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. )

 

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	Definitive Proxy Statement
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	Soliciting Material Pursuant to §240.14a-12

 

ACTIVISION BLIZZARD, INC.

 

 

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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3100 Ocean Park Boulevard

Santa Monica, California 90405

 

 

Dear Fellow Stockholders:

I cordially invite you to join me and the other members of Activision Blizzard, Inc.’s Board of Directors at the company’s 2016 annual meeting of stockholders. This proxy statement contains information about the meeting and will serve as your guide to the matters on which you will be asked to vote.

At Activision Blizzard, we know that feedback from our stockholders is essential to our continued success. Regardless of the number of shares you own, this meeting is a wonderful opportunity for you to learn more about developments at the company and, more importantly, to express your opinions and play a part in Activision Blizzard’s future. If you can’t attend the meeting, please share your thoughts or concerns with us by email at ir@activision.com or in care of our Corporate Secretary at Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405.

Thank you for your continued support of Activision Blizzard.

Sincerely,

Robert A. Kotick

President and Chief Executive Officer

April 22, 2016

 

 

 

 

 

The proxy statement and our 2015 annual report to stockholders are each available at:
http://www.cstproxy.com/activisionblizzard/2016

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3100 Ocean Park Boulevard

Santa Monica, California 90405

 

Thursday, June 2, 2016

9:00 a.m.

The Annual Meeting of Stockholders of Activision Blizzard, Inc. will be held at the Equity Office facilities at 3200 Ocean Park Boulevard, Santa Monica, California 90405, on Thursday, June 2, 2016, at 9:00 a.m., Pacific Daylight Time.

The purposes of this year’s annual meeting are to:

The Activision Blizzard, Inc. Board of Directors has fixed April 7, 2016, as the record date for determining the stockholders entitled to receive notice of, and to vote at, the annual meeting.

Whether or not you plan to attend the meeting, I urge you to promptly vote your shares by proxy by following the instructions beginning on page 14 of the enclosed proxy statement. If you are able to attend the meeting and wish to vote in person, you may withdraw your proxy at that time. If you do plan to attend the meeting, please see page 14 of the enclosed proxy statement for information regarding what you must bring with you to gain admittance.

 

By Order of the Board of Directors

Jeffrey A. Brown

Corporate Secretary

 

April 22, 2016

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PROXY STATEMENT

GENERAL

Purpose of this Proxy Statement

This proxy statement is furnished in connection with the solicitation by our Board of Directors (our “Board”) of proxies from holders of issued and outstanding shares of the Company’s common stock, par value $0.000001 per share (“Common Stock”). The proxies being solicited will be used at the annual meeting of our stockholders to be held on Thursday, June 2, 2016, at the Equity Office facilities at 3200 Ocean Park Boulevard, Santa Monica, California 90405, at 9:00 a.m., Pacific Daylight Time, and at any adjournment or postponement of the meeting (the “Annual Meeting”).

Notice of Internet Availability of Proxy Materials

We will be mailing a notice regarding the internet availability of these proxy materials (containing instructions on how to access the proxy materials and vote shares through the internet) to stockholders on or about April 22, 2016.

Other General Information

All financial metrics used in this proxy statement are presented in accordance with generally accepted accounting principles (“GAAP”), unless explicitly identified as non-GAAP. For information on the calculation and reconciliation of GAAP measures to non-GAAP measures, please see Appendix A attached to this proxy statement. Internally, management uses the financial measures identified herein as non-GAAP in assessing our operating results, as well as in planning and forecasting. In particular, the measures facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard by excluding certain items that may not be indicative of the Company’s core business, operating results or future outlook. As such, the performance of our executive officers is generally measured by reference to non-GAAP financial measures. Further, management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure Activision Blizzard’s financial and operating performance. These non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for or as more important than the financial information prepared and presented in accordance with GAAP. In addition, these non-GAAP measures have limitations in that they do not reflect all of the items associated with the Company’s results of operations as determined in accordance with GAAP. In the future, Activision Blizzard may also consider whether other significant non-recurring items should also be excluded in calculating the non-GAAP financial measures used by the Company.

Our non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues, non-GAAP net income, non-GAAP diluted earnings per share and non-GAAP operating margin do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard’s performance in relation to other companies.

All references in this proxy statement to “the Company”, “we”, “us”, “our”, and “Activision Blizzard” refer to Activision Blizzard, Inc.

 

 

PROCEDURAL MATTERS

Who may vote at the Annual Meeting?

Only stockholders of record at the close of business on April 7, 2016, are entitled to notice of, or to vote at, the Annual Meeting. There were 738,076,590 shares of our Common Stock outstanding and entitled to vote on the record date.

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A list of the stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder, for any purpose germane to the Annual Meeting, at the Annual Meeting and during ordinary business hours at our offices at 3100 Ocean Park Boulevard, Santa Monica, California 90405 for the 10 days prior to the Annual Meeting.

How many votes may I cast?

For each share of our Common Stock outstanding and entitled to vote that a stockholder holds on the record date, he or she is entitled to one vote on each matter presented for action at the Annual Meeting.

What if I hold my shares through a broker? What is the difference between holding shares as a “stockholder of record” and as a “beneficial owner”?

If your shares are held through a broker, bank or any other nominee, you hold your shares in “street name”, and you are considered the “beneficial owner” of those shares. This proxy statement and any accompanying materials have been provided to you by your broker, bank or other holder of record. As a beneficial owner, you are entitled to direct the firm that holds your shares how to vote your shares.

If your shares are registered in your name with our stock transfer agent, Continental Stock Transfer & Trust, you are the “stockholder of record”. This proxy statement and any accompanying materials have been provided to you directly by Activision Blizzard.

Can my broker vote my shares without my instruction? What are “broker non-votes”?

If you are a beneficial owner and you do not provide voting instructions to the broker, bank or other nominee that holds your shares in its name, that firm is only allowed to exercise its discretion to vote your shares on “routine” matters, but will not be allowed to vote your shares with respect to any “non-discretionary” items, resulting in a so-called “broker non-vote” with respect to such items. Proposal 3—the ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm—is the only matter for consideration at the Annual Meeting considered to be routine. For all matters other than proposal 3, you must submit voting instructions to the firm that holds your shares if you want your vote to count. A broker non-vote will occur if you do not provide instructions to your broker, bank or other nominee with respect to proposals 1 or 2.

How many votes must be present in order for business to be conducted?

In order for business to be conducted at the Annual Meeting, a quorum must be present. A quorum consists of the presence, in person or by proxy, of a majority of the shares of our Common Stock entitled to vote at the Annual Meeting. Both abstentions and broker non-votes will be included for purposes of determining whether a quorum is present at the Annual Meeting.

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How can I cast my vote with respect to each proposal and how many votes are required to approve each proposal?

What are the ways I can vote?

Stockholders at the close of business on April 7, 2016, can vote at the Annual Meeting in person or via proxy in the manner described herein. Any stockholder who holds shares in street name through a broker, bank or other nominee will receive separate instructions from the firm holding his or her shares describing the procedure for voting those shares.

How do I vote in person at the Annual Meeting?

Stockholders who wish to vote in person at the Annual Meeting must request a ballot at the meeting. Further, any street-name holder who wishes to vote in person at the Annual Meeting will need to obtain a proxy from the broker, bank or other nominee that is the record holder of his or her shares in order to cast a ballot at the meeting.

What does it mean to vote by proxy? Who represents my shares at the Annual Meeting?

A vote via proxy authorizes Robert A. Kotick (our Chief Executive Officer), Thomas Tippl (our Chief Operating Officer) and Dennis Durkin (our Chief Financial Officer), and each of them, with full power of substitution, to vote and otherwise represent all of the shares that you are entitled to vote at the Annual Meeting, in accordance with your instructions, with the same effect as if you were present at the meeting and voting such shares.

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How do I vote by proxy?

Stockholders of record may vote by proxy in three ways:

 

 

 

You need only vote in one way (e.g., if you vote by internet or telephone, you need not return the proxy card).

What if I vote by proxy but do not provide specific instructions for some or all of the items?

The shares of our Common Stock represented by all valid proxies we receive prior to the Annual Meeting that are not properly revoked prior to being voted at the Annual Meeting will be voted at the Annual Meeting as directed. If no directions are specified, those proxies will be voted FOR each of the nine director nominees named in this proxy statement (proposal 1), FOR the advisory approval of the Company’s executive compensation, as disclosed in this proxy statement (proposal 2), and FOR the ratification of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2016 (proposal 3).

If I have voted by proxy, can I change my vote?

Any stockholder of record may revoke or change that stockholder’s proxy at any time before the proxy is voted at the Annual Meeting by: (1) sending a written notice of revocation of the proxy to our Corporate Secretary at Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405; (2) properly delivering a subsequently dated proxy; or (3) voting in person at the Annual Meeting.

What do I need to do if I want to attend the Annual Meeting?

You should be prepared to present a valid form of photo identification, such as a driver’s license, state-issued ID card or passport, to gain admittance to the Annual Meeting. In addition, if you are a stockholder of record, your ownership as of the record date must be verified by reference to our records prior to admittance into the Annual Meeting. If you hold shares in street name through a broker, bank or other nominee, you must provide proof of beneficial ownership as of the record date, such as a brokerage account statement or similar evidence of ownership. If you do not provide valid photo identification and otherwise comply with the procedures outlined above, you may not be admitted to the Annual Meeting. Directions to the Annual Meeting can be obtained by contacting our Investor Relations department via phone at (310) 255-2000 or via email at ir@activision.com.

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Will I have dissenters’ rights in connection with the business being considered?

Stockholders have no dissenters’ rights or rights of appraisal under Delaware law, our Certificate of Incorporation or our Bylaws in connection with the election of directors (proposal 1) or proposals 2 or 3.

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General

Stockholders will elect nine directors at the Annual Meeting. Those elected will serve one-year terms and until their respective successors are duly elected or appointed and qualified or until the earlier of their death, resignation or removal. Except where otherwise instructed, proxies solicited by this proxy statement will be voted for the election of each nominee. However, if any nominee becomes unable to stand for election as a director at the Annual Meeting, the proxy may be voted for a substitute designated in accordance with our Bylaws.

Director Nominees

In order to have a knowledgeable Board comprised of individuals with distinguished records of leadership and success, the Nominating and Corporate Governance Committee has established criteria and assessed each director nominee’s capabilities to identify the contributions he or she can make to our Board. As a company with a global customer base in the interactive entertainment industry, we consider leadership abilities gained from senior roles as executive officers or board members of large, global corporations in the entertainment field to be particularly relevant to the business of the Company. We believe that our directors bring to our Board the practical wisdom and strong professional characteristics, judgment and leadership abilities necessary to keep our Company performing competitively in the market. For the qualifications we require our directors (and director nominees) to have, see “Corporate Governance Matters—Board of Directors and Committees—Identification of Candidates for Election to our Board—Experience, Skills and Other Characteristics of our Director Candidates” below.

The following are biographical summaries of our director nominees, which describe their noteworthy experience. Also described below are certain individual qualifications and skills of each of our directors that we believe contribute to our Board’s effectiveness and success. For information regarding each nominee’s current Board committee membership, if any, see “Corporate Governance Matters—Board of Directors and Committees—Board Committees” below.

Robert J. Corti

Retired Chief Financial Officer of Avon Products

Director since 2003

Age 66

Business Experience. Mr. Corti has been a director of Activision Blizzard since December 2003. Mr. Corti has more than 25 years of experience at Avon Products, a global manufacturer and marketer of beauty and related products. Mr. Corti joined Avon Products’ tax department as a tax associate in 1976 and held positions of increasing responsibility in the company’s finance department throughout his tenure there, including serving as an executive vice president and the chief financial officer of Avon Products from 1998 until he retired from the chief financial officer role in November 2005 and as an executive vice president in March 2006. Mr. Corti has served on the board of directors of Bacardi Limited, a wine and spirits group, since June 2006. In addition, Mr. Corti served as a member of the board of directors of the Avon Foundation since 1998 and as its chairman from 2006 to 2015, and has served as a member of the Manhattan Chapter of the Cystic Fibrosis Foundation since January 2012, where he serves as the president of the board. In addition, he was a director of ING Direct, then a U.S. subsidiary of the Dutch insurance conglomerate, the ING Groep, from January 2008 until January 2012. Mr. Corti holds a B.A. degree in accounting from Queens College and an M.B.A. degree in taxation from St. John’s University. Mr. Corti is also a certified public accountant.

Skills and Qualifications. Mr. Corti’s qualifications for election to our Board include his financial expertise, in particular his wealth of accounting and tax experience, gleaned in part from his long tenure in Avon’s finance department. Having served Avon for more than 25 years and worked his way up to increasingly senior roles within that organization, Mr. Corti offers the unique perspective of having helped to guide a large public company with international operations through the changing economic and competitive landscape for over two and a half decades. From his tenure at Avon, Mr. Corti also brings experience in the consumer products industry. Mr. Corti qualifies as an audit committee financial expert (as defined in the applicable rules of the Securities and Exchange Commission (the “SEC”)) and is financially sophisticated within the meaning of the NASDAQ Stock Market Rules (the “NASDAQ Rules”).

Hendrik Hartong III

Chairman and Chief Executive Officer of Brynwood Partners

Director since 2015

Age 49

Business Experience. Mr. Hartong has been a director of Activision Blizzard since July 2015. Mr. Hartong is the chairman and chief executive officer, and chairman of the executive committee, of Brynwood Partners, a private equity firm specializing in the consumer products sector. Mr. Hartong joined Brynwood Partners in 2004 as a managing partner, after the firm’s divestiture of one of its portfolio companies, Lincoln Snacks Company, a food products company. Mr. Hartong was the president and chief executive officer of Lincoln Snacks from 1998, at which point the company was publicly traded, until 2004. Prior to joining Lincoln Snacks, Mr. Hartong held various sales and marketing positions of increasing responsibility with Baskin Robbins USA Co. and Nestlé USA, Inc., both of which are food products companies, and, from 1996 to 1998, Activision Publishing,

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Inc. (“Activision Publishing”), then our principal operating unit. Mr. Hartong currently serves as the chairman of the boards of directors of Back to Nature Foods Company, LLC, Harvest Hill Beverage Company, Joseph’s Gourmet Pasta Company and Pearson Candy Company, all of which are private companies in which Brynwood Partners has a controlling interest. Mr. Hartong holds a B.A. degree in history from Lafayette College and an M.B.A. degree from Harvard University.

Skills and Qualifications. Mr. Hartong’s qualifications for election to our Board include his financial expertise, in particular his having served as president and chief executive officer of then-publicly traded Lincoln Snacks for six years. Mr. Hartong currently serves as the chairman and chief executive officer of Brynwood Partners, and also serves as the non-executive chairman to a significant number of its private portfolio companies. From his experience guiding Lincoln Snacks and the portfolio companies of Brynwood Partners, Mr. Hartong has a wealth of experience in the consumer products industry. Mr. Hartong qualifies as an audit committee financial expert (as defined in the applicable rules of the SEC) and is financially sophisticated within the meaning of the NASDAQ Rules.

Brian G. Kelly

Chairman of the Board of Activision Blizzard

Director since 1995

Age 53

Business Experience. Mr. Kelly has held various positions of responsibility with Activision Blizzard since 1991, including serving as a director of the Company since July 1995 and as the Co-Chairman of our Board from October 1998 until the October 2013 consummation of the transactions contemplated by the Vivendi Share Purchase Agreement (as defined herein). Mr. Kelly has served as the Chairman of our Board since the consummation of those transactions. Mr. Kelly holds a B.A. degree in accounting from Rutgers University and a J.D. degree from Fordham University School of Law.

Skills and Qualifications. Mr. Kelly’s qualifications for election to our Board include the depth of institutional knowledge and understanding of our organization he possesses by virtue of his service as an executive of the Company from 1991 until the Vivendi Games Combination (as defined herein) and as a director for more than 20 years. During that time, he has demonstrated his superior leadership skills, his devotion to the Company and his commitment to helping to ensure our ongoing success.

Robert A. Kotick

President and Chief Executive Officer of Activision Blizzard

Director since 1991

Age 53

Business Experience. Mr. Kotick has been a director of Activision Blizzard since February 1991, following his purchase of a significant interest in the Company, which was then on the verge of insolvency. Mr. Kotick was our Chairman and Chief Executive Officer from February 1991 until July 2008, when he became our President and Chief Executive Officer in connection with the Vivendi Games Combination. Mr. Kotick is also a member of the board of directors of The Coca-Cola Company, a multinational beverage corporation, and the boards of trustees for The Center for Early Education and the Harvard-Westlake School. He is also vice chairman of the board and chairman of the committee of trustees of the Los Angeles County Museum of Art. In addition, Mr. Kotick is the founder and co-chairman of the Call of Duty Endowment, a nonprofit, public benefit corporation that seeks to help organizations that provide job placement and training services for veterans.

Skills and Qualifications. Mr. Kotick’s qualifications for election to our Board include the depth of institutional knowledge and understanding of our organization, as well as the practical experience in a chief executive officer role, that he possesses by virtue of his 25 years of service to the Company, including as our President and Chief Executive Officer and, previously, as the Chairman of our Board. Mr. Kotick also brings to the Company his perspective as a board member at a variety of other organizations and his experience in helping those organizations achieve their diverse goals and overcome a wide range of challenges through changing economic and social times.

Barry Meyer

Retired Chairman and CEO of Warner Brothers Entertainment

Director Since 2014

Age 72

Business Experience. Mr. Meyer has been a director of Activision Blizzard since January 2014. At the end of 2013, Mr. Meyer retired as the chairman of Warner Brothers Entertainment Inc., an American producer of film, television and music entertainment. He joined Warner Brothers as a director of business affairs in 1971 and held positions of increasing responsibility throughout his tenure there, eventually serving as Warner Brothers’ chief executive officer and chairman from October 1999 until March 2013 and as chairman through December 2013. Mr. Meyer co-founded the consulting firm North Ten Mile Associates, LLC following his retirement from Warner Brothers, and currently serves as the manager and co-chief executive officer of that firm. Mr. Meyer is a member of the board of councilors of the USC School of Cinematic Arts, a member of the Academy of Motion Picture Arts & Sciences, a member and former governor of the Academy of Television Arts & Sciences, and a member and former director of the Hollywood Radio and Television Society. He also serves on the boards of directors of the Federal Reserve Bank of San Francisco and of Human Rights Watch, on the advisory board of the Smithsonian National Museum of American History, and on the advisory committee on International Economic Policy of the U.S. Department of State. Mr. Meyer holds a B.A. degree in English from the University of Rochester and a J.D. degree from Case Western Reserve University School of Law.

Skills and Qualifications. Mr. Meyer’s qualifications for election to our Board include over 40 years of leadership and managerial experience in one of the largest entertainment production companies in the world, including serving as its chief executive officer. Mr. Meyer possesses in-depth knowledge of both the business and creative aspects of the entertainment industry, both from his years at Warner Brothers and the leadership positions he held in various cultural institutions dedicated to visual and cinematic arts. Mr. Meyer brings with him a wealth of experience in nearly every facet of the entertainment industry, as well as a deep understanding of the unique challenges faced by large, multinational public companies.

