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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.  )
Filed by the Registrant ☒
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under §240.14a-12
NUANCE COMMUNICATIONS, INC.
(Name of Registrant as Specified In Its Charter)

N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)
Title of each class of securities to which transaction applies:
 
 
Common stock, par value $0.001 per share, of Nuance Communications, Inc.
 
(2)
Aggregate number of securities to which transaction applies:
 
 
As of April 26, 2021, (A) 286,006,139 shares of common stock issued and outstanding, (B) 9,355 shares of common stock underlying outstanding stock options, (C) 5,679,045 shares of common stock issuable upon settlement of restricted stock unit awards, (D) 4,814,774 shares of common stock issuable upon settlement of performance stock unit awards (assuming achievement of relative total shareholder return goals at maximum level and achievement of financial and/or operational goals at target) and (E) 31,735,464 shares of common stock issuable upon conversion of outstanding convertible notes and debentures, to the extent converted in accordance with their terms and after giving effect to shares that must be settled in cash.
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
(A) 286,006,139 shares of common stock multiplied by $56.00, (B) 9,355 shares of common stock underlying outstanding stock options multiplied by $38.8229 (which is the difference between the merger consideration of $56.00 per share and the weighted average exercise price of $17.1771 per share), (C) 5,679,045 shares of common stock issuable upon settlement of restricted stock unit awards multiplied by the merger consideration of $56.00 per share, (D) 4,814,774 shares of common stock issuable upon settlement of performance stock unit awards (assuming achievement of relative total shareholder return goals at maximum level and achievement of financial and/or operational goals at target) multiplied by the merger consideration of $56.00 per share and (E) 31,735,464 shares of common stock issuable upon conversion of outstanding convertible notes and debentures, to the extent converted in accordance with their terms and after giving effect to shares that must be settled in cash, multiplied by $56.00.
 
(4)
Proposed maximum aggregate value of transaction:
 
 
$18,381,546,820.23
 
(5)
Total fee paid:
 
 
$2,005,426.76. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was calculated by multiplying 0.0001091 by the proposed maximum aggregate value of the transaction of $18,381,546,820.23.
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)
Amount Previously Paid:
 
 
 
 
(2)
Form, Schedule or Registration Statement No.:
 
 
 
 
(3)
Filing Party:
 
 
 
 
(4)
Date Filed:
 
 
 

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MERGER PROPOSAL — YOUR VOTE IS VERY IMPORTANT
[•], 2021
Dear Nuance Stockholders,
It is my pleasure to invite you to a special meeting of stockholders, which we refer to as the special meeting, of Nuance Communications, Inc., which we refer to as Nuance, to be held on [•], 2021, at [•], Eastern time.
Due to the public health impact of the coronavirus (COVID-19) and to support the well-being of our employees and stockholders, Nuance will hold the special meeting virtually via the Internet at www.virtualshareholdermeeting.com/NUAN2021SM. You will not be able to attend the special meeting physically in person. For purposes of attendance at the special meeting, all references in this proxy statement to “present in person” or “in person” shall mean virtually present at the special meeting.
At the special meeting, you will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time), dated as of April 11, 2021, which we refer to as the merger agreement, by and among Nuance, Microsoft Corporation, which we refer to as Microsoft, and Big Sky Merger Sub Inc., which we refer to as Sub, a wholly owned subsidiary of Microsoft. Pursuant to the terms and conditions of the merger agreement, Sub will merge with and into Nuance, with Nuance surviving the merger as a wholly owned subsidiary of Microsoft, which we refer to as the merger. You also will be asked to consider and vote on a proposal to approve, by means of a non-binding, advisory vote, compensation that will or may become payable to the named executive officers of Nuance in connection with the merger.
If the merger is completed, you will be entitled to receive $56.00 in cash, without interest, for each share of our common stock, par value $0.001, which we refer to as Nuance common stock, you own (unless you have properly exercised your appraisal rights with respect to such shares), which represents a premium of (i) approximately 22.9% to Nuance’s closing stock price on April 9, 2021, the last trading day prior to the announcement of the merger, (ii) approximately 28.4% to the volume weighted average stock price of Nuance common stock during the 30 days ended April 9, 2021 and (iii) approximately 10.9% to the highest closing stock price of Nuance common stock during the 52-week period ended April 9, 2021.
The receipt of cash in exchange for shares of Nuance common stock pursuant to the merger will generally be a taxable transaction to “U.S. holders” (as defined in the accompanying proxy statement) for United States federal income tax purposes. For a more complete description, see the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page [54] of the accompanying proxy statement.
The Nuance Board of Directors, after considering the reasons more fully described in this proxy statement and after consultation with independent legal and financial advisors, unanimously determined that it is in the best interests of Nuance and its stockholders to enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement, upon the terms and subject to the conditions set forth therein and declared the merger agreement advisable and approved the execution and delivery of the merger agreement by Nuance, the performance by Nuance of its covenants and other obligations thereunder and the consummation of the merger upon the terms and conditions set forth therein. The Nuance Board of Directors recommends that you vote:
(i)
“FOR” the proposal to adopt the merger agreement, thereby approving the merger and the other transactions contemplated by the merger agreement; and
(ii)
“FOR” the proposal to approve, by means of a non-binding, advisory vote, compensation that will or may become payable to the named executive officers of Nuance in connection with the merger.
The enclosed proxy statement provides detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Annex A to the proxy statement. The proxy statement also describes the actions and determinations of our Board of Directors in connection with its evaluation of the merger agreement and the merger. We encourage you to read the proxy statement and its annexes, including the

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merger agreement, carefully and in their entirety. You may also obtain more information about Nuance from documents we file with the U.S. Securities and Exchange Commission, which we refer to as the SEC, from time to time.
Whether or not you plan to attend the special meeting virtually, please complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the Internet or by telephone. TO FACILITATE THE TIMELY RECEIPT OF YOUR PROXY DESPITE ANY POTENTIAL SYSTEMS DISRUPTION DUE TO COVID-19, WE ENCOURAGE YOU TO VOTE BY TELEPHONE OR INTERNET TODAY. If you attend the special meeting and vote in person by virtual ballot, your vote by virtual ballot will revoke any proxy previously submitted. If you hold your shares in “street name,” you should instruct your broker, bank or other nominee how to vote your shares in accordance with the voting instruction form you will receive from your broker, bank or other nominee. Your broker, bank or other nominee cannot vote on any of the proposals, including the proposal to adopt the merger agreement, without your instructions.
Your vote is very important, regardless of the number of shares that you own. We cannot complete the merger unless the proposal to adopt the merger agreement is approved by the affirmative vote of a majority of the shares of Nuance common stock outstanding and entitled to vote thereon. The failure of any stockholder to vote by virtual ballot, to submit a signed proxy card or to grant a proxy electronically over the Internet or by telephone will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement. If you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.
If you have any questions or need assistance voting your shares of Nuance common stock, please call Nuance’s proxy solicitor in connection with the Special Meeting:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Stockholders may call toll-free from the U.S. or Canada: (877) 750-0854
From other locations please dial: +1 (412) 232-3651
Banks and Brokers may call collect: (212) 750-5833
On behalf of our Board of Directors, I thank you for your support and appreciate your consideration of this matter.
 
Sincerely,
 
Mark Benjamin
 
Chief Executive Officer
Neither the SEC nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the merger, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.
The accompanying proxy statement is dated [•], 2021 and, together with the enclosed form of proxy card, is first being mailed to Nuance stockholders on or about [•], 2021.

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [•], 2021
NOTICE IS HEREBY GIVEN that a special meeting of stockholders, which we refer to as the special meeting, of Nuance Communications, Inc., which we refer to as Nuance, will be held:
TIME AND DATE:
[•], Eastern time, on [•], 2021
 
 
 
PLACE:
Due to the public health impact of the coronavirus (COVID-19) and to support the well-being of our employees and stockholders, Nuance will hold the special meeting virtually via the Internet at www.virtualshareholdermeeting.com/NUAN2021SM. You will not be able to attend the special meeting physically in person. For purposes of attendance at the special meeting, all references in this proxy statement to “present in person” or “in person” shall mean virtually present at the special meeting.
 
 
 
ITEMS OF BUSINESS:
1.
To consider and vote on the proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time), dated as of April 11, 2021, which we refer to as the merger agreement, by and among Nuance, Microsoft Corporation, which we refer to as Microsoft, and Big Sky Merger Sub Inc., which we refer to as Sub, a wholly owned subsidiary of Microsoft, a copy of which is attached as Annex A to the proxy statement accompanying this notice, which proposal we refer to as the merger proposal; and
 
2.
To consider and vote on the proposal to approve, by means of a non-binding, advisory vote, compensation that will or may become payable to the named executive officers of Nuance in connection with the merger, which proposal we refer to as the merger-related compensation proposal.
 
 
 
ADJOURNMENTS AND POSTPONEMENTS:
Any action on the items of business described above may be considered at the special meeting or at any time and date to which the special meeting may be properly adjourned or postponed.
 
 
 
RECORD DATE:
Stockholders of record at the close of business on [•], 2021, which we refer to as the record date, are entitled to notice of, and to vote at, the special meeting and at any adjournments or postponements thereof.
 
 
 
INSPECTION OF LIST OF STOCKHOLDERS OF RECORD:
A list of stockholders of record will be available for inspection at the virtual meeting website during the special meeting.
 
 
 
VOTING:
Whether or not you plan to attend the special meeting virtually, we urge you to vote your shares via the toll-free telephone number or over the Internet as described on your proxy card or voting instructions form. You may also sign, date and mail the proxy card or voting form in the prepaid envelope provided.

TO FACILITATE THE TIMELY RECEIPT OF YOUR PROXY DESPITE ANY POTENTIAL SYSTEMS DISRUPTION DUE TO COVID-19, WE ENCOURAGE YOU TO VOTE BY TELEPHONE OR INTERNET TODAY. Submitting a proxy now will not prevent you from being able to vote in person by virtual ballot at the special meeting.
 
 
 

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IMPORTANT INFORMATION:
Your vote is very important to us. The merger contemplated by the merger agreement, which we refer to as the merger, is conditioned on the receipt of, and we cannot consummate the merger unless the merger proposal receives, the affirmative vote of a majority of the shares of Nuance’s common stock, par value $0.001, which we refer to as Nuance common stock, outstanding and entitled to vote thereon.

The affirmative vote of a majority of the shares of Nuance common stock outstanding and entitled to vote thereon is required to approve the merger proposal. The affirmative vote of a majority of the voting power of the shares of Nuance common stock entitled to vote which are present, in person or by proxy, and voting at the special meeting, provided a quorum is present, is required to approve, by means of a non-binding, advisory vote, the merger-related compensation proposal.

The failure of any stockholder of record to submit a signed proxy card or grant a proxy electronically over the Internet or by telephone or to vote in person by virtual ballot at the special meeting will have the same effect as a vote “AGAINST” the merger proposal. If you hold your shares in “street name,” the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote “AGAINST” the merger proposal but will not have any effect on the merger-related compensation proposal. Abstentions will have the same effect as a vote “AGAINST” the merger proposal, but will not have any effect on the merger-related compensation proposal.

Stockholders who do not vote in favor of the merger proposal will have the right to seek appraisal of the fair value of their shares of Nuance common stock, as determined in accordance with Delaware law, if they deliver a demand for appraisal before the vote is taken on the merger proposal and comply with all applicable requirements under Delaware law, which are summarized herein and reproduced in their entirety in Annex B to the accompanying proxy statement.

The Board of Directors recommends that you vote (i) “FOR” the merger proposal and (ii) “FOR” the merger-related compensation proposal.
Burlington, Massachusetts
[•], 2021
By Order of the Board of Directors,
 
Wendy Cassity
Secretary

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YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING VIRTUALLY, WE URGE YOU TO VOTE YOUR SHARES VIA THE TOLL-FREE TELEPHONE NUMBER OR OVER THE INTERNET AS DESCRIBED IN THE PROXY MATERIALS. YOU MAY ALSO SIGN, DATE AND MAIL THE PROXY CARD IN THE PREPAID ENVELOPE PROVIDED. TO FACILITATE THE TIMELY RECEIPT OF YOUR PROXY DESPITE ANY POTENTIAL SYSTEMS DISRUPTION DUE TO COVID-19, WE ENCOURAGE YOU TO VOTE BY TELEPHONE OR INTERNET TODAY. You may revoke your proxy or change your vote at any time before the special meeting. If your shares are held in the name of a broker, bank or other nominee, please follow the instructions on the voting instruction card furnished to you by such broker, bank or other nominee, which is considered the stockholder of record, in order to vote. As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares in your account. Your broker, bank or other nominee cannot vote on any of the proposals, including the proposal to adopt the merger agreement, without your instructions.
If you fail to return your proxy card, to grant your proxy electronically over the Internet or by telephone, or to vote by virtual ballot in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. If you are a stockholder of record, voting in person by virtual ballot at the special meeting will revoke any proxy that you previously submitted. If you hold your shares through a broker, bank or other nominee, you must obtain from the record holder a valid proxy issued in your name in order to vote in person at the special meeting.
We encourage you to read the accompanying proxy statement, including all documents incorporated by reference into the accompanying proxy statement, and annexes to the accompanying proxy statement, carefully and in their entirety. If you have any questions concerning the merger, the special meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of common stock, please contact our proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Stockholders may call toll-free from the U.S. or Canada: (877) 750-0854
From other locations please dial: +1 (412) 232-3651
Banks and Brokers may call collect: (212) 750-5833

