As filed with the Securities and Exchange Commission on November 2, 1999
April 30, 2020
RegistrationNo. 333- - -------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORMS-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MICROSOFT CORPORATION
(Exact
(Exact name of registrant issuer as specified in its charter)
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Washington 7372 91-1144442
(State
(State or other jurisdiction (Primaryof incorporation)
7372
(Primary Standard Industrial I.R.S. Employer
of incorporation or Classification Code Number)
91-1144442
(I.R.S. Employer Identification No.)
organization)
Number)
One Microsoft Way
Redmond, Washington 98052-6399
(425)882-8080
(Address,
(Address, including zip code, and telephone number, including area code, of Registrant'sregistrant’s principal executive offices)
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Robert A. Eshelman
Keith R. Dolliver, Esq.
Deputy General Counsel, FinanceCorporate, External, and Operations
Legal Affairs
and Assistant Secretary
One Microsoft Way
Redmond, Washington 98052-6399
(425)882-8080
(Name,
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies
With copies to:
Linda A. Schoemaker Richard B. Dodd
Faith M. Wilson Christopher H. Cunningham
Perkins Coie LLP Preston Gates & Ellis LLP
1201 Third Avenue, 40th Floor 701 Fifth Avenue, Suite 5000
Seattle, Washington 98101-3099 Seattle, Washington 98104-7078
(206) 583-8888 (206) 623-7580
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William B. Brentani, Esq. Simpson Thacher & Bartlett LLP 2475 Hanover Street Palo Alto, California 94304 Tel: (650)251-5000 Fax: (650)251-5002 | Corey R. Chivers, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Tel: (212)310-8000 Fax: (212)310-8007 |
Approximate date of commencementproposed sale of proposed salethe securities to the public: As soon as
practicableThe offering of the securities will commence promptly following the filing of the Registration Statement. No tendered securities will be accepted for exchange until after this Registration Statement becomeshas been declared effective.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_]
☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] __________
☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] __________
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||
| Emerging growth company | ☐ | |||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule13e-4(i) (Cross Border Issuer Tender Offer) ☐
Exchange Act Rule14d-1(d) (Cross Border Third Party Tender Offer) ☐
CALCULATION OF REGISTRATION FEE
| ||||||||
| Title of Each Class of Securities to be Registered | Amount to be Registered(1) | Proposed Maximum Offering Price Per Unit(2) | Proposed Maximum Aggregate Offering Price(2) | Amount of Registration Fee(3) | ||||
New Notes due 2050 | $6,250,000,000 | 100% | $6,250,000,000 | $811,250 | ||||
New Notes due 2060 | $3,000,000,000 | 100% | $3,000,000,000 | $389,400 | ||||
Total | $9,250,000,000 | $1,200,650 | ||||||
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| ||||||||
| (1) | Represents the aggregate principal amount of |
| (2) | Represents the proposed maximum offering price of all notes to be offered in the exchange offers to which this Registration Statement relates. |
| (3) | Calculated in accordance with Rule 457(f) under the Securities Act of 1933, as amended (based on the market value of the consideration to |
The Registrant hereby amends this Registration Statement on 32,350,040 shares of common stock, par value $.001 per share, of
Visio Corporation, which is the maximum number of shares of Visio common
stock thatsuch date or dates as may be outstanding immediately priornecessary to delay its effective date until the consummationRegistrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the
transaction.
(3) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act of 1933, as amended, or until the registration fee has been calculated basedRegistration Statement shall become effective on a price of
$38.875 per share of common stock of Visio (the average of the high and
low price per share of common stock of Visiosuch date as reported on the Nasdaq
National Market on October 28, 1999), and the maximum number of shares of
such common stock that may be outstanding immediately prior to the
consummation of the transactions contemplated hereby as set forth in
footnote 2 above. Pursuant to Rule 457(b) the registration fee is reduced
by $250,116.19, which is the fee paid by Visio Corporation pursuant to
Section 14(g) of the Securities Exchange Act of 1934 in connection with
the filing on October 8, 1999 of the preliminary proxy statement for the
transaction. The remaining $99,498.78 is being paid upon the filing
hereof.
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[VISIO LOGO]
2211 Elliott Avenue
Seattle, Washington 98121
Dear Shareholder:
We cordially invite you to attend a special meeting of our shareholders,
which will be held on Monday, December 13, 1999, at 10 a.m. local time, at our
headquarters at 2211 Elliott Avenue, Seattle, Washington. At the meeting, you
will be asked to approve a merger agreement that will combine our company with
Microsoft Corporation. In the merger, you will be entitled to receive 0.45 of a
share of Microsoft common stock for each share of Visio common stock you own.
Whether or not you plan to attend the meeting, we urge you to complete, sign
and date the enclosed proxy card and return it in the enclosed postage-paid
envelope to ensure that your shares are represented at the meeting. If you
attend the meeting, you may vote in person if you wish, even though you have
previously returned your proxy card.
YOUR VOTE IS VERY IMPORTANT. The merger cannot be completed unless the
holders of at least two-thirds of the outstanding shares of Visio common stock
as of the record date approve the merger agreement. Your vote is important
because failing to vote will have the effect of voting against the merger
agreement. Only holders of Visio common stock at the close of business on
October 21, 1999 will be entitled to vote at the special meeting.
Visio's board of directors has determined that the merger is advisable and
fair to, and in the best interests of, Visio and its shareholders. The board of
directors has approved the merger agreement and unanimously recommends that you
vote "FOR" approval of the merger agreement.
Attached is a notice of special meeting to shareholders and a proxy
statement/prospectus, which describes the merger in detail. For your
convenience, the first two, blue-colored pages of the proxy
statement/prospectus contain frequently asked questions and related answers
about the proposed merger. Please review the proxy statement/prospectus
carefully. In particular, you should carefully consider the discussion in the
section entitled "Risk Factors" on page 12.
If you would like assistance in completing your proxy card, or if you have
any questions about the procedure for voting your shares described in the
attached proxy statement/prospectus, please contact Visio Investor Relations at
(206) 956-6000.
Sincerely,
/s/ Jeremy Jaech
Jeremy Jaech
President and Chief Executive
Officer
Seattle, Washington
November 5, 1999
[VISIO LOGO]
2211 Elliott Avenue
Seattle, Washington 98121
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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To the shareholders of Visio Corporation:
We will hold a special meeting of shareholders of Visio Corporation on
Monday, December 13, 1999, at 10 a.m. local time, at our headquarters at 2211
Elliott Avenue, Seattle, Washington, for the following purpose:
To consider and vote upon a proposal to approve the Agreement and Plan
of Reorganization, dated as of September 14, 1999, among Microsoft
Corporation, MovieSub, Inc., a wholly owned subsidiary of Microsoft, and
Visio. Under the merger agreement, Visio will become a wholly owned
subsidiary of Microsoft and each outstanding share of Visio common stock
(other than dissenters' shares) will be converted into the right to receive
0.45 of a share of Microsoft common stock. This proposal is more fully
described in the attached proxy statement/prospectus, which you should read
carefully.
We will conduct no other business at the Visio shareholders' special
meeting, except business that may be properly brought before the special
meeting and that is within the purpose of the special meeting described above.
We cannot complete the merger unless the holders of at least two-thirds of
the shares of Visio common stock outstanding on the record date vote to approve
the merger agreement. Holders of Visio common stock are entitled to assert
dissenters' rights with respect to the merger under chapter 23B.13 of the
Washington Business Corporation Act.
Only holders of record of Visio common stock at the close of business on
October 21, 1999, the record date, are entitled to vote at the special meeting
or any adjournment or postponement of the meeting. This notice and the attached
proxy statement/prospectus are being sent to Visio's shareholders on or about
November 5, 1999.
By Order of the Board of Directors
of Visio Corporation
Wm. Kenneth McGraw
General Counsel and Secretary
Seattle, Washington
November 5, 1999
Whether or not you plan to attend the meeting, please complete, sign and
date the enclosed proxy card and mail it promptly in the postage-paid
envelope provided. You can revoke your proxy at any time before it is
voted.
Neither the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus may change. We may not complete the exchange offers and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective.
SUBJECT TO CHANGE, DATED APRIL 30, 2020
PROSPECTUS
MICROSOFT CORPORATION
Offers to exchange Existing Notes (as defined below) and a cash payment (as described below) for up to $6,250,000,000 in Aggregate Principal Amount of New 2050 Notes (as defined below) and up to $3,000,000,000 in Aggregate Principal Amount of New 2060 Notes (as defined below) and cash payment (as described below), as applicable.
The Exchange Offers (as defined below) with respect to the Existing Notes will expire at 11:59 p.m., New York City time, on May 28, 2020, unless extended or earlier terminated by us (such date and time, as the same may be extended or earlier terminated, the “Expiration Time”). In order to be eligible to receive the Early Exchange Premium (as defined below), holders of Existing Notes must validly tender their Existing Notes at or prior to 5:00 p.m., New York City time, on May 13, 2020, unless extended by us (such date and time, as it may be extended, the “Early Exchange Time”). Tenders of Existing Notes may be validly withdrawn at any time at or prior to 11:59 p.m., New York City time, on May 28, 2020, unless extended by us, but will thereafter be irrevocable except in the limited circumstances where additional withdrawal rights are required by law.
Upon the terms and subject to the conditions set forth in this prospectus, Microsoft Corporation, a Washington corporation (“Microsoft” or the “Company”), is offering to exchange (the “Pool 1 Offer”) the ten series of notes described in the below table (collectively, the “Pool 1 Notes”) for up to $6,250,000,000 aggregate principal amount (the “New 2050 Notes Issue Cap”) of a new series of Microsoft’s notes to be due June 1, 2050 (the “New 2050 Notes”) and a cash payment, as provided herein. The aggregate principal amount of Pool 1 Notes of each series that are accepted for exchange will be based on the order of acceptance priority for such series as set forth in the table below, subject to the New 2050 Notes Issue Cap.
CUSIP | Title of | Principal Amount Outstanding (MM) | Acceptance Priority Level | Reference UST Security(1) | Bloomberg Reference Page | Fixed Spread (basis points) | Cash Payment Percent of Premium(2) | Early Exchange Premium(3)(4) | ||||||||||||||||||||||
Pool 1 Notes | ||||||||||||||||||||||||||||||
594918AX2 | 4.875% Notes due 2043 | $ | 500.0 | 1 | 30-year | FIT 1 | 110 | 100 | % | $ | 30 | |||||||||||||||||||
594918AM6 | 5.300% Notes due 2041 | $ | 1,000.0 | 2 | 30-year | FIT 1 | 105 | 100 | % | $ | 30 | |||||||||||||||||||
594918BL7 | 4.450% Notes due 2045 | $ | 3,000.0 | 3 | 30-year | FIT 1 | 110 | 100 | % | $ | 30 | |||||||||||||||||||
594918CA0 | 4.250% Notes due 2047 | $ | 3,000.0 | 4 | 30-year | FIT 1 | 110 | 100 | % | $ | 30 | |||||||||||||||||||
594918AD6 | 5.200% Notes due 2039 | $ | 750.0 | 5 | 30-year | FIT 1 | 95 | 100 | % | $ | 30 | |||||||||||||||||||
594918AJ3 | 4.500% Notes due 2040 | $ | 1,000.0 | 6 | 30-year | FIT 1 | 100 | 100 | % | $ | 30 | |||||||||||||||||||
594918AU8 | 3.750% Notes due 2043 | $ | 500.0 | 7 | 30-year | FIT 1 | 110 | 100 | % | $ | 30 | |||||||||||||||||||
594918BD5 | 3.750% Notes due 2045 | $ | 1,750.0 | 8 | 30-year | FIT 1 | 110 | 100 | % | $ | 30 | |||||||||||||||||||
594918BZ6 | 4.100% Notes due 2037 | $ | 2,500.0 | 9 | 30-year | FIT 1 | 87 | 100 | % | $ | 30 | |||||||||||||||||||
594918BK9 | 4.200% Notes due 2035 | $ | 1,000.0 | 10 | 30-year | FIT 1 | 75 | 100 | % | $ | 30 | |||||||||||||||||||
| (1) | The “30-year Reference UST Security” refers to the 2.375% U.S. Treasury Notes due November 15, 2049. |
| (2) | The “Cash Payment Percent of Premium” is the percent (as set forth with respect to each series of Pool 1 Notes in the table above) of the amount by which the Total Exchange Consideration (as defined below and calculated at the Pricing Time (as defined below) and in accordance with the formula set forth in Annex A to this prospectus, as illustrated by the hypothetical pricing example included in Annex B to this prospectus) exceeds $1,000 per $1,000 principal amount of such Pool 1 Notes. |
| (3) | Per $1,000 principal amount of Pool 1 Notes. |
| (4) | Holders who validly tender Pool 1 Notes after the Early Exchange Time but on or before the Expiration Time will not be eligible to receive the “Early Exchange Premium” of $30 principal amount of New 2050 Notes for each $1,000 principal amount of Pool 1 Notes validly tendered and not validly withdrawn. For the avoidance of doubt, the $30 per $1,000 Early Exchange Premium is included within the Total Exchange Consideration, as calculated using the Fixed Spread over the 30-year Reference UST Security as described herein, and is not in addition to the Total Exchange Consideration. |
Upon the terms and subject to the conditions set forth in this prospectus, the Company is also offering to exchange (the “Pool 2 Offer” and, together with the Pool 1 Offer, the “Exchange Offers”) the four series of notes described in the below table (collectively, the “Pool 2 Notes” and, together with the Pool 1 Notes, the “Existing Notes”) for up to $3,000,000,000 aggregate principal amount (the “New 2060 Notes Issue Cap” and, together with the New 2050 Notes Issue Cap, the “New Issue Cap”) of a new series of Microsoft’s notes to be due June 1, 2060 (the “New 2060 Notes” and, together with the New 2050 Notes, the “New Notes”) and a cash payment, as provided herein. The aggregate principal amount of Pool 2 Notes of each series that are accepted for exchange will be based on the order of acceptance priority for such series as set forth in the below table, subject to the New 2060 Notes Issue Cap.
CUSIP | Title of | Principal Amount Outstanding (MM) | Acceptance Priority Level | Reference UST Security(1) | Bloomberg Reference Page | Fixed Spread (basis points) | Cash Payment Percent of Premium(2) | Early Exchange Premium(3)(4) | ||||||||||||||||||||||
Pool 2 Notes | ||||||||||||||||||||||||||||||
594918BM5 | 4.750% Notes due 2055 | $ | 1,000.0 | 1 | 30-year | FIT 1 | 125 | 70 | % | $ | 30 | |||||||||||||||||||
594918BE3 | 4.000% Notes due 2055 | $ | 2,250.0 | 2 | 30-year | FIT 1 | 125 | 100 | % | $ | 30 | |||||||||||||||||||
594918CB8 | 4.500% Notes due 2057 | $ | 2,000.0 | 3 | 30-year | FIT 1 | 125 | 70 | % | $ | 30 | |||||||||||||||||||
594918BU7 | 3.950% Notes due 2056 | $ | 2,250.0 | 4 | 30-year | FIT 1 | 125 | 90 | % | $ | 30 | |||||||||||||||||||
| (1) | The “30-year Reference UST Security” refers to the 2.375% U.S. Treasury Notes due November 15, 2049. |
| (2) | The “Cash Payment Percent of Premium” is the percent (as set forth with respect to each series of Pool 2 Notes in the table above) of the amount by which the Total Exchange Consideration (calculated at the Pricing Time and in accordance with the formula set forth in Annex A to this prospectus, as illustrated by the hypothetical pricing example included in Annex B to this prospectus) exceeds $1,000 per $1,000 principal amount of such Pool 2 Notes. |
| (3) | Per $1,000 principal amount of Pool 2 Notes. |
| (4) | Holders who validly tender Pool 2 Notes after the Early Exchange Time but on or before the Expiration Time will not be eligible to receive the “Early Exchange Premium” of $30 principal amount of New 2060 Notes for each $1,000 principal amount of Pool 2 Notes validly tendered and not validly withdrawn. For the avoidance of doubt, the $30 per $1,000 Early Exchange Premium is included within the Total Exchange Consideration, as calculated using the Fixed Spread over the 30-year Reference UST Security as described herein, and is not in addition to the Total Exchange Consideration. |
Set forth below is a table summarizing the terms of the New Notes offered in the Exchange Offers:
Title of Series | Maturity Date | Aggregate | Benchmark | Spread to | Redemption at | |||||
| New 2050 Notes | June 1, 2050 | An amount of Pool 1 Notes such that the aggregate principal amount of New 2050 Notes issued does not exceed $6,250.0. | 2.375% U.S. Treasury Notes due November 15, 2049 | +125 bps | The New 2050 Notes may be redeemed in accordance with the Optional Redemption provisions set forth in this prospectus. See “Description of the New Notes—Optional Redemption.” | |||||
| New 2060 Notes | June 1, 2060 | An amount of Pool 2 Notes such that the aggregate principal amount of New 2060 Notes issued does not exceed $3,000.0. | 2.375% U.S. Treasury Notes due November 15, 2049 | +140 bps | The New 2060 Notes may be redeemed in accordance with the Optional Redemption provisions set forth in this prospectus. See “Description of the New Notes—Optional Redemption.” | |||||
See Annex B for a hypothetical pricing example for calculation of the Total Exchange Consideration and the Exchange Consideration (as defined in this prospectus). We may, at our option, elect to increase or decrease the principal amount of New Notes exchangeable for each $1,000 principal amount of the applicable Existing Notes tendered and accepted by up to $100 per $1,000 principal amount. Such adjustments would affect the composition, but not the amount, of the Total Exchange Consideration and the Exchange Consideration. We expect any such election to be made as of the Pricing Time, which is scheduled to be the 10th business day prior to the Expiration Time.
The Exchange Offers will expire at 11:59 p.m., New York City time, on May 28, 2020, unless extended by us (such date and time, as they may be extended, the “Expiration Time”). To be eligible to receive the Early Exchange Premium, holders must validly tender their Existing Notes at or prior to 5:00 p.m., New York City time, on May 13, 2020, unless extended by us (such date and time, as they may be extended, the “Early Exchange Time”). Tenders of Existing Notes in the Exchange Offers may be validly withdrawn at any time at or prior to the Expiration Time, but will thereafter be irrevocable, except in certain limited circumstances where additional withdrawal rights are required by law.
The consummation of each Exchange Offer is subject to, and conditional upon, the satisfaction or, where permitted, the waiver of the conditions discussed under “Description of the Exchange Offers—Conditions to the Exchange Offers,” including, among other things, the registration statement on FormS-4 of which this prospectus forms a part having been declared effective by the Securities and Exchange Commission (the “SEC”) on or prior to the Expiration Time and remaining effective on the Settlement Date (as defined in this prospectus). We may, at our option waive any such conditions at or by the Expiration Time, except the condition that the registration statement of which this prospectus forms a part has been declared effective by the SEC on or prior to the Expiration Time and remains effective on the Settlement Date. For information about other conditions to our obligations to complete the Exchange Offers, see “Description of the Exchange Offers—Conditions to the Exchange Offers.”
For a discussion of factors you should consider in determining whether to tender your Existing Notes in connection with the Exchange Offers, see the information under “Risk Factors” beginning on page 12 of this prospectus and in our Annual Report on Form10-K and Quarterly Reports on Form10-Q, which are incorporated by reference into this prospectus.
None of Microsoft, the Dealer Managers, the Exchange Agent and Information Agent (each as defined in this prospectus) for the Exchange Offers, or the trustee under the Indenture (as defined in this prospectus), or any other person makes any recommendation as to whether you should exchange your Existing Notes in the Exchange Offers.
Neither the SEC nor any state securities regulatorcommission has approved or disapproved of these securities or passed upon the Microsoft common stock to be
issued in connection with the mergeraccuracy or determined ifadequacy of this proxy
statement/prospectus is truthful or accurate.prospectus. Any representation to the contrary is a criminal offense.
PROXY STATEMENT/PROSPECTUS
CONTENTS
The Joint Lead Dealer Managers for the Exchange Offers are:
| BofA Securities | Deutsche Bank Securities |
The date of this prospectus is April 30, 2020.
The Exchange Offers
As of April 29, 2020, the aggregate principal amounts of Pool 1 Notes and Pool 2 Notes outstanding were $15,000.0 million and $7,500.0 million, respectively. The aggregate principal amount of New Notes to be issued pursuant to the Exchange Offers will be subject to the applicable New Issue Cap (as described below). We may in our sole discretion, subject to applicable law, increase either or both of the New 2050 Notes Issue Caps or the New 2060 Notes Issue Cap. The principal amount of each series of Existing Notes to be accepted pursuant to the Exchange Offers will be subject to the “acceptance priority level” (in numerical priority order) of such series as set forth in the applicable table on the front cover of this prospectus.
With respect to Existing Notes tendered in an Exchange Offer, and not validly withdrawn prior to the Expiration Time, such Existing Notes of a series having a higher acceptance priority level for such Exchange Offer will be accepted for exchange before any such Existing Notes of a series having a lower acceptance priority level. If acceptance of all validly tendered Existing Notes of a series would not result in us issuing New Notes having an aggregate principal amount in excess of the applicable New Issue Cap, we will accept all validly tendered Existing Notes of such series. If acceptance of all validly tendered Existing Notes of a series would result in us issuing New Notes having an aggregate principal amount in excess of the applicable New Issue Cap, the tendered Existing Notes of such series will be accepted subject to proration as described more fully in this prospectus.
The completion of the Exchange Offers for each series of Existing Notes is subject to, and conditional upon, the satisfaction or waiver of certain conditions, including, among other things, (i) the registration statement on FormS-4 of which this prospectus forms a part having been declared effective by the SEC on or prior to the Expiration Time and remaining effective on the Settlement Date; (ii) the condition that, as of the Pricing Time, the combination of the yield of the New Notes and the Total Exchange Consideration for the applicable series of Existing Notes would result in the New Notes and such Existing Notes not being treated as “substantially different” under FASB Accounting Standards Codification (“ASC”)470-50 (the “Accounting Treatment Condition”); (iii) the requirement, with respect to the Exchange Offers of New Notes for Existing Notes, that we issue at least (a) $500,000,000 aggregate principal amount of New 2050 Notes and (b) $500,000,000 aggregate principal amount of New 2060 Notes; (iv) the Yield Condition (as defined below) (for any applicable series of Existing Notes); and (v) that nothing has occurred or may occur that would or might, in our reasonable judgment, be expected to prohibit, prevent, restrict or delay an Exchange Offer or delay the scheduled Pricing Time or impair us from realizing the anticipated benefits of an Exchange Offer. We may, at our option, waive any such conditions at or by the Expiration Time, except the condition that the registration statement of which this prospectus forms a part has been declared effective by the SEC on or prior to the Expiration Time and remains effective on the Settlement Date. The “Settlement Date” will promptly follow the Expiration Time and is expected to be June 1, 2020, which is the merger?
A:second business day following the Expiration Time. Tendering holders of Existing Notes must tender Existing Notes in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. New Notes will be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.
In our sole discretion and subject to applicable law, we reserve the right to remove one or more series of Existing Notes from the Exchange Offers if we determine that the Accounting Treatment Condition or the Yield Condition for such series of Existing Notes will not be achieved. Any such decision will be determined as of the Pricing Time and would be announced with the pricing terms. In the merger, Visio Corporationevent we remove a particular series of Existing Notes from an Exchange Offer, the acceptance priority level for any series of Existing Notes below such series of notes removed will mergebe adjusted accordingly.
i
The Yield Condition
Notwithstanding any other provision in this prospectus to the contrary, if, at the Pricing Time, the yield of the 30-year Reference UST Security with a wholly owned
subsidiaryrespect to any series of Microsoft Corporation and become a wholly owned subsidiary
of Microsoft.
Q: Why are Microsoft and Visio proposing to merge?
A: The merger will expand Microsoft's product offerings to include Visio's
productsExisting Notes (as set forth in the markettable below) is less than the applicable minimum yield or is greater than the applicable maximum yield with respect to such series of Existing Notes, then, unless this condition is waived by us, we will not accept for general purpose diagramming tools. These
products are a natural complementexchange, or issue the applicable series of New Notes in exchange for, any Existing Notes of such series tendered in the Exchange Offers (the “Yield Condition”).
Title of Security | Reference UST Security | Minimum Yield | Maximum Yield | |||||||
Pool 1 Notes | ||||||||||
| 4.875% Notes due 2043 | 2.375% due November 15, 2049 | 0.40% | 2.35% | |||||||
| 5.300% Notes due 2041 | 2.375% due November 15, 2049 | 0.40% | 2.35% | |||||||
| 4.450% Notes due 2045 | 2.375% due November 15, 2049 | 0.40% | 2.00% | |||||||
| 4.250% Notes due 2047 | 2.375% due November 15, 2049 | 0.40% | 2.00% | |||||||
| 5.200% Notes due 2039 | 2.375% due November 15, 2049 | 0.40% | 2.35% | |||||||
| 4.500% Notes due 2040 | 2.375% due November 15, 2049 | 0.40% | 2.35% | |||||||
| 3.750% Notes due 2043 | 2.375% due November 15, 2049 | 0.40% | 2.35% | |||||||
| 3.750% Notes due 2045 | 2.375% due November 15, 2049 | 0.40% | 2.35% | |||||||
| 4.100% Notes due 2037 | 2.375% due November 15, 2049 | 0.40% | 2.35% | |||||||
| 4.200% Notes due 2035 | 2.375% due November 15, 2049 | 0.40% | 2.35% | |||||||
Pool 2 Notes | ||||||||||
| 4.750% Notes due 2055 | 2.375% due November 15, 2049 | 0.40% | 2.25% | |||||||
| 4.000% Notes due 2055 | 2.375% due November 15, 2049 | 0.40% | 2.35% | |||||||
| 4.500% Notes due 2057 | 2.375% due November 15, 2049 | 0.40% | 2.10% | |||||||
| 3.950% Notes due 2056 | 2.375% due November 15, 2049 | 0.40% | 1.80% | |||||||
Total Exchange Consideration and Exchange Consideration
Upon the terms and subject to the Microsoft Office business. For
Visio's shareholders,conditions set forth in this prospectus:
If you validly tender Existing Notes prior to the merger offersEarly Exchange Time and do not validly withdraw such tendered Existing Notes prior to the opportunity to receive a
significant premium over the market price that existed for shares of Visio
common stock before the public announcement of the merger. The merger also
offers Visio's shareholders the opportunity to continue to participate in
the growth of the business conductedExpiration Time, and such Existing Notes are accepted by Microsoft and Visio following the
merger and to benefit from the potential appreciation in value of
Microsoft common stock.
Q: What will I receive in the merger?
A: You will receive 0.45 of a share of Microsoft common stock for each share
of Visio common stock you own. For example, if you own 100 shares of
Visio common stock,us, you will receive, 45 sharesfor each $1,000 principal amount of Microsoft common stock.
MicrosoftExisting Notes tendered and accepted, a combination of a principal amount of New Notes and cash with an aggregate value equal to the Total Exchange Consideration as follows:
| (i) | an aggregate principal amount of New Notes equal to (a) the Total Exchange Consideration for such Existing Notes minus (b) the Cash Component (as defined below); and |
| (ii) | a cash payment equal to the Cash Component. |
If you validly tender Existing Notes after the Early Exchange Time, but prior to the Expiration Time, and such Existing Notes are accepted by us, you will receive, for each $1,000 principal amount of Existing Notes tendered and accepted, a combination of a principal amount of New Notes and cash with an aggregate value equal to the Exchange Consideration as follows:
| (i) | an aggregate principal amount of New Notes equal to (a) the Total Exchange Consideration for such Existing Notes minus (b) the Cash Component minus (c) the Early Exchange Premium; and |
| (ii) | a cash payment equal to the Cash Component. |
ii
The Total Exchange Consideration and Exchange Consideration may be adjusted as described below.
In addition to the Total Exchange Consideration or Exchange Consideration, as applicable, holders with Existing Notes that are accepted for exchange will receive a cash payment representing (i) all or a portion of the accrued and unpaid interest to, but not issue fractional shares of its common stock. Insteadincluding, the Settlement Date and (ii) amounts due in lieu of any fractional share, you will receive cash based onamounts of New Notes, in each case, as described herein. As DTC (as defined below) is the average
market price of Microsoft common stock over a specified period of time
before the closingrecord holder of the merger.
Stock options to purchase shares of Visio common stock will be assumed by
Microsoft and will automatically become options to purchase shares of
Microsoft common stock on the same terms and conditions as the assumed
Visio options. The number of shares subject to each option and the
exercise price per share will be adjusted to reflect the 0.45 exchange
ratio. Except for accelerated vesting of options granted to nonemployee
Visio directors, option vesting schedules will not be affected by the
merger.
Q: What vote is required to approve the merger?
A: TheExisting Notes, all holders of at least two-thirds of the outstanding shares of Visio
common stock must approve the merger agreement. Microsoft shareholders
are not required to approve the mergerany Existing Notes will also receive any applicable accrued and will not voteunpaid interest on the merger.
You are entitled to cast one vote per share of Visio common stock you
owned at the close of business on October 21, 1999, the record date.
Q: Does the board of directors of Visio recommend votingthose Existing Notes in favor of the merger
agreement?
A: Yes. After careful consideration, Visio's board of directors has
determined that the terms of the merger are fair to, and in the best
interests of, Visio and its shareholders and unanimously recommends that
you vote in favor of the merger agreement.
Q: Are there risks I should consider in deciding whether to vote for the merger?
A: Yes. For example, Visio shareholders will receive 0.45 of a share of
Microsoft common stock for each share of Visio common stock they own,accordance with DTC procedures, regardless of the market price of either Microsoft common stock or Visio
common stock at the effective time of the merger. The market value of
Microsoft common stock is likely to fluctuate, and no one can accurately
predict what the market value will be either at the effective time of the
merger or after the merger. In evaluating the merger, you should
carefully consider this and other factors discussed in the section
entitled "Risk Factors" on page 12.
1
Q: What do I need to do now?
A: You should cast your vote on the merger agreement by completing, signing
and dating your proxy card. You should return your completed proxy card
as soon as possible in the enclosed postage-paid envelope. If you return
your signed proxy card but do not include instructions on how to vote,
your shares will be voted "FOR" approval of the merger agreement. You can
also attend the special meeting and vote in person.
If you abstain from voting or do not vote, it will have the effect of
voting against approval of the merger agreement.
THE BOARD OF DIRECTORS OF VISIO UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT.
Q: What do I do if I want to change my vote?
A: You can change your vote at any time before your proxy is voted at the
special meeting, in one of three ways. First, you can send ChaseMellon
Shareholder Services, L.L.C., the firm that Visio has retained to provide
proxy solicitation services, a written notice stating that you would like
to revoke your proxy. Second, you can complete and send a later-dated
signed proxy card to ChaseMellon. Third, you can attend the special
meeting and vote in person.
Q: If my Visio shares are held in "street name" by my broker, will my broker
vote my shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should fill out the voter instruction form sent to you by
your broker with this proxy statement/prospectus. If you do not give
instructions to your broker, your shares will not be voted, which will
have the effect of voting against the merger.
Q: Should I send in my Visio stock certificates now?
A: No. After the merger is completed, we will send you written instructions
for exchanging your Visio stock certificates for Microsoft stock
certificates. Please do not send in your stock certificates with your
proxy card.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible. We
hope to complete the merger in late December 1999 or January 2000, if
regulatory approvals and other required matters are completed at that
time.
Q: Will I recognize a taxable gain or loss on the transaction?
A: We expect that if the merger is completed, you will not recognize a gain
or loss for United States federal income tax purposes as a result of the
merger, except that you will recognize a gain or lossrecord dates with respect to cash received insteadeach series of Existing Notes.
The “Pricing Time” will be 10:00 a.m., New York City time, on May 14, 2020, unless the Early Exchange Time is extended, in which case a fractional share. However, we urge younew Pricing Time may be established with respect to consult your own tax advisorthe Exchange Offers. In the event that the Early Exchange Time is not extended, the Pricing Time will remain the same.
The “Total Exchange Consideration” (calculated at the Pricing Time and in accordance with the formula set forth in Annex A to determinethis prospectus, as illustrated by the tax consequences particularhypothetical pricing example included in Annex B to your situation.
Q: Whom should I call with questions?
A: If you have any questions aboutthis prospectus) for the merger or if you need additional
copiesExisting Notes validly tendered prior to the Early Exchange Time, and not validly withdrawn prior to the Expiration Time, is equal to the discounted value on the Settlement Date of the proxy statement/prospectus, you should contact:
Visio Investor Relations
2211 Elliott Avenue, Seattle, Washington 98121
(206) 956-6000
You may also obtain additional information about Microsoftremaining payments of principal and Visio from
documents we file with the Securities and Exchange Commission, by
following the instructions in the section entitled "Where you can find
more information" on page 50.
2
SUMMARY OF THIS PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy
statement/prospectus and may not contain allinterest per $1,000 principal amount of the information that is
important to you. To understandExisting Notes through the merger fully and for a more complete
descriptionapplicable maturity date or par call date (as applicable) of the legal terms ofExisting Notes, using a yield equal to the merger, you should carefully read this
entire proxy statement/prospectus andsum of: (i) the other documents to which we refer
you. We have included page references in parentheses to direct you to a more
complete description of some of the topics presented in this summary.
The Companies
[MICROSOFT LOGO]
Microsoft Corporation
One Microsoft Way
Redmond, Washington 98052
(425) 882-8080
http://www.microsoft.com
Microsoft Corporation develops, manufactures, licenses and supports a wide
range of software products for a multitude of computing devices. Microsoft
software includes scalable operating systems for intelligent devices, personal
computers and servers, server applications for client/server environments,
knowledge worker productivity applications and software development tools.
Microsoft's online efforts include the MSN(TM) network of Internet products and
services, e-commerce platforms and alliances with companies involved with
broadband access and various forms of digital interactivity. Microsoft also
licenses consumer software programs, sells personal computer input devices,
trains and certifies system integrators, and researches and develops advanced
technologies for future software products.
Microsoft's business strategy emphasizes the development of a broad line of
software products for information technology professionals, knowledge workers,
developers and consumers, marketed through multiple channels of distribution.
Microsoft recently announced its results for the first quarter of fiscal
2000, ended September 30, 1999. Net income for the quarter was $2.19 billion
and diluted earnings per share were $0.40. Revenues totaled $5.38 billion, a
28% increase over $4.19 billion for the comparable quarter of the prior year.
The current quarter's results include a gain of $156 millionbid-side yield on the sale30-year Reference UST Security set forth with respect to each series of Existing Notes on the entertainment city guidefront cover of this prospectus plus (ii) the applicable fixed spread set forth with respect to each series of Existing Notes on the front cover of this prospectus, minus accrued and unpaid interest on such series of Existing Notes to but not including the Settlement Date. For the avoidance of doubt, the $30 per $1,000 Early Exchange Premium is included within the Total Exchange Consideration, as calculated using the Fixed Spread over the 30-year Reference UST Security as described herein, and is not in addition to the Total Exchange Consideration.
The “Cash Component” means the portion of the MSN(TM) Sidewalk(R) online guide, while
the results for the first quarter of fiscal 1999 include a gain of $160 million
on the sale of Microsoft's Softimage subsidiary. Excluding the sale of these
businesses, net income for the quarter rose 37% and diluted earnings per share
grew 36% to $0.38, from $0.28. Including the gains on the sales, diluted
earnings per share grew 29%.
For additional information about Microsoft's business, see Microsoft's
Annual Report on Form 10-K for the fiscal year ended June 30, 1999 and other
documents Microsoft has filed with the SEC, which are incorporated into this
proxy statement/prospectus by reference. See "Where you can find more
information" on page 50. The information on Microsoft's Web site is not part of
this proxy statement/prospectus.
3
[VISIO LOGO]
Visio Corporation
2211 Elliott Avenue
Seattle, Washington 98121
(206) 956-6000
http://www.visio.com
Visio Corporation is a leading supplier of business drawing and diagramming
software. Visio software, introduced in 1992, enables business and technical
users to create drawings and diagrams using a drag-and-drop approach. Customers
use Visio's software for creating drawings and diagrams ranging from simple
diagrams, such as flowcharts, block diagrams and organizational charts, to
complex technical drawings, such as space plans, electrical schematics and
network designs. Visio's flexible product architecture and powerful graphics
engine allow organizations to standardize on a single, easy-to-use drawing
technology that meets a broad range of business drawing and diagramming needs,
and thereby realize savings on purchasing, training and support.
Visio recently announced its financial results for the fourth quarter and
fiscal year ended September 30, 1999. Revenues for the quarter ended September
30, 1999 were $50.1 million, a 13% increase over revenues for the fourth
quarter of fiscal 1998 of $44.2 million. Net income for the fourth quarter of
fiscal 1999 was $9.5 million, excluding merger-related expenses net of taxes,
compared to net income for the fourth quarter of fiscal 1998 of $9.8 million,
excluding acquisition-related expenses net of taxes. Diluted earnings per share
for the fourth quarter of fiscal 1999, excluding merger-related expenses, were
$0.30, compared to diluted earnings per share for the fourth quarter of fiscal
1998 of $0.31, excluding acquisition-related expenses.
Revenues for fiscal year 1999 were $200.0 million, a 20% increase over
fiscal 1998 revenues of $166.0 million. Net income for fiscal 1999, excluding
merger-related expenses net of taxes, was $39.8 million, compared to net income
for fiscal 1998, excluding acquisition- and acquired technology-related
expenses, of $35.0 million. Diluted earnings per share for fiscal 1999,
excluding merger-related expenses, were $1.27, compared to diluted earnings per
share for fiscal 1998, excluding acquisition- and acquired technology-related
expenses, of $1.10. Net income for the fourth quarter of fiscal 1999, including
the merger-related charges, was $8.4 million and diluted earnings per share
were $0.27. Net income for fiscal 1999, including the merger-related charges,
was $38.7 million and diluted earnings per share were $1.23.
For additional information about Visio's business, see Visio's Annual Report
on Form 10-K for the fiscal year ended September 30, 1998 and other documents
Visio has filed with the SEC, which are incorporated into this proxy
statement/prospectus by reference. See "Where you can find more information" on
page 50. The information on Visio's Web site is not part of this proxy
statement/prospectus.
4
Summary of the Transaction
The merger (page 28)
In the merger, Visio and a wholly owned subsidiary of Microsoft will merge
and Visio will become a wholly owned subsidiary of Microsoft.
The merger agreement, as amended, is attached to this proxy
statement/prospectus as Annex A. We encourage you to carefully read the merger
agreement and the discussion of the merger and merger agreement in this proxy
statement/prospectus.
Visio's reasons for the merger; recommendation of Visio's board of directors
(pages 21, 22)
Visio's board of directors believes the merger will provide several benefits
to Visio's shareholders, including:
. the opportunity for Visio's shareholders to receive a significant premium
over the market price for shares of Visio common stock existing before
the public announcement of the merger; and
. the ability of Visio's shareholders to continue to participate in the
growth of the business conducted by Microsoft and Visio following the
merger and to benefit from the potential appreciation in value of shares
of Microsoft common stock.
These potential benefits, however, may not be achieved. In addition, there
are potential risks related to the merger, including:
. the risk that the merger may not be consummated and the effect of the
public announcement of the merger on Visio's sales and operating results
and Visio's ability to attract and retain key management, marketing,
technical, sales and other personnel; and
. the possibility that the market value of Microsoft common stock might
decrease, causing less aggregate valueTotal Exchange Consideration to be paid to Visio's
shareholders.
After careful consideration, Visio's boardholders in cash and is equal to (i) the applicable Cash Payment Percent of directors approvedPremium for such series of Existing Notes multiplied by (ii) (a) the merger
agreement and unanimously recommends that you vote "FOR" approvalapplicable Total Exchange Consideration for such series of Existing Notes minus (b) $1,000.
The “Cash Payment Percent of Premium” is the percent (as set forth with respect to each series of Existing Notes on the front cover of this prospectus) of the merger
agreement.
Merger consideration (page 28)
Youamount by which the Total Exchange Consideration (as calculated at the Pricing Time and in accordance with the formula set forth in Annex A to this prospectus, as illustrated by the hypothetical pricing example included in Annex B to this prospectus) exceeds $1,000 per $1,000 principal amount of such Existing Notes.
The “Exchange Consideration” for the Existing Notes validly tendered after the Early Exchange Time but prior to the Expiration Time is equal to the Total Exchange Consideration minus the applicable Early Exchange Premium.
See “Description of the Exchange Offers—Total Exchange Consideration and Exchange Consideration.”
Early Exchange Premium
To encourage holders of Existing Notes to tender prior to the Early Exchange Time, the Total Exchange Consideration includes an Early Exchange Premium of $30 principal amount of New 2050 Notes or $30 principal amount of New 2060 Notes, as applicable, for each $1,000 principal amount of Existing Notes validly tendered and not validly withdrawn (the “Early Exchange Premium”). Only holders who validly tender their Existing Notes prior to the Early Exchange Time (and who do not validly withdraw prior to the Expiration Time), and whose tenders are accepted for exchange pursuant to the Exchange Offers, will receive the Early Exchange Premium.
iii
Upon the terms and subject to the conditions set forth in this prospectus, holders who validly tender their Existing Notes after the Early Exchange Time but prior to the Expiration Time, and whose tenders are accepted for exchange by us, will receive only the Exchange Consideration, which does not include the Early Exchange Premium.
The “Early Exchange Time” is 5:00 p.m., New York City time, on May 13, 2020, unless extended, in which case the Early Exchange Time will be entitledsuch time and date to receive 0.45which the Early Exchange Time is extended. The “Expiration Time” is 11:59 p.m., New York City time, on May 28, 2020, unless extended, in which case the Expiration Time will be such time and date to which the Expiration Time is extended.
See “Description of a sharethe Exchange Offers—Total Exchange Consideration and Exchange Consideration—Early Exchange Premium.”
Adjustment of Microsoft common stockthe Total Exchange Consideration and Exchange Consideration
We may, at our option, elect to increase or decrease the principal amount of (i) New 2050 Notes exchangeable for each share of Visio common stock you own. Instead of issuing fractional
shares of stock, Microsoft will pay cash for fractional shares based on the
average market price of Microsoft common stock over a specified period of time
before the closing$1,000 principal amount of the merger.
Treatmentapplicable Pool 1 Notes tendered and accepted by up to $100 per $1,000 principal amount and (ii) New 2060 Notes exchangeable for each $1,000 principal amount of options (page 29)
Outstanding optionsthe applicable Pool 2 Notes tendered and accepted by up to purchase shares$100 per $1,000 principal amount. Such adjustments would affect the composition, but not the amount, of Visio common stock will be assumed
by Microsoft and will automatically become options to purchase shares of
Microsoft common stock on the same terms and conditions as the Visio options.
The number of shares subject to each optionTotal Exchange Consideration and the exercise price per share
will be adjusted to reflect the 0.45 exchange ratio. Except for accelerated
vesting of options granted to nonemployee Visio directors, option vesting
schedules will not be affected by the merger.
Treatment of employee stock purchase and benefit plans (page 29)
Visio's 1995 Employee Stock Purchase Plan will be terminated the day before
the merger becomes effective. On that date, all funds that have been withheld
from the wages of Visio employeesExchange Consideration for the purchase of Visio common stock under
the plan willapplicable Existing Notes. We expect any such election to be applied to a final purchase under the plan.
5
Immediately before the effective time of the merger, Visio will terminate or
modify according to Microsoft's direction all of Visio's employee benefit
plans. Microsoft has agreed to offer Visio employees who remain at Microsoft
benefits commensurate with the benefits it gives to similarly situated
Microsoft employees.
Opinion of Visio's financial advisor (page 22; Annex C)
In deciding to approve the merger, Visio's board of directors considered an
opinion from its financial advisor, Morgan Stanley & Co., as to the fairness of
the exchange ratio from a financial point of view to holders of Visio common
stock.
Visio special meeting (page 16)
The special meeting of Visio's shareholders will be held on Monday, December
13, 1999, at 10 a.m. local time, at Visio's headquarters, located at 2211
Elliott Avenue, Seattle, Washington. At the meeting, you will be asked to
approve a merger agreement that will cause Visio to become a wholly owned
subsidiary of Microsoft. You can vote at the special meeting only if you owned
shares of Visio common stock at the close of business on October 21, 1999, the
record date.
Votes required for approval (page 16)
The holders of at least two-thirds of the outstanding shares of Visio common
stock must approve the merger agreement. Visio's shareholders are entitled to
cast one vote for each share of Visio common stock they ownedmade as of the record
date. Visio's directorsPricing Time, which is scheduled to be the 10th business day prior to the Expiration Time.
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As used in this prospectus, unless otherwise stated or the context otherwise requires, “we,” “us,” the “Company,” “our,” or “Microsoft” means Microsoft Corporation and executive officers, who collectively held
approximately 14% of Visio's outstanding common stock asits consolidated subsidiaries. However, in the “Description of the record date,
have agreedNew Notes” and related summary sections of this prospectus, references to vote their shares in favor of the merger.
Microsoft's shareholders“we,” “us” and “our” are not required to approve the mergerMicrosoft Corporation (parent company only) and will not
vote on the merger.
Conditions to completion of the merger (page 35)
Visio's and Microsoft's respective obligations to effect the merger are
subject to the prior satisfaction or waiver of specific conditions. The
conditions that must be satisfied or waived before the completion of the merger
include the following, subject to exceptions and qualifications:
. Visio's shareholders approve the merger agreement as required by
Washington law;
. no statute, regulation, order, decree or injunction prevents the merger;
. Visio and Microsoft receive all material consents and approvals for the
merger;
. Visio's and Microsoft's respective representations and warranties in the
agreement are true and correct except in respects that do not have a
material adverse effect;
. no material adverse change has occurred with respect to Visio's business
condition or the economic or business benefits expected from the merger;
. both Visio and Microsoft materially perform their obligations under the
merger agreement;
. both Visio and Microsoft receive required legal opinions, including
opinions that the merger will be treated for federal income tax purposes
as a tax-free reorganization; and
. Microsoft receives a letter from Ernst & Young LLP regarding that firm's
concurrence with the conclusion of Visio's management that Visio meets
the conditions necessary for it to enter into the business combination
accounted for as a pooling of interests.
If all of the conditions to closing are satisfied before December 30, 1999,
Microsoft may elect to postpone the closing to a date not later than December
30, 1999. If Microsoft so elects, the obligations of the parties to effect the
merger will no longer be subject to any of its subsidiaries. References herein to “$” are to the conditions to closing.
6
No other negotiations involving Visio (page 38)
Until the merger is completed or the merger agreement is terminated, Visio
has agreed, with limited exceptions, not to directly or indirectly take anylawful currency of the following actions withUnited States.
No person is authorized to give any partyinformation or to make any representations other than Microsoft:
. solicit, knowingly encourage, initiate or participate in any
negotiations, inquiries or discussions regarding any offer or proposal to
acquire all or any significant part of Visio's business, assets or
capital shares;
. enter into any agreement related to such an acquisition;
. make any public statement, recommendation or solicitation in support of
such an acquisition; or
. disclose any customarily nonpublic information about Visio in connection
with such an acquisition.
However, Visio's board of directors may recommend to shareholders that they
tender their shares in connection with a tender offer by an acquiror other than
Microsoft if the board determines in good faith that its fiduciary duty to its
shareholders requires such a recommendation. In addition, the board can give
information to a third party which has made an unsolicited acquisition proposal
that the board reasonably believes is financially more favorable to Visio and
its shareholders than the merger with Microsoft.
Visio has agreed that it will inform Microsoft of the status and details of
any unsolicited acquisition proposal or request for disclosure of or access to
nonpublic information that it receives.
Termination of the merger agreement (page 39)
Even if Visio's shareholders approve the merger agreement, Microsoft and
Visio can agree at any time to terminate the merger agreement without
completing the merger. In addition, subject to qualifications, the merger
agreement may be terminated by either Visio or Microsoft under any of the
following circumstances:
. if the merger is not completed by March 31, 2000 (subject to extension to
September 30, 2000, if Microsoft and Visio have agreed to pursue
litigation against any administrative or judicial action or proceeding
challenging the merger on the basis that it violates antitrust law);
. if Visio's shareholders do not approve the merger agreement;
. if the other party materially breaches a representation, warranty,
covenant or agreement in the merger agreement and the breach has a
material adverse effect on the nonbreaching party and cannot reasonably
be cured; or
. if a final court order prohibiting the merger is issued and is not
appealable.
In addition, the merger agreement may also be terminated by Microsoft if:
. Visio's board modifies or withdraws its approval or recommendation of the
merger; or
. Visio or its representatives engage in the prohibited behavior, described
above, regarding potential acquisitions of Visio by parties other than
Microsoft and that action has a material adverse effect on Visio's
business condition.
Termination fee (page 39)
Visio must pay Microsoft a termination fee of $30 million if Microsoft is
not then in material breach of the merger agreement and Microsoft terminates
the merger agreement for any of the following reasons:
. Visio or its representatives engage in the prohibited behavior, described
above, regarding potential acquisitions of Visio by parties other than
Microsoft;
. Visio's board of directors withdraws or modifies in a manner adverse to
Microsoft its approval or recommendation of the merger and Visio agrees
to an acquisition by a party other than Microsoft in a
7
transaction that will result in a change in the beneficial ownership of
more than 50% of the voting power of Visio's capital stock; or
. Visio willfully breaches a material provision of the merger agreement and
that breach has not been cured.
The stock option agreement (page 41; Annex B)
Visio has entered into a stock option agreement with Microsoft granting
Microsoft the option, under specific conditions, to buy up to 6,012,500 shares
of Visio common stock, or 19.9% of Visio's issued and outstanding shares as of
September 14, 1999. The exercise price of the option is $42.78 per share.
The option becomes exercisable only if the merger agreement is terminated in
circumstances giving rise to payment of the termination fee described above.
The option will terminate on the earlier of the completion of the merger and
the termination of the merger agreement in circumstances under which the
termination fee is not payable.
The sum of Microsoft's total profit arising from the provisions of the
option agreement and the termination fee provided for in the merger agreement
may not exceed $50 million.
Visio management voting agreements (page 42)
As a condition to the merger, Microsoft required Visio's directors and
executive officers, who collectively held approximately 14% of Visio's
outstanding common stock as of October 21, 1999, the record date, to enter into
voting agreements with Microsoft. The voting agreements require Visio's
directors and executive officers to vote all the shares of Visio common stock
beneficially owned by them in favor of the merger agreement. Visio's directors
and executive officers also agreed not to sell or otherwise dispose of any
shares of Visio common stock they own or acquire until the expiration of the
voting agreement, unless the sale would not, in Microsoft's reasonable
judgment, violate the SEC's pooling-of-interests rules.
Interests of Visio's directors and executive officers in the merger (page 29)
When considering the recommendation of Visio's board of directors, you
should be aware that some of Visio's directors and executive officers have
interests in the merger that are different from, or in addition to, yours.
These include indemnification rights, potential acceleration of option vesting
and other benefits and payments under certain agreements and employee benefit
and retention plans. Visio's board of directors was aware of and considered the
interests of Visio's directors and executive officers in approving the merger
agreement and recommending that Visio's shareholders approve the merger
agreement.
Restrictions on the ability to sell Microsoft stock (page 31)
All shares of Microsoft common stock received by you in connection with the
merger will be freely transferable unless you are considered an affiliate of
either Visio or Microsoft under the Securities Act of 1933. Shares of Microsoft
common stock held by affiliates may be sold only under a registration statement
or an exemption from registration under the Securities Act.
Microsoft has received letter agreements from each of Visio's executive
officers and directors, each of whom may be considered an affiliate of Visio.
Each of these persons has agreed that he or she will not sell, transfer or
otherwise dispose of, except by gift, more than a de minimus amount of shares
of Visio or Microsoft common stock during the 30 days before the merger and,
after the merger, until the date that Microsoft files with the SEC or publishes
financial statements that reflect at least 30 days of combined operations. In
return, Microsoft has agreed to publish financial statements covering at least
30 days of combined operations as soon as practicable after the end of a
calendar month that is at least 30 days after the effective time of the merger.
8
Tax consequences of the merger (page 31)
Microsoft and Visio intend the merger to qualify as a tax-free
reorganization under the Internal Revenue Code. It is a condition to the
completion of the merger that both parties receive an opinion from their tax
counsel that the merger will so qualify. We expect that none of Visio,
Microsoft or their respective shareholders will recognize a gain or loss for
United States federal income tax purposes, except for taxes payable for cash
received instead of fractional shares of Microsoft common stock. Because tax
matters are complicated, however, we urge you to consult your own tax advisor
to understand fully how the merger will affect you, including how any state,
local or foreign tax laws may apply to you.
Accounting treatment of the merger (page 33)
Microsoft expects to account for the merger using the pooling-of-interests
method of accounting under generally accepted accounting principles. Microsoft
has reserved the right, however, to cause the merger to be accounted for as a
purchase.
Regulatory approvals required to complete the merger (page 33)
The merger is subject to antitrust laws, including the reporting and waiting
period provisions of the Hart-Scott-Rodino Act. Microsoft and Visio have made
the required premerger notification filings with the Federal Trade Commission
and the Antitrust Division of the Department of Justice. On October 29, 1999,
pursuant to the Hart-Scott-Rodino Act, the Antitrust Division issued requests
for additional information and documents to both Microsoft and Visio. The
requests extended the waiting period under the Hart-Scott-Rodino Act for a
period ending 20 days after both parties have filed a proper response.
Due to the international scope of Microsoft's and Visio's businesses,
regulatory filings will also be required in certain European and other
jurisdictions. Microsoft and Visio do not expect those filings to affect the
expected timing of the merger.
Dissenters' rights (page 44; Annex D)
Under Washington law, Visio's shareholders have the right to dissent from
the merger and to receive payment in cash for the fair value of their shares of
Visio common stock. To preserve their rights, Visio's shareholders who wish to
exercise their statutory dissenters' rights must precisely follow the
procedures described in chapter 23B.13 of the Washington Business Corporation
Act, a copy of which is attached as Annex D.
Differences in rights of Visio and Microsoft shareholders (page 43)
The rights of Visio's shareholders are governed by Washington law and
Visio's articles of incorporation and bylaws. When the merger is completed,
Visio's shareholders will become shareholders of Microsoft. Because Microsoft,
like Visio, is a Washington corporation, the rights of Visio's shareholders
will continue to be governed by Washington law. However, the rights of Visio's
shareholders will also be governed by Microsoft's articles of incorporation and
bylaws, which differ in some respects from Visio's.
Comparative market price information (page 14)
Shares of both Microsoft common stock and Visio common stock are listed on
the Nasdaq Stock Market. On September 14, 1999, the last full trading day
before the public announcement of the proposed merger, Microsoft's common stock
closed at $95.06 per share and Visio's common stock closed at $33.50 per share.
On October 29, 1999, the last full trading day for which closing prices were
available at the time of the printing of this proxy statement/prospectus,
Microsoft's common stock closed at $92.56 per share and Visio's common stock
closed at $39.59 per share. We urge you to obtain current market quotations.
9
Selected financial data of Microsoft and Visio
The following tables provide selected financial data of Microsoft and Visio,
which were derived from the audited financial statements of Microsoft and Visio
for the last five years for which audited financial statements have been
prepared. The data should be read in conjunction with the financial statements,
related notes and other financial information of Microsoft and Visio that are
incorporated by reference into this proxy statement/prospectus. The Visio table
also provides selected financial data of Visio as of June 30, 1999 and for the
nine months ended June 30, 1999 and 1998, which were derived from unaudited
financial statements of Visio. In Visio's opinion, the unaudited financial
statements include all adjustments necessary for the fair presentation of
Visio's financial position and results of operations for those periods. The
historical results for the nine-month periods may not be indicative of the
results of operations for a full year.
