in conditions in the financial markets, credit markets or capital markets in the United States or any other country or region in the world, including (1) changes in interest rates or credit ratings in the United States or any other country; (2) changes in exchange rates for the currencies of any country; or (3) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter market operating in the United States or any other country or region in the world (except, in each case, to the extent that such changes or conditions disproportionately adversely affect Activision Blizzard relative to other companies operating in the industries in which Activision Blizzard and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such changes or conditions may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
•
any Effect generally affecting the industries in which Activision Blizzard and its subsidiaries conduct business (except to the extent that such changes disproportionately adversely affect Activision Blizzard relative to other companies operating in the industries in which Activision Blizzard and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such changes may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
•
changes in regulatory, legislative or political conditions in the United States or any other country or region in the world (except to the extent that such changes disproportionately adversely affect Activision Blizzard relative to other companies operating in the industries in which Activision Blizzard and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such changes may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
•
any geopolitical conditions, outbreak of hostilities, acts of war, sabotage, terrorism or military actions (including any escalation or general worsening of any such hostilities, acts of war, sabotage, terrorism or military actions) in the United States or any other country or region in the world (except to the extent that such conditions or events disproportionately adversely affect Activision Blizzard relative to other companies operating in the industries in which Activision Blizzard and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such conditions or events may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
•
earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, weather conditions and other similar force majeure events in the United States or any other country or region in the world(except to the extent that such conditions or events disproportionately adversely affect Activision Blizzard relative to other companies operating in the industries in which Activision Blizzard and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such conditions or events may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
•
any epidemics, pandemics or contagious disease outbreaks (including COVID-19) and any political or social conditions, including civil unrest, protests and public demonstrations or any other COVID-19 measures that relate to, or arise out of, an epidemic, pandemic or disease outbreak (including COVID-19) or any change in such COVID-19 measures, directive, pronouncement or guideline or interpretation thereof, or any material worsening of such conditions threatened or existing as of the date of the merger agreement, in the United States or any other country or region in the world (except to the extent that such conditions or events disproportionately adversely affect Activision Blizzard
relative to other companies operating in the industries in which Activision Blizzard and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such conditions or events may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
•
the public announcement or pendency of the merger agreement or the merger (other than for purposes of certain representations and warranties, and certain related terms and conditions, concerning conflicts due to the performance of the merger agreement);
•
any action taken or refrained from being taken, in each case, which Microsoft has expressly approved, consented to or requested in writing following the date of the merger agreement or which is required by the terms of the merger agreement;
•
changes or proposed changes in GAAP or other accounting standards or law, or the enforcement or interpretation of any of the foregoing (except to the extent that such changes disproportionately adversely affect Activision Blizzard relative to other companies operating in the industries in which Activision Blizzard and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such changes may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
•
changes in the price or trading volume of Activision Blizzard common stock or our indebtedness, in and of itself (it being understood that any cause of such change may be deemed to constitute a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred);
•
any failure, in and of itself, by Activision Blizzard and its subsidiaries to meet (1) any public estimates or expectations of Activision Blizzard’s revenue, earnings or other financial performance or results of operations for any period; or (2) any internal budgets, plans, projections or forecasts of its revenues, earnings or other financial performance or results of operations (it being understood that any cause of any such failure may be deemed to constitute a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred);
•
any litigation related to the merger; and
•
certain additional exceptions included in the confidential disclosure letter to the merger agreement.
In the merger agreement, Activision Blizzard has made customary representations and warranties to Microsoft and Sub that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement, as well as certain additional exceptions included in the confidential disclosure letter to the merger agreement. These representations and warranties relate to, among other things:
•
due organization, valid existence, good standing and authority and qualification to conduct business with respect to Activision Blizzard and its subsidiaries;
•
Activision Blizzard’s corporate power and authority to enter into and perform the merger agreement and the due execution and enforceability of the merger agreement;
•
the organizational documents of Activision Blizzard and its subsidiaries;
•
the approval and recommendation of the Activision Blizzard Board of Directors with respect to the merger agreement;
•
receipt of an opinion of Activision Blizzard’s financial advisor to the Activision Blizzard Board of Directors;
•
the inapplicability of anti-takeover statutes to the merger;
•
the requisite vote of Activision Blizzard stockholders in connection with the merger agreement;
•
the absence of any conflict with, violation of or default under any organizational documents, existing material contracts or privacy policies, applicable laws to Activision Blizzard or its subsidiaries or the resulting creation of any lien upon Activision Blizzard’s assets due to the performance of the merger agreement;
•
required consents, approvals and regulatory filings in connection with the merger agreement and performance thereof;
•
the capital structure of Activision Blizzard and its subsidiaries;
•
the absence of any undisclosed exchangeable security, option, warrant or other right convertible into common stock of Activision Blizzard or any of Activision Blizzard’s subsidiaries;
•
the absence of any contract relating to the voting of, requiring registration of, or granting any preemptive rights, anti-dilutive rights or rights of first refusal or other similar rights with respect to any of Activision Blizzard’s securities;
•
the accuracy and required filings of Activision Blizzard’s SEC filings and financial statements contained therein;
•
Activision Blizzard’s disclosure controls and procedures;
•
Activision Blizzard’s internal accounting controls and procedures;
•
the absence of specified undisclosed liabilities;
•
the conduct of the business of Activision Blizzard and its subsidiaries in all material respects in the ordinary course and the absence of certain other events since September 30, 2021, and the absence of any Company Material Adverse Effect since December 31, 2020;
•
the existence and enforceability of specified categories of Activision Blizzard’s material contracts, and the lack of any breaches or defaults thereunder and of any notices with respect to termination or intent not to renew those material contracts therefrom;
•
real property owned, leased or subleased by Activision Blizzard and its subsidiaries;
•
environmental matters;
•
trademarks, patents, copyrights, confidential information, trade secrets and other intellectual property matters;
•
data privacy and security;
•
IT assets;
•
tax matters;
•
employee benefit plans;
•
labor and employment matters;
•
compliance with laws, including the Foreign Corrupt Practices Act and other anti-corruption and anti-bribery laws, sanctions and export controls laws and anti-money laundering laws, and possession of necessary permits;
•
the absence of legal proceedings and orders;
•
insurance matters;
•
the absence of any transactions, arrangements, relations or understandings between Activision Blizzard or any of its subsidiaries and any affiliate or related person;
•
payment of fees to brokers in connection with the merger agreement; and
•
the exclusivity and terms of the representations and warranties made by Microsoft and Sub.