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PROXY SUMMARY
This summary highlights selected information from this proxy statement related to the merger (as defined below). This summary may not contain all of the information that is important to you. To understand the merger more fully and for a more complete description of the legal terms of the merger, you should read carefully this entire proxy statement, the annexes to this proxy statement, including the merger agreement (as defined below), and the documents incorporated by reference in this proxy statement. You may obtain the documents and information incorporated by reference in this proxy statement without charge by following the instructions under the section entitled “Where You Can Find More Information” beginning on page [87]. The merger agreement is attached as Annex A to this proxy statement. We encourage you to read the merger agreement, which is the legal document that governs the merger, carefully and in its entirety.
Except as otherwise specifically noted in this proxy statement or as the context otherwise requires, “Nuance,” the “Company,” “we,” “our,” “us” and similar words in this proxy statement refer to Nuance Communications, Inc. including, in certain cases, its subsidiaries. Throughout this proxy statement we refer to Microsoft Corporation, a Washington corporation, as “Microsoft” and to Big Sky Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Microsoft, as “Sub”. In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger (as it may be amended from time to time), dated as of April 11, 2021, by and among Nuance, Microsoft and Sub, as the “merger agreement”. All references to the “merger” refer to the merger of Sub with and into Nuance with Nuance surviving as a wholly owned subsidiary of Microsoft. Nuance, following completion of the merger, is sometimes referred to in this proxy statement as the “surviving corporation”.
Parties Involved in the Merger (page [25])
Nuance Communications, Inc.
Nuance is a technology pioneer and market leader in conversational artificial intelligence, which we refer to as AI, and ambient clinical intelligence. Nuance delivers intuitive solutions that understand, analyze, and respond to people - amplifying their ability to help others with increased productivity and security. Nuance works with thousands of organizations globally across healthcare, financial services, telecommunications, government and retail - to create stronger relationships and better experiences for their customers and workforce. Nuance offers its customers a wide range of products and services, including clinical documentation, solutions for clinicians, radiologists and care teams, as well as intelligent customer engagement and security biometric solutions for leading brands. In addition, Nuance’s solutions increasingly utilize its innovations in AI, including cognitive sciences and machine learning to create smarter, more natural experiences with technology. Using advanced analytics and algorithms, Nuance’s technologies create personalized experiences and transform the way people interact with information and the technology around them. Nuance markets and sells its solutions and technologies around the world directly through a dedicated sales force and a global network of resellers, including system integrators, independent software vendors, value-added resellers, distributors, hardware vendors, telecommunications carriers and e-commerce websites.
Nuance’s principal executive offices are located at 1 Wayside Road, Burlington, Massachusetts 01803.
Nuance was incorporated under the laws of the State of Delaware in 1992. Nuance common stock, par value $0.001 per share, which we refer to as Nuance common stock, is currently listed on the Nasdaq Global Select Market, which we refer to as Nasdaq, under the symbol “NUAN.”
Additional information about Nuance and its subsidiaries is included in documents incorporated by reference in this proxy statement (see the section entitled “Where You Can Find More Information” beginning on page [87]) and on its website: www.nuance.com. The information provided or accessible through Nuance’s website is not part of, or incorporated by reference in, this proxy statement.
Microsoft Corporation
Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more, and is a leader in enabling digital transformation for the era of an intelligent cloud and intelligent edge. Founded in 1975, Microsoft operates worldwide and has offices in more than 100 countries. Microsoft develops and supports a wide range of software products, services, devices and solutions that deliver new opportunities, greater convenience, and enhanced value to people’s lives. Microsoft offers an array of
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services, including cloud-based solutions, that provide customers with software, services, platforms, and content. Microsoft’s products include operating systems, cross-device productivity applications, server applications, business solution applications, desktop and server management tools, software development tools, and games. Microsoft also designs, manufactures, and sells devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.
Microsoft’s principal executive offices are located at One Microsoft Way, Redmond, WA 98052. Microsoft’s common stock is listed on Nasdaq under the symbol “MSFT.”
Additional information about Microsoft and its subsidiaries is included in documents filed by Microsoft with the SEC and on its website: www.microsoft.com. The information provided or accessible through Microsoft’s website or filed by Microsoft with the SEC are not part of, or incorporated by reference in, this proxy statement.
Big Sky Merger Sub Inc.
Sub is a Delaware corporation and a wholly owned subsidiary of Microsoft, formed on April 7, 2021, solely for the purpose of engaging in the merger and the other transactions as contemplated under the merger agreement. Upon completion of the merger, Sub will cease to exist.
Certain Effects of the Merger on Nuance (page [26])
Upon the terms and subject to the conditions of the merger agreement and in accordance with the applicable provisions of the Delaware General Corporation Law, which we refer to as the DGCL, on the closing date and at the time at which the merger will become effective, which we refer to as the effective time, Sub will merge with and into Nuance, with Nuance continuing as the surviving corporation and a wholly owned subsidiary of Microsoft. As a result of the merger, Nuance will cease to be a publicly traded company. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation.
Effect on Nuance if the Merger is Not Completed (page [26])
If the merger agreement is not adopted by Nuance stockholders or if the merger is not completed for any other reason, Nuance stockholders will not receive any payment for their shares of Nuance common stock. Instead, Nuance will remain an independent public company, Nuance common stock will continue to be listed and traded on Nasdaq and registered under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and Nuance will continue to file periodic reports with the U.S. Securities and Exchange Commission, which we refer to as the SEC.
Under certain specified circumstances, Nuance will be required to pay Microsoft a termination fee upon the termination of the merger agreement, as described under the section entitled “Terms of the Merger Agreement —Termination Fee” beginning on page [75].
Merger Consideration (page [60])
If the merger is completed, at the effective time, and without any action on the part of the holder, each share of Nuance common stock issued and outstanding immediately prior to the effective time (other than shares of Nuance common stock (i) held by Nuance as treasury stock, (ii) owned by Microsoft or Sub or any of their respective direct or indirect wholly owned subsidiaries and (iii) held by stockholders who have neither voted in favor of adoption of the merger agreement nor consented thereto in writing and who have properly and validly exercised their statutory rights of appraisal in respect of such shares in accordance with Section 262 of the DGCL, in each case immediately prior to the effective time), and certain equity awards, the treatment of which is described under the sections entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Interests of the Non-Employee Directors and Executive Officers of Nuance in the Merger — Treatment of Equity Compensation” and “Terms of the Merger Agreement — Conversion of Shares — Treatment of Equity Compensation” beginning on pages [49] and [60], respectively, will be converted into the right to receive $56.00 per share in cash, without interest, which we refer to as the merger consideration, less any applicable withholding taxes. All shares, when so converted at the effective time into the right to receive the merger consideration, will automatically be canceled and will cease to exist.
As described under the section entitled “Terms of the Merger Agreement — Exchange and Payment Procedures” beginning on page [62], at or promptly following the effective time, Microsoft will deposit or cause to be
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deposited with a designated paying agent (as defined herein) a cash amount in immediately available funds sufficient in the aggregate for the payment of the merger consideration.
After the merger is completed, under the terms and conditions of the merger agreement, you will have the right to receive the per share merger consideration, but you no longer will have any rights as a Nuance stockholder as a result of the merger (except for the right to receive the per share merger consideration and except that stockholders who properly exercise and perfect, and do not validly withdraw or subsequently lose, their demand for appraisal will instead have such rights as granted by Section 262 of the DGCL, as described under the section entitled “Appraisal Rights” beginning on page [80]).
The Special Meeting (page [21])
Date, Time and Place
The special meeting of our stockholders, which we refer to as the special meeting, will be held on [•], 2021, at [•], Eastern time.
Due to the public health impact of the coronavirus (COVID-19) and to support the well-being of our employees and stockholders, Nuance will hold the special meeting virtually via the Internet at www.virtualshareholdermeeting.com/NUAN2021SM. You will not be able to attend the special meeting physically in person. For purposes of attendance at the special meeting, all references in this proxy statement to “present in person” or “in person” shall mean virtually present at the special meeting.
Purpose
At the special meeting, we will ask our stockholders of record as of the close of business on [•], 2021, which we refer to as the record date, to consider and vote on the following proposals:
the adoption of the merger agreement, a copy of which is attached as Annex A to the proxy statement accompanying this notice, which we refer to as the merger proposal; and
the approval, by means of a non-binding, advisory vote, of compensation that will or may become payable to the named executive officers of Nuance in connection with the merger, which we refer to as the merger-related compensation proposal.
Record Date; Shares Entitled to Vote
You are entitled to vote at the special meeting if you owned shares of Nuance common stock as of the close of business on the record date. You will have one vote at the special meeting for each share of Nuance common stock you owned as of the close of business on the record date.
Quorum
The holders of a majority of Nuance common stock issued and outstanding and entitled to vote at the special meeting, present in person or represented by proxy, constitutes a quorum at the special meeting. As of the close of business on the record date, there were [•] shares of Nuance common stock issued and outstanding and entitled to vote. If you submit a properly executed proxy by mail, telephone or the Internet, you will be considered a part of the quorum. In addition, abstentions will be counted for purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum. As a result, [•] shares of Nuance common stock must be represented in person or by proxy to have a quorum. If a quorum is not present, the special meeting may be adjourned by the chairman of the meeting pursuant to the authority granted in Nuance’s bylaws until a quorum is obtained, subject to the terms of the merger agreement.
Required Vote
The affirmative vote of a majority of the shares of Nuance common stock outstanding and entitled to vote thereon is required to approve the merger proposal, which we refer to as stockholder approval. This means that the proposal will be approved if the number of shares voted “FOR” that proposal is greater than 50% of the total number of the votes that can be cast in respect of our outstanding shares of common stock. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the merger proposal.
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The affirmative vote of a majority of the voting power of the shares of Nuance common stock entitled to vote which are present, in person or by proxy, and voting at the special meeting, provided a quorum is present, is required to approve, by means of a non-binding, advisory vote, the merger-related compensation proposal. This means that the proposal will be approved if the number of shares voted “FOR” that proposal is greater than 50% of the total number of shares of Nuance common stock entitled to vote which are present, in person or by proxy, and vote at the special meeting, provided a quorum is present. Abstentions and broker non-votes will not have any effect on the merger-related compensation proposal.
Share Ownership of Nuance Directors and Executive Officers
As of the close of business on the record date, Nuance directors and executive officers beneficially owned and were entitled to vote, in the aggregate, [•] shares of Nuance common stock (excluding any shares of Nuance common stock that would be delivered upon exercise or conversion of stock options or other equity-based awards), which represented approximately [•]% of the outstanding shares of Nuance common stock on that date.
It is expected that Nuance’s directors and executive officers will vote all of their shares “FOR” the merger proposal and “FOR” the merger-related compensation proposal, although none of them has entered into any agreement requiring them to do so.
Voting of Proxies
Any Nuance stockholder of record entitled to vote at the special meeting may submit a proxy by returning a signed and dated proxy card by mail, in the accompanying prepaid reply envelope, or voting electronically over the Internet or by telephone or may vote in person by appearing at the special meeting. If your shares are held in a brokerage account at a brokerage firm, bank, broker-dealer, or similar organization, then you are the “beneficial owner” of shares held in “street name,” and you should instruct your broker, bank or other nominee on how you wish to vote your shares of Nuance common stock using the instructions provided by your broker, bank or other nominee. Under applicable stock exchange rules, if you fail to instruct your broker, bank or other nominee on how to vote your shares, your broker, bank or other nominee only has discretion to vote your shares on discretionary matters. Each of the merger proposal and the merger-related compensation proposal are non-discretionary matters, and brokers, banks and other nominees therefore cannot vote on these proposals without your instructions. Therefore, it is important that you cast your vote or instruct your broker, bank or other nominee on how you wish to vote your shares.
If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the special meeting by submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy, signing another proxy card with a later date and returning it to us prior to the special meeting or attending the special meeting and voting in person. Proxies submitted electronically over the Internet or by telephone must be received by 11:59 p.m., Eastern Time, on [•], 2021. If you hold your shares of Nuance common stock in “street name,” you should contact your broker, bank or other nominee for instructions regarding how to change your vote.
Recommendation of Our Board of Directors and Reasons for the Merger (page [35])
The Nuance Board of Directors, after considering various factors described under the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Recommendation of Our Board of Directors” beginning on page [35] and after consultation with independent legal and financial advisors, unanimously (i) determined that it is in the best interests of Nuance and its stockholders to enter into the merger agreement and consummate the merger upon the terms and subject to the conditions set forth therein and declared the merger agreement advisable; (ii) approved the execution and delivery of the merger agreement by Nuance, the performance by Nuance of its covenants and other obligations thereunder, and the consummation of the merger upon the terms and conditions set forth therein; (iii) directed that the adoption of the merger agreement be submitted to a vote at a meeting of the stockholders of Nuance and (iv) resolved to recommend that Nuance stockholders vote in favor of adoption of the merger agreement in accordance with the DGCL.
The Nuance Board of Directors unanimously recommends that you vote (i) “FOR” the merger proposal and (ii) “FOR” the merger-related compensation proposal.
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Opinion of Nuance’s Financial Advisor (page [39])
Opinion of Evercore Group L.L.C.
Nuance retained Evercore Group L.L.C., which we refer to as Evercore, to act as its financial advisor in connection with the merger. As part of this engagement, Nuance requested that Evercore evaluate the fairness, from a financial point of view, of the merger consideration to be received by the holders of Nuance common stock. At a meeting of the Nuance Board of Directors held on April 9, 2021, Evercore rendered to the Nuance Board of Directors its opinion to the effect that, as of April 9, 2021 and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s opinion, the merger consideration of $56.00 per share to be received by the holders of Nuance common stock in the merger was fair, from a financial point of view, to such holders.
The full text of the written opinion of Evercore, dated April 9, 2021, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex C to this proxy statement and is incorporated herein by reference. Nuance encourages you to read this opinion carefully and in its entirety. Evercore’s opinion was addressed to, and provided for the information and benefit of, the Nuance Board of Directors (in its capacity as such) in connection with its evaluation of the proposed merger. The opinion does not constitute a recommendation to the Nuance Board of Directors or to any other persons in respect of the merger, including as to how any holder of shares of Nuance common stock should vote or act in respect of the merger. Evercore’s opinion does not address the relative merits of the merger as compared to other business or financial strategies that might be available to Nuance, nor does it address the underlying business decision of Nuance to engage in the merger.
For a more complete description, see the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Opinion of Nuance’s Financial Advisor — Opinion of Evercore Group L.L.C.” beginning on page [39].
Financing of the Merger (page [54])
The merger is not conditioned on Microsoft’s ability to obtain financing. Microsoft has represented to Nuance that it has available and will have available at the effective time the funds necessary to pay the aggregate merger consideration, including (i) payments to Nuance’s stockholders of the amounts due under the merger agreement and (ii) payments in respect of certain of Nuance’s outstanding equity awards pursuant to the merger agreement.
Treatment of Equity Compensation (page [49])
Pursuant to our equity incentive plans, we have granted equity awards with respect to Nuance common stock in the form of stock options and stock units. Our executive officers hold restricted stock units, which we refer to as RSUs, and performance stock units, which we refer to as PSUs, and our non-employee directors hold RSUs and deferred stock units, which we refer to as DSUs. Our executive officers and non-employee directors do not hold stock options. The merger agreement provides for the treatment set forth below with respect to outstanding equity awards:
Stock Options
Each stock option that is outstanding as of immediately prior to the effective time will, at the effective time, be cancelled and converted into the right to receive the merger consideration for each share of Nuance common stock that would have been issuable upon exercise of the option, less the exercise price of the option and any applicable withholding taxes. If the exercise price of a stock option is equal to or greater than the merger consideration, the option will be cancelled as of the effective time for no consideration.
Stock Units
Each award of stock units that is outstanding and vested immediately prior to the effective time or that will become vested by its terms at the effective time and, in each case, by its terms is to be settled upon the occurrence of vesting or the effective time will, as of the effective time, be deemed to be vested and will be cancelled and converted into the right to receive the merger consideration with respect to each share of Nuance common stock subject to the award, less any applicable withholding taxes.
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Each outstanding and unvested award of stock units will, as of the effective time, be converted into a stock-based award of Microsoft, which we refer to as a Rollover RSU, as follows:
Each RSU will be converted into a Rollover RSU that is subject to the same time-based vesting schedule as the RSU.
Each PSU will be converted into a Rollover RSU that, following the effective time, will vest based solely on time at the conclusion of the original performance period of the PSU.
The number of shares of common stock of Microsoft subject to each Rollover RSU will be equal to the product (rounded down to the nearest whole share) of the number of Nuance shares of common stock subject to the corresponding RSU or PSU as of immediately prior to the effective time, multiplied by a specified exchange ratio (see below). The number of Nuance shares of common stock subject to each PSU immediately prior to the effective time will be determined based on (i) maximum performance, for any PSU that was subject to relative total shareholder return performance goals, and (ii) target performance, for any PSU that was subject to financial and/or operational performance goals. For each PSU that is subject to relative total shareholder return performance goals, Nuance is currently performing at a level that would result in maximum performance payout.
Notwithstanding the treatment of awards of outstanding and unvested stock units described above, Microsoft may elect to treat some or all of the awards as if they were vested (i.e., by cancelling and converting an award into the right to receive the merger consideration with respect to each share of Nuance common stock subject to the award, less any applicable withholding taxes).
If the treatment described above of an award of stock units held by a non-U.S. employee would be prohibited or subject to onerous regulatory requirements or adverse tax treatment under the laws of the applicable jurisdiction (as reasonably determined by Microsoft in consultation with Nuance), Microsoft will provide compensation to the employee that is equivalent in value to the value that otherwise would have been provided to the employee under the treatment described above, to the extent practicable and as would not result in the imposition of additional taxes under section 409A of the Internal Revenue Code. This compensation will be provided in the form of a cash payment (less any applicable taxes) or a new equity award, as reasonably determined by Microsoft in consultation with Nuance.
For purposes of the conversion of Nuance stock units described above, the “exchange ratio” is defined as a fraction, the numerator of which is the merger consideration and the denominator of which is the volume weighted average price per share rounded to four decimal places (with amounts 0.00005 and above rounded up) of Microsoft common stock on Nasdaq for the five consecutive trading days ending with the last trading day immediately prior to the closing.
Employee Stock Purchase Plan
In accordance with the terms of Nuance’s Amended and Restated 1995 Employee Stock Purchase Plan, which we refer to as the ESPP, no ESPP participant in the current offering period, which began on February 16, 2021, may increase his or her payroll contribution rate or make separate non-payroll contributions, and no new participants may enroll in the current offering period. In connection with the transaction with Microsoft, Nuance will take all actions necessary to provide that:
if the closing occurs prior to August 13, 2021, which is the last day of the current offering period:
cause the current offering period to terminate no later than five business days prior to the closing date;
make any pro-rata adjustments necessary to reflect the shortened offering period; and
cause the exercise (as of no later than one business day before the effective time) of each outstanding purchase right and apply the funds credited to each participant’s payroll withholding account to the purchase of whole shares of Nuance common stock;
provide that no new offering period or purchase period will commence; and
terminate the ESPP in its entirety, effective as of the effective time.
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Interests of the Non-Employee Directors and Executive Officers of Nuance in the Merger (page [50])
Nuance non-employee directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a stockholder. The Nuance Board of Directors was aware of and considered these interests to the extent such interests existed at the time, among other matters, in evaluating and overseeing the negotiation of the merger agreement, in approving the merger agreement and the merger and in recommending that the merger agreement be adopted by the stockholders of Nuance.
For a more complete description, see the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Interests of the Non-Employee Directors and the Executive Officers of Nuance in the Merger,” beginning on page [50].
Appraisal Rights (page [80])
Any shares of Nuance common stock that are issued and outstanding immediately prior to the effective time and as to which the holders thereof have not voted in favor of the merger proposal and are entitled to demand and properly demand appraisal of such shares of Nuance common stock pursuant to Section 262 of the DGCL and, as of the effective time, have neither failed to perfect, nor effectively withdrawn or lost rights to appraisal under the DGCL, such shares we collectively refer to as the dissenting shares, will not be converted into the right to receive the merger consideration, unless and until such holder will have effectively withdrawn or lost such holder’s right to appraisal under the DGCL, or if a court of competent jurisdiction determines that such holder is not entitled to the relief provided by Section 262 of the DGCL, at which time such shares of Nuance common stock will be treated as if they had been converted into the right to receive, as of the effective time, the merger consideration, less applicable tax withholdings upon surrender of such certificates that formerly represented such shares of Nuance common stock, and such Nuance common stock will not be deemed dissenting shares, and such holder thereof will cease to have any other rights with respect to such Nuance common stock. Each holder of dissenting shares will only be entitled to such consideration as may be due with respect to such dissenting shares pursuant to Section 262 of the DGCL.
To exercise your appraisal rights, you must submit a written demand for appraisal to Nuance before the vote is taken on the merger proposal, you must not submit a blank proxy or otherwise vote in favor of the merger proposal and you must continue to hold the shares of Nuance common stock of record through the effective time. Your failure to follow the procedures specified under the DGCL may result in the loss of your appraisal rights. The DGCL requirements for exercising appraisal rights are described in further detail in this proxy statement, and the relevant section of the DGCL regarding appraisal rights is reproduced and attached as Annex B to this proxy statement. If you hold your shares of Nuance common stock through a broker, bank or other nominee and you wish to exercise appraisal rights, you should consult with your broker, bank or other nominee to determine the appropriate procedures for the making of a demand for appraisal by such broker, bank or other nominee. Stockholders should refer to the discussion under the section entitled “Appraisal Rights” beginning on page [80] and the DGCL requirements for exercising appraisal rights reproduced and attached as Annex B to this proxy statement.
U.S. Federal Income Tax Consequences of the Merger (page [54])
The exchange of Nuance common stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. holder (as defined herein) of Nuance common stock who exchanges shares of Nuance common stock for cash in the merger generally will recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares. If you are a non-U.S. holder, the merger generally will not result in tax to you under U.S. federal income tax laws unless you have certain connections with the United States.
This proxy statement contains a general discussion of U.S. federal income tax consequences of the merger. This description does not address any non-U.S. tax consequences, nor does it pertain to state, local or other tax consequences. Consequently, you are urged to contact your own tax advisor to determine the particular tax consequences to you of the merger.
Regulatory Approvals (page [56])
Under the merger agreement, the merger cannot be completed until (1) the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act, has expired or been terminated; and (2) the approval or clearance of the merger has been granted under the antitrust and foreign investment laws of certain specified countries.
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No Solicitation of Other Offers (page [67])
Under the merger agreement, from the date of the merger agreement until the effective time of the merger (or the earlier termination of the merger agreement), Nuance has agreed to cease and cause to be terminated any discussions or negotiations with and terminate any data room or other diligence access of any person, its affiliates and its representatives (as defined below) relating to an acquisition transaction (as defined under the section of this proxy statement captioned “Terms of the Merger Agreement — No Solicitation of Other Offers”) and to request any person who executed a confidentiality agreement in connection with its consideration of acquiring Nuance to promptly return or destroy any non-public information furnished by or on behalf of Nuance prior to the date of the merger agreement.
Under the merger agreement, from the date of the merger agreement until the effective time of the merger (or the earlier termination of the merger agreement), Nuance has agreed to not, and to not authorize or direct, as the case may be, its subsidiaries and its and their respective affiliates, directors, officers, employees, consultants, agents, representatives and advisors, whom we collectively refer to as “representatives,” to, among other things: (1) solicit, initiate, propose or induce the making, submission or announcement of, or knowingly encourage, facilitate or assist, any proposal, offer or inquiry that constitutes, or is reasonably expected to lead to, an acquisition proposal (as defined under the section of this proxy statement captioned “The Merger Agreement — No Solicitation of Other Offers”); (2) furnish or otherwise provide access to any non-public information regarding, or to the business, properties, assets, books, records or personnel of, Nuance or its subsidiaries to any person in connection with or with the intent to induce the making, submission or announcement of, or knowingly encourage, facilitate or assist, an acquisition proposal or any inquiries or the making of any proposal that would reasonably be expected to lead to an acquisition proposal; (3) participate or engage in discussions or negotiations with any person with respect to an acquisition proposal or with respect to any inquiries from third parties relating to making a potential acquisition proposal; (4) approve, endorse or recommend any proposal that constitutes, or is reasonably expected to lead to, an acquisition proposal; (5) enter into any letter of intent, memorandum of understanding, merger agreement, expense reimbursement agreement, acquisition agreement or other contract relating to an acquisition transaction (as defined under the section of this proxy statement captioned “Terms of the Merger Agreement — No Solicitation of Other Offers”); or (6) authorize or commit to do any of the foregoing.
Notwithstanding these restrictions, under certain circumstances prior to the adoption of the merger agreement by Nuance stockholders, Nuance may furnish information to, and enter into negotiations or discussions with, a person regarding a bona fide written acquisition proposal that did not result from a breach of Nuance’s non-solicitation obligations under the merger agreement if the Nuance Board of Directors determines in good faith after consultation with its financial advisor and its outside legal counsel that (1) such proposal constitutes or is reasonably likely to lead to a superior proposal (as defined in “Terms of the Merger Agreement — No Solicitation of Other Offers”); and (2) failure to do so would be inconsistent with its fiduciary duties pursuant to applicable law. For more information, see the section of this proxy statement captioned “Terms of the Merger Agreement — No Solicitation of Other Offers.”
Nuance is not entitled to terminate the merger agreement to enter into an agreement for a superior proposal unless it complies with certain procedures in the merger agreement, including engaging in good faith negotiations with Microsoft during a specified period. If Nuance terminates the merger agreement in order to accept a superior proposal, it must pay a $515 million termination fee to Microsoft. For more information, see the section of this proxy statement captioned “Terms of the Merger Agreement — The Recommendation of the Nuance Board of Directors; Company Board Recommendation Change.”
Change in the Recommendation of the Nuance Board of Directors (page [69])
The Nuance Board of Directors may not withdraw its recommendation that Nuance stockholders adopt the merger agreement or take certain similar actions other than, under certain circumstances, if it determines in good faith, after consultation with its financial advisor and outside legal counsel, that failure to do so would be inconsistent with the fiduciary duties of the Nuance Board of Directors pursuant to applicable law and complies with the provisions of the merger agreement.
However, the Nuance Board of Directors cannot withdraw its recommendation that Nuance stockholders adopt the merger agreement or take certain similar actions unless it complies with certain procedures in the merger agreement, including engaging in good faith negotiations with Microsoft during a specified period. If Microsoft
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terminates the merger agreement because the Nuance Board of Directors withdraws its recommendation that Nuance stockholders adopt the merger agreement or takes certain similar actions, then Nuance must pay a $515 million termination fee to Microsoft. For more information, see the section of this proxy statement captioned “Terms of the Merger Agreement —The Recommendation of the Nuance Board of Directors; Company Board Recommendation Change.”
Conditions to the Closing of the Merger (page [73])
The obligations of Nuance, Microsoft and Sub, as applicable, to consummate the merger are subject to the satisfaction or waiver of certain conditions, including (among other conditions), the following:
the adoption of the merger agreement by the requisite affirmative vote of Nuance stockholders;
the expiration or termination of the applicable waiting period under, or obtaining all requisite consents pursuant to, the HSR Act and the antitrust and foreign investment laws of certain specified countries, without the imposition of a burdensome condition, which we refer to as the regulatory condition;
the consummation of the merger not being restrained, enjoined, rendered illegal or otherwise prohibited by any law or order of any governmental authority or being subject to a burdensome condition imposed by a governmental authority, which we refer to as the injunction condition;
the absence of any Company Material Adverse Effect (as such term is defined in the section of this proxy statement captioned “Terms of the Merger Agreement — Representations and Warranties”) having occurred after the date of merger agreement that is continuing as of the effective time of the merger;
the accuracy of the representations and warranties of Microsoft and Sub in the merger agreement, subject to applicable materiality qualifiers, as of the effective time of the merger or the date in respect of which such representation or warranty was specifically made;
the accuracy of the representations and warranties of Nuance in the merger agreement, subject to applicable materiality qualifiers, as of the effective time of the merger or the date in respect of which such representation or warranty was specifically made;
the performance and compliance in all material respects by Nuance, Microsoft and Sub of and with their respective covenants and obligations required to be performed and complied with by them under the merger agreement at or prior to the effective time of the merger; and
the receipt by Nuance of the written opinion of Paul, Weiss, Rifkind, Wharton & Garrison LLP, as of the date on which the closing occurs, to the effect that, on the basis of the facts, representations, assumptions, limitations and exclusions set forth or referred to in such opinion, the merger will not cause the spin-off of Cerence Inc., which we refer to as Cerence, to fail to qualify for the Cerence spin-off tax treatment.
Termination of the Merger Agreement (page [74])
The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after the adoption of the merger agreement by Nuance stockholders, in the following ways:
by mutual written agreement of Nuance and Microsoft;
by either Nuance or Microsoft if:
(1) a permanent injunction or similar order issued by a court or other legal restraint prohibiting consummation of the merger is in effect, or any action taken by a governmental authority prohibiting the merger has become final and non-appealable; or (2) any statute, regulation or order prohibiting the merger has been enacted (except that a party may not terminate the merger agreement pursuant to this provision if such party’s material breach of any provision of the merger agreement is the primary cause of the failure of the merger to be consummated by the termination date (as defined below));
the merger has not been consummated before 11:59 p.m., Eastern time, on January 31, 2022, which we refer to as the “termination date,” except that (i) if all conditions have been satisfied
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(other than those conditions to be satisfied at the time of closing of the merger) or waived (to the extent permitted by applicable law) by that date but on that date the regulatory condition or the injunction condition (solely with respect to antitrust, competition or foreign investment laws) has not been satisfied, then the termination date shall automatically be extended to 11:59 p.m., Eastern time, on April 30, 2022 and (ii) if all conditions have been satisfied (other than those conditions to be satisfied at the time of closing of the merger) or waived (to the extent permitted by applicable law) by April 30, 2022 but on that date the regulatory condition or the injunction condition (solely with respect to antitrust, competition or foreign investment laws) has not been satisfied, then the termination date shall automatically be extended to 11:59 p.m., Eastern time, on July 31, 2022, but:
a party may not terminate the merger agreement pursuant to this provision if such party’s material breach of any provision of the merger agreement is the primary cause of the failure to consummate the merger by the termination date;
the Nuance stockholders do not adopt the merger agreement at the special meeting (except that a party may not terminate the merger agreement if such party’s material breach of the merger agreement is the primary cause of the failure to obtain the approval of the Nuance stockholders at the special meeting);
by Nuance if:
after a cure period, Microsoft or Sub has breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements in the merger agreement, such that the related closing condition would not be satisfied (but Nuance may not so terminate the merger agreement if its own breach, failure to perform or comply with the merger agreement or inaccuracy of its representations and warranties causes the failure of the closing conditions in respect of Nuance’s performance of its covenants or accuracy of its representations and warranties to have been satisfied);
prior to the adoption of the merger agreement by Nuance stockholders, (1) Nuance has received a superior proposal; (2) the Nuance Board of Directors has authorized Nuance to enter into an agreement to consummate the transaction contemplated by such superior proposal; (3) Nuance pays Microsoft a $515 million termination fee; and (4) Nuance has complied with its non-solicitation obligations under the merger agreement;
by Microsoft if:
after a cure period, Nuance has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements in the merger agreement, such that the related closing condition would not be satisfied (but Microsoft may not so terminate the merger agreement if its own breach, failure to perform or comply with the merger agreement or inaccuracy of its representations and warranties causes the failure of the closing conditions in respect of Microsoft’s performance of its covenants or accuracy of its representations and warranties to have been satisfied); or
the Nuance Board of Directors has effected a company board recommendation change.
Termination Fee (page [75])
Nuance will be required to pay to Microsoft a termination fee of $515 million if the merger agreement is terminated in specified circumstances. For more information, see the section of this proxy statement captioned “Terms of the Merger Agreement — Termination Fee.”
Neither the SEC nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the merger, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.
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QUESTIONS AND ANSWERS
The following questions and answers are intended to address some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a Nuance stockholder. We encourage you to read carefully the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement (including the merger agreement), and the documents we incorporate by reference in this proxy statement. You may obtain the documents and information incorporated by reference in this proxy statement without charge by following the instructions under the section entitled “Where You Can Find More Information” beginning on page [87]. The merger agreement is attached as Annex A to this proxy statement and is incorporated by reference herein.
Q:
Why am I receiving these proxy materials?
A:
On April 11, 2021, Nuance entered into the merger agreement providing for the merger of Sub, with and into Nuance, with Nuance surviving the merger as a wholly owned subsidiary of Microsoft. In order to complete the merger, Nuance stockholders must vote to adopt the merger agreement at the special meeting. The approval of this proposal by our stockholders is a condition to the consummation of the merger. See the section entitled “Terms of the Merger Agreement — Conditions to the Closing of the Merger” beginning on page [73]. The Nuance Board of Directors is furnishing this proxy statement and form of proxy card to the holders of Nuance common stock in connection with the solicitation of proxies in favor of the proposal to adopt the merger agreement and to approve the other proposals to be voted on at the special meeting or any adjournments or postponements thereof. This proxy statement includes information that we are required to provide to you under the rules of the SEC and is designed to assist you in voting on the matters presented at the special meeting. Stockholders of record as of the close of business on [], 2021, which we refer to as the record date, may attend the special meeting and are entitled and requested to vote on the proposals described in this proxy statement.
Q:
What is included in the proxy materials?
A:
The proxy materials include the proxy statement and the annexes to the proxy statement, including the merger agreement, and a proxy card or voting instruction form.
Q:
When and where is the special meeting?
A:
The special meeting will take place on [], 2021, at [], Eastern time. Due to the possible public health impact of the coronavirus (COVID-19) and to support the well-being of our employees and stockholders, Nuance will hold the special meeting virtually via the Internet at the virtual meeting website. The virtual meeting will provide stockholders with the same rights and opportunities to participate as they would have at a physical meeting. You will not be able to attend the special meeting physically in person.
Q:
What is the proposed merger and what effects will it have on Nuance?
A:
The proposed merger is the acquisition of Nuance by Microsoft through the merger of Sub with and into Nuance pursuant to the merger agreement. If the proposal to adopt the merger agreement is approved by the requisite number of shares of Nuance common stock and the other closing conditions under the merger agreement have been satisfied or waived, Sub will merge with and into Nuance, with Nuance continuing as the surviving corporation. As a result of the merger, Nuance will become a wholly-owned subsidiary of Microsoft and you will no longer own shares of Nuance common stock. Nuance expects to delist its common stock from Nasdaq as promptly as practicable after the effective time and deregister its common stock under the Exchange Act as promptly as practicable after such delisting. Thereafter, Nuance will no longer be a publicly traded company.
Q:
What will I receive if the merger is completed?
A:
Upon completion of the merger, you will be entitled to receive the per share merger consideration of $56.00 in cash, without interest and less applicable tax withholdings, for each share of Nuance common stock that you own, unless you have properly exercised and perfected and not withdrawn your demand for, or
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otherwise lost your, appraisal rights under the DGCL with respect to such shares. For example, if you own 100 shares of Nuance common stock, you will receive $5,600.00 in cash, without interest and less any applicable withholding taxes, in exchange for your shares of Nuance common stock. In no case will you own shares in the surviving corporation.
Q:
Who is entitled to vote at the special meeting?
A:
If your shares of Nuance common stock are registered in your name in the records of our transfer agent, American Stock Transfer & Trust Company, LLC, which we refer to as AST, as of the close of business on the record date, you are a “stockholder of record” for purposes of the special meeting and are eligible to attend and vote. If you hold shares of our common stock indirectly through a broker, bank or similar institution, you are not a stockholder of record, but instead hold your shares in “street name” and the record owner of your shares is your broker, bank or similar institution. Instructions on how to vote shares held in street name are described under the question “How do I vote my shares?” below.
Q:
How many votes do I have?
A:
You will have one vote for each share of Nuance common stock owned by you, as a stockholder of record or in street name, as of the close of business on the record date.
Q:
May I attend the special meeting?
A:
Yes. Subject to the requirements described in this proxy statement, all Nuance stockholders as of the close of business on the record date may attend the special meeting virtually via the Internet at the virtual meeting website and complete a virtual ballot, whether or not you sign and return your proxy card. If you are a stockholder of record, you will need your assigned 16-digit control number to vote shares electronically at the special meeting. The control number can be found on the proxy card, voting instruction form, or other applicable proxy notices.
To ensure that your shares will be represented at the special meeting, we encourage you to grant your proxy in advance electronically over the Internet or by telephone (using the instructions provided in the enclosed proxy card), or sign, date and return the enclosed proxy card in the accompanying prepaid reply envelope. If you attend the special meeting and complete a virtual ballot, your vote will revoke any proxy previously submitted. If you held your shares in “street name,” because you are not the stockholder of record, you may not vote your shares at the special meeting unless you request and obtain a valid proxy from your broker, bank or other nominee.
Q.
Will I be able to participate in the virtual meeting on the same basis as I would be able to participate in a physical meeting?
A.
The virtual meeting format for the special meeting will enable full and equal participation by all of our stockholders from any place in the world. We believe that holding the special meeting online will help support the health and well-being of our stockholders and other participants at the special meeting as we navigate the public health impact of the coronavirus (COVID-19).
We designed the format of the virtual meeting to ensure that our stockholders who attend our special meeting will be afforded the same rights and opportunities to participate as they would at a meeting attended physically and to enhance stockholder access, participation and communication through online tools.
Q.
What if during the check-in time or during the meeting I have technical difficulties or trouble accessing the virtual meeting website?
A.
If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the special meeting log in page. If there are any technical issues in convening or hosting the meeting, we will promptly post information to our website, including information on when the meeting will be reconvened.
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Q:
What am I being asked to vote on at the special meeting?
A:
You are being asked to consider and vote on the following proposals:
the adoption of the merger agreement, a copy of which is attached as Annex A to the proxy statement accompanying this notice; and
the approval, by means of a non-binding, advisory vote, of compensation that will or may become payable to the named executive officers of Nuance in connection with the merger.
Q:
How does Nuance’s Board of Directors recommend that I vote?
A:
The Nuance Board of Directors unanimously recommends that you vote
“FOR” the merger proposal; and
“FOR” the merger-related compensation proposal.
The Nuance Board of Directors, after considering various factors described under the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Recommendation of Our Board of Directors” beginning on page [35] and after consultation with independent legal and financial advisors, unanimously (i) determined that it is in the best interests of Nuance and its stockholders to enter into the merger agreement and consummate the merger upon the terms and subject to the conditions set forth therein and declared the merger agreement advisable; (ii) approved the execution and delivery of the merger agreement by Nuance, the performance by Nuance of its covenants and other obligations thereunder, and the consummation of the merger upon the terms and conditions set forth therein; (iii) directed that the adoption of the merger agreement be submitted to a vote at a meeting of the stockholders of Nuance and (iv) resolved to recommend that Nuance stockholders vote in favor of adoption of the merger agreement in accordance with the DGCL.
Q:
How does the per share merger consideration compare to the market price of Nuance common stock prior to the date on which the transaction was announced?
A:
The per share merger consideration represents a premium of (i) approximately 22.9% to Nuance’s closing stock price on April 9, 2021, the last trading day prior to the announcement of the merger, (ii) approximately 28.4% to the volume weighted average stock price of Nuance common stock during the 30 days ended April 9, 2021 and (iii) approximately 10.9% to the highest closing stock price of Nuance common stock during the 52-week period ended April 9, 2021.
Q:
Will Nuance pay a quarterly dividend before the completion of the merger?
A:
We have never declared or paid any cash dividends on our common stock. Under the terms of the merger agreement, from April 11, 2021 until the effective time, Nuance may not declare, set aside or pay any dividend or other distribution (whether in cash, shares or property or any combination thereof) in respect of any shares of capital stock or other equity or voting interest, or make any other actual, constructive or deemed distribution in respect of the shares of capital stock or other equity or voting interest, without Microsoft’s prior written consent. See the section entitled “Terms of the Merger Agreement — Conduct of Business Pending the Merger” beginning on page [65].
Q:
Does Microsoft have the financial resources to complete the merger?
A:
Yes. Microsoft has represented to Nuance in that it has available and will have available at the effective time the funds necessary to pay the aggregate merger consideration, including (i) payments to Nuance’s stockholders of the amounts due under the merger agreement and (ii) payments in respect of certain of Nuance’s outstanding equity awards pursuant to the merger agreement.
For a more complete description of sources of funding for the merger and related costs, see “Proposal 1: Adoption of the Merger Agreement — Financing of the Merger” beginning on page [54].
Q:
What do I need to do now?
A:
We encourage you to read this proxy statement, the annexes to this proxy statement (including the merger agreement), and the documents we refer to in this proxy statement carefully and consider how the merger
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affects you. Then grant your proxy electronically over the Internet or by telephone or complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope, so that your shares can be voted at the special meeting. If you hold your shares in “street name,” please refer to the voting instruction forms provided by your broker, bank or other nominee to vote your shares.
Q:
How do I vote my shares?
A:
For stockholders of record: If you are eligible to vote at the special meeting and are a stockholder of record, you may submit your proxy or cast your vote in any of four ways:
By Internet — If you have Internet access, you may submit your proxy by following the instructions provided with your proxy materials and on your proxy card. Proxies submitted via Internet must be received by 11:59 p.m., Eastern time, on [•], 2021.
By Telephone — You can also submit your proxy by telephone by following the instructions provided with your proxy materials and on your proxy card. Proxies submitted via telephone must be received by 11:59 p.m., Eastern time, on [•], 2021.
By Mail — You may submit your proxy by completing the proxy card enclosed with those materials, signing and dating it and returning it in the prepaid envelope we have provided.
By Virtual Ballot — You may attend the special meeting virtually via the Internet at the virtual meeting website and complete a virtual ballot.
For holders in street name: If you hold your shares in street name and, therefore, are not a stockholder of record, you will need to follow the specific voting instructions provided to you by your broker, bank or other similar institution. If you wish to vote your shares by virtual ballot at our special meeting, you must obtain a valid proxy from your broker, bank or similar institution, granting you authorization to vote your shares.
If you submit your proxy by Internet, telephone or mail, and you do not subsequently revoke your proxy, your shares of Nuance common stock will be voted in accordance with your instructions.
Even if you plan to virtually attend the special meeting, you are strongly encouraged to vote your shares of Nuance common stock by proxy. If you are a stockholder of record or if you obtain a valid proxy to vote shares which you beneficially own, you may still vote your shares of Nuance common stock by virtual ballot at the special meeting even if you have previously voted by proxy. If you are present at the special meeting and vote by virtual ballot, your previous vote by proxy will not be counted.
Q:
Can I change or revoke my proxy?
A:
For stockholders of record: Yes. A proxy may be changed or revoked at any time prior to the vote at the special meeting by submitting a later-dated proxy (including a proxy submitted via the Internet or by telephone) or by giving written notice to our Secretary at our principal executive offices. You may not change your vote over the Internet or by telephone after 11:59 p.m., Eastern time, on [], 2021. You may also attend the special meeting and vote your shares by virtual ballot.
For holders in street name: Yes. You must follow the specific voting instructions provided to you by your broker, bank or other similar institution to change or revoke any instructions you have already provided to them.
Q:
How will my shares be voted if I do not provide specific instructions in the proxy card or voting instructions form that I submit?
A:
If you are a stockholder of record and if you sign, date and return your proxy card but do not provide specific voting instructions, your shares of Nuance common stock will be voted “FOR” the merger proposal and “FOR” the merger-related compensation proposal.
If your shares are held in street name at a broker, bank or similar institution, your broker, bank or similar institution may under certain circumstances vote your shares on “discretionary” matters if you do not timely provide voting instructions in accordance with the instructions provided by them. However, if you do not
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provide timely instructions, your broker, bank or similar institution does not have the authority to vote on any “non-discretionary” proposals at the special meeting and a “broker non-vote” would occur, as explained in the following question and explanation.
Q:
What is “broker discretionary voting”?
A:
If you hold your shares in street name, your broker, bank or other similar institution may be able to vote your shares without your instructions depending on whether the matter being voted on is “discretionary” or “non-discretionary.” Because brokers, banks and other nominee holders of record do not have discretionary voting authority with respect to any of the two proposals, if a beneficial owner of shares of Nuance common stock held in street name does not give voting instructions to the broker, bank or other nominee with respect to any of the proposals, then those shares will not be present in person or represented by proxy at the special meeting. If there are any broker non-votes, then such broker non-votes will have the same effect as a vote “AGAINST” the merger proposal, but will not have any effect on the merger-related compensation proposal. Therefore, it is important that you instruct your broker, bank or other nominee on how you wish to vote your shares.
Q:
I understand that a quorum is required in order to conduct business at the special meeting. What constitutes a quorum?
A:
The holders of a majority of Nuance common stock issued and outstanding and entitled to vote at the special meeting, represented in person or by proxy, constitutes a quorum at the special meeting. As of the close of business on the record date, there were [] shares of Nuance common stock issued and outstanding and entitled to vote. If you submit a properly executed proxy by mail, telephone or the Internet, you will be considered a part of the quorum. In addition, abstentions will be counted for purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum. As a result, [] shares must be represented in person or by proxy to have a quorum. If a quorum is not present, the special meeting may be adjourned by the chairman of the meeting pursuant to the authority granted in Nuance’s bylaws until a quorum is obtained, subject to the terms of the merger agreement.
Q:
What is required to approve the proposals submitted to a vote at the annual meeting?
A:
The merger proposal: The affirmative vote of a majority of the shares of Nuance common stock outstanding and entitled to vote thereon is required to approve the merger proposal. This means that the proposal will be approved if the number of shares voted “FOR” that proposal is greater than 50% of the total number of the votes that can be cast in respect of our outstanding shares of common stock. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the merger proposal.
The merger-related compensation proposal: The affirmative vote of a majority of the voting power of the shares of Nuance common stock entitled to vote which are present, in person or by proxy, and voting at the special meeting, provided a quorum is present, is required to approve, by means of a non-binding, advisory vote, the merger-related compensation proposal. This means that the proposal will be approved if the number of shares voted “FOR” that proposal is greater than 50% of the shares of Nuance common stock entitled to vote which are present, in person or by proxy, and vote at the special meeting, provided a quorum is present. Abstentions and broker non-votes will not have any effect on the merger-related compensation proposal.
Q:
How can I obtain a proxy card or voting instruction form?
A:
If you lose, misplace or otherwise need to obtain a proxy card or a voting instruction form, please follow the applicable procedure below.
For stockholders of record: Please contact our proxy solicitor, Innisfree M&A Incorporated, at (877) 750-0854 from the U.S. or Canada, or at +1 (412) 232-3651 from other locations.
For holders in street name: Please contact your account representative at your broker, bank or other similar institution.
Q:
Why am I being asked to cast a non-binding, advisory vote to approve compensation that will or may become payable by Nuance to its named executive officers in connection with the merger?
A:
SEC rules require Nuance to seek a non-binding, advisory vote to approve compensation that will or may become payable by Nuance to our named executive officers in connection with the merger.
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Q:
What is the compensation that will or may become payable by Nuance to our named executive officers in connection with the merger for purposes of this advisory vote?
A:
The compensation that will or may become payable by Nuance to our named executive officers in connection with the merger is certain compensation that is tied to or based on the merger and payable to certain of Nuance’s named executive officers pursuant to underlying plans and arrangements that are contractual in nature. Compensation that will or may become payable by Microsoft to our named executive officers in connection with the merger is not subject to this advisory vote. For further detail, see the section of this proxy statement captioned “Proposal 3: Advisory, Non-Binding Vote to Approve Certain Merger-Related Executive Compensation Arrangements” beginning on page [77].
Q:
Should I send in my stock certificates now?
A:
No. After the merger is completed, under the terms of the merger agreement, you will receive shortly thereafter the letter of transmittal instructing you to send your stock certificates or surrender your book-entry shares to the paying agent in order to receive the cash payment of the merger consideration for each share of your Nuance common stock represented by the stock certificates or book-entry shares. You should use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled upon completion of the merger. Please do not send in your stock certificates now.
Q:
I do not know where my stock certificates are, how will I get the merger consideration for my shares of Nuance common stock?
A:
If the merger is completed, the transmittal materials you will receive after the completion of the merger will include the procedures that you must follow if you cannot locate your stock certificates. This will include an affidavit that you will need to sign attesting to the loss of your stock certificates. You may also be required to post a bond as indemnity against any potential loss.
Q:
What happens if I sell or otherwise transfer my shares of Nuance common stock after the close of business on the record date but before the special meeting?
A:
The record date is earlier than the date of the special meeting and the date the merger is expected to be completed. If you sell or transfer your shares of Nuance common stock after the close of business on the record date but before the special meeting, unless special arrangements (such as the provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies Nuance in writing of such special arrangements, you will transfer the right to receive the per share merger consideration if the merger is completed to the person to whom you sell or transfer your shares of Nuance common stock, but you will retain your right to vote these shares at the special meeting. Even if you sell or otherwise transfer your shares of Nuance common stock after the close of business on the record date, we encourage you to complete, date, sign and return the enclosed proxy card or vote via the Internet or telephone.
Q:
When do you expect the merger to be completed?
A:
We are working toward completing the merger as quickly as possible and currently intend to complete the merger during this calendar year. However, the exact timing of completion of the merger cannot be predicted because the completion of the merger is subject to conditions, including the adoption of the merger agreement by our stockholders and the receipt of regulatory approvals.
Q:
What happens if the merger is not completed?
A:
If the merger agreement is not adopted by Nuance stockholders or if the merger is not completed for any other reason, Nuance stockholders will not receive any payment for their shares of Nuance common stock. Instead, Nuance will remain an independent public company, Nuance common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act, and Nuance will continue to file periodic reports with the SEC.
Under certain specified circumstances, Nuance will be required to pay Microsoft a termination fee upon the termination of the merger agreement, as described under the section entitled “Terms of the Merger Agreement — Termination Fee” beginning on page [75].
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Q:
Are there any other risks to me from the merger that I should consider?
A:
Yes. There are risks associated with all business combinations, including the merger. See the section entitled “Forward-Looking Statements” beginning on page [20].
Q:
Do any of Nuance’s directors or officers have interests in the merger that may differ from those of Nuance stockholders generally?
A:
Yes. In considering the recommendation of the Nuance Board of Directors with respect to the merger proposal, you should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of Nuance stockholders generally. In (i) evaluating and negotiating the merger agreement, (ii) approving the merger agreement and the merger, and (iii) unanimously recommending that the merger agreement be adopted by Nuance stockholders, the Nuance Board of Directors was aware of and considered these interests to the extent that they existed at the time, among other matters. For a description of the interests of our directors and executive officers in the merger, see “Proposal 1: Adoption of the Merger Agreement — The Merger — Interests of the Non-Employee Directors and Executive Officers of Nuance in the Merger” beginning on page [50].
Q:
What happens if the merger-related compensation proposal is not approved?
A:
Approval of the merger-related compensation proposal is not a condition to completion of the merger. The vote is an advisory vote and is not binding. Accordingly, regardless of the outcome of the advisory vote, if the merger is completed, Nuance may still pay such compensation to its named executive officers in accordance with the terms and conditions applicable to such compensation.
Q:
What should I do if I receive more than one set of voting materials?
A:
You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a stockholder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, date, sign and return (or vote via the Internet or telephone with respect to) each proxy card and voting instruction card that you receive.
Q:
Who counts the votes?
A:
Votes are counted by Broadridge Financial Solutions, Inc., which we refer to as Broadridge, and are then certified by a representative of Broadridge appointed by the Nuance Board of Directors to serve as the inspector of election at the special meeting.
Q:
Who may attend the special meeting?
A:
Nuance stockholders who held shares of Nuance common stock as of the close of business on [], 2021.
Q:
Who pays for the expenses of this proxy solicitation?
A:
Nuance will bear the entire cost of this proxy solicitation, including the preparation, printing, mailing and distribution of these proxy materials. We may also reimburse brokerage firms and other persons representing stockholders who hold their shares in street name for reasonable expenses incurred by them in forwarding proxy materials to such stockholders. In addition, certain directors, officers and other employees, without additional remuneration, may solicit proxies in person, or by telephone, facsimile, email and other methods of electronic communication.
Q:
Where can I find the vote results after the special meeting?
A:
We are required to publish final vote results in a Current Report on Form 8-K to be filed with the SEC within four business days after our special meeting. See the section entitled “Where You Can Find More Information” beginning on page [87].
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Q:
Will I be subject to U.S. federal income tax upon the exchange of Nuance common stock for cash pursuant to the merger?
A:
The exchange of Nuance common stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. Accordingly, a U.S. holder of Nuance common stock who exchanges shares of Nuance common stock for cash in the merger generally will recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and the U.S. holder’s adjusted tax basis in such shares. If you are a non-U.S. holder, the merger generally will not result in tax to you under U.S. federal income tax laws unless you have certain connections with the United States.
For a more complete description of the U.S. federal income tax consequences of the merger, see “Proposal 1: Adoption of the Merger Agreement — The Merger — U.S. Federal Income Tax Consequences of the Merger” beginning on page [54].
This proxy statement contains a general discussion of U.S. federal income tax consequences of the merger. This description does not address any non-U.S. tax consequences, nor does it pertain to state, local or other tax consequences. Consequently, you are urged to contact your own tax advisor to determine the particular tax consequences to you of the merger.
Q:
What will the holders of outstanding Nuance equity awards receive in the merger?
A:
For information regarding the treatment of Nuance’s outstanding equity awards, see the section entitled “Terms of the Merger Agreement — Conversion of Shares — Treatment of Equity Compensation” beginning on page [60].
Q:
What will happen to the Employee Stock Purchase Plan?
A:
For information regarding the treatment of Nuance’s Employee Stock Purchase Plan, see the section entitled “Terms of the Merger Agreement — Conversion of Shares — Treatment of Equity Compensation — Employee Stock Purchase Plan” beginning on page [60].
Q:
Am I entitled to appraisal rights under the DGCL?
A:
If the merger agreement is adopted by Nuance’s stockholders, stockholders who do not vote (whether in person or by proxy) in favor of the adoption of the merger agreement and who properly exercise and perfect their demand for appraisal of their shares will be entitled to appraisal rights in connection with the merger under Section 262 of the DGCL. This means that holders of Nuance common stock are entitled to have their shares appraised by the Court of Chancery of the State of Delaware and to receive payment in cash of the “fair value” of the shares of Nuance common stock, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest to be paid upon the amount determined to be fair value, if any, as determined by the court, subject to the provisions of Section 262 of the DGCL. Stockholders who wish to seek appraisal of their shares are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process. Stockholders should refer to the discussion under the section entitled “Appraisal Rights” beginning on page [80] and the DGCL requirements for exercising appraisal rights reproduced and attached as Annex B to this proxy statement.
Q:
What is “householding”?
A:
Some banks, brokers and similar institutions may be participating in the practice of “householding” proxy materials. This means that only one copy of our proxy materials may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of the proxy materials to you if you write to us at the following address or call us at the following phone number:
Nuance Communications, Inc.
Attention: Investor Relations
1 Wayside Road
Burlington, Massachusetts 01803
Phone: Call (781) 565-5000 and ask to speak to Investor Relations.
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To receive separate copies of the proxy materials in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or similar institution or you may contact us at the above address or telephone number.
Q:
How can I obtain more information about Nuance?
A:
You can find more information about us from various sources described in the section entitled “Where You Can Find More Information” beginning on page [87].
Q:
Who can help answer my questions?
A:
If you have any questions concerning the merger, the special meeting or this proxy statement, would like additional copies of this proxy statement or need help voting your shares of Nuance common stock, please contact our proxy solicitor:
Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, New York 10022
Stockholders may call toll-free from the U.S. or Canada: (877) 750-0854
From other locations please dial: +1 (412) 232-3651
Banks and Brokers may call collect: (212) 750-5833
If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.
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FORWARD-LOOKING STATEMENTS
This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us or on our behalf contain certain forward-looking statements within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995 with respect to the proposed transaction and business combination between Microsoft and Nuance, including statements regarding financial projections, the benefits of the transaction, the anticipated timing of the transaction and the products and markets of each company. These forward-looking statements generally are identified by the words “believe,” “project,” “predicts,” “budget,” “forecast,” “continue,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “could,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions (or the negative versions of such words or expressions). Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this proxy statement, including but not limited to: (i) the risk that the transaction may not be completed in a timely manner or at all, which may adversely affect Nuance’s business and the price of the common stock of Nuance, (ii) the failure to satisfy the conditions to the consummation of the transaction, including the adoption of the merger agreement by the stockholders of Nuance and the receipt of certain governmental and regulatory approvals, (iii) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, including in circumstances that would require Nuance to pay a termination fee or other expenses, (iv) the effect of the announcement or pendency of the transaction on Nuance’s business relationships, operating results, and business generally, (v) risks that the proposed transaction disrupts current plans and operations of Nuance and potential difficulties in Nuance employee retention as a result of the transaction, (vi) risks related to diverting management’s attention from Nuance’s ongoing business operations, and (vii) the outcome of any legal proceedings that may be instituted against us or against Microsoft related to the merger agreement or the transaction.
In addition, please refer to the documents that Nuance files with the SEC on Forms 10-K, 10-Q and 8-K (see the section entitled “Where You Can Find More Information” beginning on page [87]). These filings identify and address other important risks and uncertainties that could cause events and results to differ materially from those contained in the forward-looking statements set forth in this press release. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and Nuance assumes no obligation and does not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise.
Except as required by applicable law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. Nuance stockholders are advised, however, to consult any future disclosures we make on related subjects as may be detailed in our other filings made from time to time with the SEC.
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THE SPECIAL MEETING
The enclosed proxy is solicited on behalf of the Board of Directors for use at the special meeting of stockholders or at any adjournments or postponements thereof.
Date, Time and Place
We will hold the special meeting on [•], 2021, at [•], Eastern time. Due to the possible public health impact of the coronavirus (COVID-19) and to support the well-being of our employees and stockholders, Nuance will hold the special meeting virtually via the Internet at the virtual meeting website. You will not be able to attend the special meeting physically in person.
Purpose of the Special Meeting
At the special meeting, we will ask our stockholders of record as of the close of business on the record date to consider and vote on the following proposals:
Proposal 1 — Adoption of the Merger Agreement. To consider and vote on the merger proposal; and
Proposal 2 — Approval, by Means of a Non-Binding, Advisory Vote, of Certain Compensatory Arrangements with Named Executive Officers. To consider and vote on the merger-related compensation proposal.
Record Date; Shares Entitled to Vote; Quorum
Only stockholders of record as of the close of business on [•], 2021 are entitled to notice of the special meeting and to vote at the special meeting or at any adjournments or postponements thereof. A list of stockholders entitled to vote at the special meeting will be available at the virtual meeting website during the special meeting.
A majority in voting power of Nuance common stock issued and outstanding and entitled to vote at the special meeting, represented in person or by proxy, constitutes a quorum at the special meeting. As of the close of business on the record date for the special meeting, there were [•] shares of Nuance common stock issued and outstanding and entitled to vote. If you submit a properly executed proxy by mail, telephone or the Internet, you will be considered a part of the quorum. In addition, abstentions will be counted for purposes of establishing a quorum. Broker non-votes will not be counted for purposes of establishing a quorum. As a result, [•] shares must be represented in person or by proxy to have a quorum. If a quorum is not present, the special meeting may be adjourned by the chairman of the meeting pursuant to the authority granted in Nuance’s bylaws until a quorum is obtained, subject to the terms of the merger agreement.
Vote Required; Abstentions and Broker Non-Votes
The affirmative vote of a majority of the shares of Nuance common stock outstanding and entitled to vote thereon is required to approve the merger proposal. This means that the proposal will be approved if the number of shares voted “FOR” that proposal is greater than 50% of the total number of the votes that can be cast in respect of our outstanding shares of common stock. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the merger proposal.
The affirmative vote of a majority of the voting power of the shares of Nuance common stock entitled to vote which are present, in person or by proxy, and voting at the special meeting, provided a quorum is present, is required to approve, by means of a non-binding, advisory vote, the merger-related compensation proposal. This means that the proposal will be approved if the number of shares voted “FOR” that proposal is greater than 50% of the total number of shares of Nuance common stock entitled to vote which are present, in person or by proxy, and vote at the special meeting, provided a quorum is present. Abstentions and broker non-votes will not have any effect on the merger-related compensation proposal.
Broker non-votes are shares held by a broker, bank or other nominee that are present in person or represented by proxy at the special meeting, but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares on how to vote on a particular proposal and the broker does not have discretionary voting power on such proposal. Because brokers, banks and other nominee holders of record do not have discretionary voting authority with respect to any of the two proposals, if a beneficial owner of shares of Nuance common stock held in “street name” does not give voting instructions to the broker, bank or other
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nominee with respect to any of the proposals, then those shares will not be present in person or represented by proxy at the special meeting. If there are any broker non-votes, then such broker non-votes will have the same effect as a vote “AGAINST” the merger proposal, but will have no effect on the merger-related compensation proposal.
Shares Held by Nuance’s Directors and Executive Officers
As of the close of business on the record date, Nuance directors and executive officers beneficially owned and were entitled to vote, in the aggregate, [•] shares of Nuance common stock (excluding any shares of Nuance common stock that would be delivered upon exercise or conversion of stock options or other equity-based awards), which represented approximately [•]% of the outstanding shares of Nuance common stock on that date. It is expected that Nuance’s directors and executive officers will vote all of their shares “FOR” the merger proposal and “FOR” the merger-related compensation proposal, although none of them has entered into any agreement requiring them to do so.
Voting of Proxies
If your shares are registered in your name with our transfer agent, AST, you may cause your shares to be voted by returning a signed and dated proxy card in the accompanying prepaid reply envelope, or you may vote in person at the special meeting. Additionally, you may submit electronically over the Internet or by phone a proxy authorizing the voting of your shares by following the instructions on your proxy card. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy electronically over the Internet or by telephone. Based on your proxy cards or Internet and telephone proxies, the proxy holders will vote your shares according to your directions.
If you plan to attend the special meeting and wish to vote in person, you will be given a virtual ballot at the meeting. If your shares are registered in your name, you are encouraged to vote by proxy even if you plan to attend the special meeting in person. If you attend the special meeting and vote in person by virtual ballot, your vote by virtual ballot will revoke any proxy previously submitted.
Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder. Properly executed proxies that do not contain voting instructions will be voted (i) “FOR” the merger proposal and (ii) “FOR” the merger-related compensation proposal. No proxy that is specifically marked against the merger proposal will be voted in favor of the merger-related compensation, unless it is specifically marked “FOR” the approval of such proposal.
If your shares are held in “street name” through a broker, bank or other nominee, you may vote through your broker, bank or other nominee by completing and returning the voting form provided by your broker, bank or other nominee, or by the Internet or telephone through your broker, bank or other nominee if such a service is provided. To vote via the Internet or telephone through your broker, bank or other nominee, you should follow the instructions on the voting form provided by your broker, bank or other nominee. Under applicable stock exchange rules, brokers, banks or other nominees have the discretion to vote your shares on discretionary matters if you fail to instruct your broker, bank or other nominee on how to vote your shares with respect to such matters. The merger proposal and the merger-related compensation proposal are non-discretionary matters, and brokers, banks and other nominees therefore cannot vote on these proposals without your instructions. If you do not return your broker’s, bank’s or other nominee’s voting form, do not vote via the Internet or telephone through your broker, bank or other nominee, if applicable, or do not attend the special meeting and vote in person with a proxy from your broker, bank or other nominee, such actions will have the same effect as if you voted “AGAINST” the merger proposal but will not have any effect on the merger-related compensation proposal.
Revocability of Proxies
If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the special meeting by:
submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy;
delivering a written notice of revocation to our Secretary;
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signing another proxy card with a later date and returning it to us prior to the special meeting; or
attending the special meeting virtually via the Internet at the virtual meeting website and completing a virtual ballot.
Please note that to be effective, your new proxy card, Internet or telephonic voting instructions or written notice of revocation must be received by our Secretary prior to the special meeting and, in the case of Internet or telephonic voting instructions, must be received before 11:59 p.m., Eastern time, on [•], 2021. If you have submitted a proxy, your appearance at the special meeting, in the absence of voting in person or submitting an additional proxy or revocation, will not have the effect of revoking your prior proxy.
If you hold your shares of Nuance common stock in “street name,” you should contact your broker, bank or other nominee for instructions regarding how to change your vote. You may also vote in person at the special meeting if you obtain a valid proxy from your broker, bank or other nominee. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow Nuance stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting, as adjourned.
Board of Directors’ Recommendation
The Board of Directors, after considering various factors described under the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Recommendation of Our Board of Directors” beginning on page [26] and after consultation with independent legal and financial advisors, unanimously (i) determined that it is in the best interests of Nuance and its stockholders to enter into the merger agreement and consummate the merger upon the terms and subject to the conditions set forth therein and declared the merger agreement advisable; (ii) approved the execution and delivery of the merger agreement by Nuance, the performance by Nuance of its covenants and other obligations thereunder, and the consummation of the merger upon the terms and conditions set forth therein; (iii) directed that the adoption of the merger agreement be submitted to a vote at a meeting of the stockholders of Nuance and (iv) resolved to recommend that Nuance stockholders vote in favor of adoption of the merger agreement in accordance with the DGCL.
The Nuance Board of Directors unanimously recommends that you vote (i) “FOR” the merger proposal and (ii) “FOR” the merger-related compensation proposal.
Tabulation of Votes
All votes will be tabulated by a representative of Broadridge, who will act as the inspector of election appointed for the special meeting and will separately tabulate affirmative and negative votes, abstentions and broker non-votes.
Solicitation of Proxies
The expense of soliciting proxies in the enclosed form will be borne by Nuance. We have retained Innisfree M&A Incorporated, a proxy solicitation firm, to solicit proxies in connection with the special meeting for a fee not to exceed $75,000 plus expenses. We have also agreed to indemnify Innisfree M&A Incorporated against losses arising out of its provision of these services as requested by Nuance. In addition, we may reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by certain of our directors, officers and employees, personally or by telephone, facsimile or other means of communication. No additional compensation will be paid for such services.
Anticipated Date of Completion of the Merger
Assuming timely satisfaction of necessary closing conditions, including the approval by our stockholders of the merger proposal, we currently intend to complete the merger during this calendar year.
Assistance
If you need assistance in completing your proxy card or have questions regarding Nuance’s special meeting, please contact Innisfree M&A Incorporated by mail at 501 Madison Avenue, 20th Floor, New York, New York 10022 or by telephone. Stockholders may call toll-free from the U.S. or Canada at (877) 750-0854, or dial direct from other locations at +1 (412) 232-3651, and banks and brokers may call collect: (212) 750-5833.
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Rights of Stockholders Who Seek Appraisal
If the merger proposal is approved by Nuance stockholders, stockholders who do not vote (whether in person or by proxy) in favor of the adoption of the merger agreement and who properly exercise and perfect their demand for appraisal of their shares will be entitled to appraisal rights in connection with the merger under Section 262 of the DGCL. This means that holders of Nuance common stock are entitled to have their shares appraised by the Court of Chancery of the State of Delaware and to receive payment in cash of the “fair value” of the shares of Nuance common stock, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest to be paid upon the amount determined to be fair value, if any, as determined by the court, subject to the provisions of Section 262 of the DGCL. Stockholders who wish to seek appraisal of their shares are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal process.
Stockholders considering seeking appraisal should be aware that the fair value of their shares as determined pursuant to Section 262 of the DGCL could be more than, the same as or less than the $56.00 per share consideration payable pursuant to the merger agreement if they did not seek appraisal of their shares.
To exercise your appraisal rights, you must submit a written demand for appraisal to Nuance before the vote is taken on the merger proposal, you must not submit a blank proxy or otherwise vote in favor of the merger proposal and you must continue to hold the shares of Nuance common stock of record through the effective time. Your failure to follow the procedures specified under the DGCL may result in the loss of your appraisal rights. The DGCL requirements for exercising appraisal rights are described in further detail in this proxy statement, and the relevant section of the DGCL regarding appraisal rights is reproduced and attached as Annex B to this proxy statement. If you hold your shares of Nuance common stock through a broker, bank or other nominee and you wish to exercise appraisal rights, you should consult with your broker, bank or other nominee to determine the appropriate procedures for the making of a demand for appraisal by such broker, bank or other nominee. Stockholders should refer to the discussion under the section entitled “Appraisal Rights” beginning on page [80] and the DGCL requirements for exercising appraisal rights reproduced and attached as Annex B to this proxy statement.
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PARTIES INVOLVED IN THE MERGER
Nuance Communications, Inc.
Nuance is a technology pioneer and market leader in conversational artificial intelligence, which we refer to as AI, and ambient clinical intelligence. Nuance delivers intuitive solutions that understand, analyze, and respond to people - amplifying their ability to help others with increased productivity and security. Nuance works with thousands of organizations globally across healthcare, financial services, telecommunications, government and retail - to create stronger relationships and better experiences for their customers and workforce. Nuance offers its customers a wide range of products and services, including clinical documentation, solutions for clinicians, radiologists and care teams, as well as intelligent customer engagement and security biometric solutions for leading brands. In addition, Nuance’s solutions increasingly utilize its innovations in AI, including cognitive sciences and machine learning to create smarter, more natural experiences with technology. Using advanced analytics and algorithms, Nuance’s technologies create personalized experiences and transform the way people interact with information and the technology around them. Nuance markets and sells its solutions and technologies around the world directly through a dedicated sales force and a global network of resellers, including system integrators, independent software vendors, value-added resellers, distributors, hardware vendors, telecommunications carriers and e-commerce websites.
Nuance’s principal executive offices are located at 1 Wayside Road, Burlington, Massachusetts 01803.
Nuance was incorporated under the laws of the State of Delaware in 1992. Nuance common stock, par value $0.001 per share, which we refer to as Nuance common stock, is currently listed on the Nasdaq Global Select Market, which we refer to as Nasdaq, under the symbol “NUAN.”
Additional information about Nuance and its subsidiaries is included in documents incorporated by reference in this proxy statement (see the section entitled “Where You Can Find More Information” beginning on page [87]) and on its website: www.nuance.com. The information provided or accessible through Nuance’s website is not part of, or incorporated by reference in, this proxy statement.
Microsoft Corporation
Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more, and is a leader in enabling digital transformation for the era of an intelligent cloud and intelligent edge. Founded in 1975, Microsoft operates worldwide and has offices in more than 100 countries. Microsoft develops and supports a wide range of software products, services, devices and solutions that deliver new opportunities, greater convenience, and enhanced value to people’s lives. Microsoft offers an array of services, including cloud-based solutions, that provide customers with software, services, platforms, and content. Microsoft’s products include operating systems, cross-device productivity applications, server applications, business solution applications, desktop and server management tools, software development tools, and games. Microsoft also designs, manufactures, and sells devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories.
Microsoft’s principal executive offices are located at One Microsoft Way, Redmond, WA 98052. Microsoft’s common stock is listed on Nasdaq under the symbol “MSFT.”
Additional information about Microsoft and its subsidiaries is included in documents filed by Microsoft with the SEC and on its website: www.microsoft.com. The information provided or accessible through Microsoft’s website is not part of, or incorporated by reference in, this proxy statement.
Big Sky Merger Sub Inc.
Sub is a Delaware corporation and a wholly owned subsidiary of Microsoft, formed on April 7, 2021, solely for the purpose of engaging in the merger and the other transactions as contemplated under the merger agreement. Upon completion of the merger, Sub will cease to exist.
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PROPOSAL 1: ADOPTION OF THE MERGER AGREEMENT

