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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒ Filed by a Party other than the Registrant  ☐
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a-12
ACTIVISION BLIZZARD, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee paid previously with preliminary materials.

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

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[MISSING IMAGE: lg_activisionblizzard-bw.jpg]
 MERGER PROPOSAL — YOUR VOTE IS VERY IMPORTANT
March 21, 2022
Dear Activision Blizzard Stockholders,
It is my pleasure to invite you to a special meeting of stockholders, which we refer to as the “special meeting,” of Activision Blizzard, Inc., which we refer to as “Activision Blizzard,” to 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.
At the special meeting, you will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time), dated as of January 18, 2022, which we refer to as the “merger agreement,” by and among Activision Blizzard, Microsoft Corporation, which we refer to as “Microsoft,” and Anchorage Merger Sub Inc., which we refer to as “Sub,” a wholly owned subsidiary of Microsoft. Pursuant to the terms and conditions of the merger agreement, Sub will merge with and into Activision Blizzard, with Activision Blizzard surviving the merger as a wholly owned subsidiary of Microsoft, which we refer to as the “merger.” You will be asked to consider and vote on a proposal to approve, by means of a non-binding, advisory vote, compensation that will or may become payable to the named executive officers of Activision Blizzard in connection with the merger. You also will be asked to consider and vote on a proposal to adjourn 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.
If the merger is completed, you will be entitled to receive $95.00 in cash, without interest, for each share of our common stock, par value $0.000001 per share, which we refer to as “Activision Blizzard common stock,” that you own (unless you have properly exercised your appraisal rights with respect to such shares), which represents (i) a premium of approximately 45.3% to Activision Blizzard’s closing stock price on January 14, 2022, the last trading day prior to the announcement of the merger, and (ii) approximately 50.3% to the volume weighted average stock price of Activision Blizzard common stock during the 30 trading days ended January 14, 2022.
The receipt of cash in exchange for shares of Activision Blizzard common stock pursuant to the merger will generally be a taxable transaction to “U.S. Holders” ​(as defined in the accompanying proxy statement) for U.S. federal income tax purposes. For a more complete description, 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 67 of the accompanying proxy statement.
The Activision Blizzard Board of Directors, after considering the reasons more fully described in this proxy statement, unanimously 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 and 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.
 

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The Activision Blizzard Board of Directors recommends that you vote:
(i)
“FOR” the proposal to adopt the merger agreement, thereby approving the merger and the other transactions contemplated by the merger agreement;
(ii)
“FOR” the proposal to approve, by means of a non-binding, advisory vote, compensation that will or may become payable to the named executive officers of Activision Blizzard in connection with the merger; and
(iii)
“FOR” the proposal to adjourn 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.
The enclosed proxy statement provides detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Annex A to the 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 74. The proxy statement also describes the actions and determinations of our Board of Directors in connection with its evaluation of the merger agreement and the merger. We encourage you to read the proxy statement and its annexes, including the merger agreement, carefully and in their entirety. You may also obtain more information about Activision Blizzard from documents we file with the U.S. Securities and Exchange Commission, which we refer to as the “SEC,” from time to time.
Whether or not you plan to attend the special meeting virtually, please complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone. TO FACILITATE THE TIMELY RECEIPT OF YOUR PROXY DESPITE ANY POTENTIAL SYSTEMS DISRUPTION DUE TO COVID-19, WE ENCOURAGE YOU TO VOTE BY TELEPHONE OR INTERNET TODAY. If you attend the special meeting and vote in person by virtual ballot, your vote by virtual ballot will revoke any proxy previously submitted. If you hold your shares in “street name,” you should instruct your broker, bank or other nominee how to vote your shares in accordance with the voting instruction form you will receive from your broker, bank or other nominee. Your broker, bank or other nominee cannot vote on any of the proposals, including the proposal to adopt the merger agreement, without your instructions.
Your vote is very important, regardless of the number of shares that you own. We cannot complete the merger unless the proposal to adopt the merger agreement is approved by the affirmative vote of the holders of a majority of the shares of Activision Blizzard common stock outstanding and entitled to vote thereon. The failure of any stockholder to vote by virtual ballot, to submit a validly executed proxy card or to grant a proxy electronically over the Internet or by telephone will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement. If you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.
If you have any questions or need assistance voting your shares of Activision Blizzard common stock, please call Activision Blizzard’s proxy solicitor in connection with the special meeting:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Stockholders may call toll-free from the U.S. or Canada: (877) 687-1871
From other locations please dial: +1 (412) 232-3651
Banks and Brokers may call collect: (212) 750-5833
 

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On behalf of our Board of Directors, we thank you for your support and appreciate your consideration of this matter.
Sincerely,
[MISSING IMAGE: sg_robertakotick-bw.jpg]
Robert A. Kotick
Chief Executive Officer
[MISSING IMAGE: sg_briankelly-bw.jpg]
Brian Kelly
Chairman of the Board
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.
The accompanying proxy statement is dated March 21, 2022 and, together with the enclosed form of proxy card, is first being mailed to Activision Blizzard stockholders on or about March 21, 2022.
 

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 2022
NOTICE IS HEREBY GIVEN that a special meeting of stockholders, which we refer to as the “special meeting,” of Activision Blizzard, Inc., which we refer to as “Activision Blizzard,” will be held:
TIME AND DATE:
9:00 a.m., Pacific time, on April 28, 2022
PLACE:
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.
ITEMS OF BUSINESS:
1.
To consider and vote on the proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time), dated as of January 18, 2022, which we refer to as the “merger agreement,” by and among Activision Blizzard, Microsoft Corporation, which we refer to as “Microsoft,” and Anchorage Merger Sub Inc., which we refer to as “Sub,” a wholly owned subsidiary of Microsoft, a copy of which is attached as Annex A to the proxy statement accompanying this notice, which proposal we refer to as the “merger proposal”;
2.
To consider and vote on the proposal to approve, by means of a non-binding, advisory vote, compensation that will or may become payable to the named executive officers of Activision Blizzard in connection with the merger pursuant to the merger agreement, which we refer to as the “merger,” and which proposal we refer to as the “merger-related compensation proposal”; and
3.
To consider and vote on the proposal to adjourn 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 proposal we refer to as the “adjournment proposal.”
ADJOURNMENTS AND POSTPONEMENTS:
Any action on the items of business described above may be considered at the special meeting or at any time and date to which the special meeting may be properly adjourned or postponed.
RECORD DATE:
Stockholders of record at the close of business on March 14, 2022, which we refer to as the “record date,” are entitled to notice of, and to vote at, the special meeting and at any adjournments or postponements thereof.
INSPECTION OF LIST OF STOCKHOLDERS OF RECORD:
A list of stockholders of record will be available for inspection at the meeting website during the special meeting.
 

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VOTING:
Whether or not you plan to attend the special meeting virtually, we urge you to vote your shares via the toll-free telephone number or over the Internet as described on your proxy card or voting instruction form. You may also complete, sign, date and mail the proxy card or voting instruction form in the prepaid envelope provided.
TO FACILITATE THE TIMELY RECEIPT OF YOUR PROXY DESPITE ANY POTENTIAL SYSTEMS DISRUPTION DUE TO COVID-19, WE ENCOURAGE YOU TO VOTE BY TELEPHONE OR INTERNET TODAY. Submitting a proxy now will not prevent you from being able to vote in person by virtual ballot at the special meeting.
IMPORTANT INFORMATION:
Your vote is very important to us. The merger contemplated by the merger agreement is conditioned on the receipt of, and we cannot consummate the merger unless the merger proposal receives, the affirmative vote of the holders of a majority of the shares of Activision Blizzard’s common stock, par value $0.000001, which we refer to as “Activision Blizzard common stock,” outstanding and entitled to vote thereon.
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. 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.
The failure of any stockholder of record to submit a signed proxy card or grant a proxy electronically over the Internet or by telephone or to vote in person by virtual ballot at the special meeting will have the same effect as a vote “AGAINST” the merger proposal, but will not have any effect on the merger-related compensation proposal or the adjournment proposal (assuming a quorum is present). If you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote “AGAINST” the merger proposal but will not have any effect on the merger-related compensation proposal or the adjournment proposal (assuming a quorum is present). Abstentions will have the same effect as a vote “AGAINST” the merger proposal, the merger-related compensation proposal and the adjournment proposal (assuming a quorum is present).
Stockholders who do not vote in favor of the merger proposal will have the right to seek appraisal of the fair value of their shares of Activision Blizzard common stock, as determined in accordance with Delaware law, if they deliver a demand for appraisal before the vote is taken on the merger proposal and comply with all applicable requirements under Delaware law, which are summarized herein and reproduced in their entirety in Annex B to the accompanying proxy statement.
The Activision Blizzard Board of Directors recommends that you vote (i) “FOR” the merger proposal, (ii) “FOR” the merger-related compensation proposal and (iii) “FOR” the adjournment proposal.
 

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Santa Monica, California
March 21, 2022
By Order of the Board of Directors,
[MISSING IMAGE: sg_francestownsend-bw.jpg]
Frances Townsend
Executive Vice President, Corporate Affairs,
Corporate Secretary and Chief Compliance Officer
 

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YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING VIRTUALLY, WE URGE YOU TO VOTE YOUR SHARES VIA THE TOLL-FREE TELEPHONE NUMBER OR OVER THE INTERNET AS DESCRIBED ON YOUR ENCLOSED PROXY CARD. YOU MAY ALSO COMPLETE, SIGN, DATE AND MAIL THE PROXY CARD IN THE PREPAID ENVELOPE PROVIDED. TO FACILITATE THE TIMELY RECEIPT OF YOUR PROXY DESPITE ANY POTENTIAL SYSTEMS DISRUPTION DUE TO COVID-19, WE ENCOURAGE YOU TO VOTE BY TELEPHONE OR INTERNET TODAY. You may revoke your proxy or change your vote at any time before the special meeting. If your shares are held in the name of a broker, bank or other nominee, please follow the instructions on the voting instruction form furnished to you by such broker, bank or other nominee, which is considered the stockholder of record, in order to vote. As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares in your account. Your broker, bank or other nominee cannot vote on any of the proposals, including the proposal to adopt the merger agreement, without your instructions.
If you fail to return your proxy card, to grant your proxy electronically over the Internet or by telephone, or to vote by virtual ballot in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. If you are a stockholder of record, voting in person by virtual ballot at the special meeting will revoke any proxy that you previously submitted. If you hold your shares through a broker, bank or other nominee, you must obtain from the record holder a legal proxy issued in your name in order to vote in person at the special meeting.
We encourage you to read the accompanying proxy statement, including all documents incorporated by reference therein, and annexes to the accompanying proxy statement, carefully and in their entirety. If you have any questions concerning the merger, the special meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of common stock, please contact our proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Stockholders may call toll-free from the U.S. or Canada: (877) 687-1871
From other locations please dial: +1 (412) 232-3651
Banks and Brokers may call collect: (212) 750-5833
 

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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 109. 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 74. 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 30)
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.
 
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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 109) 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 31)
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.
 
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Effect on Activision Blizzard if the Merger is Not Completed (page 31)
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 92.
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 93.
Merger Consideration (page 75)
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 59 and 75, 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 77, 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 101).
The Special Meeting (page 25)
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
 
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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:

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”;

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

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
 
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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 43)
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 43, unanimously (i) determined that the terms of the merger agreement and the transactions contemplated thereby are advisable, fair to and in
 
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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 52)
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 52.
Financing of the Merger (page 67)
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 57)
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:
 
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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 will 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.
 
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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 59)
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 59.
Appraisal Rights (page 101)
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
 
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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 101 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 67)
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 67 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 67 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 69)
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 69 of this proxy statement.
Legal Proceedings Regarding the Merger (page 71)
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
 
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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 72 of this proxy statement and “Proposal 1: Adoption of the Merger Agreement — The Merger — Other Pending Employment-Related Matters” beginning on page 72 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 73 of this proxy statement.
No Solicitation of Other Offers (page 83)
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
 
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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 83 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 85 of this proxy statement.
Change in the Recommendation of the Activision Blizzard Board of Directors (page 85)
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 85 of this proxy statement.
Conditions to the Closing of the Merger (page 89)
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:

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 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”;

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;

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 89 of this proxy statement.
Termination of the Merger Agreement (page 91)
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 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:

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:

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 92)
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 92 of this proxy statement.
Reverse Termination Fee (page 93)
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 93 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.
 
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QUESTIONS AND ANSWERS
The following questions and answers are intended to address some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as an Activision Blizzard stockholder. We encourage you to read carefully the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement (including the merger agreement) and the documents we incorporate 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 109. The merger agreement is attached as Annex A to this proxy statement and is incorporated by reference herein. 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 74.
Q:
Why am I receiving these proxy materials?
A:
On January 18, 2022, Activision Blizzard entered into the merger agreement providing for the merger of Sub with and into Activision Blizzard, with Activision Blizzard surviving the merger as a wholly owned subsidiary of Microsoft. In order to complete the merger, Activision Blizzard stockholders must vote to adopt the merger agreement at the special meeting. The approval of this proposal by our stockholders is a condition to the consummation of the merger. For more information, see the section entitled “Terms of the Merger Agreement — Conditions to the Closing of the Merger” beginning on page 89. The Activision Blizzard Board of Directors is furnishing this proxy statement and form of proxy card to the holders of Activision Blizzard common stock in connection with the solicitation of proxies in favor of the proposal to adopt the merger agreement and to approve the other proposals to be voted on at the special meeting or any adjournments or postponements thereof. This proxy statement includes information that we are required to provide to you under the rules of the SEC and is designed to assist you in voting on the matters presented at the special meeting. Stockholders of record as of the close of business on March 14, 2022, which we refer to as the “record date,” may attend the special meeting and are entitled and requested to vote on the proposals described in this proxy statement.
Q:
What is included in the proxy materials?
A:
The proxy materials include the proxy statement and the annexes to the proxy statement, including the merger agreement, and a proxy card or voting instruction form.
Q:
When and where is the special meeting?
A:
The special meeting will take place 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 the meeting website. The virtual meeting will provide stockholders with the same rights and opportunities to participate as they would have at a physical meeting. 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.
Q:
What is the proposed merger and what effects will it have on Activision Blizzard?
A:
The proposed merger is the acquisition of Activision Blizzard by Microsoft through the merger of Sub with and into Activision Blizzard pursuant to the merger agreement. If the proposal to adopt the merger agreement is approved by the requisite number of shares of Activision Blizzard common stock and the other closing conditions under the merger agreement have been satisfied or waived, Sub will merge with and into Activision Blizzard, with Activision Blizzard continuing as the surviving corporation. As a result of the merger, Activision Blizzard will become a wholly owned subsidiary of Microsoft and you will no longer own shares of Activision Blizzard common stock. Activision Blizzard expects to delist its common stock from Nasdaq as promptly as practicable after the effective time and deregister its common stock under the Exchange Act as promptly as practicable after such delisting. Thereafter, Activision Blizzard will no longer be a publicly traded company.
 
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Q:
What will I receive if the merger is completed?
A:
Upon completion of the merger, you will be entitled to receive the per share merger consideration of $95.00 in cash, without interest and less applicable tax withholdings, for each share of Activision Blizzard common stock that you own, unless you have properly exercised and perfected and not withdrawn your demand for, or otherwise lost your, appraisal rights under the DGCL with respect to such shares. For example, if you own 100 shares of Activision Blizzard common stock, you will receive $9,500.00 in cash, without interest and less any applicable withholding taxes, in exchange for your shares of Activision Blizzard common stock. In no case will you own shares in the surviving corporation.
Q:
Who is entitled to vote at the special meeting?
A:
If your shares of Activision Blizzard common stock are registered in your name in the records of our transfer agent, Broadridge Corporate Issuer Solutions, which we refer to as “Broadridge,” as of the close of business on the record date, you are a “stockholder of record” for purposes of the special meeting and are eligible to attend and vote. If you hold shares of Activision Blizzard common stock indirectly through a broker, bank or similar institution, you are not a stockholder of record, but instead hold your shares in “street name” and the record owner of your shares is your broker, bank or similar institution. Instructions on how to vote shares held in street name are described under the question “How do I vote my shares?” below.
Q:
How many votes do I have?
A:
You will have one vote for each share of Activision Blizzard common stock owned by you, as a stockholder of record or in street name, as of the close of business on the record date.
Q:
May I attend the special meeting?
A:
Yes. Subject to the requirements described in this proxy statement, all Activision Blizzard stockholders as of the close of business on the record date may attend the special meeting virtually via the Internet at the meeting website and complete a virtual ballot, whether or not you sign and return a proxy card. 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. If you are a stockholder of record, you will need your assigned virtual control number to vote shares electronically at the special meeting. The control number can be found on your enclosed proxy card.
To ensure that your shares will be represented at the special meeting, we encourage you to grant your proxy in advance electronically over the Internet or by telephone (using the instructions provided in the enclosed proxy card), or sign, date, complete and return the enclosed proxy card in the accompanying prepaid reply envelope. If you attend the special meeting and complete a virtual ballot, your vote will revoke any proxy previously submitted. If you hold your shares in “street name,” because you are not the stockholder of record, you may not vote your shares at the special meeting unless you request and obtain a valid legal proxy from your broker, bank or other nominee.
Q:
What if during the check-in time or during the meeting I have technical difficulties or trouble accessing the virtual meeting website?
A:
Please be sure to check in by 8:30 a.m., Pacific time, on April 28, 2022, the day of the special meeting, so that any technical difficulties may be addressed before the special meeting begins. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please email VirtualMeeting@viewproxy.com or call 866-612-8937 or the technical support number that will be posted on the special meeting log-in page. If there are any technical issues in convening or hosting the special meeting such that we are unable to convene or host the special meeting on the scheduled special meeting date, we will promptly post information to our website, including information on when the special meeting will be reconvened.
 
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Q:
What am I being asked to vote on at the special meeting?
A:
You are being asked to consider and vote on the following proposals:

the adoption of the merger agreement, a copy of which is attached as Annex A to the proxy statement accompanying this notice;

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; and

the approval of 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.
Q:
How does Activision Blizzard’s Board of Directors recommend that I vote?
A:
The Activision Blizzard Board of Directors unanimously recommends that you vote

“FOR” the merger proposal;

“FOR” the merger-related compensation proposal; and

“FOR” the adjournment proposal.
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 43, 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.
Q:
How does the per share merger consideration compare to the market price of Activision Blizzard common stock prior to the date on which the transaction was announced?
A:
The per share merger consideration represents a premium of approximately 45.3% to Activision Blizzard’s closing stock price on January 14, 2022, the last trading day prior to the announcement of the merger and approximately 50.3% to the volume weighted average stock price of Activision Blizzard common stock during the 30 trading days ended January 14, 2022.
Q:
Will Activision Blizzard pay a dividend before the completion of the merger?
A:
Under the terms of the merger agreement, from January 18, 2022 until the effective time, Activision Blizzard is permitted to declare and pay one regular cash dividend in an amount not to exceed $0.47 per share of Activision Blizzard common stock and consistent with the declaration, record and payment date of Activision Blizzard’s dividend from Activision Blizzard’s most recent fiscal year. Otherwise, during such time, Activision Blizzard may not declare, set aside, authorize, establish a record date for or pay any dividend or other distribution (whether in cash, shares or property or any combination thereof) in respect of any shares of capital stock or other equity or voting interest, or make any other actual, constructive or deemed distribution in respect of the shares of capital stock or other equity or voting interest, without Microsoft’s prior written consent. See the section entitled “Terms of the Merger Agreement — Conduct of Business Pending the Merger” beginning on page 81.
On February 3, 2022, the Activision Blizzard Board of Directors declared the regular cash dividend of $0.47 per share of Activision Blizzard outstanding common stock permitted under the terms of the merger agreement, payable on May 6, 2022, to shareholders of record at the close of business on April 15, 2022.
 
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Q:
Does Microsoft have the financial resources to complete the merger?
A:
Yes. 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.
For a more complete description of sources of funding for the merger and related costs, see “Proposal 1: Adoption of the Merger Agreement — Financing of the Merger” beginning on page 67.
Q:
What do I need to do now?
A:
We encourage you to read this proxy statement, the annexes to this proxy statement (including the merger agreement) and the documents we refer to in this proxy statement carefully and consider how the merger affects you. Then, grant your proxy electronically over the Internet or by telephone or complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, so that your shares can be voted at the special meeting. If you hold your shares in “street name,” please refer to the voting instruction form provided by your broker, bank or other nominee to vote your shares.
Q:
How do I vote my shares?
A:
For stockholders of record:   If you are eligible to vote at the special meeting and are a stockholder of record, you may submit your proxy or cast your vote in any of four ways:

By Internet — If you have Internet access, you may submit your proxy by following the instructions provided with your proxy materials and on your proxy card. Proxies submitted via Internet must be received by 8:59 p.m., Pacific time, on April 27, 2022.

By Telephone — You can also submit your proxy by telephone by following the instructions provided with your proxy materials and on your proxy card. Proxies submitted via telephone must be received by 8:59 p.m., Pacific time, on April 27, 2022.

By Mail — You may submit your proxy by completing the proxy card enclosed with these materials, signing and dating it and returning it in the prepaid envelope we have provided.

By Virtual Ballot — You may attend the special meeting virtually via the Internet at the meeting website and complete a virtual ballot.
For holders in street name:   If you hold your shares in street name and, therefore, are not a stockholder of record, you will need to follow the specific voting instructions provided to you by your broker, bank or other nominee. If you wish to vote your shares by virtual ballot at our special meeting, you must obtain a valid legal proxy from your broker, bank or similar institution, granting you authorization to vote your shares.
If you submit your proxy by Internet, telephone or mail, and you do not subsequently revoke your proxy, your shares of Activision Blizzard common stock will be voted in accordance with your instructions.
Even if you plan to virtually attend the special meeting, you are strongly encouraged to vote your shares of Activision Blizzard common stock by proxy. If you are a stockholder of record or if you obtain a valid legal proxy to vote shares which you beneficially own, you may still vote your shares of Activision Blizzard common stock by virtual ballot at the special meeting even if you have previously authorized your vote by proxy. If you are present at the special meeting and vote by virtual ballot, your previous vote by proxy will not be counted.
Q:
Can I change or revoke my proxy?
A:
For stockholders of record:   Yes. A proxy may be changed or revoked at any time prior to its exercise at the special meeting by submitting a later-dated proxy (including a proxy submitted via the Internet or by telephone) or by giving written notice to our Corporate Secretary at our principal executive offices at
 
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Activision Blizzard, Inc., 2701 Olympic Boulevard, Building B, Santa Monica, CA 90404. You may not change your vote over the Internet or by telephone after 8:59 p.m., Pacific time, on April 27, 2022. You may also attend the special meeting and vote your shares by virtual ballot.
For holders in street name:   Yes. You must follow the specific voting instructions provided to you by your broker, bank or other nominee to change or revoke any instructions you have already provided to them.
Q:
How will my shares be voted if I do not provide specific instructions in the proxy card or voting instruction form that I submit?
A:
If you are a stockholder of record and if you sign, date and return your proxy card but do not provide specific voting instructions, your shares of Activision Blizzard common stock will be voted “FOR” the merger proposal, “FOR” the merger-related compensation proposal and “FOR” the adjournment proposal.
If your shares are held in street name at a broker, bank or similar institution, your broker, bank or similar institution may, under certain circumstances, vote your shares on “discretionary” matters if you do not timely provide voting instructions in accordance with the instructions provided by them. However, if you do not provide timely instructions, your broker, bank or similar institution does not have the authority to vote on any “non-discretionary” proposals at the special meeting and a “broker non-vote” would occur, as explained in the following question and explanation.
Q:
What is “broker discretionary voting”?
A:
If you hold your shares in street name, your broker, bank or other nominee may be able to vote your shares without your instructions depending on whether the matter being voted on is “discretionary” or “non-discretionary.” Because brokers, banks and other nominee holders of record do not have discretionary voting authority with respect to any of the three proposals, if a beneficial owner of shares of Activision Blizzard common stock does not give voting instructions to the applicable broker, bank or other nominee with respect to any of the proposals, then those shares will not be present in person or represented by proxy at the special meeting. If there are any broker non-votes, then such broker non-votes will have the same effect as a vote “AGAINST” the merger proposal, but will not have any effect on the merger-related compensation proposal or the adjournment proposal (assuming there is a quorum). Therefore, it is important that you instruct your broker, bank or other nominee on how you wish to vote your shares.
Q:
I understand that a quorum is required in order to conduct business at the special meeting. What constitutes a quorum?
A:
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 properly executed proxy by mail, telephone or the Internet, or attend the special meeting, 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 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.
 