In the merger agreement, Microsoft and Sub have made customary representations and warranties to Activision Blizzard that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement, as well as certain additional exceptions included in the confidential disclosure letter to the merger agreement. These representations and warranties relate to, among other things:
•
due organization, good standing and authority and qualification to conduct business with respect to Microsoft and Sub, except where the failure to be in such good standing, or to have such power or authority, would not prevent or materially delay their ability to consummate the merger;
•
Microsoft’s and Sub’s corporate authority to enter into and perform the merger agreement, the due execution and enforceability of the merger agreement and the availability of organizational documents;
•
the absence of any conflict with, violation of or default under any organizational documents, existing contracts, applicable laws or the resulting creation of any lien upon Microsoft’s or Sub’s assets due to the performance of the merger agreement;
•
required consents and regulatory filings in connection with the merger agreement;
•
the absence of legal proceedings and orders;
•
absence of status as an “interested stockholder” of Activision Blizzard;
•
payment of fees to brokers in connection with the merger agreement;
•
the absence of a required vote by Microsoft’s stockholders in connection with the merger;
•
matters with respect to Microsoft’s sufficiency of funds; and
•
the exclusivity and terms of the representations and warranties made by Activision Blizzard.
The representations and warranties contained in the merger agreement will not survive the consummation of the merger.
Conduct of Business Pending the Merger
The merger agreement provides that, except as (1) expressly contemplated by the merger agreement; (2) approved by Microsoft (which approval will not be unreasonably withheld, conditioned or delayed); (3) required by applicable law or regulations of applicable stock exchanges or regulatory organizations; or (4) disclosed in the confidential disclosure letter to the merger agreement, during the period of time between the date of the merger agreement and the effective time of the merger (or earlier termination of the merger agreement), Activision Blizzard will, and will cause each of its subsidiaries to:
•
use its respective reasonable best efforts to maintain its existence in good standing pursuant to applicable law;
•
subject to the restrictions and exceptions in the merger agreement, conduct its business and operations in the ordinary course of business, except with respect to certain actions or omissions that may be taken in response to COVID-19; and
•
use its reasonable best efforts to, consistent with its operations in the ordinary course of business, (1) preserve intact its material assets, properties, contracts, licenses and business organizations; (2) keep available the services of its current officers and key employees and (3) preserve its current relationships and goodwill with customers, suppliers, partners, platform providers, manufacturers and other persons with which it or its subsidiaries has business relations.
In addition, Activision Blizzard has also agreed that, except (1) as expressly contemplated by the merger agreement; (2) as approved by Microsoft (which approval will not be unreasonably withheld, conditioned or delayed); (3) for certain actions or omissions that may be taken in response to COVID-19 (following reasonable prior consultation with Microsoft); (4) as required by applicable law or regulations of applicable stock exchanges or regulatory organizations; or (5) as disclosed in the confidential disclosure letter to the merger agreement, during the period of time between the date of the merger agreement and the effective time of the merger (or earlier termination of the merger agreement), Activision Blizzard will not, and will cause each of its subsidiaries (with exceptions for certain specified joint venture entities and the extent of Activision Blizzard’s obligations with respect thereto) not to, among other things:
•
amend or otherwise change the organizational documents of Activision Blizzard or any of its subsidiaries, other than, with respect to its wholly owned subsidiaries, immaterial or ministerial amendments;
•
liquidate, dissolve or reorganize;
•
issue, sell, deliver or grant any shares of capital stock or any options, warrants, commitments, subscriptions or rights to purchase any similar capital stock or securities of Activision Blizzard or
any of its subsidiaries, subject to certain exceptions, including for the issuance and sale of shares of Activision Blizzard common stock pursuant to Activision Blizzard options or Activision Blizzard stock-based awards in accordance with their terms;
•
directly or indirectly acquire, repurchase or redeem any securities of Activision Blizzard or its subsidiaries except for certain exceptions;
•
adjust, split, subdivide, combine, pledge, encumber or modify the terms of capital stock of Activision Blizzard or any of its subsidiaries;
•
declare, set aside, authorize, establish a record date for or pay any dividend or other distribution, except for one regular cash dividend on Activision Blizzard common stock not in excess of $0.47, to be declared and paid in a manner consistent with the declaration and payment of the dividend paid in fiscal year 2021;
•
incur, assume, suffer or modify the terms of any indebtedness or issue any debt securities (other than for trade payables incurred in the ordinary course of business, loans or advances to wholly owned subsidiaries of Activision Blizzard, borrowings and letter of credit issuances under Activision Blizzard’s credit facility in the ordinary course of business consistent with past practice), assume or guarantee the obligations of any person other than its subsidiaries, or pledge, encumber or suffer any lien on any assets;
•
except in consultation with Microsoft, terminate any employee at the level of senior vice president or above (other than for cause) or hire any new employee at the level of senior vice president or above;
•
enter into, adopt, amend (including accelerating vesting), modify or terminate any employee benefit plan;
•