Selected financial data of Microsoft
Fiscal Year Ended June 30,
--------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- -------
(in millions, except earnings per
share)
Income Statement Data:
Revenue................................ $6,075 $ 9,050 $11,936 $15,262 $19,747
Net income............................. 1,453 2,195 3,454 4,490 7,785
Basic earnings per share............... 0.31 0.46 0.72 0.92 1.54
Diluted earnings per share............. 0.29 0.43 0.66 0.84 1.42
June 30,
--------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- -------
(in millions, except book value per
share)
Balance Sheet Data:
Cash and short-term investments........ $4,750 $ 6,940 $ 8,966 $13,927 $17,236
Total assets........................... 7,210 10,093 14,387 22,357 37,156
Stockholders' equity................... 5,333 6,908 10,777 16,627 28,438
Historical book value per share(1)..... $ 5.57
Shares used in computing book value per
share(2).............................. 5,109
10
Selected financial data of Visio
Nine Months Ended
Fiscal Year Ended September 30, June 30,
------------------------------------------ -----------------
1994 1995 1996 1997 1998 1998(2) 1999(2)
------- ------- ------- -------- -------- -------- --------
(in thousands, except per share data)
Income Statement Data:
Revenue................. $20,616 $34,224 $59,862 $100,775 $165,995 $121,772 $149,888
Operating income........ 157 2,932 13,570 14,836 32,786 21,903 37,646
Net income (loss)....... (152) 2,185 10,496 13,700 28,108 19,153 30,304
Basic earnings (loss)
per share.............. (0.02) 0.23 0.41 0.49 0.96 0.66 1.00
Diluted earnings (loss)
per share.............. (0.02) 0.10 0.36 0.44 0.89 0.60 0.96
September 30,
------------------------------------------- June 30,
1994 1995 1996 1997 1998 1999(2)
------- ------- ------- -------- -------- --------
(in thousands, except book value per share data)
Balance Sheet Data:
Cash and short-term
investments............. $ 3,669 $ 7,424 $62,058 $ 81,212 $109,018 $112,104
Total assets............. 7,879 19,770 73,207 112,701 159,377 186,481
Debt..................... 587 453 158 387 -- --
Stockholders' equity
(deficit)............... (3,476) (521) 55,359 78,768 127,207 144,429
Historical book value per
share(1)................ $ 4.21 $ 4.79
Shares used in computing
book value per
share(2)................ 30,191 30,125
- --------
(1) Historical book value per share is computed by dividing total stockholders'
equity by the number of common shares outstanding at the end of the period.
(2) Unaudited.
11
RISK FACTORS
In addition to the other information contained or incorporated by reference intoin this proxy statement/prospectusprospectus. We and in the documentsDealer Managers take no responsibility for, and can provide no assurance as to which we refer
you, you should carefully consider the following risk factors in deciding
whether to vote for approval of the merger agreement.
The exchange ratio for Visio common stock to be received in the merger is fixed
and will not be adjusted in the eventreliability of, any changeother information that others may give you. This prospectus is not an offer to sell or the solicitation of an offer to buy any securities in stock price.
Regardless ofany jurisdiction where the market prices of Microsoft and Visio common stock at the
effective time of the merger, Visio shareholders will receive 0.45 of a share
of Microsoft common stock for each share of Visio common stock they own. The
market value of Microsoft common stockoffer or sale is likely to change, both before and
after the merger, and no one can accurately predict what the market value will
be at any given time. Market prices of Microsoft and Visio common stock may
vary for many reasons, including changes in the business, operations or
prospects of Microsoft or Visio, market assessments of the likelihoodunlawful. You should not assume that the merger will be completed, the timinginformation we have included in this prospectus is accurate as of regulatory considerations and general
market and economic conditions. Because the merger will be completed after the
special meeting, the prices of Microsoft and Visio common stock onany date other than the date of the special meeting may not be indicative of their prices on the date the
merger is completed. Visio cannot "walk away" from the mergerthis prospectus or resolicit the
vote of its shareholders based solely on changes in the value of Microsoft
common stock. We urge you to obtain current market quotations for Microsoft and
Visio common stock.
Visio's directors and executive officersthat any information we have conflicts of interest that may
influence them to support the merger.
The directors and executive officers of Visio participate in arrangements
that provide them with interests in the merger that are different from, or are
in addition to, yours. These interests include indemnification rights,
potential acceleration of option vesting and other benefits under certain
agreements and employee benefit plans. In addition, some of Visio's executive
officers may receive payments and other benefits under a retention and
transition bonus plan that Microsoft implemented under the merger agreement. As
a result, Visio's directors and executive officers could be more likely to vote
to approve the merger agreement than if they did not hold these interests. You
should consider whether these interests may have influenced these directors and
executive officers to support and recommend the merger.
Failure to complete the merger could negatively impact Visio's stock price and
future business and operations.
If the merger is not completed for any reason, Visio may be subject to a
number of material risks, including the following:
. Visio may be required to pay Microsoft a termination fee of $30 million;
. the stock option granted to Microsoft by Visio may become exercisable;
. the price of Visio common stock may decline to the extent that the
current market price of Visio common stock reflects an assumption that
the merger will be completed; and
. Visio must pay its costs related to the merger, such as legal, accounting
and financial advisory fees and employee retention bonuses, even if the
merger is not completed.
In addition, Visio's customers may, in response to the announcement of the
merger, delay or defer purchasing decisions. Any delay or deferral in
purchasing decisions by Visio customers could have a material adverse effect on
Visio's business, regardless of whether or not the merger is ultimately
completed. Similarly, current and prospective Visio employees may experience
uncertainty about their future role with Microsoft until Microsft's strategies
with regard to Visio are announced or executed. This may adversely affect
Visio's ability to attract and retain key management, marketing, technical,
sales and other personnel.
12
Further, if the merger is terminated and Visio's board of directors
determines to seek another merger or business combination, it may not be able
to find a partner willing to pay an equivalent or more attractive price than
that which would have been paid in the merger. In addition, while the merger
agreement is in effect, subject to limited exceptions described on page 38 of
this proxy statement/prospectus, Visio is prohibited from soliciting,
initiating, participating in any negotiations regarding, or entering into
specified extraordinary transactions, such as a merger, sale of assets or other
business combination with any party other than Microsoft. Furthermore, if the
merger agreement is terminated and Microsoft's option to purchase Visio common
stock becomes exercisable, Visio would not be able to account for the
transaction that triggered the exercisability of the option as a pooling of
interests.
The price of Microsoft common stock may be affected by factors different from
those affecting the price of Visio common stock.
Upon completion of the merger, the holders of Visio common stock will become
holders of Microsoft common stock. Microsoft's business differs from that of
Visio, and Microsoft's results of operations and the price of Microsoft common
stock may be affected by factors different from those that affected Visio's
results of operations and the price of Visio common stock before the merger.
For a discussion of Microsoft's and Visio's businesses and factors to consider
in connection with those businesses, see Microsoft's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999, other documents Microsoft has
subsequently filed with the SEC, Visio's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 and other documents Visio has subsequently
filed with the SEC, which are incorporated by reference into this proxy
statement/prospectus.
13
COMPARATIVE STOCK PRICE AND DIVIDEND INFORMATION
Visio common stock has been traded on the Nasdaq Stock Market under the
symbol VSIO since November 10, 1995, the date of Visio's initial public
offering. Microsoft common stock has been traded on the Nasdaq Stock Market
under the symbol MSFT since March 13, 1986, the date of Microsoft's initial
public offering.
The following table lists, for the calendar quarters indicated, the high and
low sales prices per share of Visio common stock and Microsoft common stock as
reported on the Nasdaq Stock Market. Sales prices in the table have been
adjusted to reflect Microsoft's two-for-one splits of its common stock in March
1999 and February 1998 and Visio's two-for-one split of its common stock in
August 1997.
Visio Microsoft
Common Stock Common Stock
------------- -------------
High Low High Low
------ ------ ------ ------
Calendar year ended December 31, 1997:
First quarter................................. $26.75 $18.13 $25.88 $20.19
Second quarter................................ 35.03 19.13 33.74 22.44
Third quarter................................. 42.50 32.00 37.69 30.82
Fourth quarter................................ 42.63 26.50 36.66 29.50
Calendar year ended December 31, 1998:
First quarter................................. 48.13 32.38 45.47 31.10
Second quarter................................ 50.88 39.88 54.28 40.94
Third quarter................................. 50.75 19.00 59.81 47.25
Fourth quarter................................ 38.50 14.00 72.00 48.13
Calendar year ending December 31, 1999:
First quarter................................. 43.50 22.00 94.63 68.00
Second quarter................................ 38.06 21.88 95.63 75.50
Third quarter................................. 42.25 24.00 99.44 81.75
Fourth quarter (through October 29, 1999)..... 40.88 36.50 95.25 85.06
The following table lists the closing prices per share of Microsoft common
stock and Visio common stock as reported on the Nasdaq Stock Market on (a)
September 14, 1999, the last full trading day preceding the public announcement
that Microsoft and Visio had entered into the merger agreement and (b) October
29, 1999, the last full trading day for which closing prices were available at
the time of the printing of this proxy statement/prospectus. The table also
lists the equivalent per share price of Visio common stock on those dates. The
equivalent per share price is equal to the closing price of a share of
Microsoft common stock on that date multiplied by 0.45, the number of shares of
Microsoft common stock to be issued in connection with the merger in exchange
for each share of Visio common stock.
Microsoft Visio Equivalent
Common Common Per Share
Stock Stock Price
--------- ------ ----------
September 14, 1999............................... $95.06 $33.50 $42.78
October 29, 1999................................. 92.56 39.59 41.65
We believe that Visio common stock presently trades on the basis of the
value of the Microsoft common stock expected to be issued in exchange for Visio
common stock in the merger, discounted primarily for the uncertainties
associated with the merger. Microsoft cannot state with certainty what factors
account for changes in the market price of Microsoft common stock.
We advise you to obtain current market quotations for Microsoft common stock
and Visio common stock. The market prices of Microsoft common stock and Visio
common stock at any time before the merger, and the market price of Microsoft
common stock at any time after the merger, may fluctuate. The exchange ratio
will
14
not be adjusted for any increases or decreases in the market price of Microsoft
common stock that occur before the merger becomes effective. If the market
price of Microsoft common stock decreases or increases before the merger, the
value of the Microsoft common stock to be received in the merger in exchange
for Visio common stock will correspondingly decrease or increase.
Neither Visio nor Microsoft has ever paid cash dividends on its shares of
common stock. Visio has agreed not to pay cash dividends before the merger
without Microsoft's written consent. If the merger is not completed, Visio
presently intends that it would continue to retain all earnings to finance the
expansion of its business. Similarly, Microsoft has no present intention to pay
cash dividends on its common stock before or after the merger.
15
THE VISIO SPECIAL MEETING
Date, time, place and purpose of Visio's special meeting
The special meeting of Visio's shareholders will be held at 10 a.m. local
time on December 13, 1999, at Visio's headquarters, located at 2211 Elliott
Avenue, Seattle, Washington. At the meeting, Visio's shareholdersaccurate as of the
recordany date will be asked to approve the merger agreement with Microsoft.
Record date; outstanding shares; shares entitled to vote
Only holders of record of Visio common stock at the close of business on
the record date, October 21, 1999, are entitled to notice of and to vote at
the special meeting. As of the record date, there were 30,431,714 shares of
Visio common stock outstanding, held of record by approximately 18,000
shareholders. Each holder of Visio common stock is entitled to one vote for
each share of Visio common stock he or she owned as of the record date. If you
do not vote, either in person or by proxy, it will have the same effect as
voting against the merger agreement.
Quorum; vote required
The required quorum for the transaction of business at the special meeting
is a majority of the shares of Visio common stock outstanding on the record
date, represented in person or by proxy.
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Visio common stock is required to approve the merger
agreement.
Voting of proxies
The Visio board of directors requests that you return the proxy card
accompanying this proxy statement/prospectus for use at the meeting. Please
complete, date and sign the proxy card and promptly return it to ChaseMellon
Shareholder Services, L.L.C., the firm that Visio has retained to provide
proxy solicitation services, in the enclosed envelope. All properly signed
proxies received by ChaseMellon and not revoked before the vote at the meeting
will be voted at the meeting according to the instructions indicated on the
proxies or, if no instructions are given, to approve the merger agreement.
We do not expect that any matter other than approval of the merger
agreement will be brought before the special meeting. If other matters are
properly presented and are within the purpose of the special meeting, however,
the persons named as proxies will vote in accordance with their judgment with
respect to those matters.
If you have questions or need assistance in completing or submitting your
proxy card, please contact ChaseMellon at the following address and telephone
number:
ChaseMellon Shareholder Services, L.L.C.
520 Pike Street, Suite 1220
Seattle, Washington 98101
(800) 610-3775
Recommendation of Visio's board of directors
VISIO'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
Share ownership of management
As of the record date, Visio's directors and executive officers
collectively owned 4,206,137 shares of Visio
16
common stock, or approximately 14% of Visio's outstanding shares. All of
Visio's executive officers and directors have executed voting agreements with
Microsoft, under which they have agreed to vote their shares in favor of the
merger.
How to revoke your proxy
You may revoke your proxy at any time by taking any of the following actions
before your proxy is voted at the meeting:
. delivering to ChaseMellon a written notice bearing a date later than the date of the proxy card, stating that you revoke the proxy;
. signingdocument incorporated by reference. Our business, financial condition, results of operations, and delivering to ChaseMellon a proxy card relating to the same
shares and bearing a later date; or
. attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank or other nominee and you wish to vote at the meeting, you must bring to
the meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares.
Abstentions and broker nonvotes
Only shares affirmatively voted for approval of the merger agreement,
including shares represented by properly executed proxies that do not contain
voting instructions, will be counted as votes "for" the merger agreement.
Brokers who hold shares of Visio common stock in street name for a customer
whoprospects may have changed since those dates.
This prospectus is the beneficial owner of those shares may not give a proxy to vote the
customer's shares without specific instructions from the customer. These
nonvoted shares are referred to as broker nonvotes. If your broker holds your
Visio stock in street name, your broker will vote your shares only if you
provide instructions on how to vote by filling out the voter instruction form
sent to you by your broker with this proxy statement/prospectus.
Abstentions and broker nonvotes will be included in determining the presencepart of a quorum, but will have the same effect as voting against the merger
agreement.
Voting electronically via Internet or telephone
A large number of banks and brokerage firms are participating in the ADP
Investor Communication Services online program. This program provides
shareholders whose shares are registered in the name of a participating bank or
brokerage firm the opportunity to vote via the Internet or by telephone. The
voting form sent to a beneficial owner will provide instructions if such
options are available.
Expenses of proxy solicitation
The enclosed proxy is solicited by and on behalf of Visio's board of
directors. Visio will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, Visio and its agents also may solicit proxies by mail, telephone,
facsimile or in person. Visio has retained a proxy solicitation firm,
ChaseMellon Shareholder Services, L.L.C., to aid it in the solicitation
process. Visio will pay that firm a fee of $7,500, plus an additional amount
for each shareholder contacted by ChaseMellon, plus reasonable expenses. Visio
intends to reimburse persons who hold Visio stock of record but not
beneficially, such as brokers, custodians, nominees and fiduciaries, for their
reasonable expenses in forwarding copies of proxies and other soliciting
materials to, and requesting authority for the exercise of proxies from, the
persons for whom they hold the shares.
17
Dissenters' rights
Under Washington law, you have the right to dissent from the merger and to
receive payment in cash for the fair value of your shares of Visio common
stock. To preserve your rights if you wish to exercise your statutory
dissenters' rights, you must:
. deliver to the secretary of Visio before the special meeting written
notice of your intent to demand payment for your shares of Visio common
stock if the merger is completed;
. not vote your shares in favor of the merger agreement; and
. follow the statutory procedures for perfecting dissenters' rights under
Washington law, which are described in the section entitled "Rights of
dissenting Visio shareholders" on page 44.
Merely voting against the merger agreement will not preserve your
dissenters' rights. Chapter 23B.13 of the Washington Business Corporation Act
is reprinted in its entirety and attached to this proxy statement/prospectus as
Annex D. Failure to precisely comply with all procedures required by Washington
law will result in the loss of your dissenters' rights.
Accountants
Representatives of Ernst & Young LLP, Visio's accountants, are expected to
be present at the special meeting, will have the opportunity to make a
statement and will be available to respond to appropriate questions.
You should not send in any certificates representing Visio common stock.
Following the effective time of the merger, you will receive instructions
for the surrender and exchange of your Visio stock certificates.
18
THE MERGER
This section of the proxy statement/prospectus describes the proposed
merger. While we believe that this description covers the material terms of
the merger, this summary may not contain all of the information that is
important to you. You should carefully read this entire proxy
statement/prospectus and the other documents to which we refer for a more
complete understanding of the merger.
Background of the merger
Visio and Microsoft have enjoyed a close working relationship since Visio's
initial product launch. Visio has historically been a developer of products
based on Microsoft platforms. For example, the Visio graphics engine employs
Microsoft Windows(R) technology, and Visio has worked extensively with
Microsoft to more fully utilize the capabilities of Windows technology.
Visio's products are very compatible with several Microsoft applications, with
similar user interfaces, similar help systems and built-in Microsoft
development tools. Visio and Microsoft have also developed joint marketing
initiatives from time to time and have purchased and sold products to each
other.
In late 1998, Jeremy Jaech, the chief executive officer of Visio, met with
Microsoft representatives to discuss the possibility of the two companies
partnering in some manner to further expand their existing relationship.
During regularly scheduled meetings in late 1998 and early 1999, the
members of Visio's board of directors discussed the strategic opportunities
and challenges arising in connection with Visio's business. At meetings in
January and April 1999, Visio's board noted the possible synergistic benefits
of a broader relationship with Microsoft and agreed that Mr. Jaech should
explore, on a preliminary basis, such a relationship with senior management of
Microsoft.
In early February 1999, Mr. Jaech began discussions with Robert McDowell, a
Microsoft officer, regarding Mr. McDowell joining Visio's board. Mr. McDowell
was elected to Visio's board on April 23, 1999.
In early May 1999, Mr. Jaech met with Steven Ballmer, the president of
Microsoft, to begin the process of determining whether a closer relationship,
including a business combination, would be desirable. Messrs. Jaech and
Ballmer agreed to continue to explore, on a preliminary basis, such a
relationship.
Robert Muglia, the senior vice president of Microsoft's Business
Productivity group, Mr. Jaech and other Microsoft and Visio representatives
met in late May 1999 to discuss generally Visio's business and its products.
Visio's board met at a regularly scheduled meeting on May 27-28 to discuss
principally international strategic issues. At that meeting, the board
received a report concerning the preliminary discussions held with Microsoft.
After its consideration of the report, the board advised Visio's executive
management team that it should continue exploratory discussions. Because Mr.
McDowell is a member of Visio's board and a Microsoft executive, Mr. McDowell
excused himself from all deliberations by Visio's board regarding a possible
business combination with Microsoft.
On June 9, 1999, Visio and Microsoft entered into a nondisclosure agreement
containing customary terms.
During the early and mid-part of June 1999, Visio provided Microsoft
limited product, financial and geographic information concerning Visio's
business. In the second week of July 1999, Messrs. Muglia and Jaech and other
representatives of Visio and Microsoft met to discuss Visio's products and
sales strategies. At the meeting, the Visio representatives demonstrated
Visio's products to the Microsoft representatives. Following the meeting,
Visio provided Microsoft with additional requested information regarding its
products and business.
19
On July 28, 1999, representatives of Visio and Microsoft met again to
further review Visio's products and its sales strategies, particularly with
respect to corporate customers. In addition, Visio retained legal counsel
during the last week of July 1999 and retained a financial advisor, Morgan
Stanley & Co., during the second week of August 1999 to assist Visio in its
discussions with Microsoft.
On July 30, 1999, Messrs. Muglia and Jaech discussed their respective
company's mutual desire to explore a possible business combination on a
preliminary basis. They further discussed how to proceed with due diligence
reviews of each company. During early August, Microsoft continued its due
diligence review of Visio. On August 9, 1999, Visio and Microsoft entered into
an amended nondisclosure agreement.
At a meeting of Microsoft's board of directors on August 8, 1999,
Microsoft's management made a presentation to Microsoft's board regarding the
potential for an acquisition of Visio. After the presentation, which included
Microsoft's reasons for entering into the merger discussed on page 28 of this
proxy statement/prospectus, Microsoft's board approved the transaction and
delegated to Microsoft's management the responsibility to negotiate and execute
a definitive merger agreement and related documents.
Visio's board met telephonically on August 11, 1999. At that meeting, Mr.
Jaech reported on the status of the discussions with Microsoft, and Visio's
senior management team, together with legal and financial advisors, discussed
with the board various legal, commercial, employee and financial
considerations. The board advised the management team to continue to explore
the possible terms and conditions of a business combination transaction.
Throughout the remainder of August, Mr. Jaech regularly communicated with
members of Visio's board to update the members regarding the status of the
preliminary discussions with Microsoft.
In late August, representatives of Visio and Microsoft held preliminary
discussions regarding a range of possible values to be paid on a per share
basis to the shareholders of Visio. The representatives also discussed various
other financial, tax and accounting issues during this period. On August 23,
1999, with due diligence continuing, Microsoft's legal counsel forwarded a
draft merger agreement to Visio and its legal and financial advisors.
Beginning on September 8, 1999, Visio and Microsoft representatives and
legal counsel held numerous discussions regarding the terms and conditions of
the proposed merger agreement and various other legal, financial, accounting
and regulatory issues, including, among other things, closing conditions, the
identification of required regulatory filings and the treatment of Visio
employee benefit plans.
On September 12, 1999, Visio's board met to review the terms of the proposed
merger. Representatives of Morgan Stanley made a presentation regarding the
financial terms of the proposed merger and discussed with Visio's board, among
other things, the financial performance of Visio and Microsoft. Visio's outside
legal counsel also reviewed certain legal matters with Visio's board, including
a detailed review of the proposed merger agreement, the board's fiduciary
duties in the context of the proposed transaction and other relevant aspects of
applicable law. Following these presentations and discussions, Visio's board
authorized senior management to continue to pursue the proposed merger.
From September 12-14, 1999, the management teams of Visio and Microsoft,
together with their legal advisors, continued to discuss various issues,
including those relating to employee benefits, the rights of either party to
terminate the merger agreement and whether any payment would be due as a result
of a termination of the merger agreement under certain circumstances.
Visio's board met again on September 14, 1999 to continue its discussions
regarding the merger and to further review the terms and conditions of the
proposed merger with senior management, outside legal counsel and Morgan
Stanley. During this meeting, Visio's board received the oral opinion of Morgan
Stanley, later confirmed in writing, that, as of that date, the exchange ratio
set forth in the merger agreement was fair from a financial point of view to
holders of Visio common stock. Following further discussions, Visio's board
determined that the merger is fair to, and in the best interests of, Visio and
its shareholders, approved the merger and the merger agreement and related
agreements, and resolved to recommend that the shareholders of Visio vote to
approve the merger agreement.
20
The merger agreement and related documents were signed by Visio and
Microsoft late in the evening on September 14, 1999. On the morning of
September 15, 1999, before trading commenced on Nasdaq, the companies issued a
joint press release announcing the execution of the merger agreement.
On October 29, 1999, the parties amended provisions of the merger agreement
relating to the closing date, accountants' comfort letters, certain employee
benefits matters and the publication of post-closing financial results.
Visio's reasons for the merger
In reaching its decision to approve and adopt the merger agreement and to
unanimously recommend that Visio shareholders approve the merger agreement,
Visio's board identified reasons why the merger should be beneficial to Visio
and its shareholders. These potential benefits include the following:
. the opportunity for Visio shareholders to receive a significant premium
over the market price for shares of Visio common stock existing before
the public announcement of the merger. Specifically, the exchange ratio
in the merger represented a 27.7% premium over the closing price for
Visio common stock on September 14, 1999, the day that Visio and
Microsoft reached final agreement on the merger agreement, as well as
39.4%, 29.4% and 27.4% premiums over the average closing price of Visio
common stock for the 10, 30 and 60 trading days, respectively, ending on
September 10, 1999;
. the ability of Visio shareholders to continue to participate in the
growth of the business conducted by Microsoft and Visio following the
merger and to benefit from the potential appreciation in value of shares
of Microsoft common stock; and
. the larger public float and trading volumes of shares of Microsoft common
stock compared to the public float and trading volumes of shares of Visio
common stock, which would provide Visio shareholders, to the extent that
they receive Microsoft common stock, with the opportunity to gain greater
liquidity in their investment.
In the course of deliberations, Visio's board also reviewed with its
executive management team and its legal and financial advisors a number of
additional factors relevant to the merger, including:
. the terms and conditions of the merger agreement, including termination
fees and closing conditions;
. the likelihood that the merger would be completed;
. the expected qualification of the merger as a tax-free reorganization
under Section 368(a) of the Internal Revenue Code;
. the opinion of Morgan Stanley that, as of the date of the merger
agreement and subject to the considerations set forth in the opinion, the
0.45 exchange ratio is fair to shareholders of Visio from a financial
point of view;
. information relating to the business, assets, management, competitive
position, operating performance, trading performance and prospects of
each of Visio and Microsoft, including the prospects of Visio if it were
to continue as an independent company;
. current economic and financial market conditions and historical market
prices, volatility and trading information for Visio common stock and
Microsoft common stock;
. the belief, based on presentations by Visio's legal and financial
advisors, that the terms of the merger agreement and the stock option
agreement, including the limited conditions to Microsoft's obligation to
close the merger and the ability of Visio to consider proposed
alternative business combinations under certain circumstances, are
generally customary for transactions such as the merger;
. whether strategic alternatives to the merger would enhance long-term
shareholder value; and
. discussions with management and Morgan Stanley as to their due diligence
investigations of Microsoft.
21
Visio's board also considered and balanced against the potential benefits of
the merger a number of potentially negative factors, including, without
limitation, the following:
. the risk that the merger would not be consummated and the effect of the
public announcement of the merger on Visio's sales and operating results
and Visio's ability to attract and retain key management, marketing,
technical, sales and other personnel;
. the possibility that the market value of Microsoft common stock might
decrease, causing less aggregate value to be paid to Visio shareholders;
. a recognition that Microsoft common stock is traded at high valuation
multiples, and the risk that such multiples might not be sustained in the
future;
. the fact that shareholders of Visio will not receive the full benefit of
any future growth in the value of their equity that Visio may have
achieved as an independent company, and the potential disadvantage to
Visio shareholders who receive Microsoft common stock in the event that
Microsoft does not perform as well in the future as Visio may have
performed as an independent company;
. the possibility that some provisions of the merger agreement, including
the no-solicitation and termination fee payment provisions, together with
the stock option agreement, might have the effect of discouraging other
persons potentially interested in merging with or acquiring Visio from
pursuing such an opportunity; and
. other matters described in the section entitled "Risk factors" on page
12.
Visio's board concluded that overall these risks were outweighed by the
potential benefits of the merger, and determined that the merger was fair to
and in the best interests of Visio and its shareholders.
The above discussion does not include all of the information and factors
considered by Visio's board. In view of the variety of factors considered in
connection with its evaluation of the merger agreement, Visio's board did not
find it practicable to and did not quantify or otherwise assign relative weight
to the specific factors considered in reaching its determination. In addition,
individual members of Visio's board may have given different weight to
different factors.
Recommendation of Visio's board of directors
After carefully evaluating these factors, both positive and negative,
Visio's board of directors has determined that the merger is fair to, and in
the best interests of, Visio and its shareholders. Visio's board of directors
unanimously recommends that you vote "FOR" approval of the merger agreement.
Because Robert McDowell, a member of Visio's board, is also a Microsoft
executive, he excused himself from all deliberations by Visio's board regarding
the merger with Microsoft.
Opinion of Visio's financial advisor
Under an engagement letter dated August 12, 1999, Visio retained Morgan
Stanley & Co. to provide Visio with financial advisory services and a financial
fairness opinion in connection with the merger. Visio's board of directors
selected Morgan Stanley to act as its financial advisor based on Morgan
Stanley's qualifications, expertise and reputation and its knowledge of Visio's
business and affairs. At the meeting of Visio's board of directors on September
14, 1999, Morgan Stanley rendered its oral opinion, subsequently confirmed in
writing, that as of September 14, 1999, based on and subject to the various
considerations described in the opinion, the exchange ratio in the merger
agreement was fair from a financial point of view to holders of shares of Visio
common stock.
We urge you to read the full text of Morgan Stanley's written opinion dated
September 14, 1999, which is attached to this proxy statement/prospectus as
Annex C. The description below is only a summary. The opinion
22
describes, among other things, the assumptions made, procedures followed,
matters considered and limitations on the scope of the review undertaken by
Morgan Stanley in rendering its opinion. Morgan Stanley's opinion is directed
to Visio's board of directors and addresses only the fairness of the exchange
ratio to Visio's shareholders from a financial point of view as of the date of
the opinion. It does not address any other aspect of the merger and is not a
recommendation to any holder of Visio common stock as to how to vote at the
special meeting.
In connection with rendering its opinion, Morgan Stanley, among other
things:
. reviewed certain publicly available financial statements and other
business and financial information of Visio and Microsoft;
. reviewed certain internal financial statements and other financial and
operating data concerning Visio prepared by Visio's management;
. discussed with Visio's senior executives the past and current operations
and financial condition and the prospects of Visio, including information
relating to strategic, financial and operational benefits anticipated
from the merger;
. discussed with senior executives of Microsoft the past and current
operations and financial condition and the prospects of Microsoft,
including information relating to certain strategic, financial and
operational benefits anticipated from the merger;
. reviewed and discussed with the senior managements of Visio and Microsoft
their strategic rationales for the merger;
. reviewed the pro forma impact of the merger on the earnings per share of
Microsoft;
. reviewed the reported prices and trading activity for Visio common stock
and Microsoft common stock;
. compared the financial performance of Visio and Microsoft and the prices
and trading activity of Visio common stock and Microsoft common stock
with that of a number of other publicly traded companies comparable with
Visio and Microsoft and their securities;
. reviewed the financial terms, to the extent publicly available, of a
number of comparable acquisition transactions;
. participated in discussions and negotiations among representatives of
Visio and Microsoft and their financial and legal advisors;
. reviewed the draft merger agreement and certain related agreements; and
. performed other analyses that Morgan Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information it reviewed for its opinion.
With respect to the internal financial statements and other financial and
operating data that Visio provided and the discussions with Visio relating to
the strategic, financial and operational benefits anticipated from the merger,
Morgan Stanley assumed that Visio had, in each case, reasonably prepared them
on bases reflecting the best currently available estimates and judgments of the
prospects of Visio and Microsoft. Morgan Stanley also relied upon, without
independent verification, the assessment by the managements of Visio and
Microsoft of:
. the ability of Microsoft and Visio to retain key Visio employees;
. the strategic, financial, operational and other benefits expected to
result from the merger;
. the timing and risks associated with the integration of Visio and
Microsoft; and
. the validity of, and risks associated with, Visio's and Microsoft's
existing and future services, technologies and business models.
23
Morgan Stanley did not make any independent valuation or appraisal of the
assets or liabilities or technology of Visio and Microsoft, nor has Morgan
Stanley been furnished with any such appraisals. In addition, Morgan Stanley
assumed, among other things, that the merger will be consummated in accordance
with the terms of the merger agreement and that the merger will be accounted
for as a pooling-of-interests business combination in accordance with generally
accepted accounting principles and that the merger will be treated as a tax-
free reorganization or exchange under the Internal Revenue Code. Morgan
Stanley's opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to it as of,
September 14, 1999.
The following is a brief summary of analyses performed by Morgan Stanley in
connection with its oral opinion and the preparation of its opinion letter. In
some cases, the summary of financial analyses includes information presented in
tabular format. The tables alone are not a complete description of the
financial analyses, and in order to fully understand the financial analyses
used by Morgan Stanley, you should read the tables together with the text of
each summary.
Visio stock price performance. Morgan Stanley reviewed the recent stock
price performance of Visio common stock over various time periods ending
September 10, 1999, and observed the following:
Visio Common Stock
Closing Price
----------------------
Period Ending September 10, 1999 High Low
-------------------------------- --------- ---------
Prior two years...................................... $ 50.50 $ 14.63
Prior 12 months...................................... 40.88 14.63
Prior 90 days........................................ 39.00 26.50
Prior 60 days........................................ 39.00 27.78
Prior 30 days........................................ 34.25 27.78
Prior 10 days........................................ 33.88 27.78
September 10, 1999................................... 33.88(1)
- --------
(1) Closing price
Comparative stock price performance. Morgan Stanley reviewed the recent
stock price performance of Visio and Microsoft and compared their performance
with that of a comparable group of companies. The group of companies (referred
to as the Comparable Companies Index) included:
. Parametric Technology Corporation;
. Network Associates, Inc.;
. Macromedia, Inc.;
. Autodesk, Inc.;
. Corel Corporation;
. Adobe Systems, Inc.;
. Symantec Corporation; and
. Remedy Corporation.
Morgan Stanley observed the following percentage changes in Visio common
stock, Microsoft common stock, the Comparable Companies Index and the Nasdaq
Index, for the following periods ended September 10, 1999:
Last
12 Last Two
Percentage Price Change (as of 9/10/99) Months Years
--------------------------------------- ------ --------
Visio Corporation............................................ 35% -3%
Microsoft Corporation........................................ 89% 181%
Comparable Companies Index................................... 174% 67%
Nasdaq Index................................................. 82% 76%
24
Comparable company trading analysis. Morgan Stanley compared financial
information of Visio and Microsoft with publicly available information for the
companies comprising the Comparable Companies Index. Based on estimates from
securities research analysts and using the closing prices of Visio and
Microsoft common stock on September 10, 1999 of $33.88 for Visio and $95.00 for
Microsoft, the following table presents the price to earnings (commonly known
as P/E) ratios for calendar years 1999 and 2000, the aggregate value to revenue
ratios for calendar years 1999 and 2000, and the P/E for calendar year 2000 to
average long-term earnings per share growth rate:
Aggregate Value to P/E to
Price/Earnings Revenue Growth
---------------- -------------------- ------
CY1999 CY2000 CY1999 CY2000 CY2000
------- ------- --------- --------- ------
Visio Corporation......... 23.3x 17.8x 4.1x 3.0x 0.59x
Microsoft Corporation..... 66.1 54.7 25.2 20.7 2.19
Comparable Companies
Parametric Technology
Corporation............ 22.9 16.5 3.6 2.9 0.70
Network Associates,
Inc.................... NM 25.1 4.5 3.3 0.91
Macromedia, Inc......... 70.1 46.4 10.0 7.5 1.55
Autodesk, Inc........... 29.0 16.2 1.2 1.0 0.85
Corel Corporation....... 49.4 26.0 1.2 1.0 1.04
Adobe Systems, Inc...... 35.7 30.3 6.2 5.1 1.60
Symantec Corporation.... 20.3 16.4 2.8 2.3 0.82
Remedy Corporation...... 30.2 24.6 3.5 2.8 0.86
No company in the Comparable Companies Index is identical to Visio or
Microsoft. In evaluating the comparable companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Visio and Microsoft. These matters include the
impact of competition on the businesses of Visio and Microsoft and the industry
in general, industry growth and the absence of any adverse material change in
the financial condition and prospects of Visio and Microsoft or the industry or
in the financial markets in general. Mathematical analysis, such as determining
the average or median, is not in itself a meaningful method of using comparable
companies data.
Discounted analyst price targets. Morgan Stanley performed an analysis of
the present value of research analysts' 12-month price targets of Visio common
stock. At a discount rate of 16%, the discounted analyst price target range as
of September 10, 1999 is $31 to $44.
Exchange ratio analysis. Morgan Stanley reviewed the ratios of the closing
prices of Visio common stock divided by the corresponding closing prices of
Microsoft common stock over various periods during the 12-month period ended
September 10, 1999, and examined the premiums represented by the exchange ratio
over the averages of these exchange ratios over various periods:
Period Premium
Period Ended Average Transaction to
September 10, 1999 Exchange Ratio Period Average
------------------ -------------- --------------
Market (9/10/99)............................. 0.357x 26.2%
Prior 5 days................................. 0.335 34.3
Prior 10 days................................ 0.323 39.4
Prior 20 days................................ 0.333 35.3
Prior 30 days................................ 0.348 29.4
Prior 60 days................................ 0.353 27.4
Prior 90 days................................ 0.365 23.3
25
Analysis of selected precedent transactions. Morgan Stanley compared
statistics based on publicly available information for selected software
transactions to the relevant financial statistics for Visio based on the value
of Visio implied by the exchange ratio and the closing share price of Microsoft
common stock on September 10, 1999. The following table presents the implied
multiples paid to the last 12-month (commonly known as LTM) earnings and LTM
revenue.
Equity Value to Aggregate Value to
Target / Acquiror LTM Earnings LTM Revenue
----------------- --------------- ------------------
Edify / Security One................... NM 4.4x
PC Docs Group / Hummingbird............ NM 1.4
Platinum / Computer Associates......... NM 3.5
New Dimension / BMC Software........... 10.7x 0.7
Boole & Babbage / BMC Software......... 27.6 4.2
Discreet Logic / Autodesk.............. 21.7 3.2
Memco Software / Platinum.............. 43.8 9.8
Dr. Solomon / Network Associates....... 42.5 6.9
Hyperion Software / Arbor Software..... 38.9 2.7
Logic Works / Platinum................. 6.3 4.0
Scopus / Siebel Systems................ 58.9 5.7
BGS Systems / BMC Software............. 30.7 5.3
Visio / Microsoft...................... 33.2 6.5
The following table presents the premiums paid above the 30-day-prior-to-
announcement exchange ratio and 60-day-prior-to-announcement exchange ratio for
selected software transactions and for this transaction on September 10, 1999:
Premium to Premium to
30-Day 60-Day
Target / Acquiror Ex. Ratio Ex. Ratio
----------------- ---------- ----------
Edify / Security One................................. 94% 88%
Boole & Babbage / BMC Software....................... 54 49
Discreet Logic / Autodesk............................ 45 56
Memco Software / Platinum............................ 33 15
Dr. Solomon / Network Associates..................... 20 13
Hyperion Software / Arbor Software................... 3 3
Logic Works / Platinum............................... 53 65
Scopus / Siebel Systems.............................. 55 41
BGS Systems / BMC Software........................... 26 24
Visio / Microsoft.................................... 29 27
No transaction used as a comparison in the selected precedent transactions
analysis is identical to the Visio/Microsoft merger. In evaluating the
transactions listed above, Morgan Stanley made judgments and assumptions with
regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Visio and Microsoft. These matters include the impact of competition on Visio,
Microsoft or the industry or in the financial markets in general. Mathematical
analysis, such as determining the average or median, is not in itself a
meaningful method of using precedent transaction data.
Discounted equity value. Morgan Stanley performed an analysis of the present
value per share of the implied value of Visio common stock on a standalone
basis based on Visio's projected future equity value. The following table
presents the discounted equity value of Visio common stock based on the
specified assumed variable ranges:
Fully Diluted
Next 12 Months Discount Price per
P/E Ratio Rates Share
-------------- -------- -------------
15x-25x.............................................. 16%-20% $32.14-$53.56
26
Pro forma merger analysis. Morgan Stanley analyzed the pro forma impact of
the merger on Microsoft's combined projected earnings per share for calendar
years 1999 and 2000. This analysis was based on average earnings projections by
securities research analysts for Visio and Microsoft. Morgan Stanley observed
that the merger would result in earnings per share accretion for Microsoft,
before giving effect to any synergies, of 0.3% for calendar year 1999 and 0.4%
for calendar year 2000.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
it considered. Furthermore, Morgan Stanley believes that selecting any portion
of its analyses, without considering all analyses, would create an incomplete
view of the process underlying its opinion. In addition, Morgan Stanley may
have given various analyses and factors more or less weight than other analyses
and factors, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Morgan Stanley's
view of the actual value of Visio or Microsoft. In performing its analyses,
Morgan Stanley made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Visio or Microsoft. Any estimates contained in Morgan
Stanley's analyses are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than those suggested
by those estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the exchange ratio in the merger agreement to
holders of Visio common stock from a financial point of view and were conducted
in connection with the delivery of the opinion to Visio's board of directors.
The analyses do not purport to be appraisals or to reflect the prices at which
Visio or Microsoft might actually be sold.
The exchange ratio was determined through arm's-length negotiations between
Visio and Microsoft and was approved by Visio's board of directors. Morgan
Stanley gave Visio advice during those negotiations, but Morgan Stanley did not
recommend any specific consideration or exchange ratio or state that any
specific consideration or exchange ratio was the only appropriate consideration
or exchange ratio for the merger.
In addition, Morgan Stanley's opinion and presentation to Visio's board of
directors was only one of many factors taken into consideration by the board in
making its decision to approve the merger. Consequently, Morgan Stanley's
opinion should not be viewed as determinative of the opinion of Visio's board
of directors with respect to the exchange ratio or of whether the board would
have been willing to agree to a different consideration or exchange ratio.
Visio's board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. As part of its
investment banking business, Morgan Stanley is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate, estate and other purposes. In the past, Morgan
Stanley and its affiliates have provided financing services and financial
advisory services for Microsoft and have received fees for these services. In
the ordinary course of Morgan Stanley's trading and brokerage activities,
Morgan Stanley or its affiliates may at any time hold long or short positions
or may trade or otherwise effect transactions, for its own account or for the
accounts of customers, in the equity securities of Visio, Microsoft or any
other parties involved in the transaction.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion to Visio in connection with the
merger, and Visio agreed to pay Morgan Stanley a customary fee. Visio has also
agreed to reimburse Morgan Stanley for its expenses incurred in performing its
services. In addition, Visio has also agreed to indemnify Morgan Stanley and
its affiliates, their respective directors, officers, agents and employees and
each person, if any, controlling Morgan Stanley or any of its affiliates
against specific liabilities and expenses, including specific liabilities under
the federal securities laws, related to or arising out of Morgan Stanley's
engagement.
27
Microsoft's reasons for the merger
Microsoft's board of directors has determined that the merger is in the best
interests of Microsoft and its shareholders. Microsoft's board of directors has
approved the merger and the issuance of shares of Microsoft common stock in the
merger.
In reaching its determination, Microsoft's board of directors identified the
following reasons, among others, for entering into the merger agreement:
. Visio has built a strong business and has developed a strong set of
products in the market for general-purpose diagramming tools and
Microsoft does not have a similar product offering;
. the nature of Visio's products and its customers creates a natural
complement to the Microsoft Office business. Specifically, (a) Visio, a
highly regarded general purpose productivity tool, should appeal to
Office customers and (b) Visio's products will not require substantial
redevelopment because they already implement various Microsoft Office
technologies;
. in Microsoft's opinion, Visio's future growth prospects will be derived
in enterprise licensing to corporate customers, as opposed to retail
sales. Microsoft believes that the merger will allow it to accelerate
distribution of Visio's products through the efforts of Microsoft's
existing sales force, and thereby increase revenues from Visio's existing
and future products; and
. Visio has a strong engineering and management team based in Seattle that
will complement the continued development of the Visio business, going
forward, as a division of Microsoft.
Structure of the merger; completion and effectiveness of the merger
The merger agreement provides for the merger of MovieSub, Inc., a wholly
owned subsidiary of Microsoft, with and into Visio. Before the effective time
of the merger, Microsoft, MovieSub, Inc. and Visio will be separate entities.
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including approval of the merger agreement by
Visio's shareholders. If all conditions are satisfied before December 30, 1999,
however, Microsoft may elect to postpone the closing of the merger to a date
not later than December 30, 1999. If Microsoft so elects, the obligations of
each party to effect the merger will no longer be subject to any of the
conditions specified in the merger agreement.
At the effective time of the merger, which occurs the day that articles of
merger and an agreement and plan of merger are filed with the Secretary of
State of the state of Washington, MovieSub, Inc. and Visio will merge. Visio
will survive the merger as a wholly owned subsidiary of Microsoft.
Merger consideration; conversion of Visio common stock
At the effective time of the merger, each outstanding share of Visio common
stock will be automatically converted into the right to receive 0.45 of a share
of Microsoft common stock. You will receive cash for any fractional share you
would otherwise receive in the merger. The exchange ratio of 0.45 was
determined through arm's-length negotiations between Microsoft and Visio.
The amount of cash that Microsoft will pay you in lieu of a fractional share
is equal to the average closing price of Microsoft common stock on the Nasdaq
Stock Market over the 20 trading days ending on the fifth trading day before
the closing date, multiplied by the fraction of a share of Microsoft common
stock to which you would otherwise be entitled. Visio shareholders will not
receive interest on cash payments in lieu of fractional shares.
The conversion of Visio common stock into the right to receive Microsoft
common stock will occur automatically at the effective time of the merger. At
that time, all shares of Visio common stock will no longer
28
be outstanding, will automatically be canceled and will cease to exist. Subject
to the dissenters' rights described elsewhere in this proxy
statement/prospectus, each holder of a certificate representing shares of Visio
common stock will cease to have any rights as a shareholder except the right to
receive the Microsoft common stock into which those shares were converted in
the merger and the right to receive cash for any fractional share of Microsoft
common stock.
Treatment of options and employee stock purchase and benefit plans
At the effective time of the merger, each then-outstanding option to
purchase shares of Visio common stock will be assumed by Microsoft and will
automatically become an option to purchase shares of Microsoft common stock.
The number of shares of Microsoft common stock for which the assumed option
will be exercisable will be determined by multiplying the number of Visio
shares subject to the option by 0.45, and the per share exercise price will be
determined by dividing the per share exercise price of the Visio option by
0.45. To avoid options to purchase fractional shares, the number of shares of
Microsoft common stock subject to an assumed option will be rounded to the
nearest whole share. Except for vesting of options granted to Visio directors,
the other terms of the assumed Visio options, including exercisability and
vesting schedules, will remain unchanged. Microsoft will issue the shares of
Microsoft common stock issuable upon the exercise of assumed Visio options
under Microsoft's amended 1991 Stock Option Plan, which is subject to a
currently effective registration statement on Form S-8that we have filed with the SEC. Alternatively, Microsoft may file a registration statement with the SEC to
register the shares of Microsoft common stock to be issued upon exercise of the
assumed Visio options, and will use its commercially reasonable best efforts to
maintain the effectiveness of the registration statement for as long asBefore making any assumed Visio options remain outstanding.
Visio will terminate its 1995 Employee Stock Purchase Plan as of the day
before the merger becomes effective. This termination will not result in any
loss of rights for those employees who purchased stock under this plan. On the
date of the termination of the plan, all funds that have been withheld from the
wages of Visio employees for the purchase of Visio common stock under the plan
will be applied to a final purchase under the plan.
Immediately before the effective time of the merger, Visio will terminate or
modify according to Microsoft's direction all of Visio's employee benefit
plans. Microsoft has agreed to offer Visio employees who remain at Microsoft
benefits commensurate with the benefits it gives to similarly situated
Microsoft employees. To the extent that length of service determines
eligibility, vesting or benefit accruals under any Microsoft employee benefit
plan, Microsoft will credit former Visio employees for any service credit
recognized by Visio or its subsidiaries.
Interests of Visio's directors and executive officers in the merger
When considering the recommendation of Visio's board of directors, you
should be aware that some of Visio's directors and executive officers have
interests in the merger and have arrangements that are different from, or are
in addition to, their interests as shareholders of Visio generally. These
include, among other things, indemnification rights, potential acceleration of
option vesting and other benefits and payments under certain agreements and
employee benefit and retention plans.
. Stock ownership. As of October 21, 1999, the record date, Visio's
directors and executive officers collectively owned 4,206,137 shares, or
approximately 14%, of Visio's outstanding common stock (not including
options, which are described below).
. Stock options. Under the terms of the merger agreement, at the time the
merger is completed, each outstanding option to purchase shares of Visio
common stock issued to employees and directors of Visio will be assumed
by Microsoft and will automatically become an option to purchase shares
of Microsoft common stock. The terms of an assumed Visio option held by a
Visio employee or officer will not be affected by the merger, except that
the number of shares subject to the option and the exercise price per
share will be adjusted to reflect the exchange ratio. In accordance with
the provisions of Visio's 1995
29
Long-Term Incentive Compensation Plan, vesting of options will accelerate
if, within two years following the approval of the merger by Visio's
shareholders, an option holder's employment terminates under specified
qualifying circumstances. In accordance with the provisions of Visio's 1995
Stock Option Plan for Nonemployee Directors, any outstanding options granted
under that plan that are not otherwise vested will become fully vested and
exercisable immediately before the effective time of the merger.
As of the record date, directors and executive officers of Visio
collectively held outstanding options to purchase 1,267,500 shares of Visio
common stock. Of these options, 550,997 were vested as of the record date.
The vesting of the remaining 40,500 options held by nonemployee directors
will accelerate at the effective time of the merger. To the extent they have
not already vested in accordance with their terms, the vesting of the
remaining 676,003 options held by Visio executive officers could accelerate
during the two-year period following the completion of the merger if the
option holder's employment terminates under specified qualifying
circumstances.
. Employment offer letters; nonemployee directors. Microsoft has issued
offer letters to Jeremy Jaech, Visio's president and chief executive
officer, and Ted Johnson, Visio's executive vice president and chief
technology officer. Under the terms of these offer letters, Mr. Jaech and
Mr. Johnson would each serve as a vice president of Microsoft after the
closing of the merger and would be paid an annual salary of $200,000 and
$190,000, respectively. In addition, Mr. Jaech and Mr. Johnson would
receive options to purchase 40,000 and 35,000 shares of Microsoft common
stock, respectively. Microsoft does not plan to retain any nonemployee
directors of Visio following completion of the merger.
. Microsoft retention and transition bonus plan. In accordance with the
merger agreement, Microsoft has implemented a retention plan for Visio
executives. Under the plan, each Visio executive, other than Messrs.
Jaech and Johnson, who six months after the closing of the merger either
is not offered a position with Microsoft or rejects the position offered,
will receive a retention bonus equal to 40% of his or her annual base
salary, provided that the executive has not voluntarily terminated his or
her employment with Microsoft and has not been terminated for cause
before that time. Each Visio executive, other than Messrs. Jaech and
Johnson, who six months after the closing of the merger has accepted a
position with Microsoft, will receive a signing bonus equal to 60% of his
or her annual base salary and will be eligible to receive additional
signing bonuses equal to 20% of his or her annual base salary at six-
month intervals through the second anniversary of the closing of the
merger, provided the executive has not voluntarily terminated his or her
employment before that time. Six months following the closing of the
merger, or such earlier date as may be determined by a transition
committee established by Microsoft and Visio, these executives, other
than Messrs. Jaech and Johnson, also will be entitled to receive a
transition bonus equal to 40% of his or her base salary.
. Severance. In addition to amounts that may be payable under the retention
and transition bonus plan described in the preceding paragraph, the Visio
executives will be entitled to receive a severance package that includes
a payment of six weeks' base salary plus Microsoft's standard severance.
Microsoft's standard severance includes two weeks' base salary for every
six months of service, capped at 26 weeks. The 26-week cap does not
include the six weeks' base salary payment. If Microsoft's standard
severance is less than six months' base salary, Microsoft will make a
supplemental payment for the difference. The executives are also entitled
to outplacement assistance.
. Visio retention plan. If the merger does not close before June 1, 2000,
each executive, other than Messrs. Jaech and Johnson, will be entitled to
receive a "stay bonus" equal to 40% of his or her base salary. The stay
bonus will not be paid if the merger closes before June 1, 2000.
. Indemnification and insurance. Microsoft has agreed that if the merger is
completed, all rights to indemnification (including advancement of
expenses) of current or former directors, officers and employees of Visio
and its subsidiaries arising from actions taken before the consummation
of the merger, as provided in Visio's articles of incorporation and
bylaws and existing indemnification agreements, will be assumed by
Microsoft, will continue in full force and effect for six years from the
effective date of the merger and will be guaranteed by Microsoft.
30
Visio's board of directors was aware of and considered the interests of
Visio's directors and executive officers in approving the merger agreement and
recommending that Visio's shareholders approve the merger agreement.
Restrictions on sales by affiliates of Visio and Microsoft
All shares of Microsoft common stock received by Visio shareholders in
connection with the merger will be freely transferable unless the shareholder
is considered an affiliate of either Visio or Microsoft under the Securities
Act.
Shares of Microsoft common stock held by affiliates may be sold only under a
registration statement or an exemption from registration under the Securities
Act. In addition, each of Visio's executive officers and directors, each of
whom may be deemed to be an "affiliate" of Visio, as that term is defined under
Rule 145 of the Securities Act, signed a letter agreement with Microsoft,
agreeing that:
. for 30 days before the merger, the affiliate will not sell, transfer or
otherwise dispose of (except by gift) or reduce his or her risk in (as
defined by SEC accounting rules) more than a de minimus number of the
shares of Visio common stock or Microsoft capital stock held by the
affiliate; and
. until Microsoft has publicly filed or announced results covering at least
30 days of combined operations of Microsoft and Visio, the affiliate will
not sell, otherwise dispose of or reduce his or her risk in more than a
de minimus number of the shares of Microsoft common stock that the
affiliate receives in the merger.
In return, Microsoft has agreed to publish results of operations covering at
least 30 days of combined operations as soon as practicable after the end of a
calendar month that is at least 30 days after the effective time of the merger.
The results of operations may be in the form of an earnings report, an
effective registration statement or report filed with the SEC, or any other
public filing or announcement that includes sales and net income.
Each Visio affiliate also agreed that he or she will sell, offer to sell or
otherwise dispose of any Microsoft common stock issued in connection with the
merger only under an effective registration statement or in compliance with
Rule 145 or other exemption from registration under the Securities Act.
Microsoft has agreed to use its reasonable efforts to permit affiliate sales
under Rule 145 and Rule 144 and to file all reports required to be filed under
the Securities Exchange Act of 1934.
Material United States federal income tax consequences of the merger
The following discussion summarizes the material United States federal
income tax consequences to Visio and Visio's shareholders in connection with
the merger. This summary does not purport to be a complete analysis or listing
of all of the potential tax effects of the merger. It does not deal with all
federal income tax considerations that may be relevant to some Visio
shareholders in light of their particular circumstances, such as dealers in
securities, shareholders who do not hold their Visio common stock as capital
assets, foreign persons, tax-exempt entities, or persons who are subject to the
alternative minimum tax provisions of the Internal Revenue Code. Furthermore,
it does not address the tax consequences particular to Visio shareholders who
acquired their shares in connection with stock options or stock purchase plans
or in other compensatory transactions, and does not address the effects of the
merger on holders of Visio stock options. Moreover, it does not address the tax
consequences of the merger under foreign, state or local tax laws.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE CONSEQUENCES OF THE MERGER,
INCLUDING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES
APPLICABLE TO YOU.
It is a condition to the merger that Visio receive an opinion from Shearman
& Sterling that the merger will constitute a reorganization under section 368
of the Code. Microsoft will receive a similar opinion from its
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counsel. The tax opinion will be based on and subject to certain assumptions
and limitations as well as factual representations received from Visio and
Microsoft, as discussed below. An opinion of counsel represents only counsel's
best legal judgment and has no binding effect or official status of any kind,
and contrary positions may be taken by the Internal Revenue Service or a court
considering the issues. Neither Visio nor Microsoft has requested or will
request a ruling from the IRS with regard to any of the United States federal
income tax consequences of the merger. The tax opinion and this discussion are
based on currently existing provisions of the Code, existing and proposed
Treasury regulations and current administrative rulings and court decisions.
Future legislative, judicial or administrative changes or interpretations may
adversely affect the accuracy of the tax opinion or of the statements and
conclusions in this discussion. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the merger.
Assuming the merger qualifies as a tax-free reorganization, the material
United States federal income tax consequences of the merger are as follows:
. Nature of the merger. Visio, Microsoft and MovieSub will each be "a party
to a reorganization" within the meaning of section 368(b) of the Code if
the merger is carried out in the manner provided in the merger agreement.
. Consequences to Visio. Visio will not recognize gain or loss upon
Microsoft's issuance of Microsoft common stock to Visio's shareholders in
the merger and the transfer by operation of law of MovieSub's assets and
liabilities to Visio upon consummation of the merger.
. Consequences to Visio's shareholders. No gain or loss will be recognized
by Visio's shareholders upon their receipt in the merger of Microsoft
common stock, except to the extent of cash received in lieu of fractional
shares of Microsoft common stock.
The aggregate tax basis of the Microsoft common stock you receive in the
merger (including any fractional share deemed received) will be the same as the
aggregate tax basis of the Visio common stock you surrendered in exchange for
the Microsoft common stock. The holding period of each share of Microsoft
common stock you receive in the merger will include the period during which you
held your Visio common stock.
Cash payments in lieu of a fractional share should be treated as if a
fractional share of Microsoft common stock had been issued in connection with
the merger and then redeemed by Microsoft. If you receive cash, you should
generally recognize a gain or loss at the time of that payment equal to any
difference between the amount of cash received and your basis in the fractional
share (which will be a pro rata portion of your basis in the Microsoft common
stock received in the merger).
If you receive solely cash for your Visio common stock by exercising
dissenters' rights, you will be obligated to report either (a) capital gain or
loss equal to the difference between the cash you received and your basis in
your Visio common stock or (b) dividend income, depending on whether the deemed
redemption resulting from the exercise of dissenters' rights qualifies for sale
or exchange treatment under the tests set forth in section 302(b) of the Code.