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Robert J. Morgado

Retired Chairman and CEO of Warner Music Group

Director Since 1997

Age 73

Business Experience. Mr. Morgado has been a director of Activision Blizzard since February 1997. Mr. Morgado is chairman of Maroley Media Group, a media entertainment investment company he established in 1995. He previously served as the chairman and the chief executive officer of Warner Music Group, a music content company comprised of recorded music and music publishing businesses, from 1985 to 1995. Mr. Morgado serves on the board of directors of the Maui Arts & Cultural Center. He is also a member of the board of managers of Nest Top, the controlling shareholder of Nest Family and Nest Learning Systems, a children’s entertainment company, and Kaanapali Kai, a real estate investment company, where he serves as its chairman. Mr. Morgado holds a B.A. degree in history and philosophy from Chaminade University of Honolulu and an M.P.A. degree from The State University of New York.

Skills and Qualifications. Mr. Morgado’s qualifications for election to our Board include his extensive experience as a chief executive officer and a director at a variety of media and entertainment companies and his perspective as the founder and chairman of a media entertainment investment company. Mr. Morgado qualifies as an audit committee financial expert (as defined in the applicable rules of the SEC) and is financially sophisticated within the meaning of the NASDAQ Rules.

Peter Nolan

Senior Advisor to Leonard Green & Partners

Director Since 2013

Age 57

Business Experience. Mr. Nolan has been a director of Activision Blizzard since October 2013. Mr. Nolan is a senior advisor to Leonard Green & Partners, L.P., a private equity firm and one of the limited partners of ASAC (as defined herein), and was previously the managing partner of Leonard Green & Partners. Prior to becoming a partner at Leonard Green & Partners in 1997, Mr. Nolan served as a managing director and the co-head of Donaldson, Lufkin and Jenrette’s Los Angeles Investment Banking Division from 1990 to 1997, as a first vice president in corporate finance at Drexel Burnham Lambert from 1986 to 1990, and as a vice president at Prudential Securities, Inc. from 1982 to 1986. Prior to 1982, Mr. Nolan was an associate at Manufacturers Hanover Trust Company. Mr. Nolan currently serves on the boards of directors of AerSale Holdings, Inc., Motorsport Aftermarket Group and The Palms Hotel and Casino, all of which are companies in which Leonard Green & Partners has an ownership interest. Mr. Nolan also served on the Company’s Board from December 2003 until July 2008, when he resigned in connection with the consummation of the Vivendi Games Combination. Mr. Nolan holds a B.S. degree in agricultural economics and finance and an M.B.A. degree, both from Cornell University.

Skills and Qualifications. Mr. Nolan’s qualifications for election to our Board include his extensive experience in corporate finance and investment banking, including leadership roles at large international corporations with worldwide operations. His extensive and wide-ranging experience is demonstrated by his current directorships in five other companies operating in various industries. Mr. Nolan also brings with him a depth of institutional knowledge about the Company from his service on our Board from 2003 to 2008.

Casey Wasserman

Chairman and Chief Executive Officer of Wasserman

Director Since 2015

Age 41

Business Experience. Mr. Wasserman has been a director of Activision Blizzard since July 2015. Mr. Wasserman is the chairman and chief executive officer of Wasserman, a sports, entertainment and lifestyle marketing and management agency that he founded in 2002. In 2014, Los Angeles Mayor Eric Garcetti appointed Mr. Wasserman as chairman of LA2024, heading the city’s efforts to host the 2024 Olympic and Paralympic Games. Mr. Wasserman also serves as the president and chief executive officer of the Wasserman Foundation, as a trustee of the Los Angeles County Museum of Art and as a member of the executive committee for the UCLA Centennial Campaign. He also serves on the board of Vox Media, a digital media company. Mr. Wasserman holds a B.A. degree in political science from the University of California at Los Angeles.

Skills and Qualifications. Mr. Wasserman’s qualifications for election to our Board include his extensive management expertise in entertainment, sports and lifestyle marketing gained from his work as chairman and chief executive officer of Wasserman, which represents brands, properties and talent on a global basis.

Elaine Wynn

Co-founder of Wynn Resorts

Director Since 2013

Age 73

Business Experience. Ms. Wynn has been a director of Activision Blizzard since October 2013. Ms. Wynn is a co-founder of Wynn Resorts, a developer and operator of high-end hotels and casinos, and served as a director of the company from its inception in 2002 to May 2015. Prior to that, Ms. Wynn served in a similar capacity as a director of Mirage Resorts from 1976 to 2000. Ms. Wynn is the founding chairman of Communities in Schools of Nevada and the chairman of the national board of Communities in Schools. In addition, Ms. Wynn is president of the Nevada State Board of Education. She is also co-chairman of the board of trustees of the Los Angeles County Museum of Art, a member of the board of trustees of the Kennedy Center for the Performing Arts and a member of the board of governors of the Basketball Hall of Fame. Ms. Wynn holds a B.A. in political science from George Washington University.

Skills and Qualifications. Ms. Wynn’s qualifications for election to our Board include her extensive experience in the entertainment field, stemming from her lengthy service as a director of one of the top resort and casino companies in the world. Ms. Wynn also possesses strong leadership skills, illustrated by her numerous chairmanships in state and national-level organizations dedicated to educational reform, where she has received numerous accolades for her service. Ms. Wynn’s strong and practical leadership experience, as well as her in-depth knowledge about the operation of a large, international public company, demonstrates her aptitude for serving as director of the Company.

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Required Vote and Board Recommendation

In accordance with our Bylaws, a director nominee will be elected only if he or she receives a majority of the votes cast with respect to his or her election in an uncontested election (that is, the number of shares voted “for” that nominee exceeds the number of shares voted “against” that nominee that are present and not voted or that abstain from voting). For more information, see “Procedural Matters—How can I cast my vote with respect to each proposal and how many votes are required to approve each proposal” above and “Corporate Governance Matters—Board of Directors and Committees—Offer of Resignation in Connection with Failure to Receive More ‘For’ than ‘Against’ Votes” below.

Mr. Kotick, our Chief Executive Officer, and Mr. Kelly, the Chairman of our Board, may direct the voting of the shares held by ASAC II LP, an exempted limited partnership established under the laws of the Cayman Islands (“ASAC”), and acting by ASAC II LLC, its general partner. Messrs. Kotick and Kelly may also direct the voting of shares they beneficially own at their discretion, except they have agreed to vote any such shares that, when aggregated with ASAC’s shares, represent shares of our Common Stock in excess of 19.9% of our issued and outstanding Common Stock either in a manner proportionally consistent with the vote of the shares of Common Stock not owned by them or ASAC or in accordance with the recommendation, if any, of a majority of the members of our Board not affiliated with ASAC. For more information see “Certain Relationships and Related Transactions—Relationships and Transactions—Relationships and Transactions with ASAC—ASAC Stockholders Agreement” below. As of the record date for the Annual Meeting, ASAC and Messrs. Kotick and Kelly collectively held shares representing approximately 24.2% of our issued and outstanding Common Stock. Messrs. Kotick and Kelly are expected to vote the shares over which they have discretion FOR the election of each of the director nominees.

 

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CORPORATE GOVERNANCE MATTERS

Overview

Our Board has long adhered to governance principles designed to assure its continued vitality and excellence in the execution of its duties. Our Board has responsibility for management oversight and providing strategic guidance to the Company. Our Board believes that it must remain well-informed about the issues, risks and opportunities facing the Company so that our Board members can exercise their fiduciary responsibilities to all of our stockholders. Our Board recognizes the importance of constantly improving our corporate governance practices and is committed to regularly reviewing the specific elements of our corporate governance framework and making changes to them when our Board deems them to be in the best interests of the Company and its stakeholders.

Board of Directors and Committees

Identification of Candidates for Election to our Board

Nominating and Corporate Governance Committee Process

Pursuant to our Corporate Governance Principles and Policies and the Nominating and Corporate Governance Committee’s charter, copies of both of which can be viewed on our website at http://investor.activision.com/corporate-governance.cfm, the Nominating and Corporate Governance Committee identifies and evaluates potential candidates to serve as members of our Board. The committee may consider candidates suggested by its members, other directors, senior management or stockholders and may, at the Company’s expense, retain search firms, consultants and other advisors to identify, screen and/or evaluate candidates. Candidates may be interviewed in person by directors and management.

The Nominating and Corporate Governance Committee will consider nominating persons who are submitted by stockholders, subject to the limitations described immediately below.

Stockholder Recommendation of Director Candidates

Our stockholders may recommend persons who qualify as independent under the NASDAQ Rules to serve as directors. In accordance with our Corporate Governance Principles and Policies, the Nominating and Corporate Governance Committee will review the qualifications of, and make recommendations to our Board regarding, any such shareholder recommendation that is submitted to us in writing and includes the following information:

In addition, stockholders may submit candidates for election as directors in accordance with our Bylaws, as described under “Director Nominations and Other Stockholder Proposals for 2017 Annual Meeting; Communicating with our Board” below.

Experience, Skills and Other Characteristics of Our Director Candidates

In accordance with our Corporate Governance Principles and Policies, all director nominees, whether or not they are incumbent directors, should have the appropriate experience, skills and other characteristics essential to serving as an effective Board member, assessed in the context of the perceived needs of our Board at the time, including:

In accordance with the Nominating and Corporate Governance Committee’s charter, the Nominating and Corporate Governance Committee, in its selection of director candidates, considers the following attributes, among others: experience; knowledge; skills; expertise; personal and professional integrity; character; business judgment; time availability in light of other commitments; dedication; and independence. The committee evaluates each director nominee’s experience, skills and other characteristics to ensure that they are consistent with the interests of our stockholders and complementary with the existing Board’s composition and

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needs. In doing so, it considers whether the nominee has experience or skills in the areas of entertainment, international operations, strategic planning, corporate governance, accounting and finance, law or other areas that are relevant to the Company’s activities and our Board’s effectiveness. Although the Company’s nominating procedures and policies do not prescribe specific standards for diversity, the committee also takes diversity into account, seeking to ensure a representation of diverse perspectives and experience.

Additionally, in accordance with its charter, the Nominating and Corporate Governance Committee annually oversees evaluations of our Board, our Board’s committees and individual directors that assess the experience, skills, qualifications, diversity and contributions of each individual director, as well as the performance of each standing committee of our Board and our Board as a whole.

Independence Determinations

In making its determination regarding director independence, our Board reviews and discusses all relevant information regarding each director’s relationships, transactions or arrangements, as required by the independence guidelines of the NASDAQ Rules, including current and prior relationships that each director or any of his or her family members has with the Company, our executive management and our independent accounting firm. To assist our Board in making these determinations, each director is required to complete a questionnaire on an annual basis.

Based on the information provided by each director concerning his or her background, employment and affiliations, our Board affirmatively determined that each of Messrs. Corti, Hartong, Meyer, Morgado, Nolan and Wasserman and Ms. Wynn is an independent director within the meaning of the NASDAQ Rules. Our Board also made this affirmative determination with respect to Richard Sarnoff, who resigned from our Board on July 1, 2015. Accordingly, our Board believes there are no such relationships or activities between the Company and any of these directors that require further review by our Board or that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, as none of these directors has a direct or indirect material relationship with the Company.

Board Leadership Structure

Our Board is led by the chairman of our Board, and that person does not also serve as our chief executive officer. Our Board feels that the division between the two roles is appropriate because our chief executive officer is responsible for the day-to-day management of the Company, while the responsibility of our Board is to oversee the chief executive officer’s performance of his or her function. Having different individuals serve as the chairman and the chief executive officer allows the chief executive officer to focus on his or her operational responsibilities, while keeping a measure of independence between the oversight function of our Board and those operating decisions. If our Board were to select our chief executive officer to serve as chairman, the independent directors would, in accordance with our Corporate Governance Principles and Policies, consider the appointment of a lead independent director.

Other Directorates

Pursuant to our Corporate Governance Principles and Policies, our directors must obtain the approval of the Nominating and Corporate Governance Committee before accepting any board membership at another publicly held company, and in no case can any director serve on the boards of more than four other publicly held companies.

Offer of Resignation in Connection with Failure to Receive More “For” than “Against” Votes

Pursuant to our Bylaws, a director nominee will be elected only if he or she receives a majority of the votes cast with respect to his or her election in an uncontested election (that is, the number of shares voted “for” that nominee exceeds the number of shares voted “against” that nominee that are present and not voted or that abstain from voting). If a nominee who currently serves as a director is not re-elected, Delaware law and our Bylaws provide that the director will continue to serve on our Board as a “holdover director” (i.e., until his or her successor has been duly elected and qualified, or until the earlier of his or her death, resignation or removal). Pursuant to our Corporate Governance Principles and Policies, if a director fails to receive the required number of votes for re-election, he or she must offer to resign from our Board.

Our Board or, at our Board’s discretion, the Nominating and Corporate Governance Committee, without, in either case, the participation of the director offering his or her resignation, will consider whether the continued service of any director so offering to resign is appropriate, by considering any factors it deems relevant (e.g., the underlying reasons for the “against” votes, the length of service and qualifications of the director, that director’s contributions to our Company and the skills and characteristics of that director) and, if our Board or the Nominating and Corporate Governance Committee, as the case may be, determines that the director continues to contribute significantly to the Company, his or her membership on our Board may continue.

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Offer of Resignation Upon Change in Professional Role

Pursuant to our Corporate Governance Principles and Policies, unless the Nominating and Corporate Governance Committee determines otherwise, if an independent director retires, changes employment or otherwise has a significant change in his or her professional role or responsibilities that may reasonably be seen to affect his or her ability to serve, he or she must offer to resign from our Board. Similarly, unless our Board or the Nominating and Corporate Governance Committee determines otherwise, or he or she has an agreement with us to the contrary, if a director who is employed by us retires, resigns or otherwise has a significant change in his or her professional role or responsibilities, he or she must offer his or her resignation from our Board.

Our Board or, at our Board’s discretion, the Nominating and Corporate Governance Committee, without, in either case, the participation of the director offering his or her resignation will consider whether the continued service of any director so offering to resign is appropriate in light of that change and, if our Board or the Nominating and Corporate Governance Committee, as the case may be, determines that the director continues to contribute significantly to the Company, his or her membership on our Board may continue.

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Board Meetings

In accordance with our Corporate Governance Principles and Policies, our Board generally meets at least quarterly, as well as in conjunction with the annual meeting of our stockholders. Our Board met 11 times during 2015, including at least once per quarter and in conjunction with the 2015 annual meeting of our stockholders. Each person who served on our Board during 2015 attended at least 75% of the aggregate of (1) the total number of meetings held by our Board during the period for which he or she was a director and (2) the total number of meetings held by each committee on which he or she served during the period in which he or she so served during the year.

Our Corporate Governance Principles and Policies also require that the independent directors meet in executive session outside of the presence of management at least two times per year. Three such executive sessions took place during 2015.

In accordance with our Corporate Governance Principles and Policies, all directors are expected to attend annual meetings of our stockholders. In 2015, six of the eight persons serving as directors at the time attended the annual meeting.

Annual Board Self-Evaluation

The Nominating and Corporate Governance Committee annually evaluates our Board’s overall performance, the overall performance of each of our Board’s standing committees and the performance of each individual director.

Director Orientation and Continuing Education

Board Committees

Our Board has three standing committees—the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee—each of which operates under a written charter approved by our Board. Further, from time to time, our Board forms special or ad hoc committees to which our Board delegates authority to administer certain of its duties.

The following table shows the current membership of our Board’s standing committees:

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Audit Committee

Our Audit Committee’s charter, which describes the composition and responsibilities of the committee, may be viewed on our website at http://investor.activision.com/corporate-governance.cfm.

With respect to membership on the Audit Committee, the charter currently provides that the committee must have at least three members and that:

Further, the NASDAQ Rules require that at least one Audit Committee member meets the financial sophistication requirements set forth in those rules.

The current members of the Audit Committee are Messrs. Corti, Hartong and Morgado. Based upon information provided by each director concerning his background, employment and affiliations, our Board has determined that each member of the Audit Committee is an independent director under the NASDAQ Rules and the rules of the SEC and that each otherwise satisfies the NASDAQ requirements for audit committee membership (including that each meets the independence criteria set forth in Exchange Act Rule 10A-3 and is able to read and understand fundamental financial statements). Our Board has also determined that each Audit Committee member is an “audit committee financial expert” as defined in the applicable rules of the SEC and that each is “financially sophisticated” within the meaning of the NASDAQ Rules.

The purpose of the Audit Committee is to oversee the accounting and financial reporting processes of Activision Blizzard and our subsidiaries, the audits of our financial statements and our internal controls over financial reporting. The Audit Committee’s responsibilities include:

Our independent registered public accounting firm reports directly to the Audit Committee.

Before we or any of our subsidiaries engage our independent registered public accounting firm to render audit or non-audit services, the Audit Committee must pre-approve the engagement. See “Audit-Related Matters—Pre-Approval Policies and Procedures” below for further detail. The Audit Committee’s charter authorizes it to engage independent counsel or other consultants or advisors, as it deems appropriate.

In accordance with our Corporate Governance Principles and Policies and the Audit Committee’s charter, the Audit Committee must meet at least quarterly. The Audit Committee met six times during 2015, including at least once each quarter.

Compensation Committee

Our Compensation Committee’s charter, which describes the composition and responsibilities of the committee, may be viewed on our website at http://investor.activision.com/corporate-governance.cfm.

Membership and Responsibilities

With respect to membership on the Compensation Committee, the charter currently provides that the committee must have at least two members, both of whom must be:

The current members of the Compensation Committee are Messrs. Morgado and Wasserman and Ms. Wynn. Based upon information provided by each director concerning his or her

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background, employment and affiliations, our Board has determined that each member of the Compensation Committee is an outside director as defined under Section 162(m), a non-employee director as defined in Rule 16b-3 under the Exchange Act and an independent director under the NASDAQ Rules. Our Board has also determined that none of the members of the Compensation Committee has a relationship to the Company that is material to such director’s ability to be independent from management in connection with the duties of a Compensation Committee member.

The Compensation Committee discharges our Board’s responsibilities relating to compensation paid to our directors and executive officers and oversight of compensation under our equity incentive plans and other compensation policies, programs, agreements and arrangements. Please see “Executive Compensation—Compensation Discussion and Analysis—Decision-Making Approach to Compensation for Executive Officers—Roles of the Key Participants in the Executive Compensation Decision-Making Process” and “—Compensation Risk Management” below for a description of such responsibilities. The Compensation Committee is also responsible for:

As further described in “Executive Compensation—Compensation Discussion and Analysis—Decision-Making Approach to Compensation for Executive Officers—Roles of the Key Participants in the Executive Compensation Decision-Making Process”, the Compensation Committee consults with our management in formulating compensation plans, but ultimately the Compensation Committee exercises independent judgment in approving our compensation of executive officers.

In accordance with our Corporate Governance Principles and Policies, the Compensation Committee must meet at least four times annually. The Compensation Committee met eight times during 2015.