for any current or former employee, director, officer or independent contractor of Activision Blizzard or its subsidiaries, increase compensation or benefits, pay any special bonus, remuneration or any benefit not required by any employee plan, grant any severance or termination pay, or grant any right to reimbursement, indemnification or payment of any taxes, including any taxes that may be incurred under Section 409A or 4999 of the Code, except as required by applicable law or the terms of any employee plan;
•
settle, release, waive or compromise certain legal proceedings;
•
except as required by law or GAAP, change accounting practices or revalue any of Activision Blizzard’s material properties or assets;
•
except as required by law, (1) amend any previously filed income or other material tax return, (2) incur material liabilities for taxes other than in the ordinary course of business (except in arm’s-length transactions with third parties), (3) change any material tax elections or any accounting method with respect to taxes, (4) settle any material tax claims or (5) take certain other specified actions with respect to taxes;
•
incur or authorize capital expenditures, other than to the extent that such capital expenditures are otherwise consistent in all material respects with Activision Blizzard’s capital expenditure budget or are pursuant to agreements in effect prior to the date of the merger agreement, in each case as set forth in the confidential disclosure letter to the merger agreement;
•
enter into, modify or terminate certain contracts other than in the ordinary course of business;
•
fail to use reasonable best efforts to maintain insurance at or more than current levels;
•
engage in any transaction with any affiliate or person that would be required to be disclosed pursuant to Item 404 of Regulation S-K;
•
grant refunds that would be material to Activision Blizzard and its subsidiaries, taken as a whole, or materially alter payment and collection practices;
•
waive, grant or transfer any material right of Activision Blizzard or its subsidiaries;
•
effect certain layoffs affecting any site of employment or employee located in the United States;
•
voluntarily recognize any labor union, works council or similar employee organization or enter into a collective bargaining agreement;
•
acquire (by merger, consolidation or acquisition of stock or assets or otherwise), or make any investments in, any interest in any assets or any other person, except for acquisitions or investments under certain thresholds;
•
make any loans, advances or capital contributions to, or investments for treasury management purposes in, any person, except for certain exceptions;
•
(1) sell or otherwise dispose of (by merger, consolidation or disposition of stock or assets or otherwise) any assets constituting a material line of business or (2) subject to a lien, sell, transfer, license or otherwise dispose of any other material assets of Activision Blizzard or any of its subsidiaries or any material items of Activision Blizzard’s intellectual property, other than licenses granted by Activision Blizzard or its subsidiaries in the ordinary course of business consistent with past practice;
•
except as required by applicable law (as determined by Activision Blizzard in its reasonable judgment), modify certain of its privacy policies or the integrity, security or operation of the IT assets used in the business of Activision Blizzard or its subsidiaries in any materially adverse manner;
•
enter into any new business segment that is not reasonably related to Activision Blizzard’s and its subsidiaries’ existing business segments on the date of the merger agreement;
•
enter into agreements of the types listed in the confidential disclosure letter to the merger agreement; or
•
enter into, authorize or commit to enter into, an agreement to take any of the foregoing actions.
No Solicitation of Other Offers
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 relating to an acquisition transaction (as defined below) 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 earlier to occur of the termination of the merger agreement and the effective time of the merger, Activision Blizzard has agreed to not, and to not authorize or direct, as the case may be, its subsidiaries and its and their respective representatives to:
•
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 below);
•
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 of, or to knowingly encourage, facilitate or assist an acquisition proposal, offer or inquiry that would reasonably be expected to lead to an acquisition proposal;
•
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;
•
approve, endorse, or recommend any proposal that constitutes, or is reasonably expected to lead to, an acquisition proposal;
•
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 below); or
•
authorize or commit to do any of the above.
Notwithstanding these restrictions, prior to the adoption of the merger agreement by Activision Blizzard stockholders and after entering into an acceptable confidentiality agreement, Activision Blizzard and the Activision Blizzard Board of Directors (or a committee thereof) may, directly or indirectly through one or more of their representatives (including Activision Blizzard’s legal and financial advisors), furnish information to, and enter into negotiations or discussions with, a person regarding a bona fide written acquisition proposal if: (1) Activision Blizzard, its subsidiaries and its and their respective representatives have not breached any of the conditions above with respect to the acquisition proposal or such person; (2) the Activision Blizzard Board of Directors determines in good faith, after consultation with Activision Blizzard’s financial advisor and outside legal counsel, that such acquisition proposal constitutes or is reasonably likely to lead to a superior proposal (as defined below); (3) the Activision Blizzard Board of Directors determines in good faith, after consultation with Activision Blizzard’s financial advisor and outside legal counsel, that the failure to do so would be inconsistent with its fiduciary duties pursuant to applicable law; and (4) Activision Blizzard prior to or contemporaneously makes available to Microsoft any non-public information concerning Activision Blizzard that is provided to such person that was not previously made available to Microsoft.