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Q:
What is required to approve the proposals submitted to a vote at the annual meeting?
A:
The merger proposal: 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. 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 the votes that can be cast as of the record date in respect of outstanding shares of Activision Blizzard common stock. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the merger proposal.
The merger-related compensation 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 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 adjournment 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 the proposal to adjourn the special meeting. 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).
Q:
How can I obtain a proxy card or voting instruction form?
A:
If you lose, misplace or otherwise need to obtain a proxy card or a voting instruction form, please follow the applicable procedure below.
For stockholders of record:   Please contact our proxy solicitor, Innisfree M&A Incorporated at (877) 687-1871 from the U.S. or Canada or at +1 (412) 232-3651 from other locations.
For holders in street name:   Please contact your account representative at your broker, bank or other nominee.
Q:
Why am I being asked to cast a non-binding, advisory vote to approve compensation that will or may become payable by Activision Blizzard to its named executive officers in connection with the merger?
A:
SEC rules require Activision Blizzard to seek a non-binding, advisory vote to approve compensation that will or may become payable by Activision Blizzard to its named executive officers in connection with the merger.
Q:
What is the compensation that will or may become payable by Activision Blizzard to its named executive officers in connection with the merger for purposes of this advisory vote?
A:
The compensation that will or may become payable by Activision Blizzard to its named executive officers in connection with the merger is certain compensation that is tied to or based on the merger and payable to certain of Activision Blizzard’s named executive officers pursuant to underlying plans and arrangements that are contractual in nature, including amounts payable in accordance with the terms of the merger agreement. Compensation that will or may become payable by Microsoft to Activision Blizzard’s named executive officers in connection with the merger is not subject to this advisory vote. For further detail, see the section of this proxy statement entitled “Proposal 2: Advisory Vote on Merger-Related Executive Compensation Arrangements” beginning on page 95.
Q:
Should I send in my stock certificates now?
A:
No. After the merger is completed, under the terms of the merger agreement, you will receive shortly thereafter the letter of transmittal instructing you to send your stock certificates or surrender your book-entry shares to the paying agent in order to receive the cash payment of the merger consideration for
 
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each share of your Activision Blizzard common stock represented by the stock certificates or book-entry shares. You should use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled upon completion of the merger. Please do not send in your stock certificates now.
Q:
I do not know where my stock certificates are. How will I get the merger consideration for my shares of Activision Blizzard common stock?
A:
If the merger is completed, the transmittal materials you will receive after the completion of the merger will include the procedures that you must follow if you cannot locate your stock certificates. This will include an affidavit that you will need to sign attesting to the loss of your stock certificates. You may also be required to post a bond as indemnity against any potential loss.
Q:
What happens if I sell or otherwise transfer my shares of Activision Blizzard common stock after the close of business on the record date but before the special meeting?
A:
The record date is earlier than the date of the special meeting and the date the merger is expected to be completed. If you sell or transfer your shares of Activision Blizzard common stock after the close of business on the record date but before the special meeting, unless special arrangements (such as the provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies Activision Blizzard by giving written notice to our Corporate Secretary at our principal executive offices at Activision Blizzard, Inc., 2701 Olympic Boulevard, Building B, Santa Monica, CA 90404 of such special arrangements, you will transfer the right to receive the per share merger consideration if the merger is completed to the person to whom you sell or transfer your shares of Activision Blizzard common stock, but you will retain your right to vote these shares at the special meeting. Even if you sell or otherwise transfer your shares of Activision Blizzard common stock after the close of business on the record date, we encourage you to complete, date, sign and return the enclosed proxy card or vote via the Internet or telephone.
Q:
When do you expect the merger to be completed?
A:
We are working toward completing the merger as quickly as possible and currently expect to complete the merger in Microsoft’s fiscal year ending June 30, 2023. However, the exact timing of completion of the merger cannot be predicted because the completion of the merger is subject to conditions, including the adoption of the merger agreement by our stockholders and the receipt of regulatory approvals.
Q:
What happens if the merger is not completed?
A:
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 Exchange Act, and Activision Blizzard will continue to file periodic reports with 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 92.
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 93.
Q:
Are there any other risks to me from the merger that I should consider?
A:
Yes. There are risks associated with all business combinations, including the merger. See the section entitled “Forward-Looking Statements” beginning on page 24.
 
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Q:
Do any of Activision Blizzard’s directors or officers have interests in the merger that may differ from those of Activision Blizzard stockholders generally?
A:
Yes. In considering the recommendation of the Activision Blizzard Board of Directors with respect to the merger proposal, you should be aware that Activision Blizzard’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of Activision Blizzard stockholders generally. In (i) evaluating and negotiating the merger agreement, (ii) approving the merger agreement and the merger and (iii) unanimously recommending that the merger agreement be adopted by Activision Blizzard stockholders, the Activision Blizzard Board of Directors was aware of and considered these interests to the extent that they existed at the time, among other matters. For a description of the interests of Activision Blizzard’s directors and executive officers in the merger, see “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 59.
Q:
What happens if the merger-related compensation proposal is not approved?
A:
Approval of the merger-related compensation proposal is not a condition to completion of the merger. The vote is an advisory vote and is not binding. Accordingly, regardless of the outcome of the advisory vote, if the merger is completed, Activision Blizzard may still pay such compensation to its named executive officers in accordance with the terms and conditions applicable to such compensation.
Q:
What should I do if I receive more than one set of voting materials?
A:
You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction forms. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, date, sign and return (or vote via the Internet or telephone with respect to) each proxy card and voting instruction form that you receive.
Q:
Who counts the votes?
A:
Votes are counted by American Election Services, LLC, which we refer to as “AES,” and are then certified by a representative of AES appointed by the Activision Blizzard Board of Directors to serve as the inspector of election at the special meeting.
Q:
Who may attend the special meeting?
A:
Activision Blizzard stockholders who held shares of Activision Blizzard common stock as of the close of business on March 14, 2022.
Q:
Who pays for the expenses of this proxy solicitation?
A:
Activision Blizzard will bear the entire cost of this proxy solicitation, including the preparation, printing, mailing and distribution of these proxy materials. We may also reimburse brokerage firms and other persons representing stockholders who hold their shares in street name for reasonable expenses incurred by them in forwarding proxy materials to such stockholders. In addition, certain directors, officers and other employees, without additional remuneration, may solicit proxies in person or by telephone, facsimile, email and other methods of electronic communication.
Q:
Where can I find the vote results after the special meeting?
A:
We are required to publish final vote results in a Current Report on Form 8-K to be filed with the SEC within four business days after our special meeting. See the section entitled “Where You Can Find More Information” beginning on page 109.
Q:
Will I be subject to U.S. federal income tax upon the exchange of Activision Blizzard common stock for cash pursuant to the merger?
A:
The exchange of Activision Blizzard common stock for cash pursuant to the merger will be a taxable
 
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transaction for U.S. federal income tax purposes. Accordingly, 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 67 of this proxy statement) who exchanges shares of Activision Blizzard common stock for cash in the merger generally will recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. Holder’s adjusted tax basis in such shares.
For a more complete description of the U.S. federal income tax consequences of the merger, see “Proposal 1: Adoption of the Merger Agreement — The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page 67 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.
Q:
What will the holders of outstanding Activision Blizzard equity awards receive in the merger?
A:
For information regarding the treatment of Activision Blizzard’s outstanding equity awards, see the section entitled “Terms of the Merger Agreement — Conversion of Shares — Treatment of Equity Compensation” beginning on page 75.
Q:
Am I entitled to appraisal rights under the DGCL?
A:
If the merger agreement is adopted by Activision Blizzard’s stockholders, stockholders who do not vote (whether in person or by proxy) in favor of the adoption of the merger agreement and who properly exercise and perfect their demand for appraisal of their shares will be entitled to appraisal rights in connection with the merger under Section 262 of the DGCL. This means that holders of Activision Blizzard common stock are entitled to have their shares appraised by the Court of Chancery of the State of Delaware and to receive payment in cash of the “fair value” of their shares of Activision Blizzard common stock, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest to be paid upon the amount determined to be fair value, if any, as determined by the court, subject to the provisions of Section 262 of the DGCL. Stockholders who wish to seek appraisal of their shares are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process. Stockholders should refer to the discussion under the section entitled “Appraisal Rights” beginning on page 101 and the DGCL requirements for exercising appraisal rights reproduced and attached as Annex B to this proxy statement.
Q:
What is “householding”?
A:
Some banks, brokers and similar institutions may be participating in the practice of “householding” proxy materials. This means that only one copy of our proxy materials may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of the proxy materials to you if you write to us at the following address or call us at the following phone number:
Activision Blizzard, Inc.
Attention: Investor Relations
2701 Olympic Boulevard
Building B
Santa Monica, CA 90404
Phone: Call (310) 255-2000 and ask to speak to Investor Relations.
To receive separate copies of the proxy materials in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or other nominee or you may contact us at the above address or telephone number.
 
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Q:
How can I obtain more information about Activision Blizzard?
A:
You can find more information about us from various sources described in the section entitled “Where You Can Find More Information” beginning on page 109.
Q:
Who can help answer my questions?
A:
If you have any questions concerning the merger, the special meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of Activision Blizzard common stock, please contact our proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Stockholders may call toll-free from the U.S. or Canada: (877) 687-1871
From other locations please dial: +1 (412) 232-3651
Banks and Brokers may call collect: (212) 750-5833
If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.
 
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FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us or on our behalf contain certain forward-looking statements within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995 with respect to the proposed transaction and business combination between Microsoft and Activision Blizzard, including statements regarding financial projections, the benefits of the transaction, the anticipated timing of the transaction and the products and markets of each company. These forward-looking statements generally are identified by the words “believe,” “project,” “predicts,” “budget,” “forecast,” “continue,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “could,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions (or the negative versions of such words or expressions). Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this proxy statement, including but not limited to: (i) the risk that the transaction may not be completed in a timely manner or at all, which may adversely affect Activision Blizzard’s business and the price of the common stock of Activision Blizzard, (ii) the failure to satisfy the conditions to the consummation of the transaction, including the adoption of the merger agreement by the stockholders of Activision Blizzard and the receipt of certain regulatory approvals, (iii) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, (iv) the effect of the announcement or pendency of the transaction on Activision Blizzard’s business relationships, operating results and business generally, (v) risks that the proposed transaction disrupts current plans and operations of Activision Blizzard and potential difficulties in Activision Blizzard employee retention as a result of the transaction, (vi) risks related to diverting management’s attention from Activision Blizzard’s ongoing business operations, (vii) the outcome of any legal proceedings that may be instituted against Activision Blizzard related to the merger agreement or the transaction, (viii) the impact of the COVID-19 pandemic on Activision Blizzard’s business and general economic conditions and (ix) restrictions during the pendency of the proposed transaction that may impact Activision Blizzard’s ability to pursue certain business opportunities or strategic transactions.
In addition, please refer to the documents that Activision Blizzard filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K listed in the section of this proxy statement entitled “Where You Can Find More Information” beginning on page 109. These filings identify and address other important risks and uncertainties that could cause events and results to differ materially from those contained in the forward-looking statements set forth in this proxy statement. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and except as required by applicable law, Activision Blizzard assumes no obligation and does not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
Activision Blizzard stockholders are advised, however, to consult any future disclosures we make on related subjects as may be detailed in our other filings made from time to time with the SEC.
 
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THE SPECIAL MEETING
The enclosed proxy is solicited on behalf of the Activision Blizzard Board of Directors for use at the special meeting of stockholders or at any adjournments or postponements thereof.
Date, Time and Place
We will hold the special meeting 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 the meeting website. 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.
Purpose of the Special Meeting
At the special meeting, we will ask our stockholders of record as of the close of business on the record date to consider and vote on the following proposals:
Proposal 1 — Adoption of the Merger Agreement. To consider and vote on the merger proposal;
Proposal 2 — Approval, by Means of a Non-Binding, Advisory Vote, of Certain Compensatory Arrangements with Named Executive Officers. To consider and vote on the merger-related compensation proposal; and
Proposal 3 — Adjournment of the Special Meeting. To adjourn 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.
Record Date; Shares Entitled to Vote; Quorum
Only stockholders of record as of the close of business on March 14, 2022 are entitled to notice of the special meeting and to vote at the special meeting or at any adjournments or postponements thereof. A list of stockholders entitled to vote at the special meeting will be available at the meeting website during the special meeting.
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 for the special meeting, there were 780,922,900 shares of Activision Blizzard common stock outstanding and entitled to vote. If you submit a properly 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 must be represented in person or by proxy to have a quorum. If a quorum is not present, the special meeting may 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.
Vote Required; Abstentions and Broker Non-Votes
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. 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 the votes that can be cast in respect of our outstanding shares of 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
 
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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 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 adjournment proposal, and broker non-votes will not have any effect on the adjournment proposal (assuming a quorum is present).
Broker non-votes are shares held by a broker, bank or other nominee that are present in person or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares on how to vote on a particular proposal and the broker does not have discretionary voting power on such proposal. Because brokers, banks and other nominee holders of record do not have discretionary voting authority with respect to any of the three proposals, if a beneficial owner of shares of Activision Blizzard common stock does not give voting instructions to the broker, bank or other nominee with respect to any of the proposals, then those shares will not be present in person or represented by proxy at the special meeting. If there are any broker non-votes, then such broker non-votes will have the same effect as a vote “AGAINST” the merger proposal, but will have no effect on the merger-related compensation proposal or the adjournment proposal (assuming a quorum is present).
Shares Held by 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
If your shares are registered in your name with our transfer agent, Broadridge, you may cause your shares to be voted by returning a completed, signed and dated proxy card in the accompanying prepaid reply envelope, or you may vote in person at the special meeting. Additionally, you may submit electronically over the Internet or by phone a proxy authorizing the voting of your shares by following the instructions on your proxy card. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy electronically over the Internet or by telephone. Based on your properly completed and executed proxy cards or Internet and telephone proxies, the proxy holders will vote your shares according to your directions.
If you plan to attend the special meeting and wish to vote in person, you will be given a virtual ballot at the meeting. If your shares are registered in your name, you are encouraged to authorize your vote by proxy even if you plan to attend the special meeting in person. If you attend the special meeting and vote in person by virtual ballot, your vote by virtual ballot will revoke any proxy previously submitted.
Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder. Properly executed proxies that do not contain voting instructions will be voted (i) “FOR” the merger proposal, (ii) “FOR” the merger-related compensation proposal and (iii) “FOR” the adjournment proposal.
 
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If your shares are held in “street name” through a broker, bank or other nominee, you may vote through your broker, bank or other nominee by completing and returning the voting instruction form provided by your broker, bank or other nominee or by the Internet or telephone through your broker, bank or other nominee if such a service is provided. To vote via the Internet or telephone through your broker, bank or other nominee, you should follow the instructions on the voting instruction form provided by your broker, bank or other nominee. Under applicable stock exchange rules, brokers, banks or other nominees have the discretion to vote your shares on discretionary matters if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. 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. If you do not return your broker’s, bank’s or other nominee’s voting instruction form, do not vote via the Internet or telephone through your broker, bank or other nominee, if applicable, or do not attend the special meeting and vote in person with a legal proxy from your broker, bank or other nominee, such actions will have the same effect as if you voted “AGAINST” the merger proposal but will not have any effect on the merger-related compensation proposal or the adjournment proposal (assuming a quorum is present).
Revocability of Proxies
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;

delivering a written notice of revocation to our Corporate Secretary;

validly executing another proxy card with a later date and returning it to us prior to the special meeting; or

attending the special meeting virtually via the Internet at the meeting website and completing a virtual ballot.
Please note that to be effective, your new proxy card, Internet or telephonic voting instructions or written notice of revocation must be received by our Corporate Secretary prior to the special meeting and, in the case of Internet or telephonic voting instructions, must be received before 8:59 p.m., Pacific time, on April 27, 2022. If you have submitted a proxy, your appearance at the special meeting, in the absence of voting in person or submitting an additional proxy or revocation, will not have the effect of revoking your prior proxy.
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. You may also vote in person at the special meeting if you obtain a valid legal proxy from your broker, bank or other nominee. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow Activision Blizzard stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting, as adjourned.
Board of Directors’ Recommendation
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 43, 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.
 
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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.
Tabulation of Votes
All votes will be tabulated by a representative of AES, who will act as the inspector of election appointed for the special meeting and will separately tabulate affirmative and negative votes, abstentions and broker non-votes.
Adjournment
In addition to the proposal to adopt the merger agreement and the proposal to approve, by non-binding advisory vote, compensation that will or may become payable by Activision Blizzard to its named executive officers in connection with the merger, Activision Blizzard stockholders are also being asked to approve the proposal to adjourn 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. If a quorum is not present, the presiding person of the special meeting may (and is expected to) adjourn the special meeting. If the special meeting is adjourned or postponed, Activision Blizzard stockholders who have already submitted their proxies will be able to revoke them at any time prior to the final vote on the proposals.
Solicitation of Proxies
The expense of soliciting proxies in the enclosed form will be borne by Activision Blizzard. We have retained Innisfree M&A Incorporated, a proxy solicitation firm, to solicit proxies in connection with the special meeting for up to approximately $100,000, plus expenses. We have also agreed to indemnify Innisfree M&A Incorporated against losses arising out of its provision of these services as requested by Activision Blizzard. In addition, we may reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by certain of our directors, officers and employees, personally or by telephone, facsimile or other means of communication. No additional compensation will be paid for such services.
Anticipated Date of Completion of the Merger
Assuming timely satisfaction of necessary closing conditions, including the approval by our stockholders of the merger proposal, we currently expect to complete the merger in Microsoft’s fiscal year ending June 30, 2023.
Assistance
If you need assistance in completing your proxy card or have questions regarding Activision Blizzard’s special meeting, please contact Innisfree M&A Incorporated by mail at 501 Madison Avenue, 20th Floor New York, NY 10022 or by telephone. Stockholders may call toll-free from the U.S. or Canada at (877) 687-1871 or dial directly from other locations at +1 (412) 232-3651, and banks and brokers may call collect: (212) 750-5833.
Rights of Stockholders Who Seek Appraisal
If the merger proposal is approved by Activision Blizzard stockholders, stockholders who do not vote (whether in person or by proxy) in favor of the adoption of the merger agreement and who properly exercise and perfect their demand for appraisal of their shares will be entitled to appraisal rights in connection with the merger under Section 262 of the DGCL. This means that holders of Activision Blizzard common stock are entitled to have their shares appraised by the Court of Chancery of the State of Delaware and to receive payment in cash of the “fair value” of the shares of Activision Blizzard common stock, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest to be paid upon the amount determined to be fair value, if any, as determined by the court, subject to the provisions of Section 262 of the DGCL. Stockholders who wish to seek appraisal of their shares are in any
 
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case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process.
Stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 of the DGCL could be more than, the same as or less than the $95.00 per share consideration payable pursuant to the merger agreement if they did not seek appraisal of their shares.
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 101 and the DGCL requirements for exercising appraisal rights reproduced and attached as Annex B to this proxy statement.
Other Matters
At this time, we know of no other matters to be voted on at the special meeting, and Activision Blizzard agreed that, without the prior written consent of Microsoft (not to be unreasonably withheld, conditioned or delayed), no other matters would be considered at the special meeting other than the adoption of the merger agreement and other matters of procedure and matters required by law (such as 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 and the approval of the adjournment proposal). If any other matters properly come before the special meeting, your shares of Activision Blizzard common stock will be voted at the discretion of the appointed proxy holders.
 
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PARTIES INVOLVED IN THE MERGER
Activision Blizzard, Inc.
Activision Blizzard connects and engages the world through epic entertainment. Our video game franchises enable hundreds of millions of people to experience joy, thrill and achievement. We enable social connections through the lens of fun, and we foster purpose and meaning through competitive gaming. Video games, unlike any other social or entertainment media, have the ability to break down barriers that can inhibit tolerance and understanding. Celebrating differences is at the core of our culture and ensures we can create games for players of diverse backgrounds in the 190 countries our games are played.
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 109) 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 is 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.
 
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PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT
THE MERGER
This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. You should read the entire merger agreement carefully as it is the legal document that governs the merger.
Certain Effects of the Merger on Activision Blizzard
Upon the terms and subject to the conditions of the merger agreement and in accordance with the applicable provisions of the DGCL, on the closing date and at 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. Activision Blizzard expects to delist its common stock from Nasdaq as promptly as practicable after the effective time and deregister its common stock under the Exchange Act as promptly as practicable after such delisting. Thereafter, Activision Blizzard will no longer be a publicly traded company. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation, and instead will only be entitled to receive the merger consideration, as described under the section entitled “Terms of the Merger Agreement — Conversion of Shares — Common Stock” beginning on page 75.
The effective time will occur upon the filing and acceptance of a certificate of merger with the Secretary of State of the State of Delaware (or at such later time as Activision Blizzard, Microsoft and Sub may agree in writing and specify in the certificate of merger).
Effect on Activision Blizzard if the Merger is Not Completed
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 Exchange Act and Activision Blizzard will continue to file periodic reports with the SEC.
Furthermore, if the merger is not consummated, and depending on the circumstances that caused the merger not to be consummated, it is likely that the price of Activision Blizzard common stock will decline significantly. If that were to occur, it is uncertain when, if ever, the price of Activision Blizzard common stock would return to the price at which it trades as of the date of this proxy statement.
Accordingly, if the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of Activision Blizzard common stock. If the merger is not consummated, the Activision Blizzard Board of Directors will continue to evaluate and review Activision Blizzard’s business operations, assets and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to enhance stockholder value. If the merger agreement is not adopted by Activision Blizzard stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to Activision Blizzard or its stockholders will be offered or that Activision Blizzard’s business, prospects or results of operations will not be adversely impacted.
Under certain specified circumstances, Activision Blizzard will be required to pay Microsoft a termination fee of $2,270,100,000 upon the termination of the merger agreement, as described under the section entitled “Terms of the Merger Agreement — Termination Fee” beginning on page 92.
Under certain specified circumstances, Microsoft will be required to pay Activision Blizzard a reverse termination fee of an amount ranging from $2,000,000,000 to $3,000,000,000 upon the termination of the merger agreement, as described under the section entitled “Terms of the Merger Agreement — Reverse Termination Fee” beginning on page 93.
 