Under those tests, most Visio shareholders who exercise their dissenters'
rights should receive capital gain or loss treatment, rather than dividend
treatment, if the deemed redemption of their Visio common stock constitutes a
"complete redemption" of their interests in Visio (and Microsoft, after the
merger). To the extent that persons related to any such shareholder continue to
hold stock in Microsoft after the merger, the rules of section 318 of the Code
may require dividend treatment unless section 302 of the Code permits those
rules to be waived in a particular instance.
Limitations on opinion and discussion. A successful challenge by the IRS to
the tax-free reorganization status of the merger would result in Visio's
shareholders recognizing a taxable gain or loss for each share of Visio common
stock surrendered, equal to the difference between the shareholder's basis in
that share and the fair market value, as of the effective date of the merger,
of the Microsoft common stock received in exchange for the Visio share, plus
any cash received. This gain or loss would be treated as capital gain or loss
for each
32
shareholder. In that event, a shareholder's aggregate basis in Microsoft common
stock received would equal its fair market value at the effective date of the
merger and the holding period for the stock would begindecision on the day after the
effective date of the merger.
Accounting treatment of the merger
Microsoft expects to account for the merger using the pooling-of-interests
method of accounting in accordance with generally accepted accounting
principles. Under the pooling-of-interests method of accounting, the assets,
liabilities and shareholders' equity of Visio and Microsoft will be carried
forward by Microsoft at their recorded amounts. Microsoft has reserved the
right, however, to cause the merger to be accounted for as a purchase.
Microsoft's obligation to effect the merger, but not Visio's, is subject to
the receipt by Microsoft of a letter from Ernst & Young LLP, addressed to
Visio, regarding that firm's concurrence with the conclusion of Visio's
management that Visio meets the conditions necessary for it to enter into the
business combination accounted for as a pooling of interests.
Regulatory filings and approvals required to complete the merger
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
certain acquisition transactions, including the merger, cannot be consummated
unless specified information has been furnished to the Federal Trade Commission
and the Antitrust Division of the United States Department of Justice and
specific waiting period requirements have been satisfied. Under the Hart-Scott-
Rodino Act, the merger may not be consummated until the expiration of at least
30 days following the receipt of the filing, unless the waiting period is
earlier terminated by the FTC or the Antitrust Division or extended by the
issuance of a request for additional information and documents. On October 29,
1999, the Antitrust Division issued requests for additional information and
documents to both Microsoft and Visio. The requests extend the waiting period
under the Hart-Scott-Rodino Act for a period ending 20 days after both parties
have filed a proper response. The FTC and the Antitrust Division are charged
with enforcing antitrust laws concerning transactions such as the merger. At
any time before or after the consummation of the merger, the FTC or the
Antitrust Division could take such action under the antitrust laws as it deems
appropriate, including seeking to enjoin the consummation of the merger or
seeking the divestiture of assets of Visio or Microsoft. Visio and Microsoft
believe that the proposed merger does not violate the antitrust laws. However,
a challenge to the merger on antitrust grounds could be made. If such a
challenge is made, it is uncertain what the results would be. Due to the
international scope of Microsoft's and Visio's businesses, regulatory filings
may also be required in certain European and other jurisdictions. Microsoft and
Visio do not expect those filings to affect the expected timing of the merger.
Other than as described in this paragraph and the filing of the actual merger
documents with the Secretary of State of the state of Washington, Microsoft and
Visio believe that the merger does not require the approval of any federal,
state or other agency.
Exchange of Visio stock certificates for Microsoft stock certificates
After the closing of the merger, Microsoft will send a letter of transmittal
to all former Visio shareholders. In order to exchange Visio common stock for
Microsoft common stock, you must deliver the letter of transmittal to the
exchange agent, ChaseMellon Shareholder Services L.L.C. To be effective, the
letter of transmittal must be properly completed, signed and submitted to the
exchange agent in the return envelope mailed with the letter of transmittal and
accompanied by (a) the certificates as to which the exchange is proposed to be
made or (b) an appropriate guarantee of delivery of the certificates from a
firm that is a member of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States, provided that
you do in fact deliver the certificates to the exchange agent within three
Nasdaq trading days after the date you executed the guarantee of delivery.
Microsoft has the reasonable discretion, which it may delegate in whole or
in part to the exchange agent, to determine whether any letter of transmittal
has been properly completed, signed and submitted or revoked
33
and to disregard immaterial defects in the form of election or letter of
transmittal. The exchange agent will make all computations contemplated by the
merger agreement, and, in the absence of manifest error, all such computations
will be conclusive and binding on the holders of Visio common stock.
As soon as practicable after receipt of your properly completed letter of
transmittal, the exchange agent will deliver to you a certificate representing
the appropriate number of shares of Microsoft common stock, together with a
check representing the cash payment for any fractional share.
Listing of Microsoft common stock; delisting and deregistration of Visio common
stock
If the merger is completed, Microsoft is obligated to cause the shares of
Microsoft common stock that will be issued in connection with the merger, and
the shares of Microsoft common stock that will be issued on exercise of assumed
Visio options, to be quoted on the Nasdaq Stock Market or listed on the same
national securities exchange as Microsoft common stock is listed. Visio common
stock will be delisted from the Nasdaq Stock Market and will be deregistered
under the Exchange Act.
Operations after the merger
After the merger, Visio will continue to operate as a division within
Microsoft's Business Productivity Group. The Business Productivity Group is
charged with delivering business productivity solutions that empower knowledge
workers.
Jeremy Jaech, Visio's president and chief executive officer, will lead the
Visio division as a Microsoft vice president, reporting to Microsoft senior
vice president Robert Muglia. Visio co-founder Ted Johnson, Visio's executive
vice president and chief technology officer, also will become a Microsoft vice
president, reporting to Mr. Jaech and directing future product development for
the Visio division.
34
THE MERGER AGREEMENT
This section of the proxy statement/prospectus describes the merger
agreement. While we believe that the description covers the material terms of
the merger agreement, as amended, this summary may not contain all of the
information that is important to you. We urge you to carefully read the merger
agreement, which is attached to this proxy statement/prospectus as Annex A.
Conditions to completion of the merger
The obligations of each of Microsoft and Visio to effect the merger are
subject to the satisfaction before the closing date of specific conditions, any
or all of which may be waived, including:
. the approval by Visio's shareholders of the merger agreement as required
by Washington law;
. the obtaining of all legally required consents and approvals, including
expiration of the applicable waiting period under the Hart-Scott-Rodino
Act, except when the failure to obtain a consent would not have a
material adverse effect on the consummation of the merger or the business
condition of Microsoft or Visio;
. the effectiveness of the registration statement relating to the Microsoft
common stock to be issued in connection with the merger;
. the absence of any statute, rule, regulation, order, decree or injunction
prohibiting the merger;
. the absence of any material adverse change with respect to Visio's
business condition or the economic and business benefits expected from
the merger;
. the accuracy of the other party's representations and warranties in the
agreement, except in respects that do not have a material adverse effect,
and the receipt by each party of a certificate to that effect from a
designated executive officer of the other party;
. the performance by both parties of their obligations under the merger
agreement, except for breaches that would not have a material adverse
effect on the other party, and the receipt by each party of a certificate
to that effect from a designated executive officer of the other party;
. the receipt by Microsoft of a letter from Ernst & Young LLP, addressed to
Visio, regarding that firm's concurrence with the conclusion of Visio's
management that Visio meets the conditions necessary for it to enter into
the business combination accounted for as a pooling of interests;
. receipt by each of Visio and Microsoft of an opinion from its tax counsel
that the merger will qualify as a tax-free reorganization for federal
income tax purposes; and
. receipt by each of Visio and Microsoft of a legal opinion from the other
party's legal counsel.
If Microsoft elects to postpone the closing date once these conditions are
satisfied, the obligations of each party to effect the merger will no longer be
subject to any of the conditions. See the section entitled "Structure of the
merger; completion and effectiveness of the merger" on page 28.
Representations and warranties
The merger agreement contains customary representations and warranties of
each of Visio and Microsoft relating to, among other things:
. organization and related matters;
. capital structure;
. authorization, execution, delivery, performance and enforceability of the
merger agreement and related matters;
35
. an absence of defaults and violations under charter documents,
instruments and laws;
. documents filed by the parties with the SEC and the accuracy of the
information contained in those documents;
. the accuracy of information supplied by the parties for inclusion in
filings and other documents contemplated by the merger agreement;
. an absence of defaults under any obligations of the parties;
. an absence of undisclosed material adverse changes; and
. an absence of any action of a party that would preclude pooling-of-
interests accounting treatment.
Visio has made additional customary representations and warranties relating
to, among other things:
. litigation;
. an absence of undisclosed liabilities;
. ownership of Visio's subsidiaries;
. an absence of violations of any applicable law, rule, regulation,
judgment, decree or order of any governmental entity;
. employee benefit plans;
. major contracts;
. taxes;
. interests of officers and directors of Visio;
. intellectual property;
. the receipt of a fairness opinion from Visio's financial advisor;
. the vote required for approval of the merger agreement and the
consummation of the transactions contemplated by the merger agreement;
. leases; and
. environmental matters.
Conduct of business before closing of the merger
Microsoft and Visio have each agreed that until the earlier of the
termination of the merger agreement or the effective time of the merger, except
as expressly contemplated by the merger agreement or with the prior written
consent of the other party, it will take specified actions and decline to take
specified actions, as described below.
Each of Microsoft and Visio has agreed that it will, among other things:
. not take any action that would breach its respective representations and
warranties under the merger agreement;
. use its commercially reasonable best efforts to obtain all consents and
approvals required for the consummation of the transactions contemplated
by the merger agreement;
. take all reasonable steps to (a) make the filings required under the
Hart-Scott-Rodino Act with respect to the merger, (b) comply in a timely
manner with any request under the Hart-Scott-Rodino Act for additional
information from the FTC, the Antitrust Division of the Department of
Justice or other governmental entity with respect to such filings, and
(c) cooperate with the other party in connection
36
with any such filing and in connection with resolving any investigation or
other inquiry of any agency or other governmental entity under any
antitrust laws with respect to any such filing, the merger, or any other
relevant transaction;
. take all reasonable (a) steps to resolve any objections asserted by any
governmental entity with respect to the merger and (b) actions required
to cause the expiration of the notice periods under the Hart-Scott-Rodino
Act or other antitrust laws with respect to the merger and any other
relevant transactions;
. use its commercially reasonable best efforts to effectuate the
transactions contemplated by the merger agreement and fulfill the
conditions to the closing of the merger, subject to certain exceptions;
. use its commercially reasonable best efforts to cause each of its
principal shareholders to cooperate with counsel to Visio and Microsoft
to assist them in providing the required tax opinions;
. establish a transition committee, which will coordinate the joint efforts
of Visio and Microsoft to transition Visio's employees to Microsoft
positions; and
. take any necessary action so that the acquisition of Microsoft common
stock or options and the disposition of Visio common stock or options by
Visio employees subject to Section 16 of the Exchange Act and by Visio
directors will be exempt from the short-swing profit liability rules of
Section 16(b) and Rule 16b-3 of the Exchange Act.
Visio has agreed that it and each of its significant subsidiaries will carry
on their businesses in the ordinary course consistent with past practice, and
use all reasonable efforts consistent with past practice to preserve intact
their business organizations, keep their present officers, consultants and
employees and preserve their relationships with customers, suppliers,
distributors and others having business with them. Visio will promptly notify
Microsoft of any event that is not in the ordinary course of business of Visio
or its subsidiaries and is materially adverse to Visio's business condition. In
addition, Visio has agreed that, except as previously disclosed to Microsoft,
neither it nor any of its subsidiaries will:
. alter or accelerate any exercisability, vesting or similar provisions of
stock option or benefit plans or authorize cash payments in exchange for
awards under those plans, except in the ordinary course of business;
. grant any severance pay to any officer, director or employee, except in
the ordinary course consistent with past practice;
. transfer to any person or entity any rights to Visio's intellectual
property;
. enter into or amend any agreement granting a third party exclusive
marketing or manufacturing rights for more than two years;
. commence or settle any claim, action or proceeding, except in the
ordinary course of business or in immaterial amounts and except for
specified types of lawsuits;
. enter into leases that extend beyond September 14, 2004 and obligate
Visio to pay aggregate gross rent in excess of $1 million;
. declare or pay any dividends or make any other distributions with respect
to its capital stock, split or reclassify its capital stock, issue or
authorize the issuance of any other securities in respect of or in
substitution for its capital stock, or repurchase or otherwise acquire
any of its capital stock other than repurchasing vested stock from former
employees;
. issue or agree to issue any capital stock, options, warrants, calls,
conversion rights or other similar securities, subject to certain
exceptions;
. amend its corporate charter documents;
. acquire or agree to acquire any corporation, partnership or other
business organization or assets that are material to Visio's business
condition;
37
. dispose of any assets, except in the ordinary course of business or in
immaterial amounts;
. incur material indebtedness;
. enter into or materially amend employee benefit plans or, except in the
ordinary course of business, enter into employment agreements or increase
employee remuneration; or
. knowingly take any action that would disqualify the merger from being
accounted for as a pooling of interests.
In addition, Visio has agreed that it will:
. call a special meeting of Visio shareholders for the consideration and
approval of the merger agreement and the transactions contemplated by the
merger agreement;
. provide Microsoft with such information for inclusion in this proxy
statement/prospectus and the related registration statement as Microsoft
may reasonably request;
. terminate or modify any employee benefit plans as directed by Microsoft
immediately before the effective time of the merger or take such action
as may be directed by Microsoft to merge those plans with Microsoft
employee benefit plans at the effective time of the merger; and
. promptly file all tax returns and pay all taxes required to be filed or
paid before the closing of the merger.
Microsoft has agreed that it will:
. promptly notify Visio of any event or occurrence that is material and
adverse to Microsoft's business condition;
. delay any filings under the Hart-Scott-Rodino Act relating to the
acquisition by Microsoft or its subsidiaries of any business entity whose
products could reasonably be considered to be competitive with Visio's,
until the waiting period under the Hart-Scott-Rodino Act has expired for
the merger;
. use its commercially reasonable best efforts to cause the shares of
Microsoft common stock to be issued in connection with the merger and
upon the exercise of assumed Visio options to be quoted at the effective
time on the Nasdaq Stock Market or listed on the same national exchange
as Microsoft common stock is listed; and
. implement a retention bonus plan and a severance plan for the benefit of
Visio employees.
Exclusivity
Visio has agreed that it will not, and will use its commercially reasonable
best efforts to ensure that none of its officers, directors, agents,
representatives or affiliates will not, take or cause or permit any subsidiary
to take any of the following actions with any party other than Microsoft:
. solicit, knowingly encourage, initiate or participate in any
negotiations, inquiries or discussions regarding any offer or proposal to
acquire all or a significant part of Visio's or its subsidiaries'
business, assets or capital shares;
. enter into any agreement related to such an acquisition;
. authorize or announce any public statement, recommendation or
solicitation in support of such an acquisition; or
. disclose any customarily nonpublic information about Visio in connection
with such an acquisition.
However, Visio's board of directors may recommend to shareholders that they
tender their shares in connection with a tender offer by an acquiror other than
Microsoft if the board determines in good faith and after
38
consultation with legal counsel that its fiduciary duty to its shareholders
requires such a recommendation. In addition, the board may give information to
a third party who has made an unsolicited acquisition proposal that the board
reasonably believes is financially more favorable to Visio and its shareholders
than the merger with Microsoft, as long as Visio notifies Microsoft one
business day before furnishing the information. Visio will promptly inform
Microsoft of any inquiry or proposal that it receives with respect to an
acquisition transaction or any request by any person for nonpublic information
concerning Visio or any of its subsidiaries, and will provide Microsoft with
the material facts relating to any such offer, proposal or request, including
the identity of the third party making the inquiry or proposal. After that
notification, Visio is obligated to inform Microsoft of additional material
facts as they arise and to provide Microsoft with any additional information
Visio gives to the third party.
Termination of the merger agreement
Even if Visio's shareholders approve the merger agreement, the merger
agreement may be terminated by the mutual agreement of the parties at any time
before the effective time of the merger. In addition, the merger agreement may
be terminated by either Visio or Microsoft under any of the following
circumstances:
. as a result of a breach of a representation, warranty, covenant or
agreement by the other party, if the breach has a material adverse effect
on the business of the nonbreaching party and the breach has not been
cured or commercially reasonable best efforts are not being employed to
cure the breach;
. if the merger has not been consummated before March 31, 2000 (subject to
extension until September 30, 2000 if Visio and Microsoft have agreed to
pursue litigation against any administrative or judicial action or
proceeding challenging the merger on the basis that it violates antitrust
law);
. if Visio shareholders have voted on but not approved the merger
agreement; or
. if any permanent injunction or other order preventing the merger has
become final and non-appealable.
In addition, Microsoft may terminate the merger agreement if:
. Visio's board of directors withdraws or modifies its approval of the
merger; or
. Visio or its representatives take any action prohibited by the
exclusivity provisions of the merger agreement and that action has a
material adverse effect on Visio's business condition.
Termination fee
Visio has agreed to pay Microsoft a termination fee of $30 million if
Microsoft is not then in material breach of the merger agreement and Microsoft
terminates the agreement for any of the following reasons:
. Visio's board of directors has withdrawn or modified, in a manner adverse
to Microsoft, its approval or recommendation of the merger, and Visio has
agreed with any person other than Microsoft to a transaction that will
result in a change in the beneficial ownership of more than 50% of the
voting power of Visio capital stock;
. Visio or its representatives have taken any action prohibited by the
exclusivity provisions of the merger agreement and that action has a
material adverse effect on Visio's business condition; or
. Visio has willfully and materially breached its representations,
warranties, covenants or agreements and that breach has not been cured as
required by the merger agreement.
The right to payment of the termination fee is the exclusive remedy at law
or in equity to which Microsoft may be entitled on termination of the merger
agreement under the conditions described above. The termination fee may
increase the likelihood of the completion of the merger in accordance with the
terms of the merger agreement. The termination fee may also discourage persons
from making an offer to acquire all of or a significant interest in Visio by
increasing the cost of an acquisition.
39
If the merger agreement is terminated under circumstances that entitle
Microsoft to the termination fee, Microsoft will also be entitled to exercise
its option to purchase up to 6,012,500 shares of Visio common stock at $42.78
per share. See the section entitled "The Visio stock option agreement" on page
41.
Extension; waiver
At any time before the effective time of the merger, any party to the
merger agreement may, to the extent legally allowed, extend the time for the
performance of any other party's obligations under the merger agreement, waive
any inaccuracies in the representations and warranties of any other party in
the merger agreement or related documents, and waive compliance with any of
the agreements, conditions or covenants in the merger agreement that are for
the benefit of the waiving party.
Amendment to merger agreement
On October 29, 1999, Microsoft and Visio amended the merger agreement. The
merger agreement originally provided that closing would occur no later than
the third business day after satisfaction of the conditions to closing. As
amended, once the conditions to closing have been satisfied Microsoft may
elect to postpone the closing to a date not later than December 30, 1999. If
Microsoft so elects, the obligations of the parties to effect the merger will
no longer be subject to any of the closing conditions. By the amendment, the
parties also eliminated a requirement relating to accountants' comfort
letters, and Microsoft agreed to publish interim financial results covering 30
days of combined operations as soon as practicable after the end of a calendar
month that is at least 30 days after the effective time of the merger.
The merger agreement attached to this proxy statement/prospectus as Annex A
reflects these amendments.
Additional amendments
The merger agreement may be further amended by Microsoft and Visio at any
time before or after approval by Visio's shareholders, except that, after
shareholder approval, Visio and Microsoft may not make any amendment that by
law requires the further approval of Visio's shareholders without obtaining
that approval.
40
RELATED AGREEMENTS
This section of the proxy statement/prospectus describes agreements related
to the merger agreement, including the stock option agreement, the Visio
management voting agreements and letters of Visio affiliates. While we believe
that these descriptions cover the material terms of these agreements, these
summaries may not contain all of the information that is important to you. You
should read the related agreements, which are attached to this proxy
statement/prospectus or filed as an exhibit to the registration statement filed
by Microsoft with the SEC, of which this proxy statement/prospectus is a part.
The Visio stock option agreement
As a condition to Microsoft entering into the merger agreement, Visio
entered into a stock option agreement with Microsoft. The stock option
agreement grants Microsoft the option to buy up to 6,012,500 shares of Visio
common stock, which represented 19.9% of the issued and outstanding shares of
Visio common stock as of September 14, 1999. The exercise price of the option
is $42.78 per share. The number of shares issuable upon exercise of the option
and the exercise price of the option are subject to adjustment to prevent
dilution and to maintain the number of shares issuable upon exercise of the
option at 19.9% of Visio's outstanding common stock.
Unless the option is terminated as described below, Microsoft may exercise
the option, in whole or part, up to one year from the date on which Microsoft
has the right to be paid the termination fee described in the section entitled
"Termination fee" on page 39.
Microsoft's option will terminate upon the earlier of either of the
following:
. the completion of the merger or
. the termination of the merger agreement, if the termination occurs before
an event that causes the option to become exercisable and in
circumstances under which Visio is not required to pay the termination
fee.
With some exceptions and qualifications, on Microsoft's request within 30
days of an event that makes the option exercisable, Visio must register at its
own expense the shares of common stock issued and issuable to Microsoft under
the option. Visio must use its best efforts to keep that registration statement
effective until Microsoft can dispose of the shares issued to it under the
option, up to a maximum 180 days.
If, before the termination of the option, Visio:
. merges with an entity other than Microsoft or its subsidiaries, and is
not the surviving corporation;
. is the surviving corporation in a merger with an entity other than
Microsoft or its subsidiaries, after which the then-outstanding shares of
Visio common stock represent less than 50% of the outstanding securities
of the merged company; or
. sells all or substantially all of its assets to an entity other than
Microsoft or its affiliates,
the agreement governing the transaction must provide that Microsoft's option
will be converted into an option of, at the election of Microsoft, either the
acquiring entity or any entity controlling the acquiring entity. On request of
the holder of the substitute option, the issuer of the substitute option must
repurchase the substitute option from the holder. Visio has agreed not to enter
into any of the transactions described above unless the acquiror agrees in
writing to assume Visio's obligations under the option agreement.
The sum of Microsoft's total profit arising from the provisions of the
option agreement and the termination fee provided for in the merger agreement
may not exceed $50 million. If Microsoft's total profit would exceed that
amount, Microsoft may choose to reduce the number of shares subject to the
option, have Visio cancel shares of common stock issued to Microsoft, pay cash
to Visio, or do any combination of these, to reduce its realized profit to no
more than $50 million.
41
Microsoft intends the option to increase the likelihood that the merger will
be completed. The stock option agreement may have the effect of discouraging
persons who might be interested in acquiring all or a significant interest in
Visio or Visio's assets before completion of the merger by increasing the cost
of such an acquisition. In addition, if the merger agreement is terminated and
Microsoft's option becomes exercisable, Visio would not be able to account for
the transaction that triggered the exercisability of the option as a pooling of
interests.
The stock option agreement is attached to this proxy statement/prospectus as
Annex B. We urge you to read it carefully and in its entirety.
Visio management voting agreements
As a condition to the merger agreement, Microsoft required Visio's directors
and executive officers to enter into voting agreements. These voting agreements
require Visio's directors and executive officers to vote all of the shares of
Visio common stock they beneficially own in favor of the merger. As of October
21, 1999, the record date, Visio's directors and executive officers
collectively owned 4,206,137 shares of Visio common stock, which represented
approximately 14% of Visio's outstanding common stock.
Each Visio director and executive officer also agreed not to sell or
otherwise dispose of Visio common stock currently owned or later acquired until
the expiration of the voting agreement, unless the sale would not, in
Microsoft's reasonable judgment, violate the SEC's pooling-of-interests rules.
In connection with the agreement, Visio's directors and executive officers
granted an irrevocable proxy to the directors of Microsoft, giving the
Microsoft directors the right to vote the shares covered by the voting
agreement as described above.
The voting agreement will expire on the earlier of the termination of the
merger agreement in accordance with its terms or the completion of the merger.
None of Visio's directors or executive officers were paid additional
consideration in connection with a voting agreement.
42
COMPARISON OF RIGHTS OF HOLDERS OF
VISIO COMMON STOCK AND MICROSOFT COMMON STOCK
After completion of the merger, the holders of Visio common stock will
become shareholders of Microsoft. Because Visio and Microsoft are both
Washington corporations, the rights of former Visio shareholders will continue
to be governed by Washington law. Before the merger, the rights of shareholders
of Visio are governed by Visio's articles of incorporation and bylaws. After
the merger, as Microsoft shareholders, their rights will be governed by
Microsoft's articles of incorporation and bylaws, as those documents currently
exist or may exist in the future.
The following discussion summarizes the material differences between the
rights of holders of Microsoft common stock and holders of Visio common stock
under the articles of incorporation and bylaws of Microsoft and Visio. This
summary is not complete and is qualified in its entirety by reference to
Microsoft's articles of incorporation and bylaws, Visio's articles of
incorporation and bylaws and the relevant provisions of Washington law. Copies
of the charter documents are attached as exhibits to Visio's and Microsoft's
filings with the SEC. See "Documents incorporated by reference into this proxy
statement/prospectus" and "Where you can find more information" on page 50.
Right to call special meeting of shareholders. The Washington Business
Corporation Act allows a public company to limit or deny the right of
shareholders to call a special meeting of shareholders to the extent provided
in the company's articles of incorporation. Visio's articles of incorporation
provide that, because the company qualifies as a public company, only the board
of directors or the holders of more than 50% of the shares entitled to vote at
the meeting may call a special meeting. Microsoft's articles of incorporation
deny shareholders the right to call a special meeting by providing that a
special meeting of shareholders may be called only by Microsoft's board of
directors or by a duly designated committee of the board.
Rights of holders of preferred stock. The WBCA permits a corporation's
articles of incorporation to grant the board of directors the right to
authorize and issue series of preferred stock with the preferences,
limitations, voting powers and relative rights that the board deems
appropriate. Both Visio's and Microsoft's articles of incorporation permit the
board of directors to issue preferred stock. No shares of Visio preferred stock
are currently outstanding, and 12,519,562 shares of Microsoft preferred stock
were outstanding as of August 31, 1999. No Microsoft preferred stock will be
issued in connection with the merger. Holders of Microsoft preferred stock are
entitled to dividends and preferences upon liquidation that are superior to the
rights enjoyed by holders of Microsoft common stock.
Treasury stock. The WBCA provides that when a corporation acquires its own
shares from shareholders, those shares become authorized but unissued shares.
Visio's articles of incorporation do not alter this rule. Microsoft's articles
of incorporation provide that, notwithstanding the WBCA, shares acquired by
Microsoft are considered treasury stock and are considered to be authorized,
issued and held by Microsoft.
43
RIGHTS OF DISSENTING VISIO SHAREHOLDERS
The following is a brief summary of the rights of holders of Visio common
stock to dissent from the merger and receive cash equal to the fair value of
their Visio common stock instead of receiving shares of Microsoft common stock.
This summary is not exhaustive, andOffers, you should read the applicable sections of
chapter 23B.13 of the WBCA, which is attached to this proxy
statement/prospectus as Annex D.
If you are contemplating the possibility of dissenting from the merger, you
should carefully review the text of Annex D, particularly the procedural steps
required to perfect dissenters' rights, which are complex. You should also
consult your legal counsel. If you do not fully and precisely satisfy the
procedural requirements of the WBCA, you will lose your dissenters' rights.
Requirements for exercising appraisal rights
To exercise dissenters' rights, you must:
. file with Visio before the vote is taken at the special meeting written
notice of your intent to demand the fair value for your Visio common
stock if the merger is consummated and becomes effective; and
. not vote your shares of Visio common stock at the special meeting in
favor of the proposal to approve the merger agreement.
If you do not satisfy each of these requirements, you cannot exercise
dissenters' rights and will be bound by the terms of the merger agreement.
Submitting a proxy card that does not direct how the Visio common stock
represented by that proxy is to be voted will constitute a vote in favor of the
merger and a waiver of your statutory dissenters' rights. In addition, voting
against the proposal to approve the merger will not satisfy the notice
requirement referred to above. You must file the written notice of the intent
to exercise dissenters' rights with Visio at: Visio Corporation, 2211 Elliott
Avenue, Seattle, WA 98121, Attn: Wm. Kenneth McGraw, General Counsel and
Secretary.
Appraisal procedure
Within 10 days after the proposed merger has been approved, Visio will send
written notice to all shareholders who have given written notice under the
dissenters' rights provisions and have not voted in favor of the merger as
described above. The notice will contain:
. the address where the demand for payment and certificates representing
shares of Visio common stock must be sent and the date by which they must
be received;
. any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
. a form for demanding payment that states the date of the first
announcement to the news media or to shareholders of the proposed merger
and requires certification of the date the shareholder, or the beneficial
owner on whose behalf the shareholder dissents, acquired the Visio common
stock or an interest in it; and
. a copy of the dissenters' rights provisions of the WBCA, attached as
Annex D.
If you wish to assert dissenters' rights, you must demand payment and
deposit your Visio certificates within 30 days after the notice is given. If
you fail to make demand for payment and deposit your Visio certificates within
the 30-day period, you will lose the right to receive fair value for your
shares under the dissenters' rights provisions, even if you filed a timely
notice of intent to demand payment.
44
Except as provided below, within 30 days of the later of the effective time
of the merger or Visio's receipt of a valid demand for payment, Visio will
remit to each dissenting shareholder who compliedprospectus supplement, together with the requirements of the
WBCA the amount Visio estimates to be the fair value of the shareholder's Visio
common stock, plus accrued interest. Visio will include the following
information with the payment:
. financial data relating to Visio;
. Visio's estimate of the fair value of the shares and a brief description
of the method used to reach that estimate;
. a copy of chapter 23B.13 of the WBCA; and
. a brief description of the procedures to be followed in demanding
supplemental payment.
For dissenting shareholders who were not the beneficial owner of the shares
of Visio common stock before September 15, 1999, Visio may withhold payment and
instead send a statement setting forth its estimate of the fair value of their
shares and offering to pay such amount, with interest, as a final settlement of
the dissenting shareholder's demand for payment.
If you are dissatisfied with your payment or offer, you may, within 30 days
of the payment or offer for payment, notify Visio in writing of and demand
payment of your estimate of fair value of your shares and the amount of
interest due. If any dissenting shareholder's demand for payment is not settled
within 60 days after receipt by Visio of his or her payment demand, section
23B.13.300 of the WBCA requires that Visio commence a proceeding in King County
Superior Court and petition the court to determine the fair value of the shares
and accrued interest, naming all the dissenting shareholders whose demands
remain unsettled as parties to the proceeding.
The court may appoint one or more appraisers to receive evidence and make
recommendations to the court as to the amount of the fair value of the shares.
The fair value of the shares as determined by the court is binding on all
dissenting shareholders and may be less than, equal to or greater than the
market price of the Microsoft common stock to be issued to nondissenting
shareholders for their Visio common stock if the merger is consummated. If the
court determines that the fair value of the shares is in excess of any amount
remitted by Visio, then the court will enter a judgment for cash in favor of
the dissenting shareholders in an amount by which the value determined by the
court, plus interest, exceeds the amount previously remitted.
The court will determine the costs and expenses of the court proceeding and
assess them against Visio, except that the court may assess part or all of the
costs against any dissenting shareholders whose actions in demanding
supplemental payments are found by the court to be arbitrary, vexatious or not
in good faith. If the court finds that Visio did not substantially comply with
the relevant provisions of sections 23B.13.200 through 23B.13.280 of the WBCA,
the court may also assess against Visio any fees and expenses of attorneys or
experts that the court deems equitable. The court may also assess those fees
and expenses against any party if the court finds that the party has acted
arbitrarily, vexatiously or not in good faith in bringing the proceedings. The
court may award, in its discretion, fees and expenses of an attorney for the
dissenting shareholders out of the amount awarded to the shareholders, if it
finds the services of the attorney were of substantial benefit to the other
dissenting shareholders and that those fees should not be assessed against
Visio.
A shareholder of record may assert dissenters' rights as to fewer than all
of the shares registered in the shareholder's name only if he or she dissents
with respect to all shares beneficially owned by any one person and notifies
Visio in writing of the name and address of each person on whose behalf he or
she asserts dissenters' rights. The rights of the partial dissenting
shareholder are determined as if the shares as to which he or she dissents and
his or her other shares were registered in the names of different shareholders.
Beneficial owners of Visio common stock who desire to exercise dissenters'
rights themselves must obtain and submit the registered owner's written consent
at or before the time they file the notice of intent to demand fair value.
45
For purposes of the WBCA, "fair value" means the value of Visio common stock
immediately before the effective time of the merger, excluding any appreciation
or depreciation in anticipation of the merger, unless that exclusion would be
inequitable. Under section 23B.13.020 of the WBCA, a Visio shareholder has no
right, at law or in equity, to set aside the approval and adoption of the
merger or the consummation of the merger except if the approval, adoption or
consummation fails to comply with the procedural requirements of chapter 23B.13
of the WBCA, Revised Code of Washington sections 25.10.900 through 25.10.955,
Visio's articles of incorporation or Visio's bylaws, or was fraudulent with
respect to that shareholder or Visio.
46
SHARE OWNERSHIP OF PRINCIPAL SHAREHOLDERS,
MANAGEMENT AND DIRECTORS OF VISIO
The following table provides information concerning the beneficial ownership
of Visio common stock as of October 21, 1999, the record date, for the
following:
. each person or entity who is known by Visio to beneficially own more than
5% of the outstanding shares of Visio common stock;
. each of Visio's current directors;
. Visio's chief executive officer and its five other executive officers;
and
. all of Visio's directors and executive officers as a group.
This table includes percentage ownership data reflecting ownership both
before and after consummation of the merger with Microsoft. The pre-merger
percentage ownership is based on 30,431,714 shares of Visio common stock
outstanding as of the record date. The post-merger percentage ownership
includes only the 13,694,271 shares of Microsoft common stock that would be
issued to Visio shareholders based on the 30,431,714 shares of Visio common
stock outstanding as of the record date. All shares subject to options
exercisable within 60 days after October 21, 1999 are deemed to be beneficially
owned by the person or entity holding that option and to be outstanding solely
for calculating that person's or entity's percentage ownership.
Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Pre-Merger Post-Merger
----------------------------- -----------------------------
Number of Shares Percent of
Number of Shares Percent of of Microsoft Microsoft
of Visio Stock Visio Stock Common Stock Common Stock
Name and Address of Beneficially Beneficially Beneficially Beneficially
Beneficial Owner Owned Owned Owned Owned
- ------------------- ---------------- ------------ ---------------- ------------
PRINCIPAL
SHAREHOLDERS(1)
Microsoft
Corporation(2)......... 10,805,012 29.6% -- --
One Microsoft Way
Redmond, WA 98052
J.W. Seligman & Co.
Incorporated(3)........ 3,040,935 10.0% 1,368,421 *
100 Park Avenue, 8th
Floor
New York, NY 10006
T. Rowe Price
Associates, Inc.(4).... 2,559,900 8.4% 1,151,955 *
100 E. Pratt Street
Baltimore, MD 21202
DIRECTORS
Tom A. Alberg(5)........ 79,500 * 35,775 *
Tom Byers, Ph.D.(6)..... 33,600 * 15,120 *
Jeremy A. Jaech(7)(8)... 2,020,262 6.6% 909,118 *
Theodore C.
Johnson(8)(9).......... 1,772,050 5.8% 797,423 *
John R. Johnston(10).... 204,979 * 92,241 *
Douglas J.
Mackenzie(11).......... 99,940 * 44,973 *
Robert McDowell......... 5,000 * 2,250 *
Scott Oki(12)........... 299,384 * 134,723 *
EXECUTIVE OFFICERS
Steve M. Gordon(13)..... 152,750 * 68,738 *
Jim Horsburgh(14)....... 38,949 * 17,527 *
M. Thomas Hull(15)...... 30,869 * 13,891 *
Evelyn Cruz Sroufe(16).. 56,479 * 25,416 *
All directors and
executive officers as a
group
(12 persons)(17)....... 4,793,762 15.8% 2,157,193 *
47
- --------
* Less than 1%
(1) Based on Visio's review of schedules and reports filed with the SEC under
sections 13(d) and 13(g) of the Exchange Act.
(2) Includes 6,012,500 shares issuable upon exercise of a stock option, which
is exercisable only if Microsoft terminates the merger agreement under
specified conditions. See "The Visio stock option agreement" on page 41.
Also includes 4,792,512 shares subject to a voting agreement between
Microsoft and Visio's directors and executive officers, under which
Visio's directors and executive officers have agreed to vote all of the
shares beneficially owned by them in favor of the merger agreement.
(3) Includes 1,800,000 shares held by Seligman Communications & Information
Fund, Inc., for whom J.W. Seligman & Co. Incorporated serves as investment
advisor.
(4) Represents the aggregate number of shares held by all client accounts and
mutual funds managed by T. Rowe Price Associates, Inc. No single client
account or fund managed by T. Rowe Price owns 5% or more of the
outstanding shares of Visio common stock.
(5) Includes 77,500 shares issuable upon exercise of stock options
(6) Consists of 33,600 share issuable upon exercise of stock options.
(7) Includes an aggregate of 110,000 shares over which Mr. Jaech has voting
control with respect to the Ryan Philip Johnson Trust of 1995 (55,000
shares) and the Matthew Tyler Johnson Trust of 1995 (55,000 shares),
trusts created for the benefit of Mr. Johnson's children. Mr. Johnson has
not retained any control over the trusts. Mr. Johnson's father, Vernon D.
Johnson, as trustee, has investment power with respect to these shares.
Does not include an aggregate of 289,900 shares held by three trusts
established for the benefit of Mr. Jaech's children and other relatives.
Mr. Jaech is neither a trustee nor a beneficiary of these trusts and
disclaims any beneficial ownership of the common stock held by these
trusts.
(8) Messrs. Jaech and Johnson are also executive officers of Visio. The
business address for Messrs. Jaech and Johnson is: Visio Corporation, 2211
Elliott Avenue, Seattle, Washington 98121.
(9) Includes an aggregate of 289,900 shares over which Mr. Johnson has voting
control with respect to the Christopher Leo Jaech Trust of 1993 (139,900
shares), the Elisabeth Anna Jaech Trust of 1991 (140,000 shares) and the
Jeremy and Linda Jaech Educational Trust (10,000 shares), trusts created
for the benefit of Mr. Jaech's children and other relatives. Mr. Jaech has
not retained any control over these trusts. Seattle-First Stock Bank,
N.A., as trustee, has investment power with respect to these shares. Also
includes 60,000 shares held by Mr. Johnson's spouse. Does not include an
aggregate of 110,000 shares held by two trusts established for the benefit
of Mr. Johnson's children. Mr. Johnson is neither a trustee nor a
beneficiary of these trusts and disclaims any beneficial ownership of the
common stock held by these trusts.
(10) Includes 49,500 shares issuable upon exercise of stock options.
(11) Includes 43,500 shares issuable upon exercise of stock options.
(12) Includes 109,500 shares issuable upon exercise of stock options.
(13) Consists of 152,750 shares issuable upon exercise of stock options.
(14) Includes 36,650 shares issuable upon exercise of stock options.
(15) Includes 28,375 shares issuable upon exercise of stock options.
(16) Includes 56,250 shares issuable upon exercise of stock options.
(17) Includes 587,625 shares issuable upon exercise of stock options.
48
LEGAL MATTERS
The validity of the Microsoft common stock to be issued to Visio
shareholders in the merger will be passed upon by Preston Gates & Ellis LLP,
Seattle, Washington. It is a condition to the completion of the merger that
Visio receive an opinion from Shearman & Sterling, Menlo Park, California, and
that Microsoft receive an opinion from Preston Gates & Ellis LLP, with respect
to the tax treatment of the merger.
EXPERTS
The financial statements of Microsoft incorporated into this proxy
statement/prospectus by reference to Microsoft's Annual Report on Form 10-K for
the fiscal year ended June 30, 1999 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report. Deloitte & Touche's report is
incorporated into this proxy statement/prospectus by reference in reliance on
their report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited Visio's consolidated
financial statements included in Visio's annual report on Form 10-K for the
fiscal year ended September 30, 1998, as set forth in their report, which is
incorporated into this proxy statement/prospectus by reference. Visio's
consolidated financial statements aredocuments incorporated by reference in reliance onthis prospectus, the auditors' report, given on their authority as experts in accountingregistration statement, the exhibits thereto and auditing.
SHAREHOLDER PROPOSALS
Visio will hold an annual meeting of Visio shareholders in the year 2000
only ifadditional information described under the merger is not completed before the time of that meeting. If the
merger is not completed, you may present proper proposals for consideration at
the next annual meeting of Visio shareholders by submitting your proposal in
writing to the secretary of Visio in a timely manner.
Federal securities law and Visio's bylaws establish an advance notice
procedure with regard to matters to be brought before an annual meeting of
shareholders, including shareholder proposals not included in Visio's proxy
statement. Under federal proxy rules, a shareholder proposing to transact
business at Visio's annual meeting of shareholders and who wishes to include
the proposal in Visio's proxy statement and form of proxy for the annual
meeting must provide notice of the proposal no later than 120 days before the
date the proxy materials for the previous year's annual meeting were sent to
Visio's shareholders. Under Visio's bylaws, a shareholder proposing to transact
business at Visio's annual meeting of shareholders must provide notice of the
proposal, in the manner required by Visio's bylaws, no later than 60 days
before the date of the annual meeting (or, if Visio provides less than 60 days'
notice of the meeting, no later than 10 days after the date of Visio's notice).
For shareholder proposals to be considered for inclusion in Visio's proxy
statement and form of proxy relating to its 2000 annual meeting of
shareholders, the proposals must have been received by Visio by September 10,
1999. For shareholder proposals that will not be included in Visio's proxy
statement and form of proxy, the proposals must be received by Visio no later
than December 27, 1999. If Visio receives notice of a shareholder proposal
after November 24, 1999, however, the persons named as proxies in the proxy
statement and form of proxy will have discretionary authority to vote on the
shareholder proposal.
49
DOCUMENTS INCORPORATEDheading “Where You Can Find More Information.”
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE INTO THIS
PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus incorporates documents by reference that are
not presented in or delivered with this document.
The SEC allows Microsoft and Visious to "incorporateincorporate by reference"reference information into this proxy statement/prospectus, whichprospectus. This means that we can disclose important information to you by referring you to another document filed
separately with the SEC. Thedocument. Any information incorporated by referencereferred to in this way is deemed to
beconsidered part of this proxy statement/prospectus except for any information
supersededfrom the date we file that document. Any reports filed by information included in or incorporated by reference from
subsequently filed documents into this proxy statement/prospectus. This proxy
statement/prospectus incorporates by reference the documents listed below that
Microsoft and Visio have previously filed with the SEC. These documents contain
important information about Microsoft's and Visio's business and finances.
v
We incorporate by reference in documents to which we have referred you. We have not authorized anyone to
provide you with different information.
WHERE YOU CAN FIND MORE INFORMATION
On your written or oral request, Visio or Microsoft will provide you,
without charge, with a copy of any ofthis prospectus the documents incorporated by reference
into this proxy statement/prospectus, not including exhibits to the information
unless those exhibits are specifically incorporated by reference. You should
make any request for documents by Monday, December 6, 1999 to ensure timely
delivery of the documents.
50
Requests for documents relating to Visio Requests for documents relating to
should be directed to: Microsoft should be directed to:
Visio Corporation Microsoft Corporation
2211 Elliott Avenue One Microsoft Way
Seattle, Washington 98121 Redmond, Washington 98052
(206) 956-6000 (800) 285-7772
Attention: Investor Relations Attention: Investor Relations
Visio and Microsoft file annual, quarterly and special reports, proxy
statements and other information with the SEC. Copies of Visio's or Microsoft's
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Web siteset forth below that includes reports, proxy statements and other
information regarding Microsoft and Visio. The address of the SEC Web site is
http://www.sec.gov.
Microsoft has filed a registration statement under the Securities Act with
the SEC to register the Microsoft common stock to be issued to Visio's
shareholders in the merger. This proxy statement/prospectus is part of that
registration statement. As allowed by SEC rules, this proxy
statement/prospectus does not contain all of the information you can find in
the registration statement or the exhibits to the registration statement, and
constitutes a prospectus of Microsoft in addition to being a proxy statement of
Visio for the special meeting. You may inspect and copy the registration
statement at any of the addresses listed above.
If you have any questions about the merger, please call Visio's investor
relations group at (206) 956-6000. You may also call Microsoft's investor
relations group at (800) 285-7772.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement/prospectus and the documents incorporated by reference
into this proxy statement/prospectus contain forward-looking statements within
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. All forward-looking statements involve risks and uncertainties. Words
such as "anticipates," "expects," "intends," "plans," "believes," "seeks" and
"estimates" and similar expressions identify forward-looking statements, and
any statements regarding the benefits of the merger and Microsoft's and Visio's
financial condition, results of operations and business are forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to risks, contingencies and uncertainties that
could cause actual results to differ materially from the results contemplated
by the forward-looking statements.
Factors that may affect such forward-looking statements include:
. the ability to retain Visio's key employees after the consummation of the
merger;
. competitive factors in the businesses in which Microsoft and Visio
compete;
. changes in governmental regulation; and
. overall economic and business conditions.
51
For a description of some of the factors or uncertainties in Visio's and
Microsoft's respective operations and business environment that could cause
actual results to differ from those discussed in forward-looking statements,
see Microsoft's Annual Report on Form 10-K for the fiscal year ended June 30,
1999, other documents Microsoft has subsequentlybeen previously filed with the SEC, Visio's
Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and
other documents Visio has subsequently filed with the SEC, all of which are
incorporated by reference into this proxy statement/prospectus.
52
ANNEX A
MICROSOFT CORPORATION
MOVIESUB, INC.
VISIO CORPORATION
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of September 14, 1999
and amended as of October 29, 1999
CONTENTS
ARTICLE I THE MERGER...................................................... A-1
1.1 Effective Time of the Merger......................................... A-1
1.2 Closing.............................................................. A-1
1.3 Effects of the Merger................................................ A-2
1.4 Tax-Free Reorganization.............................................. A-2
1.5 Accounting Treatment................................................. A-2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS, EXCHANGE OF CERTIFICATES................................... A-2
2.1 Effect on Capital Stock.............................................. A-2
2.1.1 Capital Stock of Sub......................................... A-2
2.1.2 Cancellation of Company Common Stock......................... A-2
2.1.3 Conversion of Company Common Stock........................... A-3
2.1.4 Adjustments of Exchange Ratio................................ A-3
2.1.5 Dissenters' Rights........................................... A-3
2.1.6 Fractional Shares............................................ A-3
2.2 Exchange of Certificates............................................. A-4
2.2.1 Exchange Agent............................................... A-4
2.2.2 Microsoft to Provide Common Stock and Cash................... A-4
2.2.3 Exchange Procedures.......................................... A-4
2.2.4 No Further Ownership Rights in Company Common Stock.......... A-4
2.2.5 Return to Microsoft.......................................... A-5
2.3 Company Options...................................................... A-5
2.3.1 Assumption by Microsoft...................................... A-5
2.3.2 Registration................................................. A-5
2.3.3 Notice; Reservation of Shares................................ A-6
2.4 Employee Stock Purchase Plan......................................... A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES................................ A-6
3.1 Representations and Warranties of Company............................ A-6
3.1.1 Organization, Standing and Power............................. A-6
3.1.2 Capital Structure............................................ A-7
3.1.3 Authority.................................................... A-7
3.1.4 SEC Documents and Financial Statements....................... A-8
3.1.5 Information Supplied......................................... A-8
3.1.6 No Defaults.................................................. A-9
3.1.7 Litigation................................................... A-9
3.1.8 No Material Adverse Change................................... A-9
3.1.9 Absence of Undisclosed Liabilities........................... A-10
3.1.10 No Violations................................................ A-10
3.1.11 Certain Agreements........................................... A-10
3.1.12 Employee Benefit Plans....................................... A-10
3.1.13 Major Contracts.............................................. A-11
3.1.14 Taxes........................................................ A-11
3.1.15 Interests of Officers........................................ A-12
3.1.16 Technology and Intellectual Property Rights.................. A-12
3.1.17 Opinion of Financial Advisor................................. A-14
3.1.18 Vote Required................................................ A-14
3.1.19 Accounting Matters........................................... A-15
3.1.20 Brokers and Finders.......................................... A-15
3.1.21 Change of Control............................................ A-15
A-i
CONTENTS--(Continued)
3.1.22 Leases in Effect............................................. A-15
3.1.23 Environmental................................................ A-15
3.1.24 Certain Payments............................................. A-16
3.1.25 Reliance..................................................... A-16
3.2 Representations and Warranties of Microsoft and Sub.................. A-16
3.2.1 Organization; Standing and Power............................. A-16
3.2.2 Capital Structure............................................ A-16
3.2.3 Authority.................................................... A-17
3.2.4 SEC Documents and Financial Statements....................... A-17
3.2.5 Information Supplied......................................... A-18
3.2.6 No Defaults.................................................. A-18
3.2.7 Absence of Certain Changes or Events......................... A-18
3.2.8 Absence of Undisclosed Liabilities........................... A-18
3.2.9 No Vote Required............................................. A-18
3.2.10 Accounting Matters........................................... A-18
3.2.11 Brokers and Finders.......................................... A-19
3.2.12 Interim Operation of Sub..................................... A-19
3.2.13 Reliance..................................................... A-19
ARTICLE IV COVENANTS OF COMPANY........................................... A-19
4.1 Conduct of Business.................................................. A-19
4.1.1 Ordinary Course.............................................. A-19
4.1.2 Dividends: Changes in Stock.................................. A-20
4.1.3 Issuance of Securities....................................... A-20
4.1.4 Governing Documents.......................................... A-20
4.1.5 Exclusivity; Acquisition Proposals........................... A-20
4.1.6 No Acquisitions.............................................. A-22
4.1.7 No Dispositions.............................................. A-22
4.1.8 Indebtedness................................................. A-22
4.1.9 Plans........................................................ A-22
4.1.10 Claims....................................................... A-22
4.1.11 Agreement.................................................... A-22
4.2 Breach of Representations and Warranties............................. A-22
4.3 Pooling.............................................................. A-22
4.4 Consents............................................................. A-23
4.5 Commercially Reasonable Best Efforts................................. A-23
4.6 Information for Prospectus/Proxy Statement........................... A-23
4.7 Company Plans........................................................ A-23
4.8 Employee Transition Committee........................................ A-23
4.9 Shareholder Approval................................................. A-23
4.10 Tax Returns.......................................................... A-24
4.11 Representations of Shareholders...................................... A-24
4.12 Employee Benefits Matters............................................ A-24
4.12.1 Service Credit............................................... A-24
4.12.2 Section 16 Approval.......................................... A-24
4.12.3 Retention Plans and Related Matters.......................... A-25
ARTICLE V COVENANTS OF MICROSOFT.......................................... A-25
5.1 Representations and Warranties....................................... A-25
5.2 Conduct of Business by Microsoft Pending the Merger.................. A-25
5.3 Consents............................................................. A-25
A-ii
CONTENTS--(Continued)
5.4 Commercially Reasonable Best Efforts................................. A-25
5.5 Agreements of Microsoft Affiliates................................... A-26
5.6 Representations of Shareholders...................................... A-26
5.7 Tax Free Reorganization.............................................. A-26
5.8 Nasdaq Listing....................................................... A-26
5.9 Employee Transition Committee........................................ A-27
5.10 Retention Plans...................................................... A-27
ARTICLE VI ADDITIONAL AGREEMENTS.......................................... A-27
6.1 Preparation of S-4................................................... A-27
6.2 Intentionally deleted................................................ A-27
6.3 Intentionally deleted................................................ A-27
6.4 Access to Information................................................ A-27
6.5 Legal Conditions to the Merger....................................... A-28
6.6 Affiliates........................................................... A-28
6.7 HSR Act Filings...................................................... A-28
6.7.1 Filings and Cooperation...................................... A-28
6.7.2 Objections................................................... A-28
6.8 Officers and Directors............................................... A-29
6.9 Expenses............................................................. A-29
6.10 Stock Option Agreement............................................... A-29
6.11 Additional Agreements................................................ A-29
6.12 Public Announcements................................................. A-30
6.13 State Takeover Laws.................................................. A-30
6.14 Publication of Operating Results..................................... A-30
ARTICLE VII CONDITIONS PRECEDENT.......................................... A-30
7.1 Conditions to Each Party's Obligation to Effect the Merger........... A-30
7.1.1 Shareholder Approval......................................... A-30
7.1.2 Consents..................................................... A-30
7.1.3 S-4.......................................................... A-31
7.1.4 No Restraints................................................ A-31
7.1.5 Tax-Free Reorganization...................................... A-31
7.1.6 No Burdensome Condition...................................... A-31
7.2 Conditions of Obligations of Microsoft and Sub....................... A-31
7.2.1 Representations and Warranties of Company.................... A-31
7.2.2 Performance of Obligations of Company........................ A-31
7.2.3 Affiliates................................................... A-31
7.2.4 Pooling of Interests; Comfort Letters........................ A-32
7.2.5 Opinion of Company's Counsel................................. A-32
7.3 Conditions of Obligation of Company.................................. A-32
7.3.1 Representations and Warranties of Microsoft and Sub.......... A-32
7.3.2 Performance of Obligations of Microsoft and Sub.............. A-32
7.3.3 Opinion of Microsoft Counsel................................. A-32
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER............................ A-33
8.1 Termination.......................................................... A-33
8.2 Effect of Termination................................................ A-33
8.3 Break-up Fee......................................................... A-33
8.4 Amendment............................................................ A-34
8.5 Extension, Waiver.................................................... A-34
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CONTENTS--(Continued)
ARTICLE IX GENERAL PROVISIONS............................................. A-34
9.1 Nonsurvival of Representations, Warranties and Agreements........... A-34
9.2 Notices............................................................. A-35
9.3 Interpretation...................................................... A-35
9.4 Counterparts........................................................ A-36
9.5 Miscellaneous....................................................... A-36
9.6 No Joint Venture.................................................... A-36
9.7 Governing Law....................................................... A-36
9.8 Specific Performance................................................ A-36
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INDEX OF DEFINED TERMS
A
Acquisition Transaction.................................................... A-21
affiliate.................................................................. A-4
Affiliate Letters.......................................................... A-28
Affiliates................................................................. A-28
Antitrust Laws............................................................. A-29
B
blue sky................................................................... A-8
Business Condition......................................................... A-6
C
Certificate................................................................ A-3
Closing.................................................................... A-1
Closing Date............................................................... A-1
Code....................................................................... A-2
Company.................................................................... A-1
Company Business........................................................... A-6
Company Common Stock....................................................... A-2
Company Disclosure Schedule................................................ A-6
Company Employee........................................................... A-24
Company Financial Statements............................................... A-8
Company Incentive and Stock Option Plans................................... A-7
Company Intellectual Property.............................................. A-12
Company Licensed Intellectual Property..................................... A-13
Company Options............................................................ A-7
Company Owned Intellectual Property........................................ A-13
Company Preferred Stock.................................................... A-7
Company Required Statutory Approvals....................................... A-8
Company SEC Documents...................................................... A-8
Company Section 16 Insider................................................. A-24
Company Shareholders Meeting............................................... A-23
Company Voting Debt........................................................ A-7
Company's Principal Shareholders........................................... A-24
Competitive Business....................................................... A-25
Condition Satisfaction Date................................................ A-1
Confidentiality Agreement.................................................. A-28
Consents................................................................... A-8
E
Effective Time............................................................. A-1
ERISA...................................................................... A-10
Exchange Act............................................................... A-8
Exchange Agent............................................................. A-4
Exchange Ratio............................................................. A-3
G
GAAP....................................................................... A-8
Governmental Entity........................................................ A-8
H
Hazardous Material......................................................... A-16
HSR Act.................................................................... A-8
I
include.................................................................... A-35
includes................................................................... A-35
including.................................................................. A-35
Indemnified Parties........................................................ A-29
L
Lease...................................................................... A-15
Leases..................................................................... A-15
Liabilities................................................................ A-10
M
Material Adverse Effect.................................................... A-6
Merger..................................................................... A-1
Merger Consideration....................................................... A-3
Merger Documents........................................................... A-1
Microsoft.................................................................. A-1
Microsoft Average Closing Price............................................ A-3
Microsoft Common Stock..................................................... A-3
Microsoft Disclosure Schedule.............................................. A-16
Microsoft Financial Statements............................................. A-17
Microsoft Options.......................................................... A-16
Microsoft Preferred Stock.................................................. A-16
Microsoft Required Statutory Approvals..................................... A-17
Microsoft SEC Documents.................................................... A-17
multiemployer plan......................................................... A-11
N
Non-U.S. Plans............................................................. A-10
O
Order...................................................................... A-29
P
Plan....................................................................... A-10
plan of reorganization..................................................... A-2
prohibited transaction..................................................... A-10
Proxy Statement............................................................ A-8
Proxy Statement/Prospectus................................................. A-8
A-v
INDEX OF DEFINED TERMS--(Continued)
R
Real Property.............................................................. A-15
Required Statutory Approvals............................................... A-17
Retention Plan............................................................. A-25
Returns.................................................................... A-11
S
S-4........................................................................ A-8
SEC........................................................................ A-8
Securities Act............................................................. A-4
single-employer plan....................................................... A-11
Stock Option Agreement..................................................... A-29
Sub........................................................................ A-1
Subsidiaries............................................................... A-3
Subsidiary................................................................. A-3
Superior Proposal.......................................................... A-21
Surviving Corporation...................................................... A-2
T
tax........................................................................ A-11
taxes...................................................................... A-11
Transition Committee....................................................... A-23
U
U.S. Plans................................................................. A-10
V
Violation.................................................................. A-7
W
WBCA....................................................................... A-1
Y
Year 2000 Compliant........................................................ A-14
A-vi
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of September 14, 1999 and
amended as of October 29, 1999, among Microsoft Corporation, a Washington
corporation ("Microsoft"), MovieSub, Inc., a Washington corporation and a
wholly-owned subsidiary of Microsoft ("Sub"), and Visio Corporation, a
Washington corporation ("Company").