If (i) Activision Blizzard, its subsidiaries or its or their representatives receives (1) any acquisition proposal or (2) any inquiry from any third person that would reasonably be expected to result in an acquisition proposal, in each case, to the knowledge of Activision Blizzard or any member of the Activision Blizzard Board of Directors; or (ii) any non-public information is requested by any third person that would be reasonably expected to result in an acquisition proposal from or any discussions or negotiations that would be reasonably expected to result in an acquisition proposal are sought by any third person to be initiated or continued with Activision Blizzard or its representatives at any time prior to the earlier to occur of the termination of the merger agreement and the effective time of the merger, Activision Blizzard must promptly (and in all events by the later of (x) 24 hours from the receipt thereof and (y) 5:00 p.m., Pacific time, on the next business day) notify Microsoft of such acquisition proposal or request, including the identity of the person making or submitting the acquisition proposal or request, the material terms and conditions thereof and copies of any written documentation setting forth such terms. Thereafter, Activision Blizzard must keep Microsoft reasonably informed, on a prompt basis, of the status and terms of any such offers or proposals (including any amendments thereto) and the status of any such discussions or negotiations.
For purposes of this proxy statement and the merger agreement:
•
an “acquisition proposal” is any offer or proposal (other than an offer or proposal by Microsoft or Sub) relating to an acquisition transaction;
•
an “acquisition transaction” is any transaction or series of transactions (other than the merger) involving any:
•
direct or indirect purchase or other acquisition by any person or “group” (as defined in the Exchange Act) of persons of securities representing more than 15% of the total outstanding voting power of Activision Blizzard, including pursuant to a tender offer or exchange offer;
•
direct or indirect purchase (including by way of a merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or other transaction), license or other acquisition by any person or “group” of persons of assets (including equity securities of any subsidiary of Activision Blizzard) constituting or accounting for more than 15% of the revenue, net income or consolidated assets of Activision Blizzard and its subsidiaries, taken as a whole; or
•
merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or other transaction involving Activision Blizzard (or any of its subsidiaries whose business accounts for more than 15% of the revenue, net income or consolidated assets of Activision Blizzard and its subsidiaries, taken as a whole) in which the stockholders of Activision Blizzard (or such subsidiary) prior to such transaction will not own at least 85%, directly or indirectly, of the surviving company; and
•
a “superior proposal” is a bona fide written acquisition proposal (substituting 50% for 15% in the definition of “acquisition proposal” above) for an acquisition transaction that the Activision Blizzard Board of Directors has determined in good faith (after consultation with Activision Blizzard’s financial advisor and outside legal counsel) is on terms that would be more favorable from a financial point of view than the merger and taking into account any revisions to the merger agreement made or proposed by Microsoft prior to the time of such determination and after taking into account the other factors and matters deemed relevant in good faith by the Activision Blizzard Board of Directors, including the identity of the person making the proposal, the conditionality of such proposal, the likelihood of consummation and the legal, financial (including financing terms), regulatory, timing and other aspects of the proposal.
The Recommendation of the Activision Blizzard Board of Directors; Company Board Recommendation Change
Except as described below, and subject to the provisions described below, the Activision Blizzard Board of Directors has made the recommendation that the holders of shares of common stock vote “FOR” the proposal to adopt the merger agreement. The merger agreement provides that the Activision Blizzard Board of Directors will not effect a company board recommendation change except as described below.
Prior to the adoption of the merger agreement by stockholders, the Activision Blizzard Board of Directors may not (with any action described in the following being referred to as a “company board recommendation change”):
•
withhold, withdraw, amend, qualify or modify, or publicly propose to withhold, withdraw, amend, qualify or modify, the recommendation of the Activision Blizzard Board of Directors in a manner adverse to Microsoft;
•
adopt, approve or recommend an acquisition proposal;
•
fail to publicly reaffirm the recommendation of the Activision Blizzard Board of Directors within 10 business days following Microsoft’s written request made promptly following the occurrence of a material event or development relating to or reasonably likely to have a material effect on the merger or the vote by Activision Blizzard’s stockholders at the special meeting (or if the special meeting is scheduled to be held within 10 business days, then within one business day after Microsoft so requests);
•
take any formal action or make any recommendation in connection with a tender or exchange offer, other than a recommendation against such offer or a “stop, look and listen” communication by the Activision Blizzard Board of Directors (or a committee thereof) to Activision Blizzard’s stockholders pursuant to Rule 14d-9(f) promulgated under the Exchange Act (or any substantially similar communication) (it being understood that the Activision Blizzard Board of Directors (or a committee thereof) may refrain from taking a position with respect to an acquisition proposal until the close of business on the 10th business day after the commencement of a tender or exchange offer in connection with such acquisition proposal without such action being considered a violation of the merger agreement); or
•
fail to include the recommendation of the Activision Blizzard Board of Directors in this proxy statement.
Notwithstanding the restrictions described above, prior to the adoption of the merger agreement by stockholders, the Activision Blizzard Board of Directors may, upon compliance with the procedures described below, effect a company board recommendation change if (1) other than in connection with a bona fide acquisition proposal that constitutes a superior proposal, there has been an intervening event (as defined below); or (2) Activision Blizzard has received a bona fide written acquisition proposal that the Activision Blizzard Board of Directors has concluded in good faith (after consultation with Activision Blizzard’s financial advisor and outside legal counsel) is a superior proposal, in each case, if the Activision Blizzard Board of Directors determines in good faith (after consultation with Activision Blizzard’s financial advisor and outside legal counsel) that a failure to effect a company board recommendation change would be inconsistent with the Activision Blizzard Board of Directors’ fiduciary duties pursuant to applicable law.