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Background of the Merger
The Activision Blizzard Board of Directors and senior management team regularly review Activision Blizzard’s performance, future growth prospects and overall strategic direction and consider potential opportunities to strengthen Activision Blizzard’s business and enhance stockholder value. These reviews have included consideration of whether the continued execution of Activision Blizzard’s strategy or possible strategic opportunities, including acquisitions, dispositions, commercial partnerships or combinations with third parties, offered the best avenue to maximize stockholder value. In addition, the Activision Blizzard Board of Directors and senior management from time to time have been approached by third parties expressing an interest in exploring a potential strategic combination with or acquisition of Activision Blizzard, but, since the reduction of Vivendi’s ownership stake in Activision Blizzard in 2013, no such discussions have advanced beyond preliminary discussions gauging each party’s respective interest in pursuing a transaction or resulted in any specific proposal on price, structure or other material terms.
For over 20 years, Activision Blizzard and Microsoft have maintained an ongoing commercial relationship. While the companies have certain commercial arrangements relating to the licensing of various products and services, their principal business relationship relates to the publishing of products and services for the Xbox gaming platform. This relationship began over 20 years ago, and Bobby Kotick, the chief executive officer of Activision Blizzard, and Phil Spencer, the chief executive officer of Microsoft Gaming, maintain a regular dialogue about the commercial relationship and the gaming industry generally. From time to time, Satya Nadella, the chief executive officer of Microsoft, and Mr. Kotick have also spoken about similar matters.
On November 19, 2021, in the course of a conversation on a different topic between Mr. Spencer and Mr. Kotick, Mr. Spencer raised that Microsoft was interested in discussing strategic opportunities between Activision Blizzard and Microsoft and asked whether it would be possible to have a call with Mr. Nadella the following day. Mr. Kotick agreed to participate in such discussion. Following this call, Mr. Kotick promptly reported the conversation to Robert Morgado, the lead independent director on the Activision Blizzard Board of Directors, and Brian Kelly, the chairman of the Activision Blizzard Board of Directors. Messrs. Kotick and Kelly subsequently spoke with Allen & Company LLC, which we refer to as “Allen & Company,” which had provided strategic financial advice to Activision Blizzard on other occasions, regarding the call with Mr. Spencer.
In a call on November 20, 2021, between Messrs. Kotick and Nadella, Mr. Nadella indicated that Microsoft was interested in exploring a strategic combination with Activision Blizzard. Following this call, Mr. Kotick promptly discussed the call with Messrs. Morgado and Kelly and, thereafter, with a representative of Skadden, Arps, Slate, Meagher & Flom LLP, outside legal counsel to Activision Blizzard, which we refer to as “Skadden.”
On November 22, 2021, a call was held with Messrs. Spencer, Kotick and Kelly, during which call Mr. Spencer noted that, while Microsoft already had a significant amount of information about Activision Blizzard and its business as a result of the commercial relationship between the companies, Microsoft would need additional information regarding Activision Blizzard’s long-range financial plan and prospects in order to advance its analysis. Subsequently, Messrs. Kotick and Kelly indicated to Mr. Spencer that Activision Blizzard was not willing to provide such information without an indication of the proposal that Microsoft would be prepared to make that could then be shared with the Activision Blizzard Board of Directors to gauge the Board’s level of interest in engaging in additional discussions. Following this call, Robert Corti, chair of the Audit Committee of the Activision Blizzard Board of Directors, was also informed of Microsoft’s expressed interest in potentially pursuing a transaction.
On November 26, 2021, Mr. Spencer again spoke with Messrs. Kotick and Kelly, indicating that, based on the information available to Microsoft, Microsoft was preliminarily considering making an all-cash acquisition proposal for Activision Blizzard at $80.00 per share. Thereafter, Messrs. Kotick, Kelly, Corti and Morgado discussed potential ranges at which the full Activision Blizzard Board of Directors may be willing to consider an acquisition proposal taking into consideration, among other factors, Activision Blizzard’s historical trading prices, selected research analysts’ estimates for Activision Blizzard and relative trading multiples of Activision Blizzard and its peers.
 
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On November 28, 2021, based on discussions with Messrs. Kelly, Corti and Morgado, Mr. Kotick communicated to Mr. Spencer that the Activision Blizzard Board of Directors might be willing to entertain a proposal, and potentially to engage in discussions relating to a potential strategic combination, if Microsoft was prepared to propose a transaction in a range of $90.00-$105.00 per Activision Blizzard share, rather than the $80.00 per share valuation that Mr. Spencer had indicated.
Following that discussion, on November 29, 2021, Mr. Spencer communicated to Messrs. Kotick and Kelly that Microsoft was willing to negotiate a potential transaction within the $90.00-$105.00 per share range, albeit noting that Microsoft would be more comfortable at the lower end of the range. Mr. Spencer also noted a desire to move quickly in advance of a previously scheduled near-term meeting of Microsoft’s board of directors at which Mr. Spencer wished to discuss the potential transaction between Microsoft and Activision Blizzard. Following this discussion, Messrs. Kotick and Kelly reported the call to Mr. Morgado and Mr. Corti as well as to Hendrik Hartong III and Peter Nolan, the remaining members of the Audit Committee of the Activision Blizzard Board of Directors.
On December 1, 2021, Mr. Kotick spoke with Mr. Spencer regarding introductions between the parties’ respective legal teams and potential financial advisors, as well as timing of Activision Blizzard’s delivery of the Long-Range Plan (as defined below) following execution of a mutual non-disclosure agreement and scheduling of a meeting between Activision Blizzard and Microsoft executives to discuss the Long-Range Plan.
On December 3, 2021, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, Sard Verbinnen & Co., Activision Blizzard’s strategic communications firm, Wilmer Cutler Pickering Hale and Dorr LLP, which we refer to as “WilmerHale,” and Skadden, in attendance for portions of the meeting. At the meeting, following the departure of the representatives of Sard Verbinnen & Co., Mr. Morgado provided an update to the Activision Blizzard Board of Directors on the discussions with representatives of Microsoft regarding a potential acquisition of Activision Blizzard by Microsoft. Following the departure of the representatives of Allen & Company, the Activision Blizzard Board of Directors discussed the potential formal engagement of financial advisors to assist Activision Blizzard in connection with a potential transaction with Microsoft and other potential alternatives available to Activision Blizzard. After discussing the relevant experience and qualifications of various potential financial advisors, the Activision Blizzard Board of Directors decided to work with Allen & Company. The Activision Blizzard Board of Directors selected Allen & Company on the basis of, among other factors, Allen & Company’s qualifications and reputation, extensive experience in advising software companies in connection with potential strategic transactions (including in which Microsoft was a counterparty), its knowledge and understanding of Activision Blizzard’s business and industry from its previous work with Activision Blizzard, and the absence of any known material conflicts with respect to Microsoft.
At the same meeting, a representative of Skadden discussed the directors’ fiduciary duties in the context of considering a potential acquisition of Activision Blizzard and various considerations that should be included in the Activision Blizzard Board of Directors’ decision-making process. The Activision Blizzard Board of Directors, senior management and representatives of Skadden then discussed the potential process the Activision Blizzard Board of Directors might pursue in exploring a potential strategic transaction with Microsoft or other companies potentially interested in and capable of undertaking a strategic transaction with Activision Blizzard, and potential regulatory considerations in connection with any such strategic transaction.
Later on December 3, 2021, following the conclusion of the meeting of the Activision Blizzard Board of Directors earlier in the day, Messrs. Kotick and Kelly received an unsolicited email from the chief executive officer of another gaming company, which we refer to as “Company A,” addressed to the Activision Blizzard Board of Directors, expressing interest in exploring a potential strategic transaction with Activision Blizzard, but without any details regarding the terms of such transaction. Subsequently, Mr. Kotick received an additional communication from the chief executive officer of Company A, expressing a desire to meet in person the following week.
On December 6, 2021, Activision Blizzard and Microsoft entered into a mutual non-disclosure agreement in order to facilitate Activision Blizzard sharing with Microsoft certain confidential information,
 
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including at a meeting to be held the following day. Activision Blizzard is not a party or subject to any non-disclosure or other agreement with a party other than Microsoft, including with Companies A, C, D or E or Individual B (each as defined below), with respect to a potential acquisition of Activision Blizzard nor is any other party subject to any standstill or “don’t-ask, don’t-waive” provision that would inhibit such party from making a proposal.
Also on December 6, 2021, at the request of Activision Blizzard senior management, in advance of the meeting scheduled for the following day, Activision Blizzard’s long-range plan (which we refer to as the “Long-Range Plan”), together with “stretch” goals and objectives of the management teams of Activision Blizzard’s franchises and business units included as an appendix (as described below), was shared with representatives of Microsoft, and subsequently shared by Microsoft with representatives of Goldman Sachs & Co. LLC, Microsoft’s financial advisor, which we refer to as “Goldman Sachs.” The Long-Range Plan was approved by the Activision Blizzard Board of Directors on November 2, 2021 as the plan to be used for internal business planning purposes for Activision Blizzard’s performance for its fiscal years 2021 through 2024.
Also on December 6, 2021, Mr. Kelly received an unsolicited email from an individual, who we refer to as “Individual B,” indicating a desire to explore the potential acquisition of the Company’s Blizzard business unit or potentially a full (or partial) take-private transaction with unidentified potential co-investors.
On December 7, 2021, a meeting was held between representatives of Activision Blizzard, including Messrs. Kelly and Kotick and Armin Zerza, chief financial officer of Activision Blizzard, together with representatives of Allen & Company and Skadden, and representatives of Microsoft, including Mr. Spencer as well as individuals in the corporate development, finance and legal functions within Microsoft, representatives of Goldman Sachs and representatives of Simpson Thacher & Bartlett LLP, outside legal counsel to Microsoft, which we refer to as “Simpson.” During the meeting, the representatives of Activision Blizzard discussed with the representatives of Microsoft the Long-Range Plan and long-term opportunities for Activision Blizzard’s business. The attendees also discussed various other aspects of Activision Blizzard’s business.
On December 8, 2021, Mr. Spencer informed Mr. Kotick that a potential transaction with Activision Blizzard was considered at a meeting of Microsoft’s Board of Directors on December 8, 2021, and that, as authorized by Microsoft’s Board of Directors, Activision Blizzard should expect to receive a proposal from Microsoft for a potential acquisition of Activision Blizzard shortly.
On December 10, 2021, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, WilmerHale and Skadden, in attendance. At the meeting, Mr. Kelly provided an update to the Activision Blizzard Board of Directors on the meeting between representatives of Activision Blizzard and Microsoft, the conversation between Messrs. Kotick and Spencer, and the communications with the chief executive officer of Company A and Individual B. The Activision Blizzard Board of Directors then discussed timing and structuring, regulatory, and process considerations should the Activision Blizzard Board of Directors decide to engage in further discussions with Microsoft following receipt of a proposal from Microsoft. The Activision Blizzard Board of Directors also discussed other technology and/or gaming companies that might have interest in pursuing a transaction with Activision Blizzard, including Company A, as well as Activision Blizzard continuing on a standalone basis. With respect to such other parties, the Activision Blizzard Board of Directors considered their potential strategic interest, ability to deliver greater value for Activision Blizzard stockholders than an all-cash proposal from Microsoft, and potential regulatory hurdles in a transaction with such parties. With respect to Company A, the Activision Blizzard Board of Directors discussed, among other things, that a transaction with Company A would necessarily include a very significant stock component, which would not be directly comparable to an all-cash transaction, would not likely yield significant cost synergies and would need to be premised on the belief that the long-term value of the combined company would achieve greater value than Activision Blizzard’s stand-alone plan. The Activision Blizzard Board of Directors also discussed the relative size and trading multiples of Activision Blizzard and Company A and the implications for how a combined company might trade. Allen & Company and Skadden also provided their respective views to the Activision Blizzard Board of Directors on such considerations. While noting that it was unlikely that a transaction with Company A could be as attractive or competitive as an all-cash proposal from Microsoft, the Activision Blizzard Board of Directors determined that, particularly in light of the anticipated proposal from Microsoft, it would make
 
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sense for Mr. Kotick to meet with the chief executive officer of Company A and learn the parameters of Company A’s interest in a potential transaction. Accordingly, the Activision Blizzard Board of Directors directed Mr. Kotick to meet with the chief executive officer of Company A and to report back on the results of such meeting.
In addition, Mr. Kelly reported to the Activision Blizzard Board of Directors on the email he received from Individual B. The Activision Blizzard Board of Directors discussed the ability of Individual B to credibly pursue a transaction of the size and complexity that such a transaction would entail, as well as the disruption that might ensue were it to become known that Activision Blizzard was exploring strategic alternatives, which might occur if Activision Blizzard engaged in discussions with Individual B in light of prior dealings between Activision Blizzard and Individual B. After discussions, the Activision Blizzard Board of Directors concluded that Mr. Kelly should not engage with Individual B unless instructed to do so at a later date.
Later on December 10, 2021, Mr. Spencer requested an additional discussion with Mr. Kotick. Mr. Kotick consulted with Messrs. Kelly and Morgado and with a representative of Skadden about the potential transaction prior to the telephone call with Mr. Spencer.
Later that afternoon, on a telephone call among Mr. Kotick, Mr. Kelly and Mr. Spencer, Mr. Spencer informed Mr. Kotick and Mr. Kelly that Microsoft would be sending a written non-binding indication of interest to acquire Activision Blizzard later that evening at a purchase price of $90.00 per share in cash. Messrs. Kotick and Kelly expressed their disappointment in the proposed price but stated that they would report the proposal to the Activision Blizzard Board of Directors.
Later that evening on Friday, December 10, 2021, a representative of Simpson, on behalf of Microsoft, sent to a representative of Skadden a non-binding indication of interest to acquire Activision Blizzard for $90.00 per share in cash, together with a draft exclusivity agreement providing for exclusive discussions with Microsoft through January 15, 2022. The letter requested a response to the proposal by Monday, December 13, 2021.
On December 12, 2021, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, WilmerHale and Skadden, in attendance. At the meeting, Mr. Morgado outlined the terms of the non-binding indication of interest received from Microsoft and described Messrs. Kotick’s and Kelly’s recent conversations with Mr. Spencer. The Activision Blizzard Board of Directors discussed that in addition to the $90.00 per share cash purchase price, the indication of interest (i) requested a response by December 13, 2021, (ii) proposed a period of exclusive negotiation through January 15, 2022 pursuant to the terms of an accompanying exclusivity agreement, (iii) stated that the transaction would be all-cash and not subject to any financing condition and (iv) noted that Activision Blizzard, post-acquisition, would be led by the Gaming leadership of Microsoft. Representatives of Allen & Company and Skadden also reported that, in conversations with their respective counterparty advisors to Microsoft, each had conveyed a desire on the part of Microsoft to move expeditiously.
At the meeting, the Activision Blizzard Board of Directors discussed that, in determining how to respond to Microsoft’s non-binding indication of interest, it would be helpful for the Activision Blizzard Board of Directors to have a sense of other parties that might be interested in pursuing a transaction with Activision Blizzard. Allen & Company suggested a number of potential third parties for consideration, including which of those third parties, in Allen & Company’s view, would likely be most able to acquire Activision Blizzard in a transaction that could potentially deliver greater value to stockholders of Activision Blizzard than the non-binding indication of interest received from Microsoft. The Activision Blizzard Board of Directors discussed the potential strategic rationale for a transaction with such third parties, including the potential ability of each such third party to successfully complete an acquisition of Activision Blizzard, the ability of each such third party to submit an offer to acquire Activision Blizzard for consideration consisting solely of cash, equity or a combination of cash and equity, the relative advantages and disadvantages of the form of consideration in a transaction and tactical considerations with respect to conducting an outreach to such third parties. Allen & Company indicated that, in its view, Companies C, D and E (each as defined below) were most likely to be able to acquire Activision Blizzard in a transaction that could potentially deliver greater value to Activision Blizzard’s stockholders than Microsoft’s proposal.
 
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At the meeting, Mr. Kotick also provided an update on his communications with the chief executive officer of Company A, noting that an upcoming meeting had been scheduled for December 14, 2021, and that he would report back after such meeting.
Also at the meeting, a representative of Skadden provided an overview of the directors’ fiduciary duties in connection with their evaluation of a potential sale of Activision Blizzard in general and Microsoft’s non-binding indication of interest specifically. In addition, a representative of Skadden discussed with the Activision Blizzard Board of Directors other considerations relating to deal timing and certainty.
The Activision Blizzard Board of Directors also discussed various considerations involved in soliciting third-party indications of interest in a potential transaction with Activision Blizzard. The Activision Blizzard Board of Directors discussed the potential benefits of assessing third parties’ interest, including the potential to obtain a higher value for stockholders from a third party and the potential that increased competition could result in an increased purchase price and better overall terms for Activision Blizzard from Microsoft in the event that one or more other parties expressed interest. The Activision Blizzard Board of Directors also discussed the significant downside and disruption that could occur from market rumors regarding exploratory outreaches, including a potential adverse reaction from Microsoft that could negatively impact its willingness to proceed with a transaction with Activision Blizzard. In addition, the Activision Blizzard Board of Directors discussed the most effective approach in the event of such outreach, including who specifically was best positioned to conduct such outreach and attract serious interest. After discussions, the Activision Blizzard Board of Directors authorized and directed Mr. Kotick, along with other members of Activision Blizzard’s management and/or advisors as needed, to contact Companies C, D and E (each as defined below) initially, and, in the event of insufficient interest on the part of those three parties, to contact one other potential strategic counterparty, to gauge interest in a potential acquisition of Activision Blizzard. At this meeting and in other meetings throughout the Activision Blizzard Board of Directors’ consideration of the potential transaction with Microsoft, the Activision Blizzard Board of Directors met in executive session with only non-employee directors, outside counsel and the Secretary of the meeting in attendance to allow the non-employee directors to confer about the matters discussed at the meeting.
That same day, as authorized by the Activision Blizzard Board of Directors at the earlier meeting, Mr. Kotick contacted the chief executive officer of a potential strategic acquiror, which we refer to as “Company C.” The chief executive officer of Company C stated that Company C was potentially interested in acquiring Activision Blizzard. Mr. Kotick subsequently spoke with another senior executive of Company C. The following day, at Company C’s request and in accordance with the Activision Blizzard Board of Directors’ directives, representatives of Allen & Company sent to Company C a draft mutual non-disclosure agreement that had been prepared by Skadden and contained substantially similar terms to those in the non-disclosure agreement entered into between Activision Blizzard and Microsoft. As described below, Company C determined not to proceed with a potential transaction involving Activision Blizzard. Accordingly, the mutual non-disclosure agreement was never negotiated or executed between Activision Blizzard and Company C or their respective advisors.
Also on December 12, 2021, after the Activision Blizzard Board of Directors meeting authorizing the outreach, Mr. Kotick contacted the chairperson of the board of a potential strategic acquiror, which we refer to as “Company D.” The chairperson of the board of Company D stated that Company D was potentially interested in acquiring Activision Blizzard and that Company D would initially evaluate the viability of a potential acquisition of Activision Blizzard internally and revert to Mr. Kotick.
The following day, December 13, 2021, Mr. Kotick spoke to the chief executive officer of another potential strategic acquiror, which we refer to as “Company E,” as authorized by the Activision Blizzard Board of Directors the previous day, regarding Company E’s potential interest in acquiring Activision Blizzard. The chief executive officer of Company E indicated an interest in a potential acquisition of Activision Blizzard, but expressed concerns regarding the ability to execute a transaction between the parties. The chief executive officer of Company E stated that Company E would need to further consider internally any potential business combination. Mr. Kotick also spoke with another senior executive from Company E later the same day, who indicated that Company E would discuss potential strategic opportunities internally and revert to Mr. Kotick. A few days later, Mr. Kotick spoke with that senior executive of Company E who
 
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informed Mr. Kotick that Company E was not in a position to pursue a full acquisition of Activision Blizzard although Company E would be interested in considering other potential transactions between the parties.
Based on the Activision Blizzard Board of Directors’ direction that Mr. Kotick not reach out to the fourth party if there appeared to be potential interest on the part of Company C, Company D and/or Company E, Mr. Kotick did not reach out to the fourth party pending further developments with Company C, Company D, and Company E.
Also on December 13, 2021, representatives of Allen & Company received an inquiry from a senior executive of Company C about a potential transaction with Activision Blizzard. In accordance with the Activision Blizzard Board of Directors’ directives, representatives of Allen & Company followed up with Company C and communicated to a Company C representative that for an offer to be attractive to Activision Blizzard, it should be structured as an all-cash acquisition of the entire company and that Company C should be prepared to move expeditiously.
On December 14, 2021, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, WilmerHale and Skadden, in attendance. Activision Blizzard’s senior management presented to the Activision Blizzard Board of Directors updated financial forecasts regarding Activision Blizzard’s long-term financial performance for Activision Blizzard’s fiscal years 2021 through 2024, which had been downwardly adjusted from the Long-Range Plan by Activision Blizzard management to account for, among other things, the passage of time since the Long-Range Plan was approved by the Activision Blizzard Board of Directors on November 2, 2021, execution risk in the Long-Range Plan, and further insight into Activision Blizzard’s performance in the fourth quarter of 2021 — particularly the underperformance of the recently launched “Call of Duty: Vanguard” and the potential effects of that underperformance in 2022. Senior management noted that the updated financial forecasts were not intended to constitute a revised Long-Range Plan, and did not reflect any adjustments that Activision Blizzard might make in its strategy in response to Activision Blizzard’s performance in the fourth quarter of 2021. Activision Blizzard’s senior management further noted for the Activision Blizzard Board of Directors that, in the ordinary course, Activision Blizzard would assess its performance in the fourth quarter of 2021 to refresh Activision Blizzard’s outlook for the entirety of 2022, and would not typically refresh the outlook for years beyond 2022 at this stage of Activision Blizzard’s typical financial planning process, although it had done so at this time in order to provide the Activision Blizzard Board of Directors with an updated risk-adjusted view of Activision Blizzard’s potential prospective financial performance as it considered the potential transaction with Microsoft. The Activision Blizzard Board of Directors then considered and further discussed these updated risk-adjusted financial forecasts. Following such discussion, the Activision Blizzard Board of Directors approved use of such updated risk-adjusted financial forecasts for purposes of considering the potential transaction with Microsoft.
At the meeting, Mr. Kotick provided an update to the Activision Blizzard Board of Directors on his communications with representatives of Company C, Company D and Company E and representatives of Allen & Company provided an update on their communications with Company C. The Activision Blizzard Board of Directors discussed the need to further ascertain the interest levels of Company C, Company D and Company E in a potential transaction and timing considerations in relation to responding to Microsoft’s non-binding indication of interest in view of Microsoft’s request for a response by December 13, 2021. Also at the meeting, the Activision Blizzard Board of Directors discussed certain information provided by Allen & Company regarding Allen & Company’s material relationships with Activision Blizzard and Microsoft during the preceding two-year period as previously provided to the Activision Blizzard Board of Directors. After consulting with Activision Blizzard’s legal advisors, the Activision Blizzard Board of Directors determined that, based on such information, there were no material conflicts that would preclude Allen & Company from continuing to serve as financial advisor to Activision Blizzard.
Later on December 14, 2021, Mr. Kotick met with the chief executive officer of Company A. During the meeting, the chief executive officer of Company A expressed that a strategic combination between the companies would be beneficial for both companies and their stockholders, but did not provide a proposal for a potential transaction. During the meeting, the chief executive officer of Company A did not communicate any requests to, or propose any specific actions from, Activision Blizzard.
 