THE MERGER
This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. You should read the entire merger agreement carefully as it is the legal document that governs the merger.
Certain Effects of the Merger on Nuance
Upon the terms and subject to the conditions of the merger agreement and in accordance with the applicable provisions of the DGCL, on the closing date and at the effective time, Sub will merge with and into Nuance, with Nuance continuing as the surviving corporation and a wholly-owned subsidiary of Microsoft. Nuance expects to delist its common stock from Nasdaq as promptly as practicable after the effective time and deregister its common stock under the Exchange Act as promptly as practicable after such delisting. Thereafter, Nuance will no longer be a publicly traded company. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation, and instead will only be entitled to receive the merger consideration, as described under the section entitled “Terms of the Merger Agreement — Conversion of Shares — Common Stock” beginning on page [60].
The effective time will occur upon the filing of a certificate of merger with the Secretary of State of the State of Delaware (or at such later time as Nuance, Microsoft and Sub may agree in writing and specify in the certificate of merger).
Effect on Nuance if the Merger is Not Completed
If the merger agreement is not adopted by Nuance stockholders or if the merger is not completed for any other reason, Nuance stockholders will not receive any payment for their shares of Nuance common stock. Instead, Nuance will remain an independent public company, Nuance common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act and Nuance will continue to file periodic reports with the SEC.
Furthermore, if the merger is not consummated, and depending on the circumstances that caused the merger not to be consummated, it is likely that the price of Nuance common stock will decline significantly. If that were to occur, it is uncertain when, if ever, the price of Nuance common stock would return to the price at which it trades as of the date of this proxy statement.
Accordingly, if the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of Nuance common stock. If the merger is not consummated, the Board of Directors will continue to evaluate and review Nuance’s business operations, properties and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to enhance stockholder value. If the merger agreement is not adopted by Nuance stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to Nuance or its stockholders will be offered or that Nuance’s business, prospects or results of operations will not be adversely impacted.
Under certain specified circumstances, Nuance will be required to pay Microsoft a termination fee of $515 million upon the termination of the merger agreement, as described under the section entitled “Terms of the Merger Agreement —Termination Fee” beginning on page [75].
Background of the Merger
Mark Benjamin, Chief Executive Officer of Nuance, joined Nuance as Chief Executive Officer and a director on April 23, 2018. On the date prior to Mr. Benjamin’s appointment, the closing price of Nuance common stock was $14.91 per share. Mr. Benjamin was charged by the Nuance Board of Directors with leading the planning and execution of a strategic transformation of Nuance, with the goal of increasing shareholder value. In furtherance of that charge and in keeping with the Nuance Board of Directors’ commitment to maximizing shareholder value, over the approximately three-year period since Mr. Benjamin’s appointment, the Nuance Board of Directors and management have regularly reviewed and discussed Nuance’s business strategy, performance and competitive position as well as various strategic alternatives, including acquisitions, dispositions, commercial
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partnerships and other strategic transactions. Since before Mr. Benjamin’s appointment as Chief Executive Officer of Nuance, Evercore Group L.L.C., which we refer to as Evercore, has rendered advice to Nuance regarding various strategic and financial matters in support of these efforts by the Nuance Board of Directors.
Over the past three years, the Nuance Board of Directors have through these efforts directed a transformation of Nuance’s business through a series of value-creating actions, including the sale of Nuance’s imaging business in February 2019, the spin-off of Cerence, Nuance’s automotive business, in October 2019, and the sale of Nuance’s Health Information Management Transcription business and its Electronic Health Record Go-Live Services business in March 2021, as well as share repurchases and debt reduction activities. Through these transactions and other strategic initiatives, Nuance has streamlined its portfolio to focus on the healthcare and enterprise AI segments, where the Nuance Board of Directors and management observed accelerated demand for advanced conversational AI and ambient solutions.
In July 2019, a large private equity firm, which we refer to as Party A, contacted senior management of Nuance and requested a meeting to discuss a potential acquisition of Nuance and requested that Nuance provide a form nondisclosure agreement.
Also in July 2019, the chief executive officer of a global technology company, which we refer to as Party B, contacted Mr. Benjamin and expressed interest in meeting to discuss conversational AI technologies, among other topics.
On July 22, 2019, Nuance and Party A signed a nondisclosure agreement. The nondisclosure agreement did not contain a standstill provision.
On August 15, 2019, members of Nuance’s senior management met with representatives of Party A. The meeting consisted of introductions of the Nuance and Party A teams and a high level discussion of Nuance’s business. Party A made no proposal to acquire Nuance at that meeting and no immediate next steps were discussed. The closing price of Nuance common stock on that date was $16.36 per share.
On August 21, 2019, Nuance and Party B amended an existing confidentiality agreement between the parties to, among other matters, extend the expiration date of such agreement. The amended nondisclosure agreement did not contain a standstill provision.
On August 23, 2019, executives of Party B and Nuance, including the chief executive officer of each company, met to explore whether there could be mutually beneficial ways for the two companies to work together, including potentially a strategic partnership or an acquisition of Nuance by Party B. Following this meeting, Party B informed Nuance that it had elected not to proceed with further discussions regarding an acquisition transaction involving Nuance and cited a lack of strategic fit with Party B. The closing price of Nuance common stock on that date was $16.99 per share.
Beginning prior to Mr. Benjamin’s appointment as Chief Executive Officer of Nuance in April 2018 and through October 2019, representatives of Nuance and representatives of Microsoft engaged in discussions regarding a potential commercial partnership whereby Microsoft would become Nuance’s exclusive cloud provider and Nuance and Microsoft would work together to develop and commercialize technology products and services for the healthcare industry, including products that use AI technology.
On October 1, 2019, Nuance completed the spin-off of Cerence that it had announced on November 19, 2018.
On October 9, 2019, Microsoft and Nuance formalized their strategic partnership by entering into a license and collaboration agreement and an amendment to an existing cloud hosting agreement between the parties.
On October 17, 2019, at Party A’s request, representatives of Nuance and Party A spoke by telephone. Party A advised the Nuance representatives that Party A would be interested in exploring an acquisition of Nuance and that it believed it could offer a market-premium to Nuance’s then-current stock price of $15.75 if it could confirm a number of assumptions with respect to Nuance’s business. Following that meeting, Party A provided Nuance with a due diligence request list and proposed work plan that contemplated substantial engagement between the parties through the end of the year.
Following receipt of Party A’s diligence request list and work plan, Nuance considered the risks and benefits of pursuing a transaction with Party A at that time. In considering these matters, senior management noted that Nuance had just completed its spin-off of Cerence and was nearing its first post-spin analyst day, scheduled for
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December 10, 2019, which Nuance had planned as a re-launch of the new, streamlined Nuance business. In light of Nuance’s focus on, and the critical importance of, the re-launch of the Nuance business following the Cerence spin-off and subsequent analyst day, the challenges and risks associated with diverting management time from those execution priorities and the uncertainty regarding Party A’s interest, Nuance determined to defer further conversations with Party A.
In late October 2019, representatives of Nuance spoke with representatives of Party A, and informed them that, in light of the recently completed Cerence spin-off and the planned analyst day, Nuance was not prepared to engage in discussions regarding a potential sale transaction at that time.
On December 10, 2019, Nuance hosted its planned analyst day. On that date, the closing price of Nuance common stock was $17.60 per share.
In January 2020, a representative of Evercore reviewed in the ordinary course of business development activities with representatives of a large healthcare services and technology company, which we refer to as Party C, a number of potential acquisition opportunities, one of which was a potential acquisition of Nuance. During the conversation, representatives of Party C expressed interest in scheduling a meeting with Nuance in the upcoming weeks. At the request of Party C, the representative of Evercore discussed the possibility of an introduction to Party C with members of Nuance senior management, who authorized scheduling such a meeting. The meeting was first scheduled for February 13, 2020, then rescheduled to March 30, 2020. On March 24, 2020, the rescheduled meeting was postponed indefinitely due to the developing COVID-19 pandemic and the accompanying volatility in the broader stock market, including a decline in the price of Nuance’s common stock, which had closed at $14.79 per share on March 23, 2020.
On February 25, 2020, during a conversation regarding another company in the ordinary course of business development activities, a representative of a leading cloud technology and e-commerce company, which we refer to as Party D, conveyed to representatives of Evercore Party D’s interest in meeting with the senior leadership of Nuance to explore potential opportunities involving Nuance, ranging from a potential strategic partnership in healthcare to a potential acquisition of Nuance. The representative of Party D characterized their interest as preliminary, and indicated that Party D was seeking the meeting to learn more about Nuance’s healthcare business in light of its own nascent activities in the space. Following that conversation, a representative of Evercore communicated to Nuance senior management Party D’s interest in a meeting with Nuance senior leadership. Representatives of Nuance and Party D scheduled a meeting for April 9, 2020, but subsequently canceled that meeting due to the developing COVID-19 pandemic. Following such cancellation, Party D did not seek to reengage with Nuance and Nuance and Party D did not have further discussions.
On April 22, 2020, Mr. Benjamin and representatives of Party A had a telephone conversation for the purpose of keeping in touch. During that conversation, Party A did not renew its request to meet with Nuance to discussion a potential transaction.
On or around May 14, 2020, a representative of Party C in a conversation with a representative of Evercore, indicated Party C’s desire to reengage in discussions with Nuance. Following that conversation, the representative of Evercore communicated Party C’s interest to Nuance senior management, who scheduled such a meeting.
On June 19, 2020, representatives of Party C met with members of Nuance senior management at Nuance’s offices. At that meeting, Nuance representatives provided a high level overview of Nuance’s Healthcare business based only on publicly available information, and Party C requested a second meeting to review Nuance’s Enterprise business and to address follow up questions relating to the Healthcare business.
On June 26, 2020, at a videoconference meeting of the Nuance Board of Directors, Mr. Benjamin informed the Nuance Board of Directors of the meeting with representatives of Party C. Following extensive discussion, the Nuance Board of Directors instructed Nuance management to hold another in-person meeting with Party C as had been requested by Party C.
On July 9, 2020, representatives of Party C had a phone conversation with Nuance senior executives to discuss Nuance technology.
On July 22, 2020, representatives of Party C met with representatives of Nuance at Nuance’s offices, during which the representatives of Party C and Nuance discussed Nuance’s Enterprise and Healthcare businesses.
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On July 27, 2020, a representative of Party C informed a representative of Evercore that Party C was interested in further exploring a potential acquisition of Nuance. A representative of Evercore communicated Party C’s interests to members of Nuance senior management.
On or around September 7, 2020, a senior executive of Party C contacted Mr. Benjamin and conveyed a request from the Chief Executive Officer of Party C for another meeting at Nuance’s offices and a demonstration of Nuance’s Dragon® Ambient eXperience™ product, which we refer to as DAX.
On September 11, 2020, at a videoconference meeting of the Nuance Board of Directors, Mr. Benjamin updated the Nuance Board of Directors on discussions with representatives of Party C. Also at that meeting, a representative of Paul, Weiss, Rifkind, Wharton & Garrison LLP, Nuance’s external legal counsel, which we refer to as Paul Weiss, reviewed with the Nuance Board of Directors the directors’ duties in the context of a potential acquisition offer. Following discussion, the Nuance Board of Directors instructed Mr. Benjamin to have the meeting with the Chief Executive Officer of Party C.
On September 15, 2020, representatives of Nuance’s senior management met with the Chief Executive Officer of Party C and the president of one of Party C’s divisions. At that meeting, Nuance representatives answered questions regarding the business and gave a demonstration of DAX. During the meeting, Mr. Benjamin made clear that he believed Nuance was in a strong position and expressed his view that the market was not overvaluing Nuance’s shares. After such meeting, the representatives of Party C indicated to representatives of Evercore that the recent increase in Nuance’s share price had created valuation challenges for Party C in pursuing an acquisition of Nuance, noting that the price of Nuance common stock had increased from approximately $25.00 per share when Party C began discussions in June 2020 to $32.97 as of close of trading on September 15, 2020. Representatives of Evercore communicated Party C’s views to members of Nuance senior management.
On September 18, 2020, at a videoconference meeting of the Nuance Board of Directors, Mr. Benjamin updated the Nuance Board of Directors on discussions with representatives of Party C. Also at that meeting, the Nuance Board of Directors received an update from Nuance management on Nuance’s stock performance, including Nuance’s 5-year price performance and trading multiples relative to peers.
On September 29, 2020, representatives of Party C informed representatives of Nuance and Evercore that Party C did not wish to pursue a strategic transaction with Nuance at that time or for the foreseeable future, primarily due to Party C’s view on Nuance’s valuation and that any offer at a “market” premium to Nuance would be too dilutive to Party C’s stockholders. They indicated that they could be interested in making an offer in the future if Nuance’s share price were to fall appreciably from where it was then trading, and in the meantime would like to continue to build upon the commercial aspects of the relationship between Nuance and Party C. The closing price of Nuance common stock on that date was $33.07 per share, which was approximately 121.8% higher than the closing price of Nuance common stock on April 23, 2018, the date that Mr. Benjamin became Chief Executive Officer (or approximately 165.0% higher if including the value of the Cerence shares received by Nuance stockholders in the Cerence spin-off).
On October 2, 2020, at a videoconference meeting of the Nuance Board of Directors, Mr. Benjamin informed the Nuance Board of Directors of Party C’s decision not to pursue a transaction.
On November 11, 2020, a representative of Evercore had, in the ordinary course of business development activities, an introductory conversation with a senior executive at Microsoft. In the course of such conversation, which addressed multiple topics, including Microsoft’s activities in the healthcare sector, the Evercore representative discussed recent developments with respect to Nuance. These discussions were preliminary and based solely on publicly available information, and no valuations involving Nuance were discussed. The representative of Microsoft expressed Microsoft’s strategic interest in Nuance’s healthcare business, especially given the success of the ongoing partnership between the two companies, but noted that Microsoft’s willingness to consider a potential transaction was tempered by the highly people-intensive nature of Nuance’s Health Information Management Transcription business and its Electronic Health Record Go-Live Services business.
On November 18, 2020, in conjunction with its earnings announcement, Nuance announced the sale of its Health Information Management Transcription business and its Electronic Health Record Go-Live Services business, which Nuance had been negotiating over the prior several months.
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On November 19, 2020, representatives of Microsoft contacted representatives of Evercore and requested a meeting with Nuance’s management in order to begin evaluating the merits of a potential acquisition of Nuance by Microsoft. During this discussion, the representatives of Microsoft noted that the process would include a series of business and financial due diligence meetings to validate whether Microsoft did indeed want to pursue an acquisition of Nuance. Representatives of Evercore conveyed this request to Mr. Benjamin.
On November 24, 2020, the Nuance Board of Directors held a videoconference meeting at which Mr. Benjamin informed the Nuance Board of Directors of Microsoft’s request for a meeting to explore a potential acquisition. Following discussion, the Nuance Board of Directors authorized a meeting with Microsoft to discuss with Microsoft only publicly available information concerning Nuance.
On December 7, 2020, representatives of Microsoft and representatives of Nuance held an initial meeting at which those present discussed Nuance’s business and the potential benefits of a combination.
On December 18, 2020, representatives of Party C and representatives of Nuance had a telephone discussion focused on potential commercial partnership opportunities between Party C and Nuance. There was no discussion of an acquisition of Nuance by Party C in that conversation.
Following the meeting on December 7, 2020, various representatives of Microsoft had follow-up conversations with representatives of Nuance, in the course of which representatives of Microsoft requested follow-up meetings with Nuance in January to review Nuance’s Healthcare and Enterprise businesses and the potential long-term opportunities for the two companies on a combined basis. Representatives of Microsoft indicated that following such meetings and shortly after Nuance’s next earnings release, Microsoft intended to either make a formal proposal for an acquisition of Nuance or notify Nuance that it did not wish to move forward with making an offer.
On December 22, 2020, at a videoconference meeting of the Nuance Board of Directors, Nuance management updated the Nuance Board of Directors on its discussions with Microsoft. The Nuance Board of Directors authorized Nuance management to schedule the additional meetings that Microsoft had requested.
On January 9, 2021, Microsoft and Nuance executed a nondisclosure agreement. The nondisclosure agreement did not contain a standstill provision.
During January 2021, representatives of Microsoft and Nuance held several virtual due diligence sessions, focused on issues including technology, enterprise, go-to-market, financials and potential synergies.
On February 2, 2021, the Nuance Board of Directors held a videoconference meeting with members of Nuance senior management, as well as representatives of Evercore and Paul Weiss, attending. At the meeting, representatives of Evercore updated the Nuance Board of Directors on the discussions with Microsoft, and members of Nuance management presented to the Nuance Board of Directors financial forecasts for Nuance for the 2021-2025 fiscal years, which are described in more detail in the section entitled “Financial Forecasts.” In anticipation of receiving a proposal from Microsoft, representatives of Evercore presented a preliminary valuation analysis of Nuance. The members of the Nuance Board of Directors, management and the legal and financial advisors also discussed other potential acquirers, including the fact that an acquisition by certain large technology companies that had the financial capability to afford an acquisition of Nuance would present substantially greater regulatory risk than the merger, as well as the risk that Microsoft might decline to provide a proposal or discontinue its discussions with Nuance if it were to become known that Nuance had approached other potential acquirers. At the same meeting, members of Nuance senior management presented an overview of their go-forward business plan, and the opportunities and risks associated with it, including potential disruption from companies with significantly more resources.
On February 15, 2021, in a telephone conversation between representatives of Microsoft and representatives of Nuance, the representatives of Microsoft reaffirmed Microsoft’s interest in Nuance and indicated that an offer would likely be forthcoming during the week of February 22, 2021, following approval of such offer by the Microsoft Board of Directors. During this discussion, the representatives of Microsoft again noted that Microsoft would require its customary confirmatory due diligence process and a co-terminus exclusivity period to complete that process.
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On February 28, 2021, representatives of Microsoft and representatives of Nuance had a telephone conversation in which Microsoft indicated that it would be sending an offer letter for an acquisition of all of the outstanding shares of Nuance. During this discussion, representatives of Microsoft noted that Microsoft would require an exclusivity period for Microsoft to complete its confirmatory due diligence prior to entering into a transaction agreement.
Also on February 28, 2021, Microsoft submitted an offer letter containing a nonbinding preliminary expression of interest to acquire all of the outstanding shares of Nuance for a purchase price of $53.50 per share, a 20% premium to the volume-weighted average closing price of Nuance’s stock over the previous five trading days and a 6% premium to Nuance’s 52-week high closing price. The letter noted that the transaction would not be subject to any financing condition or require a vote of Microsoft’s stockholders and requested that Nuance deliver a response to Microsoft no later than March 5, 2021; in addition, the letter did not specify the form of consideration, and was subject to Nuance entering into a period of exclusive negotiations with Microsoft. On February 26, 2021, the last trading day prior to February 28, 2021, the closing price of Nuance common stock was $44.60 per share, which was approximately 199.1% higher than the closing price of Nuance common stock on April 23, 2018, the date that Mr. Benjamin became Chief Executive Officer (or approximately 292.4% higher if including the value of the Cerence shares received by Nuance stockholders in the Cerence spin-off).
On March 1, 2021, the Nuance Board of Directors held a telephonic meeting, with members of Nuance senior management, as well as representatives of Evercore and Paul Weiss, attending. At the meeting, representatives of Paul Weiss reviewed the directors’ fiduciary duties in connection with a potential acquisition of Nuance. The members of the Nuance Board of Directors, management and the legal and financial advisors then discussed the terms of Microsoft’s offer, including the implied valuation, form of consideration, timetable and Microsoft’s insistence that it would not proceed without exclusivity. The participants discussed the premium represented by Microsoft’s offer, Nuance’s recent share price performance, the development of Nuance’s trading multiples, comparisons of the Microsoft offer to selected measures of Nuance’s intrinsic value and multiples and premiums paid in relevant precedent transactions, among other analyses.
At the March 1, 2021 meeting, the members of the Nuance Board of Directors, management and the legal and financial advisors had an extensive discussion regarding whether Nuance should approach other potential buyers. In the course of these discussions, the participants noted, among other factors, the dramatic rise in Nuance’s share price over the preceding months, the limited number of potential buyers with the financial capacity to exceed the price being offered by Microsoft, the fact that an acquisition by certain large technology companies, including Party D, that had the financial capability to afford an acquisition of Nuance would present significantly greater regulatory risk than the merger, the fact that Party C had stated the previous September (when Nuance’s share price was substantially lower) that Nuance’s high valuation would preclude it from pursuing a transaction and the potential that Microsoft would withdraw its offer if it were to become known that Nuance had approached other potential acquirers, as well as other risks to Nuance in the event of a leak. At the conclusion of the meeting, following extensive discussion, the Nuance Board of Directors instructed the representatives of Evercore to revert to Microsoft and ask it to significantly increase its offer, without specifying a target price or range.
On March 3, 2021, acting on the instruction of the Nuance Board of Directors, representatives of Evercore advised representatives of Goldman Sachs, Microsoft’s financial advisor, that while the Nuance Board of Directors was open to engaging regarding a potential transaction, Microsoft would need to put forward a materially improved offer in order to compel the Nuance Board of Directors to deviate from its compelling standalone path.
On March 4, 2021, at the instruction of Microsoft, representatives of Goldman Sachs informed representatives of Evercore that, while Microsoft remained enthusiastic about a potential transaction, Microsoft was highly sensitive to valuation given the recent significant run-up in Nuance’s share price, was not willing to negotiate against itself and proposed that Nuance make a counteroffer.
On March 4, 2021, the Nuance Board of Directors held a videoconference meeting with members of Nuance senior management. Representatives of Evercore and Paul Weiss were also in attendance. At that meeting, in response to a February 2021 request from the Nuance Board of Directors, Mr. Benjamin reviewed for the Nuance Board of Directors his thoughts regarding the execution and market risks underlying Nuance’s current management plan. Among other topics, Mr. Benjamin addressed the extent to which Nuance’s future successful
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execution of its plan was already embedded in its share price, the competitive threats to Nuance, particularly from companies with significantly greater resources, and the extent to which Nuance’s balance sheet limited its ability to accelerate its growth organically or inorganically.
Following Mr. Benjamin’s presentation at the March 4, 2021 Board meeting, a representative from Evercore updated the Nuance Board of Directors on the response from Goldman Sachs. The members of the Nuance Board of Directors, management and legal and financial advisors discussed alternatives for responding to Microsoft and comparisons of the Microsoft offer to measures of Nuance’s value. The participants also again discussed the benefits and risks of approaching other potential acquirers. Following extensive discussion, the Nuance Board of Directors instructed the representatives of Evercore to revert to Goldman Sachs with a counteroffer of $62 per share.
On March 5, 2021, acting on the instructions of the Nuance Board of Directors, a representative of Evercore provided feedback to representatives of Goldman Sachs that the Nuance Board of Directors would consider entering into a transaction with Microsoft at a price of $62 per share. On that date, the closing price of Nuance common stock was $42.58 per share, which was approximately 185.6% higher than the closing price of Nuance common stock on April 23, 2018, the date that Mr. Benjamin became Chief Executive Officer (or approximately 261.7% higher if including the value of the Cerence shares received by Nuance stockholders in the Cerence spin-off).
On March 8, 2021, at the instruction of Microsoft, a representative of Goldman Sachs informed a representative of Evercore that Microsoft needed more time to respond to the counterproposal given ongoing market volatility and restated Microsoft’s sensitivity to valuation given the recent significant run-up in Nuance’s share price.
On March 9, 2021, Microsoft submitted a revised written, nonbinding preliminary expression of interest to Nuance to acquire all of the outstanding shares of Nuance for a purchase price of $54.50 per share, a 30% premium to the volume-weighted average closing price of Nuance’s stock over the previous five trading days and an 8% premium to Nuance’s 52-week high closing price. The letter did not specify the form of consideration, and was subject to Nuance entering into a period of exclusivity with Microsoft.
At the instruction of Nuance, a representative of Evercore and representatives of Goldman Sachs spoke later on March 9, 2021. In that call, at the instruction of Nuance, the Evercore representative expressed disappointment that the offer was not higher.
Later on March 9, 2021, Mr. Benjamin spoke by telephone with a representative of Microsoft. The Microsoft representative expressed Microsoft’s excitement about the proposed transaction and optimism about the potential combined business. The parties did not discuss in detail the proposed purchase price.
The Nuance Board of Directors held a videoconference meeting on March 10, 2021, with representatives of Nuance management, Evercore and Paul Weiss participating. A representative of Evercore reported on the revised Microsoft offer and the discussion with representatives of Goldman Sachs and Mr. Benjamin reported on the discussion with Microsoft. The members of the Nuance Board of Directors, management and advisors then discussed the revised offer and the respective premiums it represented to Nuance’s stock price over various periods and points in time, and relative to Nuance’s revenue and EBITDA multiples, as well as a summary of the revised offer relative to various valuation analyses. The meeting participants engaged in an extensive discussion regarding potential responses to Microsoft’s offer and the potential benefits and risks of each. Following such discussion, the Nuance Board of Directors instructed the representatives of Evercore to revert to Microsoft with a counteroffer of $57.50 per share.
On March 10, 2021, acting on the instructions of the Nuance Board of Directors, a representative of Evercore provided feedback to representatives of Goldman Sachs that the Nuance Board of Directors would consider transacting at a price of $57.50 per share, and asked that Microsoft confirm that the proposal contemplated all cash.
On March 11, 2021, Microsoft submitted a revised written, nonbinding preliminary expression of interest to Nuance to acquire all of the outstanding shares of Nuance for a purchase price of $55.50 per share in cash, a 31.7% premium to the volume-weighted average closing price of Nuance’s stock over the previous five trading days and a 10% premium to Nuance’s 52-week high closing price. In a conversation later that day, a representative of Goldman Sachs characterized that offer as “the final move” to a representative of Evercore and stated that Microsoft’s offer was conditioned on Nuance agreeing to a 30-day exclusivity period to negotiate a
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transaction and allow Microsoft to complete its due diligence. On that date, the closing price of Nuance common stock was $44.41 per share, which was approximately 197.9% higher than the closing price of Nuance common stock on April 23, 2018, the date that Mr. Benjamin became Chief Executive Officer (or approximately 292.3% higher if including the value of the Cerence shares received by Nuance stockholders in the Cerence spin-off).
The Nuance Board of Directors held a videoconference meeting on March 11, 2021, with representatives of Nuance management, Evercore and Paul Weiss participating. A representative of Evercore reported on the revised Microsoft offer. The members of the Nuance Board of Directors, management and legal and financial advisors again discussed the financial analyses previously reviewed, the likelihood that Microsoft could be negotiated to a higher price and whether Nuance should grant the requested exclusivity period. Following extensive discussion, the Nuance Board of Directors instructed Evercore to revert to Microsoft with a counteroffer of $56.00 per share, at which price Nuance would agree to the requested exclusivity period.
On March 11, 2021, in accordance with the instructions of the Nuance Board of Directors, a representative of Evercore communicated to a representative of Goldman Sachs that the Nuance Board of Directors would be willing to transact at a price of $56.00 per share and to grant the requested exclusivity period at that price.
On March 12, 2021, acting on the instructions of Microsoft, Goldman Sachs submitted to Evercore a revised written, nonbinding preliminary expression of interest for Microsoft to acquire all of the outstanding shares of Nuance for a purchase price of $56.00 per share, a 32.6% premium to the volume-weighted average closing price of Nuance’s stock over the previous five trading days and an 11% premium to Nuance’s 52- week high closing price, and indicated that Microsoft was not willing to proceed in further discussions unless exclusivity was granted. Microsoft also provided Nuance with a draft exclusivity agreement, providing for a period of exclusivity ending on April 12, 2021. At the time of the offer, the prior closing price of Nuance common stock was $44.41 per share, which was approximately 197.9% higher than the closing price of Nuance common stock on April 23, 2018, the date that Mr. Benjamin became Chief Executive Officer (or approximately 292.3% higher if including the value of the Cerence shares received by Nuance stockholders in the Cerence spin-off).
Over the course of March 12, 2021, representatives of Paul Weiss and representatives of Simpson Thacher & Bartlett LLP, Microsoft’s external legal counsel, which we refer to as Simpson Thacher, negotiated the terms of the exclusivity agreement. Later that day, Microsoft and Nuance executed the exclusivity agreement, pursuant to which Nuance agreed to work with Microsoft on an exclusive basis through April 12, 2021 to pursue the potential transaction.
On March 13, 2021, Microsoft provided Nuance with a preliminary due diligence request list. Over the following weeks, until the execution of the merger agreement, representatives of Microsoft, Nuance and their respective advisors communicated frequently with respect to outstanding diligence material requests and questions.
On March 22, 2021, Simpson Thacher, on behalf of Microsoft, sent an initial draft of the merger agreement to Paul Weiss. The agreement provided for, among other terms, a termination fee that would have equaled approximately $734 million based on transaction equity value, which would be payable by Nuance under certain circumstances, including if Nuance terminated the merger agreement in order to accept a superior proposal.
On March 30, 2021, Paul Weiss, on behalf of Nuance, sent a markup of the draft merger agreement to Simpson Thacher. The Paul Weiss markup, among other changes, included a termination fee that would have equaled approximately $392 million based on transaction equity value and numerous revisions to the terms of merger agreement that would preserve closing certainty, including an enhanced obligation by Microsoft to take actions necessary to obtain required regulatory clearances.
On March 30, 2021, a representative from Simpson Thacher advised a representative from Paul Weiss that the continued employment following closing of Mr. Benjamin and of Dan Tempesta, Executive Vice President and Chief Financial Officer of Nuance, was essential to Microsoft’s willingness to proceed with the transaction, that Microsoft would not consider entering into a transaction with Nuance if Messrs. Benjamin and Tempesta did not agree to continue their employment with Nuance following the closing of the transaction (which would include Messrs. Benjamin and Tempesta waiving certain contractual rights under their respective employment agreements) and that Messrs. Benjamin and Tempesta should consider retaining counsel to represent themselves in connection with a forthcoming proposal by Microsoft for Messrs. Benjamin and Tempesta to waive certain rights in connection with their existing employment agreements.
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On March 31, 2021, Nuance entered into an engagement letter with Evercore for the provision of financial advisory services with respect to strategic and financial alternatives. Nuance selected Evercore to act as its financial advisor based on Evercore’s qualifications, expertise, reputation and knowledge of the business of Nuance and the industry in which it operates.
On April 2, 2021, Simpson Thacher, on behalf of Microsoft, sent a markup of the merger agreement to Paul Weiss. The Simpson Thacher markup, among other changes, provided for a termination fee that would have equaled approximately $636 million based on transaction equity value.
On April 5, 2021, representatives of Paul Weiss and Simpson Thacher held a videoconference in which they discussed outstanding open issues in the merger agreement. Later that day, Paul Weiss, on behalf of Nuance, sent a markup of the Merger Agreement to Simpson Thacher which, among other terms, provided for a termination fee that would have equaled approximately $431 million based on transaction equity value.
Also on April 5, 2021, after having been informed by a representative of Paul Weiss that they believed that there was a clear path to resolving all remaining issues under the Merger Agreement, the Nuance Board of Directors granted approval for Messrs. Benjamin and Tempesta to engage in discussions with Microsoft regarding their respective employment agreements for the period following the closing of the merger. Between April 6 and April 11, 2021, a representative of Simpson Thacher, on behalf of Microsoft, presented draft retention letters to each of Messrs. Benjamin and Tempesta and legal counsel to Messrs. Benjamin and Tempesta negotiated with representatives of Simpson Thacher regarding the terms of each of Mr. Benjamin’s and Mr. Tempesta’s continued employment following closing. During such discussions, the representatives of Simpson Thacher reiterated that Mr. Benjamin’s and Mr. Tempesta’s continued employment following closing was essential to Microsoft’s willingness to proceed with the transaction, and that Microsoft would not consider entering into a transaction with Nuance if Messrs. Benjamin and Tempesta did not agree to continue their employment with Nuance following the closing of the transaction (which would include Messrs. Benjamin and Tempesta waiving certain contractual rights under their respective employment agreements).
Between April 5, 2021 and April 9, 2021, representatives of Paul Weiss, representatives of Simpson Thacher and members of management of each of Nuance and Microsoft and representatives of their respective financial advisors had multiple conversations to resolve outstanding issues under the merger agreement and ancillary agreements and exchanged multiple drafts of those agreements. As part of those discussions, on April 9, 2021, Microsoft and Nuance agreed to set the termination fee at $515 million. On April 9, 2021, the Nuance Board of Directors held a videoconference meeting, with representatives of Nuance management, Evercore and Paul Weiss participating. Representatives of Evercore made a presentation to the directors that reviewed the terms of the transaction, the premium to various benchmarks and multiples implied by the proposed $56.00 per share price, as well as a summary of the revised offer relative to various valuation analyses. Also at this meeting, Evercore reviewed with the Nuance Board of Directors its financial analysis of the merger consideration and delivered to the Nuance Board of Directors its opinion, which was subsequently confirmed by delivery of a written opinion dated April 9, 2021, to the effect that, as of that date and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s opinion, the merger consideration of $56.00 per share to be received by the holders of shares of Nuance common stock in the merger was fair, from a financial point of view, to such holders. For more information about Evercore’s opinion, see the section of this proxy statement captioned “The Merger—Fairness Opinion of Evercore.” A representative of Paul Weiss then made a presentation to the Nuance Board of Directors that reviewed the fiduciary duties of directors as previously discussed, and then reviewed the proposed terms of the merger agreement, including the conditions to closing, each party’s termination rights, the ability of the Nuance Board of Directors to respond to unsolicited acquisition proposals, Microsoft’s obligations with respect to obtaining regulatory clearances and the provisions of the merger agreement relating to employee benefits, incentive equity and bonus payments and related matters. A representative of Paul Weiss explained the circumstances under which Nuance could be required to pay a termination fee and the fact that the termination fee as negotiated was at the low end of the range of termination fees for comparable transactions. A representative of Paul Weiss reported on the retention letters presented to Messrs. Benjamin and Tempesta. After extensive discussion, the Nuance Board of Directors (i) determined that it was advisable and in the best interests of Nuance and its stockholders for Nuance to enter into the merger agreement; (ii) approved the execution, delivery and performance of the merger agreement; (iii) resolved to recommend that the stockholders of Nuance vote in favor of the adoption of the merger agreement; and (iv) resolved to submit the merger agreement to Nuance’s stockholders for adoption at the special meeting.
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Over April 10, 2021 and April 11, 2021, representatives of Simpson Thacher and Paul Weiss spoke on numerous occasions to finalize the terms of ancillary documents and prepare for execution of the merger agreement. At the same time, counsel to Messrs. Benjamin and Tempesta finalized the terms of the retention letter agreements with Microsoft, which are described below under “Interests of Directors and Executive Officers in the Merger.”
On April 11, 2021, the merger agreement was executed and delivered by the parties.
On April 12, 2021, Nuance and Microsoft issued a joint press release announcing the execution of the merger agreement.
Recommendation of Our Board of Directors and Reasons for the Merger
Recommendation of the Nuance Board of Directors to Adopt the Merger Agreement, thereby Approving the Transactions Contemplated by the Merger Agreement.
On April 9, 2021, the Nuance Board of Directors, after considering various factors described below, and after consultation with independent legal and financial advisors, unanimously (i) determined that it is in the best interests of Nuance and its stockholders to enter into the merger agreement and consummate the merger upon the terms and subject to the conditions set forth therein and declared the merger agreement advisable; (ii) approved the execution and delivery of the merger agreement by Nuance, the performance by Nuance of its covenants and other obligations thereunder, and the consummation of the merger upon the terms and conditions set forth therein; (iii) directed that the adoption of the merger agreement be submitted to a vote at a meeting of the stockholders of Nuance and (iv) resolved to recommend that Nuance stockholders vote in favor of adoption of the merger agreement in accordance with the DGCL.
The Nuance Board of Directors unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement, thereby approving the transactions contemplated by the merger agreement, including the merger.
Reasons for the Merger
In recommending that Nuance’s stockholders vote in favor of the merger proposal, the Nuance Board of Directors considered a number of potentially positive factors, including, but not limited to, the following (which factors are not necessarily presented in order of relative importance):
Premium to Market Price. The fact that the merger consideration of $56.00 per share in cash to be received by the holders of shares of Nuance common stock in the merger represents a significant premium over the market price at which shares of Nuance common stock traded prior to the announcement of the execution of the merger agreement, including the fact that the merger consideration represents a premium of:
approximately 275.6% over the closing stock price on April 23, 2018, the date that Mr. Benjamin became Chief Executive Officer of Nuance (or approximately 353.3% higher if including the value of the Cerence shares received by Nuance stockholders in the Cerence spin-off);
approximately 277.7% over the closing stock price on October 2, 2019, the date after the date that Nuance completed the Cerence spin-off (or approximately 303.7% higher if including the value of the Cerence shares received by Nuance stockholders in the Cerence spin-off);
approximately 96.3% over the volume-weighted average closing price of Nuance common stock for the period beginning October 2, 2019, the date after the date that Nuance completed the Cerence spin-off, and ended April 8, 2021;
approximately 66.0% over the volume-weighted average closing stock price of shares of Nuance common stock for the one-year period ended April 8, 2021;
approximately 23.8% over the closing stock price of Nuance common stock on April 8, 2021, the last trading day prior to the approval of the transaction;
approximately 28.6% over the volume-weighted average closing stock price of shares of Nuance common stock during the 30 days ended April 8, 2021; and
approximately 10.9% over the highest closing stock price of shares of Nuance common stock during the 52-week period ended April 8, 2021.
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Form of Consideration. The fact that the proposed merger consideration is all cash, which provides stockholders certainty of value and liquidity for their shares of Nuance common stock following a period of dramatic growth in Nuance’s stock price while eliminating long term business and execution risks.
Opinion of Evercore Group L.L.C. The delivery of the opinion of Evercore, dated April 9, 2021, to the Nuance Board of Directors as to the fairness, from a financial point of view and as of the date of the opinion and based upon and subject to the various qualifications and assumptions set forth therein, of the merger consideration to the holders of Nuance common stock, as more fully described below in the section entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Opinion of Nuance’s Financial Advisor — Opinion of Evercore Group, L.L.C.” beginning on page [39].
Fair Value. The belief of the Nuance Board of Directors that the merger represents fair value for the shares of Nuance common stock, taking into account the Nuance Board of Directors’ familiarity with Nuance’s current and historical financial condition, results of operations, business, competitive position and prospects, as well as Nuance’s future business plan and potential long-term value.
Loss of Opportunity. The possibility that, if the Nuance Board of Directors declined to adopt the merger agreement, there may not be another opportunity for Nuance’s stockholders to receive a comparably priced transaction with a comparable level of closing certainty.
Risks Inherent in Nuance’s Business Plan. Nuance’s short-term and long-term financial projections and the perceived challenges and risks associated with Nuance’s ability to meet such projections, including the competitive threats facing Nuance, particularly from companies with significantly more resources, as well as the risks and uncertainties described in the “risk factors” and “forward looking statements” sections of Nuance’s disclosures filed with the SEC, including the fact that Nuance’s actual financial results in future periods could differ materially and adversely from the projected results.
Arm’s-Length Negotiations. The fact that the Nuance Board of Directors and Nuance’s senior management, in coordination with Nuance’s outside legal and financial advisors, vigorously negotiated on an arm’s-length basis with Microsoft with respect to price and other terms and conditions of the merger agreement, including obtaining a price increase by Microsoft from its initial price of $53.50 per share to a price of $56.00 per share as well as the stated position of Microsoft that the agreed price was the highest price per share to which Microsoft was willing to agree. In addition, the Nuance Board of Directors considered the fact that, as to matters related to retention arrangements for key executives, such retention arrangements were not discussed with Microsoft until after Microsoft increased its price per share to a price of $56.00 per share and substantially all terms of the merger agreement were agreed.
Other Strategic Alternatives. The belief of the Nuance Board of Directors, following multiple years of reviews of strategy alternatives and transformative transactions, and considering the remaining strategic alternatives reasonably available to Nuance (including continuing to operate on a stand-alone basis), in each case taking into account the potential benefits, risks and uncertainties associated with those alternatives, that the merger represents Nuance’s best reasonably available prospect for maximizing the value to Nuance’s stockholders.
Board Review of Transaction. The fact that the Nuance Board of Directors met, along with Nuance’s financial and legal advisors, to evaluate and discuss the material terms and conditions of, and other matters related to, the merger, in person and telephonically eight times between November 19, 2020, the date that representatives of Microsoft requested a meeting with Nuance’s management to begin evaluating the merits of a potential acquisition, and April 11, 2021, the date the merger agreement was signed, and the fact that, during the prior September (when Nuance’s share price was substantially lower), Party C had stated that Nuance’s high valuation would preclude Party C from pursuing a transaction with Nuance.
Terms of the Merger Agreement. The belief of the Nuance Board of Directors that the provisions of the merger agreement, including the respective representations, warranties and covenants and termination rights of the parties and termination fees payable by Nuance, are reasonable and customary. The Nuance Board of Directors also believed that the terms of the merger agreement include the most favorable terms reasonably attainable from Microsoft.
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Conditions to the Consummation of the Merger; Likelihood of Closing. The fact that the Nuance Board of Directors considered the reasonable likelihood of the consummation of the transactions contemplated by the merger agreement in light of the conditions in the merger agreement to the obligations of Microsoft, as well as Nuance’s ability to seek specific performance to prevent breaches of the merger agreement, including to cause the merger to be consummated if all of the conditions to Microsoft’s obligations to effect the merger closing have been satisfied or waived.
Regulatory Approvals. The fact that the merger agreement requires that Microsoft use its reasonable best efforts to take certain actions necessary to obtain regulatory clearance and satisfy the regulatory conditions, including the fact that Microsoft agreed to accept potential remedies in order to obtain regulatory approval, including Microsoft’s commitment to divest or take other actions with respect to businesses or assets of Nuance, unless such additional remedies would reasonably be expected to result in a material adverse effect on Nuance and its subsidiaries, and Microsoft’s commitment to divest or take other actions with respect to businesses or assets of Microsoft, unless such additional remedies would reasonably be expected to have a material impact on the benefits expected to be derived from the merger by Microsoft or have more than an immaterial impact on any business or product line of Microsoft and its subsidiaries. For a more complete description of Microsoft’s obligations to obtain required regulatory approvals, see the section below entitled “Terms of the Merger Agreement — Efforts to Close the Merger” beginning on page [72]. The merger agreement also provides an appropriate “termination date” by which time it is reasonable to expect that the regulatory conditions are likely to be satisfied. For a more complete description of the termination date, see the section below entitled “Terms of the Merger Agreement — Termination of the Merger Agreement” beginning on page [74].
No Financing Condition. The fact that Microsoft’s representations contained in the merger agreement include a representation that Microsoft will have all available funds necessary for the payment of the aggregate merger consideration and the fact that the merger is not subject to a financing condition.
Ability to Respond to Certain Unsolicited Takeover Proposals. The fact that, while the merger agreement prohibits Nuance from actively soliciting competing bids to acquire it, the Nuance Board of Directors has rights, under certain circumstances, to engage in discussions with, and provide information to, third parties submitting written unsolicited takeover proposals and to terminate the merger agreement in order to enter into an alternative acquisition agreement that the Nuance Board of Directors determines to be a superior proposal, provided that Nuance pays a $515,000,000 termination fee. The Nuance Board of Directors further considered that the timing of the merger would provide ample opportunity for such third parties to submit proposals.
Change of Recommendation. The fact that the Nuance Board of Directors has the right to make an adverse recommendation change to Nuance stockholders if a superior proposal is available or an intervening event has occurred, provided that Nuance pays a $515,000,000 termination fee if Microsoft terminates the merger agreement.
Termination Fee. The belief of the Nuance Board of Directors that the termination fee of $515,000,000 is reasonable in amount, at the low end of the range of termination fees for comparable transactions and will not unduly deter any other party that might be interested in acquiring Nuance.
Retention of Key Employees. The belief of the Nuance Board of Directors that a retention plan for certain employees of Nuance that Nuance would be permitted to implement in connection with the merger would help assure the continuity of management, and increase the likelihood of the successful operation of Nuance during the period prior to closing.
Appraisal Rights. The availability of appraisal rights with respect to the merger for Nuance stockholders who properly exercise their rights under the DGCL, which would give these stockholders the ability to seek and be paid a judicially determined appraisal of the “fair value” of their shares at the completion of the merger.
Recommendation of Senior Management. The recommendation of Nuance’s senior management in favor of the merger.
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The Nuance Board of Directors also considered and balanced against the potentially positive factors a number of uncertainties, risks and other potentially negative factors in its deliberations concerning the merger and the other transactions contemplated by the merger agreement, including, but not limited to, the following (not necessarily in order of relative importance):
No Stockholder Participation in Future Growth or Earnings. The fact that Nuance’s stockholders will lose the opportunity to realize additional potential long-term value through Nuance’s successful execution as an independent public company.
Impact of Announcement on Nuance. The fact that the announcement and pendency of the merger, or the failure to complete the merger, may result in significant costs to Nuance and cause substantial harm to Nuance’s relationships with its employees (including making it more difficult to attract and retain key personnel and the possible loss of key management and other personnel) and its customers, partners, providers and suppliers, particularly in the event that the merger is not consummated.
Diversion of Management Attention. The substantial time and effort of management required to consummate the merger, which could disrupt Nuance’s business operations and may divert employees’ attention away from Nuance’s day-to-day operations, and the impact of such efforts on Nuance’s business in the event that the merger is not consummated.
Tax Treatment. The fact that the all-cash transaction would be taxable to holders of Nuance common stock for U.S. federal income tax purposes.
Closing Certainty. The fact that there can be no assurance that all conditions to the parties’ obligations to consummate the merger will be satisfied, including approval by the holders of Nuance common stock and the approval of certain regulatory authorities.
Pre-Closing Covenants. The restrictions on Nuance’s conduct of business prior to completion of the merger contained in the merger agreement, which could delay or prevent Nuance from undertaking business opportunities that may arise or taking other actions with respect to its operations during the pendency of the merger without Microsoft’s consent, and the impact of such delay or loss of business opportunities on Nuance’s business in the event that the merger is not consummated.
No Solicitation. The restrictions in the merger agreement on Nuance’s ability to actively solicit competing bids to acquire it.
Termination Fee. The fact that a termination fee of $515,000,000 could become payable to Microsoft under specified circumstances, including upon the termination of the merger agreement in order to enter into an alternative acquisition agreement with respect to a superior proposal.
No Reverse Termination Fee. The fact that if the merger is not completed as a result of regulatory impediments, Microsoft will not be obligated to pay any “reverse termination fee” to Nuance.
Loss of Key Personnel. The risk that, despite retention efforts prior to consummation of the merger, Nuance may lose personnel, and the impact of such losses in the event that the merger is not consummated.
Timing of Closing. The amount of time it could take from the date of its deliberations and the special meeting to complete the transactions, including the fact that an extended period of time may exacerbate the impact of other risks considered by the Nuance Board of Directors described herein.
After taking into account all of the factors set forth above, as well as others, the Nuance Board of Directors concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the merger were outweighed by the potential benefits of the merger to Nuance’s stockholders.
The foregoing discussion of factors considered by the Nuance Board of Directors is not intended to be exhaustive, but summarizes the material factors considered by the Nuance Board of Directors. In light of the variety of factors considered in connection with their evaluation of the merger agreement and the merger, the Nuance Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching their determinations and recommendations. Moreover, each member of the Nuance Board of Directors applied his or her own personal business judgment to the process and may have given different weight to different factors. The Nuance Board of Directors did not undertake to make
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any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support their ultimate determinations. The Nuance Board of Directors based their recommendations on the totality of the information presented, including thorough discussions with, and questioning of, Nuance’s senior management and the Nuance Board of Directors’ financial advisors and outside legal counsel. It should be noted that this explanation of the reasoning of the Nuance Board of Directors and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Forward-Looking Statements” beginning on page [20].
Opinion of Nuance’s Financial Advisor
Opinion of Evercore Group L.L.C.
Overview
Nuance retained Evercore to act as its financial advisor in connection with the merger. As part of this engagement, Nuance requested that Evercore evaluate the fairness, from a financial point of view, of the merger consideration to be received by the holders of Nuance common stock. At a meeting of the Nuance Board of Directors held on April 9, 2021, Evercore rendered to the Nuance Board of Directors its opinion to the effect that, as of April 9, 2021 and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s opinion, the merger consideration of $56.00 per share to be received by the holders of Nuance common stock in the merger was fair, from a financial point of view, to such holders.
The full text of the written opinion of Evercore, dated April 9, 2021, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex C to this proxy statement and is incorporated herein by reference. Nuance encourages you to read this opinion carefully and in its entirety. Evercore’s opinion was addressed to, and provided for the information and benefit of, the Nuance Board of Directors (in its capacity as such) in connection with its evaluation of the proposed merger. The opinion does not constitute a recommendation to the Nuance Board of Directors or to any other persons in respect of the merger, including as to how any holder of shares of Nuance common stock should vote or act in respect of the merger. Evercore’s opinion does not address the relative merits of the merger as compared to other business or financial strategies that might be available to Nuance, nor does it address the underlying business decision of Nuance to engage in the merger.
In connection with rendering its opinion Evercore, among other things:
(i)
reviewed certain publicly available business and financial information relating to Nuance that Evercore deemed to be relevant, including publicly available research analysts’ estimates;
(ii)
reviewed certain internal projected financial data relating to Nuance prepared and furnished to Evercore by management of Nuance, as approved for Evercore’s use by Nuance, which we refer to as the Nuance Forecasts, which are described in more detail in the section entitled “Financial Forecasts”;
(iii)
discussed with management of Nuance their assessment of the past and current operations of Nuance, the current financial condition and prospects of Nuance, and the Nuance Forecasts;
(iv)
reviewed the reported prices and the historical trading activity of Nuance common stock;
(v)
compared the financial performance of Nuance and its stock market trading multiples with those of certain other publicly traded companies that Evercore deemed relevant;
(vi)
compared the financial performance of Nuance and the valuation multiples relating to the Merger with the financial terms, to the extent publicly available, of certain other transactions that Evercore deemed relevant;
(vii)
reviewed the financial terms and conditions of a draft, dated April 8, 2021, of the Merger Agreement; and
(viii)
performed such other analyses and examinations and considered such other factors that Evercore deemed appropriate
Set forth below is a summary of the material financial analyses reviewed by Evercore with the Nuance Board of Directors on April 9, 2021, in connection with rendering its opinion. The following summary, however, does not
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purport to be a complete description of the analyses performed by Evercore. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before April 8, 2021 (the last trading date prior to the rendering of Evercore’s opinion to the Nuance Board of Directors), and is not necessarily indicative of current market conditions.
For purposes of its analyses and reviews, Evercore considered general business, economic, market and financial conditions, industry sector performance, and other matters, as they existed and could be evaluated as of the date of its opinion, many of which are beyond the control of Nuance. The estimates contained in Evercore’s analyses and reviews, and the ranges of valuations resulting from any particular analysis or review, are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Evercore’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Evercore’s analyses and reviews are inherently subject to substantial uncertainty.
The following summary of Evercore’s financial analyses includes information presented in tabular format. In order to fully understand the analyses, the tables should be read together with the full text of each summary. The tables are not intended to stand alone and alone do not constitute a complete description of Evercore’s financial analyses. Considering the tables below without considering the full narrative description of Evercore’s financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of such analyses.
Summary of Financial Analyses
Selected Public Company Trading Analysis
Evercore reviewed and compared certain financial information of Nuance to corresponding financial multiples and ratios for the following selected publicly traded companies in the vertical software industry, which we refer to as the vertical software companies, and the healthcare technology and enterprise call center technology industry, which we refer to as the HC & ENT companies, and together with the vertical software companies, as the selected companies:
Vertical Software Companies
Veeva Systems Inc.
Teladoc Health, Inc.
SS&C Technologies Holdings, Inc.
Tyler Technologies, Inc.
PTC Inc.
Aspen Technology, Inc.
CDK Global, Inc.
Guidewire Software, Inc.
Q2 Holdings, Inc.
AppFolio, Inc.
Cerence Inc.
Blackbaud, Inc.
American Well Corporation
2U, Inc.
Phreesia, Inc.
Health Catalyst, Inc.
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Healthcare Technology & Enterprise Call Center Technology Companies
Healthcare Technology:
Veeva Systems Inc.
Teladoc Health, Inc.
Cerner Corporation
R1 RCM Inc.
Omnicell, Inc.
Premier, Inc.
American Well Corporation
Phreesia, Inc.
Health Catalyst, Inc.
Allscripts Healthcare Solutions, Inc.
NextGen Healthcare, Inc.
Vocera Communications, Inc.
HealthStream, Inc.
Enterprise Call Center Technology:
NICE Ltd.
Pegasystems Inc.
Medallia, Inc.
LivePerson, Inc.
Verint Systems Inc.
eGain Corporation
For each of the selected companies, Evercore calculated (i) total enterprise value (defined as equity market capitalization plus total debt (assuming conversion of convertible debt if in the money), plus preferred equity and non-controlling interest, less cash and cash equivalents) as a multiple of estimated revenue for the 2021 calendar year, which we refer to as TEV / CY21E Revenue, (ii) total enterprise value as a multiple of estimated earnings before interest, taxes, depreciation, amortization before stock-based compensation expense, and certain non-recurring items, which we refer to as Adjusted EBITDA (which, with respect to Nuance, excludes restructuring and other costs, net, acquisition-related costs, net, and certain other expenses that result from unplanned events outside the ordinary course of continuing operations), for the 2021 calendar year, which we refer to as 2021E Adjusted EBITDA, which multiple we refer to as TEV / CY21E Adjusted EBITDA, and (iii) market value of equity (defined as equity market capitalization) as a multiple of levered, after-tax free cash flows, which we refer to as LFCF, defined as cash flow from operations less capital expenditures, which we refer to as MEV / CY21E LFCF, in each case, based on closing share prices as of April 8, 2021. For purposes of calculating such multiples with respect to the HC & ENT companies, Evercore assigned a weight of 60% to such healthcare technology companies and a weight of 40% to such enterprise call center technology companies based on its professional judgment and experience. Estimated financial data of the selected companies were based on publicly available filings and research analysts’ estimates.
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This analysis indicated the following:
Benchmark
Mean
Median
Vertical Software
 