The Activision Blizzard Board of Directors may effect a company board recommendation change but may not terminate the merger agreement in response to an intervening event if and only if:
•
Activision Blizzard has provided prior written notice to Microsoft at least three business days in advance to the effect that the Activision Blizzard Board of Directors has (1) made the determination described above; and (2) resolved to effect a company board recommendation change pursuant to the merger agreement, which notice must describe the applicable intervening event in reasonable detail; and
•
prior to effecting such company board recommendation change, Activision Blizzard and its representatives, during such three-business day period, must have (1) negotiated with Microsoft and its representatives in good faith (to the extent that Microsoft requests in writing to so negotiate) to make such adjustments to the terms and conditions of the merger agreement so that the Activision Blizzard Board of Directors no longer determines in good faith that the failure to make a company board recommendation change in response to such intervening event would be inconsistent with its fiduciary duties pursuant to applicable law and (2) provided Microsoft and its representatives with an opportunity to make a presentation to the Activision Blizzard Board of Directors regarding the merger agreement and any adjustments with respect thereto (to the extent that Microsoft requests to make such a presentation).
In addition, the Activision Blizzard Board of Directors may effect a company board recommendation change or terminate the merger agreement in response to a bona fide written acquisition proposal that the Activision Blizzard Board of Directors has concluded in good faith (after consultation with Activision Blizzard’s financial advisor and outside legal counsel) is a superior proposal if and only if:
•
the Activision Blizzard Board of Directors has determined in good faith (after consultation with Activision Blizzard’s financial advisor and outside legal counsel) that the failure to do so would be inconsistent with its fiduciary duties pursuant to applicable law;
•
such acquisition proposal did not result from a breach of Activision Blizzard’s non-solicitation obligations under the merger agreement;
•
Activision Blizzard has provided prior written notice to Microsoft at least three business days in advance to the effect that the Activision Blizzard Board of Directors has (1) received a bona fide written acquisition proposal that has not been withdrawn; (2) concluded in good faith that such acquisition proposal constitutes a superior proposal and (3) resolved to effect a company board recommendation change or to terminate the merger agreement, which notice will describe the basis for such company board recommendation change or termination, including the identity of the person or “group” of persons making such acquisition proposal, the material terms and conditions of such acquisition proposal and copies of all relevant documents relating to such acquisition proposal; and
•
prior to effecting such company board recommendation change or termination, Activision Blizzard and its representatives, during the three business day notice period described above, have (1) negotiated with Microsoft and its representatives in good faith (to the extent that Microsoft requests in writing to so negotiate) to make such adjustments to the terms and conditions of the merger agreement so that such acquisition proposal would cease to constitute a superior proposal; and (2) provided Microsoft and its representatives with an opportunity to make a presentation to the Activision Blizzard Board of Directors regarding the merger agreement and any adjustments with respect thereto (to the extent that Microsoft requests to make such a presentation).
In the event of any material revision to any such bona fide written acquisition proposal described above, Activision Blizzard has also agreed to deliver a new notice to Microsoft and comply with the above procedures with respect to such new written notice (with the notice period being two business days, except that such notice period will not shorten the aforementioned original three-day notice period) and prior to effecting a company board recommendation change or terminating the merger agreement, at the end of the relevant notice period, the Activision Blizzard Board of Directors must have in good faith (after consultation with Activision Blizzard’s financial advisor and outside legal counsel) reaffirmed its determination that such bona fide written acquisition proposal is a superior proposal.
For purposes of this proxy statement and the merger agreement, an “intervening event” means any positive change, effect, development, circumstance, condition, event or occurrence that (1) materially improves the business, assets or operations of Activision Blizzard, (2) as of the date of the merger agreement was not known to the Activision Blizzard Board of Directors, or the consequences of which (based on facts known to the members of the Activision Blizzard Board of Directors as of the date of the merger agreement) were not reasonably foreseeable as of the date of the merger agreement and (3) does not relate to any acquisition proposal.
Stockholder Meeting
Activision Blizzard has agreed to take all necessary action to establish a record date for, duly call, give notice of, convene and hold the special meeting as promptly as reasonably practicable and on or around the 20th business day following the commencement of the mailing of this proxy statement (or on such other date elected by Activision Blizzard with Microsoft’s consent, which consent will not be unreasonably withheld, conditioned or delayed) for the sole purpose of voting upon the adoption of the merger agreement, obtaining advisory approval of the compensation that Activision Blizzard’s named executive officers may receive in connection with the merger, and, if applicable, for Activision Blizzard’s stockholders to act on such other matters of procedure required in connection with the adoption of the merger agreement and matters required by applicable law to be voted on by Activision Blizzard’s stockholders in connection with the adoption of the merger agreement. Activision Blizzard is permitted to postpone or adjourn the special meeting in certain circumstances related to soliciting additional proxies or requirements of applicable law.
Employee Matters
Following the merger, the surviving corporation will honor all employee plans and compensation and severance arrangements as in effect immediately prior to the effective time, which we refer to as the “Activision Blizzard Plans.” However, the surviving corporation may amend or terminate any such arrangements in accordance with their terms or if required by law, and neither Microsoft nor the surviving corporation will be obligated to continue any such employee plans.