Engagement of Compensation Consultants

The Compensation Committee’s charter authorizes it to engage independent counsel or other consultants or advisors, including compensation consultants, to advise the Compensation Committee with respect to compensation and benefits for our directors and our executive officers and other employees. Since October 2013, the Compensation Committee has engaged Exequity LLP (“Exequity”). In accordance with its charter and the NASDAQ Rules, in connection with the engagement of any compensation consultant, the committee assesses whether any potential conflicts of interest existed with the compensation consultant, using the following factors: other services, if any, the compensation consultant provided to us; the significance of the fees paid by us as a percentage of the compensation consultant’s total revenues; the compensation consultant’s policies and procedures designed to prevent conflicts of interest; any business or personal relationships between the compensation consultant professionals engaged to advise our Compensation Committee and the members of our Compensation Committee; ownership of any Company stock by the compensation consultant professionals engaged to advise the Company; and any business or personal relationships between the compensation consultant professionals engaged to advise our Compensation Committee and our executive officers. Based on the evaluation of these factors, including information received from the compensation consultant addressing these factors, the committee concluded that Exequity’s service to the committee did not raise any conflicts of interest.

For additional information regarding the Compensation Committee, including its use of consultants, see “Executive Compensation—Compensation Discussion and Analysis” below.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee’s charter, which describes the composition and responsibilities of the committee, may be viewed on our website at http://investor.activision.com/corporate-governance.cfm.

The charter currently provides that the Nominating and Corporate Governance Committee must consist of at least two directors.

The current members of the Nominating and Corporate Governance Committee are Messrs. Meyer, Morgado and Nolan. Based upon information provided by each director concerning his background, employment and affiliations, our Board has determined that each member of the Nominating and Corporate Governance Committee is an independent director under the NASDAQ Rules.

The Nominating and Corporate Governance Committee’s responsibilities include:

In accordance with our Corporate Governance Principles and Policies, our Nominating and Corporate Governance Committee is also responsible for evaluating any stockholder proposals submitted to us for inclusion in any proxy statement for, and for consideration at, any meeting of our stockholders (which, in the case of stockholder proposals relating to the compensation of our directors or employees, will be done in conjunction with the Compensation Committee).

The Nominating and Corporate Governance Committee’s charter authorizes it to engage independent counsel or other consultants or advisors as it deems appropriate, including a search firm to assist in the identification of director candidates.

In accordance with our Corporate Governance Principles and Policies and the Nominating and Corporate Governance Committee’s charter, the Nominating and Corporate Governance Committee must meet at least twice annually. The Nominating and Corporate Governance Committee met six times during 2015.

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Our Board’s Role in Risk Oversight

It is the responsibility of our senior management to develop and implement the Company’s financial, operating and strategic plans, and identify, evaluate, manage and mitigate the risks inherent in those plans. It is our Board’s responsibility to understand and oversee those plans, the associated risks and the steps that senior management is taking to manage and mitigate those risks. Our Board and its standing committees exercise this risk oversight function in a variety of ways, including:

Compensation Risk Management

The Compensation Committee, together with legal counsel and members of our human resources team, reviews the Company’s incentive compensation plans annually to determine if they encourage employees to take inappropriate risks that are reasonably likely to have a material adverse effect on the Company. During 2015, and again in 2016, this review consisted of an analysis of each of our incentive compensation programs for our executives and other employees, including eligibility, performance measures, payment targets and maximum payments, payment timing and governance (including the applicable approval process).

The incentive compensation plans in which our employees are eligible to participate are designed to encourage achievement of high levels of performance against challenging targets that are tied to achievement of the overall corporate strategy, while mitigating potential risks. The following factors help mitigate risk:

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We also have a number of governance policies in place that may also mitigate compensation-related risk, including:

Political Activities

Pursuant to our Code of Conduct, Company resources may not be used for employees’ personal political activities, and lobbying activities are permitted only in compliance with applicable law and by individuals designated to represent the Company in such capacity. Trade associations of which the Company is a member may take a stance on legislative matters or engage in lobbying on specific issues.

Code of Conduct

We have a code of ethics, our Code of Conduct, which applies to all of our directors and officers, including our chairman, chief executive officer, chief financial officer and chief accounting officer. We also have a chief compliance officer, who administers our ethics and compliance program. You can access a copy of our Code of Conduct on our website at http://investor.activision.com/corporate-governance.cfm. Furthermore, we will post any amendments to, or waivers of, the Code of Conduct that apply to our chairman, chief executive officer, chief financial officer or chief accounting officer, and any other related information, on that website.

Additional Corporate Governance Documentation

In addition to finding our Corporate Governance Principles and Policies, Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter and Code of Conduct on our website at http://investor.activision.com/corporate-governance.cfm, you can also find many of our other corporate governance documents. Please see “Helpful Resources” below for more information.

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EXECUTIVE OFFICERS

The following are biographical summaries of our executive officers other than Mr. Kotick, for whom a biographical summary is set forth under “Proposal 1—Election of Directors” above.

Dennis Durkin

Chief Financial Officer of Activision Blizzard

Age 45

Dennis Durkin became our Chief Financial Officer in March 2012. Prior to joining the Company, Mr. Durkin held a number of positions of increasing responsibility at Microsoft Corporation, a computing hardware and software manufacturer, most recently serving as the corporate vice president and chief operating and financial officer of Microsoft Corporation’s interactive entertainment business, which included the Xbox console business. Prior to joining Microsoft Corporation’s interactive entertainment business in 2006, Mr. Durkin worked on Microsoft Corporation’s corporate development and strategy team, including two years where he was based in London, England, driving pan-European activity. Before joining Microsoft Corporation, Mr. Durkin was a financial analyst at Alex. Brown and Company. Mr. Durkin holds a B.A. degree in government from Dartmouth College and an M.B.A. degree from Harvard University.

Eric Hirshberg

Chief Executive Officer of Activision Publishing, Inc.

Age 47

Eric Hirshberg became the Chief Executive Officer of Activision Publishing, a subsidiary of Activision Blizzard and one of our principal operating units, in September 2010. Prior to joining us, Mr. Hirshberg served in positions of increasing responsibility with Deutsch LA, a marketing and advertising agency, most recently serving as its co-chief executive officer and its chief creative officer. Prior to working at Deutsch LA, Mr. Hirshberg worked at Fattal & Collins, a marketing and advertising agency. Mr. Hirshberg holds a B.F.A. degree from the University of California at Los Angeles.

Michael Morhaime

President and Chief Executive Officer of Blizzard Entertainment, Inc.

Age 48

Michael Morhaime became Chief Executive Officer of Blizzard Entertainment, Inc. (“Blizzard Entertainment”) and an executive officer of Activision Blizzard in July 2008 in connection with the Vivendi Games Combination. In February 1991, Mr. Morhaime co-founded Blizzard Entertainment, now a subsidiary and one of our principal operating units, and transitioned to the role of Blizzard Entertainment’s President in April 1998. Mr. Morhaime served on the executive committee of Vivendi Games, Inc. (“Vivendi Games”) from January 1999, when Blizzard Entertainment became a subsidiary of Vivendi Games, until the consummation of the Vivendi Games Combination, when Blizzard Entertainment became a subsidiary of the Company. Mr. Morhaime holds a B.S. degree in electrical engineering from the University of California at Los Angeles.

Thomas Tippl

Chief Operating Officer of Activision Blizzard

Age 49

Thomas Tippl became our Chief Operating Officer in March 2010. Prior to that, he served as our Chief Corporate Officer from March 2009 until March 2010. In addition, Mr. Tippl served as our Chief Financial Officer from July 2008 until February 2012. Mr. Tippl joined the Company as the Chief Financial Officer of Activision Publishing in October 2005. Prior to joining the Company, Mr. Tippl served as the head of investor relations and shareholder services at The Procter & Gamble Company, a manufacturer of consumer goods products, from 2004 to 2005. Mr. Tippl also served as the finance director of Procter & Gamble’s Baby Care, Europe division, and as a member of the board of directors of the joint venture between Procter & Gamble and Fater in Italy from 2001 to 2003. Mr. Tippl co-founded Procter & Gamble’s Equity Venture Fund in 1999 and also served as the associate director of acquisitions and divestitures for Procter & Gamble from 1999 to 2001. Prior to 1999, Mr. Tippl served in various financial executive positions for Procter & Gamble in Europe, China and Japan. Mr. Tippl holds a master’s degree in economics and social sciences from the Vienna University of Economics and Business Administration.

Chris B. Walther

Chief Legal Officer of Activision Blizzard

Age 49

Chris B. Walther became our Chief Legal Officer in November 2009 and served as our Secretary from February 2010 until February 2011. Prior to joining us, Mr. Walther held a number of positions of increasing responsibility within the legal department of The Procter & Gamble Company from 1992 to 2009, including serving as the general counsel for Central and Eastern Europe, Middle East and Africa, general counsel for Northeast Asia and, most recently, as general counsel for Western Europe. Mr. Walther also led Procter & Gamble’s corporate and securities and mergers and acquisitions practices. Before joining Procter & Gamble, Mr. Walther served as a law clerk for Senior Judge Harry W. Wellford of the United States Sixth Circuit Court of Appeals. Since 2012, Mr. Walther has served on the board of directors of the Alliance for Children’s Rights. Mr. Walther has also served as our representative on the board of directors of the Entertainment Software Association since 2013. Mr. Walther holds a B.A. degree in history and Spanish from Centre College and a J.D. degree from the University of Kentucky College of Law.

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Riccardo Zacconi

Chief Executive Officer of King Digital Entertainment Limited

Age 48

Riccardo Zacconi serves as the Chief Executive Officer of King Digital Entertainment Limited (“King”) and became an executive officer of Activision Blizzard in February 2016 in connection with our acquisition of King. In March 2003, Mr. Zacconi co-founded King, now a subsidiary and one of our principal operating units, and has served as its chief executive officer since its founding. Prior to founding King, Mr. Zacconi served as vice president of European sales and marketing at uDate.com, an online dating service, from 2002 until that company’s acquisition later that year. From 2001 to 2002, Mr. Zacconi served as entrepreneur in residence at Benchmark Capital Partners, a venture capital firm. Prior to joining Benchmark Capital, he was managing director for Spray Network, an online messaging portal based in Hamburg, Germany, from 1999 until its sale in 2000. Prior to 1999, Mr. Zacconi served in various investment and consulting positions of increasing responsibility with The Boston Consulting Group and LEK Consulting, both of which are management consulting firms. Mr. Zacconi holds a B.A. degree in economics from LUISS University, in Italy.

 

None of our executive officers are related to any other of our executive officers or our directors, and each executive officer holds office at the discretion of our Board and subject to the terms of that executive officer’s employment agreement.

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EXECUTIVE COMPENSATION

The following discussion and tables set forth information with regard to compensation for services rendered by the named executive officers included in the “Summary Compensation Table” below (collectively, our “named executive officers” or “NEOs”) in all capacities to us and our subsidiaries during 2015.

Compensation Discussion and Analysis

This Compensation Discussion and Analysis describes the material elements of our executive compensation program and the rationale for the program elements and decisions, through:

This CD&A includes:

Overview

The Compensation Committee oversees Activision Blizzard’s compensation plans and policies, approves compensation for our executive officers and administers our stock compensation plans. This Compensation Discussion and Analysis describes our executive compensation philosophy and programs, as well as compensation-related actions taken during 2015 for our named executive officers. For 2015, our named executive officers are:

Please see page 28 for biographical information with respect to our officers.

2015 Financial Highlights

2015 was another successful year for the Company. We achieved strong results and introduced new franchises with outstanding gameplay, expanded on exciting new business models and continued investing in some of the world’s most important entertainment franchises. During 2015:

 

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2015 Operational Highlights

Our financial performance was driven by our operational execution during 2015. During 2015:⁽¹⁾

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Three-Year Financial Performance Metrics

Our Compensation Committee believes that a significant portion of our executive compensation should be tied to performance. We have used measures we believe are robust indicators of our overall performance, including profitability and cash flow. The tables below demonstrate our performance over the past three years.

 

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Aligning Pay with Performance

A portion of the potential annual compensation of each of our executive officers is the payment, if any, he may receive under the CAIP. That compensation, in turn, is contingent upon the executive achieving the financial and individual strategic targets set for him at the beginning of the relevant year. The following tables illustrate the relationship between the Company’s 2015 performance, as measured by three of our key financial metrics, and the 2015 CAIP payments awarded to our executive officers, as compared to the range of potential payments:

 

The graphic regarding actual payout ranges under the CAIP for 2015 also highlights the fact that, while the financial targets underlying the payment to each named executive officer were met or exceeded in each case, not every executive officer achieved all of his individual targets. Please see “—Elements of Our Executive Compensation Program for 2015—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—2015 Incentive Opportunities under the CAIP” below for more information.

Our Compensation Program Best Practices

We continue to implement and maintain best practices in our executive compensation programs and policies. These practices include:

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Actions in Response to Our Recent Shareholder Advisory Votes on Executive Compensation

Approximately 65% of the votes cast at the 2015 annual meeting of our stockholders were voted to approve our advisory, non-binding “say-on-pay” proposal. Considering these results, and after engaging with key stakeholders, the Compensation Committee performed a thorough review of our compensation practices. Although the Compensation Committee concluded that our general compensation philosophy remains appropriate, the Compensation Committee did identify specific areas for adjustment based on stockholder feedback, the most significant of which are described below. The Compensation Committee also reemphasized our core philosophy of tying pay to performance, so that the compensation our officers ultimately realize is largely contingent upon achieving the goals we establish for them.

As noted, in response to past “say-on-pay” results, members of our management conducted a stockholder outreach effort aimed at soliciting feedback from a number of our largest stockholders. A summary of the feedback received was presented to the Compensation Committee, and the items raised in that feedback have been discussed regularly by the Compensation Committee.

While our use of multi-year employment agreements with our executive officers generally prevents us from making immediate changes to our executive compensation program, the Compensation Committee has incorporated the stockholder feedback into its decision-making process. Since the 2014 annual meeting of our stockholders:

The Compensation Committee takes the feedback received from stockholders seriously and will continue to incorporate such feedback into its decision-making process.

Highly Competitive Business Environment and Associated Talent Requirements

We operate in the interactive entertainment industry, which sits at the convergence of the gaming, entertainment and leisure, technology and consumer packaged goods sectors. Our industry is intensely competitive and constantly evolving. It features a number of unique characteristics, including:

We believe that, in order to succeed in this fast-changing business environment, we require executive talent with very specialized qualifications, including the following:

Finding top executives with these characteristics requires recruitment of executives from a variety of industries, including those that are larger and more mature (e.g., gaming, entertainment and leisure, technology and consumer packaged goods companies).

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Compensation Philosophy and Objectives

To respond to these requirements for top executive talent, the Compensation Committee has established the following philosophy and objectives for the compensation of our executive officers:

 

Why Do We Use Employment Agreements?

We believe that having multi-year employment agreements with our named executive officers is critical in enabling us to attract and retain talent in a highly competitive industry and, as such, we have entered into an employment agreement with each of them. These employment agreements specify base salary, any minimum annual salary increase, annual incentive targets and the terms and conditions of equity awards, and include provisions regarding the consequences of termination of employment and restrictive covenants, including non-competition and non-solicitation provisions. The terms of each of these agreements have been approved by the Compensation Committee, which utilized its judgment to determine the appropriate amount and form of compensation and other terms of employment necessary to recruit, retain and motivate the executive, based in part upon the negotiations with the executive. Please see “—Employment Agreements” below for further information about the agreements with our named executive officers.

Why Do We Use “Upfront” Equity Awards?

Each named executive officer receives “upfront” equity awards in connection with his hire and with any promotion or other change in role or responsibilities or the extension of his term of employment. These equity awards generally vest over the contract term, either upon attainment of specified performance objectives or ratably, providing the executive with a significant equity position up front, which we believe enhances retention. With the exception of Mr. Morhaime, whose employment agreement was last amended in 2010 and provides for annual awards of equity, consistent with the compensation to which he was entitled from Vivendi Games prior to the Vivendi Games Combination, our named executive officers have generally not received annual equity awards. Please see “—Employment Agreements” below for further information about these equity awards. Please see “Elements of Our Executive Compensation Program for 2015-Equity Awards-Use of Employment Agreements and Their Impact on Reported Compensation” and “—Employment Agreements” below for further information about these equity awards.

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How Do We Determine the Size of Equity Awards?

In order to remain the leader in our industry, we must attract, retain and motivate the highest caliber of talent, as well as reward outstanding performance. Accordingly, in determining the estimated size of equity awards to any given executive, the Compensation Committee considers a number of reference points, including the executive’s then-current total direct compensation (i.e., the sum of salary, target bonuses and the annualized value of equity awards), the compensation paid to such executive’s peers within the Company and the compensation paid to executives in comparable positions at other companies within our peer group.

 

Decision-Making Approach to Compensation for Executive Officers

Roles of the Key Participants in the Executive Compensation Decision-Making Process

Decisions regarding compensation for our executive officers are at the sole discretion of our Compensation Committee. To help inform these decisions, the Compensation Committee regularly reviews materials, advice and analysis provided by our management and external compensation consultants in deciding on executive compensation matters, as described in more detail below.

Compensation Committee

For additional information regarding the Compensation Committee, see “Corporate Governance Matters—Board of Directors and Committees—Board Committees—Compensation Committee” above.

Compensation Committee’s Independent Compensation Consultant

Since October 2013, the Compensation Committee has retained Exequity as its independent compensation consultant.

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Executive Officers and Management

During 2015, the Compensation Committee consulted with our named executive officers, as well as our former Chief Strategy and Talent Officer, Humam Sakhnini, our Chief Legal Officer, Mr. Walther, and our Chief Compliance Officer and Corporate Secretary, Jeffrey Brown.

Factors Influencing Compensation Decisions

In general, the Compensation Committee evaluates a variety of factors when making compensation decisions for our executive officers, including:

Additionally, the terms on which any given executive officer is employed reflect the Compensation Committee’s independent judgment as to the amount and form of compensation necessary to recruit, retain and motivate that individual.

Total Direct Compensation Target

The Compensation Committee generally targets total direct compensation for our executive officers at between the 50th and 75th percentiles of executives in comparable positions at companies in our peer group and relevant survey data, believing that doing so best enables us to attract, retain and motivate the highest caliber talent, given the highly competitive market for executive talent in which we compete. This review is done both at the inception of an executive’s employment and on an annual basis. Other factors considered by the Compensation Committee include the executive’s then-current total direct compensation and performance by the executive.

Compensation Surveys and Peer Company Data Referenced

In reviewing the compensation of our executive officers, the Compensation Committee, with the support of its independent consultant and our management, annually consults third-party surveys prepared by compensation specialists with respect to companies with comparable revenues, market capitalization, industry focus, number of employees and other similar business-related factors in order to discern broader compensation trends in the market. During 2015, the surveys referenced included ones published by Croner and Radford.

In addition, the Compensation Committee utilized compensation data obtained from SEC filings made by companies among our peer group, discussed in more detail below, including compensation elements of the named executive officers of those companies, company-wide equity usage rates and potential dilution from equity awards.

The surveys and peer group data help the Compensation Committee understand the sectors in and with which we compete for talent, including, without limitation, gaming, entertainment and leisure, technology and consumer products.