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Also on December 14, 2021, Mr. Spencer spoke with Mr. Kotick to request an update on Activision Blizzard’s response to Microsoft’s non-binding indication of interest. Following this conversation on December 14, 2021, in accordance with the Activision Blizzard Board of Directors’ directives, representatives of Allen & Company updated representatives of Goldman Sachs that additional meetings of the Activision Blizzard Board of Directors were planned in advance of Activision Blizzard delivering a response to Microsoft’s non-binding indication of interest.
On December 15, 2021, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, WilmerHale and Skadden, in attendance. At this meeting, the Activision Blizzard Board of Directors was provided with additional financial information relating to Activision Blizzard, including financial forecasts of Activision Blizzard’s long-term financial performance as extended through fiscal year 2026. Allen & Company provided a summary of the preliminary proposed terms of Microsoft’s non-binding indication of interest and certain preliminary financial matters relating to Activision Blizzard based on the updated risk-adjusted financial forecasts approved by the Activision Blizzard Board of Directors on December 14, 2021, as extended through fiscal year 2026.
Mr. Kotick provided an update to the Activision Blizzard Board of Directors on the status of communications with representatives of Company C, Company D and Company E. Representatives of Allen & Company provided an update to the Activision Blizzard Board of Directors on their communications with representatives of Goldman Sachs and Microsoft’s stated areas of focus in due diligence should the Activision Blizzard Board of Directors authorize continued engagement with Microsoft.
The Activision Blizzard Board of Directors discussed a range of potential alternative responses in connection with the non-binding indication of interest received from Microsoft and the relative advantages and disadvantages of a combination with Microsoft compared to other potential counterparties, as well as continuing on a standalone basis, and also considered additional factors, including, among other things, the economic and competitive landscape of the current gaming and technology sectors. After discussions, the Activision Blizzard Board of Directors directed Messrs. Kotick and Kelly and representatives of Allen & Company to convey to Microsoft a request to increase its proposed purchase price from $90.00 per share to $100.00 per share. At the same time, the Activision Blizzard Board of Directors authorized management to proceed with its negotiations with Microsoft, without the need for further Board authorization, in the event management was able to increase Microsoft’s proposal to at least $95.00 per share.
Later that day on December 15, 2021, a senior executive of Company C communicated to representatives of Allen & Company that Company C would not be in a position to proceed with discussing a potential business combination with Activision Blizzard.
Later that evening on December 15, 2021, Messrs. Kotick and Kelly had a telephone call with Mr. Spencer. The parties discussed the potential business combination, and, as directed by the Activision Blizzard Board of Directors, Messrs. Kotick and Kelly requested that Microsoft increase its proposed purchase price to $100.00 per share. Mr. Spencer noted that further discussion would be required and that he would respond in the next day or two.
On the morning of December 16, 2021, the chairperson of Company D called Mr. Kotick and communicated that Company D was interested in potentially exploring an acquisition of Activision Blizzard and would facilitate a follow-up call with the chief executive officer and other senior executives of Company D to further discuss.
Also on the morning of December 16, 2021, Mr. Nadella requested a telephone call with Mr. Kotick. During the call later that morning with Mr. Kotick, Mr. Nadella inquired whether Activision Blizzard would consider a proposal below the $100.00 per share amount previously communicated to Microsoft. Mr. Kotick suggested to Mr. Nadella that Microsoft should provide its best and final offer and reiterated that Activision Blizzard was focused on taking actions that were in the best interests of its stockholders. Mr. Nadella reiterated Microsoft’s desire to move expeditiously.
Messrs. Kotick and Nadella had a series of telephone calls over the course of December 16, 2021. Mr. Nadella initially communicated Microsoft’s willingness to increase the price contemplated by Microsoft’s non-binding indication of interest from $90.00 to $93.00 per share on the condition that Activision
 
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Blizzard grant Microsoft a 30-day exclusivity period. Mr. Kotick informed Mr. Nadella that he was not authorized to proceed at a price below $95.00 per share, but he was authorized to consider a $95.00 per share price with a 30-day exclusivity commitment at that price level and also would need an agreement from Microsoft on certain other key terms, particularly related to a reverse termination fee. Mr. Nadella responded that he would have to discuss further internally. Subsequently, Mr. Nadella proposed to increase the price provided for in Microsoft’s non-binding indication of interest to $95.00 per share and expressed willingness to engage in discussions on whether Microsoft would agree to a reverse termination fee and the quantum of such fee, as well as other transaction terms, at the appropriate time.
Later in the evening of December 16, 2021, representatives of Skadden sent a markup of the exclusivity agreement, which included a term sheet, to representatives of Simpson. Subsequently, representatives of Simpson contacted representatives of Skadden to discuss the exclusivity agreement and term sheet. On a telephone call, representatives of Skadden conveyed to representatives of Simpson that the term sheet reflected a number of key deal terms and were the basis upon which the Activision Blizzard Board of Directors would be willing to enter into exclusivity.
Early in the morning of December 17, 2021, representatives of Goldman Sachs called representatives of Allen & Company to discuss the exclusivity agreement and term sheet circulated by representatives of Skadden to representatives of Simpson the previous night.
Subsequently on the morning of December 17, 2021, in accordance with the Activision Blizzard Board of Directors’ directives, representatives of Allen & Company called representatives of Goldman Sachs, and representatives of Skadden called representatives of Simpson, to provide Activision Blizzard’s rationale for the positions taken in the exclusivity agreement and term sheet circulated by representatives of Skadden.
Also on the morning of December 17, 2021, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, WilmerHale and Skadden, in attendance. Mr. Kotick provided an update on his communications with Messrs. Spencer and Nadella and the provision of the revised exclusivity agreement and term sheet to representatives of Simpson. Representatives of Allen & Company and Skadden provided an update on their respective follow-up communications with Goldman Sachs and Simpson regarding the exclusivity agreement and term sheet. A representative of Skadden provided an overview of the terms of the revised exclusivity agreement and term sheet to the Activision Blizzard Board of Directors. The Activision Blizzard Board of Directors also received an update on the status of the discussions with Company C, Company D and Company E. Mr. Kotick noted that he had not received at that time any communication from the chief executive officer of Company D after his discussion with the chairperson of Company D on December 16, 2021, and that Company C and Company E each had indicated that it would not be proceeding with discussions to acquire Activision Blizzard at that time. After discussions, the Activision Blizzard Board of Directors authorized management to enter into exclusive discussions with Microsoft on the basis of the $95.00 per share price proposed by Microsoft and on such additional terms as management deemed appropriate for up to a 30-day period, and directed Activision Blizzard’s management, led by Mr. Kotick, to continue negotiations with Microsoft.
Later on the morning of Friday, December 17, 2021, the chief executive officer of Company D emailed Mr. Kotick noting that Company D was keen to engage and explore a potential transaction and introducing other senior executives from Company D. Mr. Kotick responded to the chief executive officer of Company D sharing his direct telephone line in order to connect. A follow-up video conference was subsequently scheduled with such other senior executives for Monday, December 20, 2021.
Later on the morning of December 17, 2021, representatives of Simpson sent representatives of Skadden a revised exclusivity agreement and term sheet and noted Microsoft’s expectation to sign the exclusivity agreement as quickly as possible that day.
In the early afternoon on December 17, 2021, Messrs. Kotick and Spencer discussed open points in the term sheet and overall timing, with Mr. Spencer noting Microsoft’s desire to move expeditiously into exclusivity that day and the due diligence process.
From the afternoon of December 17, 2021, through the morning of December 20, 2021, representatives of Skadden and Simpson had multiple calls discussing open points with respect to the exclusivity agreement
 
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and term sheet, focused on the parameters for a reverse termination fee and other regulatory related provisions to be included in any definitive agreement in connection with the proposed transaction.
On December 20, 2021, Messrs. Kotick and Kelly, together with a representative of Allen & Company, had a video conference with senior executives from Company D. Mr. Kotick discussed that Activision Blizzard could represent an attractive strategic combination for Company D, but explained that circumstances had changed since he first spoke with Company D’s chairperson and that it now was likely that, very shortly, Activision Blizzard would not be in a position to engage in additional discussions for some period of time. Mr. Kotick also suggested that Company D could readily perform due diligence on Activision Blizzard in the meantime based on publicly available information. The representatives of Company D expressed that Company D was not prepared to proceed expeditiously on the basis of publicly available information and implied that Company D would only be interested in relaying an indication of interest if provided with an opportunity to review confidential information. Following this call, no further discussions were held with Company D.
Also on December 20, 2021, Messrs. Kotick and Kelly exchanged telephone calls with Mr. Spencer during which they discussed open issues on the term sheet, including, among other things, the quantum of the reverse termination fee.
In the evening of December 20, 2021, representatives of Skadden and Simpson exchanged further updated drafts of the term sheet. Subsequently, in the evening of December 20, 2021, the exclusivity agreement was executed. The exclusivity agreement included a term sheet specifying the quantum and payment conditions of the reverse termination fee and other regulatory related provisions to be included in the definitive merger agreement, if executed.
On December 21, 2021, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, WilmerHale and Skadden, in attendance. Mr. Morgado informed the Activision Blizzard Board of Directors that Activision Blizzard had entered into an exclusivity agreement with Microsoft on the prior evening. A representative of Skadden described to the Activision Blizzard Board of Directors the terms of the exclusivity agreement, including the non-solicitation and confidentiality restrictions contained therein, and the term sheet, including the quantum, timing and events triggering the payment of the reverse termination fee by Microsoft to Activision Blizzard. The Activision Blizzard Board of Directors discussed Microsoft’s anticipated due diligence process and next steps with respect to negotiating a potential acquisition agreement with Microsoft.
On December 27, 2021, access was provided to representatives of Microsoft and its outside advisors to a virtual data room hosting Activision Blizzard materials. Microsoft and its advisors engaged in due diligence from the period of December 27, 2021 through the execution of the merger agreement on January 18, 2022, which process included a number of videoconference meetings and telephone calls attended by members of Activision Blizzard senior management, representatives of Activision Blizzard’s outside legal, financial and accounting advisors, members of Microsoft senior management and representatives of Microsoft’s outside legal, financial and accounting advisors, as applicable, on various business, financial, tax, accounting and legal matters.
On December 29, 2021, representatives of Simpson sent an initial draft of the merger agreement to representatives of Skadden. The draft included the following key terms, including regulatory provisions, most of which were previously provided in the non-binding term sheet: (i) a requirement that Microsoft use reasonable best efforts to obtain antitrust approvals, but no obligation for Microsoft to agree to any divestures or limitations on its post-closing business that would (x) have a material adverse impact on Activision Blizzard and its subsidiaries taken as a whole or (y) (1) have a material impact on the benefits expected to be derived from the proposed merger by Microsoft or (2) have a more than immaterial impact on any business or product line of Microsoft; (ii) a termination fee payable by Activision Blizzard to Microsoft equal to 3.75% of the transaction’s equity value in the event of a termination of the merger agreement in certain circumstances, including following a change in recommendation by the Activision Blizzard Board of Directors or if Activision Blizzard enters into an alternative acquisition agreement with respect to a superior proposal; (iii) an outside termination date of 12 months from signing, subject to two automatic extensions for consecutive three-month periods if all conditions to closing are satisfied other than the
 
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conditions regarding the receipt of regulatory approvals and the lack of any legal injunction (in connection with regulatory regimes); and (iv) a termination fee payable by Microsoft to Activision Blizzard in the event of a termination of the merger agreement as a result of a legal injunction (in connection with antitrust regimes) or the failure to obtain necessary antitrust approvals by the outside termination date (as extended) if certain conditions are met of (x) $2,000,000,000 if the termination notice is delivered during the first 12 months from signing, (y) $2,500,000,000 if the termination notice is delivered 13 to 15 months from signing and (z) $3,000,000,000 if the termination notice is delivered after 15 months from signing.
During the weeks of January 3, 2022, and January 10, 2022, Messrs. Kotick and Spencer and respective members of Activision Blizzard and Microsoft senior management, along with their respective outside legal advisors, discussed and negotiated certain key open points in the merger agreement, including the quantum of the termination fee payable by Activision Blizzard, the treatment of employee equity awards, and the scope of the interim operating covenants, as well as severance and retention matters and due diligence matters on a number of video and telephone calls.
On January 6, 2022, at the request of Activision Blizzard, representatives of Skadden sent a revised draft of the merger agreement to representatives of Simpson.
On January 7, 2022, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, WilmerHale and Skadden, in attendance. Mr. Kotick provided an update on the status of the potential transaction with Microsoft, including the state of Microsoft’s due diligence, negotiation of the draft merger agreement, and contacts with representatives of Microsoft. A representative of Skadden provided an update on the status of the potential transaction from a legal perspective, including Activision Blizzard’s responses to Microsoft’s due diligence requests, Activision Blizzard’s progress in preparing and providing via a virtual data room documents responsive to due diligence requests, and due diligence calls between representatives of Activision Blizzard and Microsoft and their respective advisors.
On January 10, 2022, representatives of Simpson sent a revised draft of the merger agreement to representatives of Skadden.
On January 11, 2022, in a videoconference with representatives of Microsoft, Goldman Sachs, Allen & Company and members of Activision Blizzard senior management in attendance, Mr. Zerza discussed Activision Blizzard’s preliminary financial results for the fourth quarter and full year of 2021. These financial results were subsequently provided to Microsoft via Activision Blizzard’s data room.
On January 13, 2022, at the request of Activision Blizzard, representatives of Skadden sent a revised draft of the merger agreement to representatives of Simpson.
On January 14, 2022, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, WilmerHale and Skadden, in attendance. Members of Activision Blizzard senior management presented to the Activision Blizzard Board of Directors Activision Blizzard’s financial results for the fourth quarter of 2021. Members of senior management noted that, as previously discussed with the Activision Blizzard Board of Directors, Activision Blizzard had failed to meet its revenue projections for the fourth quarter of 2021 given the underperformance of the recently launched “Call of Duty: Vanguard.” Mr. Morgado noted to the Activision Blizzard Board of Directors that Activision Blizzard’s financial results for the fourth quarter and full year of 2021 would be incorporated to update the financial forecasts as approved by the Activision Blizzard Board of Directors on December 14, 2021, and shared with Allen & Company for purposes of its financial analysis and opinion, if and when requested, in connection with the proposed transaction with Microsoft. Certain of these updated financial forecasts also were shared with Microsoft and its advisors later that day.
Allen & Company then provided the Activision Blizzard Board of Directors with an update on, among other things, recent developments in the gaming industry, including a recent publicly announced transaction in such industry and its comparison to the potential transaction with Microsoft. Prior to the meeting, the Activision Blizzard Board of Directors also was provided with certain updated information from Allen & Company regarding its material relationships with Activision Blizzard and Microsoft during the preceding two-year period, which information was consistent with the information previously provided. Representatives
 
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of Skadden then presented on the Activision Blizzard Board of Directors’ fiduciary duties in the context of considering a change of control transaction and presented a detailed summary of the key terms of the draft merger agreement, including the structure of the proposed transaction, the consideration to be received by stockholders of Activision Blizzard of $95.00 per share in cash, the treatment of Activision Blizzard’s equity awards, certain restrictions on Activision Blizzard’s business and operations during the pendency of the transaction, proxy statement filing and stockholder meeting requirements, director and officer indemnification, Microsoft’s regulatory undertakings, the provisions restricting the solicitation of, and relating to the consideration of unsolicited, alternative acquisition proposals that would apply to Activision Blizzard and its representatives during the pendency of a transaction, the ability of the Activision Blizzard Board of Directors to change its recommendation, anticipated closing timing, closing conditions and the termination rights and fees and remedies available to Activision Blizzard and Microsoft in the event the potential transaction was not consummated, and noted remaining open points. Representatives of Skadden also presented to the Activision Blizzard Board of Directors certain regulatory considerations with respect to the potential transaction with Microsoft.
On January 14, 2022, at the request of Activision Blizzard, representatives of Skadden delivered an initial complete draft of Activision Blizzard’s confidential disclosure schedules to the merger agreement, certain sections of which had been previously provided, to representatives of Simpson.
Between January 14, 2022, and January 18, 2022, representatives of Activision Blizzard and Microsoft and their respective legal advisors had multiple conversations to resolve outstanding matters under the merger agreement and Activision Blizzard’s confidential disclosure schedules to the merger agreement and exchanged multiple drafts of the merger agreement and Activision Blizzard’s confidential disclosure schedules to the merger agreement.
On January 17, 2022, the Activision Blizzard Board of Directors held a meeting by videoconference, with members of Activision Blizzard senior management, and representatives of Allen & Company, WilmerHale and Skadden, in attendance. Representatives of Skadden reviewed the key terms of the merger agreement, including changes from the terms discussed at the meeting on January 14, 2022, noting that one remaining open issue was the amount of the 2022 dividend that could be paid by Activision Blizzard and whether Activision Blizzard would be permitted to pay a dividend in 2023 and, if so, the amount thereof. Also at this meeting, Allen & Company reviewed with the Activision Blizzard Board of Directors its financial analysis of the merger consideration, and rendered an oral opinion, confirmed by delivery of a written opinion dated January 17, 2022, to the Activision Blizzard Board of Directors to the effect that, as of such date and based on and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken as set forth in such opinion, 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 was fair, from a financial point of view, to such holders. After discussions, including as to the matters described below under “— Recommendation of the Activision Blizzard Board of Directors; Activision Blizzard’s Reasons for the Merger,” the Activision Blizzard Board of Directors unanimously determined to delegate the final resolution of the dividend issue to an ad hoc committee of directors of the Activision Blizzard Board of Directors, consisting of Messrs. Morgado, Kelly and Corti, and (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.
Following the approval of the merger agreement and the transactions contemplated thereby (including the merger) by the Activision Blizzard Board of Directors, Activision Blizzard and Microsoft finalized the merger agreement, including the resolution of the outstanding dividend issue, which Mr. Nadella and Mr. Kotick discussed during the evening of January 17, 2022, and the resolution of which was approved by the ad hoc committee of the Activision Blizzard Board of Directors. Early in the morning on January 18, 2022, Activision Blizzard and Microsoft executed the merger agreement, and, prior to the opening of trading on January 18, 2022, issued a joint press release announcing the execution of the merger agreement.
 
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Recommendation of Our Board of Directors and Reasons for the Merger
Recommendation of the Activision Blizzard Board of Directors to Adopt the Merger Agreement, thereby Approving the Transactions Contemplated by the Merger Agreement.
On January 17, 2022, the Activision Blizzard Board of Directors, after considering various factors described below, 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 “FOR” the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement, including the merger.
Reasons for the Merger
In evaluating the merger agreement and the transactions contemplated thereby, including the merger, the Activision Blizzard Board of Directors held a number of meetings and consulted with Activision Blizzard’s senior management and legal and financial advisors. In reaching its decision to approve the merger agreement and to recommend that Activision Blizzard stockholders vote to adopt the merger agreement, the Activision Blizzard Board of Directors considered a number of factors, including, but not limited to the following (which are not necessarily presented in order of their relative importance to the Activision Blizzard Board of Directors):

Premium to Market Price.   The fact that the merger consideration of $95.00 per share in cash to be received by the holders of shares of Activision Blizzard common stock in the merger represents a significant premium over the market price at which shares of Activision Blizzard common stock traded prior to the announcement of the execution of the merger agreement, including the fact that the merger consideration represents a premium of:

approximately 19.8% over the volume-weighted average closing stock price of shares of Activision Blizzard common stock for the one-year period ended January 14, 2022;

approximately 45.3% over the closing stock price of Activision Blizzard common stock on January 14, 2022, the last trading day prior to the approval of the transaction; and

approximately 50.3% over the volume-weighted average stock price of shares of Activision Blizzard common stock during the 30 trading days ended January 14, 2022.

Form of Consideration.   The fact that the proposed merger consideration is all cash, which provides stockholders certainty of value and liquidity for their shares of Activision Blizzard common stock while eliminating long-term business and execution risks.

Fair Value.   The belief of the Activision Blizzard Board of Directors that the merger represents fair value for the shares of Activision Blizzard common stock, taking into account the Activision Blizzard Board of Directors’ familiarity with Activision Blizzard’s current and historical financial condition, results of operations, business, competitive position and prospects, as well as Activision Blizzard’s future business plan and potential long-term value.

Growth Opportunities.   The belief of the Activision Blizzard Board of Directors, based on discussions between Activision Blizzard and Microsoft and Microsoft’s transaction history, that Activision Blizzard’s business will be an important focus of Microsoft’s growth strategy, which would create professional growth opportunities for many of Activision Blizzard’s employees.

Benefits to Customers.   The belief of the Activision Blizzard Board of Directors, based on discussions between Activision Blizzard and Microsoft and Microsoft’s product portfolio and transaction
 
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history, that Activision Blizzard’s customers will benefit from Microsoft’s complementary product offerings and its greater resources and capabilities to expand the business of Activision Blizzard as part of Microsoft.

Industry Dynamics.   The potential for the merger to enhance the combined company’s ability to compete effectively in the highly competitive market environments in which Activision Blizzard and Microsoft operate by combining Activision Blizzard’s creative DNA and library of premium franchises with Microsoft’s technological and distribution capabilities, including the ability to capitalize on new growth opportunities and to compete for customers and key employee talent.

Loss of Opportunity.   The possibility that, if the Activision Blizzard Board of Directors declined to adopt the merger agreement, there may not be another opportunity for Activision Blizzard’s stockholders to receive a comparably priced transaction with a comparable level of closing certainty.

Risks Inherent in Activision Blizzard’s Business Plan.   Activision Blizzard’s short-term and long-term financial projections and the perceived challenges and risks associated with Activision Blizzard’s ability to meet such projections, including Activision Blizzard’s past track record of meeting internal, long-term projections, the financial results for Activision Blizzard for the year ended December 31, 2021 and the implications of Activision Blizzard’s fourth quarter ended December 31, 2021 for Activision Blizzard’s outlook for 2022 and subsequent years and the competitive threats facing Activision Blizzard, as well as the risks and uncertainties described in the “risk factors” and “forward looking statements” sections of Activision Blizzard’s disclosures filed with the SEC, including the fact that Activision Blizzard’s actual financial results in future periods could differ materially and adversely from the projected results.

Company Knowledge.   The Activision Blizzard Board of Directors’ knowledge of, and discussions with Activision Blizzard management regarding, Activision Blizzard’s business, operations, financial condition, earnings, strategy and future prospects, including Activision Blizzard’s opportunities to create stockholder value in the future on a standalone basis and potential risks in the execution of Activision Blizzard’s strategic plan.