Subject to any collective bargaining agreement, during the twelve-month period following the merger, the surviving corporation will (and Microsoft will cause the surviving corporation to) either:
•
maintain for the benefit of each employee of Activision Blizzard who remains employed after the closing, whom we refer to as “continuing employees,” the Activision Blizzard Plans (other than those providing for equity awards) at benefit levels that are, in the aggregate, no less than those in effect at Activision Blizzard on the date of the merger agreement, and provide target cash compensation and benefits (other than any equity-based compensation, retention, transaction, milestone or other one-time bonus or payment) to each continuing employee pursuant to the Activision Blizzard Plans;
•
provide target cash compensation (other than any equity-based compensation, retention, transaction, milestone or other one-time bonus or payment), benefits and severance payments to each continuing employee that, taken as a whole, are no less favorable in the aggregate than the target cash compensation (other than any equity-based compensation, retention, transaction, milestone or other one-time bonus or payment), benefits and severance payments provided to such continuing employee immediately prior to the effective time; or
•
provide some combination of the two options described above such that each continuing employee receives target cash compensation, benefits and severance payments that, taken as a whole, are no less favorable in the aggregate than the target cash compensation (other than any equity-based compensation, retention, transaction, milestone or other one-time bonus or payment), benefits and severance payments and benefits provided to such continuing employee immediately prior to the effective time.
Notwithstanding the obligations provided for above, Microsoft’s standard compensation, benefits and/or severance that are provided to any continuing employee and that would be provided to a similarly situated Microsoft employee will satisfy Microsoft’s and the surviving corporation’s obligations to any continuing employees.
Microsoft has agreed to give credit to continuing employees who, after the merger, participate in employee benefit plans maintained by Microsoft for all service with Activision Blizzard and its subsidiaries before the merger for purposes of eligibility to participate, vesting and entitlement to benefits (other than for purposes of benefit accruals under any defined benefit pension plan or post-employment welfare plan, except that such service need not be credited to the extent that it would result in duplication of benefits). Microsoft will credit each continuing employee with accrued but unused vacation or paid time off in accordance with Activision Blizzard’s vacation or paid time off policies in effect immediately prior to the merger.
With respect to any employee benefit plans maintained by Microsoft in which continuing employees are eligible to participate after the closing, Microsoft has agreed that it will:
•
provide that each continuing employee will be immediately eligible to participate in each Microsoft plan, without any waiting period, to the extent that coverage under the Microsoft plan replaces coverage under a comparable Activision Blizzard plan;
•
cause all waiting periods, pre-existing condition exclusions, evidence of insurability requirements and actively-at-work or similar requirements under any Microsoft plan providing medical, dental, pharmaceutical, vision or disability benefits to any continuing employee to be waived for the continuing employee and his or her covered dependents to the extent waived under the corresponding Activision Blizzard plan;
•
cause any eligible expenses incurred by a continuing employee and his or her covered dependents during the portion of the plan year of the Activision Blizzard plan ending on the date that the continuing employee’s participation in the corresponding Microsoft plan begins to be given full credit under the Microsoft plan for purposes of satisfying all deductible, co-insurance and maximum out-of-pocket requirements applicable to the continuing employee and his or her covered dependents for the plan year as if the amounts had been paid under the Microsoft plan, to the extent credited under the corresponding Activision Blizzard plan; and
•
credit any continuing employee’s accounts under any Microsoft flexible spending plan with any unused balance in the continuing employee’s account.
Efforts to Close the Merger
Under the merger agreement, Microsoft, Sub and Activision Blizzard agreed to use reasonable best efforts to take, or cause to be taken, all actions and assist and cooperate with the other parties, in each case as are necessary, proper or advisable to consummate the merger and effect the other contemplated transactions thereunder, including using their reasonable best efforts to cause the conditions to closing the merger described below to be satisfied, comply with all regulatory notification requirements and obtain all regulatory approvals required to consummate the merger and effect the other contemplated transactions thereunder and use reasonable best efforts to seek to obtain any required consents under Activision Blizzard’s material contracts.
Additionally, under the merger agreement, 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 agreed to (1) offer and effect the divestiture or other disposition of any capital stock or assets of Activision Blizzard or its subsidiaries and (2) contest, defend and appeal any legal proceeding challenging the merger agreement or the consummation of the merger. Notwithstanding the foregoing, Microsoft is not obligated to take any action that would reasonably be expected to (i) have a material adverse impact on Activision Blizzard and its subsidiaries, taken as a whole, (ii) have a material impact on the benefits expected to be derived from the merger by Microsoft or (iii) have a more than immaterial impact on any business or product line of Microsoft.
Indemnification and Insurance
The merger agreement provides that the surviving corporation will (and Microsoft will cause the surviving corporation to) honor and fulfill the obligations of Activision Blizzard pursuant to any indemnification agreements that are set forth in the confidential disclosure letter to the merger agreement,
which were in effect on the date of the merger agreement between Activision Blizzard, on the one hand, and the current or former directors and officers of Activision Blizzard, on the other hand, and the indemnification, exculpation and advancement of expenses set forth in Activision Blizzard’s certificate of incorporation and bylaws in effect on the date of the merger agreement with respect to any of Activision Blizzard’s current or former directors and officers.
In addition, the merger agreement provides that, during the six-year period commencing at the effective time of the merger, the surviving corporation will (and Microsoft will cause the surviving corporation to) indemnify and hold harmless each current or former director or officer of Activision Blizzard or its subsidiaries, to the fullest extent permitted by law, from and against all costs, fees and expenses (including attorneys’ fees and investigation expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement or compromise in connection with any legal proceeding arising, directly or indirectly, out of or pertaining, directly or indirectly, to (1) any action or omission, or alleged action or omission, in such indemnified person’s capacity as a director, officer, employee or agent of Activision Blizzard or its subsidiaries or other affiliates (regardless of whether such action or omission, or alleged action or omission, occurred prior to, at or after the effective time of the merger); and (2) the merger, as well as any actions taken by Activision Blizzard, Microsoft or Sub with respect thereto. The merger agreement also provides that the surviving corporation will advance all fees and expenses (including fees and expenses of any counsel) as incurred by any such indemnified person in the defense of such legal proceeding.