Benchmarking our executive compensation programs and policies against the unique interactive entertainment industry is challenging given the limited number of direct competitors for which there is publicly-available information regarding their executive compensation programs and policies. Additionally, we frequently compete for executive talent with other industries. Therefore, the Compensation Committee has selected a 17-company peer group from across the four industry segments it believes best represent our business model and potential executive talent pool:

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Our peer group represents a diversified yet targeted collection of companies that, like us, operate both in the United States and internationally. In general, our peer group consists of companies with similar levels of annual revenues, but it also includes companies whose revenue levels we have surpassed in recent years and companies we strive to surpass in the future. Our 2015 revenues of $4.7 billion approximated the 35th percentile among these peer group companies. Revenues, in billions, as reported by each such company for its most recently ended fiscal year are shown below:

 

Our management and Compensation Committee monitor our peer group as our business model and potential talent pool evolve to ensure the companies to which we reference continue to reflect an appropriate mix of the industry segments in which we compete, or may compete, for key talent.

While the peer group provides the Compensation Committee with an important frame of reference, the Compensation Committee, as it deems appropriate, considers the compensation practices of other companies with which we compete directly for executive talent. Furthermore, we evaluate broader industry trends and practices to determine the appropriate elements of compensation and the effective design of each element.

Elements of Our Executive Compensation Program for 2015

An overview of the primary elements of our executive compensation program and their purposes is presented below. Not all of these elements are applicable to all named executive officers. Our compensation philosophy, including our use of equity awards, has allowed us to recruit, retain and motivate the best talent in our industry, as evidenced by our performance. We aim to incentivize our executives to drive corporate financial performance by basing a significant portion of their compensation on achieving financial and individual strategic targets.

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Salary

As noted above, each of our named executive officers is party to an employment agreement with us that specifies, among other things, such executive’s initial salary and any contractually guaranteed minimum annual salary increases. Aside from any contractually guaranteed minimum requirements, salary increases are generally only provided to an executive officer:

As it does each year, in March 2015 and, again, in March 2016, the Compensation Committee reviewed a competitive target compensation assessment for each executive officer using our peer group and survey data to evaluate the competitiveness of our executive compensation program and considered potential base salary increases for such year. For information about our peer group, see “—Decision-Making Approach to Compensation for Executive Officers—Compensation Surveys and Peer Company Data Referenced” above. After taking into consideration a number of factors for each year (e.g., each executive’s performance during the prior year and the target total compensation for each of our senior executives vis-à-vis the market data), the Compensation Committee established annual base salary rates for our named executive officers for the year.

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The table below reflects the salaries approved for 2015 and 2016, along with any other adjustments during 2015 and any increases to which the executives were entitled under their contracts:

The Compensation Committee may, at its discretion, further adjust the salary of any of our named executive officers at any time.

Corporate Annual Incentive Plan and Other Performance-Based Bonuses

2015 Incentive Opportunities under the CAIP

To qualify the payments to our executives under the CAIP for 2015 for tax deductibility, while retaining flexibility to make downward adjustments to reflect each executive’s actual performance, the awards were structured so that there was a single performance objective that, if met or exceeded, would result in the payment of a bonus to each executive of the maximum allowed under the 2014 Plan, subject to the Compensation Committee’s use of negative discretion. That is, if our adjusted 2015 non-GAAP operating income was at least 75% of the adjusted non-GAAP operating income target for the year set forth in the annual operating plan approved by our Board for that year (such plan for any given year, the “AOP”), the bonus to be paid to each executive would be $10,000,000 less the amount of any other “senior executive plan bonus” within the meaning of the 2014 Plan that was paid or to be paid to that person for 2015, and subject to the Compensation Committee’s use of negative discretion to reduce or eliminate that bonus.

In regards to the Compensation Committee’s use of that negative discretion, when approving the 2015 CAIP opportunities, it expressed the intent to reduce or eliminate all such bonuses if our adjusted 2015 non-GAAP operating income was not 85% or more of the adjusted non-GAAP operating income target for the year set forth in the 2015 AOP. The Compensation Committee also expressed the intent to reduce the bonus for each executive officer to the amount for which he was eligible in accordance with the formula described below under “—Resulting 2015 Payments under the CAIP”, which is based, in part, on his target and maximum opportunity.

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In setting the minimum, target and maximum payout opportunities for each of our named executive officers under the CAIP for 2015, the Compensation Committee considered any requirements set forth in the applicable employment agreements, competitive market data, our desired pay mix and the compensation levels of our other senior executives. If a named executive officer satisfied (but did not exceed) all performance goals, the executive officer was eligible to receive a payment equal to his target payment, although the Compensation Committee retained the discretion to reduce this amount. Based upon the established performance goals, payments under the CAIP for 2015 to our named executive officers could have ranged as follows:

Determination of 2015 Performance Goals for the CAIP

Our Compensation Committee established the financial and individual strategic performance goals based on the 2015 AOP.

The Compensation Committee believes that the specific goals chosen required significant profitability, demanded superior performance from our management team and drove accountability for Activision Blizzard and/or applicable business units for each executive.

In addition, and as noted above, the Compensation Committee expressed the intent to reduce or eliminate all bonuses under the CAIP if our adjusted 2015 non-GAAP operating income was not 85% or more of the adjusted non-GAAP operating income target for the year set forth in the 2015 AOP.

Our Compensation Committee also established limits on the payments made under the CAIP for “overachievement”. Payments in respect of individual performance measures are capped at 120% of the underlying target amount. The following table illustrates the relationship between the achievement of the financial measures and the resulting payouts to our executive officers:

 

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Achievement of Metrics Underlying 2015 Financial Goals for the CAIP

The 2015 financial performance goals that the Compensation Committee approved for use in connection with the CAIP and other performance-related compensation were based on our 2015 AOP. The number of titles we release fluctuates from year-to-year and, as such, the financial goals underlying our AOP for a year may be lower than the goals—or results—from a prior year. The achievement of the financial performance goals relevant to the bonuses of our named executive officers under the CAIP for 2015 is set forth below:

Resulting 2015 Payments under the CAIP

Since we exceeded the threshold level of 85% of the adjusted non-GAAP operating income target for the year set forth in the 2015 AOP, each of our named executive officers was eligible to receive a bonus of $10,000,000 for 2015, subject to the Compensation Committee’s use of negative discretion to reduce or eliminate that bonus. In recognition of their significant contributions to our transformative acquisition of King, $300,000 was included in the 2015 CAIP award to each of Messrs. Durkin and Tippl. The Compensation Committee used this discretion in order to qualify those incremental awards for tax deductibility.

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To calculate the amount of the bonus that each named executive officer would receive, the following formula, applied using straight-line interpolation, was used:

 

 

The following table shows the weighting, expressed as a percentage, assigned to each of the performance measures underlying each named executive officer’s bonus opportunity under the CAIP for 2015 and the maximum and actual payout as a percentage of the target.

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All CAIP payments were based on actual eligible earnings and the achievement of specified Company and individual performance measures and the weighting thereof.

Morhaime Profit Sharing Plan

In addition to the CAIP, discussed above, in accordance with his employment agreement, Mr. Morhaime received a payment for 2015 under the Morhaime Profit Sharing Plan. The Morhaime Profit Sharing Plan is commensurate with the Blizzard Profit Sharing Plan, a program that predates the 2008 Vivendi Games Combination and provides employees of Blizzard Entertainment with the opportunity to share in the earnings generated by Blizzard Entertainment. In order to maximize the deductibility of those payments as performance-based compensation under Section 162(m), rather than participating directly in the Blizzard Profit Sharing Plan, Mr. Morhaime’s opportunity to receive profit sharing payments is under the 2014 Plan (and is, therefore, known as the “Morhaime Profit Sharing Plan”). The Compensation Committee made the decision to retain a profit sharing component in Mr. Morhaime’s compensation following the Vivendi Games Combination due to Mr. Morhaime’s position, as well as our strategic focus on profitability, the prevalent market practice of profit sharing programs in the gaming industry, contractual obligations and our desire to incentivize and reward his contribution to Blizzard Entertainment and Activision Blizzard profits. Under the Morhaime Profit Sharing Plan, Mr. Morhaime is entitled to up to 6% of the “profit sharing pool” established pursuant to the Blizzard Entertainment Profit Sharing Plan. However, the Compensation Committee may exercise negative discretion with respect to his actual annual percentage interest in the pool, subject to a specified minimum percentage. For 2015, Mr. Morhaime received the minimum payment under the Morhaime Profit Sharing Plan to which he was entitled (i.e., $2,802,414).

Other Cash Bonus Programs or Awards for 2015

Blizzard Bonus Plan

In addition to the CAIP and the Morhaime Profit Sharing Plan, discussed above, in accordance with his employment agreement, Mr. Morhaime received a payment for 2015 under the Blizzard Bonus Plan. Under the Blizzard Bonus Plan, a Blizzard Entertainment program that, like the Morhaime Profit Sharing Plan, predates the 2008 Vivendi Games Combination, Mr. Morhaime is eligible to receive an end-of-year bonus, the target amount of which is 37% of his base salary, the minimum of which is 18.5% of his base salary and the actual amount of which is otherwise based on a subjective determination by the Compensation Committee. For 2015, Mr. Morhaime received the target amount (i.e., $341,363).

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Equity Awards

Philosophy

Our equity incentive program is intended to drive long-term value creation, create alignment with stockholders’ interests and encourage retention of key executives. The program consists of restricted share units, primarily with performance-based vesting criteria, and stock options. In awarding equity to executive officers, we generally target delivering a defined value. Specifically, in determining the estimated grant value of “upfront” equity awards to executive officers, we consider a number of reference points, including compensation paid to the executive’s peers within the Company and the executive’s base salary and target annual bonuses such that annualized total direct compensation generally targets between the 50th and 75th percentiles of executives in comparable positions when compared to our peer companies or applicable survey data. We may also provide supplemental equity awards to our executive officers during the term of their employment agreement, if there are particular circumstances that warrant doing so, including outstanding performance.

We utilize a mix of equity awards:

We believe a combination of restricted share units (primarily with performance-based vesting criteria) and stock options appropriately balances the various objectives of the equity incentive program because it promotes long-term value creation critical to driving TSR, directly aligns executive compensation with stockholder interests through share ownership and encourages our key executives to remain engaged with our organization through the vesting date of the awards.

Use of Employment Agreements and Their Impact on Reported Compensation

As discussed above (see “—Overview—Compensation Philosophy and Objectives”), we believe that entering into employment agreements with our executives is important to attracting and retaining top talent. When we make an equity award to an executive officer, it is typically done in connection with the initial entry into an employment agreement, the renewal of that agreement or an amendment to that agreement in connection with a promotion or other assumption of new responsibilities. By providing “upfront” awards, we align interests of our executives with those of our stockholders over the entire term of the executive’s employment. Additionally, by making equity awards with target values that are based upon the length of the term of the agreement, rather than a single year, we ensure executive support of our multi-year business strategy. Our practice of using “upfront” awards in lieu of annual awards may result in the equity-based compensation, and, as such, the total compensation, reported for each executive to differ significantly from year to year, depending on whether he entered into an employment agreement (or amendment thereof), and therefore received an equity award, in a given year. We view the value of these “upfront” equity awards on an annualized basis over the life of the employment agreement when evaluating an executive’s total compensation.

During 2015, we provided “upfront” equity awards to Mr. Hirshberg in conjunction with the extension of his term of employment. Please see “—Employment Agreements—Eric Hirshberg” below.

Annual and Other Equity Awards

We do not generally make annual equity awards to our executive officers, although Mr. Morhaime’s employment agreement, which was last amended in 2010, provides for annual equity awards, consistent with the compensation to which he was entitled from Vivendi Games prior to the Vivendi Games Combination in 2008. Please see “—Employment Agreements—Michael Morhaime” below. Accordingly, during 2015 we made equity awards to Mr. Morhaime as part of the broader annual grant of equity to our employees.

Use of Performance-Based Equity Awards

The Compensation Committee believes that, in general, equity awards made in connection with a new or amended employment agreement with an executive officer should include an award with performance-based vesting criteria. Consistent with that philosophy, certain restricted share unit awards made to Messrs. Kotick, Durkin, Tippl and Hirshberg during or prior to 2015 have vesting that is contingent on the achievement of specified profitability-focused performance objectives (as well as, in the case of awards to Mr. Kotick, relative total shareholder return). Further, Mr. Hirshberg, the only named executive officer whose employment agreement was entered into, or amended, in 2015, received performance-based vesting restricted share units and stock options and did not receive any time-based vesting restricted share units in connection with the extension of his employment. The Compensation Committee chooses performance objectives that it believes relate to measures of overall Company performance on which our executives have direct impact. For the performance awards to Mr. Kotick, vesting is based on our non-GAAP diluted earnings per share, adjusted non-GAAP free cash flow and relative TSR. For Mr. Durkin, vesting is based on our non-GAAP diluted earnings per share. For Mr. Tippl, vesting is based on our non-GAAP diluted earnings per share, our adjusted non-GAAP free cash flow and Blizzard Entertainment’s adjusted non-GAAP operating income. For Mr. Hirshberg, vesting is based on Activision Publishing’s adjusted non-GAAP operating income. Please see “—Employment Agreements” below for further details about each award.

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2015 Vesting and Cancellation of Performance-Based Equity Awards

Based on Company performance during 2015 and, for Mr. Kotick, over a multi-year period including 2015, performance-based equity awards to our named executive officers vested or were cancelled as follows:

Dividend Equivalents

The performance-based vesting restricted share units awarded to Mr. Hirshberg in 2015 have no right to dividend equivalents, nor do the restricted share units awarded to Mr. Morhaime in 2014 or 2015—and we do not anticipate making time- or performance-based awards with the right to dividend equivalents in the future. Awards made to our named executive officers prior to August 2014 are entitled to dividend equivalents, however, the performance shares awarded to Mr. Kotick in 2012 and the performance-based vesting restricted share units awarded to Mr. Tippl in 2014 only receive dividend equivalents if and to the extent the underlying performance conditions are met and the awards vest.

Other Award Terms

Incentive Plan Limitations on Equity Awards

Under the 2014 Plan, we cannot grant anyone, including our executive officers, options to purchase more than four million shares of our Common Stock in a single year. We are further currently restricted from granting anyone restricted share unit awards with respect to more than three million shares in a single year or from granting anyone more than six million performance shares in a single year.

Health and Welfare Benefits

Our named executive officers are eligible to participate in our medical, vision and dental insurance programs. With the exception of Mr. Morhaime, our named executive officers are offered the same terms as the broad employee population. Pursuant to his employment agreement, Mr. Morhaime is entitled to health and welfare benefits that are, in the aggregate, on terms and conditions no less favorable than those made available to him prior to the Vivendi Games Combination. As such, we cover the full cost of Mr. Morhaime’s health/medical insurance, and the plan in which he participates pays for the full amount of covered medical expenses. Please see the “Summary Compensation Table” below for further details.

Our named executive officers may also receive Company-paid life and disability insurance and/or participate in insurance programs only available to our senior employees. In addition, pursuant to the provisions of his employment agreement referenced in the prior paragraph, if Mr. Morhaime were to receive short-term disability insurance benefits, we would provide him with the difference between the amount he receives under the insurance and his base salary.

Retirement Arrangements

We offer a 401(k) plan to all employees in the United States, including our named executive officers, and we match a certain percentage of each employee’s contributions to our 401(k) plan (which, for Mr. Morhaime is, consistent with the benefits to which he was entitled prior to the Vivendi Games Combination, a higher percentage than our other named executive officers). Please see the “Summary Compensation Table” below for further details.

We do not maintain other retirement benefit plans for our employees, including our named executive officers, such as a qualified pension plan or a special non-qualified or supplemental deferred compensation plan. We believe that retirement arrangements are particular to, and should remain the responsibility of, each individual officer. The emphasis on minimal retirement arrangements ensures that a substantial portion of our named executive officers’ long-term wealth accumulation depends on the achievement of Activision Blizzard profitability targets and the appreciation of our Common Stock.

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Employment and Change-of-Control Arrangements

To attract and retain talented executives, we provide severance benefits under certain conditions, which are negotiated with each executive officer in connection with a new or renewed employment agreement. In addition, Mr. Kotick has been provided certain change-of-control protection. The Compensation Committee believes these arrangements will incentivize the relevant individuals to maintain objectivity in the context of, and contribute to, a potential change-of-control transaction. These benefits for each of our named executive officers are described under “—Potential Payments upon Termination or Change of Control” below.

Perquisites

We provide limited perquisites to our named executive officers, although our named executive officers are eligible to participate in a number of broad-based benefits programs that are available to all of our employees (e.g., they are entitled to relocation assistance). See the “Summary Compensation Table” below for further details.

Stock Ownership Guidelines

In order to align the interests of our management with those of our stockholders, we believe that each of our executive officers should maintain a meaningful ownership stake in the Company. Accordingly, in 2012, the Compensation Committee established stock ownership guidelines for our senior officers. After a competitive assessment conducted with the assistance of its independent consultant, the Compensation Committee adopted guidelines providing that our chief executive officer is expected to beneficially own shares of our Common Stock with a value at least equal to three times his or her then-current annual base salary and that each other executive officer is expected to beneficially own shares of our Common Stock with a value at least equal to his or her then-current annual base salary. Our executive officers are expected to accumulate the required stock within five years (so that anyone who is an executive officer of the Company as of the date on which these guidelines were adopted has five years from the adoption date and anyone who subsequently becomes an executive officer of the Company has five years from the date on which he or she becomes an executive). Further, if an executive officer does not satisfy these guidelines within the five year period, then, until he or she satisfies the guidelines, he or she will be required to hold 50% of the net shares received in connection with an award of unrestricted shares, upon exercise of stock options or upon the vesting of restricted share units awards received, provided such shares received are under equity awards made after the adoption of the ownership guidelines and that such awards are specifically subject to the ownership guidelines.

Impact of Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code—Limits on Compensation Deductibility

In structuring compensation programs, setting individual compensation levels and awarding bonuses and incentive plan payments, the Compensation Committee considers the potential impact of Section 162(m). Section 162(m) generally prevents a publicly held corporation from taking a tax deduction when compensation paid to a covered employee (generally, the chief executive officer and any of the corporation’s three other highest paid officers other than the chief financial officer) exceeds $1.0 million in any taxable year unless:

The tax deductibility of compensation paid to other executives is not subject to these limitations.

We generally attempt to preserve the deductibility of elements of our performance-based incentives. However, we believe it is important that we retain the flexibility to structure compensation arrangements necessary to attract, retain and motivate the best executive talent, even though such elements may not be fully deductible under Section 162(m).

Payments under the CAIP and the Morhaime Profit Sharing Plan, each described above, are structured to be performance-based incentives within the meaning of the 2014 Plan and, therefore, deductible up to the $10 million limit on the payment of such awards to any one person for a single year under the 2014 Plan. For further detail on the CAIP structure, see “—Elements of Our Executive Compensation Program for 2015—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—2015 Incentive Opportunities under the CAIP”, and for further detail on the Morhaime Profit Sharing Plan structure, see “—Elements of Our Executive Compensation Program for 2015—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Morhaime Profit Sharing Plan” above.