Arm’s-Length Negotiations.   The fact that the Activision Blizzard Board of Directors and Activision Blizzard’s senior management, in coordination with Activision Blizzard’s legal and financial advisors, vigorously negotiated on an arm’s-length basis with Microsoft with respect to price and other terms and conditions of the merger agreement, including obtaining a price increase by Microsoft from its initial indication of interest at $80.00 per share to a price of $95.00 per share as well as the stated position of Microsoft that the agreed price was the highest price per share to which Microsoft was willing to agree.

Derivative Litigation.   The Activision Blizzard Board of Directors’ consideration of the potential value to Activision Blizzard (and derivatively to Activision Blizzard stockholders) of pending derivative litigation claims that have been brought against the Activision Blizzard’s officers and directors, and, even assuming such litigation claims had material value, the Activision Blizzard Board of Directors’ determination that the merger consideration of $95.00 per share provided more than adequate value for such litigation claims.

Other Potential Strategic Alternatives.   The Activision Blizzard Board of Directors’ consideration, from time to time, with the assistance of Activision Blizzard’s senior management and legal and financial advisors, of the various potential strategic alternatives available to Activision Blizzard, including remaining an independent public company and continuing to execute on Activision Blizzard’s strategic plan and the Activision Blizzard Board of Directors’ belief that the merger presents a more favorable opportunity for Activision Blizzard stockholders than the potential value that may result from remaining a standalone public company or pursuing other potential strategic alternatives.

Board Review of Transaction.   The fact that the Activision Blizzard Board of Directors met, along with Activision Blizzard’s senior management and legal and financial advisors, to evaluate and discuss the structure of the merger and the financial and other terms and conditions of, and other matters related to, the merger, multiple times between November 26, 2021, which was the date on which Microsoft first indicated that it would be willing to discuss an acquisition of Activision Blizzard at $80.00 per share and January 18, 2022, which was the date the merger agreement was signed.
 
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Other Strategic Parties.   The fact that the Activision Blizzard Board of Directors authorized and directed management to contact three other strategic parties to assess their interest in a potential acquisition of Activision Blizzard that were viewed, with input from Activision Blizzard’s senior management and legal and financial advisors, as the most likely potential counterparties that could transact at a level that could potentially deliver greater value to Activision Blizzard stockholders than the Microsoft transaction and that could potentially obtain required regulatory approval and that none of the parties contacted by Activision Blizzard’s management determined to proceed with substantive discussions regarding a potential acquisition of Activision Blizzard.

Opinion of Activision Blizzard’s Financial Advisor.   The opinion, dated January 17, 2022, of Allen & Company to the Activision Blizzard Board of Directors as to the fairness, from a financial point of view and as of such date, 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, which opinion was based on and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken as set forth in such opinion and is more fully described below in the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Opinion of Activision Blizzard’s Financial Advisor” beginning on page 52.

Terms of the Merger Agreement.   The belief of the Activision Blizzard Board of Directors that the provisions of the merger agreement, including the respective representations, warranties and covenants and termination rights of the parties and termination fees payable by Activision Blizzard, are reasonable and customary. The Activision Blizzard Board of Directors also believed that the terms of the merger agreement include the most favorable terms reasonably attainable from Microsoft.

Conditions to the Consummation of the Merger; Likelihood of Closing.   The fact that the Activision Blizzard Board of Directors considered the reasonable likelihood of the consummation of the transactions contemplated by the merger agreement in light of the conditions in the merger agreement to the obligations of Microsoft, including the exceptions to the events that would constitute a material adverse effect on Activision Blizzard for purposes of the merger agreement, as well as Activision Blizzard’s ability to seek specific performance to prevent breaches of the merger agreement, including to cause the merger to be consummated if all of the conditions to Microsoft’s obligations to effect the merger closing have been satisfied or waived.

Regulatory Approvals.   The fact that the merger agreement requires that Microsoft use its reasonable best efforts to take certain actions necessary to obtain regulatory clearance and satisfy the regulatory conditions, including the fact that Microsoft agreed to accept potential remedies in order to obtain regulatory approval, including Microsoft’s commitment to divest or take other actions with respect to businesses or assets of Activision Blizzard, unless such additional remedies would reasonably be expected to result in a material adverse impact on Activision Blizzard and its subsidiaries, taken as a whole, have a material impact on the benefits expected to be derived from the merger by Microsoft or have more than an immaterial impact on any business or product line of Microsoft, and that, if the merger agreement is terminated in certain circumstances related to the failure to obtain antitrust approvals, Microsoft will be required to pay a reverse termination fee of $2,000,000,000 if the notice regarding the termination of the merger agreement is delivered during the first 12 months post-signing, $2,500,000,000 if the notice regarding the termination of the merger agreement is delivered during months 13 to 15 post-signing, or $3,000,000,000 if the notice regarding the termination of the merger agreement is delivered after month 15 post-signing. For a more complete description of Microsoft’s obligations to obtain required regulatory approvals and the reverse termination fee, see the sections below entitled “Terms of the Merger Agreement — Efforts to Close the Merger” beginning on page 88 and “Terms of the Merger Agreement — Reverse Termination Fee” beginning on page 93. The merger agreement also provides an appropriate “termination date” by which time it is reasonable to expect that the regulatory conditions are likely to be satisfied, which is subject to automatic extension for certain periods if the regulatory conditions are the only conditions not satisfied or capable of being satisfied at such time. For a more complete description of the termination date, see the section below entitled “Terms of the Merger Agreement — Termination of the Merger Agreement” beginning on page 91.
 
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No Financing Condition.   The fact that Microsoft’s representations contained in the merger agreement include a representation that Microsoft has and will have available at the effective time the funds necessary for the payment of the aggregate merger consideration and the fact that the merger is not subject to a financing condition.

Ability to Respond to Certain Unsolicited Takeover Proposals.   The fact that, while the merger agreement prohibits Activision Blizzard from actively soliciting competing bids to acquire it, the Activision Blizzard Board of Directors has rights, under certain circumstances, to engage in discussions with, and provide information to, third parties submitting unsolicited written takeover proposals and to terminate the merger agreement in order to enter into an alternative acquisition agreement that the Activision Blizzard Board of Directors determines to be a superior proposal; provided that Activision Blizzard pays a $2,270,100,000 termination fee. The Activision Blizzard Board of Directors further considered that the timing of the merger would provide ample opportunity for such third parties to submit proposals.

Change of Recommendation.   The fact that the Activision Blizzard Board of Directors has the right to change its recommendation that Activision Blizzard stockholders vote to adopt the merger agreement in response to a superior proposal or certain intervening events, subject to certain conditions, and the Activision Blizzard Board of Directors’ view that the termination fee of $2,270,100,000 payable to Microsoft under certain circumstances is customary and reasonable and would not preclude or deter a willing and financially capable third party from making an acquisition proposal for an alternative transaction.

Termination Fee.   The belief of the Activision Blizzard Board of Directors that the termination fee of $2,270,100,000 is reasonable in amount, including in comparison with the range of termination fees in proportion to equity value payables in comparable third-party transactions considered by the Activision Blizzard Board of Directors.

Retention of Key Employees.   The belief of the Activision Blizzard Board of Directors that a retention program and an enhanced severance plan for certain employees of Activision Blizzard that Activision Blizzard would be permitted to implement in connection with the merger would help assure the continuity of management and other key employees, and increase the likelihood of the successful operation of Activision Blizzard during the period prior to closing.

Appraisal Rights.   The availability of appraisal rights with respect to the merger for Activision Blizzard stockholders who properly exercise their rights under the DGCL, which would give these stockholders the ability to seek and be paid a judicially determined appraisal of the “fair value” of their shares at the completion of the merger.
In the course of its evaluation of the merger agreement and the merger, the Activision Blizzard Board of Directors also considered a variety of risks, uncertainties and other potentially negative factors, including the following (which are not necessarily presented in order of their relative importance to the Activision Blizzard Board of Directors):

No Stockholder Participation in Future Growth or Earnings.   The fact that Activision Blizzard’s stockholders will lose the opportunity to realize additional potential long-term value through Activision Blizzard’s successful execution as an independent public company.

Impact of Announcement on Activision Blizzard.   The fact that the announcement and pendency of the merger, or the failure to complete the merger, may result in significant costs to Activision Blizzard and cause substantial harm to Activision Blizzard’s relationships with its employees (including making it more difficult to attract and retain key personnel and the possible loss of key management and other personnel) and its customers, partners, providers and suppliers, particularly in the event that the merger is not consummated.

Diversion of Management Attention.   The substantial time and effort of management required to consummate the merger, which could disrupt Activision Blizzard’s business operations and may divert employees’ attention away from Activision Blizzard’s day-to-day operations, and the impact of such efforts on Activision Blizzard’s business in the event that the merger is not consummated.
 
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Tax Treatment.   The fact that the all-cash transaction would be taxable to holders of shares of Activision Blizzard common stock for U.S. federal income tax purposes.

Regulatory Risks.   The possibility that regulatory agencies may delay, object to or challenge the merger or may impose terms and conditions on their approvals that adversely affect the business or financial results of Activision Blizzard or Microsoft and the fact that Microsoft is not required to agree to remedies that would reasonably be expected to (x) result in a material adverse impact on Activision Blizzard and its subsidiaries, taken as a whole, (y) have a material impact on the benefits expected to be derived from the merger by Microsoft or (z) have more than an immaterial impact on any business or product line of Microsoft.

Stockholder Approval.   The risk that the holders of shares of Activision Blizzard common stock may not approve the adoption of the merger agreement at the Activision Blizzard special meeting.

Closing Certainty.   The fact that there can be no assurance that, even if approved by the holders of shares of Activision Blizzard common stock, the merger will be completed on the anticipated timeline or at all.

Pre-Closing Covenants.   The restrictions on Activision Blizzard’s conduct of business prior to completion of the merger contained in the merger agreement, including that Activision Blizzard is required to conduct its business in the ordinary course of business, subject to specific limitations, which could delay or prevent Activision Blizzard from pursuing certain business opportunities that may arise or taking other actions with respect to its operations during the pendency of the merger without Microsoft’s consent, and the impact of such delay or loss of business opportunities on Activision Blizzard’s business in the event that the merger is not consummated, including on existing business and employee relationships.

No Solicitation and Termination Fee.   The provisions of the merger agreement that restrict the ability of Activision Blizzard to solicit or negotiate alternative transactions and that such provisions and the potential requirement to pay Microsoft a termination fee of $2,270,100,000 may deter a potential acquirer from proposing an alternative transaction for Activision Blizzard that would provide Activision Blizzard stockholders with greater value than the merger.

Potential Litigation.   The potential for litigation relating to the merger and the associated costs, burden and inconvenience involved in defending any such proceedings.

Loss of Key Personnel.   The risk that, despite retention efforts prior to consummation of the merger, Activision Blizzard may lose personnel and the impact of such losses during the period prior to the closing and also in the event that the merger is not consummated.

Transaction Costs.   The transaction costs and retention costs to be incurred in connection with the merger, regardless of whether the merger is completed.

Timing of Closing.   The amount of time it could take to complete the merger, including that completion of the merger depends on factors outside of the control of Activision Blizzard or Microsoft, and the risk that the pendency of the merger for an extended period of time following the announcement of the execution of the merger agreement could have an adverse impact on Activision Blizzard, including its customer, supplier and other business relationships and potentially impact the trading price of its common stock, and the fact that an extended period of time may exacerbate the impact of other risks considered by the Activision Blizzard Board of Directors described herein.
The Activision Blizzard Board of Directors considered the factors described above as a whole, including through engaging in discussions with Activision Blizzard’s senior management and legal and financial advisors. Based on this review and consideration, the Activision Blizzard Board of Directors unanimously concluded that these factors, on balance, supported a determination that the terms of the merger agreement and the transactions contemplated thereby were advisable, fair to and in the best interests of Activision Blizzard and its stockholders, and to make its recommendation to Activision Blizzard stockholders that they vote to adopt the merger agreement.
In considering the recommendation of the Activision Blizzard Board of Directors that Activision Blizzard stockholders vote to adopt the merger agreement, Activision Blizzard stockholders should be
 
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aware that Activision Blizzard’s directors and executive officers may have certain interests in the merger that are different from, or in addition to, the interests of Activision Blizzard stockholders generally, including the treatment of equity awards held by such directors and executive officers in the merger. For a description of the interests of our directors and executive officers in the merger, see “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 59. The Activision Blizzard Board of Directors was aware of and took these interests into account when approving the merger agreement and determining that the terms of the merger agreement and the transactions contemplated thereby were advisable, fair to and in the best interests of Activision Blizzard and its stockholders.
The foregoing discussion of the information and factors that the Activision Blizzard Board of Directors considered is not, and is not intended to be, exhaustive. The Activision Blizzard Board of Directors collectively reached the conclusion to approve the merger agreement and the consummation of the transactions contemplated thereby, including the merger, in light of the various factors described above and other factors that the Activision Blizzard Board of Directors believed were appropriate. In view of the complexity and wide variety of factors, both positive and negative, that the Activision Blizzard Board of Directors considered in connection with its evaluation of the merger, the Activision Blizzard Board of Directors did not find it useful to, and did not attempt, to quantify, rank or otherwise assign relative or specific weights or values to any of the factors it considered in reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Activision Blizzard Board of Directors. In considering the factors discussed above, individual directors may have given different weights to different factors. It should be noted that this explanation of the reasoning of the Activision Blizzard Board of Directors and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Forward-Looking Statements” beginning on page 24.
Financial Forecasts
Activision Blizzard does not, as a matter of course, normally publicly disclose long-term forecasts or internal projections as to its future performance, revenue, earnings or other results given, among other reasons, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates, including the difficulty of predicting general economic and market conditions, other than, from time to time, estimated ranges of certain expected financial results and operational metrics for the current year and certain future years in its regular earnings press releases and other investor materials. However, in connection with the proposed merger, Activision Blizzard’s management provided certain unaudited prospective financial information to the Activision Blizzard Board of Directors for purposes of considering and evaluating the merger and the merger agreement and to Activision Blizzard’s financial advisor, Allen & Company. Certain of such prospective financial information also was shared with Microsoft and its financial advisor in connection with Microsoft’s due diligence review and discussions regarding the merger. Set forth below is a summary of the material unaudited prospective financial information provided by the management of Activision Blizzard in connection with the merger. We refer in this proxy statement to such unaudited prospective financial information, collectively, as the “prospective financial information.”
The prospective financial information was not prepared with a view to public disclosure and is included in this proxy statement only because such information was made available as described above. The prospective financial information was not prepared with a view to compliance with generally accepted accounting principles as applied in the United States, which we refer to as GAAP, the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The prospective financial information included in this document has been prepared by, and is the responsibility of, Activision Blizzard’s management. PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying prospective financial information and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report incorporated by reference in this document relates to Activision Blizzard’s previously issued financial statements. It does not extend to the prospective financial information and should not be read to do so.
Although a summary of the prospective financial information is presented with numerical specificity, the prospective financial information reflects numerous forecasts, variables, assumptions and estimates as to
 
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future events made by management of Activision Blizzard, many of which are difficult to predict and subject to significant economic and competitive uncertainties beyond Activision Blizzard’s control, that management of Activision Blizzard believed in good faith were reasonable and supportable at the time the prospective financial information was prepared, taking into account the relevant information available to, and reflecting the best currently available estimates and judgments of, the management of Activision Blizzard at the time. However, this information is not fact and should not be relied upon as necessarily indicative of actual future results nor construed as financial guidance, given the inherent risks and uncertainties associated with such forecasts. The prospective financial information is subjective in many respects and, thus, subject to interpretation. Important factors that may affect actual results and cause the prospective financial information not to be achieved include general economic, regulatory, market, financial, competitive, seasonal, cyclical and other conditions, trends and developments, industry performance, accuracy of certain accounting assumptions, changes in actual or projected cash flows, competitive pressures, the ability to attract and retain highly skilled employees, the ability to execute day-to-day operations and other strategic initiatives and other factors described or referenced under the section entitled “Forward-Looking Statements” beginning on page 24. Because the prospective financial information covers multiple years, such information by its nature becomes less predictive with each successive year. In addition, the prospective financial information does not take into account any circumstances or events occurring after the date that it was prepared and does not give effect to the merger. As a result, there can be no assurance that the prospective financial information will or would be realized, and actual results may be materially better or worse than those contained in the prospective financial information.
None of Activision Blizzard or its directors, officers, affiliates, advisors or other representatives makes any representation to readers of this proxy statement, and has not made any such representation to Microsoft, concerning the ultimate performance of Activision Blizzard or the combined company compared to the prospective financial information. The inclusion of the prospective financial information in this proxy statement does not constitute an admission or representation by Activision Blizzard or any of its directors, officers, affiliates, advisors or other representatives that the information is material nor has such information been included to influence your decision on how to vote on any proposal. The prospective financial information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Activision Blizzard contained in our public filings with the SEC. Financial measures provided to a board of directors or a financial advisor are excluded from the definition of non-GAAP financial measures and, therefore, are not subject to SEC rules regarding disclosures of non-GAAP financial measures, which would otherwise require, among other information, a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Reconciliations of non-GAAP financial measures were not relied upon by the Activision Blizzard Board of Directors or Allen & Company in connection with the merger. Accordingly, a reconciliation of the financial measures included in the financial projections is not provided.
EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE FEDERAL SECURITIES LAWS, ACTIVISION BLIZZARD DOES NOT INTEND, AND EXPRESSLY DISCLAIMS ANY RESPONSIBILITY, TO UPDATE OR OTHERWISE REVISE THE PROSPECTIVE FINANCIAL INFORMATION TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH FORECASTS ARE NOT REALIZED AND EVEN IN THE EVENT THAT ANY OF THE ASSUMPTIONS UNDERLYING THE PROSPECTIVE FINANCIAL INFORMATION ARE SHOWN TO BE INAPPROPRIATE.
Long-Range Plan
As part of Activision Blizzard’s ordinary course annual financial planning process, and not in contemplation of the merger, the Long-Range Plan for Activision Blizzard’s fiscal years 2021 through 2024 was presented by Activision Blizzard’s management to the Activision Blizzard Board of Directors on October 28, 2021. The Long-Range Plan was not prepared or extrapolated for Activision Blizzard’s fiscal years 2025 through 2026. In connection with the Long-Range Plan process (and as is typical in Activision Blizzard’s annual financial planning process), the management teams of various Activision Blizzard franchises and business units provided preliminary inputs regarding estimated financial results of such franchises and business units based on the “stretch” goals and objectives of such franchises’ and
 
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business units’ management teams which were aggregated by Activision Blizzard’s management into a compilation of “bottom-up” franchise and business unit inputs. Activision Blizzard’s management then applied certain risk assessments and judgments to the franchise and business unit inputs in arriving at the Long-Range Plan. The Long-Range Plan, as risk-adjusted by Activision Blizzard’s management, was approved by the Activision Blizzard Board of Directors on November 2, 2021 as the plan to be used for internal business planning purposes for Activision Blizzard’s performance for the fiscal years 2021 through 2024, as described in the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger —  Background of the Merger” beginning on page 32. The Long-Range Plan, which included as an appendix the pre-risk-adjusted franchise and business unit inputs, was provided to Microsoft on December 6, 2021 and subsequently shared by Microsoft with Goldman Sachs.
The following table reflects selected metrics (in millions) included in the Long-Range Plan as approved by the Activision Blizzard Board of Directors on November 2, 2021:
Fiscal Year Ending December 31,
Long-Range Plan
2021E
2022E
2023E
2024E
Revenue(1)
$ 8,856 $ 9,174 $ 11,725 $ 12,405
Operating Income(2)
$ 3,718 $ 3,886 $ 4,849 $ 5,597
(1)
Revenue excludes the impact of deferrals from Activision Blizzard’s accounting treatment under GAAP on certain of Activision Blizzard’s online-enabled products. Revenue (in millions) from the franchise and business unit inputs before applying Activision Blizzard management’s risk assessments and judgments included as an appendix to the Long-Range Plan was: 2021E: $8,856; 2022E: $9,546; 2023E: $12,654; 2024E: $13,394.
(2)
Operating Income was calculated in a manner consistent with EBIT (Pre-SBC) as described below in the management forecasts. Operating Income (in millions) from the franchise and business unit inputs before applying Activision Blizzard management’s risk assessments and judgments included as an appendix to the Long-Range Plan was: 2021E: $3,718; 2022E: $4,082; 2023E: $5,596; 2024E: $6,391.
Management Forecasts
At meetings of the Activision Blizzard Board of Directors held on December 14, 2021, and December 15, 2021, Activision Blizzard’s senior management presented to the Activision Blizzard Board of Directors updated financial forecasts for Activision Blizzard’s long-term financial performance (which we refer to in this proxy statement as the “December 2021 management forecasts”), which had been extended for fiscal years 2025 and 2026 based on potential Activision Blizzard longer-term initiatives and downwardly adjusted from the Long-Range Plan for fiscal years 2021 through 2024 by Activision Blizzard’s management to account for, among other things, the passage of time since the Long-Range Plan was presented to the Activision Blizzard Board of Directors on October 28, 2021 and approved by Activision Blizzard’s Board of Directors on November 2, 2021, further insight into Activision Blizzard’s performance in the fourth quarter of 2021 — particularly the underperformance of the recently launched version of Call of Duty and the potential effects of that underperformance in 2022, and execution risk in the Long-Range Plan. The updated management forecasts were intended to provide the Activision Blizzard Board of Directors with an updated and risk-adjusted view of Activision Blizzard’s potential prospective financial performance in light of the foregoing as it considered the proposed transaction with Microsoft. The updated management forecasts were not intended to, and do not, constitute a revised Long-Range Plan, and do not reflect any adjustments that Activision Blizzard might make in its strategy in response to Activision Blizzard’s performance in the fourth quarter of 2021. The December 2021 management forecasts were subsequently further updated in mid-January 2022, prior to the approval of the merger agreement by the Activision Blizzard Board of Directors, to reflect forecasted financial results of Activision Blizzard for the fourth quarter of 2021 and other immaterial adjustments (which we refer to in this proxy statement as the “January 2022 forecasts”). On January 14, 2022, the Activision Blizzard Board of Directors directed Allen & Company to use and rely upon the January 2022 forecasts in connection with its opinion and related financial analyses summarized under “Proposal 1: Adoption of the Merger Agreement — The Merger — Opinion of Activision Blizzard’s Financial Advisor” beginning on page 52 (in which such January 2022 forecasts are referenced as the “Activision
 