WITNESSETH
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Washington Business Corporation Act (the "WBCA"),
Microsoft and Company will enter into a business combination transaction
pursuant to which Sub will merge with and into Company (the "Merger");
WHEREAS, the Board of Directors of Company (i) has determined that the
Merger is advisable and fair to, and in the best interests of, Company and its
shareholders and has adopted this Agreement, the Merger and the other
transactions contemplated by this Agreement and (ii) has recommended the
approval of this Agreement by the shareholders of Company;
WHEREAS, the respective Boards of Directors of Microsoft and Sub have
determined that the Merger is advisable and fair to, and in the best interests
of, Microsoft and Sub;
WHEREAS, for United States federal income tax purposes, the Merger is
intended to qualify as a reorganization within the meaning of Section 368 of
the United States Internal Revenue Code of 1986, as amended; and
WHEREAS, the parties intend that the Merger shall be accounted for as a
"pooling of interests" for financial reporting purposes.
INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein,
Microsoft, Sub and Company hereby agree as follows:
ARTICLE I THE MERGER
1.1 Effective Time of the Merger
Subject to the provisions of this Agreement, Sub will be merged with and
into Company. An Agreement and Plan of Merger, and articles, certificates or
other appropriate filing documents (the "Merger Documents") shall be duly
prepared, executed and acknowledged by the parties and thereafter delivered to
the Secretary of State of Washington, for filing, as provided in the WBCA as
soon as practicable on or after the Closing Date (as defined in Section 1.2).
The Merger shall become effective upon the filing of the Merger Documents with
the Secretary of State of Washington or at such time thereafter as is provided
in the Merger Documents (the "Effective Time"). Company acknowledges and agrees
that Microsoft will have no obligation to make any payment or issue any
securities pursuant to this Agreement until the Merger has been confirmed in
writing by the Secretary of State of Washington.
1.2 Closing
Unless another date or place is agreed to in writing by the parties hereto,
the closing of the Merger (the "Closing") will take place at the offices of
Preston Gates & Ellis LLP, Seattle, Washington, on a date (the "Closing Date")
that is as soon as practicable after, but no later than the third business day
after, satisfaction or waiver of the last to be fulfilled of the conditions set
forth in Article VII that by their terms are not to occur at the Closing (the
date on which such conditions are satisfied or waived being the "Condition
Satisfaction Date");SEC; provided, however, that if the Condition Satisfaction Date
is prior to December 30, 1999, Microsoft
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may elect to postpone the Closing Date to a datewe are not later than December 30,
1999 by providing written notice of such election to the Company not later than
three business days after the Condition Satisfaction Date; provided, further,
that if Microsoft so elects to postpone the Closing Date, then, notwithstanding
anything to the contrary contained in Article VII of this Agreement, after the
Condition Satisfaction Date, the obligations of each party to effect the Merger
shall not be subject toincorporating any of the conditions specified in Article VII of this
Agreement.
1.3 Effects of the Merger
At the Effective Time, (i) the separate existence of Sub shall cease and Sub
shall be merged with and into Company (Company after the Merger is sometimes
referred to herein as the "Surviving Corporation"), (ii) the Articles of
Incorporation of Company shall be the Articles of Incorporation of the
Surviving Corporation, except that such Articles of Incorporation shall be
amended to provide that the authorized capital stock of the Surviving
Corporation shall be 1,000 shares of Common Stock, $.01 par value, until duly
amended, (iii) the Bylaws of Sub shall be the Bylaws of the Surviving
Corporation, (iv) the directors of the Surviving Corporation shall be the
directors of Sub immediately prior to the Effective Time, (v) the officers of
the Surviving Corporation shall be the officers of Sub immediately prior to the
Effective Time, and (vi) the Merger shall, from and after the Effective Time,
have all the effects provided by applicable law.
1.4 Tax-Free Reorganization
The Merger is intended to be a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"), and this
Agreement is intended to be a "plan of reorganization" within the meaning of
the regulations promulgated under Section 368 of the Code. Each party hereto
and its affiliates agree to treat the Merger as a reorganization within the
meaning of Section 368 of the Code, and this Agreement is intended to be a
"plan of reorganization" within the meaning of the regulations promulgated
under Section 368 of the Code, unless and until there is a determination,
within the meaning of Section 1313 of the Code that such conclusions are whollydocuments or partially incorrect. Microsoft agrees to act in good faith consistent with
the intent of the parties expressed in this provision.
1.5 Accounting Treatment
The business combination to be effected by the Merger is intended to be
treated for accounting purposes as a "pooling of interests." However, Microsoft
has reserved the right under this Agreement to cause the Merger to be treated
for accounting purposes as a "purchase."
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS, EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock
As of the Effective Time, by virtue of the Merger and without any action
(except as provided in Section 4.9) on the part of the holder of any shares of
Company common stock, par value $.001 per share ("Company Common Stock"):
2.1.1 Capital Stock of Sub
All issued and outstanding shares of capital stock of Sub shall continue to
be issued and shall be converted into 1,000 shares of Surviving Corporation
Common Stock with the stock certificate of Sub evidencing ownership of such
shares of capital stock of the Surviving Corporation.
2.1.2 Cancellation of Company Common Stock
All shares of Company Common Stock that are owned directly or indirectly by
Company or Microsoft or by any Subsidiary (as defined below) of Company or
Microsoft immediately prior to the Merger shall be
A-2
canceled and no stock of Microsoft or other consideration shall be delivered in
exchange therefor. In this Agreement, "Subsidiary" or "Subsidiaries" shall mean
an entity of which an amount of the voting securities, or other voting
ownership or voting partnership interests of which is sufficient to elect a
majority of its board of directors or other governing body (or, if there are no
such interests, 50% or more of the equity interests of which) is owned directly
or indirectly by Company. All Subsidiaries of Company are identified in the
Company Disclosure Schedule (as defined in Section 3.1). All references to
Company, unless otherwise indicated shall include each of Company's
Subsidiaries.
2.1.3 Conversion of Company Common Stock
Each issued and outstanding share of Company Common Stock (other than shares
to be canceled pursuant to Section 2.1.2 and dissenting shares as described in
Section 2.1.5) shall be converted, without any action on the part of the
holders thereof, into the right to receive .45 shares (the "Exchange Ratio") of
common stock, par value $0.0000125 per share, of Microsoft (the "Microsoft
Common Stock") (the "Merger Consideration"). All such shares of Company Common
Stock shall no longer be outstanding and shall cease to exist, and each
certificate (a "Certificate") previously representing any such shares shall
represent only the right to receive (i) whole shares of Microsoft Common Stock
and (ii) cash in lieu of fractional shares, in each case as provided by this
Section 2.1.
2.1.4 Adjustments of Exchange Ratio
If, between the date of this agreement and the Effective Time, the
outstanding shares of Microsoft Common Stock or Company Common Stock shall have
been changed into a different number of shares or a different class or series
or otherwise changed by reason of any reclassification, recapitalization,
split-up, stock dividend, stock combination, exchange of shares or readjustment
or similar transaction, the Exchange Ratio shall be correspondingly adjusted.
2.1.5 Dissenters' Rights
Notwithstanding any provision of this Agreement to the contrary, each
outstanding share of Company Common Stock, the holder of which has demanded and
perfected such holder's right to dissent from the Merger and to be paid the
fair value of such shares in accordance with Sections 23B.13.010 et seq. of the
WBCA and, as of the Effective Time, has not effectively withdrawn or lost such
dissenters' rights, shall not be converted into or represent a right to receive
the Merger Consideration, but the holder thereof shall be entitled only to such
rights as are granted by the WBCA. Company shall give Microsoft (i) prompt
written notice of any notice of intent to demand fair value for any shares of
Company Common Stock, withdrawals of such notices, and any other instruments
served pursuant to the WBCA or any other provisions of Washington law and
received by the Company, and (ii) the opportunity to conduct jointly all
negotiations and proceedings with respect to demands for fair value for shares
of Company Common Stock under the WBCA. Company shall not, except with the
prior written consent of Microsoft, voluntarily make any payment with respect
to any demands for fair value for shares of Company Common Stock or offer to
settle or settle any such demands.
2.1.6 Fractional Shares
No fractional shares of Microsoft Common Stock shall be issued in the Merger
and such fractional interests shall not entitle the owner thereof to vote. In
lieu of any fractional share, each holder of shares of Company Common Stock who
would otherwise be entitled to receive a fraction of a share of Microsoft
Common Stock will be entitled to receive from Microsoft an amount of cash,
without interest, equal to the Microsoft Average Closing Price (as defined
below) multiplied by the fraction of a share of Microsoft Common Stock to which
such holder would otherwise be entitled. The "Microsoft Average Closing Price"
shall mean the average closing price of the Microsoft Common Stock as publicly
reported for the NASDAQ National Market System as of 4:00 p.m. Eastern Time
over the last 20 trading days ending on the fifth trading day prior to the
Closing Date.
A-3
2.2 Exchange of Certificates
2.2.1 Exchange Agent
Prior to the Closing Date, Microsoft shall appoint ChaseMellon Shareholder
Services, LLC, or other bank or trust company reasonably satisfactory to
Company, to act as exchange agent (the "Exchange Agent") in the Merger.
2.2.2 Microsoft to Provide Common Stock and Cash
As promptly as practicable after the Effective Time, Microsoft shall make
available to the Exchange Agent the certificates representing whole shares of
Microsoft Common Stock issued pursuant to Section 2.1 in exchange for
outstanding shares of Company Common Stock and, from time to time, cash for
payment in lieu of fractional shares.
2.2.3 Exchange Procedures
As soon as practicable after the Effective Time, Microsoft shall cause the
Exchange Agent to mail to each holder of record as of the Effective Time of a
Certificate or Certificates, (i) a letter of transmittal (which shall be in
customary form and specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
Microsoft Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with a duly executed letter of transmittal and such
other documents as the Exchange Agent shall require, the holder of such
Certificate shall be entitled to receive in exchange therefor the number of
whole shares of Microsoft Common Stock to which the holder of Company Common
Stock is entitled pursuant to Section 2.1 hereof plus cash in lieu of
fractional shares as provided in Section 2.1.6. The Certificate so surrendered
shall forthwith be canceled. Notwithstanding any other provision of this
Agreement, until holders of Certificates have surrendered them for exchange as
provided herein, (i) no dividends or other distributions shall be paid with
respect to any shares represented by such Certificates and no payment for
fractional shares shall be made, and (ii) without regard to when such
Certificates are surrendered for exchange as provided herein, no interest shall
be paid on any dividends or other distributions or any payment for fractional
shares. Upon surrender of a Certificate, there shall be paid to the holder of
such Certificate the amount of any dividends or other distributions which
theretofore became payable, but which were not paid by reason of the foregoing,
with respect to the number of whole shares of Microsoft Common Stock
represented by the certificate or certificates issued upon such surrender. If
any certificate for Microsoft Common Stock is to be issued in a name other than
in which the Certificate surrendered in exchange therefore is registered, it
shall be a condition of such exchange that the person requesting such exchange
pay any transfer or other taxes required by reason of the issuance of
certificates for such shares of Microsoft Common Stock in a name other than
that of the registered holder of the Certificate surrendered, or establish to
the satisfaction of the Surviving Corporation that such tax has been paid or is
not applicable. In connection with its undertakings pursuant to this Section
2.2.3, the Exchange Agent shall be entitled to withhold any income taxes as
required by the Code.
2.2.4 No Further Ownership Rights in Company Common Stock
All Microsoft Common Stock delivered upon the surrender for exchange of
shares of Company Common Stock in accordance with the terms hereof shall beinformation deemed to have been deliveredfurnished rather than filed in full satisfaction of all rights pertaining to
such shares of Company Common Stock. After the Effective Time there shall be no
transfers on the stock transfer books of Company of shares of Company Common
Stock. If, after the Effective Time, Certificates are presented to the
Surviving Corporationaccordance with SEC rules:
| • | our Annual Report onForm 10-K for the fiscal year ended June 30, 2019; |
| • | the information specifically incorporated by reference into our Annual Report onForm 10-K for the fiscal year ended June 30, 2019 from our Definitive Proxy Statement onSchedule 14A filed on October 16, 2019; |
| • | our Quarterly Reports onForm 10-Q for the quarterly periods endedSeptember 30, 2019,December 31, 2019 andMarch 31, 2020; |
| • | our Current Reports onForm 8-K filed onSeptember 19, 2019,December 5, 2019, andMarch 13, 2020; and |
any reason, they shall be canceled and exchanged as
provided in this Article II. Certificates surrendered for exchange by any
person constituting an "affiliate" of Company for purposes of Rule 145(c) under
the Securities Act of 1933, as amended (the "Securities Act"), or for purposes
of preserving pooling of interests accounting treatment for the Merger shall
not be exchanged until Microsoft receives a written agreement from such persons
as provided by Section 6.6.
A-4
2.2.5 Return to Microsoft
Any Microsoft Common Stock and any cash in lieu of fractional share
interests made available to the Exchange Agent and not exchanged for
Certificates within one year after the Effective Time and any dividends and
distributions held by the Exchange Agent for payment or delivery to the holders
of unsurrendered Certificates representing Company Common Stock and unclaimed
at the end of such one year period shall be redelivered or repaid by the
Exchange Agent to Microsoft, after which time any holder of Certificates who
has not theretofore delivered or surrendered such Certificates to the Exchange
Agent, subject to applicable law, shall look as a general creditor only to
Microsoft for payment of the Microsoft Common Stock, cash in lieu of fractional
shares, and any such dividends or distributions. Notwithstanding any provision
of this Agreement, none of Microsoft, the Exchange Agent, the Surviving
Corporation or any other party hereto shall be liable to any holder of Company
Common Stock for any Microsoft Common Stock, cash in lieu of fractional shares
or dividends or distributions delivered to a public official pursuant to
applicable abandoned property, escheat or similar law.
2.3 Company Options
2.3.1 Assumption by Microsoft
At the Effective Time, each of the then outstanding Company Options (as
defined in Section 3.1.2) shall, by virtue of the Merger and at the Effective
Time, and without any further action on the part of any holder thereof, be
assumed by Microsoft and converted into an option to purchase that number of
shares of Microsoft Common Stock determined by multiplying the number of shares
of Company Common Stock subject to such Company Option at the Effective Time by
the Exchange Ratio, at an exercise price per share of Microsoft Common Stock
equal to the exercise price per share of such Company Option immediately prior
to the Effective Time divided by the Exchange Ratio. If the foregoing
calculation results in an assumed Company Option being exercisable for a
fraction of a share of Microsoft Common Stock, then the number of shares of
Microsoft Common Stock subject to such option shall be rounded to the nearest
whole number of shares. Continuous employmentfilings we make with Company or any Company
Subsidiaries shall be credited to the optionee for purposes of determining the
vesting of the number of shares of Microsoft Common Stock subject to exercise
under the optionee's converted Company Option after the Effective Time. Except
as provided in this Section 2.3.1, each Company Option assumed by Microsoft
hereunder shall be exercisable upon, and otherwise be subject to, the same
terms and conditions as under the applicable Company Incentive and Stock Option
Plan (as defined in Section 3.1.2), the applicable option agreement issued
thereunder and any other plan or agreement pertaining to the exercisability or
any other term of such Company Option. Notwithstanding anything in this Section
2.3.1 to the contrary, the Company Options shall be assumed by Microsoft in
such a manner that Microsoft (i) is a corporation "assuming a stock option in a
transaction to which Section 424(a) applies" within the meaning of Section 424
of the Code and the regulations thereunder or (ii) to the extent that Section
424 of the Code does not apply to any such Company Options, would be such a
corporation were Section 424 of the Code applicable to such Company Options.
2.3.2 Registration
Microsoft shall cause the shares of Microsoft Common Stock issuable upon
exercise of the assumed Company Options to be registered, or to be issued
pursuant to a then effective registration statement, as soon as practicable
after the Effective Time, but in no event later than 10 days after the
Effective Time, on Form S-8 promulgated by the SEC or, in the event that Form
S-8 is not available under the applicable rules and regulations of the SEC for
shares of Microsoft Common Stock, on Form S-3 promulgated by the SEC for the
portion of such shares not registrable on Form S-8, and shall use its
commercially reasonable best efforts to maintain the effectiveness of such
registration statement or registration statements for so long as such assumed
Company Options remain outstanding. With respect to those individuals who
subsequent to the Merger will be subject to the reporting requirements under
Section 16(a) of the Exchange Act (as defined in Section 4.12.2), Microsoft
shall administer Company Options assumed pursuant to this Section 2.3 in a
manner that complies
A-5
with Rule 16b-3 promulgated by the SEC under the Exchange Act, but shall have
no responsibility for such compliance by CompanySections 13(a), 13(c), 14, or its predecessors.
2.3.3 Notice; Reservation of Shares
As soon as practicable after the Effective Time, Microsoft shall deliver to
each holder of an assumed Company Option an appropriate notice setting forth
such holder's rights pursuant thereto. Microsoft shall comply with the terms of
all such Company Options and shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Microsoft Common Stock
for delivery upon exercise of the assumed Company Options.
2.4 Employee Stock Purchase Plan
Company shall cause its 1995 Employee Stock Purchase Plan to be terminated
as of the day immediately prior to the Effective Time, and all funds which have
been withheld from the wages of Company's employees for the purchase of Company
Common Stock as of such time shall be applied to a final purchase thereunder.
ARTICLE III REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Company
Except as disclosed in the Company SEC Documents (as defined below) or in a
Disclosure Schedule which identifies by section number the section and
subsection to which such disclosure relates (provided, however, that Company
shall be deemed to have adequately disclosed with respect to any section or
subsection any matters that are clearly described elsewhere in such document if
a reader(s) who has not been actively involved in Company but is generally
familiar with the software development industry can understand the
applicability of such disclosure to such non-referenced sections or
subsections) and is delivered by Company to Microsoft concurrently with the
execution of this Agreement (the "Company Disclosure Schedule"), whether or not
the Company Disclosure Schedule is referred to in a specific section or
subsection and except as specifically provided for in this Agreement or any
agreement attached as an Exhibit hereto, Company represents and warrants to
Microsoft and Sub as follows:
3.1.1 Organization, Standing and Power
Each of Company and its Subsidiaries is an entity duly organized, validly
existing and in good standing, as applicable under the laws of its jurisdiction
of incorporation or organization has all requisite power and authority to own,
lease and operate its properties and to carry on its businesses as now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which it owns, leases or operates its properties or conducts
its businesses so as to require such qualification, except where the failure to
be so organized, existing, qualified or in good standing or to have such
corporate or other applicable power and authority have not had, and would not
have, a Material Adverse Effect (as hereinafter defined) on the Business
Condition (as hereinafter defined) of Company. As used in this Agreement,
"Business Condition" with respect to any entity shall mean the financial
condition and results of operations (without giving effect to the consequences
of the transactions contemplated by this Agreement) of such entity and its
Subsidiaries taken as a whole. For the purposes of this Agreement, the term
"Material Adverse Effect" means material adverse effect other than resulting
from (i) changes attributable to conditions affecting the Company Business
generally or the software industry generally, (ii) changes in general economic,
political or regulatory conditions, (iii) changes attributable to the
announcement or pendency of the Merger, or the other transactions contemplated
hereby, or (iv) with respect to Company, litigation arising from allegations of
a breach of fiduciary duty relating to this Agreement. Company has made
available to Microsoft complete and correct copies of the Certificate or
Articles of Incorporation, Bylaws, and minutes of each meeting of the board
(and each committee thereof) of directors of Company and each of its
Subsidiaries, in each case, as amended to the date hereof. "Company Business"
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means the business generally related to the development and sale of software
for business diagramming, technical drawing and information technology design
and documentation together with all other Company assets dedicated to such
business.
3.1.2 Capital Structure
The authorized capital stock of Company consists of 200,000,000 shares of
Company Common Stock of which 30,213,572 were outstanding as of September 10,
1999 and 40,000,000 shares of Preferred Stock (the "Company Preferred Stock"),
of which none are outstanding as of the date hereof and none of which are held
by Subsidiaries of Company. In addition, as of September 10, 1999 there were
4,494,597 shares of Company Common Stock issuable upon the exercise of
outstanding stock options ("Company Options") under the 1995 Nonemployee
Director Stock Option Plan, the 1995 Long-Term Incentive Compensation Plan, the
1990 Stock Option Plan and any other stock option plans and other options
(together with the 1995 Employee Stock Purchase Plan, the "Company Incentive
and Stock Option Plans"). All outstanding shares of Company Common Stock are,
and any shares of Company Common Stock issued upon exercise of any Company
Options will be, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, validly issued, fully paid,
nonassessable and not subject to any preemptive rights, or to any agreement to
which Company or any of its Subsidiaries is a party or by which Company or any
of its Subsidiaries may be bound other than agreements pursuant to which
Company has the right to repurchase shares of Company Common Stock. Except for
the shares of Common Stock issuable upon the exercise of Company Options, there
are not any options, warrants, calls, conversion rights, commitments,
agreements, contracts, understandings, restrictions, arrangements or rights of
any character to which Company or any Subsidiary of Company is a party or by
which any of them may be bound obligating Company or any Subsidiary of Company
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock of Company or of any Subsidiary of Company or
obligating Company or any Subsidiary of Company to grant, extend or enter into
any such option, warrant, call, conversion right, commitment, agreement,
contract, understanding, restriction, arrangement or right. Company does not
have outstanding any bonds, debentures, notes or other indebtedness the holders
of which have the right to vote (or convertible or exercisable into securities
having the right to vote) with holders of Company Common Stock on any matter
("Company Voting Debt"). Company is the owner, directly or indirectly, of all
outstanding shares of capital stock of each of its Subsidiaries free and clear
of all liens, pledges, security interests, claims or other encumbrances and all
such shares are duly authorized, validly issued, fully paid and nonassessable.
3.1.3 Authority
Company has all requisite corporate power and authority to enter into this
Agreement and subject, in the case of this Agreement, to approval of this
Agreement by the shareholders of Company and the Company Required Statutory
Approvals (as defined below), to consummate the transactions contemplated
hereby. The execution and delivery by Company of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Company, including the
unanimous approval of the Board of Directors of Company, subject only to
approval of this Agreement by the shareholders of Company. This Agreement has
been duly executed and delivered by Company and assuming the due authorization,
execution and delivery by Microsoft and Sub, constitutes a valid and binding
obligation of Company enforceable in accordance with its terms, except that
such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization or other similar laws relating to enforcement of creditors'
rights generally and (ii) general equitable principles. Subject to the
satisfaction of the conditions set forth in Sections 7.1 and 7.3, the execution
and delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, conflict with or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on assets (any such conflict, violation,
default, right, loss or creation being referred to herein as a "Violation")
pursuant to (i) any provision of the Articles of Incorporation or Bylaws of
Company
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or the comparable governing instruments of any Subsidiary or (ii) any loan or
credit agreement, note, bond, mortgage, indenture, contract, lease, or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Company or any Subsidiary of Company or their respective properties or assets,
other than, in the case of (ii), any such Violation which individually or in
the aggregate would not have a Material Adverse Effect on the Business
Condition of Company. No consent, approval, order or authorization of or
registration, declaration or filing with or exemption by (collectively
"Consents"), any court, administrative agency or commission or other
governmental authority or instrumentality, whether domestic or foreign (each a
"Governmental Entity"), is required by or with respect to Company in connection
with the execution and delivery of this Agreement or the consummation by
Company of the transactions contemplated hereby, except for Consents, if any,
relating to (i) the filing of a premerger notification report and all other
required documents by Microsoft and Company, and the expiration of all
applicable waiting periods, under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (ii) any filings with the Securities
and Exchange Commission (the "SEC") including such reports and information as
may be required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Securities Act and the rules and regulations promulgated
by the SEC under the Exchange Act or the Securities Act and the declaration of
the effectiveness of the S-4 (as defined in Section 3.1.5) by the SEC, (iii)
such filings, authorizations, orders and approvals as may be required under
foreign laws, state securities laws and the NASD Bylaws or "blue sky" laws, and
(iv) the filing of the Merger Documents with the Secretary of State of the
State Washington (the filings and approvals referred to in clauses (i) through
(iii) are collectively referred to as the "Company Required Statutory
Approvals") and except for such other Consents which if not obtained or made
would not have a Material Adverse Effect on the Business Condition of Company.
3.1.4 SEC Documents and Financial Statements
Company has filed all forms, reports and documents required to be filed by
it with the SEC since November 30, 1995 through the date of this Agreement
(collectively, the "Company SEC Documents"). As of their respective filing
dates, the Company SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their
respective filing dates, the financial statements of Company included in the
Company SEC Documents (the "Company Financial Statements") complied as to form
in all material respects with all applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto and were
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied (except as may be indicated in the notes thereto) and
fairly presented, in all material respects, the consolidated financial position
of Company and its Subsidiaries as at the dates thereof and the results of
their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal, recurring audit adjustments not
material in scope or amount). There has been no change in Company's accounting
policies or the methods of making accounting estimates or changes in estimates
that are material to Company Financial Statements, except as described in the
notes thereto.
3.1.5 Information Supplied
None of the information supplied or to be supplied by Company or its
Subsidiaries, auditors, attorneys, financial advisors or other consultants or
advisors for inclusion in (i) the registration statement on Form S-4, and any
amendment thereto, to be filed under the Securities Act with the SEC by
Microsoft in connection with the issuance of the Microsoft Common Stock in or
as a result of the Merger (the "S-4"), or (ii) the proxy statement and any
amendment or supplement thereto to be distributed in connection with Company's
meetings of shareholders to vote upon this Agreement and the transactions
contemplated hereby (the "Proxy Statement" and, together with the prospectus
included in the S-4, the "Proxy Statement/Prospectus") will, in the case of
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the Proxy Statement and any amendment or supplement thereto, at the time of the
mailing of the Proxy Statement and any amendment or supplement thereto, and at
the time of the meeting of shareholders of Company to vote upon this Agreement
and the transactions contemplated hereby, or, in the case of the S-4, as
amended or supplemented, at the time it becomes effective and at the time of
any post-effective amendment thereto and at the time of the meeting of
shareholders of Company, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they are
made, not misleading or necessary to correct any statement in any earlier
filing with the SEC of such Proxy Statement/Prospectus or any amendment or
supplement thereto or any earlier communication (including the Proxy
Statement/Prospectus) to shareholders of Company with respect to the
transactions contemplated by this Agreement.
3.1.6 No Defaults
Neither Company nor any Subsidiary of Company is, or has received notice
that it would be with the passage of time, in default or violation of any term,
condition or provision of (i) the Articles of Incorporation or Bylaws of
Company or any comparable governing instrument of any Subsidiary of Company,
(ii) any judgment, decree or order applicable to Company or any Subsidiary of
Company or (iii) any loan or credit agreement, note, bond, mortgage, indenture,
contract, agreement, lease, license or other instrument to which Company or any
Subsidiary of Company is now a party or by which it or any of its properties or
assets may be bound, except for defaults and violations which, individually or
in the aggregate, would not have a Material Adverse Effect on the Business
Condition of Company.
3.1.7 Litigation
There is no claim, action, suit or proceeding pending or, to the knowledge
of Company, threatened, which would, if adversely determined, individually or
in the aggregate, have a Material Adverse Effect on the Business Condition of
Company, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Company or any of its
Subsidiaries having, or which, insofar as reasonably can be foreseen, in the
future would have, any Material Adverse Effect on the Business Condition of
Company. There is no investigation pending or, to the knowledge of Company,
threatened against Company or any Subsidiary of Company, before any foreign,
federal, state, municipal or other governmental department, commission, board,
bureau, agency, instrumentality or other Government Entity which would have a
Material Adverse Effect on the Business Condition of Company. To the Company's
knowledge, the Company Disclosure Schedule sets forth, with respect to any
pending action, suit, proceeding, or investigation to which Company or any of
its Subsidiaries is a party (other than (i) cases involving the collection of
monies owed to Company or in the ordinary course of business or (ii) trademark
infringement or anti-piracy actions in the ordinary course of business in which
Company is the plaintiff), the forum, the parties thereto, the subject matter
thereof, and the amount of damages claimed.
3.1.8 No Material Adverse Change
Since October 3, 1998 through the date hereof, Company and its Subsidiaries
have conducted their respective businesses in the ordinary course and there has
not been: (i) any Material Adverse Effect on the Business Condition of Company
or any development or combination of developments of which management of
Company has knowledge which is reasonably likely to result in such an effect;
(ii) any damage, destruction or loss, whether or not covered by insurance,
having a Material Adverse Effect on the Business Condition of Company; (iii)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the capital stock of
Company; (iv) any material increase or change in the compensation or benefits
payable or to become payable by Company or any Subsidiary to their employees in
the aggregate, except in the ordinary course of business consistent with past
practice; (v) any acquisition or sale of a material amount of property of
Company or any of its Subsidiaries, except in the ordinary course of business
and which would not have a Material Adverse Effect on the Business Condition of
Company; (vi) any
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material increase or modification in any bonus, pension, insurance or other
employee benefit plan, payment or arrangement made to, for, or with its
employees in the aggregate; or (vii) the granting of stock options, restricted
stock awards, stock bonuses, stock appreciation rights and similar equity based
awards other than consistent with Company's past practices and which will not
result in a compensation charge against earnings or the loss of deductions for
federal or state income tax purposes.
3.1.9 Absence of Undisclosed Liabilities
Company and its Subsidiaries, taken as a whole, have no liabilities or
obligations (whether absolute, accrued or contingent) except (i) liabilities,
obligations or contingencies ("Liabilities") that are accrued or reserved
against in the consolidated balance sheet of Company and its Subsidiaries as of
October 3, 1998 or reflected in the notes thereto or disclosed in the financial
statements of Company filed as a part of the Company SEC Documents, (ii)
Liabilities that would not have a Material Adverse Effect on the Business
Condition of Company, or (iii) additional Liabilities reserved against since
October 3, 1998 that (x) have arisen in the ordinary course of business and (y)
are accrued or reserved against on the books and records of Company and its
Subsidiaries.
3.1.10 No Violations
The businesses of Company and its Subsidiaries are not being conducted in
violation of, or in a manner which could cause liability under any applicable
law, rule or regulation, judgment, decree or order of any Governmental Entity,
except for any violations or practices, which, individually or in the
aggregate, have not had and will not have a Material Adverse Effect on the
Business Condition of Company.
3.1.11 Certain Agreements
Neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, parachute payment,
bonus or otherwise) becoming due to any director, employee or independent
contractor of Company or its Subsidiaries, from Company or any of its
Subsidiaries under any Plan (as hereinafter defined), agreement or otherwise,
(ii) materially increase any benefits otherwise payable under any Plan or
agreement, or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
3.1.12 Employee Benefit Plans
Each material employee benefit plan ("Plan") covering active, former or
retired employees of Company and any of its Subsidiaries that is subject to
U.S. law ("U.S. Plans") is listed in the Company Disclosure Schedule. With
respect to each U.S. Plan, Company has provided to Microsoft a copy of each
such Plan, and where applicable, any related trust agreement, annuity or
insurance contract and, where applicable, all annual reports (Form 5500) filed
with the IRS. With respect to each Plan that is not subject to U.S. law ("Non-
U.S. Plans"), Company shall provide to Microsoft a copy of such Plan and, where
applicable, any related trust agreement, annuity or insurance contract, as soon
as practicable after the date hereof. To the extent applicable, each U.S. Plan
complies in all material respects with the requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code, and
any U.S. Plan intended to be qualified under Section 401(a) of the Code has
been determined by the IRS to be so qualified and has remained tax-qualified to
this date and its related trust is tax-exempt and has been so since its
creation. No U.S. Plan is covered by Title IV of ERISA or Section 412 of the
Code. No material "prohibited transaction," as defined in ERISA Section 406 or
Code Section 4975 has occurred with respect to any U.S. Plan. Each U.S. Plan
has been maintained and administered in all material respects in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including but not limited to ERISA and the Code,
which are applicable to such U.S. Plans. There are no pending or reasonably
anticipated material claims against or otherwise involving any of the U.S.
Plans and no suit, action or other litigation (excluding claims for benefits
incurred in the ordinary course of Plan activities) has been brought against or
with respect to any U.S.
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Plan. All material contributions, reserves or premium payments to U.S. Plans,
accrued to the date hereof have been made or provided for. Company has not
incurred any material liability under Subtitle C or D of Title IV of ERISA with
respect to any "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by Company, or
any entity which is considered one employer with Company under Section 4001 of
ERISA. Company has not incurred, and will not incur as a result of the
transactions contemplated by this Agreement, any withdrawal liability under
Subtitle E of Title IV of ERISA with respect to any "multiemployer plan,"
within the meaning of Section 4001(a)(3) of ERISA. Company has no obligation
for retiree health and life benefits under any U.S. Plan, except as required to
avoid excise taxes under Section 4980(B) of the Code. There are no restrictions
on the rights of Company to amend or terminate any U.S. Plan without incurring
any liability thereunder (other than any liability for accrued benefits
thereunder). Company has not engaged in, nor is it a successor to, an entity
that has engaged in, a transaction described in ERISA Section 4069. There have
been no amendments to, written interpretation of, or announcement (whether or
not written) by Company relating to, or change in employee participation or
coverage under, any U.S. Plan that would increase materially the expense of
maintaining such Plan above the level of expense incurred in respect thereof
for the year ended December 31, 1998. Neither Company nor any of its ERISA
affiliates have any current or projected liability in respect of post-
employment or post-retirement welfare benefits for retired or former employees
of Company. No tax under Section 4980B of the Code has been incurred in respect
of any U.S. Plan that is a group health plan, as defined in Section 5000(b)(1)
of the Code. Each Non-U.S. Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations that are
applicable to such Non-U.S. Plan. Each Non-U.S. Plan that is required by
contract or under applicable local law to be funded has been funded to the
extent required and if and to the extent any Non-U.S. Plan is not funded, the
unfunded obligations under such Non-U.S. Plan are reflected on the books and
records of the entity maintaining the plan.
3.1.13 Major Contracts
As of the date of this Agreement, all of Company's "material contracts" as
such term is defined under Item 601 of Regulation S-K, have been filed under
the Exchange Act. Except to the extent that such agreements have expired by
their own terms, each agreement disclosed by Company under the Exchange Act is
in full force and effect, except where the failure to be in full force and
effect would not have a Material Adverse Effect on the Business Condition of
Company. None of the parties to any of such agreements have terminated, except
when such agreements have expired under their own terms, or, to the Company's
knowledge, in any way expressed an intent to terminate or otherwise materially
modify such agreements in the future. Company has provided to Microsoft lease
documents for any real or personal property in which the amount of payments
that Company is required to make on an annual basis exceeds $100,000 and that
have not been filed as an exhibit to any Company SEC Documents.
3.1.14 Taxes
For the purposes of this Agreement, the terms "tax" and "taxes" shall
include all federal, state, local and foreign taxes, assessments, duties,
tariffs, registration fees, and other governmental charges including without
limitation all income, franchise, property, production, sales, use, payroll,
license, windfall profits, severance, withholding, excise, gross receipts and
other taxes, as well as any interest, additions or penalties relating thereto
and any interest in respect of such additions or penalties. Company and each of
its Subsidiaries has timely filed (or caused to be filed), taking into account
all extensions, all material federal, state, local and foreign tax returns,
reports and information statements ("Returns") required to be filed by each of
them, which returns, reports and statements are true, correct and complete in
all material respects, and paid or accrued all material taxes shown as due on
such returns, reports and statements. Company and each of its Subsidiaries has
fully accrued in accordance with GAAP all material unpaid taxes in respect of
all periods (or the portion of any such periods) subsequent to the periods
covered by such returns). Company has received no written notice of any
claimed, proposed or assessed material deficiencies or adjustments for any tax,
nor to the best of Company's knowledge, have any such deficiencies or
adjustments been threatened. Company and its Subsidiaries are not
A-11
subject to any ongoing tax audit or examination nor, to the best of Company's
knowledge, are such audits or examinations pending or threatened, and Company
has not waived or entered into any other agreement with respect to any statute
of limitation with respect to the assessment of any tax.
Company has made available to Microsoft true and correct copies of all U.S.
Returns for the fiscal years 1996, 1997 and 1998 reasonably requested by
Microsoft. Company covenants to provide to Microsoft at its reasonable request
true and correct copies of all tax returns, information, statements, reports,
work papers and other tax data as soon as practicable after the date hereof. No
consent or agreement has been made under Section 341 of the Code by or on
behalf of Company or any predecessor thereof. Other than interests in certain
leasehold improvements, Company has no interests in real estate in the State of
Washington, the transfer or disposition of which would give rise to Washington
State real estate excise tax.
Company has withheld all taxes required to be withheld in respect of wages,
salaries and other payments to all employees, officers and directors and timely
paid all such amounts withheld to the proper taxing authority. Neither the
Company nor the Subsidiaries are parties to any tax sharing agreements and
neither the Company nor any of the Subsidiaries have been members of any
affiliated group for federal income tax purposes other than the one of which
they are currently a member. The Company does not have an "overall foreign
loss" as defined in Section 904(f) of the Code. Prior to the Merger, the use of
any net operating loss carryover, net capital loss carryover, unused investment
credit or other credit carryover of the Company is not subject to any
limitation pursuant to Section 382 of the Code or otherwise. The Company is not
and has never been a real property holding corporation within the meaning of
Section 897 of the Code. Neither Company nor any Subsidiary has participated
in, or cooperated with, an international boycott within the meaning of
Section 999 of the Code. There are no material liens for taxes upon the assets
of Company or its Subsidiaries except for taxes that are not yet payable. The
Company Disclosure Schedule contains a list of all states or foreign
jurisdictions where the Company believes it or any Subsidiary is required to
file Returns.
Neither Company nor any Subsidiary of Company is a party to any agreement,
contract, or arrangement that would result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code. None of
Company or any Subsidiary is "tax exempt use property" within the meaning of
Section 168(h) of the Code. None of the assets of Company or of any Subsidiary
secures any debt the interest on which is tax exempt under Section 103 of the
Code.
To the knowledge of Company, there are no facts or circumstances relating to
the Company including any covenants or undertakings of the Company pursuant to
this Agreement, that would prevent Shearman & Sterling from delivering the
opinion referred to in Section 7.1.5 as of the date hereof.
3.1.15 Interests of Officers
None of Company's officers or directors has, nor to the knowledge of Company
does any officer or director of any Subsidiary have, any material interest in
any property, real or personal, tangible or intangible, including inventions,
copyrights, trademarks or trade names, used in or pertaining to the business of
Company or that of its Subsidiaries, or any supplier, distributor or customer
of Company or its Subsidiary, except, in the case of Company, for the normal
rights of a shareholder, and except for rights under existing employee benefit
plans.
3.1.16 Technology and Intellectual Property Rights
(a) "Company Intellectual Property" shall mean:
(i) all patents, trademarks, trade names, service marks, domain names,
copyrights and any renewal rights, applications and registrations for any
of the foregoing, and all trade dress, schematics, technology, trade
secrets, know-how, moral rights and computer software programs or
applications (in both source and object code form) owned by Company; and
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(ii) all license rights in any third party intellectual property,
proprietary or personal rights, documentation, or tangible or intangible
property, including without limitation the types of intellectual property
and tangible and intangible proprietary information described in (i) above;
that are being, and/or have been, used in, or are currently under
development for use in, and are material to, the business of Company as it
has been, is currently or is currently anticipated to be (up to the
Closing), conducted. Company Intellectual Property described in clause (i)
above is referred to herein as "Company Owned Intellectual Property" and
Company Intellectual Property described in clause (ii) above is referred to
herein as "Company Licensed Intellectual Property". Unless otherwise noted,
all references to "Company Intellectual Property" shall include both
Company Owned Intellectual Property and Company Licensed Intellectual
Property.
(b) The Company Disclosure Schedule lists: (i) all patents, registered
copyrights, trademarks, and service marks and any applications and
registrations for any of the foregoing, that are included in the Company Owned
Intellectual Property; (ii) all software products and services that are
currently published, offered, or under development by Company and scheduled to
be commercially released within six months of the date hereof; (iii) licenses
and sublicenses of Company Owned Intellectual Property that are material to the
business of Company as it has been, is currently or is currently anticipated to
be (up to the Closing), conducted; (iv) all Company Licensed Intellectual
Property (other than license agreements for standard "shrink wrapped, off the
shelf," commercially available, third party products used by the Company); and
(v) any obligations of exclusivity, non-competition, non-solicitation, or first
negotiation to which Company is subject under any agreement that does not fall
within the ambit of (iii) or (iv) above and that are either material to
Company's business or that to Company's knowledge could reasonably be expected
to be materially adverse to Microsoft's business.
(c) Each item of the Company Intellectual Property is either: (i) owned by
Company, (ii) in the public domain, or (iii) rightfully used by Company
pursuant to a valid license or other agreement. Company has all rights in the
Company Intellectual Property reasonably necessary to carry out Company's
current, and anticipated future (up to the Closing) activities and has or had
during the relevant period all rights in the Company Intellectual Property
reasonably necessary to carry out Company's former activities. All software and
firmware listings that are part of the Company Owned Intellectual Property are
commented in accordance with a reasonable developer standard.
(d) Company is not, nor as a result of the execution or delivery of this
Agreement, or performance of Company's obligations hereunder, will Company be,
in violation of any license, sublicense or other agreement relating to the
Company Intellectual Property or of any non-disclosure agreement to which
Company is a party or otherwise bound, except for any such violations that
would not have a Material Adverse Effect on the Business Condition of Company.
(e) Except pursuant to the terms of the agreements listed in the Company
Disclosure Schedule, Company is not obligated to provide any financial
consideration or other material consideration to any third party, nor is any
third party otherwise entitled to any financial consideration or other material
consideration, with respect to any exercise of rights by Company or its
successors in the Company Intellectual Property contained in Company's current
products as listed on the Company Disclosure Schedule or in the Company
Intellectual Property contained in any Company web site.
(f) The use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any Company Owned
Intellectual Property by Company or its licensees, does not infringe any
copyright, patent, trade secret, trademark, service mark, trade name, firm
name, logo, trade dress, moral right, other intellectual property right, right
of privacy, right of publicity or right in personal or other data of any
person, except for any such violations that would not have a Material Adverse
Effect on the Business Condition of Company. Further, to the knowledge of
Company, the use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any Company Licensed
Intellectual Property or any other authorized exercise of rights in or to the
Company Licensed Intellectual Property by Company or its licensees
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does not infringe any copyright, patent, trade secret, trademark, service mark,
trade name, firm name, logo, trade dress, moral right, other intellectual
property right, right of privacy, right of publicity or right in personal or
other data of any person, except for any such violations that would not have a
Material Adverse Effect on the Business Condition of Company. No claims (i)
challenging the validity, enforceability, or ownership by Company of any of the
Company Owned Intellectual Property or (ii) to the effect that the use,
reproduction, modification, manufacturing, distribution, licensing,
sublicensing, sale or any other exercise of rights in any Company Owned
Intellectual Property by Company or its licensees infringes any intellectual
property or other proprietary or personal right of any person, have been
asserted or, to the knowledge of Company, are threatened by any person. To the
knowledge of Company, there is no unauthorized use, infringement or
misappropriation of any of the Company Owned Intellectual Property by any third
party, employee or former employee.
(g) No parties other than Company possess any current or contingent rights
to any source code that is part of the Company Owned Intellectual Property
(including, without limitation, through any escrow account).
(h) Company's standard practice is to secure from all parties who have
created any material portion of, or otherwise have any material rights in or
to, the Company Owned Intellectual Property written assignments or licenses of
any such work or other rights to Company.
(i) Company has provided Microsoft with a copy of or access to all material
support and maintenance agreements relating to Company Owned Intellectual
Property or to which Company is a party as to Company Licensed Intellectual
Property.
(j) To the knowledge of Company, Company has obtained written agreements
from all employees and third parties with whom Company has shared confidential
information (i) of Company, or (ii) received from others which Company is
obligated to treat as confidential, which agreements require such employees and
third parties to keep such information confidential.
(k) Company's practices regarding the collection and use of consumer
personal information are in accordance in all material respects with Company's
privacy policy as published on its website.
(l) Any Company Owned Intellectual Property is, and any products
manufactured and commercially released by Company or currently under
development, are Year 2000 Compliant in all material respects and will not
cease to be Year 2000 Compliant in any material respect at any time prior to,
during or after the calendar year 2000. To Company's knowledge, the Company
Licensed Intellectual Property material to the operation of Company is Year
2000 Compliant in all material respects and will not cease to be Year 2000
Compliant in any material respect at any time prior to, during or after the
calendar year 2000. For the purposes of this Agreement, "Year 2000 Compliant"
means that neither the performance nor the functionality of the applicable
Company Intellectual Property or applicable product is or will be materially
affected by dates prior to, during or after the calendar year 2000 AD.
3.1.17 Opinion of Financial Advisor
Company has received the opinion of Morgan Stanley & Co. Incorporated, dated
the date hereof, a copy of which has been provided to Microsoft, to the effect
that, as of such date, the Exchange Ratio is fair, from a financial point of
view, to Company's shareholders.
3.1.18 Vote Required
The affirmative vote of the holders of two-thirds of the outstanding shares
of Company Common Stock is the only vote of the holders of Company's capital
stock necessary to approve this Agreement and the consummation of the
transactions contemplated hereby.
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3.1.19 Accounting Matters
To the knowledge of Company, neither Company nor any of its affiliates has
taken or agreed to take any action that, without giving effect to any action
taken or agreed to be taken by Microsoft or any of its affiliates, would
prevent Microsoft from accounting for the business combination to be effected
by the Merger as a pooling of interests.
3.1.20 Brokers and Finders
Other than Morgan Stanley & Co. Incorporated, in accordance with the terms
of its engagement letter, a copy of which has previously been provided to
Microsoft, none of Company or any of its Subsidiaries nor any of their
respective directors, officers or employees has employed any broker or finder
or incurred any liability for any financial advisory fees, brokerage fees,
commissions or similar payments in connection with the transactions
contemplated by this Agreement.
3.1.21 Change of Control
With regard to any options, stock, restricted stock, stock bonus or other
awards granted under the Company Incentive and Stock Option Plans which are not
exercisable or vested prior to the Effective Time, Company has not taken any
action to make such options or awards exercisable or vested by reason of the
Merger. Prior to the Effective Time, Company shall take all action necessary
relating to the Company Incentive and Stock Option Plans to provide that the
occurrence of the transactions contemplated by this Agreement shall not entitle
participants under such plans to a cash-out of the stock options, restricted
stock, stock bonus or other awards granted to them thereunder.
3.1.22 Leases in Effect
All real property leases and subleases as to which Company or any Subsidiary
is a party and any amendments or modifications thereof which have been filed as
exhibits to the Company SEC Documents or are listed on the Company Disclosure
Schedule (each a "Lease" and collectively, the "Leases") are valid, in full
force and effect, enforceable, and there are no existing defaults on the part
of Company, and Company has not received nor given notice of default or claimed
default with respect to any Lease, nor is there any event that with notice or
lapse of time, or both, would constitute a default thereunder, except for
defaults, claimed defaults or events that with notice or lapse of time, or
both, would constitute a default that have not had, and would not have,
individually or in the aggregate, a Material Adverse Effect on the Business
Condition of Company. No consent is required from any party under any Lease in
connection with the completion of the transactions contemplated by this
Agreement, and Company has not received notice that any party to any Lease
intends to cancel, terminate, or refuse to renew the same or to exercise any
option or other right thereunder, except where the failure to receive such
consent, or where such cancellation, termination or refusal, would not have a
Material Adverse Effect on Company's Business Condition.
3.1.23 Environmental
(a) There has not been a discharge or release on any real property at the
time it was owned or leased by Company (the "Real Property") of any Hazardous
Material (as defined below), including without limitation contamination of
soil, groundwater or the environment, generation, handling, storage,
transportation or disposal of Hazardous Materials or exposure to Hazardous
Materials, except for those that would not, individually or in the aggregate
have a Material Adverse Effect on the Business Condition of Company;
(b) No Hazardous Material has been used by Company in the operation of
Company's business in amounts that would have a Material Adverse Effect on the
Business Condition of Company; and
(c) Company has not received from any Governmental Entity or third party any
written request for information, notice of claim, demand letter, or other
notification, notice or information that Company is or may
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be potentially subject to or responsible for any investigation or clean-up or
other remediation of Hazardous Material present on any Real Property or at any
other location.
"Hazardous Material" means any substance (i) that is a "hazardous waste" or
"hazardous substance" under any federal, state or local statute, regulation,
rule, or order or (ii) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, or otherwise hazardous and is regulated by any
Governmental Entity.
3.1.24 Certain Payments
To the knowledge of Company, neither Company nor any person or other entity
acting on behalf of Company has, directly or indirectly, on behalf of or with
respect to Company: (i) made an unreported political contribution, (ii) made or
received any payment which was not legal to make or receive, (iii) engaged in
any transaction or made or received any payment which was not properly recorded
on the books of Company, (iv) created or used any "off-book" bank or cash
account or "slush fund", or (v) engaged in any conduct constituting a violation
of the Foreign Corrupt Practices Act of 1977.
3.1.25 Reliance
The foregoing representations and warranties are made by Company with the
knowledge and expectation that Microsoft and Sub are placing reliance thereon.
3.2 Representations and Warranties of Microsoft and Sub
Except as disclosed in a Disclosure Schedule which identifies by section
number the section and subsection to which such disclosure relates (unless the
applicability of such disclosure to any section or subsection is reasonably
apparent in light of the circumstances under which made) and is delivered by
Microsoft to Company concurrently with the execution of this Agreement (the
"Microsoft Disclosure Schedule"), Microsoft and Sub represent and warrant to
Company as follows:
3.2.1 Organization; Standing and Power
Each of Microsoft and Sub is a corporation duly organized, validly existing
under the laws of its jurisdiction of incorporation or organization, has all
requisite power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which it owns, leases or
operates its properties or conducts its businesses so as to require such
qualification, except where the failure to be so organized, existing, qualified
or in good standing or to have such corporate or other applicable power and
authority have not had, and would not have, a Material Adverse Effect on the
Business Condition of Microsoft.
3.2.2 Capital Structure
The authorized capital stock of Microsoft consists of 12,000,000,000 shares
of Microsoft Common Stock of which 5,137,062,528 are outstanding as of August
31, 1999 and 100,000,000 shares of preferred stock, par value $0.01 per share
(the "Microsoft Preferred Stock") of which 12,519,562 are outstanding as of
August 31, 1999, and no shares are held by Subsidiaries of Microsoft. In
addition, as of August 31, 1999, there are 755,669,934 shares of Microsoft
Common Stock are reserved for issuance upon the exercise of outstanding stock
options ("Microsoft Options") under the Microsoft 1991 Stock Option Plan. The
authorized capital stock of Sub consists of 10,000 shares of common stock, par
value $.01 per share, all of which are duly authorized, validly issued, fully
paid and nonassessable and free of any preemptive rights in respect thereof and
all of which are owned by Microsoft. The shares of Microsoft Common Stock to be
issued pursuant to the Merger in accordance with Section 2.1.3(i) will be duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, Microsoft's Restated Articles of
Incorporation or Bylaws or any
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agreement to which Microsoft is a party or is bound and (ii) will, when issued,
be registered under the Securities Act and the Exchange Act and registered or
exempt from registration under applicable blue sky laws.
3.2.3 Authority
Microsoft and Sub have all requisite corporate power and authority to enter
into this Agreement, and subject to the Microsoft Required Statutory Approvals
(as defined below), to consummate the transactions contemplated hereby. The
execution and delivery by Microsoft of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Microsoft. This Agreement has been duly
executed and delivered by Microsoft and Sub and assuming the due authorization,
execution and delivery by Company, constitutes a valid and binding obligation
of Microsoft and Sub enforceable in accordance with its terms. Subject to
satisfaction of the conditions set forth in Sections 7.1 and 7.2, the execution
and delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, conflict with or result in any Violation of (i)
any provision of the Restated Articles of Incorporation or Bylaws of Microsoft
or the comparable governing instruments of any Subsidiary of Microsoft or (ii)
any loan or credit agreement note, bond, mortgage, indenture, contract, lease,
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Microsoft or any Subsidiary of Microsoft or their respective properties or
assets, other than, in the case of (ii), any such Violation, which individually
or in the aggregate would not have a Material Adverse Effect on the Business
Condition of Microsoft. No Consent is required by or with respect to Microsoft
or Sub in connection with the execution and delivery of this Agreement by
Microsoft or Sub or the consummation by Microsoft and Sub of the transactions
contemplated hereby, except for (i) the filing of a premerger notification
report by Microsoft and Company under the HSR Act, (ii) the filing of the Proxy
Statement/Prospectus with the SEC pursuant to the Exchange Act and the
Securities Act and the declaration of the effectiveness thereof by the SEC and
compliance with various state securities or blue sky laws, and (iii) the filing
of the Merger Documents with the Secretary of State of the State of Washington
(the filings and approvals referred to in clauses (i) through (iii) are
collectively referred to as the "Microsoft Required Statutory Approvals" and
together with the Company Required Statutory Approvals, the "Required Statutory
Approvals") and except for such other Consents which if not obtained or made
would not have a Material Adverse Effect on the value of the Microsoft Common
Stock and would not have a Material Adverse Effect on the Business Condition of
Microsoft.
3.2.4 SEC Documents and Financial Statements
Microsoft has filed all forms, reports and documents required to be filed by
it with the SEC since July 1, 1995 through the date of this Agreement
(collectively, the "Microsoft SEC Documents"). As of their respective filing
dates, the Microsoft SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Microsoft
SEC Documents, and none of the Microsoft SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, the financial statements of Microsoft included
in the Microsoft SEC Documents (the "Microsoft Financial Statements") complied
as to form in all material respects with all applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto
and were prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated in the notes thereto) and
fairly presented, in all material respects, the consolidated financial position
of Microsoft and its Subsidiaries as at the dates thereof and the results of
their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal, recurring audit adjustments not
material in scope or amount). There has been no change in Microsoft's
accounting policies or the methods of making accounting estimates or changes in
estimates that are material to Microsoft Financial Statements or estimates
except as described in the notes thereto.
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3.2.5 Information Supplied
None of the information supplied or to be supplied by Microsoft or its
Subsidiaries, auditors, attorneys, financial advisors, other consultants or
advisors or Sub for inclusion in the S-4 or the Proxy Statement/Prospectus,
will, in the case of the Proxy Statement and any amendment or supplement
thereto, at the time of the mailing of the Proxy Statement and any amendment or
supplement thereto, and at the time of any meeting of shareholders of Company
to vote upon this Agreement and the transactions contemplated hereby, or in the
case of the S-4, as amended or supplemented, at the time it becomes effective
and at the time of any post-effective amendment thereto and at the time of the
meeting of shareholders of Company, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they are made, not misleading or necessary to correct any statement in
any earlier filing with the SEC of such Proxy Statement/Prospectus or any
amendment or supplement thereto or any earlier communication (including the
Proxy Statement/Prospectus) to shareholders of Company with respect to the
transactions contemplated by this Agreement.