In addition, without limiting the foregoing, unless Activision Blizzard has purchased a “tail” policy prior to the effective time of the merger (which Activision Blizzard may purchase; provided that the premium for such insurance does not exceed 350% of the aggregate annual premiums paid by Activision Blizzard in its last full fiscal year), the merger agreement requires Microsoft to cause the surviving corporation to maintain, on terms no less advantageous to the indemnified parties, Activision Blizzard’s directors’ and officers’ insurance policies for a period of at least six years commencing at the effective time of the merger. Neither Microsoft nor the surviving corporation will be required to pay premiums for such policy to the extent such premiums exceed, on an annual basis, 350% of the aggregate annual premiums paid by Activision Blizzard in its last full fiscal year, and if the premium for such insurance coverage would exceed such amount Microsoft will be obligated to cause the surviving corporation to obtain the greatest coverage available for a cost equal to such amount. The merger agreement also provides that the indemnified parties are third-party beneficiaries of the indemnification and insurance provisions in the merger agreement and are entitled to enforce such provisions.
For more information, refer to the section of this proxy statement 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 .
Specified and Transaction Litigation
Activision Blizzard will (1) provide Microsoft with prompt notice of any material updates to certain litigation matters set forth in the confidential disclosure letter to the merger agreement, (2) keep Microsoft reasonably informed with respect to the status thereof and (3) consult with Microsoft with regard to the defense and settlement of any such litigation and consider in good faith Microsoft’s advice with respect to such litigation.
Activision Blizzard will (1) provide Microsoft with prompt notice of all transaction litigation relating to the merger agreement; (2) keep Microsoft reasonably informed with respect to the status thereof; (3) give Microsoft the opportunity to participate in the defense, settlement or prosecution of any such litigation; and (4) consult with Microsoft with respect to the defense, settlement or prosecution of any such litigation and consider in good faith Microsoft’s advice with respect to such litigation. Activision Blizzard may not compromise, settle or come to an arrangement, or agree to do any of the foregoing, regarding any such litigation without Microsoft’s prior written consent.
Conditions to the Closing of the Merger
The obligations of Microsoft and Sub, on the one hand, and Activision Blizzard, on the other hand, to consummate the merger are subject to the satisfaction or waiver (where permitted by applicable law) of each of the following conditions:
•
the adoption of the merger agreement by the requisite affirmative vote of Activision Blizzard stockholders;
•
the expiration or termination of the applicable waiting period under, or obtaining all requisite clearances, consents and approvals pursuant to the HSR Act and the antitrust and foreign investment laws of certain specified countries, which we refer to as the “regulatory conditions”; and
•
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 and 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.”
In addition, the obligations of Microsoft and Sub to consummate the merger are subject to the satisfaction or waiver (where permitted by applicable law) of each of the following additional conditions:
•
the representations and warranties of Activision Blizzard relating to organization, good standing, corporate power, enforceability, approval of the Activision Blizzard Board of Directors, opinion of Activision Blizzard’s financial advisor, anti-takeover laws, requisite stockholder approval, the absence of any Company Material Adverse Effect and brokers’ fees being true and correct in all material respects as of the date of the merger agreement and as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will have been true and correct as of such earlier date), unless any such representations or warranties are qualified by “material,” “materiality” or Company Material Adverse Effect, in which case, such representations and warranties will have been true and correct (without disregarding such “material,” “materiality” or Company Material Adverse Effect qualifications) as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will have been so true and correct as of such earlier date);
•
the representations and warranties of Activision Blizzard relating to certain aspects of the capitalization of Activision Blizzard’s subsidiaries being true and correct in all material respects as of the date of the merger agreement and as of the date on which the closing occurs as if made at and as of such date;
•
the representations and warranties of Activision Blizzard relating to certain aspects of Activision Blizzard’s capitalization being true and correct as of the date of the merger agreement and as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct as of such earlier date), except for such inaccuracies that are de minimis in the aggregate (viewed in the context of Activision Blizzard’s total capitalization);
•
the other representations and warranties of Activision Blizzard set forth elsewhere in the merger agreement being true and correct (without giving effect to any materiality or Company Material Adverse Effect qualifications set forth therein) as of the date of the merger agreement and as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct as of such earlier date), except for such failures to be true and correct that would not have or reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect;
•
Activision Blizzard having performed and complied in all material respects with all covenants and obligations of the merger agreement required to be performed and complied with by it at or prior to the effective time of the merger;
•
the receipt by Microsoft and Sub of a customary closing certificate of Activision Blizzard; and
•
the absence of any Company Material Adverse Effect having occurred after the date of the merger agreement that is continuing as of the effective time of the merger.
In addition, the obligation of Activision Blizzard to consummate the merger is subject to the satisfaction or waiver (where permitted by applicable law) of each of the following additional conditions:
•
the representations and warranties of Microsoft and Sub set forth in the merger agreement being true and correct as of the date of the merger agreement and as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct as of such earlier date), except for any such failure to be true and correct that would not have or reasonably be expected to have, individually or in the aggregate, an effect that would, or would reasonably be expected to, prevent or materially impede or materially delay, or prevents or materially impedes or materially delays, the consummation by Microsoft or Sub of the merger;
•
Microsoft and Sub having performed and complied in all material respects with all covenants and obligations of the merger agreement required to be performed and complied with by Microsoft or Sub at or prior to the effective time of the merger; and
•
the receipt by Activision Blizzard of a customary closing certificate of Microsoft and Sub.