Section 162(m) prevents us from deducting the incremental amount by which the sum of Mr. Morhaime’s base salary and payment under the Blizzard Bonus Plan for 2015 exceeds $1.0 million. Section 162(m) also prevents us from deducting the amount by which, if any, the base salary for each other covered employee exceeds $1.0 million. As our chief financial officer, the deduction of Mr. Durkin’s compensation is not subject to Section 162(m).

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Section 409A of the Internal Revenue Code—Limits on Deferral of Compensation

To the extent that any compensation paid or committed to any of our named executive officers constitutes a deferral of compensation within the meaning of Section 409A of the Internal Revenue Code, the Compensation Committee intends to cause that compensation to comply with the requirements of Section 409A and to avoid the imposition of penalty taxes and interest upon the person receiving the compensation.

Accounting Considerations

The Compensation Committee also takes accounting considerations, including the impact of Accounting Standards Codification (“ASC”) Topic 718, into account in structuring compensation programs and determining the form and amount of compensation awarded.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included under “Executive Compensation—Compensation Discussion and Analysis” above. Based on that review and discussion, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this proxy statement and also be incorporated by reference into our Annual Report on Form 10-K for the period ended December 31, 2015.

Members of the Compensation Committee

Robert J. Morgado (Chairperson), Casey Wasserman and Elaine Wynn

 

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Summary Compensation Table

The table below presents information with respect to each of our named executive officers regarding compensation earned during the periods indicated.

As previously discussed, we believe that entering into multi-year employment agreements with our executives is important to attracting and retaining top talent. When we make a long-term equity award to an executive officer, it is typically done in connection with the initial entry into an employment agreement, the renewal of that agreement or an amendment to that agreement in connection with a promotion or other assumption of new responsibilities. The target value of any such equity award is based upon the term of the agreement and such awards have typically been the only equity awards made to our executive officers (other than Mr. Morhaime, who also receives annual awards of equity, consistent with the compensation to which he was entitled from Vivendi Games prior to the 2008 Vivendi Games Combination).

We view the initial target value of these “upfront” equity awards on an annualized basis over the life of the employment agreement when evaluating an executive’s total compensation. Consistent with the way that we view them, the fair value for each tranche of performance-based vesting restricted share units is shown in the Stock Award column in the table below as compensation in the year in which the underlying performance metrics for that tranche are set. However, for time-based vesting restricted share units and stock options, the fair value for the entire award is shown as compensation for the year in which the award was approved. As such, information shown in the Stock Awards and Option Awards columns in the table below will include the entire value of options and time-based vesting awards, as the case may be, made in connection with the entry into, renewal of or amendment of an employment agreement. Ultimately, this may result in the equity-based compensation and, as such, the total compensation shown for each executive differing significantly from year to year, depending on whether he entered into an employment agreement (or amendment thereof), and therefore received an equity award, in any given year. Please see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Equity Awards” above for further information about our equity granting practices.

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Grants of Plan-Based Awards for 2015

The table below provides information regarding the grants of plan-based awards made to each of our named executive officers during 2015:

 

 

 

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Outstanding Equity Awards at December 31, 2015

The table below sets forth the outstanding equity awards for each of our named executive officers as of December 31, 2015:

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For the impact of the termination of the employment of each named executive officer on his equity awards, please see “—Potential Payments upon Termination or Change of Control” below.

 

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Option Exercises and Stock Vested for 2015

The table below sets forth details with respect to the stock options exercised by, and the restricted shares and restricted share units that vested for, or were otherwise transferred for value by, our named executive officers in 2015:

Employment Agreements

As previously discussed, we believe that entering into employment agreements with our executives is important to attracting and retaining the executive talent necessary to lead us. The following is a summary of the material terms regarding compensation set forth in the employment agreement we have entered into with each of our named executive officers. Certain provisions regarding payments and benefits upon termination or a change of control, which are described under “—Potential Payments upon Termination or Change of Control” below, are not included in the following summary.

Robert A. Kotick

Term & Title. Robert A. Kotick is party to an employment agreement with us, dated as of March 15, 2012 (the “Kotick Employment Agreement”), pursuant to which he serves as our President and Chief Executive Officer. Mr. Kotick’s term of employment under the Kotick Employment Agreement began on March 15, 2012, and continues through June 30, 2016.

Base Salary. Pursuant to the Kotick Employment Agreement, Mr. Kotick’s annual base salary was $2,000,000 as of July 1, 2011. Beginning in 2013, Mr. Kotick’s annual base salary was and will be increased as of January 1st of each year during the term in an amount at least equal to the average percentage increase approved by the Compensation Committee for members of our executive leadership team with respect to that year (excluding any increase guaranteed to any such person by contract or due to such person’s promotion or other significant modification in duties). For more information about Mr. Kotick’s base salary, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Salary” above.

Annual Bonus. Pursuant to the Kotick Employment Agreement, Mr. Kotick is also entitled to receive an annual bonus under the CAIP, with a target amount of 200% of his base salary. The actual amount of any bonus Mr. Kotick may receive under the CAIP is determined by the Compensation Committee based on Mr. Kotick’s achievement of objectives determined by the Compensation Committee at its sole discretion, after consultation with Mr. Kotick, his overall performance and our financial performance. The form of any such bonus is determined by the Compensation Committee at its sole discretion. For more information about performance-based bonuses, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” above.

Other Bonuses. As an inducement to enter into the Kotick Employment Agreement, Mr. Kotick earned a cash signing bonus payment of $2,500,000. Further, pursuant to the Kotick Employment Agreement, the Compensation Committee, at its sole discretion, may award Mr. Kotick a performance bonus at any time in any amount and form determined by the Compensation Committee.

Equity Awards. As an inducement to enter into the Kotick Employment Agreement, on March 15, 2012, Mr. Kotick was awarded approximately 2,061,006 restricted share units, the number of which was based on a total grant date value approximately equal to $25,000,000. As our “gross profit” for 2012 (as determined in

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accordance with the Kotick Employment Agreement) was greater than or equal to $500,000,000, on March 15, 2013, the restricted share units vested with respect to one-third of the award (representing the twenty month-long vesting tranches between August 1, 2011 and March 1, 2013) and thereafter one-sixtieth of the award vested and will vest, as the case may be, on the first day of each month, with the exception of the final tranche, which will vest on the expiration date of the Kotick Employment Agreement.

As further inducement to enter into the Kotick Employment Agreement, on March 15, 2012, Mr. Kotick received an award of 4,122,012 performance shares, each representing the right to receive one share of our Common Stock, the number of which was based on a total grant date value approximately equal to $50,000,000 and assumes maximum performance. This number represents the maximum number of shares available under the award, assuming the “stretch” performance goals are attained; if target performance is achieved, only half these performance shares (i.e., 2,061,006 shares) would be eligible to vest. Moreover, to ensure that performance is incentivized throughout the term of the contract, performance shares vested in four equal installments over a five-year period, with each tranche reflecting performance over a two-year period (i.e., 2011-2012, 2012-2013, 2013-2014 and 2014-2015), other than the performance period applicable to those shares measured by reference to TSR for 2011-2012, which was measured from July 1, 2011 through December 31, 2012. The performance shares vested on each of March 31, 2013, 2014, 2015 and 2016 as follows:

In addition, to the extent that not all of the performance shares subject to TSR metrics were earned, those missed shares could have vested at the end of subsequent performance periods based on relative achievement of TSR measures, where the beginning average price of our Common Stock was measured by reference to the 30-day period beginning 30 days prior to the commencement of the performance period with respect to which such shares were missed. Further, the vesting of the performance shares for the performance period for 2011-2012 was also contingent upon our “gross profit” for 2012 (as determined in accordance with the Kotick Employment Agreement) being greater than or equal to $500,000,000.

Impact of Change of Control. Pursuant to the Kotick Employment Agreement, if there is a change of control during the term of his employment under the Kotick Employment Agreement, Mr. Kotick will be entitled to a cash bonus payable within 10 days of such change of control in an amount of at least $30,000,000, which may be increased up to $45,000,000 at the good faith discretion of the Compensation Committee. Mr. Kotick will also receive that bonus if he is terminated without cause (as defined in the Kotick Employment Agreement) and a change of control is consummated within the six months after his termination (in which case the bonus will be paid on the date that is six months after his termination date). Please see “—Potential Payments Upon Termination or Change of Control” below for the definition of change of control used in the Kotick Employment Agreement. Although the transactions contemplated by the Vivendi Share Purchase Agreement could have been deemed to constitute a change of control as defined in his employment agreement, Mr. Kotick voluntarily waived any rights he had to payments, benefits and vesting upon a change of

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control under his agreement in connection therewith. Please see “Certain Relationships and Related Transactions—Relationships and Transactions—Relationships with Our Directors and Executive Officers—Waiver and Acknowledgement Letters” below for further information on the waiver.

Other Benefits. Mr. Kotick is also entitled to participate in all benefit plans generally available to our executive officers and we are required to maintain a supplemental term life insurance policy in the amount of $18 million for the benefit of his estate until March 14, 2022.

Restrictive Covenants. Pursuant to the Kotick Employment Agreement, until the second anniversary of the expiration of the term of his employment under the agreement, Mr. Kotick is restricted from soliciting the employment of anyone then employed by us or our affiliates (or anyone who was employed by us or them during the then-most recent six-month period). Mr. Kotick is also prohibited from competing with us during the term of his employment under the Kotick Employment Agreement.

In addition, during the term of his employment, Mr. Kotick is prohibited from disclosing or using our confidential information except as required in the course of his employment and, until the second anniversary of the expiration of the term of his employment, he cannot use such information to induce any of our employment or business relationships to alter its relationship with us.

Dennis Durkin

Term & Title. Dennis Durkin is party to an employment agreement with us, dated as of February 29, 2012 (the “Durkin Employment Agreement”), pursuant to which he serves as our Chief Financial Officer. Mr. Durkin’s term of employment under the Durkin Employment Agreement began on March 1, 2012 and continues through March 15, 2017.

Base Salary. Pursuant to the Durkin Employment Agreement, Mr. Durkin’s annual base salary was $650,000 as of March 1, 2012 and was and will be increased by at least 5% annually. For more information about Mr. Durkin’s base salary, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Salary” above.

Annual Bonus. Mr. Durkin is also eligible for an annual bonus under the CAIP with a target amount of 100% of his base salary, the actual amount of which is determined at our sole discretion based on his overall performance and our performance. For more information about performance-based bonuses, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” above.

Other Bonuses. As an inducement to enter into the Durkin Employment Agreement, in 2012 Mr. Durkin earned a cash signing bonus payment of $1,250,000.

Equity Awards. As an inducement to enter into the Durkin Employment Agreement, in 2012 Mr. Durkin was awarded:

Other Benefits. Mr. Durkin is also entitled to participate in all benefit plans generally available to our executive officers and we are required to maintain a $3 million supplemental term life insurance policy for the benefit of his estate throughout the term of his employment.

Restrictive Covenants. Pursuant to the Durkin Employment Agreement, until the second anniversary of the expiration of the term of his employment, Mr. Durkin is restricted from soliciting the employment of anyone then-employed by us or our subsidiaries (or anyone who was employed by us or them during his final 90 days of employment). Mr. Durkin is also restricted from inducing any of our business partners to alter its relationship with us while he is our employee. Mr. Durkin is also generally not permitted to negotiate for other employment before the final six months of the term of his employment under the Durkin Employment Agreement. Mr. Durkin is also prohibited from competing with us during the term of his employment under the Durkin Employment Agreement. In addition, Mr. Durkin is prohibited from disclosing or using our confidential information during his employment, except as required in the course of his employment, and at all times following the termination of his employment.

Thomas Tippl

Term & Title. Thomas Tippl is party to an employment agreement with us, dated as of September 9, 2005, amended as of December 15, 2008, April 15, 2009, March 23, 2010, and December 5, 2013, and assigned to us by Activision Publishing on April 15, 2009 (the “Tippl Employment Agreement”), pursuant to which he served as the Chief Financial Officer of Activision Publishing until the consummation of the Vivendi Games Combination, as our Chief Financial Officer from the consummation of the Vivendi Games Combination until February 2009, as our Chief Corporate Officer and Chief Financial Officer from February 2009 until March 2010 and, since March 2010 serves as our Chief Operating Officer (and continued to serve as our Chief Financial Officer until a replacement was hired in March 2012). Mr. Tippl’s term of employment under the Tippl Employment Agreement began on October 1, 2005 and,

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following our exercise of the right to extend his contract by one year, continues through April 30, 2017.

Base Salary. Pursuant to the Tippl Employment Agreement, Mr. Tippl’s annual base salary was $1,250,000 as of December 5, 2013, and beginning in 2015, was and will be increased by an amount at least equal to the average percentage increase approved by the Compensation Committee for members of our executive leadership team with respect to that year (excluding any increase guaranteed to any such person by contract or due to such person’s significant promotion or modification in duties). For more information about Mr. Tippl’s base salary, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Salary” above.

Annual Bonus. Pursuant to the Tippl Employment Agreement, Mr. Tippl is also eligible for an annual bonus under the CAIP with a target amount of 150% of his base salary, the actual amount of which is determined at our sole discretion based on his overall performance and our performance. For more information about performance-based bonuses, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” above.

Other Bonuses. As an inducement to enter into the Tippl Employment Agreement, in 2005 Mr. Tippl earned a cash signing bonus payment of $100,000.

Equity Awards. As an inducement to enter into the Tippl Employment Agreement pursuant to which he was hired through September 2010, in 2005 Mr. Tippl was awarded:

As an inducement to enter into the February 2009 amendment to the Tippl Employment Agreement pursuant to which he was promoted from Chief Financial Officer to Chief Corporate Officer and Chief Financial Officer and the term of his employment was extended through April 2014, in 2009 Mr. Tippl was awarded:

As an inducement to enter into the March 2010 amendment to the Tippl Employment Agreement pursuant to which he was promoted to Chief Operating Officer and continued to serve as our Chief Financial Officer until a replacement was hired (thereby simultaneously filling two leadership roles during a time of significant organizational transition), in 2010 Mr. Tippl was awarded:

As an inducement to enter into the December 2013 amendment to the Tippl Employment Agreement, pursuant to which, among other things, the term of his employment was extended through April 2017 (following our exercise of the right to extend his contract by one year), on February 10, 2014, Mr. Tippl was awarded:

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Other Benefits. Mr. Tippl is also entitled to participate in all benefit plans generally available to our executive officers and we are required to maintain a $9,375,000 supplemental term life insurance policy for the benefit of his estate throughout the term of his employment.

Restrictive Covenants. Pursuant to the Tippl Employment Agreement, until the second anniversary of the termination of his employment, Mr. Tippl is restricted from soliciting the employment of anyone who was employed by us or our affiliates during the term of his employment and from inducing any of our business partners to alter its relationship with us. Mr. Tippl is also generally not permitted to seek or negotiate for other employment before the final six months of the term of his employment under the Tippl Employment Agreement. Mr. Tippl is also prohibited from competing with us during the term of his employment under the Tippl Employment Agreement. In addition, Mr. Tippl is prohibited from disclosing or using our confidential information during his employment, except as required in the course of his employment, and at all times following the termination of his employment.

Eric Hirshberg

Term & Title. Eric Hirshberg is party to an employment agreement with us, dated as of July 6, 2010, amended as of October 15, 2015 and assigned to us by Activision Publishing on January 1, 2012 (the “Hirshberg Employment Agreement”), pursuant to which he serves as Activision Publishing’s Chief Executive Officer. Mr. Hirshberg’s term of employment under the Hirshberg Employment Agreement began on September 1, 2010 and will end on March 31, 2018 (subject to our right to extend for an additional year).

Base Salary. Pursuant to the Hirshberg Employment Agreement, Mr. Hirshberg’s annual base salary was $1,000,000 as of September 4, 2015, and beginning in 2017, will be increased by at least 5% annually. For more information about Mr. Hirshberg’s base salary, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Salary” above.

Annual Bonus. Pursuant to the Hirshberg Employment Agreement, Mr. Hirshberg is also eligible for an annual bonus under the CAIP with a target amount of 100% of his base salary, the actual amount of which is determined at our sole discretion based on his overall performance and our performance. For more information about performance-based bonuses, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” above.

Other Bonuses. As an inducement to enter into the Hirshberg Employment Agreement and in consideration for abandonment of a bonus payment earned by him and owed to him from his prior employer, Mr. Hirshberg earned a cash signing bonus payment of $2,000,000 in 2010.

Equity Awards. As an inducement to enter into the Hirshberg Employment Agreement, in 2010 Mr. Hirshberg was awarded:

As an inducement to enter into the October 2015 amendment to the Hirshberg Employment Agreement pursuant to which his employment was extended through March 2018 (or, if we so elect, through March 2019), on November 2015, Mr. Hirshberg was awarded:

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Other Benefits. Mr. Hirshberg is entitled to participate in all benefit plans generally available to our senior executive officers and we are required to maintain a supplemental term life insurance policy in the amount of $5 million for the benefit of his estate throughout the term of his employment.

Restrictive Covenants. Pursuant to the Hirshberg Employment Agreement, until the second anniversary of the termination of his employment, Mr. Hirshberg is restricted from soliciting the employment of anyone then-employed by us or our subsidiaries (or anyone who was employed by us or them during his final 90 days of employment). Mr. Hirshberg is also restricted from inducing any of our business partners to alter its relationship with us while he is our employee. Mr. Hirshberg is also generally not permitted to negotiate for other employment before the final six months of the term of his employment under the Hirshberg Employment Agreement. Mr. Hirshberg is also prohibited from competing with us during the term of the Hirshberg Employment Agreement. In addition, Mr. Hirshberg is prohibited from disclosing or using our confidential information during his employment, except as required in the course of his employment, and at all times following the termination of his employment.

Michael Morhaime

Term & Title. Michael Morhaime is party to an employment agreement with us, dated as of December 1, 2007 and amended as of December 15, 2008, March 31, 2009, November 4, 2009 and October 26, 2010 (the “Morhaime Employment Agreement”), pursuant to which he serves as the President and Chief Executive Officer of Blizzard Entertainment. Mr. Morhaime’s term of employment under the Morhaime Employment Agreement began on July 9, 2008 and continues through December 31, 2016.

Base Salary. Pursuant to the Morhaime Employment Agreement, Mr. Morhaime’s annual base salary was $763,900 as of August 31, 2010 and was and will be reviewed annually. It may be increased at our discretion and any higher base salary paid to Mr. Morhaime will then be deemed to be the annual rate for purposes of the Morhaime Employment Agreement. For more information about Mr. Morhaime’s base salary, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Salary” above.

Annual Bonuses. Pursuant to the Morhaime Employment Agreement, Mr. Morhaime is also eligible for an annual bonus under the CAIP with a target amount of 27% of his base salary, 10% of which is based on our financial performance and 90% of which is based on his performance and Blizzard Entertainment’s financial performance. The actual amount of any such bonus paid to him is determined at our discretion. For more information about performance-based bonuses, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Corporate Annual Incentive Plan and Other Performance-Based Bonuses” above.