3.2.6 No Defaults
Microsoft has not received notice that it would be with the passage of time,
in default or violation of any term, condition or provision of (i) the Restated
Articles of Incorporation or Bylaws of Microsoft; (ii) any judgment, decree or
order applicable to Microsoft; or (iii) any loan or credit agreement, note,
bond, mortgage, indenture, contract, agreement, lease, license or other
instrument to which Microsoft is now a party or by which it or any of its
properties or assets may be bound, except for defaults and violations which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Business Condition of Microsoft.
3.2.7 Absence of Certain Changes or Events
Since July 1, 1998 through the date of this Agreement, except as
contemplated by or as disclosed in this Agreement, as set forth in the
Microsoft Disclosure Schedule or as disclosed in any Microsoft SEC Documents
filed since July 1, 1998 and prior to the date of this Agreement, Microsoft and
its Subsidiaries have conducted their businesses only in the ordinary course
and in a manner consistent with past practice and, since such date, there has
not been any Material Adverse Effect on the Business Condition of Microsoft.
3.2.8 Absence of Undisclosed Liabilities
Microsoft and its Subsidiaries, taken as a whole, have no liabilities or
obligations (whether absolute, accrued or contingent) except (i) Liabilities
that are accrued or reserved against in the consolidated balance sheet of
Microsoft and its Subsidiaries as of June 30, 1998 or reflected in the notes
thereto or disclosed in the financial statements filed as a part of the
Microsoft SEC Documents, (ii) Liabilities that would not have a Material
Adverse Effect on the Business Condition of Microsoft, or (iii) additional
Liabilities reserved against since July 1, 1998 that (x) have arisen in the
ordinary course of business; and (y) are accrued or reserved against on the
books and records of Microsoft and its Subsidiaries.
3.2.9 No Vote Required
No vote of the shareholders of Microsoft is required by law, Microsoft's
Restated Articles of Incorporation or Bylaws or otherwise in order for
Microsoft and Sub to consummate the Merger and the transactions contemplated
hereby.
3.2.10 Accounting Matters
To the knowledge of Microsoft, neither Microsoft nor any of its affiliates
has taken or agreed to take any action that, without giving effect to any
action taken or agreed to be taken by Company or any of its affiliates,
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would prevent Microsoft from accounting for the business combination to be
effected by the Merger as a pooling of interests.
3.2.11 Brokers and Finders
None of Microsoft or any of its respective directors, officers or employees
has employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or similar payments in connection
with the transactions contemplated by this Agreement.
3.2.12 Interim Operation of Sub
Sub is a direct, wholly owned subsidiary of Microsoft, was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
3.2.13 Reliance
The foregoing representations and warranties are made by Microsoft with the
knowledge and expectation that Company is placing reliance thereon.
ARTICLE IV COVENANTS OF COMPANY
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, Company
agrees (except as expressly contemplated by this Agreement or with Microsoft's
prior written consent which will not be unreasonably withheld) that:
4.1 Conduct of Business
4.1.1 Ordinary Course
Except as set forth in the Company Disclosure Schedule, Company and its
Subsidiaries shall carry on their respective businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted
and, to the extent consistent with such businesses, use all reasonable efforts
consistent with past practice and policies to preserve intact their present
business organizations, keep available the services of their present officers,
consultants, and employees and preserve their relationships with customers,
suppliers, distributors and others having business dealings with them. Company
shall promptly notify Microsoft of any event or occurrence or emergency not in
the ordinary course of business, of Company or its Subsidiaries, and material
and adverse to the Business Condition of Company. Except as set forth in the
Company Disclosure Schedule, neither Company nor any of its Subsidiaries shall:
(a) accelerate, amend or change the period of exercisability or vesting of
options, restricted stock, stock bonus or other awards granted under the
Company Incentive and Stock Option Plans (including any discretionary
acceleration of the exercise periods by Company's Board of Directors permitted
under such plans) or authorize cash payments in exchange for any options,
restricted stock, stock bonus or other awards granted under any of such plans;
(b) except in the ordinary course of business consistent with past
practices, grant any severance or termination pay to any officer or director or
to any employee of Company or any of its Subsidiaries;
(c) except in the ordinary course of business consistent with past practices
and other than transfers between or among Company and any of its wholly owned
Subsidiaries, transfer to any person or entity any rights to the Company
Intellectual Property Rights;
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(d) enter into or amend any agreements pursuant to which any other party is
granted exclusive marketing or manufacturing rights of any type or scope for a
period of more than two years with respect to any hardware or software products
of Company or any of its Subsidiaries; and
(e) except in the ordinary course of business consistent with past
practices, commence a lawsuit other than: (i) for the routine collection of
bills; (ii) for software piracy; (iii) in such cases where Company in good
faith determines that failure to commence suit would result in a material
impairment of a valuable aspect of Company's business, provided Company
consults with Microsoft prior to filing such suit; or (iv) for a breach of this
Agreement.
(f) enter into one or more leases which extend for a period of five years
beyond the date of this Agreement and which obligate Company to pay aggregate
gross rent in excess of $1,000,000.
(g) extend an offer of employment to a candidate for an officer position
without prior consultation with Microsoft.
4.1.2 Dividends: Changes in Stock
Other than transfers between or among Company and any of its wholly owned
Subsidiaries, Company shall not, and shall not permit any of its Subsidiaries
to: (i) declare or pay any dividends on or make other distributions (whether in
cash, stock or property) in respect to any of its capital stock; (ii) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of Company; (iii) repurchase or otherwise acquire,
directly or indirectly, any shares of its capital stock other than repurchase
of vested stock from former employees; or (iv) propose any of the foregoing.
4.1.3 Issuance of Securities
Company shall not, and shall not permit its Subsidiaries to, issue, deliver,
or sell, or authorize, propose or agree to, or commit to the issuance,
delivery, or sale of any shares of its capital stock of any class, any Company
Voting Debt or any securities convertible into its capital stock or Company
Voting Debt, any options, warrants, calls, conversion rights, commitments,
agreements, contracts, understandings, restrictions, arrangements or rights of
any character obligating it or any of its Subsidiaries to issue any such
shares, Voting Debt or other convertible securities other than the issuance of
options for Company Common Stock to employees under the Company Incentive and
Stock Option Plans in amounts and on terms consistent with prior practices and
other than the issuance of Company Common Stock upon the exercise of options
granted under the Company Incentive and Stock Option Plans. Any grant of stock
options or restricted stock in excess of the amounts set forth in Section 4.1.3
of the Company Disclosure Schedule shall require the prior written approval of
Microsoft.
4.1.4 Governing Documents
Company shall not, nor shall it cause or permit any of its Subsidiaries to,
amend its Articles or Certificate of Incorporation or Bylaws.
4.1.5 Exclusivity; Acquisition Proposals
(a) Unless and until this Agreement shall have been terminated by either
party pursuant to Section 8.1 hereof, Company shall not (and it shall use its
commercially reasonable best efforts to ensure that none of its officers,
directors, agents, representatives or affiliates) take or cause or permit any
Subsidiary to take, directly or indirectly, any of the following actions with
any party other than Microsoft and its designees: (i) solicit, knowingly
encourage, initiate or participate in any negotiations, inquiries or
discussions with respect to any offer or proposal to acquire all or any
significant part of its business, assets or capital shares whether by
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merger, consolidation, other business combination, purchase of assets, tender
or exchange offer or otherwise (each of the foregoing, an "Acquisition
Transaction"); (ii) disclose, in connection with an Acquisition Transaction,
any information not customarily disclosed to any person other than Microsoft or
its representatives concerning Company's business or properties or afford to
any person other than Microsoft or its representatives or entity access to its
properties, books or records, except in the ordinary course of business and as
required by law or pursuant to a governmental request for information; (iii)
enter into or execute any agreement relating to an Acquisition Transaction; or
(iv) make or authorize any public statement, recommendation or solicitation in
support of any Acquisition Transaction or any offer or proposal relating to an
Acquisition Transaction other than with respect to the Merger provided,
however, that the Board of Directors of Company may recommend that the
shareholders of Company tender their shares in connection with a tender offer
to the extent the Board of Directors of Company by a majority vote determines
in its good faith judgment that such a recommendation is required to comply
with the fiduciary duties of the Board of Directors of Company to shareholders
under applicable Washington Law, after receiving the advice of outside legal
counsel. In the event Company shall receive any offer or proposal, directly or
indirectly, of the type referred to in clause (i) above, or any request for
disclosure or access with respect to information of the type referred to in
clause (ii) above, it shall immediately, and prior to taking any action in
response thereto inform Microsoft as to the existence of such offer or proposal
and generally describe the material facts concerning any such offer including
the identity of the third party making such offer, proposal or request, and
will thereafter cooperate with Microsoft by informing Microsoft of additional
material facts as they arise and furnishing to Microsoft any additional
information it furnished to any third party making such proposal or requesting
information. Nothing contained in this Agreement shall prevent the Board of
Directors of Company from (i) furnishing information to, or answering questions
of, a third party which the Board of Directors of Company reasonably believes
has made a bona fide proposal with respect to an Acquisition Transaction that
is a Superior Proposal (as defined below) not solicited in violation of this
Agreement, provided that prior to providing information, such third party
executes an agreement with confidentiality provisions substantially similar to
those then in effect between Company and Microsoft and provided further that
Microsoft is notified one business day prior to Company's providing of such
information to a third party, or (ii) subject to compliance with the other
terms of this Section 4.1.5, considering a proposal with respect to an
Acquisition Transaction, which the Board of Directors of Company reasonably
believes to be a bona fide proposal, that is a Superior Proposal not solicited
in violation of this Agreement. For purposes of this Agreement, a "Superior
Proposal" means any proposal made by a third party to acquire, directly or
indirectly, for consideration consisting of cash and/or securities,
substantially all of the equity securities of Company entitled to vote
generally in the election of directors, on terms which the Board of Directors
of Company reasonably believes (x) (after consultation with a financial advisor
of nationally recognized reputation) to be more favorable from a financial
point of view to its shareholders than the Merger and the transactions
contemplated by this Agreement taking into account at the time of determination
any changes to the financial terms of this Agreement proposed in writing by
Microsoft and (y) to be more favorable to Company than the Merger and the
transactions contemplated by this Agreement after taking into account all
pertinent factors deemed relevant by the Board of Directors of Company under
the laws of the State of Washington; provided, however, that a Superior
Proposal may be subject to a due diligence review of confidential information
and to other customary conditions.
(b) Nothing contained in this Section 4.1.5 shall prohibit Company from
taking and disclosing to its shareholders a position required by Rule 14d-9 or
14e-2(a) promulgated under the Exchange Act or from making any disclosure to
its shareholders required by applicable law, rule or regulation; provided,
however, the Board of Directors of Company shall only recommend that its
shareholders tender their shares in connection with a tender offer to the
extent that the Board of Directors of Company by a majority vote determines in
its good faith judgment that such a recommendation is required to comply with
the fiduciary duties of the Board of Directors of Company to shareholders under
applicable Washington law, after receiving the advice of outside legal counsel.
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4.1.6 No Acquisitions
Except as set forth in the Company Disclosure Schedule, Company shall not,
and shall not permit any Subsidiary of Company to, acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the Business Condition of Company.
4.1.7 No Dispositions
Company shall not, and shall not permit any Subsidiary of Company to, sell,
lease, license, transfer, mortgage, encumber or otherwise dispose of any of
their assets or cancel, release, or assign any indebtedness or claim, except in
the ordinary course of business or in amounts which are not material,
individually or in the aggregate, to the Business Condition of Company.
4.1.8 Indebtedness
Company shall not, and shall not permit any Subsidiary of Company to, incur
any indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, or
otherwise in amounts which are material, individually or in the aggregate, to
the Business Condition of Company.
4.1.9 Plans
Except as set forth in the Company Disclosure Schedule, Company shall not,
and shall not permit any Subsidiary of Company to, adopt or amend in any
material respect any Plan, or pay any pension or retirement allowance not
required by any existing Plan. Except in the ordinary course of business
consistent with past practices, Company shall not and shall not permit any
Subsidiary of Company to, enter into any employment contracts, pay any special
bonuses or special remuneration to officers, directors, or employees, or
increase the salaries, wage rates or fringe benefits of its officers or
employees.
4.1.10 Claims
Company shall not, and shall not permit any Subsidiary of Company to, settle
any claim, action or proceeding, except in the ordinary course of business or
in amounts which are not material, individually or in the aggregate, to the
Business Condition of Company.
4.1.11 Agreement
Company shall not, and shall not permit any Subsidiary of Company to, agree
to take any of the actions prohibited by this Section 4.1.
4.2 Breach of Representations and Warranties
Company will not knowingly take any action which would cause or constitute a
breach of any of the representations and warranties set forth in Section 3.1 or
which would cause any of such representations and warranties to be inaccurate
in any material respect. In the event of, and promptly after becoming aware of,
the occurrence of or the pending or threatened occurrence of any event which
would cause or constitute such a breach or inaccuracy, Company will give
written notice thereof to Microsoft and will use its commercially reasonable
best efforts to prevent or promptly remedy such breach or inaccuracy.
4.3 Pooling
Company shall not knowingly take or cause to be taken any action, whether
before or after the Effective Time, which would disqualify the Merger as a
pooling of interests for accounting purposes.
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4.4 Consents
Company will promptly apply for or otherwise seek, and use its commercially
reasonable best efforts to obtain, all Consents set forth in the Company
Disclosure Schedule, and make all filings, required with respect to Company for
the consummation of the Merger, except such Consents as Microsoft and Company
agree Company shall not seek to obtain.
4.5 Commercially Reasonable Best Efforts
Company will use its commercially reasonable best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement provided that Company shall in no
event be required to agree to the imposition of, or comply with, any condition,
obligation or restriction on Company or any of its Subsidiaries or on the
Surviving Corporation of the type referred to in Section 7.1.6 hereof.
4.6 Information for Prospectus/Proxy Statement
Company will as promptly as practicable provide to Microsoft and its counsel
for inclusion within the Proxy Statement/Prospectus and the S-4 in a form
reasonably satisfactory to Microsoft and its counsel, such information
concerning Company, its operations, capitalization, technology, share ownership
and other information as Microsoft or its counsel may reasonably request.
4.7 Company Plans
Without the loss of any vested benefits but without accelerating any
unvested rights (except as required by law), Company shall terminate or modify
the Plans as may be directed by Microsoft immediately prior to the Effective
Time or take such action as directed by Microsoft to merge such Plans with the
Microsoft plans at the Effective Time; provided, however, that any such
modification, termination or merger shall be contingent upon the occurrence of
the Effective Time.
4.8 Employee Transition Committee
(a) Company and Microsoft shall promptly establish a transition committee
(the "Transition Committee"), which shall coordinate the joint efforts of
Company and Microsoft to transition Company's employees in connection with the
Merger. The Transition Committee shall consist of Company's Chief Executive
Officer and Chief Technology Officer and Microsoft's Senior Vice President,
Business Productivity Group and an additional designee of Microsoft. The
Transition Committee shall meet regularly to determine policies and practices
relating to transition of Company's employees in connection with the Merger.
(b) As promptly as practicable, but in any event within 10 business days
after the date hereof, the Transition Committee shall identify 20 key
contributors of Company. Promptly thereafter, Company and Microsoft, through
their representatives on the Transition Committee, shall use their respective
commercially reasonable best efforts to enter into employment agreements with
each such key contributor.
4.9 Shareholder Approval
Company will call a special Shareholders Meeting as soon as practicable but
in no event later than 45 days after the Form S-4 is declared effective by the
SEC to submit this Agreement, the Merger and related matters for the
consideration and approval of Company's Shareholders ("Company Shareholders
Meeting"). Such approval will be recommended by Company's Board of Directors,
subject to the fiduciary obligations of its directors. Such meeting will be
called, held and conducted, and any proxies will be solicited, in compliance
with applicable law. Concurrently with the execution of this Agreement, all
officers and directors of Company shall have executed Voting Agreements in the
form of Exhibit 4.9 agreeing, among other things, to vote in favor of the
Merger and against any competing proposals; provided, however, that any
director of Company
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who is also a shareholder of Company shall not be prevented from exercising
his/her fiduciary obligations as a director of Company.
4.10 Tax Returns
Company shall properly and timely file all Returns with respect to Company
and any Subsidiary required to be filed prior to the Closing Date and shall pay
all taxes required to be paid prior to the Closing Date, except for those taxes
being contested in good faith. All such Returns shall be prepared consistent
with past practice. Company shall (i) notify Microsoft as promptly as
practicable if it receives notice of any tax audit, the assessment of any tax,
the assertion of any tax lien, or any request, notice or demand for taxes by
any taxing authority, (ii) provide Microsoft a description of any such matter
in reasonable detail (including a copy of any written materials received from
the taxing authority), and (iii) take no action with respect to such matter
without the consent of Microsoft. Company shall not (x) make or revoke any tax
election which may affect Company, (y) execute any waiver of restrictions on
assessment of any tax without the approval of Microsoft, or (z) enter into any
agreement or settlement with respect to any tax without the approval of
Microsoft which shall not be unreasonably withheld.
4.11 Representations of Shareholders
Company will use its commercially reasonable best efforts to cause (i) all
officers and directors of Company, and (ii) beneficial owners of five percent
(5%) or more of the outstanding Company Common Stock (collectively, the
"Company's Principal Shareholders") to cooperate with counsel to Company and
Microsoft to assist them in providing the tax opinions called for by Section
7.1.5 hereof.
4.12 Employee Benefits Matters
4.12.1 Service Credit
To the extent that service is relevant for eligibility, vesting and (except
as would result in duplication of benefits) benefit accruals under any employee
benefit plan, program or arrangement maintained by Microsoft or any Subsidiary
of Microsoft, such plan, program or arrangement shall credit each employee of
Company or any Subsidiary of Company (a "Company Employee") who participate
therein for service on or prior to the Effective Time with Company or any
Subsidiary of Company or any Affiliate or predecessor of any of them. Microsoft
agrees to offer to Company Employees benefits commensurate with those benefits
conferred to Microsoft employees similarly situated. In addition, Microsoft
shall (i) waive limitations on benefits relating to any pre-existing conditions
under any Microsoft or Subsidiary of Microsoft welfare benefit plan in which
Company Employees may participate and (ii) recognize, for purposes of annual
deductible and out-of-pocket limits under its medical and dental plans,
deductible and out-of-pocket expenses paid by Company Employees and their
respective dependents under Company's and any of its Subsidiary's medical,
dental and other healthcare plans in the calendar year in which the Effective
Time occurs.
4.12.2 Section 16 Approval
On or after the date hereof and prior to the Effective Time, each of
Microsoft and Company shall take all necessary action such that, with respect
to (i) any Company Employee who as of the date hereof is subject to Section 16
of the Exchange Act and (ii) any member of the Company's Board of Directors
(each, a "Company Section 16 Insider"), the acquisition by any such Company
Section 16 Insider of Microsoft Common Stock or Microsoft stock options and the
disposition by any such Company Section 16 Insider of Company Common Stock or
Company Options pursuant to the transactions contemplated herein shall be
exempt from the short-swing profit liability rules of Section 16(b) of the
Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
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4.12.3 Retention Plans and Related Matters
Prior to the Effective Time, Microsoft shall implement retention and
severance bonus plans having the terms set forth in Schedule 4.12.3 pursuant to
final documentation to be approved by the Transition Committee (the "Retention
Plans") for the benefit of Company Employees after the Merger. Microsoft agrees
not to terminate, amend or otherwise modify the Retention Plans and to make all
payments provided for in the Retention Plans as such payments become due and
payable, subject to the terms of the Retention Plans.
ARTICLE V COVENANTS OF MICROSOFT
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, Microsoft
agrees (except as expressly contemplated by this Agreement or with Company's
prior written consent which will not be unreasonably withheld) that:
5.1 Representations and Warranties
Microsoft will not knowingly take any action which would cause or constitute
a breach of any of the representations and warranties set forth in Section 3.2
or which would cause any of such representations and warranties to be
inaccurate in any material respect. In the event of, and promptly after
becoming aware of, the occurrence of or the pending or threatened occurrence of
any event which would cause or constitute such a breach or inaccuracy,
Microsoft will give notice thereof to Company and will use its commercially
reasonable best efforts to prevent or promptly remedy such breach or
inaccuracy.
5.2 Conduct of Business by Microsoft Pending the Merger
Microsoft shall promptly notify Company of any event or occurrence that is
material and adverse to the Business Condition of Microsoft; provided, however,
that the disclosure of such event or occurrence in a Microsoft SEC Document
shall satisfy such requirement so long as such Microsoft SEC Document is filed
within a reasonable period of time after Microsoft becomes aware of such event
or occurrence and in any event prior to the Effective Time. In the event
Microsoft or any of its Subsidiaries shall agree to acquire by merging or
consolidating with, by purchasing an equity interest in, or a portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof and
any such business or assets to be acquired includes products that could
reasonably be considered to be competitive with the Company's business
generally related to the development and sale of software for business
diagramming and technical drawing (a "Competitive Business"), Microsoft shall
either (i) delay any filings required to be made by Microsoft under the HSR Act
with respect to such acquisition until the applicable waiting period with
respect to the Merger under the HSR Act shall have expired or have been earlier
terminated or (ii) agree with the applicable Governmental Entity to hold
separate such Competitive Business or take similar actions that would cause
such Governmental Entity to permit promptly the expiration or termination of
the waiting period under the HSR Act with respect to the Merger.
5.3 Consents
Microsoft will promptly apply for or otherwise seek, and use its
commercially reasonable best efforts to obtain, all consents and approvals, and
make all filings, required for the consummation of the Merger.
5.4 Commercially Reasonable Best Efforts
Microsoft will use its commercially reasonable best efforts to effectuate
the transactions contemplated hereby and to fulfill and cause to be fulfilled
the conditions to closing under this Agreement provided that Microsoft shall in
no event be required to agree to the imposition of, or comply with, any
condition, obligation or restriction on Microsoft or any of its Subsidiaries or
on the Surviving Corporation of the type referred to in Section 7.1.6 hereof.
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5.5 Agreements of Microsoft Affiliates
Prior to the Effective Time, Microsoft will use its commercially reasonable
best efforts to obtain the execution of agreements with respect to the sale of
Microsoft Common Stock with each person who is an Affiliate of Microsoft for
purposes of compliance with pooling restrictions.
5.6 Representations of Shareholders
Microsoft will use its commercially reasonable best efforts to cause each of
its principal shareholders who is the beneficial owner of five percent (5%) or
more of the outstanding Microsoft Common Stock to cooperate with counsel to
Microsoft and Company to assist them in providing the tax opinions called for
by Section 7.1.5. Microsoft shall provide to Company and its counsel such
customary representations as such persons shall reasonably request in
connection with the opinions contemplated in Section 7.1.5. To the knowledge of
Microsoft, there are no facts or circumstances relating to Microsoft, including
any covenants or undertakings of Microsoft pursuant to this Agreement, that
would prevent Shearman & Sterling from delivering the opinion referred to in
Section 7.1.5 as of the date hereof.
5.7 Tax Free Reorganization
Microsoft has no present plan or intention following the Merger to take any
of the following actions:
(a) Cause Company to issue additional shares of its capital stock that would
result in Microsoft losing control of Company within the meaning of Section
368(c) of the Code.
(b) Merge Company with or into another corporation, or sell or otherwise
dispose of the capital stock of Company (except for transfers of such stock to
corporations controlled by Microsoft within the meaning of Code Section
368(a)(2)(C));
(c) Reacquire any shares of its capital stock issued in the Merger, other
than possible purchases in the ordinary course of business of shares held by
Company employees in connection with termination of employment of such
employees and open market repurchases in connection with its normal share
repurchase program.
(d) Cause Company to fail to hold at least 90% of the fair market value of
the Company's net assets and at least 70% of the fair market value of its gross
assets, and at least 90% of the fair market value of Sub's net assets and at
least 70% of its gross assets held immediately prior to the Merger, other than
pursuant to a transfer of rights or assets by means of a sale, license or
merger permitted under subsection (b), provided that Company receives
reasonable arms-length consideration for any sale or license of its assets. For
this purpose, amounts paid by Company or Sub to dissenters to shareholders who
receive cash or other property, to pay reorganization expenses, and in
connection with redemptions and distributions (except for regular, normal
distributions) will be treated as assets of the Company or Sub, respectively,
held immediately prior to the Merger.
(e) Fail to cause Company (or a transferee of Company's stock or business to
which the stock or assets of Company are transferred in a transaction described
in Section 368(a)(2)(C) of the Code) either to continue Company's historic
business or use a significant portion of its business assets in a business.
5.8 Nasdaq Listing
Microsoft will use its commercially reasonable best efforts (i) to cause the
shares of Microsoft Common Stock to be issued in the Merger to be quoted upon
the Effective Time on the Nasdaq National Market or listed on such national
securities exchange as Microsoft Common Stock is listed and (ii) to cause the
shares of Microsoft Common Stock issued upon the exercise of assumed Company
Options to be quoted upon issuance on the Nasdaq National Market or listed on
such national securities exchange as shares of Microsoft Common Stock are
listed.
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5.9 Employee Transition Committee
Microsoft shall assist Company in the organization, establishment and
administration of the Transition Committee as described in Section 4.8.
5.10 Retention Plans
Prior to the Effective Time, Microsoft agrees to implement the Retention
Plans for the benefit of Company Employees after the Merger. Microsoft agrees
not to terminate, amend or otherwise modify the Retention Plans and to make all
payments provided for in the Retention Plans as such payments become due and
payable, subject to the terms of the Retention Plans. Microsoft also agrees to
take all other actions with respect to Company employees that are described in
or contemplated by Schedule 4.12.3.
ARTICLE VI ADDITIONAL AGREEMENTS
In addition to the foregoing, Microsoft and Company each agree to take the
following actions after the execution of this Agreement.
6.1 Preparation of S-4
As promptly as practicable after the date hereof, Microsoft and Company
shall prepare and file with the SEC the Proxy Statement and any other documents
required by the Exchange Act in connection with the Merger, and Microsoft shall
prepare and file with the SEC the S-4, in which the Proxy Statement will be
included as a part of the prospectus. Each of Microsoft and Company shall use
its commercially reasonable best efforts to have the S-4 declared effective
under the Securities Act as promptly as practicable after such filing. Prior to
the effective date of the S-4, Microsoft shall also take any action required to
be taken under any applicable federal or state securities or blue sky laws in
connection with the issuance of the Microsoft Common Stock in the Merger.
Company agrees that the Proxy Statement/Prospectus will comply as to form in
all material respects with the provisions of all applicable laws, including the
provisions of the Exchange Act and the rules and regulations of the SEC
thereunder, except that no representation is made by Company with respect to
information supplied by Microsoft specifically for inclusion therein. Microsoft
agrees that the S-4 and the Proxy Statement/Prospectus will comply as to form
in all material respects with the provisions of all applicable laws including
the provisions of the Securities Act and the Exchange Act and the rules and
regulations of the SEC thereunder, except that no representation is made by
Microsoft with respect to information supplied by Company specifically for
inclusion therein.
6.2 Intentionally deleted
6.3 Intentionally deleted
6.4 Access to Information
Subject to appropriate restrictions on access to information which Company
determines in good faith to be proprietary or competitively sensitive, Company
and Microsoft shall, subject to applicable law, each afford the other and their
respective accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
(i) all of their and their respective Subsidiaries' properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Company and Microsoft and their
respective Subsidiaries, as the other party may reasonably request which is
necessary to complete the transaction and prepare for an orderly transition to
operations after the Effective Time. Company and Microsoft agree to provide to
the other and their respective accountants, counsel and representatives copies
of internal financial statements promptly upon the request therefore. No
information or knowledge obtained in any investigation pursuant to this Section
6.4 shall affect or
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be deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger. Company
and Microsoft agree that the non-disclosure agreement, dated August 11, 1999
(the "Confidentiality Agreement"), between Company and Microsoft shall continue
in full force and effect and shall be applicable to all Confidential
Information (as defined in the Confidentiality Agreement) received pursuant to
this Agreement.
6.5 Legal Conditions to the Merger
Each of Microsoft, Sub and Company will take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed
on any of them with respect to the Merger and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon the other. Each of Microsoft, Sub and Company will take, and will
cause its respective Subsidiaries to take, all reasonable actions to obtain
(and to cooperate with the other parties in obtaining) any consent, approval,
order or authorization of, or any exemption by, any Governmental Entity, or
other third party, required to be obtained or made by Company or Microsoft or
their respective Subsidiaries in connection with the Merger or the taking of
any action contemplated thereby or by this Agreement. The foregoing shall not
require any party to agree to the imposition of, or to comply with, any
condition, obligation or restriction on Microsoft or any of its Subsidiaries or
on the Surviving Corporation of the type referred to in Section 7.1.6 hereof.
6.6 Affiliates
Contemporaneously with the execution of this Agreement, the affiliate
letters substantially in the form attached as Exhibit 6.6 (the "Affiliate
Letters") with respect to the sale of Microsoft Common Stock, shall have been
executed by all of the executive officers and directors of Company (the
"Affiliates"). Microsoft shall be entitled to place appropriate legends on the
certificate evidencing any shares of Microsoft Common Stock to be received by
Affiliates pursuant to the terms of this Agreement and to issue appropriate
stop transfer instructions to the transfer agent for shares of Microsoft Common
Stock consistent with the terms of the Affiliate Letters.
6.7 HSR Act Filings
6.7.1 Filings and Cooperation
Each of Microsoft and Company shall take all reasonable steps (i) promptly
to make or cause to be made the filings required of such party or any of its
Affiliates or Subsidiaries under the HSR Act with respect to the Merger and the
other transactions provided for in this Agreement, (ii) to comply in a timely
manner with any request under the HSR Act for additional information,
documents, or other material received by such party or any of its Affiliates or
Subsidiaries from the Federal Trade Commission or the Department of Justice or
other Governmental Entity in respect of such filings, the Merger, or such other
transactions, and (iii) to cooperate with the other party in connection with
any such filing and in connection with resolving any investigation or other
inquiry of any such agency or other Governmental Entity under any Antitrust
Laws (as defined in Section 6.7.2) with respect to any such filing, the Merger,
or any such other transaction. Each party shall promptly inform the other party
of any material communication with, and any proposed understanding,
undertaking, or agreement with, any Governmental Entity regarding any such
filings, the Merger, or any such other transactions. Neither party shall
participate in any meeting with any Governmental Entity in respect of any such
filings, investigation, or other inquiry without giving the other party notice
of the meeting and, to the extent permitted by such Governmental Entity, the
opportunity to attend and participate.
6.7.2 Objections
Each of Microsoft and Company shall take all reasonable steps to resolve
such objections, if any, as may be asserted by any Governmental Entity with
respect to the Merger or any other transactions provided for in this Agreement
under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended,
the Federal Trade Commission Act, as amended, and any other federal, state or
foreign statutes, rules, regulations, orders,
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or decrees that are designed to prohibit, restrict or regulate actions having
the purpose or effect of monopolization or restraint of trade (collectively,
"Antitrust Laws"). In connection therewith, if any administrative or judicial
action or proceeding is instituted (or threatened to be instituted) challenging
the Merger as violative of any Antitrust Law, and, if by mutual agreement,
Microsoft and Company decide that litigation is in their best interests, each
of Microsoft and Company shall cooperate vigorously to contest and resist any
such action or proceeding and to have vacated, lifted, reversed, or overturned
any decree, judgment, injunction, or other order, whether temporary,
preliminary, or permanent (each an "Order"), that is in effect and that
prohibits, prevents, or restricts consummation of the Merger. Each of Microsoft
and Company shall take such reasonable action as may be required to cause the
expiration of the notice periods under the HSR Act or other Antitrust Laws with
respect to the Merger and such other transactions as promptly as possible after
the execution of this Agreement. Notwithstanding anything to the contrary in
this Section 6.7.2 or in Section 6.7.1, (x) neither Microsoft nor any of its
Subsidiaries shall be required to divest any of their respective businesses,
product lines, or assets, or to take or agree to take any other action or agree
to any limitation that would have a Material Adverse Effect on the drawing and
diagramming software business of Microsoft combined with the Surviving
Corporation after Closing, (y) neither Company nor its Subsidiaries shall be
required to divest any of their respective businesses, product lines, or
assets, or to take or agree to take any other action or agree to any limitation
that would have a Material Adverse Effect on the Business Condition of Company
and (z) neither Microsoft nor Company (nor any of their Subsidiaries) shall be
required to continue to contest or resist any action or proceeding brought by a
Governmental Entity if it concludes that such action is no longer in its best
interest.
6.8 Officers and Directors
Microsoft agrees that all rights to indemnification (including advancement
of expenses) existing on the date hereof in favor of the present or former
officers, directors and employees of Company or any of its Subsidiaries
(collectively, the "Indemnified Parties") with respect to actions taken in
their capacities as officers, directors and employees prior to the Effective
Time as provided in Company's Articles of Incorporation or Bylaws, employment
agreements and indemnification agreements shall survive the Merger and continue
in full force and effect for a period of six years following the Effective Time
and shall be guaranteed by Microsoft and that Company's former and present
officers and directors shall be provided by Microsoft with the same level of
indemnification as currently exists for Microsoft's officers and directors.
This Section 6.8 shall survive the consummation of the Merger at the Effective
Time, and is intended to be for the benefit of, and shall be enforceable by,
the Indemnified Parties, their heirs and personal representatives and shall be
binding on the Surviving Corporation and its respective successors and assigns.
6.9 Expenses
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expense, except that if the Merger is not
consummated expenses incurred in connection with printing and mailing of the
documents distributed or to be distributed to shareholders of Company and the
filing fee with respect to the S-4 shall be shared equally by Microsoft and
Company.
6.10 Stock Option Agreement
To induce Microsoft to execute this Agreement, Company has executed and
delivered to Microsoft as of the date hereof a Stock Option Agreement (the
"Stock Option Agreement") in the form attached hereto as Exhibit 6.10.
6.11 Additional Agreements
In case at any time after the Effective Time any further action is
reasonably necessary or desirable to carry out the purposes of this Agreement
or to vest the Surviving Corporation with full title to all properties, assets,
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rights, approvals, immunities and franchises of either of the Constituent
Corporations, the proper officers and directors of each corporation which is a
party to this Agreement shall take all such necessary action.
6.12 Public Announcements
Microsoft and Company shall cooperate with each other in releasing
information concerning this Agreement and the transactions contemplated herein.
Where practicable each of the parties shall furnish to the other drafts of all
releases prior to publication. Nothing contained herein shall prevent either
party at any time from furnishing any information to any governmental agency or
from issuing any release when it believes it is legally required to do so.
6.13 State Takeover Laws
Company, and the Board of Directors of Company, shall grant such approvals
and take all necessary steps to exempt the transactions contemplated by this
Agreement from, or if necessary challenge the validity or applicability of
Chapter 19 of the WBCA to the Merger.
6.14 Publication of Operating Results
As soon as practicable after the end of a calendar month that is at least 30
days after the Effective Time, Microsoft shall publish, in the form of an
earnings report, an effective registration statement filed with the SEC, a
report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement that includes sales and net income, results of operations covering
at least 30 days of combined operations of Microsoft and the Company after the
Effective Time, as contemplated in SEC Accounting Series Release No. 135.
ARTICLE VII CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
7.1.1 Shareholder Approval
This Agreement and the transactions contemplated hereby shall have been
approved and adopted by the required vote of holders of Company Common Stock.
7.1.2 Consents
Other than the filing of the Merger Documents with the Secretary of State of
the State of Washington, all Consents legally required for the consummation of
the Merger and the transactions contemplated by this Agreement shall have been
filed, occurred, or been obtained, other than such Consents, the failure of
which to obtain would not have a Material Adverse Effect on the consummation of
the Merger or the other transactions contemplated hereby or on the Business
Condition of Microsoft or Company.
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7.1.3 S-4
The S-4 shall have become effective under the Securities Act and shall not
be the subject of any stop order or proceedings seeking a stop order and the
Proxy Statement shall not be at the Effective Time subject to any proceedings
commenced or threatened by the SEC.
7.1.4 No Restraints
No statute, rule, regulation, executive order, decree or injunction shall
have been enacted, entered, promulgated or enforced by any United States court
or Governmental Entity of competent jurisdiction which enjoins or prohibits the
consummation of the Merger and shall be in effect.
7.1.5 Tax-Free Reorganization
Each of Company and Microsoft shall have received a written opinion from
their respective counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code, and that
Microsoft, Sub and Company will each be a party to that reorganization. In
preparing Company and Microsoft tax opinions, counsel may rely on reasonable
representations related thereto.
7.1.6 No Burdensome Condition
There shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger by any
Governmental Entity which, in connection with the grant of any Required
Statutory Approval, imposes any restriction, condition or obligation upon
Microsoft, Company or the Surviving Corporation which would (i) have a Material
Adverse Effect on the Business Condition of Company or (ii) materially
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement.
7.2 Conditions of Obligations of Microsoft and Sub
The obligations of Microsoft and Sub to effect the Merger are subject to the
satisfaction of the following conditions unless waived by Microsoft and Sub:
7.2.1 Representations and Warranties of Company
The representations and warranties of Company set forth in this Agreement
shall be true and correct as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date, except: (i) as
otherwise contemplated by this Agreement (but excluding from this exception any
breach made unknowingly pursuant to Section 4.2), or (ii) in respects that do
not have a Material Adverse Effect on Company or Microsoft's Business
Condition. Microsoft shall have received a certificate signed on behalf of
Company by the chief executive officer or the chief financial officer of
Company to such effect on the Closing Date.
7.2.2 Performance of Obligations of Company
Company shall have performed all agreements and covenants required to be
performed by it under this Agreement prior to the Closing Date, except for
breaches that do not have a Material Adverse Effect on Company's Business
Condition. Microsoft shall have received a certificate signed on behalf of
Company by the chief executive officer or the chief financial officer of
Company to such effect.
7.2.3 Affiliates
Microsoft shall have received from each person or entity who may be deemed
pursuant to Section 6.6 hereof to be an Affiliate of Company a duly executed
Affiliates Letter substantially in the form attached hereto as Exhibit 6.6.
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7.2.4 Pooling of Interests; Comfort Letters
Except if Microsoft has taken or caused to be taken any action that would
disqualify the Merger as a pooling of interests for accounting purposes or if
Microsoft has failed to obtain any required Affiliate Letters from affiliates
of Microsoft, (i) Company shall not have breached its representation in Section
3.1.19 or its covenant in Section 4.3 with the result that the Merger will not
qualify for pooling of interest accounting treatment and (ii) Microsoft shall
have received a letter from Ernst & Young LLP addressed to Company to the
effect that the Merger will qualify for pooling of interest accounting
treatment (without regard to any action or conduct by Microsoft).
7.2.5 Opinion of Company's Counsel
Microsoft shall have received an opinion dated the Closing Date of Shearman
& Sterling or Perkins Coie llp, counsel to Company, as to matters substantially
set forth in Exhibit 7.2.5 hereto. In rendering such opinion, Shearman &
Sterling may rely on opinions of local counsel reasonably satisfactory to
Microsoft, including Perkins Coie llp.
7.3 Conditions of Obligation of Company
The obligation of Company to effect the Merger is subject to the
satisfaction of the following conditions unless waived by Company:
7.3.1 Representations and Warranties of Microsoft and Sub
The representations and warranties of Microsoft and Sub set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, except: (i) as
otherwise contemplated by this Agreement (but excluding from this exception any
breach made unknowingly pursuant to Section 5.1), or (ii) in respects that do
not have a Material Adverse Effect on Microsoft's Business Condition. Company
shall have received a certificate signed on behalf of Microsoft by an
authorized executive officer of Microsoft to such effect on the Closing Date.
7.3.2 Performance of Obligations of Microsoft and Sub
Microsoft and Sub shall have performed all agreements and covenants required
to be performed by them under this Agreement prior to the Closing Date except
for breaches that do not have a Material Adverse Effect on Microsoft's Business
Condition and Company shall have received a certificate signed on behalf of
Microsoft by an authorized executive officer of Microsoft to such effect.
7.3.3 Opinion of Microsoft Counsel
Company shall have received an opinion dated the Closing Date of Preston
Gates & Ellis LLP, counsel to Microsoft, as to matters that are customary for
transactions of this type.
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ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
8.1 Termination
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of matters presented in connection with the
Merger by the shareholders of Company:
(a) by mutual consent of Microsoft and Company;
(b) by either Microsoft or Company (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or
agreement contained in this Agreement) if there has been a breach of any
representation, warranty, covenant or agreement which has a Material Adverse
Effect on the Business Condition of Company or Microsoft, as the case may be,
and such breach has not been cured, or commercially reasonable best efforts are
not being employed to cure such breach, within 20 days after notice thereof is
given to the party committing such breach;
(c) by either Microsoft or Company if the Merger shall not have been
consummated before March 31, 2000, provided, however if the parties have agreed
to pursue litigation pursuant to Section 6.7.2, such date shall be extended to
September 30, 2000;
(d) by either Microsoft or Company if any approval of the shareholders of
Company shall not have been obtained by reason of the failure to obtain the
required vote upon a vote taken at any Company Shareholders Meeting or any
adjournment thereof;
(e) by either Microsoft or Company if any permanent injunction or other
order of a court or other competent authority preventing the Merger shall have
become final and not subject to appeal;
(f) by Microsoft if the Board of Directors of Company shall have withdrawn
or modified in a manner adverse to Microsoft its approval or recommendation of
the Merger, this Agreement or the transactions contemplated hereby; or
(g) by Microsoft if Company or any of the other persons or entities
described in Section 4.1.5 shall take any of the actions that would be
proscribed by Section 4.1.5 other than actions in exercise of Company's
fiduciary duties and satisfying all conditions of Section 4.1.5 and such
actions have a Material Adverse Effect on the Business Condition of Company.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors of the party taking such action without any requirement to submit
such action to the shareholders of such party.
8.2 Effect of Termination
In the event of termination of this Agreement by either Company or Microsoft
as provided in Section 8.1, this Agreement shall forthwith become void and have
no effect, and there shall be no liability or obligation on the part of
Microsoft, Sub or Company or their respective officers or directors, except
that (i) all of Sections 6.9, 8.2, 8.3, and Article IX and the Confidentiality
Agreement shall survive any such termination and abandonment, and (ii) no party
shall be released or relieved from any liability arising from the willful
breach by such party of any of its representations, warranties, covenants or
agreements as set forth in this Agreement except as provided in Section 8.3(b).
8.3 Break-up Fee
(a) Company agrees to pay Microsoft, (provided that Microsoft is not then in
material breach of any representation, warranty, covenant or agreement
contained in this Agreement) promptly upon the termination of
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this Agreement by wire transfer, the sum of $30 million in immediately
available funds in the event that following the date of the execution of this
Agreement, and at or prior to the termination of this Agreement, any of the
following events shall have occurred:
(i) Microsoft shall have terminated this Agreement pursuant to Section
8.1(g) hereof;
(ii) Microsoft shall have terminated this Agreement pursuant to Section
8.1(f) hereof at such time Company shall have agreed to an Acquisition
Transaction which would result in a change in the beneficial owners of more
than fifty percent (50%) of the voting power of the capital stock of
Company with any person, other than Microsoft or any of its affiliates; or
(iii) Microsoft shall have terminated this Agreement pursuant to Section
8.1(b) hereof, following a willful material breach of this Agreement by
Company.
(b) The right to the payment of the fees set forth in this Section 8.3 shall
be the exclusive remedy at law or in equity to which Microsoft may be entitled
upon termination of this Agreement under the conditions set forth in Section
8.3(a).
8.4 Amendment
This Agreement may be amended by the parties hereto, by action taken by
their respective Board of Directors, at any time before or after approval of
matters presented in connection with the Merger by the shareholders of Company
or Microsoft, but after any such shareholder approval, no amendment shall be
made which by law requires the further approval of shareholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.5 Extension, Waiver
At any time prior to the Effective Time, any party hereto, by action taken
by its Board of Directors may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements,
covenants or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements
All representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to be
conditions to the Merger and shall not survive the Merger, except for the
agreements contained in Article II and in Sections 1.4, 4.3, 4.12, 6.4, 6.7,
6.8, 6.9, and 6.12 and the agreements delivered pursuant to this Agreement.
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9.2 Notices
All notices, requests, demands or other communications which are required or
may be given pursuant to the terms of this Agreement shall be in writing and
shall be deemed to have been duly given: (i) on the date of delivery if
personally delivered by hand, (ii) upon the third day after such notice is
deposited in the United States mail, if mailed by registered or certified mail,
postage prepaid, return receipt requested, (iii) on the date of delivery if
sent by a nationally recognized overnight express courier, or (iv) upon written
confirmation of receipt by the recipient of such notice if by facsimile:
(a) If to Microsoft or Sub:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Chief Financial Officer; General Counsel, Finance and Operations
Telephone No.: (425) 882-8080
Facsimile No.: (425) 869-1327
with copies to:
Preston Gates & Ellis LLP
5000 Columbia Center
701 Fifth Avenue
Seattle, Washington 98104
Attention: Richard B. Dodd
Facsimile No.: (206) 623-7022
(b) if to Company, to:
Visio Corporation
2211 Elliott Avenue
Seattle, WA 98121
Attention: Chief Financial Officer
Telephone No.: (206) 956-6000
Facsimile No.: (206) 956-6001
with a copy to:
Shearman & Sterling
1550 El Camino Real
Menlo Park, CA 94025-4100
Attention: Christopher D. Dillon
Facsimile No.: (650) 330-2299
Perkins Coie LLP
1201 Third Avenue, Suite 4800
Seattle, Washington 98101-3099
Attention: Linda A. Schoemaker
Facsimile No.: (206) 583-8500
9.3 Interpretation
When a reference is made in this Agreement to Sections or Exhibits, such
reference shall be to a Section or Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes," and "including" when used therein
shall be deemed in each case to be followed by the words "without limitation."
The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any
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way the meaning or interpretation of this Agreement. The "knowledge of," "the
best of knowledge of," or other derivations of "know" with respect to Microsoft
or Company will mean the actual knowledge of the executive officers and
directors of Microsoft or Company, in each case assuming the exercise of
reasonable inquiry. This Agreement has been negotiated by the respective
parties hereto and their attorneys and the language hereof will not be
construed for or against either party. A reference to a Section or an Exhibit
will mean a section in, or exhibit to, this Agreement unless otherwise
explicitly set forth.
9.4 Counterparts
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to each of the other parties, it being understood that all parties need not
sign the same counterpart.
9.5 Miscellaneous
This Agreement, the Confidentiality Agreement, and the documents referred to
herein (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) is not intended to confer upon any other person any
rights or remedies hereunder (except as otherwise expressly provided herein and
except that Section 6.8 is for the benefit of Company's directors and officers
and Sections 2.3.1, 2.3.2 and 4.12 are for the benefit of holders of Company
Stock Options and the other employees of Company and said Sections are intended
to confer rights on such persons); and (c) shall not be assigned by operation
of law or otherwise except as otherwise specifically provided.
9.6 No Joint Venture
Nothing contained in this Agreement will be deemed or construed as creating
a joint venture or partnership between any of the parties hereto. No party is
by virtue of this Agreement authorized as an agent, employee or legal
representative of any other party. No party will have the power to control the
activities and operations of any other and their status is, and at all times,
will continue to be, that of independent contractors with respect to each
other. No party will have any power or authority to bind or commit any other.
No party will hold itself out as having any authority or relationship in
contravention of this Section.
9.7 Governing Law
This Agreement shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Washington. Company and
Microsoft consent to jurisdiction and venue in the state and federal courts in
King County, Washington.
9.8 Specific Performance
The parties hereto agree that irreparable damage would occur in the event
that any provision of this Agreement were not performed in accordance with the
terms hereof and that the parties shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or in equity.
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IN WITNESS WHEREOF, Microsoft, Sub and Company have caused this Agreement to
be signed by their respective officers thereunder duly authorized, all as of
the date first written above.
MICROSOFT CORPORATION
/s/ William H. Gates III
By: _________________________________
Its: Chief Executive Officer
MOVIESUB, INC.
/s/ Robert A. Eshelman
By: _________________________________
Its: President
VISIO CORPORATION
/s/ Jeremy Jaech
By: _________________________________
Its: President and Chief Executive
Officer
A-37
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated September 14, 1999, between Microsoft
Corporation, a Washington corporation ("Grantee"), and Visio Corporation, a
Washington corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Reorganization dated as of the date hereof (the "Reorganization Agreement"),
which agreement has been executed by the parties hereto immediately prior to
this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Reorganization
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Reorganization Agreement, the
parties hereto agree as follows:
1. Grant of Option
(a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 6,012,500 fully
paid and nonassessable shares (such shares, together with any other securities
or other property resulting from any adjustment pursuant to Sections 5 or 6 of
this Agreement, being referred to herein as the "Option Shares") of Issuer
common stock, $0.01 per value per share ("Common Stock") at a price of $42.78
per share (the "Option Price"); provided, however, that in no event shall the
number of Option Shares for which this Option is exercisable exceed 19.9% of
Issuer's issued and outstanding common shares. The number of Option Shares that
may be received upon the exercise of the Option and the Option Price are
subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the number of shares of Common Stock subject to
the Option shall be increased so that, after such issuance, it equals 19.9% of
the number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be deemed
to authorize Issuer or Grantee to breach any provision of the Reorganization
Agreement.
2. Exercise of Option
(a) Grantee may exercise the Option, in whole or part, if, but only if, a
Triggering Event (as hereinafter defined) shall have occurred prior to the
occurrence of an Exercise Termination Event (as hereinafter defined), provided
that Grantee shall have sent the written notice of such exercise (as provided
in subsection (d) of this Section 2) on or prior to the last day of the one (1)
year period following such Triggering Event (the "Option Expiration Date"). The
right to exercise the Option shall terminate upon the first to occur of the
Option Expiration Date and the Exercise Termination Event. Each of the
following shall be an Exercise Termination Event: (i) the Effective Time of the
Merger; and (ii) termination of the Reorganization Agreement in accordance with
the provisions thereof if such termination occurs prior to the occurrence of a
Triggering Event in circumstances under which the fee specified in Section
8.3(b) of the Reorganization Agreement cannot become payable.
(b) The term "Triggering Event" shall mean the occurrence of any event or
circumstance that results in the fee specified in Section 8.3(b) of the
Reorganization Agreement becoming payable to Grantee.
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(c) Issuer shall notify Grantee promptly in writing of the occurrence of any
Triggering Event, it being understood that the giving of such notice by Issuer
shall not be a condition to the right of Grantee to exercise the Option.
(d) In the event Grantee is entitled to and wishes to exercise the Option,
it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 40 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of any regulatory agency is required in connection
with such purchase, Grantee shall promptly file the required notice or
application for approval and shall expeditiously process the same and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have expired
or been terminated or such approvals have been obtained and any requisite
waiting period or periods shall have passed. Any exercise of the Option shall
be deemed to occur on the Notice Date relating thereto.
(e) At the closing referred to in subsection (d) of this Section 2, Grantee
shall pay to Issuer the aggregate purchase price for the shares of Common Stock
purchased pursuant to the exercise of the Option in immediately available funds
by wire transfer to a bank account designated by Issuer, provided that failure
or refusal of Issuer to designate such a bank account shall not preclude
Grantee from exercising the Option.
(f) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (e) of this Section 2, Issuer shall
deliver to Grantee a certificate or certificates representing the number of
shares of Common Stock purchased by Grantee and, if the Option should be
exercised in part only, a new Option evidencing the rights of Grantee thereof
to purchase the balance of the shares purchasable hereunder, and Grantee shall
deliver to Issuer a copy of this Agreement and a letter agreeing that Grantee
will not offer to sell or otherwise dispose of such shares in violation of
applicable law or the provisions of this Agreement.
(g) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of such agreement is on file at the principal
office of Issuer and will be provided to the holder hereof without charge
upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act") in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if Grantee shall have delivered to Issuer a copy of a letter
from the staff of the Securities and Exchange Commission ("SEC"), or an opinion
of counsel, in form and substance reasonably satisfactory to Issuer, to the
effect that such legend is not required for purposes of the 1933 Act; (ii) the
reference to the provisions to this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(h) Upon the giving by Grantee to Issuer of the written notice of exercise
of the Option provided for under subsection (d) of this Section 2 and the
tender of the applicable purchase price in immediately available funds, Grantee
shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to Grantee. Issuer shall pay
all
B-2
expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of Grantee or
its assignee, transferee or designee.
3. Certain Agreements of Issuer
Issuer agrees: (i) that it shall at all times maintain, free from preemptive
rights, sufficient authorized but unissued or treasury shares of Common Stock
so that the Option may be exercised without additional authorization of Common
Stock after giving effect to all other options, warrants, convertible
securities and other rights to purchase Common Stock; (ii) that it will not, by
charter amendment or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations or conditions
to be observed or performed hereunder by Issuer; and (iii) promptly to take all
action as may from time to time be required (including complying with all
premerger notification, reporting and waiting period requirements specified in
15 U.S.C. (S) 18a and regulations promulgated thereunder) in order to permit
Grantee to exercise the Option and Issuer duly and effectively to issue shares
of Common Stock pursuant hereto.
4. Replacement Agreements and Options
This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of Grantee, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date.
5. Anti-Dilution
The number of Option Shares purchasable upon the exercise of the Option
shall be subject to adjustment from time to time as provided in this Section 5.
(a) In the event of any change in Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof shall be appropriately adjusted.
(b) Whenever the number of shares of Common Stock purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option Price by a fraction, the numerator of which
shall be equal to the number of shares of Common Stock purchasable prior to the
adjustment and the denominator of which shall be equal to the number of shares
of Common Stock purchasable after the adjustment.
(c) In the event Issuer shall at any time after the date hereof and prior to
the Exercise Termination Event issue or distribute any securities or assets in
respect of, or in lieu of or in exchange for Common Stock (other than pursuant
to a dividend paid solely in Common Stock) whether by dividend, in a
reclassification or recapitalization, or otherwise, Issuer shall make such
adjustments, if any, in the Option Price and/or the number of shares of Common
Stock issuable upon exercise of the Option as are necessary to fully preserve
the interests of the Grantee in the Option.
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6. Registration Rights
Upon the occurrence of a Triggering Event prior to an Exercise Termination
Event, Issuer shall, at the request of Grantee delivered within 30 days of such
Triggering Event (whether on its own behalf or on behalf of any subsequent
holder of this Option (or part thereof) or any of the shares of Common Stock
issued pursuant hereto), as promptly as practicable prepare, file and keep
current, at Issuer's expense, a shelf registration under the 1933 Act covering
any shares issued and issuable pursuant to this Option and shall use its
commercially reasonable best efforts to cause such registration statement to
become effective and remain current and effective in order to permit the sale
or other disposition of any Option Shares in accordance with any plan of
distribution reasonably requested by Grantee. Issuer will use its best efforts
to cause such registration statement first to become effective and then to
remain effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
necessary to effect such sales or other dispositions. The obligations of Issuer
hereunder to file a registration statement and to maintain its effectiveness
may be suspended for one or more periods of time not exceeding sixty (60) days
in the aggregate if the Issuer board of directors shall have determined in good
faith that the filing of such registration or the maintenance of its
effectiveness would require disclosure of nonpublic information that would
materially and adversely affect Issuer or if Issuer is required under the 1933
Act to include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion in
such registration statement. Grantee shall provide all information reasonably
requested by Issuer for inclusion in any registration statement to be filed
hereunder. If requested by any such Grantee in connection with such
registration, Issuer shall become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating
itself in respect of customary representations, warranties, indemnities and
other agreements customarily included in such underwriting agreements for the
Issuer. The expenses associated with the preparation and filing of any such
registration statement pursuant to this Section 6 (including any fees related
to blue sky qualifications and filing fees in respect of the SEC or the
National Association of Securities Dealers, Inc.) (collectively, the
"Registration Expenses") will be for the account of Issuer except for
underwriting discounts or commissions or brokers' fees in respect of shares of
Common Stock to be sold by the Grantee and the fees and disbursements of the
Grantee's counsel; provided, however, that Issuer will not be required to pay
for any Registration Expenses with respect to such registration if the
registration request is subsequently withdrawn at the request of the Grantee;
provided further, however, that if at the time of such withdrawal Grantee has
learned of a material adverse change in the results of operations, condition,
business or prospects of Issuer from that known to Grantee at the time of its
request and has withdrawn the request with reasonable promptness following
disclosure by Issuer of such material adverse change, then the Grantee will not
be required to pay any of such expenses.