 
TEV / CY21E Revenue
11.4x
11.5x
TEV / CY21E Adjusted EBITDA
33.0x
30.0x
MEV / CY21E LFCF
38.1x
43.7x
Healthcare Technology & Enterprise Call Center Technology
 
 
TEV / CY21E Revenue
7.8x
6.8x
TEV / CY21E Adjusted EBITDA
22.1x
18.6x
MEV / CY21E LFCF
34.3x
28.7x
Based on the multiples it derived for the vertical software companies and based on its professional judgment and experience, Evercore (i) selected a reference range of enterprise value / revenue multiples of 11.0x – 13.0x and applied this range of multiples to Nuance’s estimated revenue in calendar year 2021 based on the Nuance Forecasts, (ii) selected a reference range of enterprise value / Adjusted EBITDA multiples of 30.0x – 40.0x and applied this range of multiples to (a) Nuance’s 2021E Adjusted EBITDA based on the Nuance Forecasts and (b) Nuance’s 2021E Adjusted EBITDA (as reduced by the Short Term Incentive Plan expenses, which we refer to as STIP) based on the Nuance Forecasts, and (iii) selected a reference range of equity value / LFCF multiples of 40.0x – 50.0x and applied this range of multiples to (a) Nuance’s estimated LFCF in calendar year 2021 based on the Nuance Forecasts and (b) Nuance’s estimated LFCF (as reduced by STIP) in calendar year 2021 based on the Nuance Forecasts. Based on this range of implied equity value or enterprise value, as applicable, Nuance’s estimated total debt less cash and cash equivalents (assuming conversion of Nuance’s convertible debt), which we refer to as “net debt,” as of December 31, 2020, and the number of fully diluted shares of Nuance common stock, in each case as provided by Nuance’s management, this analysis indicated a range of implied equity values per share of Nuance common stock as indicated below, as compared to the merger consideration of $56.00 per share of Nuance common stock.
Reference Range
Implied Equity Value Per Share of Nuance
Common Stock
11.0x - 13.0x CY 2021 Revenue
$44.59 to $52.76
30.0x - 40.0x CY 2021 Adj. EBITDA
$36.83 to $49.23
30.0x - 40.0x CY 2021 Adj. EBITDA (reduced by STIP)
$31.70 to $42.39
40.0x - 50.0x CY 2021 LFCF
$33.83 to $42.29
40.0x - 50.0x CY 2021 LFCF (reduced by STIP)
$27.92 to $34.90
In addition, based on the multiples it derived for the HC & ENT companies and based on its professional judgment and experience, Evercore (i) selected a reference range of enterprise value / revenue multiples of 8.0x – 11.0x and applied this range of multiples to Nuance’s estimated revenue in calendar year 2021 based on the Nuance Forecasts, (ii) selected a reference range of enterprise value / Adjusted EBITDA multiples of 20.0x – 30.0x and applied this range of multiples to (a) Nuance’s 2021E Adjusted EBITDA based on the Nuance Forecasts and (b) Nuance’s 2021E Adjusted EBITDA (as reduced by STIP) based on the Nuance Forecasts and (iii) selected a reference range of equity value / LFCF multiples of 30.0x – 40.0x and applied this range of multiples to (a) Nuance’s estimated LFCF in calendar year 2021 based on the Nuance Forecasts and (b) Nuance’s estimated LFCF (as reduced by STIP) in calendar year 2021 based on the Nuance Forecasts. Based on this range of implied equity value or enterprise value, as applicable, Nuance’s estimated net debt as of December 31, 2020, and the number of fully diluted shares of Nuance common stock, in each case as provided by Nuance’s management, this analysis indicated a range of implied equity values per share of Nuance common stock as indicated below, as compared to the merger consideration of $56.00 per share of Nuance common stock.
Reference Range
Implied Equity Value Per Share of Nuance
Common Stock
8.0x - 11.0x CY 2021 Revenue
$32.33 to $44.59
20.0x - 30.0x CY 2021 Adj. EBITDA
$24.43 to $36.83
20.0x - 30.0x CY 2021 Adj. EBITDA (reduced by STIP)
$20.74 to $31.70
30.0x - 40.0x CY 2021 LFCF
$25.37 to $33.83
30.0x - 40.0x CY 2021 LFCF (reduced by STIP)
$22.77 to $27.92
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Although none of the selected companies is directly comparable to Nuance, Evercore selected these companies because they are publicly traded companies that Evercore, in its professional judgment and experience, considered generally relevant to Nuance for purposes of its financial analyses. In evaluating the selected companies, Evercore made judgments and assumptions with regard to general business, economic and market conditions affecting the selected companies and other matters, as well as differences in the selected companies’ financial, business and operating characteristics. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments regarding many factors that could affect the relative values of the selected companies and the multiples derived from the selected companies. Mathematical analysis, such as determining the mean or median, is not in itself a meaningful method of using the data of the selected companies.
Discounted Cash Flow Analysis
Evercore performed a discounted cash flow analysis of Nuance to calculate the estimated present value of the standalone unlevered free cash flow, defined as Adjusted EBITDA minus the expense of stock-based compensation, minus taxes, minus changes in net working capital and capital expenditures, that Nuance was forecasted to generate during the second half of Nuance’s fiscal year 2021 and Nuance’s fiscal years 2022 through 2025 based on the Nuance Forecasts. Evercore calculated terminal values for Nuance by applying perpetuity growth rates of 4.0% to 5.0%, which range was selected based on Evercore’s professional judgment and experience, to a terminal year estimate of the unlevered free cash flow that Nuance was forecasted to generate based on the Nuance Forecasts. The cash flows and terminal values in each case were then discounted to present value as of March 31, 2021, using discount rates ranging from 8.0% to 9.0%, which were based on an estimate of Nuance’s weighted average cost of capital based on Evercore’s professional judgment and experience. Based on this range of implied enterprise values, Nuance’s estimated net debt as of December 31, 2020, and the number of fully diluted shares of Nuance common stock, in each case as provided by Nuance’s management, this analysis indicated a range of implied equity values per share of Nuance common stock of $29.23 to $48.14, compared to the merger consideration of $56.00 per share of Nuance common stock.
Other Factors
Evercore also noted certain other factors, which were not considered material to its financial analyses with respect to its opinion, but were referenced for informational purposes only, including, among other things, the following:
Sum-of-the-Parts Discounted Cash Flow Analysis
Evercore performed a discounted sum-of-the-parts (SOTP) cash flow analysis of Nuance to calculate the estimated present value of the unlevered free cash flow that Nuance was forecasted to generate during the second half of Nuance’s fiscal year 2021 and Nuance’s fiscal years 2022 through 2025 based on the Nuance Forecasts. Evercore calculated terminal values for Nuance (excluding the Nuance Dragon Ambient eXperience, which we refer to as DAX) by applying perpetuity growth rates of 3.5% to 4.5%, which range was selected based on Evercore’s professional judgment and experience, to a terminal year estimate of the unlevered free cash flow that Nuance was forecasted to generate based on the Nuance Forecasts. The cash flows and terminal values in each case were then discounted to present value as of March 31, 2021, using discount rates ranging from 8.0% to 9.0%, which were based on an estimate of Nuance’s weighted average cost of capital. Evercore also calculated terminal values for DAX by applying a revenue multiple of 15.0x – 20.0x, which range was selected based on Evercore’s professional judgment and experience, to a terminal year estimate of the unlevered free cash flow that DAX was forecasted to generate based on the Nuance Forecasts. The cash flows and terminal values in each case were then discounted to present value as of March 31, 2021, using discount rates ranging from 17.5% to 22.5%, which were based on an estimate of the weighted average cost of capital for Nuance in relation to DAX based on Evercore’s professional judgment and experience. Based on this range of implied aggregate enterprise values, Nuance’s estimated net debt as of December 31, 2020, and the number of fully diluted shares of Nuance common stock, in each case as provided by Nuance’s management, this analysis indicated a range of implied equity values per share of Nuance common stock of $33.34 to $52.10, compared to the merger consideration of $56.00 per share of Nuance common stock.
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Last 52-Week Trading Range
Evercore reviewed historical trading prices of shares of Nuance common stock during the 12-month period ended April 8, 2021, noting that the low and high closing prices during such period ranged from $16.99 to $50.51 per share of Nuance common stock, respectively.
Equity Research Analyst Price Targets
Evercore reviewed public market trading price targets for the shares of Nuance common stock prepared and published by equity research analysts that were publicly available as of April 8, 2021, the last trading date prior to the rendering of Evercore’s opinion to the Nuance Board of Directors. These price targets reflect analysts’ estimates of the future public market trading price of the shares of Nuance common stock at the time the price target was published. As of April 8, 2021, the range of selected equity research analyst price targets per share of Nuance common stock was $45.00 to $65.00. Public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for the shares of Nuance common stock and these target prices and the analysts’ earnings estimates on which they were based are subject to risk and uncertainties, including factors affecting the financial performance of Nuance and future general industry and market conditions.
Selected HC & ENT Transactions Analysis
Evercore reviewed financial information related to selected transactions involving target companies in the healthcare technology and enterprise call center technology industry announced since, in the case of healthcare technology transactions, 2018, and in the case of enterprise call center technology transactions, 2011, which we refer to as the HC & ENT selected transactions.
For each healthcare technology selected transaction, Evercore calculated the announced transaction value or, if unavailable, the implied enterprise value (defined as the target company’s implied equity value based on the consideration paid in the applicable transaction plus total debt, plus preferred equity and non-controlling interest, less cash and cash equivalents), as a multiple of the last 12-month revenue, which we refer to as LTM Revenue, if available, for the target company at the time of the announcement of the applicable transaction (or where last 12-month revenue information was not publicly available, as a multiple of the most recent calendar year revenue). Estimated financial data of the healthcare technology selected transactions were based on publicly available information at the time of announcement of the relevant transaction.
This analysis indicated the following:
Benchmark
Mean
Median
TEV / LTM Revenue
9.7x
7.5x
For each enterprise call center technology selected transaction, Evercore calculated the announced transaction value or, if unavailable, the implied enterprise value (defined as the target company’s implied equity value based on the consideration paid in the applicable transaction plus total debt, plus preferred equity and non-controlling interest, less cash and cash equivalents), as a multiple of the LTM Revenue, if available, for the target company at the time of the announcement of the applicable transaction (or where last 12-month revenue information was not publicly available, as a multiple of the most recent calendar year revenue). Estimated financial data of the enterprise call center technology selected transactions were based on publicly available information at the time of announcement of the relevant transaction.
This analysis indicated the following:
Benchmark
Mean
Median
TEV / LTM Revenue
3.3x
2.8x
Based on the multiples it derived from the HC & ENT selected transactions and based on its professional judgment and experience, Evercore selected a reference range of enterprise value to LTM Revenue multiples of 6.0x to 8.0x and applied this range of multiples to Nuance’s LTM Revenue as of March 31, 2021 based on the financial results for Nuance provided by Nuance’s management. Based on this range of implied enterprise values,
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Nuance’s estimated net debt as of December 31, 2020, and the number of fully diluted shares of Nuance common stock, in each case as provided by Nuance’s management, this analysis indicated a range of implied equity values per share of Nuance common stock of $22.43 to $30.21, compared to the merger consideration of $56.00 per share of Nuance common stock.
Although none of the target companies or businesses reviewed in the selected transactions analysis is directly comparable to Nuance and none of the selected transactions is directly comparable to the merger, Evercore selected these transactions because they involve companies or businesses that Evercore, in its professional judgment and experience, considered generally relevant to Nuance for purposes of its financial analyses. In evaluating the selected transactions, Evercore made judgments and assumptions with regard to general business, economic and market conditions and other factors existing at the time of the selected transactions, and other matters, as well as differences in financial, business and operating characteristics and other factors relevant to the target companies or businesses in the selected transactions. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments regarding many factors that could affect the relative values of the target companies or businesses in the selected transactions and the multiples derived from the selected transactions. Mathematical analysis, such as determining the mean or median, is not in itself a meaningful method of using the data of the selected transactions.
Selected Vertical Software Transactions Analysis
Evercore reviewed financial information related to selected transactions involving target companies in the vertical software industry announced since 2017, which we refer to as the vertical software selected transactions. The vertical software selected transactions reviewed by Evercore, and the month and year each was announced, were as follows:
For each vertical software selected transaction, Evercore calculated the announced transaction value, or if unavailable, the implied enterprise value (defined as the target company’s implied equity value based on the consideration paid in the applicable transaction plus total debt, plus preferred equity and non-controlling interest, less cash and cash equivalents), as a multiple of the LTM Revenue, if available, for the target company at the time of the announcement of the applicable transaction (or where last 12-month revenue information was not publicly available, as a multiple of the most recent calendar year revenue). Estimated financial data of the vertical software selected transactions were based on publicly available information at the time of announcement of the relevant transaction.
This analysis indicated the following:
Benchmark
Mean
Median
TEV / LTM Revenue
8.9x
8.8x
Based on the multiples it derived from the vertical software selected transactions and based on its professional judgment and experience, Evercore selected a reference range of enterprise value to LTM Revenue multiples of 9.0x to 10.0x and applied this range of multiples to Nuance’s LTM Revenue as of March 31, 2021 based on the financial results for Nuance provided by Nuance’s management. Based on this range of implied enterprise values, Nuance’s estimated net debt as of December 31, 2020, and the number of fully diluted shares of Nuance common stock, in each case as provided by Nuance’s management, this analysis indicated a range of implied equity values per share of Nuance common stock of $34.03 to $37.86, compared to the merger consideration of $56.00 per share of Nuance common stock.
Although none of the target companies or businesses reviewed in the selected transactions analysis is directly comparable to Nuance and none of the selected transactions is directly comparable to the merger, Evercore selected these transactions because they involve companies or businesses that Evercore, in its professional judgment and experience, considered generally relevant to Nuance for purposes of its financial analyses. In evaluating the selected transactions, Evercore made judgments and assumptions with regard to general business, economic and market conditions and other factors existing at the time of the selected transactions, and other matters, as well as differences in financial, business and operating characteristics and other factors relevant to the target companies or businesses in the selected transactions. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments
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regarding many factors that could affect the relative values of the target companies or businesses in the selected transactions and the multiples derived from the selected transactions. Mathematical analysis, such as determining the mean or median, is not in itself a meaningful method of using the data of the selected transactions.
Premiums Paid Analysis
Using publicly available information, Evercore reviewed 80 transactions and announced bids for control of U.S. public targets with an aggregate transaction value greater than $10 billion announced from January 1, 2010 to April 1, 2021. Using publicly available information, Evercore calculated the premiums paid as the percentage by which the per share consideration paid or proposed to be paid in each such transaction exceeded the closing market prices per share of the target companies one day, one week and four weeks prior to announcement of each transaction.
This analysis indicated the following:
 