Mr. Morhaime is also eligible for additional annual performance-based cash compensation based upon Blizzard Entertainment’s earnings under the Morhaime Profit Sharing Plan. Specifically, Mr. Morhaime is entitled to an amount equal to up to 6% of the profit sharing pool created pursuant to the Blizzard Profit Sharing Plan. (The Compensation Committee may exercise negative discretion with respect to his actual annual percentage interest in the pool, subject to a specified minimum percentage.) Prior to October 2010, Mr. Morhaime was entitled to an amount equal to up to 5% of that pool. For more information about the Morhaime Profit Sharing Plan, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Corporate Annual Incentive Plan and Other Performance-Based Bonuses—Morhaime Profit Sharing Plan” above.

Mr. Morhaime is also eligible for an annual bonus under the Blizzard Bonus Plan. The target amount of such bonus is 37% of his base salary, but is otherwise at our Chief Executive Officer’s discretion. For more information about the Blizzard Bonus Plan, see “—Compensation Discussion and Analysis—Elements of Our Executive Compensation Program for 2015—Other Cash Bonus Programs or Awards for 2015” above.

Equity Awards. As an inducement to enter into the Morhaime Employment Agreement, upon the consummation of the Vivendi Games Combination, Mr. Morhaime was awarded an option to purchase 600,000 shares of our Common Stock, which vested in 60 equal installments on the 9th day of each month in the five years following the date of grant, commencing with August 9, 2008.

As an inducement to enter into the October 2010 amendment to the Morhaime Employment Agreement, pursuant to which, among other things, the term of his employment was extended through December 2016, in 2010 Mr. Morhaime was awarded:

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In addition, the Morhaime Employment Agreement provides that we will recommend to the Compensation Committee that Mr. Morhaime be awarded an option to purchase 200,000 shares of our Common Stock and 70,000 restricted share units once per year during the term of the agreement to the extent awards are being made to our other senior executives during that year. Accordingly, the Compensation Committee, upon our recommendation, awarded Mr. Morhaime:

Other Benefits. Mr. Morhaime is also entitled to participate in all benefit plans generally available to Blizzard Entertainment’s senior executive officers (provided that in any case his benefits are in the aggregate at least as favorable to him as those provided to him by Blizzard Entertainment as of October 15, 2007). Mr. Morhaime was entitled to reimbursement of any legal fees he incurred in connection with the negotiation of the Morhaime Employment Agreement.

Restrictive Covenants. Pursuant to the Morhaime Employment Agreement, while he is our employee and during any period following the termination of his employment in which he is receiving severance from us (as well as for any period corresponding to any lump-sum severance payment he receives from us), Mr. Morhaime is restricted from soliciting the employment of anyone then-employed by us or Blizzard Entertainment and from inducing any of our business partners or Blizzard Entertainment’s business partners to terminate its relationship with us or them. Mr. Morhaime is also prohibited from competing with s while he is our employee. In addition, Mr. Morhaime is prohibited from disclosing or using our confidential information during his employment, except as required in the course of his employment, and at all times following the termination of his employment. Further, during any period in which he is receiving severance from us (as well as for any period corresponding to any lump-sum severance payment he receives from us), he must make himself reasonably available to us to provide any information or other assistance we may reasonably request with respect to matters relating to Blizzard Entertainment’s business about which he has knowledge as a result of his employment. For information about the severance Mr. Morhaime may receive, see “—Potential Payments upon Termination or Change of Control” below.

 

 

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Potential Payments upon Termination or Change of Control

The table below outlines the potential payments to our named executive officers upon the occurrence of certain termination events or a change of control. The calculations assume that each of these events occurred on December 31, 2015.

Footnotes for this table can be found on the pages immediately following (pages 64-70).

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(1) Bonus Payments upon Termination

In the event of a termination of employment by us without cause or by the employee for good reason or in the event of a termination of his employment due to death or disability, or, in the case of Mr. Kotick, in the event of a termination of his employment for any of the aforementioned reasons during the 12-month period following a change of control, in each case on December 31, 2015, each of our named executive officers would have received any earned but unpaid bonuses for prior years (of which there were none as of December 31, 2015), as well as a pro rata bonus for the year in which the termination occurred, as follows:

(a) Mr. Kotick would have received, to the extent the bonus was earned and subject to his execution of an effective and irrevocable release (other than in the event of a termination of his employment due to death):

(b) Messrs. Durkin, Tippl, and Hirshberg would have each received, to the extent the bonus was earned and subject to his execution of an effective and irrevocable release (other than in the event of a termination of his employment due to death):

(c) Mr. Morhaime would have received, to the extent the bonus was earned:

None of our named executive officers is entitled to a bonus with respect to the year of termination of his employment in connection with a termination for cause, although Mr. Kotick would have received any earned but unpaid bonus for prior years (of which there were none as of December 31, 2015). Further, each of Messrs. Durkin, Tippl and Hirshberg would have received any earned but unpaid bonuses for prior years (of which there were none as of December 31, 2015) and a pro rata bonus (as described above) for the year in which termination occurred had the term of his employment expired on December 31, 2015.

(2) Termination of Employment due to Death or Disability

In the event of a termination of employment due to death or disability on December 31, 2015, each of our named executive officers or his estate would have received, in addition to any amounts to which he was entitled under applicable law, such as earned but unpaid salary, accrued but unpaid vacation, unreimbursed business expenses and any amounts then due under our benefit plans, programs or policies (collectively, “basic severance”) (which for purposes of this table, are assumed to have been paid or reimbursed in full as of December 31, 2015), the following:

(a) Mr. Kotick would have received:

(b) Mr. Durkin would have received:

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(c) Mr. Tippl would have received, subject to his or his legal representative’s execution of an effective and irrevocable release (other than in the event of a termination of his employment due to death):

(d) Mr. Hirshberg would have received:

With the exception of a payment in respect of a bonus, discussed in footnote (1), Mr. Morhaime would not have received anything other than basic severance in connection with his termination due to death or disability.

Except as otherwise indicated, the amounts reflected in the table are in addition to any proceeds from company-provided insurance the executive or his estate would have received upon death or disability, as the case may be.

Any payment in respect of a bonus that any of our named executive officers would have received in connection with a termination of employment due to death or disability is discussed in footnote (1). The effects of a termination of employment due to death or disability on outstanding equity awards are discussed in footnote (7).

(3) Termination for Cause

The employment of each of our named executive officers may be terminated for “cause” if any of the following occur:

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Each of our named executive officers would have received basic severance in connection with a termination for cause on December 31, 2015, and none of them would have received any salary-related severance or bonus with respect to the year of termination in connection with a termination for cause.

In addition, in the event of a termination of employment by us for cause, Mr. Kotick would have received:

The effects of a termination of employment in connection with a performance termination or a termination for cause on outstanding equity awards are discussed in footnote (7).

(4) Termination Without Cause or for Good Reason

As described below, each named executive officer may terminate his employment for “good reason” upon the occurrence of any of the following without his consent:

Upon a termination of the employment of one of our named executive officers by us without “cause” or by one of our named executive officers for good reason on December 31, 2015 (including the termination of Mr. Kotick by us without cause or by Mr. Kotick for good reason during the 12-month period following a change of control), that named executive officer would have received, in addition to any basic severance, the following:

(a) Mr. Kotick:

(b) Mr. Durkin:

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(c) Mr. Tippl:

(d) Mr. Hirshberg:

(e) Mr. Morhaime:

Any payment in respect of a bonus that any of our named executive officers would have received in connection with a termination of employment by us without cause or by that named executive officer for good reason is discussed in footnote (1). The effects of a termination of the employment of one of our named executive officers by us without cause or by that named executive officer for good reason on outstanding equity awards are discussed in footnote (7).

Pursuant to the terms of each of Messrs. Durkin’s and Hirshberg’s employment agreements, all payments and benefits to which he is otherwise entitled upon a termination of employment by us without cause or by him for good reason, with the exception of the basic severance, would cease if he breaches the post-termination provisions of his employment agreement. Please see, respectively, “—Employment Agreements—Dennis Durkin” and “—Employment Agreements—Eric Hirshberg” above for a description of those obligations.

In addition, if Mr. Durkin obtains any subsequent employment, any severance payable to him in the form of salary continuation would be offset by the amount of his salary from his then-current employer (which payments, for the purposes of this table, are assumed to be zero). If Mr. Hirshberg obtains any subsequent employment, all payments and benefits to which he is otherwise entitled, with the exception of the basic severance, would cease.

(5) Change of Control

For Mr. Kotick, in the event of a change of control:

(a) As noted in footnotes (1) and (4), upon a subsequent termination of employment by us without cause or by Mr. Kotick for good reason during the 12-month period following the effective date of that change of control, he would have received, in addition to any basic severance, the following:

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(b) If there is a change of control during the term of Mr. Kotick’s employment or Mr. Kotick is terminated without cause and a change in control is consummated during the six months after his termination, Mr. Kotick will be entitled to a cash bonus payable upon such change of control in an amount of at least $30,000,000, which may be increased up to $45,000,000 at the good faith discretion of the Compensation Committee. For purposes of this table, the payment has been assumed to be $30,000,000.

(c) The amounts shown represent the value of any restricted share units or performance shares that vest or as to which the restrictions would have lapsed, as the case may be, upon Mr. Kotick’s termination, measured as the NASDAQ Official Closing Price of $38.71 per share of our Common Stock on December 31, 2015.

(d) If there had been a change of control on December 31, 2015 (whether or not he was subsequently terminated):

In addition, if the NASDAQ Official Closing Price of our Common Stock on the date of the change of control was greater than the exercise price of any of his vested stock options, Mr. Kotick would have had the right to forfeit the stock options in exchange for a cash payment equal in value to the number of shares of our Common Stock underlying those stock options multiplied by the amount that the NASDAQ Official Closing Price exceeded the exercise price of the stock options. For purposes of this table, no value is attributed to this provision of his employment agreement, as Mr. Kotick could have obtained the same value by exercising those stock options and selling the shares purchased upon exercise in the open market.

If, following a change of control, he had been terminated due to his death, as discussed in footnote (7):

Further, in the event of his termination due to death or disability or in the event of the termination of his employment by us without cause or by him for good reason during the 12-month period following a change of control:

Other than as described in this footnote (5), Mr. Kotick’s termination following a change of control, whether or not in the 12-month period thereafter, would have no impact on his outstanding equity awards.

(e) Pursuant to his employment agreement, Mr. Kotick is entitled to be indemnified for any excise taxes for which he is responsible in respect of payments by us to him as a result of a change of control. Assuming that a change of control occurred on December 31, 2015, any payment owed to him under the employment agreement as a result of that change of control would not have exceeded the necessary safe harbor cap under the Internal Revenue Code to trigger such a payment for him.

For purposes of Mr. Kotick’s employment agreement, a change of control is defined to include: (a) the acquisition of 25% or more of our outstanding voting stock; (b) the failure of the directors who constituted our Board at the time of the Vivendi Games Combination (or replacements who are approved by a majority of such directors) to constitute a majority of our Board, other than as a result of voluntary resignations or removals for good cause; or (c) a consolidation, merger or sale of all or substantially all of our assets in which our stockholders immediately prior to such transaction do not retain in excess of 65% of the combined voting power of the corporation or other person or entity resulting from that transaction in substantially the same proportion as their ownership of the voting securities of Activision Blizzard immediately before the transaction. No change of control will be deemed to have occurred upon the acquisition of additional control of Activision Blizzard by Vivendi or by any one person or more than one person acting as a group that beneficially owns, directly or indirectly, more than 50% of our total outstanding voting stock. Although the transactions contemplated by the Vivendi Share Purchase Agreement could have been deemed to constitute a change of control as defined in his employment agreement, Mr. Kotick voluntarily waived any rights he had to payments, benefits and vesting upon a change of control under his agreement in connection therewith. Please see “Certain Relationships and Related Transactions—Relationships and Transactions—Relationships with Our Directors and Executive Officers—Waiver and Acknowledgement Letters” below for further information on the waiver.

(6) Continuation of Insurance Benefits

The amounts shown represent the estimated cost to us for continuation of health/medical insurance benefits and, if applicable, life insurance benefits for the required period, based on the cost to us of providing those benefits as of December 31, 2015. Please see footnotes (2), (3), (4) and (5) for a description of the termination scenarios for which these amounts are relevant.

(7) Treatment of Equity Awards

The amounts shown represent the value of any restricted share units or performance shares that vest or as to which the restrictions would have lapsed upon termination, measured as the NASDAQ Official Closing Price of $38.71 per share of our Common Stock on December 31, 2015.

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The effects of termination as of December 31, 2015 on the outstanding equity awards held by each named executive officer on that date and information with respect to the outstanding awards held by him (assuming target performance, in the case of all performance-based awards) are as follows:

(a) For Mr. Kotick, on the date of termination:

As of December 31, 2015, the following equity awards made to Mr. Kotick were outstanding: (1) vested options to purchase 3,962,998 shares of our Common Stock; (2) 240,450 restricted share units; and (3) 515,250 performance shares. Please see “—Outstanding Equity Awards at December 31, 2015” above for further details about these awards.

For the effects of a change of control and any subsequent termination on Mr. Kotick’s outstanding equity awards, see footnote (5).

(b) For Mr. Durkin:

As of December 31, 2015, the following equity awards made to Mr. Durkin were outstanding: (1) vested options to purchase 112,500 shares of our Common Stock; (2) unvested options to purchase 150,000 shares of our Common Stock; and (3) 355,000 unvested restricted share units (180,000 of which have vesting tied to performance). Please see “—Outstanding Equity Awards at December 31, 2015” above for further details about these awards.

(c) For Mr. Tippl:

As of December 31, 2015, the following equity awards made to Mr. Tippl were outstanding: (1) vested options to purchase 44,427 shares of our Common Stock; and (2) 661,154 restricted share units (454,543 of which have vesting tied to performance). Please see “—Outstanding Equity Awards at December 31, 2015” above for further details about these awards.

(d) For Mr. Hirshberg:

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As of December 31, 2015, the following equity awards made to Mr. Hirshberg were outstanding: (1) unvested options to purchase 398,820 shares of our Common Stock; and (2) 236,930 unvested restricted share units, all of which have vesting tied to performance. Please see “—Outstanding Equity Awards at December 31, 2015” above for further details about these awards. In addition, on December 31, 2015, in accordance with his Employment Agreement, the stock options awarded to him on November 8, 2010 were automatically exercised and Mr. Hirshberg was entitled to $9,390,500, which, at our election, was delivered to him, net of shares withheld to satisfy the resulting tax withholding obligation, in shares of our Common Stock.

(e) For Mr. Morhaime:

As of December 31, 2015, the following equity awards made to Mr. Morhaime were outstanding: (1) unvested options to purchase 449,999 shares of our Common Stock; (2) vested options to purchase 1,150,000 shares of our Common Stock; and (3) 206,665 unvested restricted share units. Please see “—Outstanding Equity Awards at December 31, 2015” above for further details about these awards.

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General

Our stockholders are being provided the opportunity to cast a non-binding, advisory vote (commonly known as “say-on-pay”) on the compensation of the executive officers named in the “Summary Compensation Table” above (i.e., the named executive officers). This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the executive compensation policies and practices described in this proxy statement, through consideration of the following non-binding advisory resolution:

“Resolved, that the stockholders advise that they approve the compensation of the Company’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis and the compensation tables and related narrative discussion.”

Please see “Executive Compensation” above for the “Compensation Discussion and Analysis” and the accompanying compensation tables and related narrative discussion relating to compensation paid to our named executive officers, including detail about how our executive compensation policies and practices operate and are designed to achieve our compensation objectives.

Our Compensation Committee and Board believe that the compensation policies and practices articulated in the “Compensation Discussion and Analysis” are effective in enabling us to achieve our financial, operational and strategic goals and that the compensation paid to our named executive officers has allowed, and will continue to allow, us to attract and retain the key executive talent responsible for our recent and long-term success.

Required Vote and Board Recommendation

The affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting is required for the approval of proposal 2. While our Board and its Compensation Committee believe that the views of the Company’s stockholders are of utmost importance and will carefully consider the outcome of the vote expressed by our stockholders when making future executive compensation decisions, the vote will not be binding upon them. Our Board ultimately has a duty to act in what it believes to be the best interests of the Company and all of its stockholders.

Mr. Kotick, our Chief Executive Officer, and Mr. Kelly, the Chairman of our Board, may direct the voting of the shares held by ASAC II LP, an exempted limited partnership established under the laws of the Cayman Islands (i.e., ASAC), and acting by ASAC II LLC, its general partner. Messrs. Kotick and Kelly may also direct the voting of shares they beneficially own at their discretion, except they have agreed to vote any such shares that, when aggregated with ASAC’s shares, represent shares of our Common Stock in excess of 19.9% of the issued and outstanding Common Stock either in a manner proportionally consistent with the vote of the shares of Common Stock not owned by them or ASAC or in accordance with the recommendation, if any, of a majority of the members of our Board not affiliated with ASAC. For more information see “Certain Relationships and Related Transactions—Relationships and Transactions—Relationships and Transactions with ASAC—ASAC Stockholders Agreement” below. As of the record date for the Annual Meeting, ASAC and Messrs. Kotick and Kelly collectively held shares representing approximately 24.2% of our issued and outstanding Common Stock. Messrs. Kotick and Kelly are expected to vote the shares over which they have discretion FOR proposal 2.

 

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DIRECTOR COMPENSATION

General

Directors of Activision Blizzard who are not employed by us or any of our subsidiaries (the “non-affiliated directors”) receive a mix of compensation, which includes an annual cash retainer, specific cash fees for services rendered and equity awards. Affiliated directors do not receive any compensation for their service on our Board in addition to what they receive in connection with their employment. All of our directors are reimbursed by us for expenses incurred in connection with their service on our Board. We also reimburse our directors’ spouses for travel, lodging and related expenses they incur in attending business-related meetings or events at our request, though such occurrences are uncommon. Pursuant to our director compensation program and the Company’s Corporate Governance Principles and Policies, our Board may provide our directors with other benefits, though no such benefits have been provided recently. For example, on rare occasions, if a director’s spouse accompanies him or her on a business trip other than at our request, we may provide that person with travel and lodging at our expense when the incremental cost to us for doing so is negligible.

The Compensation Committee annually reviews the compensation plans and policies applicable to all directors and makes recommendations to our Board regarding those plans and policies as needed. Our executive officers may assist the Compensation Committee in obtaining benchmarking and other information relevant to determining director compensation, but management has no role in recommending or determining the amount or form of director compensation. From time to time, the Compensation Committee engages a compensation consultant to assist it in this review.

The Compensation Committee most recently engaged a compensation consultant in July 2015 to determine whether the director compensation program remained appropriate. The consultant—Exequity—provided the Compensation Committee with a detailed competitive market analysis of non-employee director compensation practices and policies among our peer group. In order to ensure that each component of our non-employee director compensation remained competitive with that provided by the Company’s peer group, the Compensation Committee, consistent with Exequity’s recommendations, recommended that:

On July 28, 2015, our Board approved changes to our director compensation program consistent with the Compensation Committee’s recommendation.