7. Substitute Options
(a) In the event that prior to an Exercise Termination Event, Issuer shall
enter into an agreement other than the Reorganization Agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one
of its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then
outstanding shares of Common Stock shall be changed into or exchanged for stock
or other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger represent less
than 50% of the outstanding shares and share equivalents of the merged company,
or (iii) to sell or otherwise transfer all or substantially all of its assets
to any person, other than Grantee or one of its Subsidiaries, then, and in each
such case, the agreement governing such transaction shall make proper provision
so that the Option shall, upon the consummation of any such transaction and
upon the terms and conditions set forth herein, be converted into, or exchanged
for, an option (the "Substitute Option"), at the election of Grantee, of either
(x) the Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
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(b) The following terms have the meanings indicated:
(1) An "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock to be
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(3) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the twenty trading days immediately
preceding the fifth business day prior to the consolidation, merger or
sale in question, but in no event higher than the closing price of the
shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or
by any company which controls or is controlled by such person, as
Grantee may elect.
(c) The Substitute Option shall have the same terms as the option, provided,
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to Grantee. The issuer of the Substitute Option shall also
enter into an agreement with the then holder or holders of the Substitute
Option in substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Option Price multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than
19.9% of the shares of Substitute Common Stock outstanding prior to exercise
but for this clause (e), the issuer of the Substitute Option (the "Substitute
Option Issuer') shall make a cash payment to Grantee equal to the excess of (i)
the value of the Substitute Option without giving effect to the limitation in
this clause (e) over (ii) the value of the Substitute Option after giving
effect to the limitation in this clause (e). This difference in value shall be
determined by a nationally recognized investment banking firm selected by
Grantee.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
8. Rights of Substitute Option Holders and Substitute Share Owners
(a) At the request of the holder of the Substitute Option (the "Substitute
Option Holder"), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall repurchase the Substitute Option from the Substitute Option
Holder at a price (the "Substitute Option Repurchase Price") equal to (x) the
amount by which (i) the Highest Closing Price (as hereinafter defined) exceeds
(ii) the exercise price of the Substitute Option, multiplied by the number of
shares of Substitute Common Stock for which the Substitute Option may then be
exercised plus (y) Grantee's Out-of-Pocket Expenses (to the extent not
previously reimbursed), and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
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"Substitute Share Repurchase Price") equal to (x) the Highest Closing Price
multiplied by the number of Substitute Shares so designated plus (y) Grantee's
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of
the Substitute Option or the Substitute Share Owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder or the Substitute Share Owner, as the case
may be, may exercise its right to require the Substitute Option Issuer to
repurchase the Substitute Option and any Substitute Shares pursuant to this
Section 8 by surrendering for such purpose to the Substitute Option Issuer, at
its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) or certificates for
Substitute Shares, as applicable, accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the
provisions of this Section 8. As promptly as practicable, and in any event
within five business days after the surrender of the Substitute Option and/or
certificates representing Substitute Shares and the receipt of such notice or
notices relating thereto, the Substitute Option Issuer shall deliver or cause
to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in full, the Substitute Option Issuer shall immediately so
notify the Substitute Option Holder and/or the Substitute Share Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and/or Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 8 is prohibited under applicable law
or regulation from delivering to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the Substitute Option Repurchase Price
and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, the Substitute Option Issuer
shall promptly (i) deliver to the Substitute Option Holder or Substitute Share
Owner, as appropriate, that portion of the Substitute Option Repurchase Price
or the Substitute Share Repurchase Price that the Substitute Option Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate, either (A) to
the Substitute Option Holder, a new Substitute Option evidencing the right of
the Substitute Option Holder to purchase that number of shares of the
Substitute Common Stock obtained by multiplying the number of shares of the
Substitute Common Stock for which the surrendered Substitute Option was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Substitute Option Repurchase Price less Out-of-
Pocket Expenses and the portion thereof theretofore delivered to the Substitute
Option Holder and the denominator of which is the Substitute Option Repurchase
Price less Out-of-Pocket Expenses, or (B) to the Substitute Share Owner, a
certificate for the Substitute Option Shares it is then so prohibited from
repurchasing, assuming that the portion of the Substitute Option Repurchase
Price theretofore delivered is first applied to the payment of Out-of-Pocket
Expenses and any remainder is applied to the repurchase of Substitute Option
Shares.
9. Extension of Time
The period for exercise of certain rights under Section 2 shall be extended:
(i) to the extent necessary to obtain all regulatory approvals for the exercise
of such rights, and for the expiration of all statutory waiting
B-6
periods; and (ii) to the extent necessary to avoid liability under Section
16(b)15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"“Exchange Act”), on or after the date of this prospectus.
To obtain copies of these filings, see information described under the heading “Where You Can Find More Information” in this prospectus.
Prohibition on sales to EEA Retail Investors:The New Notes are not intended to be offered, sold or otherwise made available to and are not being offered, sold or otherwise made available to any retail investor in the European Economic Area or in the United Kingdom. For these purposes, a “retail investor” means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of the EU Directive on Markets in Financial Instruments (2014/65/EU) (as amended, “MiFID II”); (ii) a customer within the meaning of Directive (EU) 2016/97 (the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II or (iii) not a qualified investor as defined in Regulation (EU) 2017/1129 (as amended, the “Prospectus Regulation”). Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the New Notes or otherwise making them available to retail investors in the EEA or in the United Kingdom has been prepared and therefore offering or selling the New Notes or otherwise making them available to any retail investor in the EEA or in the United Kingdom may be unlawful.
This prospectus has been prepared on the basis that any offer of New Notes in any Member State of the European Economic Area will be made pursuant to an exemption under the Prospectus Regulation from the requirement to publish a prospectus for offers of notes. This prospectus is not a prospectus for the purposes of the Prospectus Regulation.
vi
Certain statements in this prospectus, any prospectus supplement and the documents incorporated by reasonreference herein, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Accordingly, we caution you against relying on any forward-looking statements. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Actual results could differ materially because of, among others, the following factors:
intense competition in all of our markets that may lead to lower revenue or operating margins;
increasing focus on cloud-based services presenting execution and competitive risks;
significant investments in products and services that may not achieve expected returns;
acquisitions, joint ventures, and strategic alliances that may have an adverse effect on our business;
impairment of goodwill or amortizable intangible assets causing a significant charge to earnings;
cyberattacks and security vulnerabilities that could lead to reduced revenue, increased costs, liability claims, or harm to our reputation or competitive position;
disclosure and misuse of personal data that could cause liability and harm to our reputation;
the possibility that we may not be able to protect information stored in our products and services from use by others;
abuse of our advertising or social platforms that may harm our reputation or user engagement;
the development of the internet of things presenting security, privacy, and execution risks;
issues about the use of artificial intelligence (“AI”) in our offerings that may result in competitive harm, legal liability, or reputational harm;
excessive outages, data losses, and disruptions of our online services if we fail to maintain an adequate operations infrastructure;
quality or supply problems;
the possibility that we may fail to protect our source code;
legal changes, our evolving business model, piracy, and other factors may decrease the value of our intellectual property;
claims that Microsoft has infringed the intellectual property rights of others;
claims against us that may result in adverse outcomes in legal disputes;
government litigation and regulatory activity relating to competition rules that may limit how we design and market our products;
potential liability under trade protection, anti-corruption, and other laws resulting from our global operations;
vii
laws and regulations relating to the handling of personal data that may impede the adoption of our services or result in increased costs, legal claims, fines, or reputational damage;
additional tax liabilities;
damage to our reputation or our brands that may harm our business and operating results;
exposure to increased economic and operational uncertainties from operating a global business, including the effects of foreign currency exchange;
uncertainties relating to our business with government customers;
adverse economic or market conditions that may harm our business;
catastrophic eventsor geo-political conditions, such as the COVID-19 pandemic, that may disrupt our business; and
the dependence of our business on our ability to attract and retain talented employees.
A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in this prospectus under the heading “Risk Factors” and in Part I, Item 1A of our Annual Report on Form10-K, Part II, Item 1A of our Quarterly Reports on Form10-Q, and our Current Reports on Form8-K incorporated by reference in this prospectus. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included or incorporated by reference in this prospectus.
We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise, except as required by law.
viii
This summary highlights information appearing elsewhere in this prospectus and may not contain all of the information that may be important to you. You should read this entire prospectus carefully, including the information set forth under the heading “Risk Factors” and the information incorporated by reference in this prospectus before participating in the Exchange Offers. See the sections of this prospectus titled “Where You Can Find More Information” and “Incorporation of Certain Information by Reference.”
Embracing Our Future
Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. We strive to create local opportunity, growth and impact in every country around the world. Our platforms and tools help drive small business productivity, large business competitiveness, and public-sector efficiency. They also support new startups, improve educational and health outcomes, and empower human ingenuity.
We continue to transform our business to lead in the new era of the intelligent cloud and intelligent edge. We bring technology and products together into experiences and solutions that unlock value for our customers. In this next phase of innovation, computing is more powerful and ubiquitous from the cloud to the edge. AI capabilities are rapidly advancing, fueled by data and knowledge of the world. Physical and virtual worlds are coming together with the Internet of Things (“IoT”) and mixed reality to create richer experiences that understand the context surrounding people, the things they use, the places they go, and their activities and relationships. A person’s experience with technology spans a multitude of devices and has become increasingly more natural and multi-sensory with voice, ink, and gaze interactions.
What We Offer
Founded in 1975, we develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential.
We offer an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and we provide solution support and consulting services. We also deliver relevant online advertising to a global audience.
Our products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; and video games. We also design, manufacture, and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.
Corporate Information
Microsoft Corporation, a Washington corporation, was founded as a partnership in 1975 and incorporated under the laws of the State of Washington in 1981. Our principal executive offices are located at One Microsoft Way, Redmond, Washington 98052-6399, and our main telephone number is (425)882-8080. Our website address is www.microsoft.com. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus, and inclusions of our website address in this prospectus are inactive textual references only.
The Exchange Offers
The following summary is provided solely for your convenience and is not intended to be complete. You should read the full text and more specific details contained elsewhere in this prospectus for a more detailed description of the notes.
Exchange Offers | We are offering holders consideration consisting of a cash payment and up to $6,250,000,000 aggregate principal amount of our New 2050 Notes, or a cash payment and up to $3,000,000,000 aggregate principal amount of our New 2060 Notes, as applicable. The holders of each series of Existing Notes accepted for exchange will receive the applicable Total Exchange Consideration as determined as described under “Description of the Exchange Offers—Total Exchange Consideration and Exchange Consideration” for such series of Existing Notes validly tendered on or before the Early Exchange Time and not validly withdrawn prior to the Expiration Time. For Existing Notes validly tendered after the Early Exchange Time and on or before the Expiration Time, the holders of each series of Existing Notes accepted for exchange will be eligible to receive the applicable Exchange Consideration as determined as described under “Description of the Exchange Offers—Total Exchange Consideration and Exchange Consideration.” The Total Exchange Consideration includes the Early Exchange Premium as an incentive for holders of Existing Notes to tender their Existing Notes on or before the Early Exchange Time. |
| If less than $500,000,000 of New 2050 Notes would be issued, then all Pool 1 Note tenders will be cancelled and no New 2050 Notes will be created. If less than $500,000,000 of New 2060 Notes would be issued, then all Pool 2 Note tenders will be cancelled and no New 2060 Notes will be created. |
| In addition to the Total Exchange Consideration or the Exchange Consideration, as applicable, we will pay all of the accrued and unpaid interest to, but not including, the Settlement Date on Existing Notes which are validly tendered and accepted. As DTC is the record holder of the Existing Notes, all holders of any Existing Notes will also receive any applicable accrued and unpaid interest on those Existing Notes in accordance with DTC procedures, regardless of the record dates with respect to each series of Existing Notes. |
| The New Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. |
Acceptance Priority Levels and Proration Procedures | We will accept tenders of Existing Notes by series in accordance with the “acceptance priority level” (in numerical priority order) of each such series as set forth in the applicable table on the front cover of this prospectus. |
| With respect to Existing Notes tendered in an Exchange Offer, and not validly withdrawn prior to the Expiration Time, such Existing Notes of a series having a higher acceptance priority level for such Exchange Offer will be accepted for exchange before any such Existing Notes of a series having a lower acceptance priority level. If acceptance of all validly tendered Existing Notes of a series would not result in us issuing New Notes having an aggregate principal amount in excess of the applicable New Issue Cap, we will accept all validly tendered Existing Notes of such series. If acceptance of all validly tendered Existing Notes of a series would result in us issuing New Notes having an aggregate principal amount in excess of the applicable New Issue Cap, the tendered Existing Notes of such series will be accepted on a pro rata basis. See “Description of the Exchange Offers—Acceptance Priority Levels and Proration Procedures.” |
Total Exchange Consideration and Exchange Consideration | If you validly tender Existing Notes prior to the Early Exchange Time and do not validly withdraw such tendered Existing Notes prior to the Expiration Time, and such Existing Notes are accepted by us, you will receive, for each $1,000 principal amount of Existing Notes tendered and accepted, a combination of a principal amount of New Notes and cash with an aggregate value equal to the Total Exchange Consideration as follows: |
| (i) | an aggregate principal amount of New Notes equal to (a) the Total Exchange Consideration for such Existing Notes minus (b) the Cash Component; and |
| (ii) | a cash payment equal to the Cash Component. |
| If you validly tender Existing Notes after the Early Exchange Time, but prior to the Expiration Time, and such Existing Notes are accepted by us, you will receive, for each $1,000 principal amount of Existing Notes tendered and accepted, a combination of a principal amount of New Notes and cash with an aggregate value equal to the Exchange Consideration as follows: |
| (i) | an aggregate principal amount of New Notes equal to (a) the Total Exchange Consideration for such Existing Notes minus (b) the Cash Component minus (z) the Early Exchange Premium; and |
| (ii) | a cash payment equal to the Cash Component. |
| The Total Exchange Consideration and Exchange Consideration may be adjusted as described under “Description of the Exchange Offers—Total Exchange Consideration and Exchange Consideration—Adjustment of the Total Exchange Consideration and Exchange Consideration.” |
| In addition to the Total Exchange Consideration or Exchange Consideration, as applicable, holders with Existing Notes that are accepted for exchange will receive a cash payment representing (i) all or a portion of the accrued and unpaid interest to, but not including, the Settlement Date and (ii) amounts due in lieu of any fractional amounts of New Notes, in each case as described herein. As DTC is the record holder of the Existing Notes, all holders of any Existing Notes will also receive any applicable accrued and unpaid interest on those Existing Notes in accordance with DTC procedures, regardless of the record dates with respect to each series of Existing Notes. |
| The “Total Exchange Consideration” (calculated at the Pricing Time and in accordance with the formula set forth in Annex A to this prospectus, as illustrated by the hypothetical pricing example included in Annex B to this prospectus) for the Existing Notes validly tendered prior to the Early Exchange Time, and not validly withdrawn prior to the Expiration Time, is equal to the discounted value on the Settlement Date of the remaining payments of principal and interest per $1,000 principal amount of the Existing Notes through the applicable maturity date or par call date (as applicable) of the Existing Notes, using a yield equal to the sum of: (i) thebid-side yield on the 30-year Reference UST Security set forth with respect to each series of Existing Notes on the front cover of this prospectus plus (ii) the applicable fixed spread set forth with respect to each series of Existing Notes on the front cover of this prospectus, minus accrued and unpaid interest on such series of Existing Notes to but not including the Settlement Date. For the avoidance of doubt, the $30 per $1,000 Early Exchange Premium is included within the Total Exchange Consideration, as calculated using the Fixed Spread over the 30 year Reference UST Security as described herein, and is not in addition to the Total Exchange Consideration. |
| The “Exchange Consideration” for the Existing Notes validly tendered after the Early Exchange Time but prior to the Expiration Time is equal to the Total Exchange Consideration minus the applicable Early Exchange Premium. |
| The “Cash Component” means the portion of the Total Exchange Consideration to be paid to holders in cash and is equal to (i) the applicable Cash Payment Percent of Premium for such series of Existing Notes multiplied by (ii) (a) the applicable Total Exchange Consideration for such series of Existing Notes minus (b) $1,000. |
| The “Cash Payment Percent of Premium” is the percent (as set forth with respect to each series of Existing Notes on the front cover of this prospectus) of the amount by which the Total Exchange Consideration (as calculated at the Pricing Time and in accordance with the formula set forth in Annex A to this prospectus, as illustrated by the hypothetical pricing example included in Annex B to this prospectus) exceeds $1,000 per $1,000 principal amount of such Existing Notes. |
Early Exchange Premium | To encourage holders of Existing Notes to tender prior to the Early Exchange Time, the Total Exchange Consideration includes an Early Exchange Premium of $30 principal amount of New 2050 Notes or $30 principal amount of New 2060 Notes, as applicable, for each $1,000 principal amount of Existing Notes validly tendered and not validly withdrawn (the “Early Exchange Premium”). Only holders who validly tender their Existing Notes prior to the Early Exchange Time (and who do not validly withdraw prior to the Expiration Time), and whose tenders are accepted for exchange pursuant to the Exchange Offers, will receive the Early Exchange Premium. |
| Holders who validly tender their Existing Notes after the Early Exchange Time but prior to the Expiration Time, and whose tenders are accepted for exchange by us, will receive only the Exchange Consideration, which does not include the Early Exchange Premium. |
Accrued and Unpaid Interest | In addition to the Total Exchange Consideration or the Exchange Consideration, as applicable, we will pay all of the accrued and unpaid interest to, but not including, the Settlement Date on Existing Notes which are validly tendered and accepted. As DTC is the record holder of the Existing Notes, all holders of any Existing Notes will also receive any applicable accrued and unpaid interest on those Existing Notes in accordance with DTC procedures, regardless of the record dates with respect to each series of Existing Notes. |
Information | Any questions concerning the terms of the Exchange Offers should be directed to the Dealer Managers at the telephone numbers listed on the back cover page of this prospectus. |
| Questions concerning tender procedures and requests for additional copies of this prospectus should be directed to the Information Agent (as defined below) at its address or telephone numbers listed on the back cover page of this prospectus. |
Early Exchange Time | 5:00 p.m., New York City time, on May 13, 2020, unless extended by us. |
Pricing Time | 10:00 a.m., New York City time, on May 14, 2020, unless extended by us. |
Expiration Time | Each of the Exchange Offers will expire at 11:59 p.m., New York City time, on May 28, 2020, which is the 20th business day after the date of this prospectus, unless extended by us. We do not currently intend to extend the Expiration Time. |
Settlement Date | Promptly following the Expiration Time and expected to be June 1, 2020, which is the second business day following the Expiration Time (the “Settlement Date”). |
Withdrawal of Tenders | Tenders submitted in the Exchange Offers may be validly withdrawn at or prior to 11:59 p.m., New York City time, on May 28, 2020, unless extended by us, but will thereafter be irrevocable except in the limited circumstances where additional withdrawal rights are required by law. See “Description of the Exchange Offers—Withdrawal of Tenders.” |
Conditions to the Exchange Offers | The consummation of each Exchange Offer is subject to, and conditional upon, the satisfaction or, where permitted, the waiver of the conditions discussed under “Description of the Exchange Offers—Conditions to the Exchange Offers,” including, among other things, the registration statement of which this prospectus forms a part having been declared effective by the SEC on or prior to the Expiration Time and remaining effective on the Settlement Date. We may, at our option, waive any such conditions at or by the Expiration Time, except the condition that the registration statement of which this prospectus forms a part has been declared effective by the SEC on or prior to the Expiration Time and remains effective on the Settlement Date. |
Procedures for Tendering | If you wish to participate in the Exchange Offers and your Existing Notes are held by a custodial entity, such as a bank, broker, dealer, trust company or other nominee, you must instruct that custodial entity to tender your Existing Notes on your behalf pursuant to the procedures of that custodial entity. Please ensure that you contact your custodial entity as soon as possible to give them sufficient time to meet your requested deadline.Beneficial owners are urged to appropriately instruct their bank, broker, custodian or other nominee at least five business days prior to the Early Exchange Time or the Expiration Time, as the case may be, in order to allow adequate processing time for their instruction. You must tender Existing Notes through the Automated Tender Offer Program (“ATOP”) maintained by The Depository Trust Company (“DTC”), as described under “Description of the Exchange Offers—Procedures for Tendering.” |
| We have not provided guaranteed delivery procedures in conjunction with the Exchange Offers. No letter of transmittal will be used in connection with the Exchange Offers. The valid electronic transmission of acceptance through ATOP shall constitute delivery of your Existing Notes in connection with the Exchange Offers. |
| If you are a beneficial owner that holds Existing Notes through Euroclear (as defined below) or Clearstream (as defined below) and wish to tender your Existing Notes, you must instruct Euroclear or Clearstream, as the case may be, to block the account in respect of the tendered Existing Notes in accordance with the procedures established by Euroclear or Clearstream. You are encouraged to contact Euroclear or Clearstream directly to ascertain their procedures for tendering Existing Notes. |
Consequences of Failure to Exchange | For a description of the consequences of failing to exchange your Existing Notes, see “Risk Factors” and “Description of the Exchange Offers—Certain Consequences to Holders of Existing Notes Not Tendering in the Exchange Offers.” |
Brokerage Fees and Commissions | No brokerage fees or commissions are payable by the holders of the Existing Notes to the Dealer Managers, the Exchange Agent, the Information Agent, or the Company in connection with the Exchange Offers. If a tendering holder handles the transaction through its broker, dealer, commercial bank, trust company, or other institution, that holder may be required to pay brokerage fees or commissions. |
Certain U.S. Federal Income Tax Considerations | For a discussion of certain U.S. federal income tax consequences of the Exchange Offers and the ownership and disposition of the New Notes, see “Certain U.S. Federal Income Tax Considerations.” |
Use of Proceeds | We will not receive any cash proceeds from the issuance of the New Notes in the Exchange Offers. See “Use of Proceeds.” |
Dealer Managers | BofA Securities, Inc. and Deutsche Bank Securities Inc. are serving as the joint lead dealer managers for the exchange offers for the Existing Notes. The addresses and telephone numbers of the joint lead dealer managers are set forth on the back cover of this prospectus. |
| We have other business relationships with the dealer managers, as described in ‘‘Description of the Exchange Offers—Dealer Managers.’’ |
Exchange and Information Agent | D.F. King & Co., Inc. is the exchange agent (the “Exchange Agent”) and the information agent (the “Information Agent”) for the Exchange Offers. The address and telephone number of D.F. King & Co., Inc. are set forth in the section captioned “Description of the Exchange Offers—Exchange Agent; Information Agent” of this prospectus. |
Differences Between Existing Notes and New Notes | The New Notes will be issued under the same indenture as the Existing Notes and will be subject to the same covenants as described herein. The New Notes will have the interest rates, tenors and redemption terms as described herein. |
Further Information | Questions or requests for assistance related to the Exchange Offers or for additional copies of this prospectus may be directed to the Information Agent. You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offers. The contact information for the Dealer Managers is set forth on the back cover page of this prospectus. See also “Where You Can Find More Information.” |
Risk Factors | You should carefully consider all information set forth or incorporated by reference in this prospectus prior to exchanging your Existing Notes. In particular, you should evaluate the specific risks related to the Exchange Offers described in the section entitled “Risk Factors” in this prospectus before participating in the Exchange Offers. |
We may be required to amend or supplement this prospectus at any time to add, update or change the information contained in this prospectus. You should read this prospectus and any amendment or supplement hereto, together with the documents incorporated by reference herein and therein and the additional information described under “Where You Can Find More Information.”
The New Notes
The New Notes will be governed by the same indenture under which the Existing Notes were issued. The following summary is not intended to be a complete description of the terms of the New Notes. For a more detailed description of the New Notes, see “Description of the New Notes” in this prospectus.
Issuer | Microsoft Corporation, a Washington corporation. |
Notes Offered | Up to $6,250,000,000 aggregate principal amount of New 2050 Notes; and up to $3,000,000,000 aggregate principal amount of New 2060 Notes. |
Maturity Dates | The New 2050 Notes will mature on June 1, 2050, unless earlier redeemed or repurchased. |
| The New 2060 Notes will mature on June 1, 2060, unless earlier redeemed or repurchased. |
Interest | We will pay interest on the New Notes at a rate per annum equal to (a) the yield, rounded to three decimal places when expressed as a percentage and calculated in accordance with standard market practice, that corresponds to thebid-side price of the 30-year Reference UST Security as of the Pricing Time as displayed on the Bloomberg Government Pricing Monitor page FIT1 (or any recognized quotation source selected by the Company in its sole discretion if such quotation report is not available or is manifestly erroneous), plus (b) a fixed spread of 125 basis points, in the case of the New 2050 Notes, and 140 basis points, in the case of the New 2060 Notes. Interest on the New Notes will accrue from the first date any New Notes are issued (which we expect will be the Settlement Date). We will pay interest in cash semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. Interest on the New Notes will be computed on the basis of a360-day year comprised of twelve30-day months. |
Optional Redemption | We will have the right at our option to redeem the notes of any series of notes, in whole or in part, at any time or from time to time prior to December 1, 2049 (in the case of the New 2050 Notes) and December 1, 2059 (in the case of the New 2060 Notes) at the applicable make-whole price set forth in this prospectus, plus, in each case, accrued and unpaid interest to the date of redemption. |
| We will also have the right at our option to redeem the New 2050 Notes and the New 2060 Notes, in whole or in part, at any time on or after December 1, 2049 (in the case of the New 2050 Notes) and December 1, 2059 (in the case of the New 2060 Notes) at the redemption price of 100% of the principal amount of the notes to be redeemed, plus, in each case, accrued and unpaid interest to the date of redemption. |
Ranking | The notes will be our senior unsecured obligations and will rank equally with our other unsecured and unsubordinated debt from time to time outstanding. |
Further Issuances | We may from time to time issue further notes of any series ranking equally and ratably with the notes of such series in all respects, including the same terms as to status, redemption or otherwise. |
Form and Denomination | The notes of each series will be issued in the form of one or more fully registered global securities, without coupons, in denominations of $2,000 in principal amount and integral multiples of $1,000 in excess thereof. These global securities will be deposited with the trustee as custodian for, and registered in the name of, a nominee of DTC. Except in the limited circumstances described under “Description of the New Notes—Book-Entry; Delivery and Form; Global Securities” in this prospectus, notes in certificated form will not be issued or exchanged for interests in global securities. |
Trading | The notes are new issues of securities with no established trading markets.We do not intend to apply for listing of the notes on any securities exchange.The Dealer Managers have advised us that they currently intend to make a market in each series of the notes, but they are not obligated to do so and may, in their sole discretion, discontinue market-making at any time without notice. |
Trustee | U.S. Bank National Association. |
Use of Proceeds | We will not receive any proceeds from the Exchange Offers. See “Use of Proceeds.” |
Governing Law | The New Notes will be governed by the laws of the State of New York. |
Before participating in the Exchange Offers, you should carefully consider the following risk factors and all other information set forth or incorporated by reference in this prospectus together with the registration statement and the exhibits thereto, including the risks and uncertainties described under the heading “Risk Factors” included in Part I, Item 1A of our Annual Report on Form10-K for the fiscal year ended June 30, 2019 and Part II, Item 1A of our Quarterly Reports on Form10-Q for the quarterly periods ended September 30, 2019, December 31, 2019 and March 31, 2020. See “Where You Can Find More Information” in this prospectus. The risks and uncertainties described below are not the only risks facing us and your investment in the New Notes. Additional risks and uncertainties that we are unaware of, or those we currently deem less significant, also may become important factors that affect us. The following risks could materially and adversely affect our business, financial condition, results of operations or liquidity. The value of the New Notes could decline due to any of these risks, and you may lose all or part of your investment.
Risks Related to the Exchange Offers
The liquidity of the Existing Notes that are not exchanged will be reduced.
We expect that the trading market for unexchanged Existing Notes will become more limited than the existing trading market and could cease to exist altogether due to the reduction in the amount of the Existing Notes outstanding upon consummation of the Exchange Offers. Because of the acceptance priority levels, it is more likely that a reduction in the principal amount outstanding could occur with respect to a series of Existing Notes having a higher priority acceptance level. A more limited trading market for a particular series of Existing Notes might adversely affect the liquidity, market price and price volatility of such exercise.
10. Representationsseries of Existing Notes. If a market for unexchanged Existing Notes exists or develops, those securities may trade at a discount to the price at which the securities would trade if the amount outstanding were not reduced, depending on prevailing interest rates, the market for similar securities and Warrantiesother factors. However, we cannot assure you that an active market in the unexchanged Existing Notes will exist, develop or be maintained or as to the prices at which the unexchanged Existing Notes may be traded.
We have not made a recommendation as to whether you should tender your Existing Notes in exchange for the New Notes in the Exchange Offers, and we have not made a determination or obtained a third-party determination that the Exchange Offers are fair to holders of Issuer
Issuer herebythe Existing Notes.
Neither we nor our board of directors has made, nor will either make, any recommendation as to whether holders of Existing Notes should tender their Existing Notes in exchange for the New Notes pursuant to the Exchange Offers. Furthermore, neither we nor our board of directors has made any determination that the consideration to be received represents a fair valuation of the Existing Notes, and warrantswe also have not retained, and do not intend to Granteeretain, any unaffiliated representative to act solely on behalf of the holders of Existing Notes for purposes of negotiating the terms of the Exchange Offers, or preparing a report or making any recommendation concerning the fairness of the Exchange Offers. Holders of Existing Notes must make their own independent decisions regarding their participation in the applicable Exchange Offer.
The Exchange Offers may be cancelled or delayed.
The consummation of the Exchange Offers is subject to, and conditional upon, the satisfaction or, where permitted, waiver of the conditions specified in this prospectus. See “Description of the Exchange Offers—Conditions to the Exchange Offers.” In addition, if less than $500,000,000 of New 2050 Notes would be issued, then all Pool 1 Note tenders will be cancelled and no New 2050 Notes will be created; and if less than $500,000,000 of New 2060 Notes would be issued, then all Pool 2 Note tenders will be cancelled and no New 2060 Notes will be created. Further, each of the Exchange Offer may be cancelled in whole or with respect to specific series of Existing Notes, as applicable, if the applicable Yield Condition is not met. Even if each of the Exchange Offers is completed, the Exchange Offers may not be completed on the schedule described in this prospectus. Accordingly, holders participating in the Exchange Offers may have to wait longer than they expect to receive the New Notes.
We have established priorities for acceptance of the Existing Notes, which makes it more likely that holders of series of Existing Notes with a lower acceptance priority may be excluded from acceptance of tender. Any tenders that are accepted may be prorated.
If New Notes in an aggregate principal amount in excess of the applicable New Issue Cap are to be issued pursuant to validly tendered Existing Notes in the applicable Exchange Offer at the Expiration Time, we will accept tenders of Existing Notes by series in accordance with the “acceptance priority level” (in numerical priority order) set forth in the applicable table on the front cover of this prospectus. With respect to Existing Notes tendered in an Exchange Offer, and not validly withdrawn prior to the Expiration Time, such Existing Notes of a series having a higher acceptance priority level will be accepted for exchange before any such Existing Notes of a series having a lower acceptance priority level.
If acceptance of all validly tendered Existing Notes of a series would result in us issuing New Notes having an aggregate principal amount in excess of the applicable New Issue Cap, the tendered Existing Notes of such series will be accepted subject to proration. See “Description of the Exchange Offers—Acceptance Priority Levels and Proration Procedures.”
Late deliveries of Existing Notes or any other failure to comply with the Exchange Offer procedures could prevent a holder from exchanging its Existing Notes.
Holders of Existing Notes are responsible for complying with all the procedures of the Exchange Offers. The issuance of New Notes in exchange for Existing Notes will only occur upon proper completion of the procedures described in this prospectus under “Description of the Exchange Offers.” Therefore, holders of Existing Notes who wish to exchange their Existing Notes for New Notes should allow sufficient time for timely completion of the procedures of the Exchange Offers. Neither we nor the Exchange Agent are obligated to extend the Exchange Offers or notify you of any failure to follow the proper procedures.
We may acquire New Notes in future transactions.
We may in the future seek to acquire New Notes in open market or privately-negotiated transactions, through subsequent exchange offers or otherwise. The terms of any of those purchases or offers could differ from the terms of these Exchange Offers and such other terms may be more or less favorable to holders of the New Notes.
Risks Related to the New Notes
The Indenture governing the New Notes does not contain financial covenants or meaningful restrictions on us or our subsidiaries.
Neither we nor any of our subsidiaries are restricted from incurring additional debt or other liabilities, including debt secured by liens, under the Indenture. We may from time to time incur additional debt and other liabilities. In addition, we are not restricted from paying dividends or making distributions on our capital stock or purchasing or redeeming our capital stock under the Indenture.
Active trading markets for the New Notes may not develop.
The New Notes are new issues of securities with no established trading markets. We do not intend to apply for listing of the New Notes on any securities exchange. We cannot assure you trading markets for the New Notes will develop or of the ability of holders of the New Notes to sell their notes or of the prices at which holders may be able to sell their notes. The Dealer Managers have advised us that they currently intend to make a market in each series of the New Notes. However, the Dealer Managers are not obligated to do so, and any market-making with respect to the New Notes may be discontinued, in their sole discretion, at any time without notice. If no active trading markets develop, you may be unable to resell the New Notes at any price or at their fair market value.
If trading markets do develop, changes in our ratings or the financial markets could adversely affect the market prices of the New Notes.
The market prices of the New Notes will depend on many factors, including, among others, the following:
ratings on our debt securities assigned by rating agencies;
the prevailing interest rates being paid by other companies similar to us;
our results of operations, financial condition and prospects; and
the condition of the financial markets.
The condition of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future, which could have an adverse effect on the market prices of the New Notes.
Rating agencies continually review the ratings they have assigned to companies and debt securities. Negative changes in the ratings assigned to us or our debt securities could have an adverse effect on the market prices of the New Notes.
DESCRIPTION OF THE EXCHANGE OFFERS
Terms of the Exchange Offers
We are offering to holders, upon the terms and subject to the conditions set forth in this prospectus, consideration consisting of up to $6,250,000,000 aggregate principal amount of our New 2050 Notes (the “New 2050 Notes Issue Cap”) and a cash payment, and up to $3,000,000,000 aggregate principal amount of our New 2060 Notes (the “New 2060 Notes Issue Cap” and, together with the New 2050 Notes Issue Cap, the “New Issue Cap”) and a cash payment, as applicable, in exchange for their Existing Notes, all as described under “—Total Exchange Consideration and Exchange Consideration.”
Holders of each series of Existing Notes accepted for exchange will be eligible to receive the applicable Total Exchange Consideration as determined as described under “—Total Exchange Consideration and Exchange Consideration” for such series of Existing Notes validly tendered on or before the Early Exchange Time and not validly withdrawn. The Total Exchange Consideration includes the Early Exchange Premium. For Existing Notes validly tendered after the Early Exchange Time and on or before the Expiration Time, the holders of each series of Existing Notes accepted for exchange will be eligible to receive the applicable Exchange Consideration as described under “—Total Exchange Consideration and Exchange Consideration.” The New Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. Tendering holders of Existing Notes must tender Existing Notes in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. In addition to the Total Exchange Consideration or Exchange Consideration, as applicable, holders with Existing Notes that are accepted for exchange will receive a cash payment representing (i) all or a portion of the accrued and unpaid interest to, but not including, the Settlement Date, and (ii) amounts due in lieu of any fractional amounts of New Notes, in each case, as described under “—Accrued Interest” and “—No Fractional Amounts of New Notes.” As DTC is the record holder of the Existing Notes, all holders of any Existing Notes will also receive any applicable accrued and unpaid interest on those Existing Notes in accordance with DTC procedures, regardless of the record dates with respect to each series of Existing Notes. We will accept valid tenders of Existing Notes by series in accordance with the acceptance priority levels (in numerical priority order) set forth in the applicable table on the front cover of this prospectus, subject to proration as discussed under “—Acceptance Priority Levels and Proration Procedures.”
Total Exchange Consideration and Exchange Consideration
Upon the terms and subject to the conditions set forth in this prospectus:
If you validly tender Existing Notes prior to the Early Exchange Time and do not validly withdraw such tendered Existing Notes prior to the Expiration Time, and such Existing Notes are accepted by us, you will receive, for each $1,000 principal amount of Existing Notes tendered and accepted, a combination of a principal amount of New Notes and cash with an aggregate value equal to the Total Exchange Consideration as follows:
| (i) | an aggregate principal amount of New Notes equal to (a) the Total Exchange Consideration for such Existing Notes minus (b) the Cash Component; and |
| (ii) | a cash payment equal to the Cash Component. |
If you validly tender Existing Notes after the Early Exchange Time, but prior to the Expiration Time, and such Existing Notes are accepted by us, you will receive, for each $1,000 principal amount of Existing Notes tendered and accepted, a combination of a principal amount of New Notes and cash with an aggregate value equal to the Exchange Consideration as follows:
| (i) | an aggregate principal amount of New Notes equal to (a) the Total Exchange Consideration for such Existing Notes minus (b) the Cash Component minus (c) the Early Exchange Premium; and |
| (ii) | a cash payment equal to the Cash Component. |
The Total Exchange Consideration and Exchange Consideration may be adjusted as described under “—Adjustment of the Total Exchange Consideration and Exchange Consideration.”
In addition to the Total Exchange Consideration or Exchange Consideration, as applicable, holders with Existing Notes that are accepted for exchange will receive a cash payment representing (i) all or a portion of the accrued and unpaid interest to, but not including, the Settlement Date, and (ii) amounts due in lieu of any fractional amounts of New Notes, in each case, as described under “—Accrued Interest” and “—No Fractional Amounts of New Notes.” As DTC is the record holder of the Existing Notes, all holders of any Existing Notes will also receive any applicable accrued and unpaid interest on those Existing Notes in accordance with DTC procedures, regardless of the record dates with respect to each series of Existing Notes.
The “Pricing Time” will be 10:00 a.m., New York City time, on May 14, 2020, unless the Early Exchange Time is extended, in which case a new Pricing Time may be established with respect to the Exchange Offers. In the event that the Early Exchange Time is not extended, the Pricing Time will remain the same.
The “Total Exchange Consideration” (calculated at the Pricing Time and in accordance with the formula set forth in Annex A to this prospectus, as illustrated by the hypothetical pricing example included in Annex B to this prospectus) for the Existing Notes validly tendered prior to the Early Exchange Time, and not validly withdrawn prior to the Expiration Time, is equal to the discounted value on the Settlement Date of the remaining payments of principal and interest per $1,000 principal amount of the Existing Notes through the applicable maturity date or par call date (as applicable) of the Existing Notes, using a yield equal to the sum of: (i) thebid-side yield on the 30-year Reference UST Security set forth with respect to each series of Existing Notes on the front cover of this prospectus plus (ii) the applicable fixed spread set forth with respect to each series of Existing Notes on the front cover of this prospectus, minus accrued and unpaid interest on such series of Existing Notes up to but not including the Settlement Date. For the avoidance of doubt, the $30 per $1,000 Early Exchange Premium is included within the Total Exchange Consideration, as calculated using the Fixed Spread over the 30-year Reference UST Security as described herein, and is not in addition to the Total Exchange Consideration.
The “Exchange Consideration” for the Existing Notes validly tendered after the Early Exchange Time but prior to the Expiration Time is equal to the Total Exchange Consideration minus the applicable Early Exchange Premium.
The “Cash Component” means the portion of the Total Exchange Consideration to be paid to holders in cash and is equal to (i) the applicable Cash Payment Percent of Premium for such series of Existing Notes multiplied by (ii) (a) Issuerthe applicable Total Exchange Consideration for such series of Existing Notes minus (b) $1,000.
The Dealer Managers will calculate the interest rate of the New Notes, the Total Exchange Consideration, the Exchange Consideration, the Cash Component and accrued interest for each of the Existing Notes, and their calculations will be final and binding absent manifest error. We will announce the interest rate of the New Notes, the Total Exchange Consideration, the Exchange Consideration and the Cash Component for the Existing Notes promptly after they are determined by the Dealer Managers. The formula that will be used by the Dealer Managers in making the calculations of the Total Exchange Consideration and the Exchange Consideration is attached hereto as Annex A. A hypothetical pricing example for the calculation of the Total Exchange Consideration and the Exchange Consideration is attached hereto as Annex B.
You can obtain recently calculated hypothetical quotes of the yield for the 30-year Reference UST Security set forth with respect to each series of Existing Notes on the front cover of this prospectus, the hypothetical interest rate of the New Notes, the hypothetical Total Exchange Consideration and the hypothetical Exchange Consideration for the Existing Notes prior to the Pricing Time, and can obtain the actual yield for the 30-year Reference UST Security set forth with respect to each series of Existing Notes on the front cover of this prospectus, the interest rate of the New Notes, the Total Exchange Consideration and the Exchange Consideration for the Existing Notes after the Pricing Time, by contacting the Dealer Managers at the addresses and telephone numbers set forth on the back cover of this prospectus. Although the Dealer Managers will calculate the Total Exchange Consideration and the Exchange Consideration for the Existing Notes based solely on the yield on the 30-year Reference UST Security set forth with respect to each series of Existing Notes on the front cover of this prospectus, you can also find information regarding the closing yield to maturity for each 30-year Reference UST Security on any trading day in the online versions ofTheWall Street Journal andThe New York Times.
Early Exchange Premium
To encourage holders of Existing Notes to tender prior to the Early Exchange Time, the Total Exchange Consideration includes an Early Exchange Premium of $30 principal amount of New 2050 Notes or $30 principal amount of New 2060 Notes, as applicable, for each $1,000 principal amount of Existing Notes validly tendered and not validly withdrawn. Only holders who validly tender their Existing Notes prior to the Early Exchange Time (and who do not validly withdraw prior to the Expiration Time), and whose tenders are accepted for exchange pursuant to the Exchange Offers, will receive the Early Exchange Premium.
Holders who validly tender their Existing Notes after the Early Exchange Time but prior to the Expiration Time, and whose tenders are accepted for exchange, will receive only the Exchange Consideration, which does not include the Early Exchange Premium.
Adjustment of the Total Exchange Consideration and Exchange Consideration
We may, at our option, elect to increase or decrease the principal amount of (i) New 2050 Notes exchangeable for each $1,000 principal amount of the applicable Pool 1 Notes tendered and accepted by up to $100 per $1,000 principal amount and (ii) New 2060 Notes exchangeable for each $1,000 principal amount of the applicable Pool 2 Notes tendered and accepted by up to $100 per $1,000 principal amount. Such adjustments would affect the composition, but not the amount, of the Total Exchange Consideration and the Exchange Consideration for the applicable Existing Notes. We expect any such election to be made as of the Pricing Time, which is scheduled to be the 10th business day prior to the Expiration Time.
Accrued Interest
In addition to the Total Exchange Consideration or the Exchange Consideration, as applicable, we will pay all of the accrued and unpaid interest to, but not including, the Settlement Date on Existing Notes which are validly tendered and accepted. As DTC is the record holder of the Existing Notes, all holders of any Existing Notes will also receive any applicable accrued and unpaid interest on those Existing Notes in accordance with DTC procedures, regardless of the record dates with respect to each series of Existing Notes.
No Fractional Amounts of New Notes
New Notes will be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof. We will not accept any tender that would result in the issuance of less than $2,000 principal amount of New Notes. If, under the terms of the Exchange Offers, the aggregate principal amount of New Notes that any tendering holder is entitled to receive is not in a minimum denomination of $2,000 or an integral multiple of $1,000 in excess thereof, we will round downward the amount of the New Notes to $1,000 or the nearest integral multiple of $1,000 in excess thereof and pay the difference in cash.
Acceptance Priority Levels and Proration Procedures
We will accept tenders of Existing Notes by series in accordance with the “acceptance priority level” (in numerical priority order) for each such series as set forth in the applicable table on the front cover of this prospectus. With respect to Existing Notes tendered in an Exchange Offer, such Existing Notes of a series having a higher acceptance priority level for such Exchange Offer will be accepted for exchange before any such Existing Notes of a series having a lower acceptance priority level.
If acceptance of all validly tendered Existing Notes of a series would result in us issuing New Notes having an aggregate principal amount in excess of the applicable New Issue Cap, the tendered Existing Notes of such series will be accepted subject to proration.
Any proration would result in the principal amount of Existing Notes of the applicable series accepted from a holder of Existing Notes in exchange for New Notes to be equal to the applicable principal amount of Existing Notes that would otherwise have been accepted from such holder (based on such holder’s valid tenders of the applicable series of Existing Notes) multiplied by the proration factor. The proration factor would be equal to the amount of the applicable New Issue Cap remaining available for the applicable series of Existing Notes divided by the total aggregate principal amount of Existing Notes of the applicable series that were validly tendered. Depending on the aggregate principal amount of Existing Notes of the applicable series validly tendered and not validly withdrawn and the proration factor applied, if the principal amount of Existing Notes of such series returned to a holder as a result of proration would result in less than $2,000 of principal amount of Existing Notes of such series being returned to such holder, the Company will either accept or reject all of such holder’s Existing Notes of such series validly tendered and not validly withdrawn. The proration factor will be announced by press release as promptly as practicable after the Expiration Time. Existing Notes not accepted due to their acceptance priority level or the above proration procedures will be returned to their tendering holders promptly after the Expiration Time.
Expiration Time; Extensions; Amendments; Termination
For purposes of the Exchange Offers, the term “Expiration Time” means 11:59 p.m., New York City time, on May 28, 2020, subject to our right to extend that time and date in our absolute discretion, in which case the Expiration Time means the latest time and date to which an Exchange Offer is extended.
Subject to applicable law, we reserve the right, in our absolute discretion, by giving oral or written notice to the Exchange Agent, to:
extend an Exchange Offer;
terminate an Exchange Offer, including in those situations in which a condition to our obligation to exchange the series of Existing Notes subject to such Exchange Offer for New Notes and cash is not satisfied or waived on or before the Expiration Time; and
amend an Exchange Offer.
If an Exchange Offer is amended in a manner that we determine constitutes a material change, we will extend such Exchange Offer for a period of two to ten business days, depending upon the significance of the amendment and the manner of disclosure to the holders, if such Exchange Offer would otherwise have expired during thattwo-to-ten business day period. If any Exchange Offer is extended with respect to any series of Existing Notes, we will also extend any Exchange Offers for all series having a lower acceptance priority level to such “new” Expiration Time. Any increase in the consideration offered to holders of a series of Existing Notes pursuant to the Exchange Offers will be paid to all holders whose Existing Notes of such series have been previously tendered and not validly withdrawn.
In addition, if we extend the Early Exchange Time, we may in our discretion extend it with respect to only one or more Exchange Offers or series of Existing Notes and not all.
We will promptly announce any extension, amendment or termination of an Exchange Offer by issuing a press release. We will announce any extension of the Pricing Time and/or Expiration Time no later than 9:00 a.m., New York City time, on the first business day after the previously scheduled Pricing Time and/or Expiration Time, as applicable. We have no other obligation to publish, advertise or otherwise communicate any information about any extension, amendment or termination.
Settlement Date
We will deliver the New Notes and pay cash amounts with respect to the Exchange Offers on the Settlement Date. The “Settlement Date” will promptly follow the Expiration Time and is expected to be June 1, 2020, which is the second business day following the Expiration Time. We will not be obligated to deliver New Notes or pay any cash amounts unless the Exchange Offers are consummated.
Conditions to the Exchange Offers
Notwithstanding any other provisions of the Exchange Offers, or any extension of the Exchange Offers, we will not be required to accept any Existing Notes for exchange, exchange any New Notes for Existing Notes or pay any cash amounts, and we may terminate any Exchange Offer or, at our option, modify, extend or otherwise amend an Exchange Offer if any of the following conditions have not been satisfied or waived on or before the Expiration Time (unless stated otherwise):
1. the registration statement of which this prospectus forms a part having been declared effective by the SEC on or prior to the Expiration Time and remaining effective on the Settlement Date;
2. as of the Pricing Time, the combination of the yield of the New Notes and the Total Exchange Consideration or Exchange Consideration for the applicable series of Existing Notes would result in the New Notes and such Existing Notes not being treated as “substantially different” under ASC470-50 (the “Accounting Treatment Condition”);
3. we issue at least (a) $500,000,000 aggregate principal amount of New 2050 Notes and (b) $500,000,000 aggregate principal amount of New 2060 Notes;
4. the Yield Condition (for any applicable series of Existing Notes);
5. no action or event shall have occurred, been threatened, no action shall have been taken, and no statute, rule, regulation, judgment, order, stay, decree, injunction or regulatory comments shall have been issued, promulgated, enacted, entered, enforced or deemed to be applicable to such Exchange Offer or the exchange of Existing Notes for New Notes under such Exchange Offer by or before any court or governmental regulatory or administrative agency, authority, instrumentality or tribunal, including, without limitation, taxing authorities, that either:
(a) challenges the making of such Exchange Offer or the exchange of Existing Notes for New Notes and cash under such Exchange Offer or might, directly or indirectly, be reasonably expected to prohibit, prevent, restrict or delay the scheduled Pricing Time or the consummation of, or might otherwise adversely affect in any manner, such Pricing Time, Exchange Offer or the exchange of Existing Notes for New Notes and cash under such Exchange Offer; or
(b) in our reasonable judgment, could materially adversely affect our (or our subsidiaries’) business, condition (financial or otherwise), income, operations, properties, assets, liabilities or prospects or impair the contemplated benefits to us of such Exchange Offer, the exchange of Existing Notes for New Notes under such Exchange Offer or the delivery of any cash amounts;
6. nothing has occurred or may occur that would or might, in our reasonable judgment, be expected to prohibit, prevent, restrict or delay such Exchange Offer or delay the schedule Pricing Time or impair our ability to realize the anticipated benefits of such Exchange Offer;
7. there shall not have occurred (a) any general suspension of or limitation on trading in securities in the United States securities or financial markets, whether or not mandatory, (b) any material adverse change in the prices of the Existing Notes, (c) a material impairment in the general trading market for debt securities, (d) a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in the United States, whether or not mandatory, (e) a material escalation or commencement of a war, armed hostilities, a terrorist act or other national or international calamity directly or indirectly relating to the United States, if the effect of any such event, in the Company’s reasonable judgment, makes it impracticable or inadvisable to proceed with such Exchange Offer, (f) any limitation, whether or not mandatory, by any governmental authority on, or other event in the Company’s reasonable judgment, having a reasonable likelihood of affecting, the extension of credit by banks or other lending institutions in the United States, (g) any material adverse change in the securities or financial markets in the United States generally or (h) in the case of any of the foregoing existing at the time of the commencement of the Exchange Offers, a material acceleration or worsening thereof; and
8. the applicable trustee under the indenture for the Existing Notes that are the subject of such Exchange Offer and the trustee with respect to the New Notes to be issued in the Exchange Offers, shall not have been directed by any holders of Existing Notes subject to such Exchange Offer to object in any respect to, nor take any action that could, in our reasonable judgment, adversely affect the consummation of such Exchange Offer or the exchange of Existing Notes for New Notes under such Exchange Offer, nor shall the any such trustee have taken any action that challenges the validity or effectiveness of the procedures used by us in making such Exchange Offer, the exchange of Existing Notes for New Notes under such Exchange Offer or the delivery of any cash amounts.
In our sole discretion and subject to applicable law, we reserve the right to remove one or more series of Existing Notes from the Exchange Offers if we determine that the Accounting Treatment Condition or the Yield Condition for such series of Existing Notes will not be achieved. Any such decision will be determined as of the Pricing Time and would be announced with the pricing terms. In the event we remove a particular series of Existing Notes from an Exchange Offer, the acceptance priority level for any series of Existing Notes below such series of notes removed will be adjusted accordingly.
The Yield Condition
Notwithstanding any other provision in this prospectus to the contrary, if at the Pricing Time, the yield of the 30-year Reference UST Security, as set forth in the table below with respect to any series of Existing Notes, is less than the applicable minimum yield or is greater than the applicable maximum yield, to the extent such yield is specified in the table below, then we will not be obligated to accept for exchange, or issue the applicable series of New Notes in exchange for, any Existing Notes of such series tendered in the Exchange Offers.
Title of Security | Reference UST Security | Minimum Yield | Maximum Yield | |||||||||
Pool 1 Notes | ||||||||||||
4.875% Notes due 2043 | 2.375% due November 15, 2049 | 0.40 | % | 2.35 | % | |||||||
5.300% Notes due 2041 | 2.375% due November 15, 2049 | 0.40 | % | 2.35 | % | |||||||
4.450% Notes due 2045 | 2.375% due November 15, 2049 | 0.40 | % | 2.00 | % | |||||||
4.250% Notes due 2047 | 2.375% due November 15, 2049 | 0.40 | % | 2.00 | % | |||||||
5.200% Notes due 2039 | 2.375% due November 15, 2049 | 0.40 | % | 2.35 | % | |||||||
4.500% Notes due 2040 | 2.375% due November 15, 2049 | 0.40 | % | 2.35 | % | |||||||
3.750% Notes due 2043 | 2.375% due November 15, 2049 | 0.40 | % | 2.35 | % | |||||||
3.750% Notes due 2045 | 2.375% due November 15, 2049 | 0.40 | % | 2.35 | % | |||||||
4.100% Notes due 2037 | 2.375% due November 15, 2049 | 0.40 | % | 2.35 | % | |||||||
4.200% Notes due 2035 | 2.375% due November 15, 2049 | 0.40 | % | 2.35 | % | |||||||
Pool 2 Notes | ||||||||||||
4.750% Notes due 2055 | 2.375% due November 15, 2049 | 0.40 | % | 2.25 | % | |||||||
4.000% Notes due 2055 | 2.375% due November 15, 2049 | 0.40 | % | 2.35 | % | |||||||
4.500% Notes due 2057 | 2.375% due November 15, 2049 | 0.40 | % | 2.10 | % | |||||||
3.950% Notes due 2056 | 2.375% due November 15, 2049 | 0.40 | % | 1.80 | % | |||||||
The foregoing conditions are for our sole benefit and may be asserted or waived by us, in whole or in part, on a series by series basis, in our absolute discretion, except as described below. Any determination made by us concerning an event, development or circumstance described or referred to above will be conclusive and binding, subject to challenge in a court of competent jurisdiction.
If any of the foregoing conditions are not satisfied, we may, on a series by series basis, at any time prior to the Expiration Time:
terminate such Exchange Offer and return all tendered Existing Notes subject to such Exchange Offer to the respective tendering holders;
modify, extend or otherwise amend such Exchange Offer and retain all tendered Existing Notes subject to such Exchange Offer until the Expiration Time, as extended, subject, however, to the withdrawal rights of holders; or
waive the unsatisfied conditions with respect to such Exchange Offer, except for the condition that the registration statement of which this prospectus forms a part has been declared effective by the SEC on or prior to the Expiration Time and remains effective on the Settlement Date, and accept all Existing Notes (subject to proration and the priorities described herein) tendered and not previously validly withdrawn pursuant to such Exchange Offer.
In addition, we may terminate any Exchange Offer for any other reason permitted by applicable law.
Additional Purchases of Existing Notes
We reserve the right, in our absolute discretion, to purchase or make offers to purchase any Existing Notes that remain outstanding subsequent to the Expiration Time and, to the extent permitted by applicable law, to purchase Existing Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offers. Any purchase or offer to purchase will be made in accordance with applicable law.
Certain Consequences to Holders of Existing Notes Not Tendering in the Exchange Offers
The following considerations, in addition to the other information described elsewhere herein or incorporated by reference herein, should be carefully considered by each holder of Existing Notes before deciding whether to tender Existing Notes pursuant to the Exchange Offers.
Limited Trading Market
Consummation of an Exchange Offer may have adverse consequences to holders of Existing Notes that are subject to such Exchange Offer who elect not to tender their Existing Notes in such Exchange Offer. In particular, the trading market for such Existing Notes that are not exchanged could become more limited than the existing trading market for such Existing Notes and could cease to exist altogether due to the reduction in the amount of such Existing Notes outstanding upon consummation of such Exchange Offer. Because of the acceptance priority levels, it is more likely that a reduction in the principal amount outstanding could occur with respect to a series of Existing Notes having a higher priority acceptance level. A more limited trading market for a particular series of Existing Notes might adversely affect the liquidity, market price and price volatility of such series of Existing Notes.
Treatment of Existing Notes Not Tendered in the Exchange Offers
Existing Notes not tendered and purchased in the Exchange Offers will remain outstanding. The terms and conditions governing the Existing Notes, will remain unchanged. No amendments to the indenture governing the Existing Notes are being sought. From time to time in the future, we or our subsidiaries may acquire Existing Notes that are not tendered in the Exchange Offers through open market purchases, privately negotiated transactions, tender offers, exchange offers or otherwise, upon such terms and at such prices as we or they may determine, which may be more or less than the price to be paid pursuant to the Exchange Offers and could be for cash or other consideration. Alternatively, we may repurchase any or all of the Existing Notes not purchased pursuant to the Exchange Offers at any time. We cannot assure you as to which, if any, of these alternatives (or combinations thereof) we or our subsidiaries may choose to pursue in the future.