1 Day
Prior
4 Weeks
Prior
52-Week
High
Median
23.3%
33.9%
4.2%
Mean
28.7%
40.0%
7.7%
Based on the results of this analysis and its professional judgment and experience, Evercore applied a premium range of 20.0% to 40.0% to the closing price per share of Nuance common stock of $45.22 as of April 8, 2021 (the last trading date prior to the rendering of Evercore’s opinion to the Nuance Board of Directors) and $44.21 as of March 11, 2021 (last trading day prior to receipt of the offer of $56.00 per share of Nuance common stock), and applied a premium range of 0.0% to 15.0% to the closing price per share of Nuance common stock of $50.51 as of February 8, 2021 (the 52-Week High). This analysis indicated a range of implied equity values per share of Nuance common stock of $54.26 to $63.31, $53.29 to $62.17, and $50.51 to $58.09, compared to the merger consideration of $56.00 per share of Nuance common stock.
Miscellaneous
The foregoing summary of Evercore’s financial analyses does not purport to be a complete description of the analyses or data presented by Evercore to the Nuance Board of Directors. In connection with the review of the merger by the Nuance Board of Directors, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its professional judgment and experience after considering the results of all the analyses. In addition, Evercore 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. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Evercore with respect to the actual value of the shares of Nuance common stock. Rounding may result in total sums set forth in this section not equaling the total of the figures shown.
Evercore prepared these analyses for the purpose of providing an opinion to the Nuance Board of Directors as to the fairness, from a financial point of view, of the merger consideration to the holders of shares of Nuance common stock. These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Evercore’s analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from those forecasted in such estimates.
Evercore’s financial advisory services and its opinion were provided for the information and benefit of the Nuance Board of Directors (in its capacity as such) in connection with its evaluation of the proposed merger. The issuance of Evercore’s opinion was approved by an Opinion Committee of Evercore.
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Evercore did not recommend any specific amount of consideration to the Nuance Board of Directors or Nuance’s management or that any specific amount of consideration constituted the only appropriate consideration in the merger for the holders of Nuance common stock.
Pursuant to the terms of Evercore’s engagement letter with Nuance, Nuance has agreed to pay Evercore a fee for its services that is estimated as of the date of the Merger Agreement to be approximately $70 million, of which $7 million was paid upon delivery of Evercore’s opinion, and the balance of which will be payable contingent upon the consummation of the merger. Nuance has also agreed to reimburse Evercore for its expenses and to indemnify Evercore against certain liabilities arising out of its engagement.
During the two-year period prior to the date of its opinion, Evercore and its affiliates have provided financial advisory services to Nuance and received fees for the rendering of these services in the amount of approximately $1.4 million. During the two-year period prior to the date of its opinion, Evercore and its affiliates have not been engaged to provide financial advisory or other services to Parent and Evercore has not received any compensation from Parent during such period. Evercore may provide financial advisory or other services to Nuance and Parent in the future, and in connection with any such services Evercore may receive compensation.
Evercore and its affiliates engage in a wide range of activities for its and their own accounts and the accounts of customers, including corporate finance, mergers and acquisitions, equity sales, trading and research, private equity, placement agent, asset management and related activities. In connection with these businesses or otherwise, Evercore and its affiliates and/or its or their respective employees, as well as investment funds in which any of them may have a financial interest, may at any time, directly or indirectly, hold long or short positions and may trade or otherwise effect transactions for their own accounts or the accounts of customers, in debt or equity securities, senior loans and/or derivative products or other financial instruments of or relating to Nuance or its affiliates, Parent, potential parties to the merger and their respective affiliates or persons that are competitors, customers or suppliers of Nuance.
Nuance engaged Evercore to act as a financial advisor based on Evercore’s qualifications, experience and reputation. Evercore is an internationally recognized investment banking firm and regularly provides fairness opinions to its clients in connection with mergers and acquisitions, leveraged buyouts and valuations for corporate and other purposes.
Financial Forecasts
In connection with Nuance’s evaluation of the merger, Nuance management prepared non-public financial forecasts as to the potential future performance of Nuance for the fiscal years 2021 to 2025, which we refer to as the “Nuance Forecasts”. Nuance provided the Nuance Board of Directors and Evercore with the Nuance Forecasts in connection with Evercore’s financial analyses summarized under Proposal 1: Adoption of the Merger Agreement – The Merger “Opinion of Nuance’s Financial Advisor” beginning on page [39] and also provided the Nuance Forecasts to Microsoft.
Nuance does not normally publicly disclose long-term forecasts or projections as to future revenue, earnings or other results due to, among other reasons, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates, including the difficulty of predicting general economic and market conditions. The Nuance Forecasts were not prepared with a view to public disclosure and are included in this proxy statement only because such information was made available as described above. The Nuance Forecasts were not prepared with a view to compliance with generally accepted accounting principles as applied in the United States, which we refer to as GAAP, the published guidelines of the SEC regarding projections and forward-looking statements or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The prospective financial information included in this proxy statement has been prepared by, and is the responsibility of, Nuance’s management. BDO USA, LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying prospective financial information and, accordingly, BDO USA, LLP does not express an opinion or any other form of assurance with respect thereto.
Although a summary of the Nuance Forecasts is presented with numerical specificity, the Nuance Forecasts reflect numerous assumptions and estimates as to future events made by our management, including with respect to demand for Nuance’s products and services, capital expenditure levels for the applicable periods, acquisition-related expenditure levels for the applicable periods and other matters, many of which are difficult to
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predict and subject to significant economic and competitive uncertainties beyond Nuance’s control, that our management believed in good faith were reasonable at the time the Nuance Forecasts were prepared, taking into account the relevant information available to management at the time. However, this information is not fact and should not be relied upon as necessarily indicative of actual future results. Important factors that may affect actual results and cause the Nuance Forecasts not to be achieved include general economic and financial conditions, industry performance, accuracy of certain accounting assumptions, changes in actual or projected cash flows, competitive pressures and other factors described or referenced under the section entitled “Forward-Looking Statements” beginning on page [20]. In addition, the Nuance Forecasts do not take into account any circumstances or events occurring after the date that they were prepared and do not give effect to the merger. As a result, there can be no assurance that the Nuance Forecasts will or would be realized, and actual results may be materially better or worse than those contained in the Nuance Forecasts.
The Nuance Forecasts are not a reliable indication of future results, and Nuance and its management team and advisors do not endorse the Nuance Forecasts as such, and they do not make any representation to readers of this document concerning the ultimate performance of Nuance or the combined company compared to the Nuance Forecasts. Nuance is including these Nuance Forecasts in this document solely because they were among the financial information made available to the Nuance Board of Directors and Evercore in connection with their evaluation of the merger, and not to influence your decision on how to vote on any proposal.
The Nuance Forecasts should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding Nuance contained in our public filings with the SEC. Our management reviewed the Nuance Forecasts with the Nuance Board of Directors, which considered the Nuance Forecasts in connection with its evaluation and approval of the merger agreement and the merger.
The Nuance Forecasts constitute forward-looking statements. For information on factors that may cause Nuance’s future results to materially vary, see the section entitled “Forward-Looking Statements” beginning on page [20].
Except to the extent required by applicable federal securities laws, we do not intend, and expressly disclaim any responsibility, to update or otherwise revise the Nuance Forecasts to reflect circumstances existing after the date when Nuance prepared the Nuance Forecasts or to reflect the occurrence of future events or changes in general economic or industry conditions, even in the event that any of the assumptions underlying the Nuance Forecasts are shown to be in error.
Certain of the measures included in the Nuance Forecasts may be considered non-GAAP financial measures, including Adjusted EBITDA and unlevered free cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by Nuance may not be comparable to similarly titled amounts used by other companies. Pursuant to the published guidelines of the SEC, the non-GAAP financial measures are not required to be reconciled to GAAP financial measures.
Nuance Forecasts
The following table reflects selected metrics reflected in the Nuance Forecasts:
 
Fiscal Year Ending September 30
 
2021E
2022E
2023E
2024E
2025E
Nuance Forecast
 
 
 
 
 