Cash Compensation

The following table sets forth a summary of the cash elements of our director compensation program that was in effect for our non-affiliated directors prior to July 28, 2015 and the cash elements of such director compensation program that has been in effect since July 28, 2015:

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Equity Compensation

Our Board believes that directors more effectively represent our stockholders, whose interests our Board is charged with protecting, if they are stockholders themselves. Each non-affiliated director is entitled, upon his or her election or appointment to our Board and upon each subsequent re-election to our Board, to receive restricted share units representing the right to receive shares of our Common Stock. The grant date value of those restricted share units is $250,000, provided that, in the event of an election or appointment at any time other than at a Board meeting immediately following an annual meeting of our stockholders, the grant of restricted share units will be pro-rated based on the expected amount of time from the date of such election or appointment until the Company’s next annual meeting of stockholders. The actual number of shares underlying the restricted share units is determined by dividing the grant date fair value of the award by the NASDAQ Official Closing Price of our Common Stock on the date of grant. The award of restricted share units is approved by our Board promptly following a non-affiliated director’s election, appointment or re-election to the Board and is made three business days following the date of the first Board’s approval of such grant. Each award vests in four equal installments (on a quarterly basis for the year following the date of grant, subject to continued service on our Board).

Stock Ownership Guidelines

Pursuant to our director compensation program and our Corporate Governance Principles and Policies, each non-affiliated director is required, within four years following his or her initial election to our Board, to beneficially own shares of our Common Stock (including any restricted shares of Common Stock or restricted share units payable in shares of our Common Stock) having an aggregate value at least equal to five times the amount of the annual cash retainer we then pay that director for regular service on our Board. The value of shares owned by each non-affiliated director is calculated as of January 2nd of each applicable year (or if that date is not a trading date, the next trading date) based on the higher of: (a) the NASDAQ Official Closing Price of our Common Stock on that day; and (b) the NASDAQ Official Closing Price of our Common Stock on the date of grant (or if that date is not a trading date, the next trading date), for any shares awarded to the director by us, and the actual cost to the director for any other shares (including shares acquired upon exercise of a stock option). Non-affiliated directors are subject to these guidelines for as long as they continue to serve on our Board. As of January 4, 2016, all non-affiliated directors who, as of that date, had been a member of our Board for four or more years were in compliance with these guidelines.

Indemnification

We maintain a directors and officers insurance policy that insures all of our directors from claims arising out of an alleged wrongful act by them in their capacity as directors of Activision Blizzard. Further, our Certificate of Incorporation and our Bylaws require us to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law.

In addition, we enter into indemnification agreements with certain of our non-affiliated directors that require us, among other things, to indemnify those directors against certain liabilities that may arise by reason of their status or service as directors, provided that they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, our best interests (and, with respect to any criminal action, suit or proceeding, that they had no reasonable cause to believe that their conduct was unlawful). The indemnification agreements also require us to advance expenses incurred by our non-affiliated directors as a result of any proceeding against them as to which they could be indemnified.

Compensation for 2015

The following table sets forth a summary of certain information regarding the compensation of our directors for 2015, other than Mr. Kotick, as the compensation he received as an employee of the Company is included in the “Summary Compensation Table” above, and he does not receive any additional compensation for his Board service. The information in the table reflects Mr. Kelly’s compensation as an employee of the Company, as he receives no additional consideration for his Board service.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Policies and Procedures

Review, Approval or Ratification of Transactions with Related Persons

Related Person Transactions Policy

We have a Related Person Transactions Policy pursuant to which the Audit Committee evaluates transactions, arrangements or relationships (or any series of similar transactions, arrangements or relationships) in which (1) we were, are or will be a participant, whether directly or indirectly, (2) the amount involved exceeds $120,000, and (3) a related person had, has or will have a direct or indirect interest. For the purposes of the policy, a “related person” is (a) any person who is, or was at any time since the beginning of our last fiscal year, a director, a person nominated for election to our Board or one of our executive officers, (b) any person who beneficially owns more than 5% of our Common Stock, or (c) any person who is, or was at any time since the beginning of our last fiscal year, an immediate family member of any person covered by (a) or (b).

Our Related Person Transactions Policy is generally designed to capture any transaction for which disclosure by the Company would be required pursuant to Item 404 of Regulation S-K promulgated under the Securities Act of 1933, as amended.

Under our Related Person Transactions Policy, our Chief Legal Officer is generally responsible for making an initial determination as to whether something is a related party transaction within the meaning of the policy and notifying the Audit Committee if he or she concludes that it is. The Audit Committee evaluates each related person transaction taking into consideration the following factors:

The Audit Committee may approve or ratify the related party transaction if it determines that the transaction is in the best interests of the Company and consistent with law and our Certificate of Incorporation and our Bylaws. If the Audit Committee does not approve or ratify the transaction, it may be voided, terminated or amended by us, if so directed by the Audit Committee.

Code of Conduct and Conflicts of Interest

Our Code of Conduct addresses the handling of actual and potential conflicts of interest between our interests and the interests of our employees, including our executive officers, and our directors, which may include related party transactions. In accordance with our Code of Conduct, such actual or potential conflicts of interest must be disclosed. Once disclosed, our legal department, working with relevant parties, will evaluate the conflict and determine how to manage or resolve it.

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Relationships and Transactions

Relationships and Transactions with Vivendi and its Affiliates

2008 Combination of Activision and Vivendi Games and 2013 Vivendi Share Repurchase Transaction

On July 9, 2008, the business combination (the “Vivendi Games Combination”) by and among the Company (then known as Activision, Inc.), Sego Merger Corporation, a wholly owned subsidiary of the Company, Vivendi, VGAC, a wholly owned subsidiary of Vivendi (“VGAC”), and Vivendi Games, a wholly owned subsidiary of VGAC, was consummated. Vivendi and its subsidiaries owned approximately 54% of the issued and outstanding shares of our Common Stock following the consummation of the Vivendi Games Combination.

On October 11, 2013, we repurchased approximately 429 million shares of our Common Stock, pursuant to a stock purchase agreement (the “Vivendi Share Purchase Agreement”) we entered into on July 25, 2013, with Vivendi and ASAC II LP, an exempted limited partnership established under the laws of the Cayman Islands (i.e., ASAC), acting by its general partner, ASAC II LLC. Pursuant to the terms of the Vivendi Share Purchase Agreement, we acquired all of the capital stock of Amber Holding Subsidiary Co., a Delaware corporation and wholly owned subsidiary of Vivendi (“New VH”), which was the direct owner of approximately 429 million shares of our Common Stock, for a cash payment of $5.83 billion, or $13.60 per share, before taking into account the benefit to the Company of certain tax attributes of New VH assumed in the transaction (collectively, the “Vivendi Share Repurchase Transaction”).

Pursuant to the Vivendi Share Purchase Agreement, on October 11, 2013, immediately following the completion of the Vivendi Share Repurchase Transaction, ASAC, acting by its general partner, ASAC II LLC, purchased 172 million shares of our Common Stock from Vivendi for a cash payment of $2.34 billion (i.e., the ASAC Private Sale). As a consequence, we ceased to be a controlled company.

On May 28, 2014, Vivendi sold approximately 41 million shares, or 50% of its then-remaining shares, of our Common Stock, reducing its ownership in the Company to less than 10%.

On January 13, 2016, Vivendi sold its remaining stake in the Company, consisting of approximately 41 million shares of our Common Stock.

Amended and Restated Investor Agreement

In connection with the consummation of the Vivendi Games Combination, on July 9, 2008, we, Vivendi, VGAC and Vivendi Games entered into an investor agreement. The investor agreement was amended and restated in connection with the consummation of the Vivendi Share Repurchase Transaction. The investor agreement automatically terminated on August 26, 2014, as Vivendi’s voting interest had fallen and remained below 9.9% for a period of more than 90 days on that date.

Our grant of certain registration rights to Vivendi, including demand registration rights with respect to its remaining shares of our Common Stock, and our agreement to indemnify certain parties for certain liabilities in connection with those registrations, survived the termination, although the registration rights effectively expired on January 13, 2016, when Vivendi ceased to own any shares of our Common Stock.

Further, Vivendi’s agreement, subject to certain exceptions, to a standstill under which it may not acquire additional shares of our Common Stock, call a meeting of our stockholders, initiate a stockholder proposal for action by our stockholders or engage in the solicitation of proxies or consents to vote any of our voting securities will survive until July 13, 2016, when Vivendi and its controlled affiliates will have ceased to beneficially own at least 5% of the outstanding shares of our Common Stock for six months.

Tax Sharing Agreement

Also in connection with the consummation of the Vivendi Games Combination, on July 9, 2008, we entered into a tax sharing agreement with Vivendi Games and Vivendi Holding I Corp., a subsidiary of Vivendi (“VHIC”). The tax sharing agreement sets forth various agreements among the parties relating to, among other things:

In addition, the agreement specifies certain procedural matters that will apply in any tax contest with any taxing authority.

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Following the consummation of the Vivendi Share Repurchase Transaction, Vivendi ceased including any of our subsidiaries in its consolidated tax returns. As a result, while the agreement will remain in full force until both parties agree to terminate it in writing, the parties’ sole remaining obligations under the agreement are with respect to prior taxable years. During 2015, neither we nor Vivendi made payments in accordance therewith.

Relationships with Universal Music Group and its Affiliates

Our subsidiaries are party to a number of agreements with Universal Music Group, a wholly owned subsidiary of Vivendi, and its affiliates. These agreements pertain to the licensing of master recordings and compositions for our games and for marketing and promotional purposes. During 2015, we paid an aggregate of $1,469,334 in royalties and other fees to Universal Music Group and its affiliates for those uses. Our subsidiaries are also party to a number of agreements with Universal Music Group and its affiliates pertaining to the distribution of music we own pursuant to which Universal Music Group and its affiliates paid us an aggregate of $198,530 during 2015. Our subsidiaries also paid an aggregate of $838,764 during 2015 to affiliates of Universal Music Group in connection with the production and sponsorship of music events in connection with our business.

Relationships and Transactions with ASAC

Private Sale of Stock by Vivendi to ASAC

Pursuant to the Vivendi Share Purchase Agreement (see “—Relationships and Transactions with Vivendi and its Affiliates—2008 Combination of Activision and Vivendi Games and 2013 Vivendi Share Repurchase Transaction” above), on October 11, 2013, immediately following the completion of the Vivendi Share Repurchase Transaction, ASAC, acting by its general partner, ASAC II LLC, purchased 172 million shares of our Common Stock from Vivendi for a cash payment of $2.34 billion (i.e., the ASAC Private Sale).

ASAC is an investment vehicle formed by Mr. Kotick, our Chief Executive Officer, and Mr. Kelly, the Chairman of our Board. ASAC II LLC, the general partner of ASAC, is managed and controlled by Messrs. Kotick and Kelly, and each of them owns, through his affiliates, 50% of the membership interests of the general partner. Each of Messrs. Kotick and Kelly made, through his affiliates, a $50,000,000 capital contribution to the general partner, which in turn made capital contributions to ASAC in the aggregate amount of $100,000,000 in exchange for preferred and common interests in ASAC. Messrs. Kotick and Kelly, through the general partner, are entitled to exercise the rights of ASAC as a stockholder of Activision Blizzard.

ASAC owned approximately 23% of the issued and outstanding shares of our Common Stock as of December 31, 2015.

ASAC Stockholders Agreement

In connection with the ASAC Private Sale, on October 11, 2013, we, ASAC and, for the limited purposes set forth therein, Messrs. Kotick and Kelly entered into a stockholders agreement (the “ASAC Stockholders Agreement”). The ASAC Stockholders Agreement was amended on May 28, 2015, pursuant to the Settlement Agreement (as defined herein). The ASAC Stockholders Agreement, as so amended, contains various agreements among the parties regarding, among other things:

The agreement will terminate if and when ASAC ceases to own any shares of our Common Stock.

Settlement of Litigation Relating to 2013 Vivendi Share Repurchase Transaction

On December 19, 2014, the Company, as the nominal defendant, entered into a stipulation of compromise and settlement (the “Settlement Agreement”) with respect to the litigation captioned In re: Activision Blizzard, Inc. Stockholder Litigation (the “Lawsuit”) relating to the Vivendi Share Repurchase Transaction and the ASAC Private Sale. Vivendi and ASAC are also party to the Settlement Agreement, as are certain former members of our Board who were appointed to our Board by Vivendi, the members of the special committee of our Board formed in connection with the Company’s consideration of the transaction, Messrs. Kotick and Kelly, and the lead plaintiff, Anthony Pacchia.

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At the time they entered into the Settlement Agreement, Vivendi and ASAC owned approximately 6% and 24%, respectively, of the issued and outstanding shares of our Common Stock.

On May 20, 2015, the Court of Chancery of the State of Delaware entered an order granting final approval of the Settlement Agreement. Pursuant to the Settlement Agreement:

Relationships with Our Directors and Executive Officers

Private Sale of Stock by Vivendi to ASAC

Messrs. Kotick and Kelly are the managers of ASAC II LLC, the general partner of ASAC. In addition, Peter Nolan, a member of our Board, is a senior advisor to Leonard Green & Partners, L.P., one of the limited partners of ASAC. Please see “—Relationships and Transactions with ASAC” above for more information about ASAC.

Waiver and Acknowledgement Letters

Pursuant to, and concurrently with, the signing of the Vivendi Share Purchase Agreement, we and each of Messrs. Kotick and Kelly entered into certain waiver and acknowledgement letters that provided, among other things:

Business Use of Aircraft Indirectly Owned by Our Chief Executive Officer

Mr. Kotick indirectly owns aircraft that are operated by an FAA-certified charter operator he controls. From time to time, Mr. Kotick and our other executives and directors of the Company use these aircraft for travel in connection with our business. We pay for such use an amount that is not greater than 80% of the charter operator’s regular hourly flight charges plus 100% of the actual, third-party costs incurred by the charter operator in obtaining goods and services for the flights. During 2015, the Company paid $1,579,087 for business-related use of these aircraft, including by our executives and directors. Our use of these aircraft was authorized by the Audit Committee, which believes that this arrangement provides us with substantial value because our cost is significantly

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less than the cost we would incur if we were to charter aircraft from another charter operator and pay market rates.

Business Use of Aircraft Indirectly Owned by Our Chairman

During 2015, Mr. Kelly indirectly owned an aircraft that was leased to, and operated by, an independent FAA-certified charter operator. Mr. Kelly’s controlled entity received a set rate from the charter operator for the time that the aircraft was operated, which was approximately 80% of the average market-based rate charged to third parties. From time to time, Mr. Kelly and other executives and directors of the Company chartered this aircraft from the independent FAA-certified charter operator for travel in connection with our business. We paid for such use an amount equal to 100% of the hourly flight rate charged by the charter operator to Mr. Kelly (which is equal to the amount the charter operator paid to Mr. Kelly’s controlled entity) plus 100% of the actual, third-party costs incurred by the charter operator in obtaining goods and services for the flights. During 2015, the Company paid $361,384 for business-related use of this aircraft, including by our executives and directors. Our use of this aircraft was authorized by the Audit Committee, which believes that this arrangement provided us with substantial value because our cost was significantly less than the cost we would have incurred if we were to charter aircraft from another charter operator and pay market rates. 

Employed Family Members

Amy Morhaime, a long-tenured employee of the Company, is the wife of Mr. Morhaime, Blizzard Entertainment’s Chief Executive Officer. In 2015, Ms. Morhaime received an aggregate of $470,944 in cash compensation, consisting of salary and bonuses. She was also awarded (1) 2,385 performance-based vesting restricted share units, the number of which assumes maximum performance (whereas target performance would result in the vesting of 1,908 shares), which vest on March 15, 2019, based upon the level of performance measured by reference to the Company’s adjusted non-GAAP operating income for 2016, 2017 and 2018, and (2) an option to purchase 4,313 shares of our Common Stock, which will vest in three equal installments on each November 13, 2016, 2017 and 2018. The elements of her compensation are consistent with the compensation provided to other employees of the same level with similar responsibilities.

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AUDIT-RELATED MATTERS

Independent Registered Public Accounting Firm Fees

The table below sets forth the categories and amounts (including out-of-pocket expenses incurred by PricewaterhouseCoopers LLP in connection with providing such services and billed to us) paid to PricewaterhouseCoopers LLP for the fiscal years ended December 31, 2015 and 2014.

Pre-Approval Policies and Procedures

In accordance with the Audit Committee charter, the Audit Committee or one or more members of the Audit Committee designated by the chair of the Audit Committee must approve all audit and non-audit services before they are provided by our independent auditors. The Audit Committee has delegated that authority to its chairperson. The Audit Committee’s chairperson has pre-approved services provided by our independent auditors that, while not specifically contemplated by the budget approved by the full Audit Committee, are of a type previously approved by the Audit Committee, provided that the fees with respect to any such service are expected to be less than $50,000. If and when such services are approved by other-than the full Audit Committee, the Audit Committee’s chairperson must report it to the Audit Committee at its next scheduled meeting. At each regularly scheduled Audit Committee Meeting, management updates the Audit Committee on, among other things, the scope and anticipated cost of any service pre-approved by the Audit Committee’s chairperson since the last meeting of the committee. All services provided to the Company by PricewaterhouseCoopers LLP for 2015 were approved by the Audit Committee in accordance with these pre-approval policies and procedures.

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Audit Committee Report

Management is responsible for our system of internal control over financial reporting. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, is responsible for performing an independent audit of our consolidated financial statements and the effectiveness of our internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States), and for issuing a report thereon. The Audit Committee is responsible for overseeing management’s conduct of the financial reporting process and our system of internal control over financial reporting.

The Audit Committee has reviewed and discussed with both management and our independent registered public accounting firm all annual financial statements prior to their issuance. In connection with these reviews, management advised the Audit Committee that each set of financial statements reviewed had been prepared in accordance with generally accepted accounting principles (i.e., GAAP), and reviewed significant accounting and disclosure issues with the Audit Committee. These reviews included discussion with the independent registered public accounting firm of matters required to be discussed pursuant to Public Company Accounting Oversight Board auditing standard AU 380, including the quality of our accounting principles, the reasonableness of significant judgments and the clarity of disclosure in the financial statements. The Audit Committee also discussed with our independent registered public accounting firm matters relating to such firm’s independence, including a review of audit and non-audit fees and the written disclosures and letter from PricewaterhouseCoopers LLP to the Audit Committee as required by applicable requirements of the Public Company Accounting Oversight Board (Independence Discussions with Audit Committees).

Taking all of these reviews and discussions into account, all of the Audit Committee members, whose names are listed below, recommended to our Board that it approve the inclusion of our audited financial statements in our Annual Report on Form 10-K for the period ended December 31, 2015 for filing with the SEC.

 

Members of the Audit Committee

Robert J. Corti (Chairperson), Hendrik Hartong III and Robert J. Morgado

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The Audit Committee of our Board has appointed PricewaterhouseCoopers LLP to serve as the Company’s independent registered public accounting firm for the current fiscal year ending December 31, 2015. Please see “Audit-Related Matters—Independent Registered Public Accounting Firm Fees” above for a description of the services provided to us by PricewaterhouseCoopers LLP during the fiscal years ended December 31, 2014 and 2015.

Our Audit Committee has the responsibility for selecting our auditors, and stockholder approval is not required for the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm. However, we believe that our stockholders should have the opportunity to ratify such appointment and we are requesting that they do so at the Annual Meeting.

Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. They are also expected to be available to respond to appropriate questions.