Effect of Tender
Any tender by a holder, and our subsequent acceptance of that tender, of Existing Notes will constitute a binding agreement between that holder and us upon the terms and subject to the conditions of the applicable Exchange Offer described in this prospectus. The participation in an Exchange Offer by a tendering holder will constitute the agreement by that holder to deliver good and marketable title to the tendered Existing Notes, free and clear of any and all liens, restrictions, charges, pledges, security interests, encumbrances or rights of any kind of third parties.
Representations, Warranties and Covenants of Holders of Existing Notes
By tendering Existing Notes through the submission of an electronic acceptance instruction in accordance with the requirements of ATOP, each holder of Existing Notes, or the beneficial holder of Existing Notes on behalf of which the holder has tendered, will, subject to that holder’s ability to withdraw its tender, and subject to the terms and conditions of the applicable Exchange Offer generally, be deemed to represent, warrant, agree and undertake to:
1. irrevocably sell, assign and transfer to or upon our order or the order of our nominee all right, title and interest in and to, and any and all claims in respect of or arising or having arisen as a result of the holder’s status as a holder of, all Existing Notes tendered thereby, such that thereafter the holder shall have no contractual or other rights or claims in law or equity against us or any fiduciary, trustee, fiscal agent or other person connected with the Existing Notes arising under, from or in connection with those Existing Notes;
2. waive any and all rights with respect to the Existing Notes tendered thereby, including, without limitation, any existing or past defaults and their consequences in respect of those Existing Notes; and
3. release and discharge us and the trustee with respect to the indenture for the Existing Notes from any and all claims that the holder may have, now or in the future, arising out of or related to the Existing Notes tendered thereby, including, without limitation, any claims that the holder is entitled to receive additional principal or interest payments with respect to the Existing Notes tendered thereby, other than accrued and unpaid interest on the Existing Notes or as otherwise expressly provided in this prospectus, or to participate in any redemption or defeasance of the Existing Notes tendered thereby.
In addition, for each holder of Existing Notes tendered in an Exchange Offer, the submission of an electronic acceptance instruction in accordance with the requirements of ATOP will be deemed to represent, warrant and agree that:
1. it has received this prospectus;
2. it is the beneficial owner (as defined below) of, or a duly authorized representative of one or more beneficial owners of, the Existing Notes tendered thereby, and it has full corporate power and authority to executetender, sell, assign and deliver
this Agreement and to consummatetransfer the transactions contemplated hereby. The
execution and delivery of this Agreement andExisting Notes tendered thereby;
3. the consummationExisting Notes being tendered thereby were owned as of the transactions contemplated hereby have been dulydate of tender, free and validly authorized by the
Boardclear of Directorsany liens, charges, claims, encumbrances, interests and restrictions of Issuerany kind, and no other corporate proceedings on the part of
Issuer are necessarywe will acquire good, indefeasible and unencumbered title to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer. This Agreement is the valid and legally binding
obligation of Issuer, enforceable against Issuer in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought.
(b) Issuer has taken all necessary corporate action to authorize and reserve
and to permit it to issue, and at all times from the date hereof through the
termination of this Agreement in accordance with its terms will have reserved
for issuance upon the exercise of the Option, that number of shares of Common
Stock equal to the maximum number of shares of Common Stock at any time and
from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be deliveredthose Existing Notes, free and clear of all liens, charges, claims, liens,
encumbrances, and security interests and restrictions of any kind, when we accept the same;
4. it will not sell, pledge, hypothecate or otherwise encumber or transfer any Existing Notes tendered thereby from the date of tender, and any purported sale, pledge, hypothecation or other encumbrance or transfer will be void and of no effect;
5. it is not from or located in any jurisdiction where the making or acceptance of the Exchange Offers does not comply with the laws of that jurisdiction and is otherwise a person to whom it is lawful to make available this prospectus or to make the applicable Exchange Offer in accordance with applicable laws;
6. it is not resident and/or located in the United Kingdom or, if resident and/or located in the United Kingdom, it is: (a) a person falling within the definition of investment professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”); (b) a person falling within Article 43(2) or Articles 49(2)(a) to (d) of the Order; or (c) a person to whom this confidential offering memorandum and other documents or materials relating to the New Notes may otherwise lawfully be communicated in accordance with the Order;
7. the New Notes are not intended to be offered, sold or otherwise made available to and are not being offered, sold or otherwise made available to any retail investor in the European Economic Area or in the United Kingdom. For these purposes, a “retail investor” means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of the EU Directive on Markets in Financial Instruments (2014/65/EU) (as amended, “MiFID II”); (ii) a customer within the meaning of Directive (EU) 2016/97 (the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II or (iii) not a qualified investor as defined in Regulation (EU) 2017/1129 (as amended, the “Prospectus Regulation”). Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the New Notes or otherwise making them available to retail investors in the EEA or in the United Kingdom has been prepared and therefore offering or selling the New Notes or otherwise making them available to any retail investor in the EEA or in the United Kingdom may be unlawful. This prospectus has been prepared on the basis that any offer of New Notes in any Member State of the European Economic Area will be made pursuant to an exemption under the Prospectus Regulation from the requirement to publish a prospectus for offers of notes. This prospectus is not a prospectus for the purposes of the Prospectus Regulation;
8. if it is, located or resident, in Canada, such holder is an accredited investor, as defined in National Instrument 45-106Prospectus Exemptionsor subsection 73.3(1) of theSecurities Act(Ontario), and is a permitted client as defined in National Instrument 31-103Registration Requirements, Exemptions andOngoing Registrant Obligations, and such holder has completed, signed and submitted, or shall forthwith complete, sign and submit, a Canadian Eligibility Form in the form approved by the Company and in accordance with the procedures established by the Company;
9. in evaluating the applicable Exchange Offer and in making its decision whether to participate in such Exchange Offer by the tender of Existing Notes, it has made its own independent appraisal of the matters referred to in this prospectus and in any related communications;
10. the tender of Existing Notes shall constitute an undertaking to execute any further documents and give any further assurances that may be required in connection with any of the foregoing, in each case on and subject to the terms and conditions described or referred to in this prospectus;
11. the submission of an electronic acceptance instruction in accordance with the requirements of ATOP shall, subject to a holder’s ability to withdraw its tender on or prior to the Expiration Time, and subject to the terms and conditions of the applicable Exchange Offer, constitute the irrevocable appointment of the Exchange Agent as its attorney and agent and an irrevocable instruction to that attorney and agent to complete and execute all or any preemptive rights.
(c) Issuerforms of transfer and other documents at the discretion of that attorney and agent in relation to the Existing Notes tendered thereby in favor of us or any other person or persons as we may direct and to deliver those forms of transfer and other documents in the attorney’s and agent’s discretion and the certificates and other documents of title
relating to the registration of Existing Notes and to execute all other documents and to do all other acts and things as may be in the opinion of that attorney or agent necessary or expedient for the purpose of, or in connection with, the acceptance of such Exchange Offer, and to vest in us or our nominees those Existing Notes;
12. it has taken all action (includinga net long position in the Existing Notes being tendered pursuant to the applicable Exchange Offer within the meaning of Rule14e-4 under the Exchange Act, and the tender of such Existing Notes complies with Rule14e-4;
13. it understands that tenders with respect to a series of Existing Notes may be withdrawn by written notice of withdrawal or a properly transmitted “Request Message” through ATOP received by the Exchange Agent at any time on or prior to the Expiration Time. In the event of a termination of the Exchange Offer with respect to such series of Existing Notes, the Existing Notes tendered pursuant to such Exchange Offer will be credited to the account maintained at DTC from which such Existing Notes were delivered;
14. it understands that tenders of Existing Notes pursuant to any of the procedures described in this prospectus and acceptance of such Existing Notes by the Company will constitute a binding agreement between holders and the Company upon the terms and subject to the conditions of the Exchange Offers. For purposes of the Exchange Offers, it understands that validly tendered Existing Notes will be deemed to have been accepted by the Company if, required redeemingas and when the Company gives written notice thereof to the Exchange Agent;
15. it has read and agreed to all of the Rightsterms of the Exchange Offers. All authority conferred or amendingagreed to be conferred shall not be affected by, and shall survive, the death or terminatingincapacity of the Company's Rights Agreement) soholder, and any obligation of the holder hereunder shall be binding upon the heirs, executors, administrators, trustees in bankruptcy, personal and legal representatives, successors and assigns of the holder;
16. it acknowledges that on submitting the required electronic instructions to DTC, it is deemed to agree that the entering intorelevant Existing Notes will be blocked in the relevant clearing system with effect from the date the relevant tender of Existing Notes is made until the earlier of (i) the time of settlement on the Settlement Date and (ii) the date on which the Exchange Offers of the relevant Existing Notes are terminated by the Company or on which such tender is withdrawn or revoked, in each case in accordance with the terms of this Option Agreement,prospectus;
17. it recognizes that under certain circumstances set forth in this prospectus, the acquisitionCompany may terminate or amend the Exchange Offers with respect to one or more series of sharesExisting Notes or may postpone the acceptance for exchange of, Common
Stock hereunderor the exchange for, Existing Notes tendered or may not be required to exchange any of the Existing Notes tendered thereby;
18. it understands that the delivery and surrender of any Existing Notes is not effective, and the risk of loss of the Existing Notes does not pass to the Exchange Agent, until receipt by the Exchange Agent of an Agent’s Message (as defined below) properly completed and duly executed, together with all accompanying evidences of authority and any other transactions contemplated hereby dorequired documents in form satisfactory to the Company. All questions as to form of all documents and the validity (including time of receipt) and acceptance of tenders and withdrawals of Existing Notes will be determined by the Company, in its sole discretion, which determination shall be final and binding; and
19. it has observed the laws of all relevant jurisdictions, obtained all requisite governmental, exchange control or other required consents, complied with all requisite formalities and paid any issue, transfer or other taxes or requisite payments due from such holder, and not otherwise required to be paid by the Company pursuant to the Exchange Offers, in each respect in connection with any offer or
acceptance, in any jurisdiction and that such holder has not taken or omitted to take any action in breach of the terms of the Exchange Offers or which will notor may result in the grantCompany or any other person acting in breach of the legal or regulatory requirements of any rights to any person undersuch jurisdiction in connection with the Company Rights
AgreementExchange Offers or enable or require the Rightstender of Existing Notes in connection therewith.
The representations, warranties and agreements of a holder tendering Existing Notes will be deemed to be exercised, distributed or
triggered.
11. Representationsrepeated and Warranties of Grantee
Grantee hereby representsreconfirmed on and warrants to the Issuer that (i) Grantee, by
reason of its knowledge and experience in financial and business matters,
believes itself capable of evaluating the merits and risks of an investment in
the Common Stock, and (ii) any shares of Common Stock or other securities
acquired by Grantee upon exerciseas of the Option shall be acquired for Grantee's
own accountEarly Exchange Time, the Expiration Time and will not taken with a view to the public distribution thereof
and will not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the 1933 Act.
12. Limitation of Grantee Profit
(a) Notwithstanding any other provisions herein, in no event shall Grantee's
Total Profit (as defined below) exceed $50 million (the "Maximum Profit") and,
if it otherwise would exceed amount, Grantee, at its sole discretion, shall
either (i) reduce the number of shares subject to the Option, (ii) deliver to
Issuer for cancellation shares of Common Stock (or other securities into which
such Option Shares are converted or exchanged), (iii) pay cash to Issuer, or
(iv) any combination of the foregoing, so that Grantee's actually realized
Total Profit shall not exceed the Maximum Profit after taking into account the
foregoing actions.
(b)Settlement Date. For purposes of this Agreement, "Total Profit"prospectus, the “beneficial owner” of any Existing Notes means any holder that exercises investment discretion with respect to those Existing Notes.
Absence of Appraisal and Dissenters’ Rights
Holders of the Existing Notes do not have any appraisal or dissenters’ rights in connection with the Exchange Offers.
Acceptance of Existing Notes for Exchange and Delivery of New Notes
On the Settlement Date, the New Notes to be issued in exchange for Existing Notes in the Exchange Offers, if consummated, will be delivered in book-entry form, and payment of any cash amounts will be made by deposit of funds with DTC, Clearstream or Euroclear, as applicable, which will transmit those payments to tendering holders.
We expressly reserve the right, in our sole discretion, but subject to applicable law, to (1) extend, amend or terminate an Exchange Offer at any time and (2) waive any of the conditions to an Exchange Offer.
We will be deemed to accept Existing Notes that have been validly tendered by holders and that have not been validly withdrawn as provided in this prospectus (subject to the acceptance priority levels of each series of Existing Notes and the New Issue Cap) when, and if, we give oral or written notice of acceptance to the Exchange Agent. Following receipt of that notice by the Exchange Agent and subject to the terms and conditions of the Exchange Offers, delivery of the New Notes and any cash amounts will be made by the Exchange Agent on the Settlement Date. The Exchange Agent will act as agent for tendering holders of Existing Notes for the purpose of receiving Existing Notes and transmitting New Notes and cash as of the Settlement Date. If any tendered Existing Notes are not accepted for any reason described in the terms and conditions of the Exchange Offers, such unaccepted Existing Notes will be returned without expense to the tendering holders promptly after the expiration or termination of the Exchange Offers.
Procedures for Tendering
If you wish to participate in the Exchange Offers and your Existing Notes are held by a custodial entity such as a bank, broker, dealer, trust company or other nominee, you must instruct that custodial entity to tender your Existing Notes on your behalf pursuant to the procedures of that custodial entity. Please ensure you contact your custodial entity as soon as possible to give them sufficient time to meet your requested deadline.Beneficial ownersare urged to appropriately instruct their bank, broker, custodian or other nominee at least five business days prior to the Early Exchange Time or the Expiration Time, as the case may be, in order to allow adequate processing time for their instruction.
To participate in the Exchange Offers, you must comply with the ATOP procedures for book-entry transfer described below prior to the Expiration Time or, in order to receive the Early Exchange Premium, on or before the Early Exchange Time. We have not provided guaranteed delivery
procedures in conjunction with the Exchange Offers. No letter of transmittal will be used in connection with the Exchange Offers. The valid electronic transmission of acceptance through ATOP shall mean:constitute delivery of your Existing Notes in connection with the Exchange Offers.
If you wish to tender Existing Notes held on your behalf by a nominee with DTC, you must:
inform your nominee of your interest in tendering your Existing Notes pursuant to the applicable Exchange Offer; and
instruct your nominee to tender all Existing Notes you wish to be tendered in the Exchange Offers in accordance with the procedures described below.
For a holder to validly tender Existing Notes pursuant to the Exchange Offers, an Agent’s Message transmitted through DTC must be received by the Exchange Agent at or prior to the Expiration Time, and the Existing Notes must be transferred pursuant to the procedures for book-entry transfer described below and a Book-Entry Confirmation (as defined below) must be received by the Information Agent, in each case at or prior to the Expiration Time. In all cases, the exchange of Existing Notes tendered and accepted for exchange pursuant to the Exchange Offers will be made only after timely receipt by the Exchange Agent of:
a Book-Entry Confirmation with respect to such Existing Notes; and
an Agent’s Message transmitted through DTC.
Any acceptance of an Agent’s Message transmitted through ATOP is at the election and risk of the person transmitting such Agent’s Message and delivery will be deemed made only when actually received by the Exchange Agent. No documents should be sent to us, the trustee or the Dealer Managers.
The Exchange Agent will establish an account with respect to each series of Existing Notes at DTC for purposes of the Exchange Offers, and any financial institution that is a nominee in DTC, including Euroclear and Clearstream, may make book-entry delivery of Existing Notes by causing DTC to transfer such Existing Notes into the Exchange Agent’s account in accordance with the ATOP procedures for transfer. DTC will then verify the acceptance, execute a book-entry delivery to the Exchange Agent’s account at DTC and send an Agent’s Message to the Exchange Agent. The Agent’s Message, and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at or prior to the Expiration Time or at or prior to the Early Exchange Time in order to be eligible to receive the Total Exchange Consideration and Exchange Consideration, as applicable. The confirmation of a book-entry transfer into the Exchange Agent’s account at DTC as described above is referred to herein as a “Book-Entry Confirmation.” Delivery of documents to DTC does not constitute delivery to the Exchange Agent.
The term “Agent’s Message” means a message transmitted by DTC to, and received by, the Exchange Agent and forming a part of the Book-Entry Confirmation, which states that DTC has received an express and unconditional acknowledgment from the participant in DTC described in such Agent’s Message, stating (i) the aggregate principal amount of (A)Existing Notes that have been tendered by such participant pursuant to the Exchange Offers, (ii) that such participant has received the prospectus and agrees to be bound by the terms of the Exchange Offers as described in this prospectus and (iii) that we may enforce such agreement against such participant.
If you are a beneficial owner which holds Existing Notes through Euroclear or Clearstream and wish to tender your Existing Notes, you are encouraged to contact Euroclear and Clearstream directly to ascertain their procedure for tendering Existing Notes.
All questions as to the validity, form, eligibility, including time of receipt, and acceptance and withdrawal of tendered Existing Notes will be determined by us in our absolute discretion, which determination will be final and binding. We reserve the absolute right to reject any excessand all tendered Existing Notes determined by us not to be in proper form or not to be tendered properly or any tendered Existing Notes our acceptance of (1)which would, in the net cash amountsopinion of our counsel, be unlawful. We also reserve the right to waive, in our absolute discretion, any defects, irregularities or conditions of tender as to particular Existing Notes, whether or not waived in the case of other Existing Notes. Our interpretation of the terms and conditions of the Exchange Offers, including the terms and instructions in this prospectus, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Existing Notes must be cured within the time we determine. Although we intend to notify holders of defects or irregularities with respect to tenders of Existing Notes, neither we, nor the Exchange Agent, the Information Agent, the Dealer Managers or any other person will be under any duty to give that notification or shall incur any liability for failure to give that notification. Tenders of Existing Notes will not be deemed to have been made until any defects or irregularities therein have been cured or waived.
Any holder whose Existing Notes have been mutilated, lost, stolen or destroyed will be responsible for obtaining replacement securities or for arranging for indemnification with the trustee of the Existing Notes. Holders may contact the Information Agent for assistance with these matters.
Withdrawal of Tenders
Tenders submitted in the Exchange Offers may be validly withdrawn at any time at or prior to 11:59 p.m., New York City time, on May 28, 2020, unless extended by us, but will thereafter be irrevocable except in the limited circumstances where additional withdrawal rights are required by law.
For a withdrawal of a tender to be effective, a written or facsimile transmission notice of withdrawal or a properly transmitted “Request Message” through ATOP must be received by Grantee pursuantthe Exchange Agent prior to a salethe Expiration Time. The withdrawal notice must:
| 1. | specify the name of the tendering holder of Existing Notes (or, if tendered by book-entry transfer, the name of the participant in the book-entry transfer facility whose name appears on the security position listing as the owner of such Existing Notes); |
| 2. | bear a description, including the series, of the Existing Notes to be withdrawn; |
| 3. | specify, in the case of Existing Notes tendered by delivery of certificates for those Existing Notes, the certificate numbers shown on the particular certificates evidencing those Existing Notes; |
| 4. | specify the aggregate principal amount represented by those Existing Notes; and |
| 5. | specify, in the case of Existing Notes tendered by delivery of certificates for those Existing Notes, the name of the registered holder, if different from that of the tendering holder, or specify, in the case of Existing Notes tendered by book-entry transfer, the name and number of the account at DTC to be credited with the withdrawn Existing Notes. |
Withdrawal of Option Shares (or securities into which such
shares are converted or exchanged)tenders of Existing Notes may not be rescinded, and any Existing Notes validly withdrawn will thereafter be deemed not to any unaffiliated third party within 12
months after the exercise of
B-7
the Option, over (2) Grantee's aggregate purchase pricehave been validly tendered for such Option Shares
(or other securities), plus (B) any amounts received by Grantee on the transferpurposes of the Option plus (C) any amounts receivedExchange Offers. Validly withdrawn Existing Notes may, however, bere-tendered by Grantee pursuant to Section
8.3(b)again following one of the Merger Agreement, minus (ii)procedures described in “—Procedures for Tendering” on or before the sum of amounts of any cash
previously paid to Issuer pursuant to this Section 12 plus the value of the
Option Shares (or other securities) previously delivered to Issuer for
cancellation pursuant to this Section 12.
(c) Notwithstanding any other provisions of this Agreement, nothingExpiration Time or, in this
Agreement shall affect the ability of Granteeorder to receive nor relieve Issuer's
obligationthe Early Exchange Premium, on or before the Early Exchange Time.
Compliance with “Short Tendering” Rule
It is a violation of Rule14e-4 (promulgated under the Exchange Act) for a person, directly or indirectly, to pay, any payment providedtender Existing Notes for in Section 8.3 ofhis own account unless the Merger
Agreement; provided that if andperson so tendering (a) has a net long position equal to or greater than the extent the Total Profit received by
Grantee would exceed the Maximum Profit following receiptaggregate principal amount at maturity, of such payment,
Grantee shallExisting Notes being tendered and (b) will cause such Existing Notes to be obligated to complydelivered in accordance with the terms of Section 12(a) within 15
daysthe Exchange Offers. Rule14e-4 provides a similar restriction applicable to the tender or guarantee of a tender on behalf of another person.
A tender of Existing Notes in the Exchange Offers under any of the latest of (i)procedures described above will constitute a binding agreement between the date of receipt of such payment, (ii) the date of
receipt of the net cash by Grantee pursuant to the sale of Option Shares (or
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party within 12 months after the exercise of this Optiontendering holder and us with respect to such Option Shares,Exchange Offer upon the terms and (iii)subject to the conditions of such Exchange Offer, including the tendering holder’s acceptance of the terms and conditions of such Exchange Offer, as well as the tendering holder’s representation and warranty that (a) such holder has a net long position in such Existing Notes being tendered pursuant to such Exchange Offer within the meaning of Rule14e-4 under the Exchange Act and (b) the tender of such Existing Notes complies with Rule14e-4.
Exchange Agent; Information Agent
D.F. King & Co., Inc. has been appointed as the Exchange Agent and the Information Agent for the Exchange Offers. All correspondence in connection with the Exchange Offers should be sent or delivered by each holder of Existing Notes, or a beneficial owner’s commercial bank, broker, dealer, trust company or other nominee, to the Exchange Agent at the address listed on the back cover page of this prospectus. Questions concerning tender procedures and requests for additional copies of this prospectus should be directed to the Information Agent at the address and telephone numbers listed on the back cover page of this prospectus or to microsoft@dfking.com. Holders of Existing Notes may also contact their commercial bank, broker, dealer, trust company or other nominee for assistance concerning the Exchange Offers. We will pay the Exchange Agent and the Information Agent reasonable and customary fees for its services and will reimburse it for its reasonableout-of-pocket expenses.
Dealer Managers
We have retained BofA Securities, Inc. and Deutsche Bank Securities Inc. to serve as the lead Dealer Managers for the Exchange Offers. We will pay the Dealer Managers customary fees for soliciting acceptances of the Exchange Offers. The obligations of the Dealer Managers to perform their functions are subject to various conditions. We have agreed to indemnify the Dealer Managers against various liabilities, including various liabilities under the federal securities laws. The Dealer Managers may contact holders of Existing Notes by mail, telephone, facsimile transmission, personal interviews and otherwise may request broker dealers and the other nominee holders to forward materials relating to the Exchange Offers to beneficial holders. Questions regarding the terms of the Exchange Offers may be directed to the Dealer Managers at the addresses and telephone numbers listed on the back cover page of this prospectus. At any given time, the Dealer Managers or their affiliates may trade the Existing Notes or other of our securities for their own account or for the accounts of their customers and, accordingly, may hold a long or short position in the Existing Notes. To the extent that the Dealer Managers or their affiliates hold Existing Notes during the Exchange Offers, they may tender such Existing Notes in the Exchange Offers pursuant to the terms of the Exchange Offers.
From time to time in the ordinary course of business, the Dealer Managers and their affiliates have provided us and our affiliates with investment banking and other services for customary compensation. The Dealer Managers or their affiliates engage in commercial banking activities with us.
Other Fees and Expenses
We will bear the expenses of soliciting tenders of the Existing Notes. The principal solicitation is being made by electronic communications. Additional solicitations may, however, be made bye-mail, mail, facsimile transmission, telephone or in person by the Dealer Managers and the Information Agent, as well as by our officers and other employees and those of our affiliates.
Tendering holders of Existing Notes will not be required to pay any fee or commission to the Dealer Managers. If, however, a tendering holder handles the transaction through its broker, dealer, commercial bank, trust company or other institution, that holder may be required to pay brokerage fees or commissions.
For purposes of this section “Description of the New Notes”, the terms “we,” “us” and “our” refer to Microsoft Corporation (parent company only) and not to any of its subsidiaries. The terms of the New Notes will include those stated in our Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended. The following is a summary of the material provisions of our Indenture. Because this is a summary, it may not contain all the information that is important to you. You should read the Indenture in its entirety. See “Where You Can Find More Information.” Capitalized terms used but not defined in this prospectus have the meanings assigned in the Indenture.
General
The New Notes will be issued in two series of debt securities under the indenture, dated as of May 18, 2009, between us and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented by a supplemental indenture between us and U.S. Bank National Association, as trustee for the New Notes offered hereby (the “Indenture”). The New Notes will be our senior unsecured obligations and will rank equally with our other unsecured and unsubordinated debt from time to time outstanding.
The New 2050 Notes initially will be limited to up to $6,250,000,000 aggregate principal amount and the New 2060 Notes initially will be limited to up to $3,000,000,000 aggregate principal amount. The maturity date of the New 2050 Notes will be June 1, 2050 and the maturity date of the New 2060 Notes will be June 1, 2060. We may, at any time or from time to time, issue additional New Notes of each series of New Notes offered hereby without the consent of the holders of that series of New Notes, but we will not issue such additional New Notes unless they are fungible for U.S. federal income tax purposes with the relevant series of New Notes offered hereby.
The New Notes will be subject to legal defeasance and covenant defeasance as provided below under “—Discharge, Defeasance and Covenant Defeasance.”
The New Notes of each series will be issued in a form of one or more fully registered global securities, without coupons, in denominations of $2,000 in principal amount and integral multiples of $1,000 in excess thereof.
The New Notes will not benefit from any sinking fund.
Interest and Principal
The New Notes will bear interest from the first date any New Notes are issued (which we expect will be the Settlement Date), at a rate per annum equal to (a) the yield, rounded to three decimal places when expressed as a percentage and calculated in accordance with standard market practice, that corresponds to thebid-side price of the 30-year Reference UST Security as of the Pricing Time as displayed on the Bloomberg Government Pricing Monitor page FIT1 (or any recognized quotation source selected by the Company in its sole discretion if such quotation report is not available or is manifestly erroneous) plus (b) a fixed spread of 125 basis points, in the case of the New 2050 Notes, and 140 basis points, in the case of the New 2060 Notes, in each case, payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2020, to the persons in whose names the New Notes are registered at the close of business on the immediately preceding May 15 and November 15, respectively, whether or not that day is a business day.
General
We will pay the principal of and interest on each New Note to the registered holder in U.S. dollars in immediately available funds. Payment will be made upon presentation of the New Notes at the office or agency we maintain for this purpose in the Borough of Manhattan, The City of New York, currently at the trustee’s office located at 100 Wall Street, New York, New York 10005, Attention: Corporate Trust Administration – Microsoft Corporation; provided, however, that payment of interest may be made at our option by check mailed to the registered holder on the record date at such address as shall appear in the security register or by wire transfer of immediately available funds to an account specified in writing by such holder to us and the trustee prior to the relevant record date. Notwithstanding anything to the contrary in this prospectus, so long as the New Notes are in book-entry form, we will make payments of principal and interest through the trustee to DTC.
Interest payable on any interest payment date for a series of New Notes or the maturity date for that series of New Notes will be the amount of interest accrued from, and including, the next preceding interest payment date for that series of New Notes in respect of which interest has been paid or duly provided for (or from and including the original issue date, if no interest has been paid or duly provided for with respect to the New Notes of that series) to, but excluding, such interest payment date or maturity date, as the case may be. If any interest payment date falls on a day that is not a business day, the interest payment will be made on the next succeeding business day, and we will not be liable for any additional interest as a result of the delay in payment. If a maturity date falls on a day that is not a business day, the related payment of principal and interest will be made on the next succeeding business day, and no interest will accrue on the amounts so payable for the period from and after such date to the next succeeding business day. The term “business day” means any day, other than a Saturday or a Sunday, that is not a day on which banking institutions are authorized or obligated by law or executive order to close in New York City.
Optional Redemption
At any time prior to December 1, 2049 (in the case of the New 2050 Notes) and December 1, 2059 (in the case of the New 2060 Notes), we will have the right at our option to redeem the New Notes of such series, in whole or in part, at any time or from time to time, on at least 10 days’ but not more than 60 days’ prior notice mailed to the registered address of each holder of the New Notes of such series to be redeemed, at a redemption price, calculated by us, equal to the greater of (1) 100% of the principal amount of the New Notes of such series to be redeemed and (2) the sum of the present values of each remaining scheduled payment of principal and interest on New Notes of such series to be redeemed (assuming for such purposes the New 2050 Notes and the New 2060 Notes mature on December 1, 2049 and December 1, 2059, respectively) (exclusive of interest accrued to the date of redemption) discounted to the redemption date on a semiannual (assuming a360-day year consisting of twelve30-day months) basis at the applicable Treasury Rate plus 20 basis points (in the case of the New 2050 Notes) and 25 basis points (in the case of the New 2060 Notes).
At any time on or after December 1, 2049 (in the case of the New 2050 Notes) and December 1, 2059 (in the case of the New 2060 Notes), we will have the right at our option to redeem the New Notes of such series, in whole or in part, on at least 10 days’ but not more than 60 days’ prior notice at any time at a redemption price equal to 100% of the principal amount of the New Notes of such series to be redeemed.
The redemption price for the New Notes will include, in each case, accrued and unpaid interest on the principal amount of the New Notes to be redeemed to the redemption date.
“Comparable Treasury Issue” means the United States Treasury security or securities selected by an Independent Investment Banker as having an actual or interpolated maturity comparable to the remaining term of the series of New Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a comparable maturity to the remaining term of the New Notes of such series (assuming for such purposes the New 2050 Notes and the New 2060 Notes mature on December 1, 2049 and December 1, 2059, respectively).
“Comparable Treasury Price” means, with respect to any redemption date (1) the arithmetic average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations or (2) if we obtain fewer than four such Reference Treasury Dealer Quotations, the arithmetic average of all such quotations for such redemption date.
“Independent Investment Banker” means one of the Reference Treasury Dealers appointed by us.
“Reference Treasury Dealer” means BofA Securities, Inc. and Deutsche Bank Securities Inc. or their respective affiliates, which are primary U.S. government securities dealers in the United States of America and their respective successors plus two other primary U.S. government securities dealers in the United States of America designated by us; provided, however, that if any of the foregoing ceases to be a primary U.S. government securities dealer in the United States of America (a “Primary Treasury Dealer”), we will substitute therefor another Primary Treasury Dealer.
“Reference Treasury Dealer Quotation” means, with respect to each Reference Treasury Dealer and any redemption date, the arithmetic average, as determined by us, of the bid and asked prices for the applicable Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to us by such Reference Treasury Dealer at 3:30 p.m. (New York City time) on the third business day preceding such redemption date.
“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity or interpolated maturity (on a day count basis) of the applicable Comparable Treasury Issue, assuming a price for such Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the applicable Comparable Treasury Price for such redemption date.
On and after a redemption date, interest will cease to accrue on the New Notes called for redemption or any portion of any series of the notes called for redemption (unless we default in the payment of the redemption price and accrued and unpaid interest). On or before the redemption date, we will deposit with the trustee money sufficient to pay the redemption price of and (unless the redemption date shall be an interest payment date) accrued and unpaid interest to the redemption date on the New Notes of such series to be redeemed on such date. If less than all of the New Notes of a series are to be redeemed, the New Notes of such series to be redeemed will be selected by the trustee by such method as the trustee will deem fair and appropriate; provided, however, that no New Notes of a principal amount of $2,000 or less shall be redeemed in part.
Covenants
The Indenture sets forth limited covenants, including the covenant described below, that will apply to each series of New Notes. However, these covenants do not, among other things:
limit the amount of indebtedness or lease obligations that may be incurred by us and our subsidiaries;
limit our ability or that of our subsidiaries to issue, assume or guarantee debt secured by liens; or
restrict us from paying dividends or making distributions on our capital stock or purchasing or redeeming our capital stock.
Consolidation, Merger and Sale of Assets
The Indenture provides that we may consolidate with or merge with or into any other person, and may sell, transfer, or lease or convey all or substantially all of our properties and assets to another person; provided that the following conditions are satisfied:
we are the continuing entity, or the resulting, surviving or transferee person (the “Successor”) is a person organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and the Successor (if not us) will expressly assume, by supplemental indenture, all of our obligations under the New Notes and the Indenture;
immediately after giving effect to such transaction, no default or event of default under the Indenture has occurred and is continuing; and
if requested, the trustee receives from us, an officers’ certificate and an opinion of counsel that the merger, consolidation or transfer and such supplemental indenture, as the case may be, complies with the applicable provisions of the Indenture.
If we consolidate or merge with or into any other person or sell, transfer, lease or convey all or substantially all of our properties and assets in accordance with the Indenture, the Successor will be substituted for us in the Indenture, with the same effect as if it had been an original party to the Indenture. As a result, the Successor may exercise our rights and powers under the Indenture, and we will be released from all our liabilities and obligations under the Indenture and under the New Notes.
Any substitution of the Successor for us might be deemed for federal income tax purposes to be an exchange of the New Notes for “new” New Notes, resulting in recognition of gain or loss for such purposes and possibly certain other adverse tax consequences to beneficial owners of the New Notes. Holders should consult their own tax advisors regarding the tax consequences of any such substitution.
For purposes of this covenant, “person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof or any other entity.
Events of Default
Each of the following events are defined in the Indenture as an “event of default” (whatever the reason for such event of default and whether or not it will be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) with respect to the New Notes:
(1) default in the payment of any installment of interest on the New Notes for 30 days after becoming due;
(2) default in the payment of principal of or premium, if any, on the New Notes when it becomes due and payable at its stated maturity, upon optional redemption, upon declaration or otherwise;
(3) default in the deposit of any sinking fund payment, when and as due by the terms of the New Notes;
(4) default in the performance, or breach, of any covenant or agreement of ours in the Indenture with respect to the New Notes (other than as referred to in clause (1), (2) or (3) above), which continues for a period of 90 days after written notice to us by the trustee or to us and the trustee by the holders of at least 25% in aggregate principal amount of the outstanding New Notes;
(5) we pursuant to or within the meaning of the Bankruptcy Law:
commence a voluntary case or proceeding;
consent to the entry of an order for relief against us in an involuntary case or proceeding;
consent to the appointment of a Custodian of us or for all or substantially all of our property;
make a general assignment for the benefit of our creditors;
file a petition in bankruptcy or answer or consent seeking reorganization or relief;
consent to the filing of such petition or the appointment of or taking possession by a Custodian; or
take any comparable action under any foreign laws relating to insolvency; or
(6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
is for relief against us in an involuntary case, or adjudicates us insolvent or bankrupt;
appoints a Custodian of us or for all or substantially all of our property; or
orders thewinding-up or liquidation of us (or any similar relief is granted under any foreign laws);
and the order or decree remains unstayed and in effect for 90 days.
“Bankruptcy Law” means Title 11, United States Code or any similar federal or state or foreign law for the relief of debtors.
“Custodian” means any custodian, receiver, trustee, assignee, liquidator or other similar official under any Bankruptcy Law.
If an event of default with respect to the New Notes (other than an event of default relating to certain events of bankruptcy, insolvency, or reorganization of us) occurs and is continuing, the trustee by notice to us, or the holders of at least 25% in aggregate principal amount of the outstanding New Notes by notice to us and the trustee, may, and the trustee at the request of these holders will, declare the principal of and premium, if any, and accrued and unpaid interest on all the New Notes to be due and payable. Upon such a declaration, such principal, premium and accrued and unpaid interest will be due and payable immediately. If an event of default relating to certain events of bankruptcy, insolvency, or reorganization of us occurs and is continuing, the principal of and premium, if any, and accrued and unpaid interest on the New Notes will become and be immediately due and payable without any declaration or other act on the part of the trustee or any holders.
The holders of not less than a majority in aggregate principal amount of the outstanding New Notes may rescind a declaration of acceleration and its consequences, if we have deposited certain sums with the trustee and all events of default with respect to the New Notes, other than thenon-payment of the principal or interest which have become due solely by such acceleration, have been cured or waived, as provided in the Indenture.
An event of default for a particular series of debt securities does not necessarily constitute an event of default for any other series of debt securities issued under the Indenture.
We are required to furnish the trustee annually a statement by certain of our officers to the effect that, to the best of their knowledge, we are not in default in the fulfillment of any of our obligations under the Indenture or, if there has been a default in the fulfillment of any such obligation, specifying each such default.
No holder of any debt securities of any series will have any right to institute any judicial or other proceeding with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy unless:
(1) an event of default has occurred and is continuing and such holder has given the trustee prior written notice of such continuing event of default with respect to the New Notes;
(2) the holders of not less than 25% of the aggregate principal amount of the outstanding New Notes have requested the trustee to institute proceedings in respect of such event of default;
(3) the trustee has been offered indemnity reasonably satisfactory to it against its costs, expenses and liabilities in complying with such request;
(4) the trustee has failed to institute proceedings 60 days after the receipt of net cash from
dispositionsuch notice, request and offer of this Option.
13. Assignment
Neitherindemnity; and
(5) no direction inconsistent with such written request has been given for 60 days by the holders of a majority in aggregate principal amount of the parties hereto may assignoutstanding New Notes.
The holders of a majority in aggregate principal amount of outstanding New Notes will have the right, subject to certain limitations, to direct the time, method and place of conducting any proceeding for any remedy available to the trustee with respect to the debt securities of that series or exercising any trust or power conferred to the trustee, and to waive certain defaults. The Indenture provides that if an event of default occurs and is continuing, the trustee will exercise such of its rights and powers under the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or obligationspowers under this Option Agreementthe Indenture at the request of any of the holders of the debt securities of a series unless they will have offered to the trustee security or indemnity satisfactory to the Option created hereundertrustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request.
Notwithstanding the foregoing, the holder of the New Notes will have an absolute and unconditional right to receive payment of the principal of and premium, if any, other
person, withoutand interest on the express writtenNew Notes and to institute suit for the enforcement of payment.
Modification and Waivers
Modification and amendments of the Indenture and the New Notes may be made by us and the trustee with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding series of New Notes affected thereby; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding series of New Notes affected thereby:
change the stated maturity of the principal of, or installment of interest on, the New Notes;
reduce the principal amount of the New Notes or reduce the amount of the principal of the New Notes which would be due and payable upon a declaration of acceleration of the maturity thereof or reduce the rate of interest on the New Notes;
reduce any premium payable on the redemption of the New Notes or change the date on which the New Notes may or must be redeemed;
change the coin or currency in which the principal of, premium, if any, or interest on the New Notes is payable;
impair the right of any holder to institute suit for the enforcement of any payment on or after the stated maturity of the New Notes (or, in the case of redemption, on or after the redemption date);
reduce the percentage in principal amount of the outstanding New Notes, the consent of whose holders is required in order to take certain actions;
reduce the requirements for quorum or voting by holders of the New Notes in the Indenture or the New Notes;
modify any of the provisions in the Indenture regarding the waiver of past defaults and the waiver of certain covenants by the holders of the New Notes except to increase any percentage vote required or to provide that certain other party.
14. Best Efforts
Eachprovisions of Granteethe indenture cannot be modified or waived without the consent of the holder of the New Notes affected thereby;
make any change that adversely affects the right to convert or exchange the New Notes or decreases the conversion or exchange rate or increases the conversion price of the New Notes, unless such decrease or increase is permitted by the terms of the New Notes; or
modify any of the above provisions.
We and Issuer will use its reasonable effortsthe Trustee may, without the consent of any holders, modify or amend the terms of the Indenture and any series of New Notes with respect to make all
filings with, and the following:
to obtain consentsadd to our covenants for the benefit of holders of the New Notes of all third partiesor any series or to surrender any right or power conferred upon us;
to evidence the succession of another person to, and governmental
authorities necessarythe assumption by the successor of our covenants, agreements and obligations under, the Indenture pursuant to the consummationcovenant described under “—Covenants—Consolidation, Merger and Sale of Assets”;
to add any additional events of default for the benefit of holders of the transactions contemplatedNew Notes of all or any series;
to add one or more guarantees for the benefit of holders of the New Notes;
to secure the New Notes pursuant to the covenants of the Indenture;
to add or appoint a successor or separate trustee or other agent;
to provide for the issuance of additional New Notes of any series;
to establish the form or terms of any series of New Notes as permitted by this Agreement;the Indenture;
to comply with the rules of any applicable securities depository;
to provide for uncertificated New Notes in addition to or in place of certificated New Notes;
to add to, change or eliminate any of the provisions of the Indenture in respect of one or more series of New Notes;
to cure any ambiguity, omission, defect or inconsistency; or
to change any other provision; provided that neither Issuer nor Grantee nor any subsidiary or
affiliate thereof will be required to agree to any divestiture by itself orthe change does not adversely affect the interests of the holders of any series of its affiliatesNew Notes in any material respect.
The holders of shares of capital stock orat least a majority in aggregate principal amount of any business, assets or
property, or the imposition of any material limitation on the ability of any of
them to conduct their businesses or to own or exercise control of such assets,
properties and stock.
15. Damages an Inadequate Remedy
The parties hereto acknowledge that damages would be an inadequate remedy
for a breach of this Agreement by either party hereto and that the obligationsseries of the parties hereto shall be enforceableoutstanding New Notes may, on behalf of the holders of all New Notes of that series, waive compliance by either party hereto through
injunctiveus with certain restrictive provisions of the Indenture. The holders of not less than a majority in aggregate principal amount of the outstanding New Notes of a series may, on behalf of the holders of all New Notes of that series, waive any past default and its consequences under the Indenture with respect to that series of New Notes, except a default (1) in the payment of principal or other equitable relief.
16. Effectpremium, if any, or interest on that series of UnenforceabilityNew Notes or (2) in respect of Terms
If any term, provision,a covenant or restriction contained in this Agreement
is held by a court or a federal or state regulatory agency of competent
jurisdiction to be invalid, void or unenforceable, the remainderprovision of the terms,
provisionsIndenture that cannot be modified or amended without the consent of the holder of each New Note of that series. Upon any such waiver, such default will cease to exist, and covenants and restrictions contained in this Agreement shall
remain in full force and effect, and shall in no way be affected, impaired or
invalidated. If for any reason such court or regulatory agency determines that
Grantee is not permitted to acquire the full numberevent of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 5 hereof) it
is the express intention of Issuer to allow Grantee to acquire or to require
Issuer to repurchase such lesser number of shares as may be permissible,
without any amendment or modification hereof.
17. Notices
All notices, requests, claims, demands and other communications hereunder
shalldefault arising therefrom will be deemed to have been duly given when deliveredcured, for every purpose of the Indenture; however, no such waiver will extend to any subsequent or other default or event of default or impair any rights consequent thereon.
Book-Entry; Delivery and Form; Global Securities
Each series of New Notes will be issued in the form of one or more global securities, in definitive, fully registered form without interest coupons, each of which we refer to as a “global security.” Each such global security will be deposited with the trustee as custodian for DTC and registered in the name of a nominee of DTC in New York, New York for the accounts of participants in DTC.
We will not issue certificated securities to you for the New Notes you purchase, except in the limited circumstances described below. Each global security will be issued to DTC, which will keep a computerized record of its participants whose clients have purchased and beneficially own New Notes of a particular series. Each participant will then keep a record of its clients who have purchased and beneficially own New Notes of a particular series. Unless it is exchanged in whole or in part for a certificated security, a global security may not be transferred. DTC, its nominee and their successors may, however, transfer a global security as a whole to one another, and these transfers are required to be recorded on our records or a register to be maintained by the trustee.
DTC has advised us as follows: DTC is a limited-purpose trust company organized under New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities of institutions that have accounts with DTC (“participants”) and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of the participants, thereby eliminating the need for physical movement of securities certificates. DTC’s participants include both U.S. andnon-U.S. securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s book-entry system is also available to others such as both U.S. andnon-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a participant, whether directly or indirectly.
Ownership of Beneficial Interests
Upon the issuance of each global security, DTC will credit, on its book-entry registration and transfer system, the respective principal amount of the individual beneficial interests represented by the global security to the accounts of participants. Ownership of beneficial interests in each global security will be limited to participants or persons that may hold interests through participants. Beneficial interests in a global security will be shown on, and transfers of beneficial interests in the global securities will be made only through, records maintained by DTC and its participants. When you purchase notes through the DTC system, the purchases must be made by or through a direct participant, which will receive credit for the notes on DTC’s records. When you actually purchase the New Notes, you will become its beneficial owner. Your ownership interest will be recorded only on the direct or indirect participants’ records. DTC will have no knowledge of your individual ownership of the notes. DTC’s records will show only the identity of the direct participants and the amount of the notes held by or through them. You will not receive a written confirmation of your purchase or sale or any periodic account statement directly from DTC. You should instead receive these from your direct or indirect participant. As a result, the direct or indirect participants are responsible for keeping accurate account of the holdings of their customers.
So long as DTC or its nominee is the registered holder and owner of a global security, DTC or such nominee, as the case may be, will be considered the sole legal owner of the New Notes represented by the global security for all purposes under the Indenture, the New Notes and applicable law. Except as set forth below, owners of beneficial interests in a global security will not be entitled to receive certificated New Notes and will not be considered to be the owners or holders of any New Notes represented by the global security. We understand that under existing industry practice, in the event an owner of a beneficial interest in a global security desires to take any actions that DTC, as the holder of the global security, is entitled to take, DTC would authorize the participants to take such action, and that participants would authorize beneficial owners owning through such participants to take such action or would otherwise act upon the instructions of beneficial owners owning through them. No beneficial owner of an interest in a global security will be able to transfer such interest except in accordance with DTC’s applicable procedures, in addition to those provided for under the Indenture. Because DTC can only act on behalf of participants, who in turn act on behalf of others, the ability of a person having a beneficial interest in a global security to pledge that interest to persons that do not participate in the DTC system, or otherwise to take actions in respect of that interest, may be impaired by cable,
telegram, telecopythe lack of a physical certificate representing that interest.
All payments on the New Notes represented by a global security registered in the name of and held by DTC or telex,its nominee will be made to DTC or its nominee, as the case may be, as the registered owner and holder of the global security.
The trustee will wire payments on the New Notes to DTC’s nominee. The trustee and we will treat DTC’s nominee as the owner of each global security for all purposes. Accordingly, the trustee, any paying agent and we will have no direct responsibility or liability to pay amounts due on a global security to you or any other beneficial owners in that global security. Any redemption notices will be sent by us directly to DTC, which will, in turn, inform the direct participants (or the indirect participants), which will then contact you as a beneficial holder.
It is DTC’s current practice, upon receipt of any payment of principal, interest, redemption prices, distributions or liquidation amounts, to credit direct participants’ accounts proportionately on the payment date based on their holdings. In addition, it is DTC’s current practice to pass through any consenting or voting rights to such participants by using an omnibus proxy. Those participants will, in turn, make payments to and solicit votes from you, the beneficial owner of notes, based on their customary practices. Payments to you will be the responsibility of the participants and not of DTC, the trustee or our company.
Unless and until it is exchanged in whole or in part for certificated New Notes, each global security may not be transferred except as a whole by DTC to a nominee of DTC or by registereda nominee of DTC to DTC or certified mail (postage
prepaid, return receipt requested)another nominee of DTC. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled insame-day funds.
We expect that DTC will take any action permitted to be taken by a holder of New Notes only at the respective addressesdirection of one or more participants to whose account the DTC interests in a global security are credited and only in respect of such portion of the parties
set forthaggregate principal amount of the New Notes as to which such participant or participants has or have given such direction. However, if there is an event of default under the New Notes, DTC will exchange each global security for certificated New Notes, which it will distribute to its participants.
Although we expect that DTC will agree to the foregoing procedures in order to facilitate transfers of interests in each global security among participants of DTC, DTC is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of we, the Dealer Managers or the trustee will have any responsibility for the performance or nonperformance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
The Indenture provides that the global securities will be exchanged for New Notes in certificated form of like tenor and of an equal principal amount, in authorized denominations in the Reorganization Agreement.
B-8
18. following limited circumstances:
| (i) | DTC notifies us that it is unwilling or unable to continue as depository or if DTC ceases to be eligible under the Indenture and we do not appoint a successor depository within 90 days; |
| (ii) | we determine that the New Notes will no longer be represented by global securities and execute and deliver to the trustee an order to such effect; or |
| (iii) | an event of default with respect to the New Notes will have occurred and be continuing. |
These certificated New Notes will be registered in such name or names as DTC will instruct the trustee. It is expected that such instructions may be based upon directions received by DTC from participants with respect to ownership of beneficial interests in global securities.
The information in this section of this prospectus concerning DTC and DTC’s book-entry system has been obtained from sources that we believe to be reliable, but we do not take responsibility for this information.
Euroclear and Clearstream
If the depositary for a global security is DTC, you may hold interests in the global security through Clearstream Banking,société anonyme, which we refer to as “Clearstream,” or Euroclear Bank SA/ NV, as operator of the Euroclear System, which we refer to as “Euroclear,” in each case, as a participant in DTC. Euroclear and Clearstream will hold interests, in each case, on behalf of their participants through customers’ securities accounts in the names of Euroclear and Clearstream on the books of their respective depositaries, which in turn will hold such interests in customers’ securities in the depositaries’ names on DTC’s books.
Links have been established among DTC, Clearstream and Euroclear to facilitate the initial issuance of the New Notes sold outside of the United States and cross-market transfers of the notes associated with secondary market trading.
Although DTC, Clearstream and Euroclear have agreed to the procedures described below in order to facilitate transfers, they are under no obligation to perform these procedures, and these procedures may be modified or discontinued at any time.
Clearstream and Euroclear will record the ownership interests of their participants in much the same way as DTC, and DTC will record the total ownership of each of the U.S. agents of Clearstream and Euroclear, as participants in DTC. When New Notes are to be transferred from the account of a DTC participant to the account of a Clearstream participant or a Euroclear participant, the purchaser must send instructions to Clearstream or Euroclear through a participant at least one day prior to settlement. Clearstream or Euroclear, as the case may be, will instruct its U.S. agent to receive New Notes against payment. After settlement, Clearstream or Euroclear will credit its participant’s account. Credit for the New Notes will appear on the next day (European time).
Because settlement is taking place during New York business hours, DTC participants will be able to employ their usual procedures for sending New Notes to the relevant U.S. agent acting for the benefit of Clearstream or Euroclear participants. The sale proceeds will be available to the DTC seller on the settlement date. As a result, to the DTC participant, a cross-market transaction will settle no differently than a trade between two DTC participants.
When a Clearstream or Euroclear participant wishes to transfer New Notes to a DTC participant, the seller will be required to send instructions to Clearstream or Euroclear through a participant at least one business day prior to settlement. In these cases, Clearstream or Euroclear will instruct its U.S. agent to transfer these New Notes against payment for them. The payment will then be reflected in the account of the Clearstream or Euroclear participant the following day, with the proceeds back-valued to the value date, which would be the preceding day, when settlement occurs in New York. If settlement is not completed on the intended value date, that is, the trade fails, proceeds credited to the Clearstream or Euroclear participant’s account will instead be valued as of the actual settlement date.
You should be aware that you will only be able to make and receive deliveries, payments and other communications involving the New Notes through Clearstream and Euroclear on the days when those clearing systems are open for business. Those systems may not be open for business on days when banks, brokers and other institutions are open for business in the United States. In addition, because of time zone differences there may be problems with completing transactions involving Clearstream and Euroclear on the same business day as in the United States.
Discharge, Defeasance and Covenant Defeasance
We may discharge certain obligations to holders of the New Notes of a series that have not already been delivered to the trustee for cancellation and that either have become due and payable or will become due and payable within one year (or scheduled for redemption within one year) by depositing with the trustee, in trust, funds in U.S. dollars in an amount sufficient to pay the entire indebtedness including the principal and premium, if any, and interest to the date of such deposit (if the New Notes have become due and payable) or to the maturity thereof or the redemption date of the New Notes of that series, as the case may be. We may direct the trustee to invest such funds in U.S. Treasury securities with a maturity of one year or less or in a money market fund that invests solely in short-term U.S. Treasury securities.
The Indenture provides that we may elect either (1) to defease and be discharged from any and all obligations with respect to the New Notes of a series (except for, among other things, obligations to register the transfer or exchange of the New Notes, to replace temporary or mutilated, destroyed, lost or stolen New Notes, to maintain an office or agency with respect to the New Notes and to hold moneys for payment in trust) (“legal defeasance”) or (2) to be released from our obligations to comply with the restrictive covenants under the Indenture, and any omission to comply with such obligations will not constitute a default or an event of default with respect to the New Notes of a series and clauses (4) and (7) under the heading “Events of Default” in the Indenture will no longer be applied (“covenant defeasance”). Legal defeasance or covenant defeasance, as the case may be, will be conditioned upon, among other things, the irrevocable deposit by us with the trustee, in trust, of an amount in U.S. dollars, or U.S. government obligations, or both, applicable to the New Notes of that series which through the scheduled payment of principal and interest in accordance with their terms will provide money in an amount sufficient to pay the principal or premium, if any, and interest on the New Notes on the scheduled due dates therefor.
If we effect covenant defeasance with respect to the New Notes of any series, the amount in U.S. dollars, or U.S. government obligations, or both, on deposit with the trustee will be sufficient, in the opinion of a nationally recognized firm of independent accountants, to pay amounts due on the New Notes of that series at the time of the stated maturity but may not be sufficient to pay amounts due on the New Notes of that series at the time of the acceleration resulting from such event of default. However, we would remain liable to make payment of such amounts due at the time of acceleration.
We will be required to deliver to the trustee an opinion of counsel that the deposit and related defeasance will not cause the holders of the New Notes of that series to recognize gain or loss for federal income tax purposes. If we elect legal defeasance, that opinion of counsel must be based upon a ruling from the U.S. Internal Revenue Service or a change in law to that effect.
We may exercise our legal defeasance option notwithstanding our prior exercise of our covenant defeasance option.
Trustee, Paying Agent and Security Registrar
U.S. Bank National Association is the trustee, paying agent and security registrar for the notes offered hereby. U.S. Bank National Association is a national banking association organized under and governed by the laws of the United States of America, and provides trust services and acts as indenture trustee for numerous corporate securities issuances, including for other series of debt securities of which we are the issuer.
Governing Law
This Agreement shall
The Indenture and the New Notes will be governed by and construed in accordance with the laws of the State of Washington,New York.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal income tax consequences to U.S. Holders andNon-U.S. Holders (each term as defined below) of the Exchange Offers and the ownership and disposition of any New Notes acquired in the Exchange Offers. This summary is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), proposed, temporary and final Treasury regulations promulgated under the Code, and administrative rulings and judicial decisions, in each case as of the date of this prospectus. These authorities are subject to differing interpretations and may be changed, perhaps retroactively, resulting in U.S. federal income tax consequences different from those discussed below. We have not obtained, nor do we intend to obtain, a ruling from the U.S. Internal Revenue Service (the “IRS”) with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.
This summary assumes that the Existing Notes are, and any New Notes will be, held as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This summary does not address other U.S. federal tax laws (such as Medicare contribution tax laws and estate and gift tax laws) or the tax considerations arising under the laws of any state, local ornon-U.S. jurisdiction. In addition, this summary does not address all tax considerations that may be applicable to a particular holder’s circumstances or to holders that may be subject to special tax rules, including, without limitation, holders subject to the alternative minimum tax, banks, insurance companies or other financial institutions, regulated investment companies, real estate investment trusts,tax-exempt organizations, dealers in securities or currencies, traders in securities that elect to use amark-to-market method of tax accounting for their securities holdings, U.S. Holders whose “functional currency” is not the U.S. dollar, controlled foreign corporations, passive foreign investment companies, U.S. expatriates, partnerships or other pass-through entities for U.S. federal income tax purposes, holders holding the Existing Notes or the New Notes as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction, holders deemed to sell the Existing Notes or the New Notes under the constructive sale provisions of the Code, holders required to accelerate the recognition of any item of gross income with respect to the Existing Notes or the New Notes as a result of such income being recognized on an applicable financial statement, or subsequent purchasers of the New Notes.