Revenue
$1,387
$1,551
$1,856
$2,220
$2,593
Adj. EBITDA1
$409
$506
$659
$834
$1,034
Unlevered Free Cash Flow2
$172
$275
$415
$509
$610
Note: Dollars in millions.
1
“Adjusted EBITDA” refers to earnings before interest, taxes, depreciation and amortization, and excludes stock compensation, restructuring and other costs, net, acquisition-related costs, net, and certain other expenses that result from unplanned events outside the ordinary course of continuing operations. Adjusted EBITDA is a non-GAAP measure, and our calculation of Adjusted EBITDA may differ from other companies.
2
“Unlevered Free Cash Flow” refers to Adjusted EBITDA minus the expense of stock-based compensation, minus taxes, minus changes in net working capital and capital expenditures. Unlevered Free Cash Flow is a non-GAAP measure, and our calculation of Unlevered Free Cash Flow may differ from other companies.
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Treatment of Equity Compensation
Pursuant to our equity incentive plans, we have granted equity awards with respect to Nuance common stock in the form of stock options and stock units. Our executive officers hold RSUs, which represent a right to receive shares of Nuance common stock based on service over a time-based vesting schedule, and PSUs, which represent a right to receive shares of Nuance common stock ranging from 0% to 200% of the target number of shares based on both service and achievement of performance goals for a specified performance period. Our non-employee directors hold RSUs and DSUs, which represents a right to receive shares of Nuance common stock, subject to vesting requirements of the underlying equity award, on a specified future date or event, such as separation from service. Our executive officers and non-employee directors do not hold stock options. The merger agreement provides for the treatment set forth below with respect to outstanding equity awards:
Stock Options
Each stock option that is outstanding as of immediately prior to the effective time will, at the effective time, be cancelled and converted into the right to receive the merger consideration for each share of Nuance common stock that would have been issuable upon exercise of the option, less the exercise price of the option and any applicable withholding taxes. If the exercise price of a stock option is equal to or greater than the merger consideration, the option will be cancelled as of the effective time for no consideration.
Stock Units
Each award of stock units that is outstanding and vested immediately prior to the effective time or that will become vested by its terms at the effective time and, in each case, by its terms is to be settled upon the occurrence of vesting or the effective time will, as of the effective time, be deemed to be vested and will be cancelled and converted into the right to receive the merger consideration with respect to each share of Nuance common stock subject to the award, less any applicable withholding taxes.
Each outstanding and unvested award of stock units will, as of the effective time, be converted into a Rollover RSU as follows:
Each RSU will be converted into a Rollover RSU that is subject to the same time-based vesting schedule as the RSU.
Each PSU will be converted into a Rollover RSU that, following the effective time, will vest based solely on time at the conclusion of the original performance period of the PSU.
The number of shares of common stock of Microsoft subject to each Rollover RSU will be equal to the product (rounded down to the nearest whole share) of the number of Nuance shares of common stock subject to the corresponding RSU or PSU as of immediately prior to the effective time, multiplied by a specified exchange ratio (see below). The number of Nuance shares of Nuance common stock subject to each PSU immediately prior to the effective time will be determined based on (i) maximum performance, for any PSU that was subject to relative total shareholder return performance goals, and (ii) target performance, for any PSU that was subject to financial and/or operational performance goals. For each PSU that is subject to relative total shareholder return performance goals, Nuance is currently performing at a level that would result in maximum performance payout.
Notwithstanding the treatment of awards of outstanding and unvested stock units described above, Microsoft may elect to treat some or all of the awards as if they were vested (i.e., by cancelling and converting an award into the right to receive the merger consideration with respect to each share of Nuance common stock subject to the award, less any applicable withholding taxes).
If the treatment described above of an award of stock units held by a non-U.S. employee would be prohibited or subject to onerous regulatory requirements or adverse tax treatment under the laws of the applicable jurisdiction (as reasonably determined by Microsoft in consultation with Nuance), Microsoft will provide compensation to the employee that is equivalent in value to the value that otherwise would have been provided to the employee under the treatment described above, to the extent practicable and
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as would not result in the imposition of additional taxes under section 409A of the Internal Revenue Code. This compensation will be provided in the form of a cash payment (less any applicable taxes) or a new equity award, as reasonably determined by Microsoft in consultation with Nuance.
For purposes of the conversion of Nuance stock units described above, the “exchange ratio” is defined as a fraction, the numerator of which is the merger consideration and the denominator of which is the volume weighted average price per share rounded to four decimal places (with amounts of 0.00005 and above rounded up) of Microsoft common stock on Nasdaq for the five consecutive trading days ending with the last trading day immediately prior to the closing.
Employee Stock Purchase Plan
In accordance with the plan terms, each ESPP participant in the current offering period, which began on February 16, 2021, may not increase his or her payroll contribution rate or make separate non-payroll contributions, and no new participants may enroll in the current offering period. In connection with the transaction with Microsoft, Nuance will take all actions necessary to provide that:
if the closing occurs prior to August 13, 2021, which is the last day of the current offering period:
cause the current offering period to terminate no later than five business days prior to the closing date;
make any pro-rata adjustments necessary to reflect the shortened offering period; and
cause the exercise (as of no later than one business day before the effective time) of each outstanding purchase right and apply the funds credited to each participant’s payroll withholding account to the purchase of whole shares of Nuance common stock;
provide that no new offering period or purchase period will commence; and
terminate the ESPP in its entirety, effective as of the effective time.
Accelerated Vesting of Equity Compensation Upon Certain Terminations
None of the Nuance equity awards provide for “single trigger” vesting immediately at the effective time (i.e., as a result of the transaction with Microsoft without a termination of employment). However, under the terms of our equity incentive plans and the award agreements for the RSUs and PSUs (as such agreements may be amended in accordance with the terms of the merger agreement) and, for certain employees, individual employment or change of control severance agreements, the vesting of the Rollover RSUs (i.e., the stock-based awards of Microsoft) that are converted at the effective time from unvested RSUs and PSUs that were granted prior to the date of the merger agreement will accelerate on a “double trigger” basis on qualifying terminations of employment after the effective time, as follows:
Any such award held by an executive with the title of senior vice president or above (including our executive officers) who is a party to a change of control severance agreement will accelerate if, during the one-year period immediately following the effective time, the executive’s employment is terminated by the employer without “cause” or by the executive for “good reason.”
Any such award held by an executive with the title of senior vice president or above who is not a party to a change of control severance agreement will accelerate if, during the one-year period immediately following the effective time, the executive’s employment is terminated by the executive for “good reason.”
Any such award held by any employee (including our executive officers) will accelerate if, at any time before the award is scheduled to vest, the employee’s employment is terminated by the employer without “cause” or due to the employee’s resignation as a result of the employee’s refusal to consent to a required relocation of the employee’s principal place of employment of more than 50 miles.
Interests of the Non-Employee Directors and Executive Officers of Nuance in the Merger
When considering the recommendation of the Nuance Board of Directors that you vote to approve the proposal to adopt the merger agreement, you should be aware that our non-employee directors and executive officers may have interests in the merger that are different from, or in addition to, your interests as a stockholder. The Nuance
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Board of Directors was aware of and considered these interests to the extent such interests existed at the time, among other matters, in evaluating and overseeing the negotiation of the merger agreement, in approving the merger agreement and the merger and in recommending that the merger agreement be adopted by the stockholders of Nuance.
Value of Shares and Equity Awards Held by Directors and Executive Officers
The estimated aggregate amount of the merger consideration payable with respect to Nuance shares held by our non-employee directors and executive officers, as a group, assuming the merger closed on April 26, 2021, is approximately $99.4 million.
The estimated aggregate value of unvested equity awards held by our non-employee directors and executive officers, including our named executive officers, that would accelerate in connection with the merger, assuming the merger closed on April 26, 2021, and, immediately thereafter, the director’s service terminated, or the executive officer’s employment was terminated by the company without “cause” or the executive officer resigned for “good reason” (each such term, as defined in the applicable agreement with Nuance) is approximately $5.2 million for our non-employee directors, and approximately $234.1 million for our executive officers. These values do not include any new Nuance equity awards that may be granted before the merger closes, as such awards will not have termination of employment protections. These values are calculated based on the multiplying the number of shares underlying awards by the cash consideration (based on the maximum number of shares underlying the relative TSR PSUs and target number of shares underlying the financial metric PSUs). For estimates of the value of such unvested equity awards for each of our named executive officers individually, see below under “Golden Parachute Compensation.”
Potential Payments to Executive Officers upon Termination in Connection with the Merger
We have entered into agreements with our executive officers, including our named executive officers, which would entitle the executives to severance payments and benefits in the event of a qualifying termination of employment in connection with the merger:
Mr. Benjamin’s executive employment agreement provides that if his employment is terminated by the company without “cause” or if he resigns for “good reason” (as each such term is defined in his agreement), in either case during the period beginning three months before and ending 12 months after a change of control (which will occur at the effective time), he will be entitled to receive:
a lump sum payment equal to 250% of his annual base salary as in effect immediately prior to the termination date or, if greater, as in effect immediately prior to the change of control;
a lump sum payment equal to 200% of his target annual bonus for the year in which his termination occurs;
a pro-rated payment of his target annual bonus for the year of termination based on the percentage of the fiscal year completed;
full vesting of his outstanding time-based equity awards (including any Rollover RSUs that are converted from PSUs at the effective time, as described above under “Treatment of Equity Compensation”); and
continued company-paid health insurance coverage for 18 months for him and his eligible dependents.
Each of our other executive officers (including our other named executive officers) has a change of control and severance agreement that provides that if within one year after a change of control (which will occur at the effective time), the officer’s employment is terminated by the company without “cause” or the officer resigns for “good reason” (as each such term is defined in the agreement), the officer will be entitled to receive:
a lump sum payment equal to 12 months of base salary as in effect immediately prior to the termination date or, if greater, as in effect immediately prior to the change of control;
a lump sum payment equal to 100% of the greater of the executive’s annual target bonus for the year of termination or the executive’s target bonus in effect immediately prior to the change of control;
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full vesting of the officer’s outstanding time-based equity awards (including any Rollover RSUs that are converted from PSUs at the effective time, as described above under “Treatment of Equity Compensation”); and
continued company-paid health insurance coverage for 12 months.
As a condition to receipt of the severance payments and benefits described above, each executive officer is required to execute a separation and release of claims agreement in favor of the company and its affiliates and to continue to comply with certain post-termination covenants in favor of the company and its affiliates.
The estimated aggregate amount of the cash severance our executive officers, including our named executive officers, would have received upon a qualifying termination of employment, assuming the merger closed on April 26, 2021, and the qualifying termination occurred immediately thereafter, is approximately $9.86 million. For estimates of the amounts of such cash severance that each of our named executive officers would have received individually, see below under “Golden Parachute Compensation.”
The employment agreement with Mr. Benjamin and the change of control and severance agreement with Mr. Tempesta will be modified, effective upon the closing of the merger, as further described below under “New Arrangements with Microsoft.”
Future Nuance Equity Grants
Under the terms of the merger agreement, we may continue to grant ordinary course equity awards, including annual awards to employees with the title of vice president or below on or about July 1, 2021 (with an aggregate value of up to $41.5 million), annual awards to employees with the title of senior vice president or above (including our executive officers) on or about November 1, 2021 (with an aggregate value of up to $38 million), and awards to new hires (with an aggregate value of up to $7.4 million), in each case, if the effective time has not yet occurred. These awards will be granted in the form of time-vesting RSUs that will not accelerate in connection with the merger or termination of employment (whether occurring before or after the effective time). We may also make ordinary course annual awards to our non-employee directors in January 2022, if the effective time has not yet occurred, in the form of time-vesting RSUs (with a grant date value not to exceed $250,000 per director, as provided under our 2020 Stock Plan).
Special Bonuses
Under the terms of the merger agreement, we may grant special cash bonuses to employees (including our executive officers) in an aggregate amount of up to $25 million and enter into agreements to provide for such bonuses. As of the date of this proxy statement, no such bonuses have been granted.
New Arrangements with Microsoft
CEO and CFO Letter Agreements with Microsoft
The following is a summary of the material terms of the letter agreements entered into on April 11, 2021, between each of Messrs. Benjamin and Tempesta and Microsoft, in each case, subject to the closing of the merger:
Messrs. Benjamin and Tempesta will continue to serve as Nuance’s Chief Executive Officer and Chief Financial Officer, respectively;
Mr. Benjamin will report to Scott Guthrie, Microsoft’s Executive Vice President of Cloud + AI Group (or his successor), and Mr. Tempesta will report to Mr. Benjamin (or, upon his death, his successor);
Their annual salaries and target annual bonuses will remain the same as currently in effect ($800,000 salary and target bonus of 150% of salary, for Mr. Benjamin; $500,000 salary and target bonus of 75% of salary, for Mr. Tempesta);
Following the closing, Messrs. Benjamin and Tempesta will be eligible for annual equity awards, with a target grant date value of $9,000,000 for Mr. Benjamin and $2,750,000 for Mr. Tempesta, with vesting and performance terms similar to those applicable to similarly situated executives of Nuance, subject to any stub period as the equity grant cycles of Microsoft and Nuance are harmonized; and
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Mr. Benjamin will be granted an on-hire performance stock award for shares of Microsoft common stock, which will be eligible to vest between 0% and 200% of target based on the achievement of performance goals over four performance periods ending June 30, 2025. The number of shares underlying such award will be equal to $15,000,000 divided by Microsoft’s closing stock price as of the closing date.
The letter agreements also amend Mr. Benjamin’s employment agreement and Mr. Tempesta’s change of control and severance agreement, as follows:
The employment and change of control and severance agreements will remain in effect until the third anniversary of the effective time, unless earlier terminated in accordance with their terms;
The “good reason” definitions in the employment and change of control severance agreements will be modified, including to provide that the executives will not be considered to have an adverse change in duties or responsibilities that would constitute “good reason” solely by reason of the merger or Nuance becoming a subsidiary of Microsoft. Instead:
Mr. Benjamin will have “good reason” if he ceases to run the Nuance business unit reporting directly to Mr. Guthrie or his successor, as such business unit evolves based on Microsoft’s additions to or subtractions from the business unit from time to time; and
Mr. Tempesta will have “good reason” if he is assigned duties and responsibilities that, in the aggregate, are materially inconsistent with being a chief financial officer of an operating business of a public company or if he ceases to report directly to Mr. Benjamin or his successor;
Any equity awards granted to either executive after the date of the letter agreement will not be subject to the accelerated vesting provisions of the employment or change of control severance agreement;
Each executive will receive the severance payments and benefits provided under the employment or change of control severance agreement, and full vesting of the equity awards granted to each executive before the date of the letter agreement on any of the following terminations of employment,:
if at any time on or following the effective time, the executive’s employment is terminated by Microsoft without “cause” (as defined in Microsoft’s Senior Executive Severance Plan) or terminates due to the executive’s death or disability;
if on or within 12 months after the effective time, the executive resigns for “good reason” (as modified pursuant to the letter agreement); or
if between the 12-month and three-year anniversaries of the effective time, the executive resigns for any reason.
Following the third anniversary of the effective time, each executive will be eligible to participate in Microsoft’s severance plan applicable to similarly situated employees of Microsoft.
Golden Parachute Compensation
In accordance with Item 402(t) of Regulation S-K, the table below sets forth the estimated amounts of the payments and benefits that each named executive officer of Nuance would have received in connection with the merger, assuming the merger closed on April 26, 2021 and, immediately thereafter, the employment of the named executive officer was terminated by the company without “cause” or the named executive officer resigned for “good reason” (each such term, as defined in the applicable agreement with the named executive officer). This compensation is subject to an advisory vote of Nuance’s stockholders, as described below under the section entitled “Proposal 2: Advisory Vote on Merger-Related Executive Compensation Arrangements” beginning on page [77].
The calculations in the tables below do not include any new Nuance equity awards or special bonuses that may be granted to the named executive officers before the merger closes. In addition to the assumptions regarding the closing date of the merger and termination of the employment of the named executive officers, these estimates are based on certain other assumptions that are described in the footnotes accompanying the tables below. Accordingly, the ultimate values to be received by a named executive officer in connection with the merger may differ from the amounts set forth below.
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Officer
Cash
($)(1)
Equity
($)(2)
Perquisites/
Benefits
($)(3)
Total
($)
Mark Benjamin
$5,083,836
$99,975,904
$46,063
$105,105,803
Daniel Tempesta
$875,000
$31,830,434
$30,785
$32,736,219
Robert Dahdah
$875,000
$22,464,680
$7,458
$23,347,138
Joseph Petro
$875,000
$27,822,122
$23,442
$28,720,563
Robert Weideman
$875,000
$28,936,914
$20,550
$29,832,464
(1)
Cash. The amounts in this column reflect the value of the cash severance payments payable to each named executive officer and, for Mr. Benjamin, a prorated annual bonus for the year of termination. For Mr. Benjamin, his severance is equal to the sum of 250% of his annual base salary plus 200% of his target bonus. For the other named executive officers, the severance is equal to 100% of the officer’s base salary and target bonus for the year of termination (or, if greater, the target bonus for the year of the merger). The breakdown of the amounts in this column for Mr. Benjamin are $4,400,000 for severance and $683,836 for prorated annual bonus. The severance and prorated bonus payments are all “double trigger” in nature, which means that payment of these amounts is conditioned upon a qualifying termination of employment on or within the 12 months following the merger (except for Mr. Benjamin, upon a qualifying termination of employment three months prior to or within 12 months following the merger).
(2)
Equity. The amounts in this column reflect the aggregate values of the accelerated vesting of the Rollover RSUs. These amounts are “double trigger” in nature, which means that the accelerated vesting is conditioned upon a qualifying termination of employment on or after the merger (except for Mr. Benjamin, upon a qualifying termination of employment three months prior to or within 12 months following the merger). In connection with the merger, Mr. Benjamin will be entitled to receive a Microsoft equity award with a number of shares underlying such award equal to $15,000,000, divided by Microsoft's closing stock price as of the closing date, as described above under “New Arrangements with Microsoft”. The equity award will be eligible to vest between 0% and 200% of target based on the achievement of performance goals over four performance periods ending June 30, 2025, but this award does not provide for acceleration upon any termination of Mr. Benjamin’s employment and is not included in this table.
(3)
Perquisites/Benefits. The amounts in this column reflect the value of continued company-paid health insurance coverage for 12 months (except for Mr. Benjamin, coverage for 18 months). The amounts in this column are “double trigger” in nature, which means that payment of these amounts is conditioned upon a qualifying termination of employment on or within the 12 months following the merger (except for Mr. Benjamin, upon a qualifying termination of employment three months prior to or within 12 months following the merger).
Financing of the Merger
The merger is not conditioned on Microsoft’s ability to obtain financing. Microsoft has represented to Nuance that it has available and will have available at the effective time the funds necessary to pay the aggregate merger consideration, including (i) payments to Nuance’s stockholders of the amounts due under the merger agreement and (ii) payments in respect of certain of Nuance’s outstanding equity awards pursuant to the merger agreement.
U.S. Federal Income Tax Consequences of the Merger
The following is a summary of the U.S. federal income tax consequences of the merger to U.S. holders and non-U.S. holders (each as defined below) of Nuance common stock who hold their stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, which we refer to as the Code. This summary is based on the Code, the U.S. Treasury Department regulations issued under the Code, which we refer to as the Treasury Regulations, and administrative rulings and court decisions in effect as of the date of this proxy statement, all of which are subject to change at any time, possibly with retroactive effect. This summary is not binding on the Internal Revenue Service, which we refer to as the IRS, or a court and there can be no assurance that the tax consequences described in this summary will not be challenged by the IRS or that they would be sustained by a court if so challenged. No ruling has been or will be sought from the IRS.
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Nuance common stock that is for U.S. federal income tax purposes (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source or (iv) a trust if (A) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (B) the trust has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person for U.S. federal income tax purposes. A “non-U.S. holder” means a beneficial owner of Nuance common stock that is neither a U.S. holder nor a partnership for U.S. federal income tax purposes.
This summary is not a complete description of all of the U.S. federal income tax consequences of the merger and, in particular, may not address U.S. federal income tax considerations applicable to holders of Nuance
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common stock who are subject to special treatment under U.S. federal income tax law including, for example, partnerships (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) and partners therein, financial institutions, dealers in securities, insurance companies, tax-exempt entities, mutual funds, real estate investment trusts, personal holding companies, regulated investment companies, securities or currency dealers, traders in securities who elect to use the mark-to-market method of accounting, non-U.S. holders that hold, directly or constructively (or that held, directly or constructively, at any time during the five-year period ending on the date of the merger), 5% or more of the outstanding Nuance common stock, tax-exempt investors, S corporations or other pass-through entities, holders whose functional currency is not the U.S. dollar, tax-deferred or other retirement accounts, U.S. expatriates, former long-term residents of the United States, holders who acquired Nuance common stock pursuant to the exercise of an employee stock option or right or otherwise as compensation, and holders who hold Nuance common stock as part of a hedge, straddle, constructive sale, conversion transaction, or other integrated investment. Also, this summary does not address U.S. federal income tax considerations applicable to holders of Nuance common stock who exercise appraisal rights under Delaware law. In addition, no information is provided with respect to the tax consequences of the merger under any U.S. federal law other than income tax laws (including, for example the U.S. federal estate, gift, Medicare, and alternative minimum tax laws), or any applicable state, local, or foreign tax laws. This summary does not address the tax consequences of any transaction other than the merger.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Nuance common stock, the tax treatment of a partner in such a partnership generally will depend on the status of the partner and the activities of the partnership. Any entity treated as a partnership for U.S. federal income tax purposes that holds Nuance common stock, and any partners in such partnership, should consult their own independent tax advisors regarding the tax consequences of the merger to their specific circumstances.
The tax consequences of the merger will depend on a holder’s specific situation. Holders should consult their tax advisor as to the tax consequences of the merger relevant to their particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local, non-U.S. or other tax laws and of changes in those laws.
Tax Consequences to U.S. Holders
The receipt of cash by U.S. holders in exchange for shares of Nuance common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, for U.S. federal income tax purposes, a U.S. holder who receives cash in exchange for shares of Nuance common stock pursuant to the merger will recognize capital gain or loss in an amount equal to the difference, if any, between (i) the amount of cash received in the merger and (ii) the U.S. holder’s adjusted tax basis in its Nuance common stock exchanged therefor.
A U.S. holder’s adjusted tax basis in its shares of Nuance common stock will generally equal the price the U.S. holder paid for such shares. If a U.S. holder’s holding period in the shares of Nuance common stock surrendered in the merger is greater than one year as of the date of the merger, the gain or loss will be long-term capital gain or loss. Long-term capital gains of certain non-corporate holders, including individuals, are generally subject to U.S. federal income tax at preferential rates. The deductibility of a capital loss recognized on the exchange is subject to limitations. If a U.S. holder acquired different blocks of Nuance common stock at different times or different prices, such U.S. holder must determine its adjusted tax basis and holding period separately with respect to each block of Nuance common stock.
Tax Consequences to Non-U.S. Holders
Payments made to a non-U.S. holder in exchange for shares of Nuance common stock pursuant to the merger generally will not be subject to U.S. federal income tax unless:
the gain, if any, on such shares of Nuance common stock is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to the non-U.S. holder’s permanent establishment in the United States) in which case such gain will generally be subject to U.S. federal income tax at rates applicable to U.S. holders and, if such non-U.S. holder is a corporation, such gain may also be subject to an additional “branch profits tax” at a 30% rate (or lower applicable treaty rate); or
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the non-U.S. holder is an individual who is present in the U.S. for 183 days or more in the taxable year of the exchange of shares of Nuance common stock for the merger consideration pursuant to the merger and certain other conditions are met, in which case the gain, if any, on such shares of Nuance common stock will be subject to tax at a rate of 30% (or lower applicable treaty rate) and such gain may be offset by U.S. source capital losses recognized in the same taxable year.
Information Reporting and Backup Withholding
Payments of cash to a U.S. holder of Nuance common stock pursuant to the merger may, under certain circumstances, be subject to backup withholding, unless the holder furnishes its taxpayer identification number, certifies that the number is correct, and otherwise complies with all applicable requirements of the backup withholding rules. Certain holders (such as corporations and non-U.S. holders) are exempt from backup withholding. Cash received in the merger will also be subject to information reporting unless an exemption applies.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against a holder’s U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the IRS in a timely manner. Non-U.S. holders may be required to comply with certification requirements and identification procedures in order to establish an exemption from information reporting and backup withholding.
The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the merger. Holders of Nuance common stock are urged to consult their own tax advisors with respect to the tax consequences of the merger in their particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local, non-U.S. or other tax laws and of changes in those laws.
Regulatory Approvals
General
Nuance and Microsoft have agreed to use their reasonable best efforts to comply with all regulatory filing and notification requirements and obtain all regulatory approvals required or recommended to consummate the merger and the other transactions contemplated by the merger agreement. These approvals include approval under, or notifications pursuant to, the HSR Act and the competition laws of the European Union and any relevant European Union Member States, the United Kingdom and Australia.
In addition, each of Nuance and Microsoft have agreed to (1) cooperate and coordinate with each other to make such filings; (2) use its reasonable best efforts to supply the other with any information that may be required in order to make such filings; (3) use its reasonable best efforts to supply any additional information that reasonably may be requested to obtain regulatory approvals; (4) use its reasonable best efforts to take all action necessary to obtain regulatory approvals as soon as practicable; and (5) provide notice to the other party if it plans to participate in any material meeting or substantive conversation with respect to the merger.
If and to the extent necessary to obtain regulatory approval of the merger, Microsoft, Sub and, solely to the extent requested by Microsoft, Nuance will (1) offer, negotiate, commit to and effect, by consent decree, hold separate order or otherwise, (A) the sale, divestiture, license or other disposition of assets (whether tangible or intangible), rights, products or businesses of Nuance (whether directly or by the disposition of the capital stock or other equity or voting interest in the entities in which such assets, rights, products or businesses are held); and (B) any other restrictions on the activities of the Nuance; and (2) contest, defend and appeal any legal proceedings, whether judicial or administrative, challenging the merger agreement or the consummation of the merger. Notwithstanding the foregoing, Microsoft is not required to offer, negotiate, commit to, effect or otherwise take any action with respect to Nuance that would reasonably be expected to have a material adverse effect on the business, assets, liabilities, financial condition or results of the operations of Nuance. Microsoft is also not required to offer, negotiate, commit to, effect or otherwise take any action with respect to its business if taking such action would reasonably be expected to (1) have a material impact on the benefits expected to be derived from the merger by Microsoft or (2) have more than an immaterial impact on any business or product line of Microsoft and its subsidiaries.
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HSR Act and Other Antitrust Matters
Under the HSR Act and the rules promulgated thereunder, the merger cannot be completed until Nuance and Microsoft file a notification and report form with the Federal Trade Commission, which we refer to as the “FTC,” and the Antitrust Division of the Department of Justice, which we refer to as the “DOJ,” under the HSR Act and the applicable waiting period has expired or been terminated. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30 calendar day waiting period following the parties’ filing of their respective HSR Act notification forms or the early termination of that waiting period. The DOJ or the FTC may extend the 30 day waiting period by issuing a Request for Additional Information and documentary materials (also known as a Second Request). If either agency issues a Second Request, the waiting period is extended until 30 days after the parties substantially comply with the request.
At any time before or after consummation of the merger, notwithstanding the termination of the waiting period under the HSR Act, the FTC or the Antitrust Division of the DOJ could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.
Foreign Competition Laws
Nuance and Microsoft conduct business in Member States of the European Union. Council Regulation (EC) No. 139/2004, as amended, and accompanying regulations allow parties to ask the European Commission to review mergers and acquisitions that trigger national merger control filing requirements in at least three European Union Member States. The parties will file such a referral request as soon as reasonably practicable and advisable following which competent Member States have 15 working days to object to the referral. In the event that there is no such objection, the transaction will be reviewable by the European Commission and the parties will then file a formal notification of the merger with the European Commission as promptly as reasonably practicable and advisable. Pursuant to Council Regulation (EC) No. 139/2004, the European Commission has 25 business days from the day following the date of receipt of a complete notification, which period may be extended to 35 business days under certain circumstances, in which to consider whether the merger would significantly impede effective competition in the common market (as defined by European Community regulations) or a substantial part of it, in particular as a result of the creation or strengthening of a dominant position. By the end of that period, the European Commission must issue a decision either clearing the merger, which may be conditional upon the parties offering suitable remedies, or opening an in-depth “Phase II” investigation. A Phase II investigation lasts for 90 business days, which may be extended by an additional 35 business days under certain circumstances. At the end of the Phase II investigation the European Commission may either unconditionally approve the merger, conditionally approve the merger subject to remedies or prohibit the merger if no adequate remedies have been proposed by Microsoft. The merger cannot be completed during the European Commission’s review of the merger.
In the event that a competent Member State of the European Union objects to the referral to the European Commission requested by the parties, the merger agreement contemplates that the necessary clearances, approvals or decisions under the national competition laws of Austria, Germany, Denmark, Spain and Portugal (to the extent filings in such jurisdictions are required) will be conditions to the parties’ obligations to consummate the merger.
The completion of the merger is also subject to obtaining a favorable outcome from the UK’s Competition and Markets Authority, which we refer to as the CMA. Such an outcome can take the form of either (i) the CMA indicating that it has no further questions about the merger in response to a briefing paper submitted by the parties; or (ii) if a formal notification is made, the CMA approving the merger unconditionally or conditional upon adequate remedies being offered.
If a formal notification is made, the CMA has 40 business days in which to complete its initial review (Phase I), at the end of which it must confirm whether it believes that the merger results in a realistic prospect of a substantial lessening of competition. If so, the merger must be referred to an in-depth review (Phase II), unless
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adequate remedies are offered by the parties within 5 working days of the CMA’s Phase I decision. Where Phase I remedies are offered, the CMA must decide whether to accept the remedies “in principle” within 10 working days of the Phase I decision and must take a final decision on whether to accept the remedies within 50 working days of the Phase I decision, subject to a possible 40 working day extension at the CMA’s discretion. If a Phase II investigation is launched, the CMA has 24 weeks, extendable by up to eight weeks at the CMA’s discretion if it considers there are special reasons for doing so, to decide if the merger should be prohibited or approved conditional on remedies.
The completion of the merger is also subject to certain notifications and/or approvals in accordance with the competition laws of Australia. The parties must also observe mandatory waiting periods and/or obtain the necessary approvals, clearances or consents in the required foreign jurisdictions before completing the merger.
The parties will file merger notifications with the appropriate regulators in each of the required foreign jurisdictions as promptly as practicable and work cooperatively toward expedited regulatory clearances.
Foreign Direct Investment Laws
Completion of the merger is further subject to receipt of certain other foreign direct investment review approvals, including notification, clearance and/or expiration or termination of any applicable waiting period in certain specified countries.
Other Regulatory Approvals
One or more governmental bodies may impose a condition, restriction, qualification, requirement or limitation when it grants the necessary approvals and consents to the merger. Third parties may also seek to intervene in the regulatory process or litigate to enjoin or overturn regulatory approvals, which actions could significantly impede or even preclude obtaining required regulatory approvals. There is currently no way to predict how long it will take to obtain all of the required regulatory approvals or whether such approvals will ultimately be obtained, and there may be a substantial period of time between the approval by Nuance stockholders and the completion of the merger.
Although we expect that all required regulatory clearances and approvals will be obtained, we cannot assure you that these regulatory clearances and approvals will be timely obtained, obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the merger or require changes to the terms of the merger agreement. These conditions or changes could result in the conditions to the merger not being satisfied.
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TERMS OF THE MERGER AGREEMENT
The following summary describes certain material provisions of the merger agreement. The descriptions of the merger agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. We encourage you to read the merger agreement carefully and in its entirety because this summary may not contain all the information about the merger agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the merger agreement and not by this summary or any other information contained in this proxy statement.
The representations, warranties, covenants and agreements described below and included in the merger agreement (1) were made only for purposes of the merger agreement and as of specific dates; (2) were made solely for the benefit of the parties to the merger agreement; (3) may be subject to important qualifications, limitations and supplemental information agreed to by Nuance, Microsoft and Sub in connection with negotiating the terms of the merger agreement; and (4) may also be subject to a contractual standard of materiality different from those generally applicable to reports and documents filed with the SEC and in some cases were qualified by confidential matters disclosed to Microsoft and Sub by Nuance in connection with the merger agreement. In addition, the representations and warranties may have been included in the merger agreement for the purpose of allocating contractual risk between Nuance, Microsoft and Sub rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Further, the representations and warranties were negotiated with the principal purpose of establishing the circumstances in which a party to the merger agreement may have the right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise. Nuance stockholders are not third-party beneficiaries under the merger agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of Nuance, Microsoft or Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement. In addition, you should not rely on the covenants in the merger agreement as actual limitations on the respective businesses of Nuance, Microsoft and Sub, because the parties may take certain actions that are either expressly permitted in the confidential disclosure letter to the merger agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The merger agreement is described below, and included as Annex A, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding Nuance, Microsoft, Sub or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the merger agreement should not be read alone, and you should read the information provided elsewhere in this document and in our filings with the SEC regarding Nuance and our business.
Closing and Effective Time of the Merger
The closing of the merger will take place no later than the third business day following the satisfaction or waiver of all conditions to closing of the merger (described in the section of this proxy statement captioned “Terms of the Merger Agreement — Conditions to the Closing of the Merger” beginning on page [73]), other than conditions that by their terms are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of each of such conditions, or such other time agreed to in writing by Microsoft, Nuance and Sub. Concurrently with the closing of the merger, the parties will file a certificate of merger with the Secretary of State of the State of Delaware as provided under the DGCL. The merger will become effective upon the filing of a certificate of merger, or at such later time agreed to in writing by the parties and specified in such certificate of merger.
Effects of the Merger; Certificate of Incorporation; Bylaws; Directors and Officers
The merger agreement provides that, subject to the terms and conditions of the merger agreement, and in accordance with the DGCL, at the effective time of the merger, (1) Sub will be merged with and into Nuance and Nuance will become a wholly owned subsidiary of Microsoft and (2) the separate corporate existence of Sub will cease. From and after the effective time of the merger, all of the property, rights, privileges, powers and
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franchises of Nuance and Sub will vest in the surviving corporation, and all of the debts, liabilities and duties of Nuance and Sub will become the debts, liabilities and duties of the surviving corporation.
At the effective time of the merger, the certificate of incorporation of Nuance as the surviving corporation will be amended and restated in its entirety in the form attached to the merger agreement. The parties will take all necessary action to ensure that, at the effective time of the merger, the bylaws of Sub, as in effect immediately prior to the effective time of the merger, will become the bylaws of the surviving corporation, until thereafter amended.
The parties will take all necessary action to ensure that, effective as of, and immediately following, the effective time of the merger, the board of directors of the surviving corporation will consist of the directors of Sub as of immediately prior to the effective time of the merger, to hold office in accordance with the certificate of incorporation and bylaws of the surviving corporation until their successors are duly elected or appointed and qualified. The parties will take all necessary action to ensure that at the effective time of the merger, the officers of the Company as of immediately prior to the effective time of the merger will be the officers of the surviving corporation, until their successors are duly appointed.
Conversion of Shares
Common Stock
At the effective time of the merger, each outstanding share of Nuance common stock (other than shares held by (1) Nuance as treasury stock; (2) Microsoft, Sub or their respective subsidiaries; and (3) Nuance stockholders who have properly and validly exercised and perfected their appraisal rights under Delaware law with respect to such shares) will be cancelled and automatically converted into the right to receive the per share merger consideration (which is $56.00 per share, without interest thereon and subject to applicable withholding taxes).
At the effective time of the merger, each outstanding share of common stock held by (1) Nuance or (2) Microsoft, Sub or their respective subsidiaries shall be cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor.
Treatment of Equity Compensation
Pursuant to our equity incentive plans, we have granted equity awards with respect to Nuance common stock in the form of stock options and stock units. Our executive officers hold RSUs, which represent a right to receive shares of Nuance common stock based on service over a time-based vesting schedule, and PSUs, which represent a right to receive shares of Nuance common stock ranging from 0% to 200% of the target number of shares based on both service and achievement of performance goals for a specified performance period. Our non-employee directors hold RSUs and DSUs, which represents a right to receive shares of Nuance common stock, subject to vesting requirements of the underlying equity award, on a specified future date or event, such as separation from service. Our executive officers and non-employee directors do not hold stock options. The merger agreement provides for the treatment set forth below with respect to outstanding equity awards:
Stock Options
Each stock option that is outstanding as of immediately prior to the effective time will, at the effective time, be cancelled and converted into the right to receive the merger consideration for each share of Nuance common stock that would have been issuable upon exercise of the option, less the exercise price of the option and any applicable withholding taxes. If the exercise price of a stock option is equal to or greater than the merger consideration, the option will be cancelled as of the effective time for no consideration.
Stock Units
Each award of stock units that is outstanding and vested immediately prior to the effective time or that will become vested by its terms at the effective time and, in each case, by its terms is to be settled upon the occurrence of vesting or the effective time will, as of the effective time, be deemed to be vested and will be cancelled and converted into the right to receive the merger consideration with respect to each share of Nuance common stock subject to the award, less any applicable withholding taxes.
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Each outstanding and unvested award of stock units will, as of the effective time, be converted into a Rollover RSU as follows:
Each RSU will be converted into a Rollover RSU that is subject to the same time-based vesting schedule as the RSU.
Each PSU will be converted into a Rollover RSU that, following the effective time, will vest based solely on time at the conclusion of the original performance period of the PSU.
The number of shares of common stock of Microsoft subject to each Rollover RSU will be equal to the product (rounded down to the nearest whole share) of the number of Nuance shares of common stock subject to the corresponding RSU or PSU as of immediately prior to the effective time, multiplied by a specified exchange ratio (see below). The number of Nuance shares of common stock subject to each PSU immediately prior to the effective time will be determined based on (i) maximum performance, for any PSU that was subject to relative total shareholder return performance goals, and (ii) target performance, for any PSU that was subject to financial and/or operational performance goals. For each PSU that is subject to relative total shareholder return performance goals, Nuance is currently performing at a level that would result in maximum performance payout.
Notwithstanding the treatment of awards of outstanding and unvested stock units described above, Microsoft may elect to treat some or all of the awards as if they were vested (i.e., by cancelling and converting an award into the right to receive the merger consideration with respect to each share of Nuance common stock subject to the award, less any applicable withholding taxes).
If the treatment described above of an award of stock units held by a non-U.S. employee would be prohibited or subject to onerous regulatory requirements or adverse tax treatment under the laws of the applicable jurisdiction (as reasonably determined by Microsoft in consultation with Nuance), Microsoft will provide compensation to the employee that is equivalent in value to the value that otherwise would have been provided to the employee under the treatment described above, to the extent practicable and as would not result in the imposition of additional taxes under section 409A of the Internal Revenue Code. This compensation will be provided in the form of a cash payment (less any applicable taxes) or a new equity award, as reasonably determined by Microsoft in consultation with Nuance.
For purposes of the conversion of Nuance stock units described above, the “exchange ratio” is defined as a fraction, the numerator of which is the merger consideration and the denominator of which is the volume weighted average price per share rounded to four decimal places (with amounts of 0.00005 and above rounded up) of Microsoft common stock on Nasdaq for the five consecutive trading days ending with the last trading day immediately prior to the closing.
Employee Stock Purchase Plan
In accordance with the plan terms, each ESPP participant in the current offering period, which began on February 16, 2021, may not increase his or her payroll contribution rate or make separate non-payroll contributions, and no new participants may enroll in the current offering period. In connection with the transaction with Microsoft, Nuance will take all actions necessary to provide that:
if the closing occurs prior to August 13, 2021, which is the last day of the current offering period:
cause the current offering period to terminate no later than five business days prior to the closing date;
make any pro-rata adjustments necessary to reflect the shortened offering period; and
cause the exercise (as of no later than one business day before the effective time) of each outstanding purchase right and apply the funds credited to each participant’s payroll withholding account to the purchase of whole shares of Nuance common stock;
provide that no new offering period or purchase period will commence; and
terminate the ESPP in its entirety, effective as of the effective time.
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Exchange and Payment Procedures
Prior to the closing of the merger, Microsoft will designate a bank or trust company, which we refer to as the “paying agent,” to make payments of the merger consideration to Nuance stockholders. At or promptly following the effective time of the merger, Microsoft will deposit or cause to be deposited with the paying agent cash sufficient to pay the aggregate per share merger consideration to Nuance stockholders in accordance with the merger agreement.
As soon as reasonably practicable following the effective time of the merger, the paying agent will send to each holder of record of shares of common stock a letter of transmittal and instructions advising stockholders how to surrender stock certificates and book-entry shares in exchange for the per share merger consideration. Upon receipt of (1) surrendered certificates (or an appropriate affidavit for lost, stolen or destroyed certificates, together with any required bond) with respect to shares of common stock represented by stock certificates or a customary “agent’s message” with respect to book-entry shares representing the shares of common stock and (2) a signed letter of transmittal (in the case of common stock represented by stock certificates) and such other documents as may be required pursuant to such instructions, the holder of such shares will be entitled to receive the per share merger consideration in exchange therefor, without interest. The amount of any per share merger consideration paid to Nuance stockholders may be reduced by any applicable withholding taxes or other amounts required by applicable law to be withheld.
If any cash deposited with the paying agent is not claimed within one year following the effective time of the merger, such cash will be returned to Microsoft, upon demand, and any stockholders who have not complied with the exchange procedures in the merger agreement will thereafter look only to Microsoft for satisfaction of their claims for payment. None of Microsoft, Sub, Nuance, the surviving corporation or the paying agent will be liable to any Nuance stockholder with respect to any cash amounts properly delivered to any public official pursuant to any applicable abandoned property law, escheat law or similar law.
The letter of transmittal will include instructions if a stockholder has lost a share certificate or if such certificate has been stolen or destroyed. In the event that any certificates have been lost, stolen or destroyed, then before such stockholder will be entitled to receive the per share merger consideration, Microsoft or the paying agent may, in its discretion and as a condition precedent to the payment of the merger consideration, require such stockholder to make an affidavit of the loss, theft or destruction, and to deliver a bond in such amount as Microsoft or the paying agent may direct as indemnity against any claim that may be made against Microsoft, the surviving corporation or the paying agent with respect to such certificate.
Representations and Warranties
The merger agreement contains representations and warranties of Nuance, Microsoft and Sub.
Some of the representations and warranties in the merger agreement made by Nuance are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the merger agreement, “Company Material Adverse Effect” means, with respect to Nuance, any change, event, violation, inaccuracy, effect or circumstance that, individually or taken together with all other changes, events, violations, inaccuracies, effects or circumstances that have occurred prior to the date of determination of the occurrence of the Company Material Adverse Effect, (a) has had or would reasonably be expected to have a material adverse effect on the business, assets, liabilities, financial condition or results of operations of Nuance and its subsidiaries, taken as a whole, or (b) would, or would reasonably be expected to, prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by the merger agreement, except that, in the case of the foregoing clause (a) only, none of the following (by itself or when aggregated) to the extent occurring after the date of the merger agreement will be deemed to be or constitute a Company Material Adverse Effect or will be taken into account when determining whether a Company Material Adverse Effect has occurred or may, would or could occur:
changes in general economic conditions in the United States or any other country or region in the world, or changes in conditions in the global economy generally (except to the extent that such conditions disproportionately adversely affect Nuance relative to other companies operating in the industries in which Nuance and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such conditions may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
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changes in conditions in the financial markets, credit markets or capital markets in the United States or any other country or region in the world, including (1) changes in interest rates or credit ratings in the United States or any other country; (2) changes in exchange rates for the currencies of any country; or (3) any suspension of trading in securities (whether equity, debt, derivative or hybrid securities) generally on any securities exchange or over-the-counter market operating in the United States or any other country or region in the world (except, in each case, to the extent that such changes or conditions disproportionately adversely affect Nuance relative to other companies operating in the industries in which Nuance and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such changes or conditions may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
general changes in conditions in the industries in which Nuance and its subsidiaries conduct business (except to the extent that such changes disproportionately adversely affect Nuance relative to other companies operating in the industries in which Nuance and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such changes may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
changes in regulatory, legislative or political conditions in the United States or any other country or region in the world (except to the extent that such changes disproportionately adversely affect Nuance relative to other companies operating in the industries in which Nuance and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such changes may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
any geopolitical conditions, outbreak of hostilities, acts of war, sabotage, terrorism or military actions (including any escalation or general worsening of any such hostilities, acts of war, sabotage, terrorism or military actions) in the United States or any other country or region in the world (except to the extent that such conditions or events disproportionately adversely affect Nuance relative to other companies operating in the industries in which Nuance and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such conditions or events may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, pandemics or contagious disease outbreaks (including COVID-19), weather conditions and other similar force majeure events in the United States or any other country or region in the world, or any worsening of any of the foregoing, including, in each case, the response of governmental entities thereto (except to the extent that such conditions or events disproportionately adversely affect Nuance relative to other companies operating in the industries in which Nuance and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such conditions or events may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
the public announcement or pendency of the merger agreement or the merger (other than for purposes of certain representations and warranties, and certain related terms and conditions, concerning conflicts due to the performance of the merger agreement);
any action taken or refrained from being taken, in each case to which Microsoft has expressly approved, consented to or requested in writing following the date of the merger agreement;
changes or proposed changes in GAAP or other accounting standards or law, or the enforcement or interpretation of any of the foregoing (except to the extent that such changes disproportionately adversely affect Nuance relative to other companies operating in the industries in which Nuance and its subsidiaries conduct business, in which case only the incremental disproportionate adverse impact of such changes may be taken into account in determining whether there has occurred a Company Material Adverse Effect);
changes in the price or trading volume of our common stock or our indebtedness, in and of itself (it being understood that any cause of such change may be deemed to constitute a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred);
any failure, in and of itself, by Nuance and its subsidiaries to meet (1) any public estimates or expectations of Nuance’s revenue, earnings or other financial performance or results of operations for
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any period; or (2) any internal budgets, plans, projections or forecasts of its revenues, earnings or other financial performance or results of operations (it being understood that any cause of any such failure may be deemed to constitute a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred); and
any litigation related to the merger.
In the merger agreement, Nuance has made customary representations and warranties to Microsoft and Sub that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement. These representations and warranties relate to, among other things:
due organization, valid existence, good standing and authority and qualification to conduct business with respect to Nuance and its subsidiaries;
Nuance’s corporate power and authority to enter into and perform the merger agreement, the due execution and enforceability of the merger agreement;
the organizational documents of Nuance and its subsidiaries;
the approval and recommendation of the Nuance Board of Directors;
the rendering of Evercore’s fairness opinion to the Nuance Board of Directors;
the inapplicability of anti-takeover statutes to the merger;
the requisite vote of Nuance stockholders in connection with the merger agreement;
the absence of any conflict with, violation of or default under any organizational documents, existing material contracts or privacy policies, applicable laws to Nuance or its subsidiaries or the resulting creation of any lien upon Nuance’s assets due to the performance of the merger agreement;
required consents, approvals and regulatory filings in connection with the merger agreement and performance thereof;
the capital structure of Nuance and its subsidiaries;
the absence of any undisclosed exchangeable security, option, warrant or other right convertible into common stock of Nuance or any of Nuance’s subsidiaries;
the absence of any contract relating to the voting of, requiring registration of, or granting any preemptive rights, anti-dilutive rights or rights of first refusal or other similar rights with respect to any of Nuance’s securities;
the accuracy and required filings of Nuance’s SEC filings and financial statements;
Nuance’s disclosure controls and procedures;
Nuance’s internal accounting controls and procedures;
Nuance’s and its subsidiaries’ indebtedness;
the absence of specified undisclosed liabilities;
the conduct of the business of Nuance and its subsidiaries in all material respects in the ordinary course and the absence of any Company Material Adverse Effect and certain other events, in each case since September 30, 2020;
the existence and enforceability of specified categories of Nuance’s material contracts, and the lack of any breaches or defaults thereunder and of any notices with respect to termination or intent not to renew those material contracts therefrom;
real property owned, leased or subleased by Nuance and its subsidiaries;
environmental matters;
trademarks, patents, copyrights and other intellectual property matters;
data privacy and security;
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IT assets;
tax matters;
employee benefit plans;
labor and employment matters;
compliance with laws, including the Health Insurance Portability and Accountability Act, as amended, other healthcare laws, the Foreign Corrupt Practices Act, and possession of necessary permits;
the absence of legal proceedings and orders;
insurance matters;
absence of any transactions, relations or understandings between Nuance or any of its subsidiaries and any affiliate or related person;
payment of fees to brokers in connection with the merger agreement; and
the exclusivity and terms of the representations and warranties made by Microsoft and Sub.
In the merger agreement, Microsoft and Sub have made customary representations and warranties to Nuance that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement. These representations and warranties relate to, among other things:
due organization, good standing and authority and qualification to conduct business with respect to Microsoft and Sub, except where the failure to be in such good standing, or to have such power or authority, would not prevent or materially delay their ability to consummate the merger;
Microsoft’s and Sub’s corporate authority to enter into and perform the merger agreement, the due execution and enforceability of the merger agreement and the availability of organizational documents;
the absence of any conflict with, violation of or default under any organizational documents, existing contracts, applicable laws or the resulting creation of any lien upon Microsoft or Sub’s assets due to the performance of the merger agreement;
required consents and regulatory filings in connection with the merger agreement;
the absence of legal proceedings and orders;
ownership of capital stock of Nuance;
payment of fees to brokers in connection with the merger agreement;
the absence of a required vote by Microsoft’s stockholders in connection with the merger;
matters with respect to Microsoft’s sufficiency of funds;
tax matters; and
the exclusivity and terms of the representations and warranties made by Nuance.
The representations and warranties contained in the merger agreement will not survive the consummation of the merger.
Conduct of Business Pending the Merger
The merger agreement provides that, except as (1) expressly contemplated by the merger agreement; (2) approved by Microsoft (which approval will not be unreasonably withheld, conditioned or delayed); (3) required by applicable law; or (4) disclosed in the confidential disclosure letter to the merger agreement, during the period of time between the date of the merger agreement and the effective time of the merger (or earlier termination of the merger agreement), Nuance will, and will cause each of its subsidiaries to:
use its respective reasonable best efforts to maintain its existence in good standing pursuant to applicable law;
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subject to the restrictions and exceptions in the merger agreement, conduct its business and operations in the ordinary course of business, except with respect to certain actions or omissions that may be taken in response to COVID-19; and
use its reasonable best efforts to preserve intact its material assets, properties, contracts, licenses and business organizations, keep available the services of its current officers and key employees, and preserve the current relationships and goodwill with customers, suppliers and other persons with which it or its subsidiaries has business relations.
In addition, Nuance has also agreed that, except (1) as expressly contemplated by the merger agreement; (2) as approved by Microsoft (which approval will not be unreasonably withheld, conditioned or delayed); (3) for certain actions or omissions that may be taken in response to COVID-19 (following reasonable prior consultation with Microsoft); or (4) as disclosed in the confidential disclosure letter to the merger agreement, during the period of time between the date of the merger agreement and the effective time of the merger (or earlier termination of the merger agreement), Nuance will not, and will cause each of its subsidiaries not to, among other things:
amend or otherwise change the organizational documents of Nuance or any of its subsidiaries;
liquidate, dissolve or reorganize;
issue, sell, deliver or grant any shares of capital stock or any options, warrants, commitments, subscriptions or rights to purchase any similar capital stock or securities of Nuance or any of its subsidiaries, subject to certain exceptions for (i) the issuance and sale of shares of Nuance common stock pursuant to Nuance options or Nuance stock-based awards or convertible debentures outstanding and (ii) the issuance of Nuance common stock in respect of a participant’s accumulated contributions under the ESPP in accordance with the terms of the ESPP at the conclusion of the final offering period;
directly or indirectly acquire, repurchase or redeem any securities except for certain exceptions;
adjust, split, subdivide, combine, pledge, encumber or modify the terms of capital stock of Nuance or any of its subsidiaries;
declare, set aside, authorize, establish a record date for or pay any dividend or other distribution;
incur, assume, suffer or modify the terms of any indebtedness or issue any debt securities (other than for trade payables incurred in the ordinary course of business, loans or advances to wholly owned subsidiaries of Nuance, payment of the cash portion of the settlement amount in connection with the conversion of Nuance’s convertible debentures in accordance with the terms thereof and borrowings and letter of credit issuances under Nuance’s credit facility in the ordinary course of business consistent with best practice), assume or guarantee the obligations of any person other than its subsidiaries, make any loans or investments in any person other than advances to directors, officers, and other employees for business-related expenses incurred in connection with such person’s role at Nuance or its subsidiaries in the ordinary course of business or capital contributions made in connection with certain actions taken in response to COVID-19, or pledge, encumber or suffer any lien on any assets;
terminate any employee at the level of senior vice president or above (other than for cause or in connection with certain actions taken in response to COVID-19) or hire any new employee at the level of senior vice president or above;
enter into, adopt, amend (including accelerating vesting), modify or terminate any employee benefit plan, except in the ordinary course of business and consistent with past practice in a manner that would not, in the aggregate, materially increase the cost to Nuance and its subsidiaries;
for any current or former employee, director, officer or independent contractor of Nuance or its subsidiaries, increase compensation or benefits, pay any special bonus, remuneration or any benefit not required by any employee plan, grant any severance or termination pay, or grant any right to reimbursement, indemnification or payment of any taxes, including any taxes that may be incurred under Section 409A or 4999 of the Code, subject to certain exceptions;
settle, release, waive or compromise certain legal proceedings;
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except as required by law or GAAP, change accounting practices or revalue in any material respect any of Nuance’s properties or assets;
except as required by law or GAAP, change any material tax elections or any accounting method with respect to taxes, settle any material tax claims, file material amended tax returns or take certain other specified actions with respect to taxes;
incur or authorize capital expenditures, other than to the extent that such capital expenditures are otherwise consistent in all material respects with Nuance’s capital expenditure budget or are pursuant to agreements in effect prior to the date of the merger agreement, in each case as set forth in the confidential disclosure letter to the merger agreement;
enter into, modify or terminate certain contracts;
fail to use commercially reasonable efforts to maintain insurance at current levels;
grant material refunds or materially alter payment and collection practices;
waive, grant or transfer any material right of Nuance or its subsidiaries;
effect certain layoffs without complying with applicable laws;
except as required by law, voluntarily recognize any labor union, works council or similar employee organization or enter into a collective bargaining agreement;
acquire (by merger, consolidation or acquisition of stock or assets or otherwise), or make any investments in, any interest in any assets or any other person, except for purchases of assets in the ordinary course of business;
sell, transfer, pledge or otherwise dispose of (by merger, consolidation or disposition of stock or assets or otherwise) any assets constituting a material line of business or any other material assets of Nuance or any of its subsidiaries or any items of Nuance’s intellectual property material to Nuance and its subsidiaries, other than in the ordinary course of business;
enter into any new business segment outside of Nuance’s and its subsidiaries’ existing business segments on the date of the merger agreement;
except as required by applicable law, modify certain of its privacy policies or take action expected to impact the integrity, security or operation of the IT assets used in the business of Nuance or its subsidiaries in any materially adverse manner; or
enter into, authorize or commit to enter into, an agreement to take any of the foregoing actions.
No Solicitation of Other Offers
Under the merger agreement, from the date of the merger agreement until the effective time of the merger (or the earlier termination of the merger agreement), Nuance has agreed to cease and cause to be terminated any discussions or negotiations with and terminate any data room or other diligence access of any person, its affiliates and its representatives relating to an acquisition transaction (as defined below) and to request any person who executed a confidentiality agreement in connection with its consideration of acquiring Nuance to promptly return or destroy any non-public information furnished by or on behalf of Nuance prior to the date of the merger agreement.
Under the merger agreement, from the date of the merger agreement until the earlier to occur of the termination of the merger agreement and the effective time of the merger, Nuance has agreed to not, and to not authorize or direct, as the case may be, its subsidiaries and its and their respective representatives to:
solicit, initiate, propose or induce the making, submission or announcement of, or knowingly encourage, facilitate or assist, any proposal, offer or inquiry that constitutes, or is reasonably expected to lead to, an acquisition proposal (as defined below);
furnish or otherwise provide access to any non-public information regarding, or to the business, properties, assets, books, records or personnel of, Nuance or its subsidiaries to any person in
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connection with, or with the intent to induce the making of, or to knowingly encourage, facilitate or assist an acquisition proposal, offer or inquiry that would reasonably be expected to lead to an acquisition proposal;
participate or engage in discussions or negotiations with any person with respect to an acquisition proposal or with respect to any inquiries from third parties relating to making a potential acquisition proposal;
approve, endorse, or recommend any proposal that constitutes, or is reasonably expected to lead to, an acquisition proposal;
enter into any letter of intent, memorandum of understanding, merger agreement, expense reimbursement agreement, acquisition agreement or other contract relating to an acquisition transaction (as defined below); or
authorize or commit to do any of the above.
Notwithstanding these restrictions, prior to the adoption of the merger agreement by Nuance stockholders and after entering into an acceptable confidentiality agreement, Nuance may furnish information to, and enter into negotiations or discussions with, a person regarding a bona fide written acquisition proposal if: (1) Nuance, its subsidiaries and its and their respective representatives have not breached any of the conditions above with respect to the acquisition proposal or such person; (2) the Nuance Board of Directors determines in good faith, after consultation with its financial advisor and its outside legal counsel, that such acquisition proposal constitutes or is reasonably likely to lead to a superior proposal (as defined below); (3) the Nuance Board of Directors determines in good faith, after consultation with its outside legal counsel, that the failure to do so would be inconsistent with its fiduciary duties pursuant to applicable law; and (4) Nuance prior to or contemporaneously makes available to Microsoft any non-public information concerning Nuance that is provided to such person that was not previously made available to Microsoft.
If Nuance, its subsidiaries or its or their representatives receives an acquisition proposal or any request for non-public information in connection with an acquisition proposal at any time prior to the earlier to occur of the termination of the merger agreement and the effective time of the merger, Nuance must promptly (and in all events by a specified time on the next business day) advise Microsoft of such acquisition proposal or request, including the identity of the person making or submitting the acquisition proposal or request, the material terms and conditions thereof, and copies of any written documentation setting forth such terms. Thereafter, Nuance must keep Microsoft reasonably informed, on a prompt basis, of the status and terms of any such offers or proposals (including any amendments thereto) and the status of any such discussions or negotiations.
For purposes of this proxy statement and the merger agreement:
an “acquisition proposal” is any offer or proposal (other than an offer or proposal by Microsoft or Sub) relating to an acquisition transaction;
an “acquisition transaction” is any transaction or series of transactions (other than the merger) involving any:
direct or indirect purchase or other acquisition by any person or “group” (as defined in the Exchange Act) of persons of securities representing more than 15% of the total outstanding voting power of Nuance, including pursuant to a tender offer or exchange offer;
direct or indirect purchase (including by way of a merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or other transaction), license or other acquisition by any person or “group” of persons of assets (including equity securities of any subsidiary of Nuance) constituting or accounting for more than 15% of the revenue, net income or consolidated assets of Nuance and its subsidiaries, taken as a whole; or
merger, consolidation, business combination, recapitalization, reorganization, liquidation, dissolution or other transaction involving Nuance (or any of its subsidiaries whose business accounts for more than 15% of the revenue, net income or consolidated assets of Nuance and its subsidiaries, taken as a whole) in which the stockholders of Nuance (or such subsidiary) prior to such transaction will not own at least 85%, directly or indirectly, of the surviving company; and
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a “superior proposal” is a bona fide written acquisition proposal (substituting 50% for 15% in the definition of “acquisition proposal” above) for an acquisition transaction on terms that the Nuance Board of Directors has determined in good faith (after consultation with its financial advisor and outside legal counsel) would be more favorable from a financial point of view than the merger and taking into account any revisions to the merger agreement made or proposed by Microsoft prior to the time of such determination and after taking into account the other factors and matters deemed relevant in good faith by the Nuance Board of Directors, including the identity of the person making the proposal, the conditionality of such proposal, the likelihood of consummation, and the legal, financial (including financing terms), regulatory, timing and other aspects of the proposal.
The Recommendation of the Nuance Board of Directors; Company Board Recommendation Change
Except as described below, and subject to the provisions described below, the Nuance Board of Directors has made the recommendation that the holders of shares of common stock vote “FOR” the proposal to adopt the merger agreement. The merger agreement provides that the Nuance Board of Directors will not effect a company board recommendation change except as described below.
Prior to the adoption of the merger agreement by stockholders, the Nuance Board of Directors may not (with any action described in the following being referred to as a “company board recommendation change”):
withhold, withdraw, amend, qualify or modify, or publicly propose to withhold, withdraw, amend, qualify or modify, the recommendation of the Nuance Board of Directors in a manner adverse to Microsoft;
adopt, approve, or recommend an acquisition proposal;
fail to publicly reaffirm the recommendation of the Nuance Board of Directors within 10 business days following Microsoft’s written request made promptly following the occurrence of a material event or development relating to or reasonably likely to have a material effect on the merger or the vote by Nuance’s stockholders at the special meeting (or if the special meeting is scheduled to be held within 10 business days, then within one business day after Microsoft so requests);
take any formal action or make any recommendation in connection with a tender or exchange offer, other than a recommendation against such offer or a “stop, look and listen” communication by the Nuance Board of Directors (or a committee thereof) to Nuance’s stockholders pursuant to Rule 14d-9(f) promulgated under the Exchange Act (or any substantially similar communication) (it being understood that the Nuance Board of Directors (or a committee thereof) may refrain from taking a position with respect to an acquisition proposal until the close of business on the 10th business day after the commencement of a tender or exchange offer in connection with such acquisition proposal without such action being considered a violation of the merger agreement); or
fail to include the recommendation of the Nuance Board of Directors in this proxy statement.
Notwithstanding the restrictions described above, prior to the adoption of the merger agreement by stockholders, the Nuance Board of Directors may, upon compliance with the procedures described below, effect a company board recommendation change if (1) other than in connection with a bona fide acquisition proposal that constitutes a superior proposal, there has been an intervening event (as defined below); or (2) Nuance has received a bona fide written acquisition proposal that the Nuance Board of Directors has concluded in good faith (after consultation with its financial advisor and outside legal counsel) is a superior proposal, in each case, if the Nuance Board of Directors determines in good faith (after consultation with its financial advisor and outside legal counsel) that a failure to effect a company board recommendation change would be inconsistent with the Nuance Board of Directors’ fiduciary duties pursuant to applicable law.
The Nuance Board of Directors may effect a company board recommendation change, but may not terminate the merger agreement, in response to an intervening event if and only if:
Nuance has provided prior written notice to Microsoft at least three business days in advance to the effect that the Nuance Board of Directors has (1) made the determination described above; and (2) resolved to effect a company board recommendation change pursuant to the merger agreement, which notice must describe the applicable intervening event in reasonable detail; and
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prior to effecting such company board recommendation change, Nuance and its representatives, during such three-business day period, must have (1) negotiated with Microsoft and its representatives in good faith (to the extent that Microsoft requests in writing to so negotiate) to make such adjustments to the terms and conditions of the merger agreement so that the Nuance Board of Directors no longer determines in good faith that the failure to make a company board recommendation change in response to such intervening event would be inconsistent with its fiduciary duties pursuant to applicable law and (2) provided Microsoft and its representatives with an opportunity to make a presentation to the Nuance Board of Directors regarding the merger agreement and any adjustments with respect thereto (to the extent that Microsoft requests to make such a presentation).
In addition, the Nuance Board of Directors may effect a company board recommendation change or terminate the merger agreement in response to a bona fide written acquisition proposal that did not result from Nuance’s breach of its non-solicitation obligations under the merger agreement, the Nuance Board of Directors has concluded in good faith (after consultation with its financial advisor and outside legal counsel) is a superior proposal if and only if:
the Nuance Board of Directors has determined in good faith (after consultation with its financial advisor and outside legal counsel) that the failure to do so would be inconsistent with its fiduciary duties pursuant to applicable law;
Nuance has provided prior written notice to Microsoft at least three business days in advance to the effect that the Nuance Board of Directors has (1) received a bona fide written acquisition proposal that has not been withdrawn; (2) concluded in good faith that such acquisition proposal constitutes a superior proposal; and (3) resolved to effect a company board recommendation change or to terminate the merger agreement, which notice will describe the basis for such company board recommendation change or termination, including the identity of the person or “group” of persons making such acquisition proposal, the material terms and conditions of such acquisition proposal and copies of all relevant documents relating to such acquisition proposal; and
prior to effecting such company board recommendation change or termination, Nuance and its representatives, during the three business day notice period described above, have (1) negotiated with Microsoft and its representatives in good faith (to the extent that Microsoft requests in writing to so negotiate) to make such adjustments to the terms and conditions of the merger agreement so that such acquisition proposal would cease to constitute a superior proposal; and (2) provided Microsoft and its representatives with an opportunity to make a presentation to the Nuance Board of Directors regarding the merger agreement and any adjustments with respect thereto (to the extent that Microsoft requests to make such a presentation).
In the event of any material revision to any such bona fide written acquisition proposal described above, Nuance has also agreed to deliver a new notice to Microsoft and comply with the above procedures with respect to such new written notice (with the notice period being two business days, except that such notice period shall not shorten the aforementioned original three-day notice period) and prior to effecting a company board recommendation change or terminating the merger agreement, at the end of the relevant notice period, the Nuance Board of Directors must have in good faith (after consultation with its financial advisor and outside legal counsel) reaffirmed its determination that such bona fide written acquisition proposal is a superior proposal.
For purposes of this proxy statement and the merger agreement, an “intervening event” means any positive change, effect, development, circumstance, condition, event or occurrence that (1) as of the date of the merger agreement was not known to the Nuance Board of Directors, or the consequences of which (based on facts known to the members of the Nuance Board of Directors as of the date of the merger agreement) were not reasonably foreseeable as of the date of the merger agreement and (2) does not relate to any acquisition proposal.
Stockholder Meeting
Nuance has agreed to take all necessary action to establish a record date for, duly call, give notice of, convene and hold the special meeting as promptly as reasonably practicable and on or around the 20th business day following the commencement of the mailing of this proxy statement (or on such other date elected by Nuance with Microsoft’s consent, which consent will not be unreasonably withheld, conditioned or delayed) for the purpose of voting upon the adoption of the merger agreement, obtaining advisory approval of the compensation
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that Nuance’s named executive officers may receive in connection with the merger, and, if applicable, for Nuance’s stockholders to act on such other matters of procedure required in connection with the adoption of the merger agreement and matters required by applicable law to be voted on by Nuance’s stockholders in connection with the adoption of the merger agreement. Nuance is permitted to postpone or adjourn the special meeting in certain circumstances related to soliciting additional proxies or requirements of applicable law.
Employee Matters
Following the merger, Microsoft will honor all employee plans as in effect immediately prior to the effective time, which we refer to as the Nuance Plans. However, Microsoft may amend or terminate any such arrangements in accordance with their terms or if required by law.
During the one-year period following the merger, Microsoft will either:
maintain for the benefit of each employee of Nuance who remains employed after the closing, which we refer to as continuing employees, the Nuance Plans (other than equity-based benefits) at benefit levels that are, in the aggregate, no less than those in effect at Nuance on the date of the merger agreement, and provide compensation and benefits to each continuing employee pursuant to the Nuance Plans;
provide compensation, benefits and severance payments and benefits (other than equity-based benefits and individual employment agreements) to each continuing employee that, taken as a whole, are no less favorable in the aggregate than the compensation, benefits and severance payments (other than equity-based benefits and individual employment agreements) provided to such continuing employee immediately prior to the effective time; or
provide some combination of the two options described above such that each continuing employee receives compensation, benefits and severance payments (other than equity-based benefits and individual employment agreements) that, taken as a whole, are no less favorable in the aggregate than the compensation, benefits and severance payments and benefits (other than equity-based benefits) provided to such continuing employee immediately prior to the effective time.
During the one-year period following the merger, each continuing employee’s base compensation and target cash incentive compensation opportunity, in the aggregate, will not be decreased, and the base compensation for each continuing employee will not be decreased by more than 10%.
Microsoft has agreed to give credit to continuing employees who, after the merger, participate in employee benefit plans maintained by Microsoft for all service with Nuance and its subsidiaries before the merger for purposes of eligibility to participate, vesting and entitlement to benefits (other than for purposes of benefit accruals under any defined benefit pension plan or post-employment welfare plan). Microsoft will credit each continuing employee with accrued but unused vacation or paid time off in accordance with Nuance’s vacation or paid time off policies in effect immediately prior to the merger.
With respect to any employee benefit plans maintained by Microsoft in which continuing employees are eligible to participate after the closing, Microsoft has agreed that it will:
provide that each continuing employee will be immediately eligible to participate in each Microsoft plan, without any waiting period, to the extent that coverage under the Microsoft plan replaces coverage under a comparable Nuance plan;
use reasonable best efforts to cause all waiting periods, pre-existing condition exclusions, evidence of insurability requirements and actively-at-work or similar requirements under any Microsoft plan providing medical, dental, pharmaceutical, vision or disability benefits to any continuing employee to be waived for the continuing employee to the extent waived under the corresponding Nuance plan;
cause any eligible expenses incurred by a continuing employee and his or her covered dependents during the portion of the plan year of the Nuance plan ending on the date that the continuing employee’s participation in the corresponding Microsoft plan begins to be given full credit under the Microsoft plan for purposes of satisfying all deductible, co-insurance and maximum out-of-pocket requirements applicable to the continuing employee and his or her covered dependents for the plan year as if the amounts had been paid under the Microsoft plan, to the extent credited under the corresponding Nuance plan; and
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credit any continuing employee’s accounts under any Microsoft flexible spending plan with any unused balance in the continuing employee’s account.
For any continuing employees who terminate employment during the one-year period after the merger, Microsoft will provide severance payments and benefits to eligible employees in accordance with each such employee’s individual employment or change in control severance agreement or, if no such agreement exists, in accordance with the applicable severance policy of Nuance in effect on the date of the merger agreement.
Efforts to Close the Merger
Under the merger agreement, Microsoft, Sub and Nuance agreed to use reasonable best efforts to take, or cause to be taken, all actions and assist and cooperate with the other parties, in each case as are necessary, proper or advisable to consummate the merger and effect the other contemplated transactions thereunder, including using their reasonable best efforts to cause the conditions to closing the merger described below to be satisfied, comply with all regulatory notification requirements and obtain all regulatory approvals required to consummate the merger and effect the other contemplated transactions thereunder and use reasonable best efforts to seek to obtain any required consents under Nuance’s material contracts.
Additionally, under the merger agreement, if and to the extent necessary to obtain regulatory approval of the merger, Microsoft, Sub and, solely to the extent requested by Microsoft, Nuance agreed to (1) offer and effect the divestiture or other disposition of any capital stock or assets of Nuance and (2) contest, defend and appeal any legal proceeding challenging the merger agreement or the consummation of the merger. Notwithstanding the foregoing, Microsoft is not obligated to take any action with respect to Nuance that would reasonably be expected to have a material adverse effect on the business, assets, liabilities, financial condition or results of the operations of Nuance and its subsidiaries, taken as a whole, or to take any action with respect to Microsoft if taking such action would reasonably be expected to (1) have a material impact on the benefits expected to be derived from the merger by Microsoft or (2) have more than an immaterial impact on any business or product line of Microsoft and its subsidiaries.
Indemnification and Insurance
The merger agreement provides that the surviving corporation will (and Microsoft will cause the surviving corporation to) honor and fulfill the obligations of Nuance pursuant to any indemnification agreements between Nuance, on the one hand, and the current or former directors and officers of Nuance, on the other hand, that are set forth in the confidential disclosure letter to the merger agreement.
In addition, the merger agreement provides that, during the six year period commencing at the effective time of the merger, the surviving corporation will (and Microsoft will cause the surviving corporation to) indemnify and hold harmless each current or former director or officer of Nuance or its subsidiaries, to the fullest extent permitted by law, from and against all costs, fees and expenses (including attorneys’ fees and investigation expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement or compromise in connection with any legal proceeding arising, directly or indirectly, out of or pertaining, directly or indirectly, to (1) any action or omission, or alleged action or omission, in such indemnified person’s capacity as a director, officer, employee or agent of Nuance or its subsidiaries or other affiliates (regardless of whether such action or omission, or alleged action or omission, occurred prior to, at or after the effective time of the merger); and (2) the merger, as well as any actions taken by Nuance, Microsoft or Sub with respect thereto. The merger agreement also provides that the surviving corporation will advance all fees and expenses (including fees and expenses of any counsel) as incurred by any such indemnified person in the defense of such legal proceeding.
In addition, without limiting the foregoing, unless Nuance has purchased a “tail” policy prior to the effective time of the merger (which Nuance may purchase, provided that the premium for such insurance does not exceed 250% of the aggregate annual premiums currently paid), the merger agreement requires Microsoft to cause the surviving corporation to maintain, on terms no less advantageous to the indemnified parties, Nuance’s directors’ and officers’ insurance policies for a period of at least six years commencing at the effective time of the merger. Neither Microsoft nor the surviving corporation will be required to pay premiums for such policy to the extent such premiums exceed, on an annual basis, 250% of the aggregate annual premiums currently paid by Nuance, and if the premium for such insurance coverage would exceed such amount Microsoft shall be obligated to cause the surviving corporation to obtain the greatest coverage available for a cost equal to such amount.
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The merger agreement also provides that the indemnified parties are third-party beneficiaries of the indemnification and insurance provisions in the merger agreement and are entitled to enforce such provisions.
For more information, refer to the section of this proxy statement captioned “The Merger — Interests of Nuance’s Directors and Executive Officers in the Merger” beginning on page [50].
Transaction Litigation
Nuance will (1) provide Microsoft with prompt notice of all stockholder litigation relating to the merger agreement; (2) keep Microsoft reasonably informed with respect to status thereof; (3) give Microsoft the opportunity to participate in the defense, settlement or prosecution of any such litigation; and (4) consult with Microsoft with respect to the defense, settlement or prosecution of any such litigation and consider in good faith Microsoft’s advice with respect to such litigation. Nuance may not compromise, settle or come to an arrangement, or agree to do any of the foregoing, regarding any such litigation without Microsoft’s prior written consent.
Conditions to the Closing of the Merger
The obligations of Microsoft and Sub, on the one hand, and Nuance, on the other hand, to consummate the merger are subject to the satisfaction or waiver (where permitted by applicable law) of each of the following conditions:
the adoption of the merger agreement by the requisite affirmative vote of Nuance stockholders;
the expiration or termination of the applicable waiting period under, or obtaining all requisite clearances, consents and approvals pursuant to, the HSR Act and the antitrust and foreign investment laws of certain specified countries, which we refer to as the regulatory condition;
the consummation of the merger not being restrained, enjoined, rendered illegal or otherwise prohibited by any law or order of any governmental authority or being subject to a burdensome condition imposed by a governmental authority, which we refer to as the injunction condition.
In addition, the obligations of Microsoft and Sub to consummate the merger are subject to the satisfaction or waiver (where permitted by applicable law) of each of the following additional conditions:
the representations and warranties of Nuance relating to organization, good standing, corporate power, enforceability, approval of the Nuance Board of Directors, Evercore’s fairness opinion, anti-takeover laws, requisite stockholder approval and the absence of any Company Material Adverse Effect being true and correct in all material respects as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall have been true and correct as of such earlier date), unless any such representations or warranties are qualified by “material,” “materiality” or Company Material Adverse Effect, in which case, such representations and warranties shall have been true and correct (without disregarding such “material,” “materiality” or Company Material Adverse Effect qualifications) as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall have been so true and correct as of such earlier date);
the representations and warranties of Nuance relating to certain aspects of the capitalization of Nuance’s subsidiaries being true and correct in all material respects as of the date on which the closing occurs as if made at and as of such date;
the representations and warranties of Nuance relating to certain aspects of Nuance’s capitalization being true and correct as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct as of such earlier date), except for such inaccuracies that are de minimis in the aggregate (viewed in the context of Nuance’s total capitalization);
the other representations and warranties of Nuance set forth elsewhere in the merger agreement being true and correct (without giving effect to any materiality or Company Material Adverse Effect
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qualifications set forth therein) as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct as of such earlier date), except for such failures to be true and correct that would not have or reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect;
Nuance having performed and complied in all material respects with all covenants and obligations of the merger agreement required to be performed and complied with by it at or prior to the effective time of the merger;
the receipt by Microsoft and Sub of a customary closing certificate of Nuance;
the absence of any Company Material Adverse Effect having occurred after the date of the merger agreement that is continuing as of the effective time of the merger; and
the receipt by Nuance of the written opinion of its counsel, Paul, Weiss, Rifkind, Wharton & Garrison LLP, as of the date on which the closing occurs to the effect that, on the basis of the facts, representations, assumptions, limitations and exclusions set forth or referred to in such opinion, the merger will not cause the Cerence spin-off to fail to qualify for the Cerence spin-off tax treatment.
In addition, the obligation of Nuance to consummate the merger is subject to the satisfaction or waiver (where permitted by applicable law) of each of the following additional conditions:
the representations and warranties of Microsoft and Sub set forth in the merger agreement being true and correct as of the date on which the closing occurs as if made at and as of such date (except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty will be true and correct as of such earlier date), except for any such failure to be true and correct that would not have or reasonably be expected to have, individually or in the aggregate, an effect that prevents or materially impedes or materially delays the consummation by Microsoft or Sub of the merger;
Microsoft and Sub having performed and complied in all material respects with all covenants and obligations of the merger agreement required to be performed and complied with by Microsoft or Sub at or prior to the effective time of the merger; and
the receipt by Nuance of a customary closing certificate of Microsoft and Sub.
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to the effective time of the merger, whether before or after the adoption of the merger agreement by Nuance stockholders, in the following ways:
by mutual written agreement of Nuance and Microsoft;
by either Nuance or Microsoft if:
(1) a permanent injunction or similar order issued by a court or other legal restraint prohibiting consummation of the merger is in effect, or any action taken by a governmental authority prohibiting the merger has become final and non-appealable or (2) any statute, regulation or order prohibiting the merger has been enacted (except that a party may not terminate the merger agreement pursuant to this provision if such party’s material breach of any provision of the merger agreement is the primary cause of the failure of the merger to be consummated by the termination date (as defined below));
the merger has not been consummated before 11:59 p.m., Eastern time, on January 31, 2022, which we refer to as the “termination date,” except that (i) if all conditions have been satisfied (other than those conditions to be satisfied at the time of closing of the merger) or waived (to the extent permitted by applicable law) by that date but on that date the regulatory condition or injunction condition (solely with respect to antitrust, competition or foreign investment laws) has not been satisfied, then the termination date shall automatically be extended to 11:59 p.m., Eastern time, on April 30, 2022 and (ii) if all conditions have been satisfied (other than those conditions to be satisfied at the time of closing of the merger) or waived (to the extent permitted by applicable
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law) by April 30, 2022 but on that date the regulatory condition or injunction condition (solely with respect to antitrust, competition or foreign investment laws) has not been satisfied, then the termination date shall automatically be extended to 11:59 p.m., Eastern time, on July 31, 2022, but a party may not terminate the merger agreement pursuant to this provision if such party’s material breach of any provision of the merger agreement is the primary cause of the failure to consummate the merger by the termination date;
the Nuance stockholders do not adopt the merger agreement at the special meeting (except that a party may not terminate the merger agreement pursuant to this provision if such party’s material breach of the merger agreement is the primary cause of the failure to obtain the approval of the Nuance stockholders at the special meeting);
by Nuance if:
after a cure period, Microsoft or Sub has breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements in the merger agreement, such that the related closing condition would not be satisfied (but Nuance may not so terminate the merger agreement if its own breach, failure to perform or comply with the merger agreement or inaccuracy of its representations and warranties causes the failure of the closing conditions in respect of Nuance’s performance of its covenants or accuracy of its representations and warranties to have been satisfied);
prior to the adoption of the merger agreement by Nuance stockholders, (1) Nuance has received a superior proposal; (2) the Nuance Board of Directors has authorized Nuance to enter into an agreement to consummate the transaction contemplated by such superior proposal; (3) Nuance pays Microsoft a $515 million termination fee; and (4) Nuance has complied with its non-solicitation obligations under the merger agreement;
by Microsoft if:
after a cure period, Nuance has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements in the merger agreement, such that the related closing condition would not be satisfied (but Microsoft may not so terminate the merger agreement if its own breach, failure to perform or comply with the merger agreement or inaccuracy of its representations and warranties causes the failure of the closing conditions in respect of Microsoft’s performance of its covenants or accuracy of its representations and warranties to have been satisfied); or
the Nuance Board of Directors has effected a company board recommendation change.
In the event that the merger agreement is terminated pursuant to the termination rights above, the merger agreement will be of no further force or effect without liability of any party to the other parties (or their representatives), as applicable, except certain sections of the merger agreement will survive the termination of the merger agreement in accordance with their respective terms, including terms relating to termination fees. Notwithstanding the foregoing, nothing in the merger agreement will relieve any party from any liability for any willful breach of any representation, warranty, covenant or agreement contained in the merger agreement. In addition, no termination of the merger agreement will affect the rights or obligations of any party pursuant to the confidentiality agreement between Microsoft and Nuance, which rights, obligations and agreements will survive the termination of the merger agreement in accordance with their respective terms.
Termination Fee
If the merger agreement is terminated in specified circumstances, Nuance has agreed to pay Microsoft a termination fee of $515 million.
Microsoft will be entitled to receive the termination fee from Nuance if the merger agreement is terminated:
(A) by Microsoft because (1) the merger has not closed as of the termination date and at the time of such termination, either (x) the special meeting has not yet been held or (y) the closing condition requiring receipt of regulatory approvals or the closing condition requiring the absence of an order by a governmental authority prohibiting the merger has not been satisfied, and the primary cause of the
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failure of either such condition to have been satisfied was a breach of the merger agreement by Nuance, (2) Nuance has materially breached its representations, warranties, covenants or agreements in the merger agreement or (3) Nuance stockholders fail to adopt the merger agreement at the special meeting; (B) following the date of the merger agreement and prior to its termination, an acquisition proposal has been publicly announced by Nuance; and (C) Nuance enters into an agreement relating to, or consummates, an acquisition transaction within one year of the termination of the merger agreement (provided that, for purposes of the termination fee, all references to “15%” in the definition of “acquisition transaction” are deemed to be references to “50%”);
by Microsoft, because the Nuance Board of Directors has effected a company board recommendation change; or
by Nuance, to enter into an alternative acquisition agreement with respect to a superior proposal.
Specific Performance
Microsoft, Sub and Nuance are entitled to an injunction, specific performance and other equitable relief to prevent breaches (or threatened breaches) of the merger agreement and to enforce the terms of the merger agreement, in addition to any other remedy to which they are entitled at law or in equity.
Fees and Expenses
Except in specified circumstances, whether or not the merger is completed, Nuance, on the one hand, and Microsoft and Sub, on the other hand, are each responsible for all of their respective costs and expenses incurred in connection with the merger and the other transactions contemplated by the merger agreement.
Amendment
Subject to applicable law, the merger agreement may be amended in writing by the parties at any time prior to closing of the merger, whether before or after adoption of the merger agreement by stockholders. However, after adoption of the merger agreement by stockholders, no amendment that requires further approval by such stockholders pursuant to the DGCL may be made without such approval.
Governing Law; Venue
The merger agreement is governed by Delaware law. The exclusive venue for disputes is the Court of Chancery of the State of Delaware or, to the extent that the Court of Chancery of the State of Delaware does not have subject matter jurisdiction, any state or federal court in the State of Delaware.
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PROPOSAL 2: ADVISORY VOTE ON MERGER-RELATED EXECUTIVE
COMPENSATION ARRANGEMENTS
The Merger-Related Compensation Proposal
Section 14A of the Exchange Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires that we provide our stockholders with the opportunity to vote to approve, on an advisory non-binding basis, the payment of certain compensation that will or may become payable to the named executive officers of Nuance in connection with the merger, as disclosed in the section of this proxy statement entitled “Proposal 1: Adoption of the Merger Agreement — The Merger — Interests of the Non-Employee Directors and Executive Officers of Nuance in the Merger — Golden Parachute Compensation” beginning on page [26].
We are asking our stockholders to approve, on an advisory basis, a resolution relating to the compensation that will or may become payable to the named executive officers of Nuance in connection with the merger. The compensation that may be provided to Mr. Benjamin and Mr. Tempesta pursuant to their letter agreements with Microsoft is not subject to this advisory, non-binding vote.
The Nuance Board of Directors encourages you to review carefully the named executive officer merger-related compensation information disclosed in this proxy statement. The Nuance Board of Directors unanimously recommends that you vote “FOR” the following resolution:
“RESOLVED, that the stockholders of Nuance Communications, Inc. approve, on a non-binding, advisory basis, the compensation that will or may become payable to Nuance’s named executive officers that is based on or otherwise relates to the merger as disclosed pursuant to Item 402(t) of Regulation S-K in the section entitled ‘Proposal 1: Adoption of the Merger Agreement — The Merger — Interests of the Non-Employee Directors and Executive Officers of Nuance in the Merger — Golden Parachute Compensation’ in Nuance’s proxy statement for the special meeting.”
Stockholders should note that this proposal is not a condition to completion of the merger, and, as an advisory vote, the result will not be binding on Nuance, the Nuance Board of Directors or Microsoft. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the advisory vote, if the merger is consummated, our named executive officers will be entitled to receive the compensation that is based on or otherwise relates to the merger in accordance with the terms and conditions applicable to those payments.
Vote Required and Board of Directors Recommendation
Approval of the merger-related compensation proposal requires the affirmative vote of a majority of the voting power of the shares of Nuance common stock entitled to vote which are present, in person or by proxy, and voting at the special meeting, provided a quorum is present.
The Nuance Board of Directors unanimously recommends that you vote “