Required Vote and Board Recommendation

The affirmative vote of the holders of a majority of the shares present in person or by proxy and entitled to vote at the Annual Meeting is required for the approval of proposal 3. In the event our stockholders fail to ratify the appointment, our Audit Committee will reconsider its selection for our next fiscal year. Even if the appointment is ratified, our Audit Committee may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and our stockholders.

Mr. Kotick, our Chief Executive Officer, and Mr. Kelly, the Chairman of our Board, may direct the voting of the shares held by ASAC II LP, an exempted limited partnership established under the laws of the Cayman Islands (i.e., ASAC), and acting by ASAC II LLC, its general partner. Messrs. Kotick and Kelly may also direct the voting of shares they beneficially own at their discretion, except they have agreed to vote any such shares that, when aggregated with ASAC’s shares, represent shares of our Common Stock in excess of 19.9% of the issued and outstanding Common Stock either in a manner proportionally consistent with the vote of the shares of Common Stock not owned by them or ASAC or in accordance with the recommendation, if any, of a majority of the members of our Board not affiliated with ASAC. For more information see “Certain Relationships and Related Transactions—Relationships and Transactions—Relationships and Transactions with ASAC—ASAC Stockholders Agreement” above. As of the record date for the Annual Meeting, ASAC and Messrs. Kotick and Kelly collectively held shares representing approximately 24.2% of our issued and outstanding Common Stock. Messrs. Kotick and Kelly are expected to vote the shares over which they have discretion FOR proposal 3.

 

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BENEFICIAL OWNERSHIP MATTERS

Security Ownership of our Officers and Directors

The following table sets forth information, as of April 1, 2016, with respect to the beneficial ownership of our Common Stock by (1) our named executive officers, (2) each director and each nominee for election as director, and (3) all current executive officers and directors as a group. Unless otherwise noted, the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by such stockholder.

 

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Security Ownership of Holders of More Than 5% of Our Common Stock

The following table sets forth information as to any person (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) known by us to be the beneficial owner of more than 5% of our Common Stock. The information in the table is based on a review of filings made with the SEC on Schedules 13D and 13G and the assumption that each of the persons named in the table continued to own the number of shares reflected in the table on April 1, 2016. As of April 1, 2016, there were 736,943,331 shares of our Common Stock outstanding.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our Common Stock, to file with the SEC initial reports of ownership and reports of changes in beneficial ownership of our Common Stock and other equity securities. Those persons are required by SEC rules to furnish us with copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of Section 16(a) forms furnished to us and written representations from certain reporting persons that no Forms 5 were required, we believe that during 2015, all of our executive officers, directors and persons who beneficially owned more than 10% of our Common Stock complied with all filing requirements of Section 16(a) of the Exchange Act on a timely basis.

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EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth information, as of December 31, 2015, with respect to shares of our Common Stock that may be issued under our existing equity compensation plans.

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DIRECTOR NOMINATIONS AND OTHER STOCKHOLDER PROPOSALS FOR 2017 ANNUAL MEETING; COMMUNICATING WITH OUR BOARD

How do I nominate a director for election at the 2017 annual meeting and what is the deadline for that submission?

Under our Bylaws, stockholders who are entitled to vote at the meeting may nominate a person for election to our Board at the 2017 annual meeting of our stockholders by providing proper notice to us in a timely manner. The stockholder must also be a stockholder of record of Activision Blizzard at the time of the giving of the notice. For such a nomination to be considered timely, we must receive it no earlier than February 6, 2017 and no later than March 8, 2017 (unless the date of our 2017 annual meeting is advanced by more than 30 days or delayed by more than 30 days from the anniversary date of the Annual Meeting, in which case the notice must be submitted no earlier than 120 days prior to the meeting and no later than the later of the 90th day before the meeting and the 10th day following the day on which notice of the date of the meeting is first mailed to the stockholders or public disclosure of the date of the annual meeting is first made, whichever first occurs). To be proper, the notice must be in writing and contain all of the information required by our Bylaws (e.g., a description of any material interest of such person or the stockholder nominating him or her and other information that would be required to be included in our proxy statement for the meeting if such person was nominated by our Board) and include such person’s written consent to being named in the proxy statement as a nominee and to serve as a director if elected.

Any such nomination should be sent to our Corporate Secretary at Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405.

Stockholders may also submit director candidates directly to our Nominating and Corporate Governance Committee for consideration, as described under “Corporate Governance Matters—Board of Directors and Committees—Identification of Candidates for Election to our Board—Stockholder Recommendation of Director Candidates”.

How do I submit a proposal for the 2017 annual meeting and what is the deadline for that submission?

Any stockholder may present a proposal for inclusion in our proxy statement for, and for consideration at, the 2017 annual meeting of our stockholders by submitting his or her proposal to us in writing, in a timely manner. The stockholder must also be a stockholder of record of Activision Blizzard at the time of the giving of the notice. For such notice to be considered timely, we must receive it on or before December 23, 2016 (unless the date of our 2017 annual meeting is advanced by more than 30 days or delayed by more than 30 days from the anniversary date of the Annual Meeting, in which case the proposal must be received a reasonable time before we begin to print and mail our proxy materials for our 2017 annual meeting). For such proposal to be included in our proxy statement, it must otherwise be in compliance with Rule 14a-8 under the Exchange Act (e.g., it must be a proper subject for action by stockholders under the Delaware General Corporation Law).

Stockholders who wish to present proposals before our 2017 annual meeting, but do not intend for those proposals to be included in the proxy statement for that meeting, may utilize the procedure in our Bylaws. Under our Bylaws, such proposals may be made by stockholders who are entitled to vote at the meeting by providing proper notice to us in a timely manner containing the information required by our Bylaws. The stockholder must also be a stockholder of record of Activision Blizzard at the time of the giving of the notice. For such notice to be considered timely, we must receive it within the time period for the submission of director candidates, described under the immediately preceding question. To be proper, the notice must be in writing and contain all of the information required by our Bylaws (e.g., a brief description of the business, the proposed text of any proposal regarding such business, the reasons for conducting such business at the meeting, any material interest in such business of such stockholder and the information that would be required to be included in our proxy statement for the meeting if such proposed business were to be brought by our Board) and it

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must pertain to business that is a proper matter for stockholder action under the Delaware General Corporation Law.

Any such proposal should be sent to our Corporate Secretary at Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405.

How do I communicate with the Board?

We think that communication with our stockholders is very important. To communicate directly with our full Board, our independent directors, any committee of our Board, any other group of directors or any individual director, stockholders may send written correspondence addressed to such director or directors in care of our Corporate Secretary at Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405.

In accordance with our Corporate Governance Principles and Policies, all communications addressed to our Board or one or more directors will be opened by our Corporate Secretary or his or her designee to determine whether the contents contain a message to one or more of our directors. Communications that relate to our accounting practices, internal accounting controls or auditing matters will be referred to the chairperson of the Audit Committee. Any other communications that are not advertising materials, promotions of a product or service, patently offensive materials or matters deemed, in the reasonable judgment of the Corporate Secretary or his or her designee, inappropriate for our Board, will be forwarded promptly to the addressee(s). In the case of communications to our Board or any group or committee of directors, the Corporate Secretary will make sufficient copies of the contents to send to each director who is a member of the group or committee to which the communication is addressed.

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AVAILABILITY OF PROXY MATERIALS ON THE INTERNET; DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS; FINANCIAL AND OTHER INFORMATION

How can I get a copy of the proxy statement if I only received a notice?

In lieu of distributing a printed copy of proxy materials for the Annual Meeting to each of our stockholders, we are making this proxy statement and our annual report for the period ended December 31, 2015 available to our stockholders on the internet. Each of our stockholders who, as of the date on which such notice is mailed, has not requested to receive all proxy materials from us in printed form or via email will receive a notice regarding the internet availability of those materials, which will include instructions on how to access them, as well as how to vote online.

If you received the notice and would prefer to receive a copy of the materials for the Annual Meeting or future annual meetings of our stockholders via email or would prefer to receive a printed copy of those materials via mail, in each case at no charge, please follow the instructions for obtaining the materials on the notice.

What do I do if my family received multiple copies of the proxy materials and only wants one? What do I do if my family only received one copy of the proxy materials but wants one for each member holding stock?

The SEC has adopted rules that permit companies to deliver a single notice regarding the availability of proxy materials on the internet or a single copy of proxy materials to multiple stockholders sharing an address, unless a company has received contrary instructions from one or more of the stockholders at that address. In accordance with those rules, we may deliver a single notice or copy of proxy materials to multiple stockholders sharing an address but, upon request, will promptly deliver a separate notice or a separate copy of proxy materials to one or more stockholders at a shared address to which a single notice or a single copy of proxy materials was delivered. Stockholders may request a separate notice or a separate copy of proxy materials by calling our Investor Relations department at (310) 255-2000 or by mailing a request to our Corporate Secretary at Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405. Stockholders at a shared address who receive multiple notices or multiple copies of proxy materials may request to receive a single notice or a single copy of proxy materials in the future in the same manner as described above.

How can I get a copy of the 2015 annual report or the 2015 10-K?

Our annual report to stockholders for the period ended December 31, 2015, including financial statements, is being provided to our stockholders at the same time as this proxy statement. If you would like to receive a copy of our Annual Report on Form 10-K for the period ended December 31, 2015, or any of the exhibits listed therein, please call our Investor Relations department at (310) 255-2000 or submit a request in writing to Activision Blizzard, Inc., 3100 Ocean Park Boulevard, Santa Monica, California 90405, Attention: Investor Relations, or by email to ir@activision.com, and we will provide you with the Annual Report without charge, or any of the exhibits listed therein upon the payment of a nominal fee (i.e., the expenses we incur in providing you with the requested exhibits).

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OTHER MATTERS

Costs of the Annual Meeting and Proxy Solicitation

The Company will bear the entire cost of the Annual Meeting and this proxy solicitation, including the preparation, assembly, printing and mailing of this proxy statement, the proxy card, the notice regarding the internet availability of proxy materials and any additional solicitation materials we send to stockholders. We will reimburse brokers, banks and other nominees holding shares for beneficial owners of our Common Stock for their expenses in forwarding the proxy materials to those beneficial owners. In addition, proxies may be solicited, personally or by mail, telephone or email or other electronic means, by our directors, officers and regular employees without additional compensation.

Other Matters Coming Before the Annual Meeting

Our Board knows of no matters other than those described in this proxy statement that are expected to come before the Annual Meeting. Pursuant to our Bylaws, the deadline for stockholders to notify us of any proposals or director nominations to be presented for action at the Annual Meeting has passed. The proxy may be voted at the discretion of the named proxies on matters incident to the conduct of the meeting.

YOUR VOTE IS IMPORTANT.

Accordingly, whether or not you plan to attend the Annual Meeting, you are urged to promptly vote your shares by proxy. You may vote your shares by proxy by following the instructions under the heading “Procedural Matters” in this proxy statement. If you attend the Annual Meeting, you may withdraw your proxy and vote in person if you so desire.

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HELPFUL RESOURCES

Web links throughout this document are provided for convenience only, and the content on the referenced websites does not constitute a part of this proxy statement.

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Activision Blizzard, Inc. and Subsidiaries

Reconciliation of GAAP Net Income to Non-GAAP Measures

(Amounts in millions, except earnings per share data)

 

Year Ended December 31, 2015	Operating Income		Net Income		Basic Earnings (Loss) per Share		Diluted Earnings (Loss) per Share
GAAP Measurement	$	1,319	$	892	$	1.21	$	1.19
Less: Net effect from deferral of net revenues and related cost of sales(a)		39		19		0.02		0.02
Less: Stock-based compensation(b)		92		65		0.09		0.09
Less: Amortization of intangible assets(c)		11		8		0.01		0.01
Less: Fees and other expenses related to acquisitions(d)		5		5		0.01		0.01
NON-GAAP MEASUREMENT	$	1,466	$	989	$	1.34	$	1.32
(a) Reflects the net change in deferred revenues and related cost of sales. (b) Includes expense related to stock-based compensation. (c) Reflects amortization of intangible assets from purchase price accounting. (d) Reflects fees and other expenses related to acquisitions, including the acquisition of King, and the debt financings related thereto.

 

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The Company calculates earnings per share pursuant to the two-class method that requires the allocation of net income between holders of our Common Stock and participating security holders. Net income attributable to holders of our Common Stock used to calculate non-GAAP earnings per common share assuming dilution was $977 million for the year ended December 31, 2015 as compared to the total non-GAAP net income of $989 million for the same period.

For the purpose of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 728 million, participating securities of approximately 8 million, and dilutive shares of 11 million during the year ended December 31, 2015.

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

Reconciliation of GAAP Net Income to Non-GAAP Measures

(Amounts in millions, except earnings per share data)

Year Ended December 31, 2014	Net Revenues		Cost of Sales - Product Costs		Cost of Sales - Online Subscriptions		Cost of Sales - Software Royalties and Amortization		Cost of Sales - Intellectual Property Licenses		Product Development		Sales and Marketing		General and Administrative		Total Costs and Expenses
GAAP Measurement	$	4,408	$	999	$	232	$	260	$	34	$	571	$	712	$	417	$	3,225
Less: Net effect from deferral of net revenues and related cost of sales(a)		405		29		-		161		-		-		-		-		190
Less: Stock-based compensation(b)		-		-		(1)		(17)		-		(22)		(8)		(56)		(104)
Less: Amortization of intangible assets(c)		-		-		-		-		(12)		-		-		-		(12)
Less: Fees and other expenses related to the Vivendi Share Repurchase Transaction and related debt financings(d)		-		-		-		-		-		-		-		(13)		(13)
NON-GAAP MEASUREMENT	$	4,813	$	1,028	$	231	$	404	$	22	$	549	$	704	$	348	$	3,286

 

Year Ended December 31, 2014	Operating Income		Net Income		Basic Earnings (Loss) per Share		Diluted Earnings (Loss) per Share
GAAP Measurement	$	1,183	$	835	$	1.14	$	1.13
Less: Net effect from deferral of net revenues and related cost of sales(a)		215		136		0.19		0.18
Less: Stock-based compensation(b)		104		65		0.09		0.09
Less: Amortization of intangible assets(c)		12		8		0.01		0.01
Less: Fees and other expenses related to the Vivendi Share Repurchase Transaction and related debt financings(d)		13		13		0.02		0.02
NON-GAAP MEASUREMENT	$	1,527	$	1,057	$	1.44	$	1.42
(a) Reflects the net change in deferred revenues and related cost of sales. (b) Includes expense related to stock-based compensation. (c) Reflects amortization of intangible assets from purchase price accounting. (d) Reflects fees and other expenses (including legal fees, costs, expenses and accruals) related to the Vivendi Share Repurchase Transaction and related debt financings.

The Company calculates earnings per share pursuant to the two-class method that requires the allocation of net income between holders of our Common Stock and participating security holders. Net income attributable to holders of our Common Stock used to calculate non-GAAP earnings per common share assuming dilution was $1,034 million for the year ended December 31, 2014 as compared to the total non-GAAP net income of $1,057 million for the same period.

For the purpose of calculating earnings per share, we had, on a weighted-average basis, common shares outstanding of 716 million, participating securities of approximately 15 million, and dilutive shares of 10 million during the year ended December 31, 2014.

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

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Reconciliation of GAAP and Non-GAAP Net Revenues by Distribution Channel

(Amounts in millions)

 

		Year Ended
	December 31, 2015				December 31, 2014					$ Increase (Decrease)		% Increase (Decrease)
	Amount		% of Total(1)		Amount			% of Total(1)
GAAP Net Revenues by Distribution Channel
Retail channel	$	1,806	39	%	$	2,104		48	%	$	(298)	(14)	%
Digital online channels(2)		2,502	54			1,897		43			605	32
Total Activision and Blizzard		4,308	92			4,001		91			307	8
Other(3)		356	8			407		9			(51)	(13)
TOTAL CONSOLIDATED GAAP NET REVENUES		4,664	100			4,408		100			256	6
Change in Deferred Net Revenues(4)
Retail channel		(169)				104
Digital online channels(2)		126				301
TOTAL CHANGES IN DEFERRED NET REVENUES		(43)				405
Non-GAAP Net Revenues by Distribution Channel
Retail channel		1,637	35			2,208		46			(571)	(26)
Digital online channels(2)		2,628	57			2,198		46			430	20
Total Activision and Blizzard		4,265	92			4,406		92			(141)	(3)
Other(3)		356	8			407		8			(51)	(13)
TOTAL NON-GAAP NET REVENUES(5)	$	4,621	100	%	$	4,813		100	%	$	(192)	(4)	%
(1) The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due of the impact of rounding. (2) Net revenues from digital online channels represent revenues from digitally distributed subscriptions, licensing royalties, value-added services, downloadable content, micro-transactions and products. (3) Net revenues from “Other” include revenues from our media networks and studios businesses, along with revenues that were historically shown as “Distribution.” (4) We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues. (5) Total non-GAAP net revenues presented also represent our total operating segment net revenues.

 

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Reconciliation of Operating Segments and Consolidated Net Revenues and Income from Operations

(Amounts in millions)

	Year Ended
	December 31, 2015					December 31, 2014					$ Increase (Decrease)			% Increase (Decrease)
	Amount			% of Total(1)		Amount			% of Total(1)
Segment net revenues:
Activision Publishing(2)	$	2,700		58	%	$	2,686		56	%	$	14		(1	)%
Blizzard Entertainment(3)		1,565		34			1,720		36			(155	)	(9	)
Other(4)		356		8			407		8			(51	)	(13	)
Operating segment total		4,621		100	%		4,813		100	%		(192	)	(4	)
Reconciliation to consolidated net revenues:
Net effect from deferral of net revenues		43					(405	)
CONSOLIDATED NET REVENUES	$	4,664				$	4,408				$	256		6	%
Segment income from operations:
Activision Publishing(2)	$	868				$	762				$	106		14	%
Blizzard Entertainment(3)		561					756					(195	)	(26	)
Other(4)		37					9					28		NM
Operating segment total		1,466					1,527					(61	)	(4	)
Reconciliation to consolidated operating income and consolidated income before income tax expense:
Net effect from deferral of net revenues and related cost of sales		(39	)				(215	)
Stock-based compensation expense		(92	)				(104	)
Amortization of intangible assets		(11	)				(12	)
Fees and other expenses related to acquisitions and the Purchase Transaction and related debt financings(5)		(5	)				(13	)
Consolidated operating income		1,319					1,183					136		11
Interest and other expense, net		198					202
CONSOLIDATED INCOME BEFORE INCOME TAX EXPENSE	$	1,121				$	981				$	140		14	%
Operating margin from total operating segments		31.7					31.7	%
(1) The percentages of total are presented as calculated. Therefore the sum of these percentages, as presented, may differ due to the impact of rounding. (2) Activision Publishing publishes interactive entertainment products and contents. (3) Blizzard Entertainment publishes personal computer games and online subscription-based games in the MMORPG category. (4) Net revenues from “Other” include revenues from our Media Networks and Studios businesses, along with revenues that were historically shown as “Distribution.” (5) Reflects fees and other expenses related to acquisitions, including the acquisition of King, and the debt financings related thereto.

 

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