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Blizzard forecasts”). The updated preliminary financial results for the fourth quarter 2021 and full year 2021 performance were provided to Microsoft and its financial advisor on January 11, 2022. The revenue and EBIT (Pre-SBC) metrics reflected below and included in the January 2022 forecasts for fiscal years 2022 through 2024 were provided to Microsoft on January 14, 2022.
The following table reflects selected metrics (in millions) included in the January 2022 forecasts:
Management Forecasts
Fiscal Year Ending December 31,
2021E
2022E
2023E
2024E
2025E
2026E
Revenue(1)
$ 8,354 $ 8,625 $ 10,605 $ 11,125 $ 12,237 $ 12,604
EBIT (Pre-SBC)(2)
$ 3,507 $ 3,450 $ 4,300 $ 4,870 $ 5,166 $ 5,446
Adj. EBITDA(3)
$ 3,615 $ 3,552 $ 4,403 $ 4,973 $ 5,266 $ 5,546
(-) SBC
$ (554) $ (601) $ (526) $ (560) $ (580) $ (600)
(-) Depreciation & Amortization
$ (108) $ (103) $ (103) $ (103) $ (100) $ (100)
Taxable EBIT
$ 2,954 $ 2,849 $ 3,774 $ 4,311 $ 4,586 $ 4,846
(-) Cash Taxes
$ (443) $ (528) $ (698) $ (793) $ (826) $ (872)
Net Operating Profit After Taxes
$ 2,511 $ 2,321 $ 3,076 $ 3,518 $ 3,761 $ 3,974
(+) Depreciation & Amortization
$ 108 $ 103 $ 103 $ 103 $ 100 $ 100
(-) Change in Working Capital
$ (275) $ (50) $ (50) $ (61) $ (63)
(-) Capital Expenditures
$ (105) $ (100) $ (100) $ (100) $ (100) $ (100)
(-) Capitalized Software Development
$ (426) $ (541) $ (434) $ (439) $ (489) $ (504)
(+) Amortization of Software Development
$ 215 $ 286 $ 818 $ 389 $ 587 $ 504
(-) Restructuring
$ (67) $ (25) $ (25) $ (25) $ (25) $ (25)
Unlevered Free Cash Flow(4)
$ 2,235 $ 1,768 $ 3,387 $ 3,396 $ 3,773 $ 3,886
(1)
Revenue excludes the impact of deferrals from Activision Blizzard’s accounting treatment under GAAP on certain of Activision Blizzard’s online-enabled products. December 2021 management forecasts provided for the following approximate estimated revenues (in billions): 2021E: $8.5; 2022E: $8.7; 2023E: $10.6; 2024E: $11.1; 2025E: $12.2; 2026E: $12.6.
(2)
“EBIT (Pre-SBC)” refers to earnings before interest and taxes (but includes depreciation and amortization), and excludes stock-based compensation, restructuring and other costs, net, acquisition-related costs, net and certain other expenses that result from unplanned events outside the ordinary course of continuing operations. EBIT (Pre-SBC) is a non-GAAP measure, and our calculation of EBIT (Pre-SBC) may differ from other companies. December 2021 management forecasts provided for the following approximate estimated EBIT (Pre-SBC) (in billions): 2021E: $3.6; 2022E: $3.6; 2023E: $4.3; 2024E: $4.9; 2025E: $5.2; 2026E: $5.4.
(3)
“Adjusted EBITDA” refers to earnings before interest, taxes, depreciation and amortization, and excludes stock-based compensation, restructuring and other costs, net, acquisition-related costs, net and certain other expenses that result from unplanned events outside the ordinary course of continuing operations. Adjusted EBITDA is a non-GAAP measure, and our calculation of Adjusted EBITDA may differ from other companies. December 2021 management forecasts provided for the following approximate estimated Adjusted EBITDA (in billions): 2021E: $3.7; 2022E: $3.7; 2023E: $4.4; 2024E: $5.0; 2025E: $5.3; 2026E: $5.5.
(4)
“Unlevered Free Cash Flow” was calculated as Adjusted EBITDA less stock-based compensation, depreciation and amortization and cash taxes to derive net operating profit after taxes, which was then adjusted by adding back depreciation and amortization and amortization of software development and deducting changes in working capital, capital expenditures, capitalized software development and restructuring costs. December 2021 management forecasts provided for the following approximate estimated Unlevered Free Cash Flow (in billions): 2021E: $2.5; 2022E: $1.8; 2023E: $3.4; 2024E: $3.4; 2025E: $3.8; 2026E: $3.9.
 
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Opinion of Activision Blizzard’s Financial Advisor
Activision Blizzard has engaged Allen & Company as financial advisor to Activision Blizzard in connection with the merger. In connection with this engagement, Activision Blizzard requested that Allen & Company render an opinion to the Activision Blizzard Board of Directors regarding the fairness, from a financial point of view, of the merger consideration to be received by holders of Activision Blizzard common stock pursuant to the merger agreement. On January 17, 2022, at a meeting of the Activision Blizzard Board of Directors held to evaluate the merger, Allen & Company rendered an oral opinion, which was confirmed by delivery of a written opinion dated January 17, 2022, to the Activision Blizzard Board of Directors to the effect that, as of that date and based on and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken described in its opinion, 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 was fair, from a financial point of view, to such holders.
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.
Allen & Company’s opinion reflected and gave effect to Allen & Company’s general familiarity with Activision Blizzard and the industry in which Activision Blizzard operates as well as information that Allen & Company received during the course of its assignment, including information provided by the management of Activision Blizzard in the course of discussions relating to the merger as more fully described below. In arriving at its opinion, Allen & Company neither conducted a physical inspection of the properties or facilities of Activision Blizzard or any other entity nor made or obtained any evaluations or appraisals of the assets or liabilities (contingent, accrued, derivative, off-balance sheet or otherwise) of Activision Blizzard or any other entity, or conducted any analysis concerning the solvency or fair value of Activision Blizzard or any other entity. Allen & Company did not investigate, and expressed no opinion or view regarding, any actual or potential litigation, proceedings or claims involving or impacting Activision Blizzard or any other entity and Allen & Company assumed, with Activision Blizzard’s consent, that there would be no developments with respect to any such matters that would be meaningful in any respect to its analyses or opinion.
In arriving at its opinion, Allen & Company, among other things:

reviewed the financial terms of a draft, dated January 17, 2022, of the merger agreement;

reviewed certain publicly available historical business and financial information relating to Activision Blizzard, including public filings of Activision Blizzard, and historical market prices for Activision Blizzard common stock;

reviewed certain financial information relating to Activision Blizzard, including certain internal financial forecasts, estimates and other financial and operating data relating to Activision Blizzard, provided to or discussed with Allen & Company by the management of Activision Blizzard;

held discussions with the management of Activision Blizzard relating to the operations, financial condition and prospects of Activision Blizzard;
 
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reviewed and analyzed certain publicly available information, including certain stock market data and financial information, relating to selected companies with businesses that Allen & Company deemed generally relevant in evaluating Activision Blizzard;

reviewed and analyzed certain publicly available financial information relating to selected transactions that Allen & Company deemed generally relevant in evaluating the merger; and

conducted such other financial analyses and investigations as Allen & Company deemed necessary or appropriate for purposes of its opinion.
In rendering its opinion, Allen & Company relied upon and assumed, with Activision Blizzard’s consent and without independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information available to Allen & Company from public sources, provided to or discussed with Allen & Company by the management and other representatives of Activision Blizzard or otherwise reviewed by Allen & Company. With respect to the financial forecasts, estimates and other financial and operating data relating to Activision Blizzard that Allen & Company was directed to utilize for purposes of its analyses and opinion, Allen & Company was advised by the management of Activision Blizzard and Allen & Company assumed, at Activision Blizzard’s direction, that such financial forecasts, estimates and other financial and operating data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to, and were a reasonable basis upon which to evaluate, the future financial and operating performance of Activision Blizzard and the other matters covered thereby. Allen & Company expressed no opinion or view as to any financial forecasts, estimates or other financial or operating data or the assumptions on which they were based.
Allen & Company relied, at Activision Blizzard’s direction, upon the assessments of the management of Activision Blizzard as to, among other things, (i) the potential impact on Activision Blizzard of certain market, competitive, macroeconomic, seasonal, cyclical and other conditions, trends and developments in and prospects for, and governmental, regulatory and legislative policies and matters relating to or otherwise affecting, the interactive entertainment industry, (ii) existing and new products, franchises and related intellectual property and other technology of Activision Blizzard (including associated risks), (iii) workforce matters and related litigation, investigations, consent decrees and other proceedings, including the potential impact thereof on Activision Blizzard, (iv) implications for Activision Blizzard and its operations of the global COVID-19 pandemic, and (v) existing and future agreements and arrangements involving, and the ability to attract, retain and/or replace, key employees and contractors, customers, third-party developers, manufacturers, distributors and other commercial relationships of Activision Blizzard. With Activision Blizzard’s consent, Allen & Company assumed that there would be no developments with respect to any such matters that would have an adverse effect on Activision Blizzard or the merger or that otherwise would be meaningful in any respect to its analyses or opinion.
Further, Allen & Company’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Allen & Company as of, the date of its opinion. It should be understood that subsequent developments may affect the conclusion expressed in Allen & Company’s opinion and that Allen & Company assumed no responsibility for advising any person of any change in any matter affecting Allen & Company’s opinion or for updating or revising its opinion based on circumstances or events occurring after the date of such opinion. As the Activision Blizzard Board of Directors was aware, the credit, financial and stock markets, the industry in which Activision Blizzard operates and the securities of Activision Blizzard have experienced and may continue to experience volatility and Allen & Company expressed no opinion or view as to any potential effects of such volatility on Activision Blizzard or the merger.
Allen & Company assumed, with Activision Blizzard’s consent, that the merger would be consummated in accordance with its terms and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, releases, waivers, decrees and agreements for the merger, no delay, limitation, restriction or condition, including any divestiture or other requirements or remedies, amendments or modifications, would be imposed or occur that would have an adverse effect on Activision Blizzard or the merger or that otherwise would be meaningful in any respect to Allen & Company’s analyses or opinion. In addition, Allen & Company assumed, with
 
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Activision Blizzard’s consent, that the final executed merger agreement would not differ from the draft reviewed by Allen & Company in any respect meaningful to its analyses or opinion.
Allen & Company’s opinion was limited to the fairness, from a financial point of view and as of the date of such opinion, of the merger consideration (to the extent expressly specified in such opinion), without regard to individual circumstances of specific holders of Activision Blizzard common stock (whether by virtue of control, voting, liquidity, contractual arrangements or otherwise) that may distinguish such holders or the securities of Activision Blizzard held by such holders, and Allen & Company’s opinion did not in any way address proportionate allocation or relative fairness. Allen & Company’s opinion also did not address any other terms, aspects or implications of the merger, including, without limitation, the form or structure of the merger, any repurchase, payoff or similar transaction, cloud-related agreements or arrangements or any other agreements, arrangements or understandings entered into in connection with, related to or contemplated by the merger or otherwise. Allen & Company expressed no opinion or view as to the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation or other consideration payable to any officers, directors or employees of any party to the merger or any related entities, or any class of such persons or any other party, relative to the merger consideration or otherwise. Allen & Company did not express any opinion or view as to the prices at which Activision Blizzard common stock or any other securities of Activision Blizzard may trade or otherwise be transferable at any time, including following announcement or consummation of the merger. In addition, Allen & Company expressed no opinion or view with respect to accounting, tax, regulatory, legal or similar matters, including, without limitation, as to tax or other consequences of the merger or otherwise or changes in, or the impact of, accounting standards, tax and other laws, regulations and governmental and legislative policies affecting Activision Blizzard or the merger, and Allen & Company relied, at Activision Blizzard’s direction, upon the assessments of representatives of Activision Blizzard as to such matters. 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.
In connection with its opinion, Allen & Company performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below and certain factors considered is not a comprehensive description of all analyses undertaken or factors considered by Allen & Company. The preparation of a financial opinion or analysis is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion and analyses are not readily susceptible to summary description. Allen & Company arrived at its opinion based on the results of all analyses undertaken and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Allen & Company believes that the analyses and factors summarized below must be considered as a whole and in context. Allen & Company further believes that selecting portions of the analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses and factors, could create a misleading or incomplete view of the processes underlying Allen & Company’s analyses and opinion.
In performing its financial analyses, Allen & Company considered industry performance, general business and economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of Activision Blizzard. No company, business or transaction reviewed is identical or directly comparable to Activision Blizzard, its businesses or the merger and an evaluation of these analyses is not entirely mathematical; rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the companies, businesses or transactions reviewed. The assumptions and estimates of the future performance of Activision Blizzard in or underlying Allen & Company’s analyses and the implied reference ranges derived from any particular analysis are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by such analyses. These analyses were prepared solely as part of Allen & Company’s analysis of the fairness, from a financial point of view, of the merger consideration and were provided to the Activision Blizzard Board of Directors in connection with the delivery of Allen &
 
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Company’s opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the assumptions and estimates used in, and the reference ranges resulting from, any particular analysis described below are inherently subject to substantial uncertainty and should not be taken as the views of Allen & Company regarding the actual value of Activision Blizzard.
Allen & Company did not recommend that any specific consideration constituted the only appropriate consideration in the merger. The type and amount of consideration payable in the merger were determined through negotiations between Activision Blizzard and Microsoft, rather than by any financial advisor, and approved by the Activision Blizzard Board of Directors. The decision to enter into the merger agreement was solely that of the Activision Blizzard Board of Directors. Allen & Company’s opinion and analyses were only one of many factors considered by the Activision Blizzard Board of Directors in its evaluation of the merger and the merger consideration and should not be viewed as determinative of the views of the Activision Blizzard Board of Directors or management with respect to the merger or the consideration payable in the merger.
Financial Analyses
The summary of the financial analyses described in this section entitled “— Financial Analyses” is a summary of the material financial analyses provided by Allen & Company in connection with its opinion, dated January 17, 2022, to the Activision Blizzard Board of Directors. The summary set forth below is not a comprehensive description of all analyses undertaken by Allen & Company in connection with its opinion, nor does the order of the analyses in the summary below indicate that any analysis was given greater weight than any other analysis. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by Allen & Company, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by Allen & Company. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by Allen & Company. Future results may differ from those described and such differences may be material. For purposes of the financial analyses described below, (i) the term “Activision Blizzard forecasts” refers in this section to the internal financial forecasts, estimates and other financial and operating data relating to Activision Blizzard prepared by the management of Activision Blizzard as reflected in the January 2022 forecasts, and (ii) the term “EBITDA” means earnings before interest, taxes, depreciation and amortization, stock-based compensation expense and certain one-time non-recurring items, as applicable (referenced in the January 2022 forecasts as “Adjusted EBITDA”).
Selected Public Companies Analysis.   Allen & Company reviewed certain publicly available financial and stock market information relating to Activision Blizzard and the following three selected publicly traded companies with operations in the interactive entertainment industry that Allen & Company considered generally relevant for purposes of analysis, collectively referred to as the “selected companies:”

Take-Two Interactive Software, Inc.

Electronic Arts Inc.

Ubisoft Entertainment SA
Allen & Company reviewed, among other information, enterprise values, calculated as implied equity values based on closing stock prices on January 14, 2022, which is the last unaffected trading day prior to public announcement of the merger (except in the case of Take-Two Interactive Software, Inc., which was based on its unaffected closing stock price on January 7, 2022, prior to the announcement of its pending acquisition of Zynga Inc.) plus total debt and non-controlling interests (as applicable) and less cash and cash equivalents and unconsolidated assets, as applicable, as a multiple of calendar years 2022 and 2023 estimated EBITDA. Financial data of the selected companies were based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information. Financial data of Activision Blizzard was based on the Activision Blizzard forecasts and other information provided by the management of Activision Blizzard.
 
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The overall low to high calendar year 2022 and calendar year 2023 estimated EBITDA multiples observed for the selected companies were 8.4x to 19.1x and 7.3x to 15.6x, respectively. Allen & Company then applied selected ranges of calendar year 2022 and calendar year 2023 estimated EBITDA multiples derived from the selected companies of 13.5x to 18.0x and 12.5x to 15.0x, respectively, to corresponding data of Activision Blizzard based on the Activision Blizzard forecasts. This analysis indicated the following approximate implied equity value per share reference range for Activision Blizzard, as compared to the merger consideration:
Implied Equity Value Per Share
Reference Range Based On:
Merger Consideration
CY2022E EBITDA
CY2023E EBITDA
$69.08 – $89.05
$77.93 – $91.67
$95.00
Selected Precedent Transactions Analysis.   Using publicly available information, Allen & Company reviewed financial data relating to the following 11 selected transactions involving target companies with operations in the interactive entertainment industry that Allen & Company considered generally relevant for purposes of analysis, collectively referred to as the “selected transactions:”
Announcement Date
Acquiror
Target
January 2022 Take-Two Interactive Software, Inc. Zynga Inc.
February 2021 Electronic Arts Inc. Glu Mobile, Inc.
December 2020 Electronic Arts Inc. Codemasters Group Holdings plc
September 2020 Microsoft Corporation ZeniMax Media, Inc.
August 2020 Tencent Music Entertainment Group Leyou Technologies Holdings Ltd.
November 2017 Aristocrat Leisure Limited Big Fish Games, Inc.
April 2017 DoubleU Games Co., Ltd. DoubleDown Interactive Co., Inc.
July 2016
Shanghai Giant Network Technology Co., Ltd.
Playtika Holdings, LLC
June 2016 Tencent Holdings Ltd. Supercell Oy
November 2015 Activision Blizzard Inc. King Digital Entertainment Public Limited Company
October 2013 SoftBank Group Corp. Supercell Oy
Allen & Company reviewed, among other information and to the extent publicly available, transaction values of the selected transactions, calculated as the enterprise values implied for the target companies involved in the selected transactions based on the consideration paid or payable in the selected transactions, as a multiple of the latest 12 months EBITDA of the target company as of the applicable announcement date of such transaction. Financial data for the selected transactions were based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information. Financial data of Activision Blizzard was based on the Activision Blizzard forecasts, public filings and other publicly available information.
The overall low to high latest 12 months EBITDA multiples observed for the selected transactions were 5.6x to 29.9x. Allen & Company then applied a selected range of latest 12 months EBITDA multiples derived from the selected transactions of 14.0x to 20.0x to the latest 12 months (as of December 31, 2021) EBITDA of Activision Blizzard based on the Activision Blizzard forecasts. This analysis indicated the following approximate implied equity value per share reference range for Activision Blizzard, as compared to the merger consideration:
Implied Equity Value Per Share
Reference Range Based On:
Merger Consideration
LTM EBITDA
$72.40 – $99.49
$95.00
Discounted Cash Flow Analysis.   Allen & Company performed a discounted cash flow analysis of Activision Blizzard by calculating, based on the Activision Blizzard forecasts, the estimated present value (as of December 31, 2021) of the standalone unlevered, after-tax free cash flows that Activision Blizzard was
 
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forecasted to generate during the fiscal years ending December 31, 2021 through December 31, 2026. For purposes of this analysis, stock-based compensation was treated as a cash expense. Allen & Company calculated implied terminal values for Activision Blizzard by applying to Activision Blizzard’s unlevered, after-tax free cash flows for the fiscal year ending December 31, 2026 a selected range of perpetuity growth rates of 2.25% to 2.75% and a selected range of discount rates of 6.50% to 8.00%. This analysis indicated the following approximate implied equity value per share reference range for Activision Blizzard, as compared to the merger consideration:
Implied Equity Value Per Share
Reference Range:
Merger Consideration
$84.73 – $123.87
$95.00
Certain Additional Information.   Allen & Company observed certain additional information that was not considered as part of its financial analyses for its opinion but was noted for informational reference only, including the following:

historical trading prices of Activision Blizzard common stock during the 52-week period ended January 14, 2022, which indicated low to high intraday prices for Activision Blizzard common stock during such period of approximately $56.40 to $104.53 per share; and

publicly available Wall Street research analysts’ forward stock price targets for Activision Blizzard common stock, which indicated an overall low to high target price range for Activision Blizzard common stock of $54.00 to $125.00 per share (with a mean of $90.52 per share and a median of $90.00 per share).
Miscellaneous
Activision Blizzard selected Allen & Company as its financial advisor in connection with the merger based on, among other things, Allen & Company’s reputation, experience and familiarity with Activision Blizzard and the industry in which Activision Blizzard operates. Allen & Company, as part of its investment banking business, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, private placements and related financings, negotiated underwritings, secondary distributions of listed and unlisted securities, and valuations for corporate and other purposes. As the Activision Blizzard Board of Directors was aware, although during the two-year period prior to the date of its opinion Allen & Company did not provide investment banking services to Activision Blizzard unrelated to the merger or to Microsoft for which Allen & Company received compensation, Allen & Company in the future may provide such services to Activision Blizzard, Microsoft and/or their respective affiliates, for which Allen & Company would expect to receive compensation. In the ordinary course, Allen & Company as a broker-dealer and certain of its affiliates, directors and officers have invested or may invest, hold long or short positions and may trade, either on a discretionary or non-discretionary basis, for their own or beneficiaries’ accounts or for those of Allen & Company’s clients, in the debt and equity securities (or related derivative securities) of Activision Blizzard, Microsoft and/or their respective affiliates. The issuance of Allen & Company’s opinion was approved by Allen & Company’s opinion committee.
For Allen & Company’s financial advisory services, Activision Blizzard has agreed to pay Allen & Company an aggregate cash fee of $65 million, of which $10 million was payable upon delivery of Allen & Company’s opinion and $55 million is payable contingent upon consummation of the merger. Activision Blizzard also has agreed to reimburse Allen & Company’s reasonable expenses and to indemnify Allen & Company and related parties against certain liabilities, including liabilities under the federal securities laws, arising out of its engagement.
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
 
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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 will 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
 
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subject to such award as of immediately prior to the effective time (determined based on target performance levels, as applicable) multiplied by the exchange ratio. In each case of clauses (x) and (y) of this paragraph, the terms and conditions relating to vesting will remain the same with respect to equity awards subject to time-based vesting, and with respect to equity awards subject to performance-based vesting will be converted into time-based vesting equity awards (determined based on target performance levels) that will vest at the conclusion of the original performance period.
Notwithstanding the treatment of outstanding unvested options, RSUs and PSUs described above, prior to the closing date, Microsoft may elect to treat some or all of the awards that would otherwise be converted as set forth herein as if they were vested (i.e., by cancelling and converting an award into the right to receive the merger consideration with respect to each share of Activision Blizzard common stock subject to the award (less the applicable exercise price, in the case of options), less any applicable withholding taxes; provided that for options, such election may apply only to those options that are otherwise scheduled to vest within 120 days following the closing date).
If the treatment described above of an award of stock units or options held by a non-U.S. employee would be prohibited or subject to onerous regulatory requirements or adverse tax treatment under the laws of the applicable jurisdiction (in each case, as reasonably determined by Microsoft), Microsoft will provide compensation to the employee that is equivalent in value to the value that otherwise would have been provided to the employee under the treatment described above, to the extent practicable and as would not result in the imposition of additional taxes under Section 409A of the Code. This compensation will be provided in the form of a cash payment (less applicable taxes) or a new equity award, as reasonably determined by Microsoft.
Interests of the Non-Employee Directors and Executive Officers of Activision Blizzard in the Merger
When considering the recommendation of the Activision Blizzard Board of Directors that you vote to approve the proposal to adopt the merger agreement, you should be aware that our non-employee directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a stockholder. The Activision Blizzard Board of Directors was aware of and considered these interests to the extent such interests existed at the time, among other matters, in evaluating and overseeing the negotiation of the merger agreement, in approving the merger agreement and the merger and in recommending that the merger agreement be adopted by the stockholders of Activision Blizzard.
Accelerated Vesting of Equity Compensation Upon Certain Terminations
None of the Activision Blizzard outstanding equity awards provide for “single trigger” vesting immediately at the effective time (i.e., as a result of the merger without a termination of employment). However, under the terms of the merger agreement, outstanding RSUs held by non-employee directors at the time of the closing of the merger will vest in full and the holder will receive the consideration described above under the section entitled “Proposal 1: Adoption of the Merger Agreement  —  The Merger —  Treatment of Equity Compensation” beginning on page 57.
Microsoft has agreed that Activision Blizzard may approve, and the Compensation Committee of the Activision Blizzard Board of Directors (which we refer to as the “Compensation Committee”) has approved, that options, RSUs and PSUs that were granted prior to the date of the merger agreement and certain awards granted after the date of the merger agreement that will be outstanding as of closing, as further detailed below, that are converted at the effective time of the merger to Microsoft unvested options and unvested RSUs pursuant to the terms of the merger agreement (such conversion is described above under “Treatment of Equity Compensation”), will vest in full on a “double trigger” basis (i.e., upon a qualifying termination of employment after a specified period following the effective time of the merger), as follows:

Any such award that was granted prior to the date of the merger agreement, including to our executive officers, and certain awards granted after the date of the merger agreement that will be outstanding as of closing, will vest in full if, during the 18-month period immediately following the effective time, the employee’s employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the employee for “good reason” ​(where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined
 
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below) and provided that such acceleration will not modify any more favorable acceleration terms in an arrangement already entered into with such employee.