Termination of the Merger Agreement
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:
•
by mutual written agreement of Activision Blizzard and Microsoft;
•
by either Activision Blizzard or Microsoft if:
•
(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));
•
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
•
the Activision Blizzard stockholders do not adopt the merger agreement at the special meeting (except that a party may not terminate the merger agreement pursuant to this provision 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); and
•
by Activision Blizzard if:
•
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); or
•
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:
•
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.
In the event that the merger agreement is terminated pursuant to the termination rights above, the merger agreement will be of no further force or effect without liability of any party to the other parties (or their representatives), as applicable, except certain sections of the merger agreement will survive the termination of the merger agreement in accordance with their respective terms, including terms relating to termination fees. Notwithstanding the foregoing, nothing in the merger agreement will relieve any party from any liability for any willful breach of any representation, warranty, covenant or agreement contained in the merger agreement. In addition, no termination of the merger agreement will affect the rights or obligations of any party pursuant to the confidentiality agreement between Microsoft and Activision Blizzard, which rights, obligations and agreements will survive the termination of the merger agreement in accordance with their respective terms.
Termination Fee
If the merger agreement is terminated in specified circumstances, Activision Blizzard has agreed to pay Microsoft a termination fee of $2,270,100,000.
Microsoft will be entitled to receive the termination fee from Activision Blizzard if the merger agreement is terminated:
•
(A) by Microsoft because (1) the merger has not closed as of the termination date and at the time of such termination, either (x) the special meeting has not yet been held or (y) each of the regulatory conditions or the injunction condition has not been satisfied, and the primary cause of the failure of any such condition to have been satisfied was a breach of the merger agreement by Activision Blizzard, (2) Activision Blizzard has materially breached its representations, warranties, covenants or agreements in the merger agreement or (3) Activision Blizzard stockholders fail to adopt the merger agreement at the special meeting; (B) following the date of the merger agreement and prior to its termination, an acquisition proposal has been publicly announced by Activision Blizzard; and (C) Activision Blizzard enters into an agreement relating to, or consummates, an acquisition
transaction within one year of the termination of the merger agreement (provided that, for purposes of the termination fee, all references to “15%” in the definition of “acquisition transaction” are deemed to be references to “50%”);
•
by Microsoft, because the Activision Blizzard Board of Directors has effected a company board recommendation change; or
•
by Activision Blizzard, to enter into an alternative acquisition agreement with respect to a superior proposal.
Reverse Termination Fee
If the merger agreement is terminated in specified circumstances, Microsoft has agreed to pay Activision Blizzard a reverse termination fee of (i) $2,000,000,000, if the termination notice is provided prior to January 18, 2023, (ii) $2,500,000,000, if the termination notice is provided after January 18, 2023 and prior to April 18, 2023 or (iii) $3,000,000,000, if the termination notice is provided after April 18, 2023.
Activision Blizzard will be entitled to receive the reverse termination fee from Microsoft if the merger agreement is terminated:
•
by either Microsoft or Activision Blizzard due to (1) a permanent injunction or other judgment or order arising from antitrust laws having been issued by a court or other legal or regulatory restraint or prohibition arising from antitrust laws preventing the consummation of the merger being in effect, or any action having been taken by a governmental authority arising from antitrust laws that, in each case, prohibits, makes illegal or enjoins the consummation of the merger and that has become final and non-appealable; or (2) any statute, rule, regulation or order arising from antitrust laws having been enacted, entered, enforced or deemed applicable to the merger that prohibits, makes illegal or enjoins the consummation of the merger, except that this termination right will not be available if the terminating 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
•
by either Microsoft or Activision Blizzard if (1) the merger has not been consummated by the termination date, as may be extended pursuant to the merger agreement, except that this termination right is not available if the terminating 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, and (2) all conditions to the merger agreement are satisfied (other than those conditions to be satisfied at the time of the closing of the merger, each of which is capable of being satisfied at closing) or waived (where permissible pursuant to applicable law), other than the regulatory conditions or injunction condition solely with respect to antitrust laws, except that in either case, Activision Blizzard is not then in material breach of any provision of the merger agreement (provided that any breach by Activision Blizzard that is the primary cause of the failure of any condition to the merger agreement to be satisfied is a material breach).
As used herein, “antitrust laws” are collectively (i) the Sherman Antitrust Act of 1890, (ii) the Clayton Antitrust Act of 1914, (iii) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iv) the Federal Trade Commission Act of 1914 and (v) all other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or significant impediments or lessening of competition or the creation or strengthening of a dominant position through merger or acquisition, in any case that are applicable to the merger.
Specific Performance
Microsoft, Sub and Activision Blizzard are entitled to an injunction, specific performance and other equitable relief to prevent breaches (or threatened breaches) of the merger agreement and to enforce the terms of the merger agreement, in addition to any other remedy to which they are entitled at law or in equity.
Fees and Expenses
Except in specified circumstances, whether or not the merger is completed, Activision Blizzard, on the one hand, and Microsoft and Sub, on the other hand, are each responsible for all of their respective costs and expenses incurred in connection with the merger and the other transactions contemplated by the merger agreement.
Amendment
Subject to applicable law, the merger agreement may be amended in writing by the parties at any time prior to closing of the merger, whether before or after adoption of the merger agreement by stockholders. However, after adoption of the merger agreement by stockholders, no amendment that requires further approval by such stockholders pursuant to the DGCL may be made without such approval.
Governing Law; Venue
The merger agreement is governed by Delaware law. The exclusive venue for disputes is the Court of Chancery of the State of Delaware or, to the extent that the Court of Chancery of the State of Delaware does not have subject matter jurisdiction, any state or federal court in the State of Delaware.