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the Existing Notes or the New Notes that is, for U.S. federal income tax purposes: (i) a citizen or individual resident of the United States, (ii) a corporation, including any entity treated as a corporation for U.S. federal income tax purposes, created or organized in, or under the laws of, the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust, if its administration is subject to the primary supervision of a U.S. court and one or more United States persons have the authority to control all substantial decisions of the trust, or if it has made a valid election under applicable Treasury regulations to be treated as a United States person.
For purposes of this discussion, a“Non-U.S. Holder” is a beneficial owner of the Existing Notes or the New Notes that is neither a U.S. Holder nor a partnership or other entity treated as a partnership for U.S. federal income tax purposes.
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds the Existing Notes or the New Notes, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. If you are a partnership or a partner in a partnership holding the Existing Notes or the New Notes, you should consult your tax advisor regarding the tax consequences of the Exchange Offers and the ownership and disposition of any New Notes acquired in the Exchange Offers.
We believe, and the following discussion assumes, that the Existing Notes are, and the New Notes will be, treated as debt for U.S. federal income tax purposes.
This summary is for general information purposes only, and is not intended to be, and should not be construed to be, legal or tax advice to any particular holder. You are urged to consult your tax advisor with regard to the application of the U.S. federal income tax laws, as well as the application ofnon-income tax laws and the laws of any state, local ornon-U.S. taxing jurisdiction, to your particular situation.
Tax Consequences to Exchanging U.S. Holders
Tax Consequences of the Exchange
Under general principles of U.S. federal income tax law, the modification of a debt instrument can give rise to an exchange under Section 1001 of the Code upon which gain or loss is realized if the modified debt instrument differs materially either in kind or in extent from the original debt instrument. In this regard, governing Treasury regulations (the “Modification Regulations”) provide that, as a general rule, an exchange occurs when, based on all the facts and circumstances and taking into account all changes in the terms of the debt instrument collectively (other than certain specified changes), the legal rights or obligations that are altered, and the degree to which they are altered, are economically significant (a “significant modification”). The Modification Regulations can apply to any modification of a debt instrument, regardless of the lawsform of the modification, including an exchange of a new debt instrument for an existing debt instrument. Therefore, the Modification Regulations are relevant in determining the consequences of an exchange of Existing Notes for New Notes pursuant to the Exchange Offers.
Under the Modification Regulations, a change in yield of a debt instrument is a significant modification if the yield of the modified debt instrument varies from the yield on the unmodified instrument (determined as of the date of the modification) by more than the greater of (i) 25 basis points and (ii) 5 percent of the annual yield of the unmodified instrument. For this purpose, the yield of the modified debt instrument is the annual yield of a debt instrument with (i) an issue price equal to the adjusted issue price of the unmodified debt instrument on the date of the modification (increased by accrued but unpaid interest and decreased by payments made to the holder as consideration for the modification) and (ii) payments equal to the payments on the modified debt instrument from the date of the modification. The Modification Regulations also provide that, mightin general, a modification of a debt instrument that results in a material deferral of scheduled payments, including an extension of the final maturity date, is a significant modification. However, the Modification Regulations provide that a deferral is not a material deferral if the deferred payments are unconditionally payable no later than at the end of a safe harbor period which begins on the original due date of the first scheduled payment that is deferred and extends for a period equal to the lesser of (i) five years or (ii) 50% of the original term of the debt instrument.
We intend to take the position, and the following discussion assumes, that the exchange of Existing Notes for New Notes pursuant to the Exchange Offers will, in each case, constitute a significant modification under the Modification Regulations. Therefore, you will generally recognize gain or loss in full upon the exchange of Existing Notes for New Notes unless the exchange qualifies as a recapitalization for U.S. federal income tax purposes.
In order for the exchange to qualify as a recapitalization, the Existing Notes surrendered and the New Notes received must be treated as “securities” under the relevant provisions of the Code. Neither the Code nor the Treasury regulations define the term security. Whether a debt instrument is a security is based on all of the facts and circumstances, but most authorities have held that the term to maturity of the debt instrument is one of the most significant factors. In this regard, debt instruments with a term of ten years or more generally have qualified as securities, whereas debt instruments with a term of less than five years generally have not qualified as securities. Each series of Existing Notes had an initial term of more than ten years and the New Notes will have a term of more than ten years.Thus, although the matter is not free from doubt, we believe, and the following discussion assumes, that the Existing Notes and the New Notes would both be treated as securities and that the exchange of Existing Notes for New Notes will be treated as a recapitalization for U.S. federal income tax purposes. There can be no assurance, however, that the IRS will not challenge the treatment of the exchange of Existing Notes for New Notes as a recapitalization, and any such challenge, if successful, would generally result in consequences different than those described below. You should consult your tax advisor regarding the qualification of the exchange as a recapitalization for U.S. federal income tax purposes.
Upon the exchange of Existing Notes for New Notes pursuant to the Exchange Offers, you will, subject to the discussions under “—Early Exchange Premium” and “—Cash in Lieu of Fractional New Notes,” generally recognize gain (but not loss) equal to the lesser of (i) the amount of any gain realized on the exchange, computed in the manner described below, and (ii) cash received in the exchange (other than cash paid in respect of accrued and unpaid interest on the Existing Notes, the treatment of which is described below under “—Accrued and Unpaid Interest”). The gain, if any, realized on the exchange will equal the difference between (i) the sum of the “issue price” of the New Notes received (as described below under “—Issue Price of the New Notes”) and the cash received (other than cash paid in respect of accrued and unpaid interest on the Existing Notes), and (ii) your adjusted tax basis in the Existing Notes surrendered. Your adjusted tax basis in the Existing Notes will generally equal the amount paid therefor, increased by market discount, if any, previously included in income and reduced by any bond premium previously amortized. Subject to the discussions under “—Market Discount” and “—Early Exchange Premium,” any gain recognized in the exchange will be capital gain and will be long-term capital gain if you held the Existing Notes for more than one year prior to the date of the exchange. Long-term capital gains ofnon-corporate U.S. Holders (including individuals) are eligible for reduced rates of taxation. You will have an initial tax basis in the New Notes equal to your adjusted tax basis in the Existing Notes surrendered in the exchange, increased by any gain that you recognize in the exchange, and decreased by any cash received in the exchange (other than cash paid in respect of accrued and unpaid interest on the Existing Notes). In addition, your holding period for the New Notes will include your holding period for the Existing Notes surrendered in the Exchange Offers.
If you hold Existing Notes with differing tax bases and/or holding periods, the preceding rules must be applied separately to each identifiable block of Existing Notes.
Issue Price of the New Notes. The determination of the issue price of the New Notes will depend on whether the New Notes and/or the Existing Notes exchanged therefor are “publicly traded” for U.S. federal income tax purposes. If the New Notes are publicly traded, they generally will have an issue price equal to their fair market value on the date of issuance. We expect that the New Notes will be publicly traded, and, thus, that each series of New Notes will have an issue price equal to their fair market value on the date of issuance. If we determine that the New Notes are publicly traded for U.S. federal income tax purposes, we will make that determination as well as our determination of the fair market value of the New Notes available to holders in a commercially reasonable fashion, including by electronic publication, within 90 days of the date that the New Notes are issued.
Market Discount. You will be considered to have acquired an Existing Note with “market discount” if the stated principal amount of such Existing Note exceeded your initial tax basis for such Existing Note by more than ade minimis amount. If your Existing Notes were acquired with market discount, any gain recognized on the exchange of Existing Notes for New Notes will be treated as ordinary income (and will not receive capital gain treatment) to the extent of the market discount accrued during your period of ownership, unless you previously had elected to include market discount in income as it accrued for U.S. federal income tax purposes. Any accrued market discount on the Existing Notes that was not previously included in income (including in connection with the exchange) will generally carry over to the New Notes. The New Notes received will also be treated as acquired with market discount (including any accrued market discount described above) if their stated principal amount (or their issue price if the New Notes are issued with original issue discount as described below) exceeds your initial tax basis in such New Notes by more than ade minimis amount.
If you acquired your Existing Notes (other than at original issuance) for a price less than their stated principal amount, you should consult your tax advisor regarding the possible application of the market discount rules.
Early Exchange Premium. If you tender your Existing Notes on or before the Early Exchange Time, you will be eligible to receive the Early Exchange Premium. Although the U.S. federal income tax treatment of the receipt of the Early Exchange Premium is unclear, we intend to take the position, and this discussion assumes, that the Early Exchange Premium should be treated as additional consideration received in exchange for the Existing Notes. However, the IRS could take the position that the Early Exchange Premium instead should be treated as a separate fee that would be subject to tax as ordinary income. You are urged to consult your tax advisor with respect to the U.S. federal income tax treatment of the Early Exchange Premium.
Cash in Lieu of Fractional New Notes. If you receive cash in lieu of fractional amounts of New Notes, you will generally be treated as having received fractional New Notes corresponding to such fractional amounts pursuant to the Exchange Offers and then as having had those fractional New Notes sold for cash. As a result, you will generally recognize gain or loss on the receipt of cash in lieu of fractional New Notes, which gain or loss will generally be determined as described below under “—Tax Consequences of the Ownership of the New Notes—Sale, Exchange or Retirement of the New Notes.”
Accrued and Unpaid Interest. Any amount received pursuant to the Exchange Offers that is properly allocable to accrued and unpaid interest on an Existing Note will generally be includible in your gross income as ordinary interest income if such accrued interest had not been included previously in your gross income for U.S. federal income tax purposes.
Tax Consequences of the Ownership of the New Notes
Payments of Interest. Payments of stated interest on the New Notes will be taxed to you as ordinary income at the time the interest is paid or accrued in accordance with your method of accounting for U.S. federal income tax purposes.
Original Issue Discount. If the issue price of the New Notes of a series (as described above under “—Tax Consequences of the Exchange—Issue Price of the New Notes”) is less than their stated principal amount by more than a specifiedde minimisamount, such New Notes will be treated as issued with original issue discount (“OID”) in an amount equal to such difference. For these purposes, the discount will be considered to exceed thede minimisthreshold if it is at least equal to 0.25% of the stated principal amount of the New Notes multiplied by the number of complete years to maturity from the issue date of the New Notes.
You must generally include OID in your gross income (as ordinary income) as it accrues (on a constant yield to maturity basis) over the term of a New Note without regard to your regular method of accounting for U.S. federal income tax purposes and in advance of the receipt of cash payments attributable to that income.
The amount of OID, if any, that you must include in income with respect to a New Note will generally equal the sum of the “daily portions” of OID with respect to the New Note for each day during the taxable year or portion of the taxable year in which you held such New Note (“accrued OID”). The daily portion is determined by allocating to each day in each “accrual period” a pro rata portion of the OID allocable to that accrual period. The “accrual period” for a New Note may be of any length and may vary in length over the term of the New Note, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs on the first day or the final day of an accrual period. The amount of OID allocable to any accrual period other than the final accrual period is an amount equal to the excess, if any, of (i) the product of the New Note’s adjusted issue price at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) over (ii) the aggregate of all stated interest allocable to the accrual period. OID allocable to a final accrual period is the difference between the amount payable at maturity (other than a payment of stated interest) and the adjusted issue price of the New Note at the beginning of the final accrual period. The adjusted issue price of a New Note at the beginning of any accrual period is equal to its issue price, increased by the accrued OID, if any, for each prior accrual period (determined without regard to the amortization of any acquisition premium or amortizable bond premium, as discussed below). Under these rules, you generally will have to include in income increasingly greater amounts of OID in successive accrual periods.
If your initial tax basis in a New Note is greater than its issue price and less than or equal to its stated principal amount, the New Note will be considered to have been issued to you at an “acquisition premium.” Under the acquisition premium rules, the amount of OID that you must include in gross income with respect to the New Note for any taxable year will be reduced by the portion of the acquisition premium properly allocable to that year.
You may elect to treat all interest (including stated interest, OID orde minimisOID, and market discount orde minimismarket discount, as adjusted by any acquisition premium or amortizable bond premium) on a New Note as OID and calculate the amount includible in gross income under the constant yield method described above. The election must be made for the taxable year in which you acquire the New Note, and may not be revoked without the consent of the IRS. You should consult your tax advisor about this election. This discussion assumes this election is not made.
Amortizable Bond Premium. If your initial tax basis in a New Note is greater than its stated principal amount, you will be considered to have acquired the New Note with “amortizable bond premium” and, in the case of any New Notes issued with OID, you will not be required to include any OID in income. You generally may elect to amortize the premium over the remaining term of the New Note on a constant yield method as an offset to interest when includible in income under your regular accounting method. However, because the New Notes may be redeemed by us prior to maturity at a premium, special rules apply that may reduce, eliminate or defer the amount of premium that you may amortize with respect to a New Note. You should consult your tax advisor about these special rules. If you do not elect to amortize the premium, that premium will decrease the gain or increase the loss you would otherwise governrecognize on maturity or disposition of the New Note. An election to amortize premium on a constant yield method will also apply to all other taxable debt instruments held or subsequently acquired by you on or after the first day of the first taxable year for which the election is made. Such an election may not be revoked without the consent of the IRS. You should consult your tax advisor about this election.
Market Discount. If your New Notes have market discount (see “—Tax Consequences of the Exchange— Market Discount” above), under the market discount rules, you will be required to treat any gain on the sale, exchange or retirement of such New Notes as ordinary income to the extent of the market discount that is treated as having accrued on such New Notes at the time of the sale, exchange or retirement, and which you have not previously included in income. Any market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of the New Notes unless you elect to accrue on a constant interest method.
You may elect to include market discount in income currently as it accrues, on either a ratable or constant interest method, in which case any gain recognized will not be recharacterized as ordinary income.
Sale, Exchange or Retirement of the New Notes. Unless anon-recognition provision applies, you will recognize taxable gain or loss upon a sale, exchange or retirement of a New Note in an amount equal to the difference between (i) the amount of cash and the fair market value of any property received (less an amount equal to any accrued but unpaid stated interest, which will be taxed in the manner described above under “—Payments of Interest”) and (ii) your adjusted tax basis in the New Note. Your adjusted tax basis in a New Note will be your initial tax basis in the New Note, increased by any OID or market discount previously included in income, and reduced by any amortized bond premium.
Any gain or loss on the sale, exchange or retirement of a New Note will be capital gain or loss (although all or a portion of any recognized gain could be subject to ordinary income treatment if there is any accrued market discount on the New Note that has not been included in income at the time of the sale, exchange or retirement, as discussed above under “—Market Discount”) and will be long-term capital gain or loss if the New Note has a holding period of more than one year at the time of the sale, exchange or retirement. Long-term capital gains ofnon-corporate U.S. Holders (including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Tax Consequences to ExchangingNon-U.S. Holders
The following discussion is a summary of certain U.S. federal income tax consequences that will apply to you if you are aNon-U.S. Holder who exchanges Existing Notes for New Notes pursuant to the Exchange Offers.
For purposes of the discussion below, any income or gain will be considered to be “U.S. trade or business income” if such income or gain is:
effectively connected with your conduct of a U.S. trade or business; and
if required by an applicable income tax treaty with the United States, attributable to a U.S. permanent establishment (or a fixed base) maintained by you in the United States.
Tax Consequences of the Exchange
Subject to the discussions under “—Early Exchange Premium” and “—Backup Withholding and InformationReporting—Non-U.S. Holders,” you will generally not be subject to U.S. federal income or withholding tax on any gain recognized on the exchange of Existing Notes for New Notes (which gain would be determined as described above under “—Tax Consequences to Exchanging U.S. Holders—Tax Consequences of the Exchange”) unless:
such gain is U.S. trade or business income; or
you are an individual who is present in the United States for 183 days or more in the taxable year in which the gain is realized and certain other conditions are met.
Regarding the first bullet above, aNon-U.S. Holder who realizes U.S. trade or business income with respect to the exchange generally will be subject to U.S. federal income tax on that income in the same manner as a U.S. Holder (see “—Tax Consequences to Exchanging U.S. Holders—Tax Consequences of the Exchange” above). In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or lower applicable income tax treaty rate) of your effectively connected earnings and profits, subject to adjustments. If you are an individualNon-U.S. Holder described in the second bullet above, unless an applicable income tax treaty provides otherwise, you will generally be subject to a flat 30% U.S. federal income tax on any gain recognized, which may be offset by certain U.S. source losses.
Accrued and Unpaid Interest. Subject to the discussions under “—Backup Withholding and InformationReporting—Non-U.S. Holders” and “—Additional Withholding Requirements,” the portion of the amount paid pursuant to the Exchange Offers that is properly allocable to accrued but unpaid interest on the Existing Notes will not be subject to U.S. federal income or withholding tax under the “portfolio interest rule,” provided that:
the accrued interest is not U.S. trade or business income;
you do not actually (or constructively) own 10% or more of the total combined voting power of all classes of our voting stock within the meaning of the Code and applicable Treasury regulations;
you are not a controlled foreign corporation that is related to us through stock ownership;
you are not a bank whose receipt of interest on the Existing Notes is described in Section 881(c)(3)(A) of the Code; and
either (a) you provide your name and address on an applicable IRS FormW-8, and certify, under penalties of perjury, that you are not a United States person as defined under the Code or (b) you hold your Existing Notes through certain foreign intermediaries and satisfy the certification requirements of applicable United States Treasury regulations. Special certification rules apply toNon-U.S. Holders that are pass-through entities rather than corporations or individuals.
If you cannot satisfy the requirements described above, the portion of the amount paid pursuant to the Exchange Offers that is properly allocable to accrued but unpaid interest on the Existing Notes will generally be subject to a 30% U.S. federal withholding tax, unless you provide the applicable withholding agent with a properly executed:
IRS FormW-8BEN or FormW-8BEN-E (or other applicable form) claiming an exemption from or reduction in withholding under the benefit of an applicable income tax treaty; or
IRS FormW-8ECI (or other applicable form) stating that interest paid on the Existing Notes is not subject to withholding tax because it is U.S. trade or business income (as discussed in further detail below).
If the portion of the proceeds received by you that is properly allocable to accrued but unpaid interest on the Existing Notes is U.S. trade or business income, you will not be subject to the 30% U.S. federal withholding tax on such interest if you provide the applicable withholding agent with a properly executed IRS FormW-8ECI, as discussed above. Instead, you generally will be taxed on such interest in the same manner as a U.S. Holder (see “—Tax Consequences to Exchanging U.S. Holders—Tax Consequences of the Exchange—Accrued and Unpaid Interest” above). In addition, if you are a foreign corporation, you may be subject to an additional branch profits tax equal to 30% (or lower applicable income tax treaty rate) of your effectively connected earnings and profits, subject to adjustments.
Early Exchange Premium. As discussed above under “—Tax Consequences to Exchanging U.S. Holders—Tax Consequences of the Exchange—Early Exchange Premium,” although the U.S. federal income tax treatment of the Early Exchange Premium is uncertain, we intend to take the position that any Early Exchange Premium should be treated as part of the consideration received in exchange for the Existing Notes. However, if any Early Exchange Premium were to be treated as a separate fee, then such payment could be subject to U.S. federal withholding tax. You are urged to consult your tax advisor with respect to the U.S. federal income tax treatment of the Early Exchange Premium.
Tax Consequences of the Ownership of the New Notes
Payments of Interest. Subject to the discussions under “—Backup Withholding and InformationReporting—Non-U.S. Holders” and “—Additional Withholding Requirements,” U.S. federal withholding tax will not apply to any payment of interest (including any OID) on the New Notes, provided that you meet the requirements of the portfolio interest rule described above in “—Tax Consequences of the Exchange—Accrued and Unpaid Interest.”
If you cannot satisfy the requirements of the portfolio interest rule, payments of interest (including any OID) on the New Notes made to you will generally be subject to a 30% U.S. federal withholding tax, unless you provide the applicable withholding agent with a properly executed:
IRS FormW-8BEN or FormW-8BEN-E (or other applicable form) claiming an exemption from or reduction in withholding under the benefit of an applicable income tax treaty; or
IRS FormW-8ECI (or other applicable form) stating that interest paid on the New Notes is not subject to withholding tax because it is U.S. trade or business income.
Sale, Exchange or Retirement of the New Notes. Subject to the discussion under “—Backup Withholding and InformationReporting—Non-U.S. Holders,” any gain realized upon the sale, exchange or retirement of a New Note will not be subject to U.S. federal income or withholding tax unless:
the gain is U.S. trade or business income, in which case the gain will be subject to tax as described below under “—Effectively Connected Interest and Gain”; or
you are an individual who is present in the United States for 183 days or more in the taxable year of that sale, exchange or retirement, and certain other conditions are met, in which case the gain (net of certain U.S. source capital losses) will be subject to a flat 30% tax, unless an applicable income tax treaty provides otherwise.
To the extent proceeds from the sale, exchange or retirement of a New Note represent accrued and unpaid stated interest, you will generally be subject to U.S. federal income tax with respect to such accrued and unpaid stated interest in the same manner as described above under “—Payments of Interest.”
Effectively Connected Interest and Gain. If any interest (including any OID) on, or gain realized upon the disposition of, the New Notes is U.S. trade or business income, you will be subject to U.S. federal income tax on that interest or gain on a net income basis (although you will be exempt from the 30% U.S. federal withholding tax on interest, provided the certification requirements discussed above are satisfied) in the same manner as if you were a U.S. Holder. In addition, if you are a foreign corporation, you may be subject to an additional branch profits tax equal to 30% (or lower applicable income tax treaty rate) of your effectively connected earnings and profits, subject to adjustments.
Backup Withholding and Information Reporting
U.S. Holders
Information reporting requirements will generally apply to payments of interest on the Existing Notes or the New Notes, any OID accruals on the New Notes, and proceeds from a disposition (including a retirement or redemption) of the Existing Notes or the New Notes (unless, in each case, you are an exempt recipient such as a corporation). Backup withholding may apply to any payments described in the preceding sentence if you fail to provide a taxpayer identification number or a certification that you are not subject to backup withholding. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against your U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
Non-U.S. Holders
Information returns generally will be filed in connection with the amount of interest (including any OID) paid to you with respect to the Existing Notes or the New Notes and the amount of tax, if any, withheld with respect to such payments. Copies of the information returns reporting such interest payments and any withholding may also be made available to the tax authorities in the country in which you reside under the provisions of an applicable income tax treaty.
In general, you will not be subject to backup withholding with respect to interest (including any OID) paid to you with respect to the Existing Notes or the New Notes, provided in each case that the applicable withholding agent does not have actual knowledge or reason to know that you are a United States person as defined under the Code, and you have provided a validly completed applicable IRS FormW-8 establishing that you are not a United States person (or you satisfy certain documentary evidence requirements for establishing that you are not a United States person).
Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale or other disposition (including a retirement or redemption) of the Existing Notes or the New Notes made within the United States or conducted through certain United States-related financial intermediaries, unless you certify to the payor under penalties of perjury that you are not a United States person as defined under the Code (and the payor does not have actual knowledge or reason to know that you are a United States person), or you otherwise establish an exemption.
Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against your U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
Additional Withholding Requirements
Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), a 30% U.S. federal withholding tax may apply to any interest (including any OID) paid on the Existing Notes or the New Notes to (i) a “foreign financial institution” (as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS FormW-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) its compliance (or deemed compliance) with FATCA (which may alternatively be in the form of compliance with an intergovernmental agreement with the United States) in a manner which avoids withholding, or (ii) a“non-financial foreign entity” (as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS FormW-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) adequate information regarding certain substantial U.S. beneficial owners of such entity (if any). If an interest payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under “— Tax Consequences to ExchangingNon-U.S. Holders—Tax Consequences of the Exchange—Accrued and Unpaid Interest” and “—Tax Consequences to ExchangingNon-U.S. Holders—Tax Consequences of the Ownership of the New Notes—Payments of Interest,” the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax.
However, any debt instrument issued before July 1, 2014 is generally treated as a “grandfathered obligation” that is exempt from FATCA withholding (unless such debt instrument was the subject of a “significant modification” after such date). Accordingly, FATCA withholding is not expected to apply with respect to payments attributable to accrued and unpaid interest on the 5.200% Notes due 2039, the 4.500% Notes due 2040, the 5.300% Notes due 2041, the 3.750% Notes due 2043 and the 4.875% Notes due 2043. In addition, while withholding under FATCA would also have applied to payments of gross proceeds from a taxable disposition of the Existing Notes or the New Notes on or after January 1, 2019, proposed U.S. Treasury regulations (the preamble to which indicates that taxpayers may rely on the regulations pending their finalization) eliminate FATCA withholding on payments of gross proceeds entirely.
You should consult your tax advisor regarding these rules and whether they may be relevant to the exchange of the Existing Notes pursuant to the Exchange Offers and your ownership and disposition of the New Notes.
Non-Exchanging Holders
If you are a holder of Existing Notes that does not participate in the Exchange Offers, you will not recognize any gain or loss in respect of the Exchange Offers for U.S. federal income tax purposes.
NOTICES TO CERTAIN NON-U.S. HOLDERS
General
No action has been or will be taken in any non-U.S. jurisdiction that would permit a public offering of the New Notes or the possession, circulation or distribution of this prospectus or any material relating to us, the Existing Notes or the New Notes in any jurisdiction where action for that purpose is required. Accordingly, the New Notes offered in the exchange offers may not be offered, sold or exchanged, directly or indirectly, and neither this prospectus nor any other offering material or advertisements in connection with the exchange offers may be distributed or published, in or from any such country or jurisdiction, except in compliance with any applicable rules or regulations of any such country or jurisdiction.
This prospectus does not constitute an offer to buy or sell or a solicitation of an offer to buy or sell either Existing Notes or New Notes in any jurisdiction in which, or to or from any person to or from whom, it is unlawful to make such offer or solicitation under applicable principlessecurities laws or otherwise. The distribution of conflictsthis prospectus in certain jurisdictions (including, but not limited to, Canada, the European Economic Area, the United Kingdom, the People’s Republic of laws thereof.
19. Counterparts
This AgreementChina, Japan, Hong Kong, Singapore and Switzerland) may be executedrestricted by law. Persons into whose possession this prospectus comes are required by us, the dealer managers and the exchange agent to inform themselves about, and to observe, any such restrictions. In those jurisdictions where the securities, blue sky or other laws require the exchange offers to be made by a licensed broker or dealer and the dealer managers or any of their affiliates is a licensed broker or dealer in two or more counterparts, each of whichany such jurisdiction, such exchange offers shall be deemed to be an original, but allmade by such dealer manager or such affiliate (as the case may be) on our behalf in such jurisdiction.
The New Notes will be issued only in minimum denominations of which shall constitute one$2,000 and the same agreement.
20. Expenses
Except as otherwise expressly provided herein, eachintegral multiples of $1,000 in excess thereof. See ‘‘Description of the parties hereto
shall bearExchange Offers—No Fractional Amounts of New Notes.’’ If, under the terms of the Exchange Offers, the aggregate principal amount of New Notes that any tendering holder is entitled to receive is not in a minimum denomination of $2,000 or an integral multiple of $1,000 in excess thereof, we will round downward the amount of the New Notes to $1,000 or the nearest integral multiple of $1,000 in excess thereof and pay all coststhe difference in cash.
Canada
The New Notes may be offered or sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and expenses incurredare permitted clients, as defined in National Instrument 31-103Registration Requirements, Exemptions and Ongoing Registrant Obligations. Accordingly, holders of Existing Notes that are located or resident in Canada may only participate in and receive New Notes in the Exchange Offers if they satisfy these requirements. Any resale of the New Notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this offering memorandum (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by itthe purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or on its behalfterritory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105Underwriting Conflicts (NI 33-105), the purchasers are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with the transactions contemplated hereunder, including feesTender Offers and expensesSolicitations.
Holders of its own financial consultants, investment bankers, accountantsExisting Notes that are located or resident in Canada must complete, sign and counsel.
21. Entire Agreement
Except assubmit a Canadian Eligibility Form in the form approved by the Company and in accordance with the procedures established by the Company to confirm that they satisfy applicable Canadian securities law requirements and to provide certain additional information required for them to participate in the Exchange Offers.
European Economic Area
The New Notes are not intended to be offered, sold or otherwise expressly provided hereinmade available to and are not being offered, sold or otherwise made available to any retail investor in the European Economic Area or in the Reorganization
Agreement, this Agreement andUnited Kingdom. For these purposes, a “retail investor” means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of the Reorganization Agreement constituteEU Directive on Markets in Financial Instruments (2014/65/EU) (as amended, “MiFID II”); (ii) a customer within the entire agreement betweenmeaning of Directive (EU) 2016/97 (the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II or (iii) not a qualified investor as defined in Regulation (EU) 2017/1129 (as amended, the parties with respect“Prospectus Regulation”). Consequently, no key information document required by Regulation (EU) No 1286/2014 (as amended, the “PRIIPs Regulation”) for offering or selling the New Notes or otherwise making them available to the subject matter hereof
and supersede all prior agreements and understandings, written or oral, with
respect to the subject matter hereof. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors (except as assigns),
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
22. Capitalized Terms
Capitalized terms used in this Agreement and not defined herein shall have
the meanings assigned theretoretail investors in the Reorganization Agreement.
IN WITNESS WHEREOF, eachEEA or in the United Kingdom has been prepared and therefore offering or selling the New Notes or otherwise making them available to any retail investor in the EEA or in the United Kingdom may be unlawful.
This prospectus has been prepared on the basis that any offer of New Notes in any Member State of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
MICROSOFT CORPORATION
/s/ Robert A. Eshelman
-------------------------------------
By: Robert A. Eshelman
Its: Assistant Secretary
VISIO CORPORATION
/s/ Jeremy Jaech
-------------------------------------
By: Jeremy Jaech
Its: President and CEO
B-9
ANNEX C
September 14, 1999
Board of Directors
Visio Corporation
2211 Elliott Avenue
Seattle, WA 98121
Members of the Board:
We understand that Visio Corporation ("Visio" or the "Company"), Microsoft
Corporation ("Microsoft"), and MovieSub, Inc. ("Merger Sub"), a wholly owned
subsidiary of Microsoft, propose to enter into an Agreement and Plan of
Reorganization, substantially in the form of the draft dated September 11, 1999
(the "Merger Agreement") which provides, among other things, for the merger
(the "Merger") of Merger Sub with and into Visio. Pursuant to the Merger, Visio
will become a wholly owned subsidiary of Microsoft and each outstanding share
of common stock, par value $0.001 per share (the "Visio Common Stock"), other
than shares held in treasury or held by Microsoft or any subsidiary of
Microsoft or as to which dissenters' rights have been perfected,European Economic Area will be converted into the right to receive 0.45 shares (the "Exchange Ratio") of
common stock, par value $0.0000125 per share, of Microsoft (the "Microsoft
Common Stock"). The terms and conditions of the Merger are more fully set forth
in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratiomade pursuant to an exemption under the Merger Agreement is fair from a financial point of view to the holders of
shares of Visio Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
business and financial information of Visio and Microsoft, respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning Visio prepared by the management of Visio;
(iii) discussed the past and current operations and financial condition
and the prospects of Visio, including information relating to certain
strategic, financial and operational benefits anticipatedProspectus Regulation from the Merger,
with senior executivesrequirement to publish a prospectus for offers of Visio;
(iv) discussed the past and current operations and financial condition
and the prospects of Microsoft, including information relating to certain
strategic, financial and operational benefits anticipated from the Merger,
with senior executives of Microsoft;
(v) reviewed the pro forma impact of the Merger on the earnings per
share of Microsoft;
(vi) reviewed the reported prices and trading activity for the Visio
Common Stock and Microsoft Common Stock;
(vii) compared the financial performance of Visio and Microsoft and the
prices and trading activity of the Visio Common Stock and Microsoft Common
Stock with that of certain other publicly-traded companies comparable with
Visio and Microsoft and their securities;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(ix) reviewed and discussed with the senior managements of Visio and
Microsoft their strategic rationales for the Merger;
(x) participated in discussions and negotiations among representatives
of Visio and Microsoft and their financial and legal advisors;
C-1
(xi) reviewed the draft Merger Agreement and certain related agreements;
and
(xii) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by usnotes. This prospectus is not a prospectus for the purposes of the Prospectus Regulation.
United Kingdom
Neither the communication of this opinion. With respect to the internal financial statements andprospectus nor any other financial and operating data, and discussionsoffering material relating to the strategic,
financialexchange offers is being made, and operational benefits anticipatedthis prospectus has not been approved, by an authorized person for the purposes of Section 21 of the FSMA. Accordingly, this prospectus is only being distributed to and is only directed at: (i) persons who are outside the United Kingdom; (ii) investment professionals falling within Article 19(5) of the Order; or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as ‘‘relevant persons’’). The New Notes will only be available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such notes will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.
People’s Republic of China
This prospectus may not be circulated or distributed in the People’s Republic of China (‘‘PRC’’) and the New Notes may not be offered or sold, and will not be offered, sold or exchanged, directly or indirectly, to any resident of the PRC or to persons for re-offering or resale, directly or indirectly, to any resident of the PRC except pursuant to applicable laws, rules and regulations of the PRC. For the purpose of this paragraph only, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.
Japan
The New Notes have not been and will not be registered under the Securities and Exchange Law of Japan (the ‘‘Securities and Exchange Law’’) and no dealer manager may offer, sell or offer to exchange any New Notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering, resale or re-exchange, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the Merger provided by
Visio, we have assumed that they have, in each case, been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
prospects of Visio and Microsoft. We have relied upon the assessment by the
managements of Visio and Microsoft of their ability to retain key employees of
Visio. We have also relied upon, without independent verification, the
assessment by the managements of Visio and Microsoft of: (i) the strategic and
other benefits expected to result from the Merger; (ii) the timing and risks
associated with the integration of Visio and Microsoft; and (iii) the validityregistration requirements of, and risks associated with, Visio's and Microsoft's existing and future
technologies, services or business models. We have not made any independent
valuation or appraisal of the assets or liabilities or technology of Visio and
Microsoft, nor have we been furnished with any such appraisals. In addition, we
have assumed that the Merger will be consummatedotherwise in accordance with the terms
set forth in the Merger Agreement, including, among other things, that the
Merger will be accounted for as a "pooling-of-interests" business combination
in accordance with U.S. Generally Accepted Accounting Principles and the Merger
will be treated as a tax-free reorganization and/or exchange pursuant to the
Internal Revenue Code of 1986. Our opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of, business
combination with or any other extraordinary transaction involving Visio.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated ("Morgan Stanley") and its
affiliates have provided financial advisory services for Microsoft and have
received fees for the rendering of these services. In the ordinary course of
our business we may actively trade the securities of Visio and Microsoft for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Visio, except that this opinion may be included in its entirety in
any filing made by Visiocompliance with, the Securities and Exchange CommissionLaw and any other applicable laws, regulations and ministerial guidelines of Japan.
Hong Kong
The New Notes may not be offered, sold or exchanged by means of any document other than (i) in respectcircumstances which do not constitute an offer to the public within the meaning of the transaction. In addition, this opinion does not in any manner addressCompanies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to ‘‘professional investors’’ within the prices at which the Microsoft Common Stock will trade following the
consummationmeaning of the Merger,Securities and Morgan Stanley expressesFutures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a ‘‘prospectus’’ within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no opinionadvertisement, invitation or recommendation asdocument relating to how the shareholdersNew Notes may be issued or may be in the possession of Visio should voteany person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the shareholders' meetingcontents of which are likely to be heldaccessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to New Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the Merger.
Basedexchange offers for the New Notes may not be circulated or distributed, nor may the New Notes be offered, sold or exchanged, or be made the subject of an offer to exchange, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the ‘‘SFA’’), (ii) to a relevant person, or any person pursuant to Section 275(IA), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the New Notes are exchanged under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the notes under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(IA), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Singapore Securities and Futures Act Product Classification
Solely for the purposes of its obligations pursuant to sections 309B(1)(a) and 309B(1)(c) of the SFA, Microsoft has determined, and hereby notifies all relevant persons (as defined in Section 309A of the SFA) that the New Notes are ‘‘prescribed capital markets products’’ (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Switzerland
Microsoft has not and will not register with the Swiss Financial Market Supervisory Authority (‘‘FINMA’’) as a foreign collective investment scheme pursuant to Article 119 of the Federal Act on Collective Investment Scheme of 23 June 2006, as amended (‘‘CISA’’), and accordingly the New Notes being offered pursuant to this prospectus have not and will not be approved, and may not be licensable, with FINMA. Therefore, the New Notes have not been authorized for distribution by FINMA as a foreign collective investment scheme pursuant to Article 119 CISA and the notes offered hereby may not be offered to the public (as this term is defined in Article 3 CISA) in or from Switzerland. The notes may solely be offered to ‘‘qualified investors,’’ as this term is defined in Article 10 CISA, and in the circumstances set out in Article 3 of the Ordinance on Collective Investment Scheme of 22 November 2006, as amended (‘‘CISO’’), such that there is no public offer. Investors, however, do not benefit from protection under CISA or CISO or supervision by FINMA. This prospectus and any other materials relating to the New Notes are strictly personal and confidential to each offeree and do not constitute an offer to any other person. This prospectus may only be used by those qualified investors to whom it has been handed out in connection with the offer described herein and may neither directly or indirectly be distributed or made available to any person or entity other than its recipients. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in Switzerland or from Switzerland. This prospectus does not constitute an issue prospectus as that term is understood pursuant to Article 652a and/or 1156 of the Swiss Federal Code of Obligations.
The validity of the New Notes will be passed upon for us by Simpson Thacher & Bartlett LLP, Palo Alto, California, and, with respect to matters of Washington law, by Keith R. Dolliver, Esq. our Deputy General Counsel. Certain legal matters relating to the securities offered hereby will be passed upon for the Dealer Managers by Weil, Gotshal & Manges LLP, New York, New York.
Mr. Dolliver beneficially owns, or has the right to acquire, an aggregate of less than 0.01% of the common stock of Microsoft Corporation.
Weil, Gotshal & Manges LLP performs legal services for us from time to time.
The financial statements incorporated in this Prospectus by reference from Microsoft Corporation’s Annual Report on Form10-K for the fiscal year ended June 30, 2019, and the effectiveness of Microsoft Corporation’s internal control over financial reporting, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports, which are incorporated herein by reference. Such financial statements have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods ended March 31, 2020 and 2019, December 31, 2019 and 2018, and September 30, 2019 and 2018, which is incorporated herein by reference, Deloitte & Touche LLP, an independent registered public accounting firm, have applied limited procedures in accordance with the standards of the Public Company Accounting Oversight Board (United States) for a review of such information. However, as stated in their reports included in Microsoft Corporation’s Quarterly Reports onForm 10-Q for the quarters ended March 31, 2020, December 31, 2019, and September 30, 2019, and incorporated by reference herein, they did not audit and they do not express an opinion on that interim financial information. Accordingly, the degree of reliance on their reports on such information should be restricted in light of the limited nature of the review procedures applied. Deloitte & Touche LLP are not subject to the foregoing, we areliability provisions of Section 11 of the opinionSecurities Act of 1933, as amended (the “Securities Act”), for their reports on the date
hereofunaudited interim financial information because those reports are not “reports” or a “part” of the Registration Statement prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet web site that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file electronically with the SEC athttp://www.sec.gov.
We also make available, free of charge, on or through our Internet web site (http://www.microsoft.com) our Annual Reports on Form10-K, Quarterly Reports on Form10-Q, Current Reports on Form8-K, Proxy Statements on Schedule 14A and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Ratio pursuantAct, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Merger Agreement is fairSEC. Please note, however, that we have not incorporated any other information by reference from our Internet web site, other than the documents listed in this prospectus under the heading “Incorporation of Certain Information by Reference.” In addition, you may request copies of these filings at no cost through our Investor Relations Department at: Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052-6399, telephone:800-285-7772 (U.S.) or (425)706-4400 (international),e-mail: msft@microsoft.com.
We have filed with the SEC a financial point of viewregistration statement on FormS-4 relating to the shareholdersNew Notes covered by this prospectus. This prospectus is a part of Visio.
Very truly yours,
MORGAN STANLEYthe registration statement and does not contain all the information in the registration statement. Whenever a reference is made in this prospectus to a contract or other document of ours, the reference is only a summary and you should refer to the exhibits that are a part of the registration statement for a copy of the contract or other document.
ANNEX A
FORMULA TO DETERMINE THE TOTAL EXCHANGE CONSIDERATION AND
EXCHANGE CONSIDERATION
Definitions:
| YLD | The exchange offer yield equals the sum of (i) the bid-side yield of the 30-year Reference UST Security set forth with respect to each series of Existing Notes on the front cover of this prospectus, as calculated by the Dealer Managers in accordance with standard market practice at the Pricing Time, as reported on the Bloomberg Government Pricing Monitor or any recognized quotation source selected by the Dealer Managers in their sole discretion if the Bloomberg Government Pricing Monitor is not available or is manifestly erroneous, plus (ii) the applicable fixed spread in basis points, expressed as a decimal number, set forth with respect to each series of Existing Notes on the front cover of this prospectus. | |
| CPN | The contractual rate of interest payable on the Existing Note, expressed as a decimal number. | |
| N | The number of semi-annual interest payments on the Existing Note, from, but not including, the expected Settlement Date to, and including, the applicable maturity date or par call date (as applicable). | |
| S | The number of days from, and including, the semi-annual interest payment date immediately preceding the expected Settlement Date to, but not including, the expected Settlement Date. For the avoidance of doubt, if the Settlement Date is a semi-annual interest payment date for the Existing Note,Swill equal zero for calculations of the Existing Note. The number of days is computed using the 30/360 day count method. | |
| Summate. The term in the brackets to the right of the summation symbol is separately calculated “N” times (substituting for “k” in that term each whole number shown between 1 andN, inclusive), and the separate calculations are then added together. | |
| exp | Exponentiate. The term to the left of “exp” is raised to the power indicated by the term to the right of “exp.” | |
| Total Exchange Consideration | The price for each $1,000 principal amount of Existing Notes validly tendered prior to the Early Exchange Time and not validly withdrawn prior to the Expiration Time, to be paid in a combination of a principal amount of New Notes and cash. The Total Exchange Consideration includes the Early Exchange Premium. Each of the Total Exchange Consideration and the Cash Component of the Total Exchange Consideration will be rounded to the nearest cent. | |
| Exchange Consideration | The price for each $1,000 principal amount of Existing Notes validly tendered after the Early Exchange Time but prior to the Expiration Time, to be paid in a combination of a principal amount of New Notes and cash. The Exchange Consideration is equal to the Total Exchange Consideration,minusthe Early Exchange Premium. The Cash Component of the Exchange Consideration will be rounded to the nearest cent. | |
| Cash Component | The portion of the Total Exchange Consideration or Exchange Consideration, as applicable, to be paid in cash. | |
| Cash Payment Percent of Premium | The percent (as set forth with respect to each series of Existing Notes on the front cover of this prospectus) of the amount by which the Total Exchange Consideration (as calculated at the Pricing Time and in accordance with the formula set forth in this Annex A, as illustrated by the hypothetical pricing example included in Annex B to this prospectus) exceeds $1,000 per $1,000 principal amount of such Existing Notes. | |
| Early Exchange Premium | $30 principal amount of New 2050 Notes or $30 principal amount of New 2060 Notes, as applicable, for each $1,000 principal amount of Existing Notes validly tendered and not validly withdrawn prior to the Expiration Time. | |
TOTAL EXCHANGE CONSIDERATION=
EXCHANGE CONSIDERATION =Total Exchange Consideration-Early Exchange Premium
CASH COMPONENT=Cash Payment Percent of Premium×(Total Exchange Consideration - $1,000)
ANNEX B
HYPOTHETICAL CALCULATION OF TOTAL EXCHANGE CONSIDERATION AND
EXCHANGE CONSIDERATION
The following example illustrates how the Total Exchange Consideration and the Exchange Consideration for a hypothetical series of Existing Notes would be calculated in accordance with the formula set forth in Annex A to this prospectus.
| 4.875% Notes due 2043 | ||||
| Maturity Date | = | December 15, 2043 | ||
| Par Call Date | = | June 15, 2043 | ||
| 30 year Reference UST Security | = | 2.375% due November 15, 2049 | ||
| Fixed Spread (bps) | = | 110 | ||
| Hypothetical Price Determination Time | = | 10:00 a.m. Eastern Time, April 29, 2020 | ||
| Hypothetical Settlement Date | = | June 1, 2020 | ||
| Hypothetical Reference Yield as of Hypothetical Price Determination Time | = | 1.193% | ||
| YLD | = | 2.293% | ||
| CPN | = | 4.875% | ||
| N | = | 47 | ||
| S | = | 166 | ||
| Cash Payment Percent of Premium | = | 100% | ||
| Total Exchange Consideration Components | ||||
| Principal Amount of New Notes (including the Early Participation Premium) | = | $1,000.00 | ||
| Cash Component | = | $460.10 | ||
| Total Exchange Consideration | = | $1,460.10 | ||
| Exchange Consideration Components | ||||
| Principal Amount of New Notes | = | $970.00 | ||
| Cash Component | = | $460.10 | ||
| Exchange Consideration | = | $1,430.10 | ||
The Exchange Agent for the Exchange Offers is:
D.F. King & CO. INCORPORATED
/s/ Charles R. Cory
By: _________________________________
Charles R. Cory
Managing Director
C-2
ANNEX D
DISSENTERS' RIGHTS
Chapter 23B.13Co., Inc.
| By Regular, Registered or Certified Mail; Hand or Overnight Delivery: 48 Wall Street, 22nd Floor New York, New York 10005 Attention: Andrew Beck | By Facsimile Transmission (for Eligible Institutions Only): (212)709-3328 Attention: Andrew Beck |
For Confirmation by Telephone:
(212)269-5552
The Information Agent for the Exchange Offers is:
D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, New York 10005
Banks and brokers: (212)269-5550
Toll Free: (877)864-5060
Email: microsoft@dfking.com
Website: https://www.dfking.com/microsoft
Questions or requests for assistance related to the Exchange Offers or for additional copies of this prospectus may be directed to the Information Agent at its telephone numbers and address listed above.
You may also contact your broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offers.
The Joint Lead Dealer Managers for the Exchange Offers are:
| BofA Securities | Deutsche Bank Securities | |
620 South Tryon Street, 20th Floor Charlotte, NC 28255 Toll Free: (888)292-0070 Collect: (980)387-3907 Attn: Liability Management Group | 60 Wall Street New York, NY 10005 Toll Free: (866) 627-0391 Collect: (212)250-2955 Attn: Liability Management Group | |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Sections 23B.08.510 and 23B.08.570 of the Washington Business Corporation Act 23B.13.010 Definitions
As used(“WBCA”) authorizes Washington corporations to indemnify their officers and directors under certain circumstances against expenses and liabilities incurred in this chapter:
(1) "Corporation" means the issuerlegal proceedings involving them as a result of their service as an officer or director. Section 23B.08.560 of the shares held byWBCA authorizes a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when andprovision in the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020 Right to Dissent
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is
entitled to vote on the merger,indemnify or (ii) if the corporation isagree to indemnify a subsidiary
that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
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(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any
one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030 Dissent by Nominees and Beneficial Owners
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if the shares as to
which the dissenter dissents and the dissenter's other shares were registered
in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200 Notice of Dissenters' Rights
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210 Notice of Intent to Demand Payment
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights must (a) deliver to the corporation
before the vote is taken written notice of the shareholder's intent to demand
payment for the shareholder's shares if the proposed action is effected, and
(b) not vote such shares in favor of the proposed action.
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(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.220 Dissenters' Notice
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230 Duty to Demand Payment
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220 must
demand payment, certify whether the shareholder acquired beneficial ownership
of the shares before the date required to be set forth in the dissenters'
notice pursuant to RCW 23B.13.220(2)(c), and deposit the shareholder's
certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's share
certificates under subsection (1) of this section retains all other rights of a
shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240 Share Restrictions
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until the effective date of
the proposed corporate action.
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23B.13.250 Payment
(1) Except as provided in RCW 23B.13.270, within thirty days of the later of
the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260 Failure to Take Action
(1) If the corporation does not effect the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.
23B.13.270 After-Acquired Shares
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
23B.13.280 Procedure if Shareholder Dissatisfied With Payment or Offer
(1) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
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(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (1) of this section within thirty days after the corporation
made or offered payment for the dissenter's shares.
23B.13.300 Court Action
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
(6) Each dissenterdirector made a party to thea proceeding, is entitledor obligate itself to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,advance or (b) for the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under RCW
23B.13.270.
23B.13.310 Court Costs and Counsel Fees
(1) The courtreimburse expenses incurred in a proceeding, commenced under RCW 23B.13.300 shall determine
all costswithout regard to the limitations imposed by Sections 23B.08.510 through .550 of the proceeding, including the reasonable compensation and expensesWBCA; provided, however, that no such indemnity shall be made for or on account of appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess the costs against all(a) acts or someomissions of the dissenters, in amounts the court finds equitable,director finally adjudged to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
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(b) Against either the corporationbe intentional misconduct or a dissenter,knowing violation of law, (b) conduct of the director finally adjudged to be in favorviolation of Section 23B.08.310 of the WBCA (relating to unlawful distributions) or (c) any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faithtransaction with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court findswhich it was finally adjudged that the director personally received a benefit in money, property, or services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated,which the director is not legally entitled.
The Registrant’s Amended and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Article XII of the Restated Articles of Incorporation require indemnification of the registrant
authorizes the registrant to indemnify any present or former director or
officerRegistrant’s officers and directors and advancement of expenses to the fullest extent not prohibited by the WBCA, public policy or
other applicable law. Sections 23B.8.510The Registrant’s Amended and .570Restated Articles of Incorporation provide for procedures for those seeking indemnification and/or advancement of expenses. In addition, as authorized by Section 23B.08.320 of the WBCA, authorizesthe Registrant’s Amended and Restated Articles of Incorporation contain a corporationprovision eliminating the personal liability of directors to the Registrant or its shareholders for monetary damages for conduct as a director, except for (a) omissions involving intentional misconduct by the director or a knowing violation of law by the director, (b) conduct violating Section 23B.08.310 of the WBCA or (c) any transaction from which the director will personally receive a benefit in money, property or services to which the director is not legally entitled.
The Registrant has established an indemnification trust (“2016 Directors’ Trust”) to fund the Registrant’s obligations to indemnify and/or advance expenses to directors arising from their board service in the event the Registrant does not or is financially unable to provide the indemnification and/or advancement. As required by the 2016 Directors’ Trust agreement, the Registrant has funded a minimum balance of principal assets of no less than $50 million in the trust. The Registrant also has an indemnification trust (“2016 Officers’ Trust”) that funds the Registrant’s indemnification obligations to certain past and present officers arising from their activities as such. As required by the 2016 Officers’ Trust agreement, the Registrant has funded a minimum balance of principal assets of no less than $50 million in the trust. The 2016 Directors’ Trust and 2016 Officers’ Trust are successors to certain trusts originally established in 1993, and amended from time to time, to fund Registrant’s indemnification obligations to directors and officers. The Registrant has also entered into separate indemnification agreements with certain of its directors officers, employees,and executive officers.
II-1
Item 21. Exhibits and Financial Statement Schedules.
II-2
II-3
II-4
II-5
| Incorporated by Reference | ||||||||||||||||
Exhibit | Exhibit Description | Filed Herewith | Form | Exhibit | Filing Date | |||||||||||
| 24.1 | Power of Attorney (included in the signature page to this Registration Statement) | X | ||||||||||||||
| 25.1 | Statement of Eligibility of U.S. Bank National Association under the Indenture, dated as of May 18, 2009, between Microsoft Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee on FormT-1, with respect to the Indenture | X | ||||||||||||||
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or agents in terms
sufficiently broadsales are being made, a post-effective amendment to permit such indemnification under certain circumstances
for liabilities (including provisions permitting advances for expenses
incurred) arising underthis registration statement:
(i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933.
The registrant has agreed that if1933, as amended (the “Securities Act”);
(ii) to reflect in the merger is completed, all rights to
indemnification (including advancement of expenses) of currentprospectus any facts or former
directors, officers and employees of Visio and its subsidiariesevents arising from
actions taken before the consummation of the merger, as provided in Visio's
articles of incorporation and bylaws and existing indemnification agreements,
will be assumed by the registrant, will continue in full force and effect for
six years fromafter the effective date of the merger and will be guaranteed byregistration statement (or the registrant.
In addition, the registrant maintains directors' and officers' liability
insurance undermost recent post-effective amendment thereof) which, the registrant's directors and officers are insured
against loss (as definedindividually or in the policy) resultingaggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from claims brought against
them for their wrongful actsthe low or high end of the estimated maximum offering range may be reflected in such capacities.
Item 21. Listthe form of Exhibits.
The exhibitsprospectus filed with the SEC pursuant to thisRule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement are listedor any material change to such information in the Index to
Exhibits on page II-4.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakesregistration statement;
(2) that, for purposesthe purpose of determining any liability under the Securities Act, of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) (i) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(ii) The registrant undertakes that every prospectus (a) that is filed
pursuant to II-2 paragraph (b)(i) immediately preceding, or (b) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-1
(ii) Thethereof;
(3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
(4) That, for the purpose of determining liability under the Securities Act to any purchaser, if the registrants are subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
II-6
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use; and
(5) that, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that everyin a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus (a) that isor prospectus of the undersigned registrant relating to the offering required to be filed pursuant to II-2 paragraph (b)(i) immediately preceding, or(b) that purportsRule 424;
(ii) Any free writing prospectus relating to meet the requirements of Section 10(a)(3)offering prepared by or on behalf of the Securities Act and isundersigned registrant or used in
connection with an offeringor referred to by the undersigned registrant;
(iii) The portion of securities subject to Rule 415, will be filed as
a part of an amendmentany other free writing prospectus relating to the registration statementoffering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and will not be used until
such amendment
(iv) Any other communication that is effective, andan offer in the offering made by the undersigned registrant to the purchaser.
(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of 1933,the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Exchange Act (and, where applicable, each such post-effective amendmentfiling of an employee benefit plan’s annual report pursuant to section 15(d) of the Exchange Act), that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange
CommissionSEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
[Remainder of Page Intentionally Left Blank]
II-2
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Redmond, State of Washington, on October 29, 1999.
MICROSOFT CORPORATION
/s/ WilliamApril 30, 2020.
| Microsoft Corporation | ||
| By: | /s/ Satya Nadella | |
| Name: Satya Nadella | ||
| Title: Chief Executive Officer | ||
The undersigned directors and officers of Microsoft Corporation hereby constitute and appoint Satya Nadella, Amy E. Hood and Frank H. Gates III
_____________________________________
William H. Gates III
ChairmanBrod and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each of them, any of whom may act without joinder of the other, the individual’s true and lawfulattorneys-in-fact and agents, with full power of substitution and resubstitution, for the person whose signature appears below
constitutes and appoints William H. Gates IIIin his or her attorney-in-fact, for
him or hername, place and stead, in any and all capacities, to sign any or all amendments, including post-effective amendments, to this registration statement and supplements to file the same, with exhibits thereto,this registration statement, and all other documents in connection therewith to be filed with the SecuritiesSEC, granting unto saidattorneys-in-fact and Exchange Commission,agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact,attorneys-in-fact as agents or hisany of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
hereto.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities andindicated on the dates indicated.
April 30, 2020.
Signature | Title | |
/s/ John W. Thompson John W. Thompson | Chairman | |
/s/ Satya Nadella Satya Nadella | Director and Chief Executive Officer | |
/s/ Reid Hoffman Reid Hoffman | Director | |
/s/ Hugh F. Johnston Hugh F. Johnston | Director | |
/s/ Teri L. List-Stoll Teri L. List-Stoll | Director | |
/s/ Sandra E. Peterson Sandra E. Peterson | Director | |
/s/ Penny S. Pritzker Penny S. Pritzker | Director | |
/s/ Charles W. Scharf Charles W. Scharf | Director | |
Signature | Title | |
/s/ Arne M. Sorenson Arne M. Sorenson | Director | |
/s/ John W. Stanton John W. Stanton | Director | |
/s/ Emma Walmsley Emma Walmsley | Director | |
/s/ Padmasree Warrior Padmasree Warrior | Director | |
/s/ Amy E. Hood Amy E. Hood | Executive Vice President (Principal Financial Officer) | |
/s/ Frank H. Brod Frank H. Brod | Corporate Vice President, Finance and Administration; Chief Accounting Officer (Principal Accounting Officer) | |