Additionally, pursuant to the merger agreement (as modified by the confidential disclosure letter to the merger agreement), Activision Blizzard and Microsoft agreed that certain of our employees, including executive officers Grant Dixton, Brian Bulatao and Armin Zerza, will be entitled to terminate their employment within 60 days following the six-month anniversary of the effective time, which will be deemed a termination by the executive for “good reason,” entitling the executive officer to the equity acceleration benefits described directly above and the severance benefits under their individual arrangements or, if greater, the enhanced severance plan, each as described below.
Management RSUs
Microsoft has agreed that Activision Blizzard may grant, and the Compensation Committee has approved the grant of up to $50 million in the aggregate of, RSUs to certain members of senior management, including our executive officers (but excluding the Chief Executive Officer), which we refer to as “management RSUs.” No management RSUs have yet been granted as of the date of this proxy statement. To the extent granted, management RSUs would vest in full if, during the 18-month period immediately following the effective time, the employee’s employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the employee for “good reason” ​(where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined below) and provided that such acceleration would not modify any more favorable acceleration terms in an arrangement already entered into with such employee.
Retention RSUs
Microsoft has agreed that Activision Blizzard may grant RSUs up to a certain aggregate grant date value, and the Compensation Committee has approved that grants of RSUs may be made, to certain employees (but excluding any individual who receives a grant of management RSUs) for retention purposes and to incentivize employees to consummate the transactions contemplated by the merger agreement (which we refer to as “retention RSUs”). No retention RSUs have yet been granted as of the date of this proxy statement. To the extent granted, retention RSUs would vest in full if, during the 18-month period immediately following the effective time, the employee’s employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the employee for “good reason” ​(where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined below) and provided that such acceleration would not modify any more favorable acceleration terms in an arrangement already entered into with such employee.
Employee RSUs
Prior to the effective time, Activision Blizzard may grant RSUs, up to a certain aggregate grant date value, to employees other than the Chief Executive Officer in the ordinary course of business consistent with past practice of the applicable business unit or functional business unit (which we refer to as “employee RSUs”). No employee RSUs have yet been granted as of the date of this proxy statement. To the extent employee RSUs are granted, certain of the employee RSUs that are granted to certain new employees hired before September 1, 2022, would vest in full if, during the 18-month period immediately following the effective time, the employee’s employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the employee for “good reason” ​(where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined below) and provided that such acceleration would not modify any more favorable acceleration terms in an arrangement already entered into with such employee.
Good Reason” means, subject to certain notice and cure periods, in each case without the prior written consent of the holder: (A) solely for those holders who are eligible for the enhanced severance plan, a material diminution in authorities, duties and responsibilities, as measured in the aggregate, as compared to those prior to the effective time (provided, that the following will not constitute “good reason”: (1) the holder’s continued employment with substantially the same responsibility with respect to Activision Blizzard’s business and operations (e.g., the holder’s title is revised to reflect the holder’s placement within
 
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the overall corporate hierarchy or the holder provides services to a subsidiary, business unit or otherwise) or (2) changes resulting solely from Activision Blizzard ceasing to be a stand-alone public corporation); (B) a material diminution in base salary as in effect immediately prior to the effective time; or (C) a relocation of primary office location by more than 50 miles (provided, that requiring the holder to return to work in the holder’s primary office location after working remotely during the COVID-19 pandemic or continuing to work remotely rather than a primary office location shall not constitute a relocation).
Arrangements with Mr. Kotick
Activision Blizzard previously announced on October 28, 2021 Mr. Kotick’s intent that his base salary would be reduced to California’s minimum annual salary (which is approximately $62,500 for 2022) and that he not be awarded any bonuses or equity grants until the Workplace Responsibility Committee of the Activision Blizzard Board of Directors has determined that Activision Blizzard has made appropriate progress toward achievement of the transformational gender-related goals and other commitments described in such announcement.

In connection with the merger, Activision Blizzard and Microsoft agreed that if the Workplace Responsibility Committee of the Activision Blizzard Board of Directors concludes and reports publicly that Activision Blizzard has made appropriate progress toward the achievement of the transformational gender-related goals and other commitments described in Activision Blizzard’s press release on October 28, 2021 (e.g., launching new zero-tolerance harassment policy, increasing the percentage of women and non-binary people in Activision Blizzard’s workforce by 50%, investing $250,000,000 to accelerate opportunities for diverse talent, waiving arbitration of individual sexual harassment claims and increasing visibility on pay equity), then the Activision Blizzard Board of Directors may, no earlier than six months after the date of the merger agreement, in its discretion:

grant an annual equity award to Mr. Kotick as set forth in his employment agreement (as may be extended); provided, that any such award may be granted solely in the form of time-based restricted stock units and will have a grant value on the date of grant equal to no greater than the lesser of (x) the 50th percentile of Activision Blizzard’s then applicable group of peer companies’ chief executive officer long-term incentive grants and (y) $22,000,000; and/or

provide cash compensation to Mr. Kotick under the existing terms of his employment agreement (as may be extended) and without regard to any waiver of compensation by Mr. Kotick; provided, that (x) his annualized base salary will not exceed $875,000 and (y) his target annual cash bonus would not exceed 200% of his base salary (pro-rated). Any salary increase would be prospective following the Workplace Responsibility Committee’s conclusion and will not be retroactively applied and any bonus in respect of the calendar year in which the compensation is reinstated will be based on 200% of such increased base salary and prorated in respect of the period following the Workplace Responsibility Committee’s conclusion.
Value of Shares and Equity Awards Held by Directors and Executive Officers
The estimated aggregate amount of the merger consideration payable with respect to shares of Activision Blizzard common stock, including vested stock options, held by our non-employee directors and executive officers, as a group (inclusive of such persons who have served at any time since the beginning of 2021), assuming the merger closed on March 8, 2022, is approximately $707 million.
The estimated aggregate value of unvested equity awards held by our non-employee directors and executive officers, including our named executive officers and including such persons who have served at any time since the beginning of 2021, that would accelerate in connection with the merger, assuming the merger closed on March 8, 2022, and, immediately thereafter, the executive officer’s employment was terminated by Microsoft, Activision Blizzard or their respective subsidiaries without “cause” or by the executive officer for “good reason” ​(where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined above) is approximately $1 million for our non-employee directors, and approximately $56 million for our executive officers. These values do not include any new Activision Blizzard equity awards that may be granted after the date of this proxy statement. These values are calculated by multiplying the number of shares underlying awards by the per share merger consideration (assuming
 
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target performance for PSUs and performance options), less the exercise price for options. For estimates of the value of such unvested equity awards for each of our named executive officers individually, see the section below entitled “Proposal 1: Adoption of the Merger Agreement  —  The Merger — Interests of the Non-Employee Directors and Executive Officers of Activision Blizzard in the Merger — “Golden Parachute Compensation” beginning on page 65. Certain individuals who were executive officers at any time since the beginning of 2021 — Chris Walther, Dennis Durkin and Claudine Naughton — are no longer employed by Activision Blizzard and these executive officers no longer hold any Activision Blizzard equity awards, whether options, RSUs or PSUs.
Potential Contractual Payments to Executive Officers upon Termination of Employment, Including in Connection with the Merger
We have entered into agreements with our executive officers, including our named executive officers, which would entitle the executives to severance payments and benefits in the event of certain qualifying terminations of employment. In the case of each of our executive officers other than Mr. Kotick, the severance benefits under the enhanced severance plan described below will be greater than the benefits that they would receive under their respective employment agreements.

Mr. Kotick’s executive employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” or if he resigns for “good reason” ​(as each such terms are defined in his agreement), in either case within 12 months after a change of control (which will occur at the effective time), he will be entitled to receive:

an amount equal to three times the sum of his annual base salary as in effect immediately prior to the date of the termination of his employment and the target value of his 2016 annual bonus, payable in equal installments over 12 months following the date of the termination of his employment;

any earned but unpaid bonuses for prior years;

a pro-rated payment of his annual bonus for the year of termination based on the percentage of the fiscal year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;

full vesting of his stock options and continued vesting of any unvested stock units based on the actual attainment of underlying performance goals, as if his employment had not been terminated, as applicable (noting that Mr. Kotick does not now hold, and will not be granted prior to the closing of the merger, any performance-based awards); and

continued Activision Blizzard-paid health insurance coverage for two years for him and his eligible dependents and reimbursement by Activision Blizzard of the annual premiums for supplemental life insurance benefits, with an annual cap of $80,000 through October 2026.
In connection with the merger agreement, Activision Blizzard and Microsoft agreed that, on or after July 18, 2022 (the date six months following the execution of the merger agreement), the Activision Blizzard Board of Directors may extend Mr. Kotick’s employment agreement by 12 months.

Mr. Zerza’s executive employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” ​(as defined in his agreement) or if he resigns following the relocation of his principal place of business by more than 50 miles in a manner that materially and adversely affects his commute, he will be entitled to receive:

continued payment of base salary through the end of the term of his agreement;

any earned but unpaid bonuses for prior years;

a pro-rated payment of his annual bonus for the year of termination based on the percentage of the year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;

if such termination occurs (i) after December 31, 2021 but before March 31, 2022, (ii) after December 31, 2022 but before March 31, 2023 or (iii) after December 31, 2023 but before
 
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March 31, 2024, and Activision Blizzard’s operating income for the year that ended immediately prior to such termination (i.e., 2021, 2022, or 2023) is 90% or more of the applicable operating income objective for such year, as determined by the Compensation Committee, Mr. Zerza would receive a lump sum payment of $950,000; and

to the extent termination occurs following the completion of an applicable performance period of the PSU award granted to him on May 6, 2021 that relates to operating income performance, but before the end of the time-vesting period of such PSU award, and provided that the performance objective(s) relating to such PSU award were met, a lump sum cash amount equal to the product of (x) the number of shares he would have received upon vesting of that tranche of the award had it not been canceled upon his termination and (y) the closing price per share of Activision Blizzard common stock on May 6, 2021 (i.e., $93.03), in consideration of the termination of the PSU award prior to its vesting.

Mr. Alegre’s executive employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” ​(as defined in his agreement) or if he resigns following the relocation of his principal place of business by more than 50 miles in a manner that materially and adversely affects his commute, he will be entitled to receive:

continued payment of base salary through the end of the term of his agreement;

any earned but unpaid bonuses for prior years;

a pro-rated payment of his annual bonus for the year of termination based on the percentage of the year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;

if such termination of employment occurs (i) after December 31, 2020 but before March 30, 2022, (ii) after December 31, 2021 but before March 30, 2022, and (iii) after December 31, 2022 but before March 30, 2023, and Activision Blizzard’s operating income for the applicable year (i.e., 2020, 2021 or 2022) is 90% or more of the operating income objective for such year, as determined by the Compensation Committee, in each case, a lump sums payment of $1,666,667 (which amounts are cumulative to the extent underlying conditions are met); and

to the extent termination occurs following the completion of an applicable performance period of the PSU award granted to him on May 7, 2020, that relates to operating income performance, but before the end of the time-vesting period, and provided that the performance objective(s) relating to such PSU award were met, a lump sum cash amount, equal to the product of (x) the number of shares he would have received upon vesting of that tranche of the PSU award had it not been canceled upon his termination and (y) the closing price per share of Activision Blizzard common stock on May 7, 2020 (i.e., $73.10), in consideration of the termination of the PSU award prior to its vesting.

Mr. Dixton’s employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” ​(as defined in his agreement) or if he resigns following the relocation of his principal place of business by more than 50 miles in a manner that materially and adversely affects his commute, he will be entitled to receive:

continued payment of base salary through the end of the term of his agreement;

any earned but unpaid bonuses for prior years;

a pro-rated payment of his annual bonus for the year of termination based on the percentage of the year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;

if such termination occurs (i) after December 31, 2021 but before June 29, 2022 or (ii) after December 31, 2022 but before June 29, 2023, and Activision Blizzard’s operating income for the year that ended immediately prior to such termination (i.e., 2021 or 2022) is 90% or more of the operating income objective for such year, as determined by the Compensation Committee, a lump sum payment equal to $750,000; and
 
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to the extent termination occurs following the completion of an applicable performance period of the PSU award granted to him on August 5, 2021 that relates to operating income performance, but before the end of the time-vesting period, and provided that the performance objective(s) relating to such PSU award were met, a lump sum cash amount equal to the product of (x) the number of shares he would have received upon vesting of that tranche of the award had it not been canceled upon his termination and (y) the closing price per share of Activision Blizzard common stock on August 5, 2021 (i.e., $80.32), in consideration of the termination of the PSU award prior to its vesting.

Mr. Bulatao’s employment agreement provides that if his employment is terminated by Activision Blizzard without “cause” ​(as defined in his agreement) or if he resigns following the relocation of his principal place of business by more than 50 miles in a manner that materially and adversely affects his commute, he will be entitled to receive:

continued payment of base salary through the end of the term of his agreement;

any earned but unpaid bonuses for prior years;

a pro-rated payment of his annual bonus for the year of termination based on the percentage of the year completed as of the date of the termination of his employment and the attainment of the applicable performance metrics at the end of the performance period;

if termination occurs (i) after December 31, 2021 but before March 31, 2022, (ii) after December 31, 2022 but before March 30, 2023, or (iii) after December 31, 2023 but before March 30, 2024, and Activision Blizzard’s operating income for the year that ended immediately prior to such termination (i.e., 2021, 2022 or 2023) is 90% or more of the operating income objective for such year, as determined by the Compensation Committee, a lump sum payment equal to $950,000; and

to the extent termination occurs following the completion of an applicable performance period of the PSU award granted to him on March 9, 2021 that relates to operating income performance, but before the end of the time-vesting period, and provided that the performance objective(s) relating to such PSU award were met, a lump sum cash amount equal to the product of (x) the number of shares he would have received upon vesting of that tranche of the award had it not been canceled upon his termination and (y) the closing price per share of Activision Blizzard common stock on March 9, 2021 (i.e., $92.50), in consideration of the termination of the PSU award prior to its vesting.
As a condition to receipt of the severance payments and benefits described above, each executive officer is required to execute a separation and release of claims agreement in favor of Activision Blizzard and its affiliates and to continue to comply with certain post-termination covenants in favor of Activision Blizzard and its affiliates.
280G Mitigation Actions
The employment agreements of Messrs. Kotick, Zerza, Alegre, Dixton and Bulatao provide for a “best net” approach such that if the payment of any amounts to the executive would subject the executive to the excise tax provisions of Section 280G of the Code, the payments would be reduced to an amount below the threshold at which such penalty tax provisions apply if such a reduction (and the avoidance of such penalty taxes) would be more favorable to the executive on an after-tax basis. While Activision Blizzard may be permitted to take certain actions to reduce the amount of any potential “excess parachute payments” for “disqualified individuals” ​(each as defined in Section 280G of the Code), the Compensation Committee has not yet approved any specific actions to mitigate the anticipated impact of Section 280G of the Code on Activision Blizzard and any disqualified individuals. Executives are not entitled to receive gross-ups or tax reimbursements from Activision Blizzard with respect to any potential excise taxes.
Enhanced Severance Plan
Microsoft has agreed that Activision Blizzard may approve, and the Compensation Committee has approved the key terms of, an enhanced severance plan, which provides that a limited number of covered
 
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employees, including our executive officers, would be entitled to the following benefits in the event their employment is terminated by Microsoft, Activision Blizzard or their respective subsidiaries and affiliates without “cause” or by the executive for “good reason” ​(where “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined above), in either case, within 18 months following the effective time (subject to the executive’s execution of Activision Blizzard’s customary release of claims): (i) the greater of (A) either one or two times (depending on level) the sum of the executive’s base salary and target annual cash incentive bonus (excluding any milestone or special bonus payments) and (B) the severance payable under the executive’s employment agreement; (ii) a pro-rated target annual cash incentive bonus payment based on the percentage of the year completed as of the termination date; and (iii) reimbursement of COBRA premiums for a certain period. In the case of each of our executive officers (other than Mr. Kotick), the severance benefits under the enhanced severance plan will be greater than the benefits that they would receive under their respective employment agreements.
The estimated aggregate amount of the cash severance benefits our executive officers, including our named executive officers, would have received upon a qualifying termination of employment under the enhanced severance plan, assuming the merger closed on March 8, 2022, and a qualifying termination of employment occurred immediately thereafter, is approximately $31 million. For estimates of the amounts of such cash severance that each of our named executive officers would have received under the enhanced severance plan individually, see the section below entitled “Proposal 1: Adoption of the Merger Agreement  —  The Merger — Interests of the Non-Employee Directors and Executive Officers of Activision Blizzard in the Merger — “Golden Parachute Compensation” beginning on page 65.
Omnibus Severance Plan
Microsoft has agreed that Activision Blizzard may approve, and the Compensation Committee has approved the key terms of, an omnibus severance plan, which include that employees of Activision Blizzard as of the effective time (other than those covered under the enhanced severance plan) would be entitled to the following benefits in the event their employment is terminated by Activision Blizzard or its affiliates (including Microsoft) other than for cause within 12 months following the effective time (subject to the applicable employee’s execution of Activision Blizzard’s customary release of claims): (i) the greater of (A) up to 52 weeks’ salary, plus 60 days’ pay, for covered individuals in positions of vice president and above (or, for individuals in positions of senior director and below up to 26 weeks’ salary, plus 60 days’ pay), and (B) the severance payable under any other agreement with the employee, if any; (ii) a pro-rated target annual cash incentive bonus based on the percentage of the year completed as of the termination date; and (iii) reimbursement of one year of COBRA premiums.
Other Arrangements with Microsoft
Except as otherwise set forth herein, as of the date of this proxy statement, none of our executive officers has entered into any agreement with Microsoft regarding employment with, or compensation to be received from, the surviving corporation or Microsoft on a going-forward basis following the closing of the merger and there have been no discussions of any such arrangements between Microsoft and any of our executive officers.
Golden Parachute Compensation
In accordance with Item 402(t) of Regulation S-K, the table below sets forth the estimated amounts of the payments and benefits that each named executive officer of Activision Blizzard would have received in connection with the merger, assuming the merger closed on March 8, 2022 and, immediately thereafter, the employment of the named executive officer was terminated by Activision Blizzard or its affiliates (including Microsoft) without “cause” or the named executive officer resigned for “good reason” ​(where, for Mr. Kotick, each such term has the meaning set forth in his employment agreement with Activision Blizzard and, for the other executives, “cause” is defined in the confidential disclosure letter to the merger agreement and “good reason” is defined above). This compensation is subject to an advisory vote of Activision Blizzard’s stockholders, as described below under the section entitled “Proposal 2: Advisory Vote on Merger-Related Executive Compensation Arrangements” beginning on page 95.
 
