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Editor: Brian JM Quinn
Boston College Law School

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Monday, June 6, 2011

Microsoft's matching right for Nvidia

InformationWeek took a look at Nvidia's recent 10-Q and noticed something interesting.  Microsoft has hel a matching right Nvidia since 2000.  apparently has the ultimate takeover defense in place.  Here's the description of the right from Nvidia's recent 10-Q:

On March 5, 2000, we entered into an agreement with Microsoft in which we agreed to develop and sell graphics chips and to license certain technology to Microsoft and its licensees for use in the Xbox. Under the agreement, if an individual or corporation makes an offer to purchase shares equal to or greater than 30% of the outstanding shares of our common stock, Microsoft may have first and last rights of refusal to purchase the stock. The Microsoft provision and the other factors listed above could also delay or prevent a change in control of NVIDIA.

In fact, Nvidia has been making this same disclosure for more than a decade.  Here's the original disclosure from their first quarter 10-Q in 2000:

Microsoft Agreement

   On March 5, 2000, the Company entered into an agreement with Microsoft
pursuant to which the Company agreed to develop and sell graphics chips and to
license certain technology to Microsoft and its licensees for use in a product
under development by Microsoft. In April 2000, Microsoft paid the Company $200
million as an advance against graphics chip purchases. Microsoft may terminate
the agreement at any time. If termination occurs prior to offset in full of the
advance payments, the Company would be required to return to Microsoft up to
$100 million of the prepayment and to convert the remainder into preferred
stock of the Company at a 30% premium to the 30-day average trading price of
its common stock immediately preceding Microsoft's termination of the
agreement. In addition, in the event that an individual or corporation makes an
offer to purchase shares equal or greater than thirty percent (30%) of the
outstanding shares of the Company's common stock, Microsoft has first and last
rights of refusal to purchase the stock. The graphics chip contemplated by the
agreement is highly complex, and the development and release of the Microsoft
product and its commercial success are dependent upon a number of factors, many
of which the Company cannot control. The Company cannot guarantee that it will
be successful in developing the graphics chip for use by Microsoft or that the
product will be developed or released, or if released, will be commercially
successful.

I've checked the 10-Ks and 10-Qs back to 2000 and the Microsoft Agreement hasn't been filed as an exhibit anywhere.  I suspect that it's a material contract - Microsoft has a contractual right to basically block any sale of the company - that sounds material.  I'm sure a copy of the contract is buried in the filings somewhere. 

-bjmq

 

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