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The calculations in the tables below do not include any new Activision Blizzard equity awards or other compensation increases that may be granted to the named executive officers before the effective time, including management RSUs. In addition to the assumptions regarding the closing date of the merger and termination of the employment of the named executive officers, these estimates are based on certain other assumptions that are described in the footnotes accompanying the tables below. In addition to the named executive officers set forth in the table below, Chris Walther, Dennis Durkin and Claudine Naughton also each served as a named executive officer during fiscal year 2021; however, these individuals would not become entitled to any accelerated payment, vesting or benefits or other compensation as a result of the closing of the merger. Accordingly, the ultimate values to be received by a named executive officer in connection with the merger may differ from the amounts set forth below.
Officer(1)
Cash
($)(2)
Equity
($)(3)
Perquisites/
Benefits
($)(4)
Total
($)
Robert A. Kotick
$ 14,369,130 $ 0 $ 219,762 $ 14,588,892
Armin Zerza
$ 4,220,274 $ 20,780,588 $ 49,832 $ 25,050,694
Daniel Alegre
$ 5,647,808 $ 17,471,392 $ 49,832 $ 23,169,032
Brian Bulatao
$ 4,183,562 $ 5,789,695 $ 49,832 $ 10,023,089
Grant Dixton
$ 2,728,253 $ 10,506,335 $ 41,238 $ 13,275,827
(1)
Messrs.   Walther and Durkin and Ms. Naughton also each served as named executive officers during Activision Blizzard’s last fiscal year and these former executive officers are not entitled to any amounts in connection with any compensation arrangement as a result of or in connection with the merger.
(2)
Cash.   The amounts in this column reflect the value of the cash severance payments payable to each named executive officer, including a prorated annual bonus for the year of termination. For Mr. Kotick, the amount in this column represents severance and, pursuant to his employment agreement with Activision Blizzard, is equal to three times the sum of his current annual base salary and his 2016 target bonus. For Messrs. Zerza, Alegre, Bulatao and Dixton, the amounts in this column represent severance and a prorated annual bonus payable under the enhanced severance plan. The breakdown of the amounts in this column for Mr. Alegre are $5,400,000 for severance and $247,808 for prorated annual bonus. The breakdown of the amounts in this column for Mr. Zerza are $4,000,000 for severance and $220,274 for prorated annual bonus. The breakdown of the amounts in this column for Mr. Bulatao are $4,000,000 for severance and $183,562 for prorated annual bonus. The breakdown of the amounts in this column for Mr. Dixton are $2,625,000 for severance and $103,253 for prorated annual bonus. The severance and prorated bonus payments are all “double trigger” in nature, which means that payment of these amounts is conditioned upon a qualifying termination of employment on or following the closing of the merger. Messrs. Zerza, Bulatao and Dixton are each entitled to terminate their employment within 60 days following the six-month anniversary of the effective time, which will be deemed a qualifying termination. Under their employment agreements, each of Messrs. Kotick, Zerza, Alegre, Bulatao and Dixton are subject to post-termination covenants, including non-solicitation covenants, in favor of Activision Blizzard and its affiliates.
(3)
Equity.   The amounts in this column reflect the aggregate values of the accelerated vesting of the RSUs which would be assumed by Microsoft for Messrs. Zerza, Alegre, Bulatao and Dixton (and for PSUs, assumes target performance). These amounts are “double trigger” in nature, which means that the accelerated vesting is conditioned upon a qualifying termination of employment on or after the closing of the merger. Messrs. Zerza, Bulatao and Dixton are each entitled to terminate their employment within 60 days following the six-month anniversary of the effective time, which will be deemed a qualifying termination. Mr. Kotick does not currently hold any equity awards for which vesting would accelerate upon the closing of the merger or upon a termination of employment following the closing of the merger.
(4)
Perquisites/Benefits.   The amounts in this column reflect the value of continued Activision Blizzard-paid health insurance coverage for Mr. Kotick for two years and supplemental life insurance benefits through October 2026 pursuant to his employment agreement with Activision Blizzard, and for Messrs. Zerza, Alegre, Bulatao and Dixton reimbursement of COBRA premiums for two years under
 
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the enhanced severance plan. The amounts in this column are “double trigger” in nature, which means that payment of these amounts is conditioned upon a qualifying termination of employment on following the closing of the merger. Messrs. Zerza, Bulatao and Dixton are each entitled to terminate their employment within 60 days following the six-month anniversary of the effective time, which will be deemed a qualifying termination.
Financing of the Merger
The merger is not conditioned on Microsoft’s ability to obtain financing. Microsoft has represented to Activision Blizzard that it has available, and will have available at the effective time, the funds necessary to pay the aggregate merger consideration, including (i) payments to Activision Blizzard’s stockholders of the amounts due under the merger agreement and (ii) payments in respect of certain of Activision Blizzard’s outstanding equity awards pursuant to the merger agreement.
U.S. Federal Income Tax Consequences of the Merger
The following is a discussion of the U.S. federal income tax consequences of the merger to U.S. Holders (as defined below) that exchange their shares of Activision Blizzard common stock for the merger consideration. This discussion is limited to U.S. Holders and does not address any tax consequences arising under the Medicare contribution tax on net investment income or the alternative minimum tax, U.S. federal non-income tax laws or the laws of any state or local or non-U.S. jurisdiction. This discussion is based upon the Code, the regulations of the U.S. Treasury Department and judicial authorities and published positions of the Internal Revenue Service, which we refer to as the “IRS,” all as currently in effect on the date of this proxy statement. These laws may change or be subject to differing interpretations, possibly retroactively, and any change or differing interpretation could affect the continuing validity of this discussion. We have not sought and do not intend to seek a ruling from the IRS regarding the matters discussed below. This discussion assumes that the merger will be consummated in accordance with the merger agreement and as described in this proxy statement.
If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of Activision Blizzard common stock, the tax treatment of a person treated as a partner in such partnership for U.S. federal income tax purposes generally will depend upon the status of the partner and the activities of the partnership. Such partnerships and partners in such partnerships should consult their tax advisors about the tax consequences of the merger to them.
Holders are urged to consult with their tax advisors as to the specific tax consequences of the merger to them in light of their particular situations, including the applicability and effect of any U.S. federal, state, local or non-U.S. tax laws.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Activision Blizzard common stock that is, for U.S. federal income tax purposes:

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

a corporation or other entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia;

a trust if it (i) is subject to the primary supervision of a U.S. court and one or more United States persons (as defined in Section 7701(a)(30) of the Code) have the authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person; or

an estate that is subject to U.S. federal income tax on its income regardless of its source.
This discussion assumes that U.S. Holders of Activision Blizzard common stock hold their shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to U.S. Holders in light of their particular circumstances or that may be applicable to U.S. Holders if such holders are subject to special treatment under U.S. federal income tax laws, including any holder that is:
 
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a bank or other financial institution;

a tax-exempt or governmental organization;

a partnership, subchapter S corporation or other pass-through entity or an investor in the foregoing;

an insurance company;

a regulated investment company or real estate investment trust;

a mutual fund;

a broker or dealer in securities, stocks, commodities or currencies;

a trader in securities who elects the mark-to-market method of accounting for securities;

a U.S. expatriate, former citizen or long-term resident of the United States;

a person who actually or constructively owned more than five percent (5%) (by vote or value) of the outstanding shares of Activision Blizzard common stock at any time during the five-year period ending on the date of the merger;

an Activision Blizzard stockholder who received Activision Blizzard common stock through the exercise of employee stock options or through a tax-qualified retirement plan or otherwise as compensation;

a person that has a functional currency other than the U.S. dollar;

a person subject to special tax accounting rules as a result of any item of gross income with respect to Activision Blizzard common stock being taken into account in an “applicable financial statement” as defined in Section 451(b) of the Code;

a holder of options granted under any Activision Blizzard benefit plan; or

an Activision Blizzard stockholder who holds Activision Blizzard common stock as part of a hedge, straddle or a constructive sale or conversion transaction.
Activision Blizzard stockholders that are not U.S. Holders may have different U.S. federal income tax consequences than those described below and are urged to consult with their own tax advisors regarding the tax treatment of the merger to them under U.S. and non-U.S. laws.
The following discussion does not address the tax consequences of any transactions effectuated before, after or at the same time as the merger, whether or not in connection with the merger, including, without limitation, the tax consequences to holders of options, warrants or similar rights to purchase shares of Activision Blizzard common stock.
Tax Consequences of the Merger
The receipt of the merger consideration by U.S. Holders in exchange for shares of Activision Blizzard common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. Therefore, a U.S. Holder who receives the merger consideration in exchange for shares of Activision Blizzard common stock pursuant to the merger generally will recognize capital gain or loss equal to the difference, if any, between (i) the amount of cash received in the merger and (ii) the U.S. Holder’s adjusted tax basis in its Activision Blizzard common stock exchanged therefor.
A U.S. Holder’s adjusted tax basis in its shares of Activision Blizzard common stock will generally equal the price the U.S. Holder paid for such shares. Capital gains of a non-corporate U.S. Holder will generally be eligible for preferential U.S. federal income tax rates that are applicable to long-term capital gains if the U.S. Holder has held its Activision Blizzard common stock for more than one year as of the effective date of the merger. Capital gains of a non-corporate U.S. Holder will generally be subject to short-term capital gains (and taxed at ordinary income tax rates) if the U.S. Holder has held its Activision Blizzard common stock for one year or less as of the date of the merger. The deductibility of capital losses is subject to limitations. If a U.S. Holder acquired different blocks of Activision Blizzard common stock at different times or different prices, the U.S. Holder must determine its tax basis and holding period separately for each block of Activision Blizzard common stock.
 
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Information Reporting and Backup Withholding
Payments of cash to a U.S. Holder of Activision Blizzard common stock pursuant to the merger may, under certain circumstances, be subject to information reporting and backup withholding. To avoid backup withholding, a U.S. Holder should timely complete and return an IRS Form W-9, certifying that such U.S. Holder is a “United States person” as defined under the Code, the taxpayer identification number provided is correct and such U.S. Holder is not subject to backup withholding. Certain types of U.S. Holders (including, with respect to certain types of payments, corporations) generally are not subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a Holder’s U.S. federal income tax liability if the required information is furnished by such Holder on a timely basis to the IRS.
U.S. Holders are urged to consult their own tax advisors as to the particular tax consequences of the merger, including the effect of U.S. federal, state and local tax laws or non-U.S. tax laws.
The foregoing summary of U.S. federal income tax consequences is for general informational purposes only and does not constitute tax advice. All holders are urged to consult their own tax advisors with respect to the application of U.S. federal income tax laws to their particular situations as well as any tax consequences arising under the U.S. federal non-income tax rules, or under the laws of any state, local, non-U.S. or other taxing jurisdiction.
Regulatory Approvals
General
Activision Blizzard and Microsoft have agreed to use their reasonable best efforts to comply with all regulatory filing and notification requirements and obtain all regulatory approvals required or recommended to consummate the merger and the other transactions contemplated by the merger agreement. These approvals include approval under, or notifications pursuant to, the HSR Act and the competition laws of the European Union, the United Kingdom, China and certain other jurisdictions.
In addition, each of Activision Blizzard and Microsoft have agreed to (1) cooperate and coordinate with each other to make such filings; (2) use its reasonable best efforts to supply the other with any information that may be required in order to make such filings; (3) use its reasonable best efforts to supply any additional information that reasonably may be requested to obtain regulatory approvals; (4) use its reasonable best efforts to take all action necessary to obtain regulatory approvals as soon as practicable; and (5) provide notice to the other party if it plans to participate in any meeting or substantive conversation with any governmental authority with respect to the merger. Microsoft will, after good faith consultation with Activision Blizzard and after considering, in good faith, Activision Blizzard’s views and comments, control and lead all communications, negotiations, timing decisions and strategy on behalf of the parties relating to regulatory approvals.
If and to the extent necessary to obtain regulatory approval of the merger, Microsoft, Sub and, solely to the extent requested by Microsoft, Activision Blizzard will (1) offer, negotiate, commit to and effect, by consent decree, hold separate order or otherwise, (A) the sale, divestiture, license or other disposition of assets (whether tangible or intangible), rights, products or businesses of Activision Blizzard; and (B) any other restrictions on the activities of Activision Blizzard; and (2) contest, defend and appeal any legal proceedings, whether judicial or administrative, challenging the merger agreement or the consummation of the merger. Notwithstanding the foregoing, Microsoft is not required to offer, negotiate, commit to, effect or otherwise take any action that would reasonably be expected to (x) have a material adverse impact on Activision Blizzard and its subsidiaries, taken as a whole, (y) have a material impact on the benefits expected to be derived from the merger by Microsoft or (z) have a more than immaterial impact on any business or product line of Microsoft.
HSR Act and Other Antitrust Matters
Under the HSR Act and the rules promulgated thereunder, the merger cannot be completed until Activision Blizzard and Microsoft file a notification and report form with the Federal Trade Commission,
 
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which we refer to as the “FTC,” and the Antitrust Division of the Department of Justice, which we refer to as the “DOJ,” under the HSR Act and the applicable waiting period has expired or been terminated. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30-calendar day waiting period following the parties’ filing of their respective HSR Act notification forms or the early termination of that waiting period. On March 3, 2022, Activision Blizzard and Microsoft each received a request for additional information and documentary material (which we refer to as a “Second Request”) from the FTC in connection with the FTC’s review of the transaction. The effect of the Second Request is to extend the waiting period imposed under the HSR Act until the 30th day after substantial compliance by Activision Blizzard and Microsoft with the Second Request, unless the waiting period is terminated earlier by the FTC or as otherwise agreed between the parties and the FTC. Completion of the transaction remains subject to the termination or expiration of the waiting period under the HSR Act and the satisfaction or waiver of the closing conditions specified in the merger agreement. The parties expect to complete the transaction in Microsoft’s fiscal year ending June 30, 2023.
At any time before or after consummation of the merger, notwithstanding the termination of the waiting period under the HSR Act, the FTC or the Antitrust Division of the DOJ could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.
Foreign Competition Laws
European Union.   Both Microsoft and Activision Blizzard conduct business across the European Union in multiple Member States. Under Council Regulation (EC) No. 139/2004 of January 2004, as amended, and the rules and regulations promulgated thereunder, which we refer to as the “EU Merger Regulation,” mergers and acquisitions involving parties with worldwide sales and individual European Union sales exceeding specified thresholds must be notified to, and approved by, the European Commission before they are implemented. Microsoft and Activision Blizzard meet the thresholds set out in the EU Merger Regulation and are therefore obligated to (i) notify the European Commission of Microsoft’s acquisition of Activision Blizzard and (ii) wait to implement the merger until after the European Commission has issued a decision declaring the merger compatible with the common market (and/or if the European Commission has referred any aspect of the merger to one or more competent authorities of a European Union member state under Article 9 of the EU Merger Regulation or an EFTA state under Article 6 of Protocol 24 to the EEA Agreement, until each competent authority has issued a clearance or a confirmation that the merger may proceed). As is customary, Microsoft and Activision Blizzard intend to file a formal notification as soon as is reasonably practicable.
United Kingdom.   With respect to the United Kingdom, the parties intend to notify the merger to the Competition and Markets Authority, which we refer to as the “CMA,” under the Enterprise Act 2002. The CMA may issue an order that, among other things, prevents the completion of the merger or prevents the integration of the parties’ businesses. The practical effect of this is typically that the merger may not be completed until the merger has been notified to the CMA and the merging parties have obtained clearance. Microsoft and Activision Blizzard intend to file a formal notification as soon as is reasonably practicable.
China.   In addition, under the Antimonopoly Law of the People’s Republic of China, transactions involving parties with sales above certain revenue levels cannot be completed until they are reviewed and approved by the State Administration for Market Regulation, which we refer to as “SAMR.” Microsoft and Activision Blizzard have sufficient revenues to exceed SAMR’s statutory thresholds for review, and completion of the merger is therefore conditioned upon SAMR approval. Microsoft and Activision Blizzard intend to submit a draft notification to SAMR as soon as is reasonably practicable.
The merger is also subject to clearance or approval by competition authorities in certain other jurisdictions. The merger cannot be completed until Microsoft and Activision Blizzard obtain clearance to
 
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consummate the merger or applicable waiting periods (or any extension thereof) have expired or been terminated in each applicable jurisdiction. Microsoft and Activision Blizzard, in consultation and cooperation with each other, will file notifications, as required by competition authorities in certain other jurisdictions, as promptly as practicable after the date of the merger agreement. The relevant competition authorities could take such actions under applicable competition laws as they deem necessary or desirable, including seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or to terminate existing relationships and contractual rights. Any one of these requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the completion, or reduce the anticipated benefits, of the merger. There is no assurance that Microsoft and Activision Blizzard will obtain all required regulatory clearances or approvals on a timely basis or at all. Failure to obtain the necessary clearances in any of these jurisdictions could substantially delay or prevent the consummation of the merger, which could negatively impact both Microsoft and Activision Blizzard.
Foreign Direct Investment Laws
Completion of the merger is further subject to receipt of certain other foreign direct investment review approvals, including notification, clearance and/or expiration or termination of any applicable waiting period in certain specified countries.
Other Regulatory Approvals
One or more governmental bodies may impose a condition, restriction, qualification, requirement or limitation when it grants the necessary approvals and consents to the merger. Third parties may also seek to intervene in the regulatory process or litigate to enjoin or overturn regulatory approvals, which actions could significantly impede or even preclude obtaining required regulatory approvals. There is currently no way to predict how long it will take to obtain all of the required regulatory approvals or whether such approvals will ultimately be obtained, and there may be a substantial period of time between the approval by Activision Blizzard stockholders and the completion of the merger.
Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these regulatory clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the merger or require changes to the terms of the merger agreement. These conditions or changes could result in the conditions to the merger not being satisfied.
Legal Proceedings Regarding the Merger
Following the announcement of the transaction, complaints were filed in the United States District Court for the Southern District of New York, the United States District Court for the Eastern District of New York, the United States District Court for the Central District of California, the United States District Court for the Eastern District of Pennsylvania and the United States District Court for the District of Delaware against Activision Blizzard and its directors: Stein v. Activision Blizzard, Inc. et al., No. 1:22-cv-01560 (S.D.N.Y.); Perry v. Activision Blizzard, Inc. et al., No. 1:22-cv-02074 (S.D.N.Y.); Whitfield v. Activision Blizzard, Inc. et al., 2:22-cv-01182 (E.D.N.Y.); Lande v. Activision Blizzard, Inc. et al., No. 1:22-cv-01267 (E.D.N.Y.); Watson v. Activision Blizzard, Inc. et al., No. 2:22-cv-01268 (C.D. Cal.); Rubin v. Activision Blizzard, Inc. et al., No. 2:22-cv-01343 (C.D. Cal.);Baker v. Activision Blizzard, Inc. et al., No. 2:22-cv-00875 (E.D. Pa.); and David v. Activision Blizzard, Inc. et al., No. 1:22-cv-00339 (D. Del.). The complaints each assert violations of Section 14(a) and Section 20(a) of the Exchange Act and allege that the preliminary proxy statement filed in connection with the proposed transaction between Activision Blizzard and Microsoft omitted certain purportedly material information which rendered the preliminary proxy statement incomplete and misleading. Specifically, the complaints allege that the preliminary proxy statement failed to disclose material information regarding the sales process, Activision Blizzard’s projections and the financial analyses of Activision Blizzard’s financial advisor. The complaints seek, among other things, an order to enjoin the transaction unless and until additional disclosures are issued; and, if the transaction closes, damages. The Watson complaint also alleges that Activision Blizzard’s directors entered into the transaction for self-interested reasons, including receipt of personal benefits in the transaction. It is possible additional
 
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lawsuits against Activision Blizzard, the Activision Blizzard Board of Directors or Activision Blizzard’s officers may be filed prior to the consummation of the transaction.
Following the announcement of the transaction, Activision Blizzard also received demands from purported stockholders for books and records pursuant to 8 Del. C. § 220. Among other things, the demands seek to investigate purported breaches of fiduciary duty related to the proposed transaction. Specifically, the demands seek to investigate Mr. Kotick’s role in the proposed transaction with one of the demands alleging that Mr. Kotick’s position at Activision Blizzard was at risk given workplace issues and he chose to pursue a transaction rather than resign. Such demand further alleges that Mr. Kotick agreed to a price range without authorization from the Activision Blizzard Board of Directors and that the Activision Blizzard Board of Directors allowed Mr. Kotick to control the transaction process. Such demand also alleges that the transaction price is inadequate because Microsoft’s opportunistic offer took advantage of Activision Blizzard’s purportedly depressed stock price and that management may have attempted to validate the consideration through downward adjustments to the Long-Range Plan (as defined under the section of this proxy statement entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Background of the Merger”).
In addition, we are subject to legal proceedings regarding workplace and employee concerns, and unionization efforts, as described below.
Pending EEOC Settlement
In September 2021, we entered into a proposed consent decree with the U.S. Equal Employment Opportunity Commission (which we refer to as the “EEOC”) to settle claims regarding certain employment practices. The consent decree is subject to approval by the United States District Court, Central District of California, and, among other things, provides for the creation of an $18 million settlement fund for eligible claimants; upgrading Activision Blizzard policies, practices, and training to further prevent and eliminate harassment and discrimination in its workplaces, including implementing an expanded performance review system with a new equal opportunity focus; and providing ongoing oversight and review of Activision Blizzard’s training programs, investigation policies, disciplinary framework and compliance by appointing a third-party equal opportunity consultant whose findings will be regularly reported to the Activision Blizzard Board of Directors as well as the EEOC. There can be no assurance that the consent decree will be approved by the court. The California Department of Fair Employment and Housing (which we refer to as the “DFEH”) filed a motion to intervene in the matter, seeking to object to the consent decree, including the amount of the settlement fund; and has appealed denial of that motion.
Further information about these matters can be found in Activision Blizzard’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 25, 2022 (which we refer to as the “2021 10-K”), which is incorporated by reference in this proxy statement.
Other Pending Employment-Related Matters
On July 20, 2021, the DFEH filed an action (which we refer to as the “DFEH Matter”) in the Los Angeles County Superior Court of the State of California against Activision Blizzard, Blizzard Entertainment and Activision Publishing (which we refer to, together, as the “Defendants”), captioned DFEH v. Activision Blizzard, Inc., et al., No. 21STCV26571 (Cal. Super. Ct., L.A. Cty.). The DFEH alleges violations of the California Fair Employment and Housing Act and the California Equal Pay Act. The DFEH filed a First Amended Complaint in the DFEH Matter on August 23, 2021. The Defendants moved to dismiss the First Amended Complaint; the motion was heard on February 15, 2022. The Defendants’ motion was denied in part and granted in part, with the DFEH having leave to further amend with respect to the granted portion. In addition, the Activision Blizzard Board of Directors recently received notice of an investigation by the DFEH and investigatory subpoenas.
On August 3, 2021, a putative class action was filed in the United States District Court, Central District of California, entitled Gary Cheng v. Activision Blizzard, Inc., et al., No. 2:21-cv-06240-PA-JEM (C.D. Cal.). Plaintiffs purport to represent a class of Activision Blizzard shareholders who purchased stock between February 28, 2017 and November 16, 2021, and assert claims under Sections 10(b) and 20(a) of the Exchange Act against Activision Blizzard and five current or former officers. Beginning on August 6,
 
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2021, three putative shareholder derivative actions were filed in California Superior Court, County of Los Angeles, and those cases have now been consolidated in an action entitled York County on Behalf of County of York Retirement Fund v. Robert A. Kotick, et al., No. 21STCV28949 (Cal. Super. Ct., L.A. Cty.). On November 15, 2021, a putative shareholder derivative action was filed in the United States District Court, Central District of California, entitled Luke Kahnert v. Robert A. Kotick, et al., No. 2:21-cv-08968-PA-JEM (C.D. Cal.). The putative derivative actions collectively assert claims on Activision Blizzard’s behalf against thirteen current or former officers and directors for breach of fiduciary duty, corporate waste, unjust enrichment, misappropriation, contribution, and alleged violation of Section 14(a) of the Exchange Act based on allegations similar to those in the DFEH Matter and in the securities class action. Activision Blizzard is named as a nominal defendant. In addition, the plaintiffs in the Kahnert action sought leave to amend their complaint to assert putative class claims for breach of fiduciary duty against Activision Blizzard’s directors in connection with the proposed acquisition by Microsoft, along with an aiding and abetting claim against Microsoft. Specifically, the proposed amended complaint alleges that Activision Blizzard’s directors entered into the transaction pursuant to a flawed and conflicted process allegedly designed to absolve the directors from liability for failure to oversee Activision Blizzard in connection with the DFEH Matter and the SEC, securities and derivative matters. Plaintiffs also claim that Microsoft was aware of the directors’ and officers’ purported breaches of fiduciary duty by virtue of the public allegations, and nonetheless agreed to transaction terms that unjustly reward the individual defendants. Defendants opposed Plaintiffs’ motion for leave to amend and the Court denied the motion in an order dated March 4, 2022.
Activision Blizzard is cooperating with an investigation by the SEC regarding disclosures on employment matters and related issues including responding to subpoenas from the SEC. The SEC has also issued subpoenas to a number of current and former executives and other employees in connection with this matter.
On March 3, 2022, a complaint was filed in the Superior Court of the State of California, County of Los Angeles, captioned Moynihan & Moynihan v. Activision Publishing, Inc., No. 22STCV07890 (Cal. Super. Ct., L.A. Cty.). The complaint asserts claims for wrongful death, work environment sexual harassment and failure to prevent harassment in connection with the death of a female employee.
Further information about these matters, to the extent they were filed by the filing date of the 2021 10-K, can be found in the 2021 10-K, which is incorporated by reference in this proxy statement.
Unionization Efforts
Activision Blizzard’s employees in the U.S. are not covered by collective bargaining agreements. At Raven Software, one of our studios, the Communications Workers of America has filed a petition to represent a unit of employees, and the National Labor Relations Board will oversee the election process, including a determination of the appropriate set of employees who would be included in any bargaining unit (and thus participate in the election on potential unionization).
Further information about these matters can be found in the 2021 10-K, which is incorporated by reference in this proxy statement.
 
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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 89), 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
 
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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
 
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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
 
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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
 
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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);